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DEF 14A 1 d285580ddef14a.htm DEF 14A DEF 14A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

(AMENDMENT NO. )

Filed by the Registrant ☒ Filed by a Party other than the Registrant ☐

Check the appropriate box:


☐		Preliminary Proxy Statement

☐		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

☒		Definitive Proxy Statement

☐		Definitive Additional Materials

☐		Soliciting Material under §240.14a-12

AVALARA, INC.

(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)

Payment of Filing Fee (Check the appropriate box):



☒		No fee required.

☐		Fee paid previously with preliminary materials.

☐		Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.

LOGO

Seattle, Washington

April 21, 2022

Dear Shareholders:

You are cordially invited to attend the Avalara, Inc. 2022 annual meeting of shareholders on June 8, 2022, at 10:00 a.m. (Pacific Time). The meeting will be held in a virtual meeting format only, conducted by live webcast accessible at the following website address: https://web.lumiagm.com/238702773. Our Board of Directors has fixed the close of business on April 8, 2022, as the record date for determining those holders of our common stock entitled to notice of and to vote at the 2022 annual meeting of shareholders and any adjournments or postponements thereof.

The Notice of 2022 Annual Meeting of Shareholders and Proxy Statement, both of which accompany this letter, provide details regarding the business to be conducted at the 2022 annual meeting, including proposals for the election of directors nominated by our Board (Proposal No. 1), advisory approval of the 2021 compensation of our named executive officers (Proposal No. 2), and ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2022 (Proposal No. 3).

Our Board recommends that you vote FOR each director nominee named in the accompanying proxy statement under Proposal No. 1 and FOR each of Proposals No. 2 and No. 3.

Your vote is very important. Please vote your shares promptly, whether or not you expect to attend the virtual annual meeting. You may vote by internet or, if you requested printed proxy materials, by mailing a proxy or voting instruction form. If you attend the virtual meeting, you may vote electronically if you wish, even if you previously submitted your vote. If your shares are held through a broker, bank, trustee, or other nominee and you wish to vote or submit questions at the virtual meeting, you must obtain a legal proxy issued in your name from your broker, bank, trustee, or other nominee.

On behalf of our Board, thank you for your continued investment in Avalara.

Sincerely,

LOGO

Scott McFarlane

Chairman and Chief Executive Officer

LOGO

255 South King Street, Suite 1800

Seattle, WA 98104

Notice of 2022 Annual Meeting of Shareholders

The 2022 Annual Meeting of Shareholders of Avalara, Inc. (the “Annual Meeting”) will be held as a virtual meeting only, accessible at https://web.lumiagm.com/238702773, on June 8, 2022, at 10:00 a.m. (Pacific Time) for the following purposes:


1.		To elect four Class I directors, one Class II director, and one Class III director to the Board of Directors. Each Class I director will serve until the 2025 annual meeting of shareholders, the Class II director will serve until the 2023 annual meeting of shareholders, and the Class III director will serve until the 2024 annual meeting of shareholders, or, for each director, the earlier to occur of such director’s death, resignation, or removal as a director or the appointment of such director’s successor;

2.		To approve on an advisory basis the compensation of our named executive officers;

3.		To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2022; and

4.		To transact such other business as may properly come before the Annual Meeting.

Only shareholders of record of our common stock on the record date, which is the close of business on April 8, 2022, will be entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof.

In accordance with Securities and Exchange Commission rules, we are sending a Notice of Internet Availability of Proxy Materials on or about April 21, 2022, and are providing access to our proxy materials over the internet on or before that date, to the holders of record of our common stock as of the close of business on the record date.

You will not be able to attend the Annual Meeting physically. The Annual Meeting will be a completely virtual meeting, which will be conducted through a webcast. Record holders of our common stock and persons holding proxies from such shareholders will be able to participate in, vote online, and submit questions electronically during the Annual Meeting by visiting the website listed above. To vote or submit questions at the Annual Meeting, you will need the control number included on your Notice of Internet Availability of the Proxy Materials, proxy card, or voting instruction form. If you plan to vote or submit questions at the Annual Meeting, please see the instructions for accessing the Annual Meeting on page 60 of the accompanying proxy statement.

By order of the Board of Directors,

LOGO

Alesia Pinney

Executive Vice President, Chief Legal Officer, and Secretary

Seattle, Washington

April 21, 2022

Important Notice Regarding the Availability of Proxy Materials

for the Shareholder Meeting to be Held on June 8, 2022

The accompanying Avalara, Inc. Proxy Statement and the 2021 Annual Report of Avalara, Inc. are available at

http://www.astproxyportal.com/ast/22225

Proxy Summary

This proxy summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement before voting. For more complete information regarding Avalara’s performance in 2021, you should review our annual report on Form 10-K for the fiscal year ended December 31, 2021.

Virtually Attend and Vote at Annual Meeting


Meeting Date	Time	Meeting Website Address	Record Date
June 8, 2022	10:00 a.m. (Pacific Time)	https://web.lumiagm.com/238702773	April 8, 2022

Voting Matters and Board Recommendations


Proposal	Subject Matter	Board Recommendation

Proposal 1	Election of Directors	FOR each nominee

Proposal 2	Advisory Vote to Approve Named Executive Officer Compensation	FOR

Proposal 3	Ratification of Appointment of Independent Registered Public Accounting Firm	FOR

Voting Methods in Advance of the Annual Meeting

Your vote is important. Even if you plan to virtually attend the 2022 annual meeting, please vote right away using one of the following voting methods. Make sure to have your Notice of Internet Availability of the Proxy Materials, proxy card, or voting instruction form in hand and follow the instructions.

About Avalara, Inc.

Avalara helps businesses of all sizes get tax compliance right. In partnership with leading ERP, accounting, ecommerce, and other financial management system providers, Avalara delivers cloud-based compliance solutions for various transaction taxes, including sales and use, VAT, GST, excise, communications, lodging, and other indirect tax types. Headquartered in Seattle, Avalara has offices across the U.S. and around the world in Brazil, Europe, and India.

Highly Qualified Director Nominees

The Board of Directors (the “Board”) currently consists of eleven members serving three-year staggered terms. At the annual meeting four directors are to be elected as a Class I director, one director is to be elected as a Class II director, and one director is to be elected as a Class III director. Each Class I director will serve until the 2025 annual meeting of shareholders, the Class II director will serve until the 2023 annual meeting of shareholders, and the Class III director will serve until the 2024 annual meeting of shareholders, or, for each director, the earlier to occur of such director’s death, resignation, or removal as a Class I, Class II, or Class III director or the appointment of such director’s successor.

LOGO

The Board has nominated or re-nominated the following Class I, Class II, and Class III directors for new three-, one-, or two-year terms, respectively.

Name

Age

Director

Since

Class

Independent

Standing

Committee

Memberships

Primary Occupation

Other Public
Company Boards

Edward Gilhuly

March 2011

Yes

Nominating and Corporate Governance

Partner at Sageview Capital

Legrand

Scott McFarlane

May 2004

None

CEO of Avalara

Tami Reller

July 2014

Yes

Audit; Compensation and Leadership Development

President of

Duly Health and

Care

SPS Commerce

Srinivas Tallapragada

July 2021

Yes

Nominating and Corporate Governance

President & Chief Engineering
Officer of Salesforce

Bruce Crawford

July 2021

Yes

Nominating and Corporate Governance

Senior Vice President,
Strategic Development at
Jacobs

Marcela Martin

September 2021

III

Yes

Audit

CFO of Squarespace

Chegg; Cvent

Key Principles of 2021 Named Executive Officer Compensation Program

See “Compensation Discussion and Analysis” for key compensation matters for 2021, including more detail on the following:



✓ What we do		û What we don’t do

✓ Independent Compensation and Leadership Development Committee ✓ Independent compensation advisor ✓ Evaluate market compensation data; annually review peer group ✓ Use a pay-for-performance philosophy ✓ Reasonable severance ✓ Double-trigger change in control for employment agreements ✓ Maintain stock ownership guidelines ✓ Incentive compensation recoupment policy for our annual and long-term incentive pay programs ✓ Annual succession planning ✓ Annual review of compensation risk and risk mitigation ✓ Regularly review share utilization ✓ Annual Say-on-Pay vote		û No guaranteed bonuses, except new hire inducements û No pension/defined benefit, supplemental executive retirement, or nonqualified deferred compensation plans û No tax reimbursements on severance or change in control payments û No repricing underwater stock options without shareholder approval û No hedging or pledging û No special perquisites to CEO

LOGO

Independent Director Leadership and Balanced Governance Practices

We are committed to good corporate governance appropriate to the company and our shareholders. Highlights include:

✓

Nine independent directors out of eleven directors

✓

Fully independent Board committees with key oversight roles

✓

Lead Independent Director with meaningful authority

✓

Board diversity with four female directors, two of whom are chairs of Board committees, and five demographically diverse directors, including the Lead Independent Director

✓

Average director age of 59, with reasonable tenure

✓

Annual Board and committee performance evaluations

✓

Active Board and committee oversight of operations, strategy, and material risks

✓

No dual class voting stock

✓

No poison pill

✓

Robust governance policies

LOGO

iii

Table of Contents


PROPOSAL NO. 1: ELECTION OF CLASS I, II, AND III DIRECTORS			2

NOMINATIONS PROCESS AND DIRECTOR QUALIFICATIONS			3

Sources of Director Nominations			3

Highly Qualified and Experienced Board			3

Specific Qualifications, Attributes, Skills, and Experience Regarding Our Nominees and Directors			4

CORPORATE GOVERNANCE STANDARDS AND DIRECTOR INDEPENDENCE			8

Corporate Governance Guidelines – Key Principles of our Board			8

Code of Business Conduct and Ethics – Establishing Our Company’s Culture of Compliance			8

Board Leadership Through Partnership of Board Chairperson and Lead Independent Director			8

The Fundamental Role of Risk Oversight by our Board and Committees			9

Environmental, Social, and Governance Oversight			10

Dedicated Board and Committee Members – Meetings and Attendance			10

Lead Independent Director Presides Over Non-Employee Director Meetings			10

Stakeholder Communications with Directors			10

Substantial Majority of Directors Determined Independent			10

BOARD COMMITTEES			12

Audit Committee			12

Compensation and Leadership Development Committee			13

Nominating and Corporate Governance Committee			14

DIRECTOR COMPENSATION			15

CORPORATE RESPONSIBILITY AND SUSTAINABILITY			18

EXECUTIVE OFFICERS			20

COMPENSATION DISCUSSION AND ANALYSIS			21

Executive Summary			21

Executive Compensation Philosophy and Objectives			25

Shareholder Engagement and Responsiveness			25

2021 Compensation-Setting Process			25

Compensation Elements			28

Welfare and Health Benefits			35

Perquisites and Other Personal Benefits			35

Reasonable Severance and Change in Control Benefits			35

Other Compensation Policies Supporting Shareholder Alignment			36

Tax Implications			37

Compensation Risk Assessment			38

REPORT OF THE COMPENSATION AND LEADERSHIP DEVELOPMENT COMMITTEE			39

NAMED EXECUTIVE OFFICER COMPENSATION TABLES			40

2021 Summary Compensation Table			40

2021 Grants of Plan-Based Awards Table			41

Narrative Disclosure to 2021 Summary Compensation Table and Grants of Plan-Based Awards Table			42

2021 Outstanding Equity Awards at Fiscal Year-End			43

2021 Option Exercises and Stock Vested			44

Potential Payments Upon Termination or Change in Control			44

CEO Pay Ratio			50

EQUITY COMPENSATION PLAN INFORMATION			51

PROPOSAL NO. 2: ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION			52

REPORT OF THE AUDIT COMMITTEE OF THE BOARD			53
PRINCIPAL SHAREHOLDERS			54

LOGO



AUDIT COMMITTEE MATTERS			57

Principal Accountant Fees and Services			57

Pre-Approval Policies and Procedures			57

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS			58

PROPOSAL NO. 3: RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2022			59

GENERAL INFORMATION ABOUT THE MEETING			60

ADDITIONAL INFORMATION			64

TRANSACTION OF OTHER BUSINESS			66

LOGO

255 South King Street, Suite 1800

Seattle, WA 98104

PROXY STATEMENT FOR THE 2022 ANNUAL MEETING OF SHAREHOLDERS

Information about Solicitation and Voting

This proxy statement is being furnished to the shareholders of Avalara, Inc. (“Avalara,” “we,” “us,” “our,” or the “Company”), a Washington corporation, in connection with the solicitation of proxies by our Board for use at the annual meeting of shareholders to be held as a virtual meeting only, accessible at https://web.lumiagm.com/238702773, on June 8, 2022, at 10:00 a.m. (Pacific Time) (the “Annual Meeting”), and at any adjournments or postponements thereof. At the Annual Meeting, holders of our common stock will be asked to vote upon: (i) the election of four Class I directors nominated by our Board to serve until the annual meeting of shareholders to be held in 2025, the election of one Class II director nominated by our Board to serve until the annual meeting of shareholders to be held in 2023, and the election of one Class III director nominated by our Board to serve until the annual meeting of shareholders to be held in 2024, or, for each director, the earlier to occur of such director’s death, resignation, or removal as a director or the appointment of such director’s successor; (ii) the advisory approval of the compensation of our named executive officers; and (iii) the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2022. We are not aware of any other matters that will be brought before the shareholders for a vote at the Annual Meeting; however, shareholders may be asked to consider and vote upon other business as may properly come before the Annual Meeting or before any adjournments or postponements thereof. If any other matter is appropriately brought before the Annual Meeting, the persons named in the proxy card intend to vote as the Board recommends or, if the Board gives no recommendation, according to their best judgment, to the extent permitted by applicable law.

The Notice of Internet Availability of Proxy Materials and this proxy statement for the Annual Meeting and the accompanying form of proxy were first distributed and made available on the internet to shareholders on or about April 21, 2022. An annual report for the fiscal year ended December 31, 2021 (the “2021 Annual Report”) is available with this proxy statement and can be accessed by following the instructions in the Notice of Internet Availability of Proxy Materials.

Internet Availability of Proxy Materials

In accordance with U.S. Securities and Exchange Commission (“SEC”) rules, we are using the internet as our primary means of furnishing proxy materials to shareholders. Consequently, most shareholders will not receive paper copies of our proxy materials. We will instead send these shareholders a Notice of Internet Availability of Proxy Materials with instructions for accessing the proxy materials, including this proxy statement and the 2021 Annual Report, and voting via the internet. The Notice of Internet Availability of Proxy Materials also provides information on how shareholders may vote by mail and includes instructions on how to obtain paper copies of our proxy materials if they so choose. We believe this rule makes the proxy distribution process more efficient, less costly, and conserves natural resources.

LOGO

Proposal No. 1: Election of Class I, II, and III Directors

As of the date of this proxy statement, our Board consists of eleven directors. Our articles of incorporation and bylaws provide for a classified Board, divided into three classes. Based on the criteria noted below, our Board has determined, upon the recommendation of the Nominating and Corporate Governance Committee, to nominate or re-nominate four Class I directors, consisting of Mr. Gilhuly, Mr. McFarlane, Ms. Reller, and Mr. Tallapragada, one Class II director, Mr. Crawford, and one Class III director, Ms. Martin, for election at the Annual Meeting. Each Class I director will serve until the annual meeting of shareholders to be held in 2025, the Class II director will serve until the annual meeting of shareholders to be held in 2023, and the Class III director will serve until the annual meeting of shareholders to be held in 2024, or, for each director, the earlier to occur of such director’s death, resignation, or removal as a director or the appointment of such director’s successor. Two of the continuing directors are Class II directors, whose terms will expire at our 2023 annual meeting of shareholders, and three of the continuing directors are Class III directors, whose terms will expire at our 2024 annual meeting of shareholders.

The election of the Class I directors will be determined by the four Class I director nominees receiving the greatest number of “FOR” votes. The election of the Class II director and Class III director will be determined by the Class II director nominee and Class III director nominee, respectively, receiving the greatest number of “FOR” votes for the applicable class.

Each of the nominees has consented to be named in this proxy statement and has agreed to serve if elected. In the event that any nominee is unable or declines to serve as a director at the time of the Annual Meeting, the persons named as proxies may vote for a substitute nominee or nominees designated by the affirmative vote of a majority of the present Board. Alternatively, the Board may leave the position vacant or reduce the size of the Board.

There are no family relationships between any of our directors, nominees, or executive officers. There also are no arrangements or understandings between any director, nominee, or executive officer and any other person pursuant to which he or she has been or will be selected as a director and/or executive officer.

We believe each of the Board’s nominees meets the qualifications, skills, and expertise established by the Board for continuing service on the Board, including regarding areas that are critical to the Company’s strategy and operations. We also believe that such nominees, combined with the qualifications, skills, and expertise of the remaining directors of the Board, will position the Board to continue to serve the best interests of the shareholders and Company.

THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR

THE ELECTION OF EDWARD GILHULY, SCOTT MCFARLANE, TAMI RELLER, AND SRINIVAS TALLAPRAGADA AS CLASS I DIRECTORS, BRUCE CRAWFORD AS CLASS II DIRECTOR, AND MARCELA MARTIN AS CLASS III DIRECTOR.

LOGO

Nominations Process and Director Qualifications

Sources of Director Nominations

Candidates for nomination to our Board are selected by our Board based on the recommendation of our Nominating and Corporate Governance Committee in accordance with the committee’s charter, our articles of incorporation and bylaws, our Corporate Governance Guidelines, and criteria discussed below. The Nominating and Corporate Governance Committee considers current directors for re-nomination. In addition, the committee may engage consultants or third-party search firms to assist in identifying and evaluating potential nominees. The Nominating and Corporate Governance Committee also will consider candidates recommended by shareholders for nomination by the Company for election as directors. In recommending candidates for nomination, the Nominating and Corporate Governance Committee considers candidates recommended by directors, officers, employees, shareholders, and others, using the same criteria to evaluate all candidates.

Nominations by shareholders intending to run a director slate in opposition to Company nominees must be submitted in accordance with our bylaws. Please refer to “Additional Information—Shareholder Proposals for the 2023 Annual Meeting of Shareholders.”

Highly Qualified and Experienced Board

With the goal of developing a diverse, experienced, and highly-qualified Board, the Nominating and Corporate Governance Committee is responsible for developing and recommending to our Board the desired qualifications, expertise, and characteristics of members of our Board, including the specific minimum qualifications that the committee believes must be met by a committee-recommended nominee for membership to our Board and any specific qualities or skills that the committee believes are necessary for one or more of the members of our Board to possess.

Evaluations of candidates generally involve a review of background materials, internal discussions, and interviews with selected identified candidates as appropriate. Candidates for the Board are generally selected based on desired skills and experience in the context of the existing composition of the Board and needs of the Board and its committees at that time, including the requirements of applicable SEC and New York Stock Exchange rules. When considering candidates for nomination, the Nominating and Corporate Governance Committee may take into consideration many factors including, among other things, a candidate’s independence, integrity, skills, financial and other expertise, breadth of experience, knowledge about our business or industry, and ability to devote adequate time and effort to responsibilities of the Board in the context of its existing composition. Directors should possess the highest personal and professional ethics, integrity, and values and be committed to representing the long-term interest of the shareholders.

Although we do not maintain a specific policy with respect to board diversity, we believe that our Board should be a diverse body, and our Nominating and Corporate Governance Committee considers the diversity of its directors and nominees in terms of knowledge, experience, background, skills, expertise, and other demographic factors when considering the nomination of directors and in assessing the performance of our Board and committees during the annual Board and committee evaluation process.

LOGO

Specific Qualifications, Attributes, Skills, and Experience Regarding Our Nominees and Directors

The following table sets forth, as of April 21, 2022, the name and age of each director of the Company and the standing committees of the Board and their members. Messrs. Ingram and McFarlane do not serve on any standing committees:

Director Nominees



Name	Age	Class⁽¹⁾	Audit Committee⁽²⁾	Compensation and Leadership Development Committee	Nominating and Corporate Governance Committee⁽³⁾
Edward Gilhuly	62	I			C
Scott McFarlane	65	I
Tami Reller	57	I	M	M
Srinivas Tallapragada	52	I			M
Bruce Crawford	59	II			M
Marcela Martin	50	III	M
Continuing Directors

Name	Age	Class⁽¹⁾	Audit Committee⁽²⁾	Compensation and Leadership Development Committee	Nominating and Corporate Governance Committee⁽³⁾
William Ingram	65	II
Brian Sharples	61	II		M	M
Marion Foote	76	III	C
Rajeev Singh*	53	III		M
Kathleen Zwickert	54	III		C

Member

Chair

Mr. Singh has served as our Lead Independent Director (as defined below) since October 23, 2019.

(1)

The size of the Board was increased effective July 1, 2021, to eleven directors, consisting of four Class I directors, three Class II directors, and four Class III directors. The terms of Class I directors (if elected) will expire at the 2025 annual meeting of shareholders. The terms of Class II directors will expire at the 2023 annual meeting of shareholders. The terms of Class III directors will expire at the 2024 annual meeting of shareholders.

(2)

Ms. Martin replaced Chelsea Stoner as a member of the Audit Committee effective September 1, 2021, following Ms. Stoner’s departure from the Board.

(3)

Mr. Crawford and Mr. Tallapragada joined the Nominating and Corporate Governance Committee effective July 1, 2021, on which date the size of the committee was increased from three to five directors. Following former director Ms. Stoner’s departure on August 27, 2021, the size of the Nominating and Corporate Governance Committee was reduced to four directors.

LOGO

Board Diversity

The table below provides a summary of our board diversity as of April 21, 2022.


Total Number of Directors: 11
	Female	Male
Part I: Gender Identity
Directors	4	7
Part II: Demographic Background
African American or Black		1
Asian		2
Hispanic or Latinx	1
White (Non-Hispanic)	3	4

Biographies

Class I Director Nominees

Edward Gilhuly has served as a member of our Board since March 2011. Mr. Gilhuly has served as a managing partner at Sageview Capital, a private growth equity investment firm, since May 2006. Mr. Gilhuly currently serves as a director at private companies Anitian, Elastic Path Software, Exaro Energy III, Demandbase, MetricStream, and Pantheon. Mr. Gilhuly serves on the board of Legrand (Euronext Paris: LR) and previously served on the board of directors of GoPro (Nasdaq: GPRO). Mr. Gilhuly also serves on the Board of Trustees of Duke University and is Chairman of the Board of the Duke Management Company. Mr. Gilhuly holds a B.A. in Economics and History from Duke University and an M.B.A. from Stanford University. Mr. Gilhuly was selected to serve on our Board because of his significant experience as a director of public companies, in corporate management, and in private equity and finance.

Scott McFarlane has served as a member of our Board since May 2004 and as the Chairman of our Board since March 2014. He also has served as our Chief Executive Officer since February 2007 and served as our President from March 2014 to March 2019. Mr. McFarlane served as our Chief Operations Officer from May 2004 to October 2010 and as our Secretary from May 2004 to September 2013. Mr. McFarlane currently serves on the board of directors of Expedition Travel Advisor, a private online travel platform for the adventure travel industry. Mr. McFarlane holds a B.A. in Economics from Claremont McKenna College. Mr. McFarlane was selected to serve on our Board because of the perspective and experience he brings as one of our founders and as our Chief Executive Officer.

Tami Reller has served as a member of our Board since July 2014. Ms. Reller has served as President of Duly Health and Care, a health care company, since May 2021. Ms. Reller previously served as Chief Marketing, Digital, and Experience Officer of United Healthcare, a health care company, from November 2017 to April 2021, and Executive Vice President of Optum, a health-services company, from September 2014 to November 2017, including Chief Marketing Officer from September 2014 to June 2016 and Chief Financial Officer from June 2016 to April 2017. Ms. Reller serves as a director of SPS Commerce (Nasdaq: SPSC). Ms. Reller holds a B.S. in Mathematics from Minnesota State University Moorhead and an M.B.A. from St. Mary’s College. Ms. Reller was selected to serve on our Board because of her significant experience with software companies and her corporate finance experience, including through a prior chief financial officer position.

Srinivas Tallapragada has served as a member of our Board since July 2021. Mr. Tallapragada has served as President and Chief Engineering Officer at Salesforce, a cloud-based customer relationship management company, since December 2019. Prior to that, he served as President, Technology since June 2018, Executive Vice President, Engineering from March 2014 to June 2018, and Senior Vice President, Engineering from May 2012 to February 2014.

LOGO

He previously held multiple leadership roles at Oracle and SAP where he led enterprise software development and was responsible for the integration of numerous acquisitions. Mr. Tallapragada holds a B.T. from National Institute of Technology (Warangal, India) and a master’s degree from the school of Human Resources at XLRI, Jamshedpur, India. Mr. Tallapragada was selected to serve on our Board because of his product development and technology expertise.

Class II Director Nominee

Bruce Crawford has served as a member of our Board since July 2021. Mr. Crawford has served as Senior Vice President for Strategic Development, Growth and Sales at Jacobs Engineering, an international technical professional services firm, since November 2020. Mr. Crawford previously served in the United States Army as a Lieutenant General, most recently as the Army’s Chief Information Officer, the principal enterprise IT and cybersecurity policy advisor to the Secretary of the Army and the Army Chief of Staff, from August 2017 until July 2020, and Commander, Communications Electronics Command (CECOM) from May 2014 through April 2017. Mr. Crawford was selected to serve on our Board because of his executive senior leadership background and enterprise information technology and cybersecurity expertise.

Class III Director Nominee

Marcela Martin has served as a member of our Board since September 2021. Ms. Martin has been Chief Financial Officer of Squarespace, the all-in-one website building platform, since November 2020. Ms. Martin previously served as Chief Financial Officer at Booking.com, an online travel platform, from January 2019 to October 2020, Chief Financial Officer at National Geographic Partners from January 2016 to December 2018, including as Chief Accounting Officer from July 2018 to December 2018, and Chief Financial Officer at Fox International from November 1998 to December 2015. Ms. Martin also serves on the board of directors of Chegg (NYSE: CHGG) and Cvent (NASDAQ: CVT). Ms. Martin holds a degree from the University of Morón with expertise in accounting and an M.B.A. from the University of Liverpool. Ms. Martin was selected to serve on our board because of her senior executive leadership background, global finance expertise, and technology industry knowledge.

Class II Directors – Terms Expiring in 2023

William Ingram has served as a member of our Board since January 2020. He previously served as our Chief Financial Officer and Treasurer from December 2015 to March 2020. Prior to joining the Company, he served as Interim Chief Financial Officer of Khan Academy, a provider of online learning resources, from April 2015 to December 2015. Mr. Ingram also held various executive roles at Leap Wireless International, the parent company of Cricket Wireless, a wireless telecommunications provider, including Executive Vice President and Chief of Strategy from August 2007 to March 2014, and with the acquiring company, AT&T, from March 2014 to January 2015. Mr. Ingram currently serves on the board of directors of Paymentus (NYSE: PAY) and CCC Intelligent Solutions (NYSE: CCCS). Mr. Ingram holds a B.A. in Economics from Stanford University and an M.B.A. from Harvard Business School. Mr. Ingram was selected to serve on our Board because of his service as our Chief Financial Officer and Treasurer for over four years, which contributes to the Board’s critical knowledge of our industry, financial reporting and accounting, risk management, and budgeting, as well as his experience specific to the Company’s operations, financial performance, and strategy.

Brian Sharples has served as a member of our Board since April 2020. Mr. Sharples is a serial entrepreneur, angel investor, and advisor to technology and e-commerce companies. He most recently served as Chairman of Twyla, an online fine art marketplace that he co-founded, from October 2016 to December 2018. Mr. Sharples previously served as Chief Executive Officer of HomeAway, a vacation rental marketplace he co-founded, from April 2004 to September 2016, as President from April 2004 to May 2014, and as Chairman from March 2011 to December 2015. He is currently on the board of directors of Yelp (NYSE: YELP), GoDaddy (NYSE: GDDY), and Ally Financial (NYSE: ALLY) and private company RVShare, and previously served as a director of RetailMeNot, HomeAway, and Kayak. Mr. Sharples holds a B.S. in Math and Economics from Colby College and an M.B.A. from the Stanford University Graduate School of Business. Mr. Sharples was selected to serve on our Board because of his senior executive leadership background, technology industry knowledge, and public company experience.

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Class III Directors – Terms Expiring in 2024

Marion Foote has served as a member of our Board since May 2011. Ms. Foote has served as an independent business advisor since January 2012. Ms. Foote currently serves as a director of multiple private companies in the financial services, life sciences, and technology sectors. Ms. Foote previously served as a director of two public companies: DLJdirect (now part of E*Trade) and Cascade Financial Corporation/Cascade Bank (now part of Pacific Premier Bank). Ms. Foote holds a B.A. in Economics from Smith College and an M.B.A. from Harvard Business School. Ms. Foote was selected to serve on our Board because of her significant experience as a director, including service on public company boards and the audit and finance committees of both public and private company boards, her marketing and financial expertise, including service as a senior credit officer, senior vice president and head of specialized financial services, as executive vice president and head of relationship marketing, and as treasurer of a private school and a medical foundation, among other roles, as well as her pioneering work in customer analytics, profitability and experience, and her over four decades of executive experience in financial services and consulting.

Rajeev Singh has served as a member of our Board since March 2017 and as Lead Independent Director since October 2019. Since November 2015, Mr. Singh has served as the Chief Executive Officer and a member of the board of directors of Accolade (Nasdaq: ACCD), an on-demand healthcare concierge for employers, health plans, and health systems. Prior to Accolade, Mr. Singh co-founded Concur Technologies, a global leader in travel and expense management, and held multiple roles over a period of 20 years, including President, Chief Operating Officer, and member of the board of directors. Mr. Singh currently serves on the boards of directors of Amperity, a private company, and Seattle Children’s Hospital Foundation and previously served as a director of Apptio. Mr. Singh holds a B.S. in Manufacturing Administration from Western Michigan University. Mr. Singh was selected to serve on our Board because of his extensive experience in building and leading companies, as well as his background in technology innovation and significant operational and strategic expertise.

Kathleen Zwickert has served as a member of our Board since January 2019. Prior to her retirement in April 2017, Ms. Zwickert served as Chief People Officer at NetSuite (now Oracle NetSuite), a cloud computing company, from August 2013 to April 2017. Ms. Zwickert holds a B.A. in Economics from the University of California, Berkeley. Ms. Zwickert was selected to serve on our Board because of her significant experience with software and SaaS companies and management experience, especially related to talent management and executive compensation.

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Corporate Governance Standards and Director Independence

Corporate Governance Guidelines – Key Principles of our Board

Our Board has adopted Corporate Governance Guidelines that set forth expectations for directors, director independence standards, board committee structure and functions, and other policies for the governance of the Company. Our Corporate Governance Guidelines are posted on our investor relations website, which is located at https://investor.avalara.com, under the heading “Governance.” Our Nominating and Corporate Governance Committee periodically reviews and assesses the adequacy of these guidelines and recommends any proposed changes to the Board for approval.

Code of Business Conduct and Ethics – Establishing Our Company’s Culture of Compliance

Our Board has adopted a Code of Business Conduct and Ethics that applies to all our employees (including executive officers and officers responsible for financial reporting), consultants, and directors. Our Code of Business Conduct and Ethics is posted on our investor relations website, which is located at https://investor.avalara.com, under the heading “Governance.” We intend to disclose any amendments to the Code of Business Conduct and Ethics, or any waivers of its requirements for executive officers and directors, on our website to the extent required by applicable law and New York Stock Exchange requirements.

Board Leadership Through Partnership of Board Chairperson and Lead Independent Director

In accordance with the Company’s bylaws, our Corporate Governance Guidelines provide that the Board may, in its discretion, elect a Chairperson of the Board from among the members of the Board. The Board has no policy mandating the separation of the offices of the Chairperson of the Board and the Chief Executive Officer and believes that it should maintain flexibility in determining a board leadership structure appropriate for us from time to time. However, our Corporate Governance Guidelines require that our Board appoint an independent Lead Director (the “Lead Independent Director”) whenever the Chairperson of the Board is not an independent director.

Our Board believes that we and our shareholders currently are best served by Scott McFarlane, our Chief Executive Officer, also serving as Chairman of our Board, considering his experience, expertise, knowledge of our business and operations, and strategic vision. As Chairman, Mr. McFarlane presides over meetings of the Board and holds such other powers and carries out such other duties as are customarily carried out by the chairperson of a board of directors.

In October 2019, our independent directors appointed Rajeev Singh to serve as our Lead Independent Director. As Lead Independent Director, Mr. Singh presides over periodic meetings and executive sessions of our independent directors, collaborates with the Chairman on agendas, schedules, and materials for Board meetings, serves as a liaison between our Chairman and the independent directors, and performs such additional duties as our Board may otherwise determine and delegate.

Our Board believes that its independence and oversight of management is maintained effectively through this leadership structure, the composition of our Board, independent Board committees with significant authority and oversight, and sound corporate governance policies and practices.

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The Fundamental Role of Risk Oversight by our Board and Committees

Our Board is actively involved in the oversight of our risk management process. Our Board administers this oversight function directly through the Board as a whole, as well as through its standing committees that address risks inherent in their respective areas of oversight. The full Board, or the appropriate committee, receives reports on risks facing Avalara from our Chief Executive Officer and other management regarding our risk identification, management, and mitigation strategies. In particular:



Full Board		• Monitors and assesses strategic risk exposure, including reputational risks, crisis management, and product quality controls • Reviews and approves management’s annual business plan and budget, strategy, and liquidity plans • Reviews business developments, strategic plans and implementation, and financial results on at least a quarterly basis • Reviews capital spending, financings, and capital market activities • Oversees management succession planning • Holds regularly scheduled executive sessions of independent directors • Has significant interaction with business leaders and access to other key employees • Has focused discussions regarding emerging topics

Audit Committee		• Oversees our major financial, treasury, audit, and other business risk exposures enterprise-wide and the steps our management has taken to monitor and mitigate these exposures • Reviews accounting and financial reporting, and disclosure control and internal control processes • Oversees the internal audit, legal, regulatory, and ethical compliance functions • Consults regularly with our independent registered public accounting firm and internal audit function regarding risk management controls

Compensation and Leadership Development Committee		• Reviews and approves or recommends to the Board for approval executive officer compensation • Ensures the alignment of incentive programs with the Company’s business and strategic plans • Reviews whether any of our compensation policies and programs has the potential to encourage excessive risk-taking, and related risk mitigants • Develops, in consultation with the Board and the CEO, long- and short-term management succession plans • Addresses matters related to human capital management for the general employee population

Nominating and Corporate Governance Committee		• Monitors and reviews our corporate governance structure, policies, and procedures, as well as the Board and committee self-assessment process • Oversees director succession planning and refreshment • Oversees director onboarding process and continuing education • Monitors and reviews our risk exposure and risk management policies and procedures dealing with information security matters

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Environmental, Social, and Governance Oversight

Our Board generally oversees our environmental, social, and governance (“ESG”) objectives and supports their implementation. Specific ESG topics are overseen by the Board committee generally responsible for the subject matter. For example, the Nominating and Corporate Governance Committee has oversight responsibility for the corporate governance aspects of ESG. Execution of the Company’s ESG strategy is overseen by the Company’s senior management team. Please see “Corporate Responsibility and Sustainability” below for more information about our ESG efforts and initiatives.

Dedicated Board and Committee Members – Meetings and Attendance

During 2021, our Board held five meetings. Each incumbent director who was on the Board attended at least 75% of the aggregate number of meetings of the Board and the aggregate of all meetings of the committees on which he or she served that were held during the period in which such director served during 2021.

In addition, we encourage directors to attend our annual meetings of shareholders. All directors who then served on the Board attended our annual meeting of shareholders in 2021.

Lead Independent Director Presides Over Non-Employee Director Meetings

The non-employee directors meet in regularly scheduled executive sessions without management. Our Lead Independent Director, currently Mr. Singh, is the presiding director at these meetings.

Stakeholder Communications with Directors

Shareholders and interested parties who wish to communicate with our Board, non-management members of our Board as a group, a committee of our Board, or a specific member of our Board (including our Chairman or Lead Independent Director, if any) may do so by letters addressed to the attention of our Corporate Secretary.

All communications are reviewed by the Corporate Secretary and provided to the members of our Board as appropriate. Unsolicited items, sales materials, abusive, threatening, or otherwise inappropriate materials, and other routine items and items unrelated to the duties and responsibilities of our Board will not be provided to directors.

The address for these communications is:

Avalara, Inc.

c/o Corporate Secretary

255 South King Street, Suite 1800

Seattle, WA 98104

To submit concerns regarding accounting, internal accounting controls, or auditing matters, shareholders and other interested persons may also call the Company’s toll free, confidential hotline (United States and Canada: 833-440-0009; rest of world: 800-603-2869). Employees may submit such concerns on a confidential and anonymous basis. Communications made through the confidential hotline and certain communications to the Board to the extent relating to accounting, internal accounting controls, or auditing matters will be reviewed by the Audit Committee in accordance with procedures established by the Audit Committee with respect to such matters.

Substantial Majority of Directors Determined Independent

Our common stock is listed on the New York Stock Exchange. The listing rules of the New York Stock Exchange generally require that a majority of the members of a listed company’s board of directors be independent. In addition, the listing rules generally require that, subject to specified exceptions, each member of our Audit, Compensation and Leadership Development, and Nominating and Corporate Governance Committees be independent.

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Audit Committee members and Compensation and Leadership Development Committee members also must satisfy additional independence rules established by the SEC and the listing rules of the New York Stock Exchange.

Our Board has reviewed its composition, the composition of its committees, and the independence of each director. Our Board has determined that none of our current directors or directors who served at any time during 2021 has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each is “independent” as that term is defined under the applicable rules and regulations of the SEC and the listing requirements and rules of the New York Stock Exchange, except for Mr. McFarlane by virtue of his position as our Chief Executive Officer and Mr. Ingram by virtue of his former position as our Chief Financial Officer and Treasurer. Accordingly, a majority of our directors are independent, as required under applicable New York Stock Exchange rules. In making this determination, our Board considered the current and prior relationships that each director has or had with us and all other facts and circumstances our Board deemed relevant.

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Board Committees

Our Board has established an Audit Committee, a Compensation and Leadership Development Committee, and a Nominating and Corporate Governance Committee. Our Board may establish other committees to facilitate the management of our business from time to time. Each committee reports on its activities to the full Board at regular meetings or otherwise as appropriate.

Our Board has adopted a written charter for each of the Audit Committee, the Compensation and Leadership Development Committee, and the Nominating and Corporate Governance Committee that satisfies applicable rules of the SEC and the listing standards of the New York Stock Exchange. A copy of the charter for each committee is available on our investor relations website, which is located at https://investor.avalara.com, by clicking on “Committee Charters” under the heading “Governance.” The composition and responsibilities of each of the committees of our Board are described below. Members serve on these committees until their resignation or until otherwise determined by our Board.

The three committees consist solely of independent directors, as determined by the Board for purposes of the Board service generally and, as applicable, the additional independence rules for service on the Audit Committee and Compensation and Leadership Development Committee.

Audit Committee

Our Audit Committee consists of Marion Foote, Marcela Martin, and Tami Reller. The Chair of our Audit Committee is Ms. Foote. Our Board has determined that each of Ms. Foote, Ms. Martin, and Ms. Reller is an “audit committee financial expert” within the meaning of SEC regulations. Our Board also has determined that each member of our Audit Committee has the requisite financial expertise under the applicable requirements of the New York Stock Exchange. In arriving at this determination, our Board has examined each Audit Committee member’s scope of experience and the nature of their employment history. The Audit Committee held nine meetings during 2021.

The Audit Committee’s primary functions include, among other things, the matters set forth below.

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Sole authority for appointing, compensating, retaining, and overseeing our independent registered public accounting firm

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Approving in advance all audit and non-audit services performed by our independent registered public accounting firm in accordance with applicable law, and the payment of related fees

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Evaluating annually the performance, qualifications, objectivity, and independence of our independent registered public accounting firm and deciding whether to retain its services

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Monitoring the rotation of partners on the engagement team of our independent registered public accounting firm

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Reviewing our annual and quarterly financial statements and reports and discussing the statements and reports with our independent registered public accounting firm and management

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Reviewing, with our independent registered public accounting firm, internal audit team, and management, significant issues that may arise regarding accounting principles and financial statement presentation, as well as matters concerning the design and implementation of our internal control functions

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Overseeing our major financial, treasury, audit, and other business risk exposures enterprise-wide and the steps our management takes to monitor and mitigate these exposures

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Reviewing and approving, as appropriate, all related party transactions

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Overseeing management’s establishment and assessment of the effectiveness and adequacy of our internal control structure and procedures for financial reporting

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Establishing procedures for the receipt, retention, and treatment of complaints received by us regarding financial controls, accounting, or auditing matters

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Reviewing legal and regulatory matters that may have a material impact on the financial statements and related Company compliance policies and programs

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Reviewing and evaluating the performance of the Audit Committee and the adequacy of its charter

Compensation and Leadership Development Committee

Our Compensation and Leadership Development Committee consists of Tami Reller, Brian Sharples, Rajeev Singh, and Kathleen Zwickert. The Chair of our Compensation and Leadership Development Committee is Ms. Zwickert. The Compensation and Leadership Development Committee held five meetings during 2021.

The Compensation and Leadership Development Committee’s primary functions include, among other things, the matters set forth below.

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Determining, or recommending to the Board for approval, the compensation of our Chief Executive Officer, and reviewing and approving corporate performance goals and objectives relevant to such compensation

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Reviewing and approving the compensation of our other executive officers

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Reviewing peer group and other market data to evaluate target annual compensation, compensation programs, and plan design against peer companies

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Making recommendations to our Board regarding the compensation of our directors

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Administering our equity incentive compensation plans and making recommendations to our Board regarding the adoption of and amendments to equity incentive compensation plans

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Approving awards under our equity compensation plans, subject to the procedures and guidelines with respect to such awards as adopted from time to time by our Board

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Administering our stock ownership guidelines for executive officers and directors

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Monitoring and assessing risks associated with our compensation policies and consulting with our management on such risks

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Developing, in consultation with the Board and the CEO, leadership development and management succession plans

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Reviewing and evaluating the performance of the Compensation and Leadership Development Committee and the adequacy of its charter

The Compensation and Leadership Development Committee reviews and approves or recommends to the Board for approval all forms of compensation to be provided to the executive officers of the Company, as recommended by the Chief Executive Officer (other than with respect to his own compensation). The Compensation and Leadership Development Committee is not authorized to delegate these duties. The Board has authorized our Chief Executive Officer to make certain equity awards to employees who are not subject to Section 16 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), within limits prescribed by the Board.

Pursuant to its charter, the Compensation and Leadership Development Committee is authorized, in its sole discretion, to retain a compensation consultant to assist the committee in carrying out its duties. For 2021 compensation, as it has done in prior years, the Compensation and Leadership Development Committee retained Compensia, an independent management consulting firm, to assist the Compensation and Leadership Development Committee in discharging its duties. For 2021 executive compensation, the Compensation and Leadership Development Committee retained Compensia to conduct a compensation analysis for executive officers and other executives, to make recommendations for changes based on the Company’s pay philosophy, business objectives, and shareholder expectations, and to support other ad hoc matters throughout the year. Compensia conducted a competitive market analysis that included published national survey sources of similarly sized companies augmented

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by proxy data of our peer group, consisting of companies with revenues of similar size to the Company or that are in similar lines of business. Compensia did not provide any other services to the Company and only received fees from the Company on behalf of the Compensation and Leadership Development Committee.

Nominating and Corporate Governance Committee

Our Nominating and Corporate Governance Committee consists of Bruce Crawford, Edward Gilhuly, Brian Sharples, and Srinivas Tallapragada. The Chair of our Nominating and Corporate Governance Committee is Mr. Gilhuly. The Nominating and Corporate Governance Committee held four meetings during 2021.

The Nominating and Corporate Governance Committee’s primary functions include, among other things, the matters set forth below.

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Reviewing and recommending to our Board criteria for selecting, and recommending persons to serve as, new members of our Board to fill any vacancies

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Reviewing and recommending nominees for our Board, including whether to re-nominate directors

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Considering any nominations of director candidates or shareholder proposals validly made by our shareholders

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Establishing, coordinating, and reviewing with the Chairperson of the Board criteria for the evaluation of Board and committee performance and oversight of the implementation of such process

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Recommending to our Board as to committee membership and chairs

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Reviewing and recommending to our Board corporate governance structure, principles, and policies

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Reviewing and monitoring risks associated with information security matters

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Reviewing and evaluating the performance of the Nominating and Corporate Governance Committee and the adequacy of its charter

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Director Compensation

Under our non-employee director compensation policy (the “Director Compensation Policy”) for 2021, each non-employee director was eligible to receive compensation for his or her service consisting of annual cash retainers and an annual equity award as described below.



Retainer	Amount ($)
Board
Annual base cash retainer		34,000
Annual equity award		200,000
Committee Chair
Audit		20,000
Compensation and Leadership Development		15,000
Nominating and Corporate Governance		9,000
Committee Member
Audit		10,000
Compensation and Leadership Development		7,000
Nominating and Corporate Governance		4,000
Lead Independent Director		18,000

Cash Compensation

Under the Director Compensation Policy, for 2021, all non-employee directors were entitled to receive the cash compensation described above, payable in quarterly installments at the end of the quarter for which services were provided. We generally reimburse our directors for their reasonable out-of-pocket expenses incurred in attending meetings of our Board and its committees.

Equity Compensation

Under the Director Compensation Policy, on the date of each annual meeting of our shareholders, each non-employee director who is a director immediately following the meeting automatically will be granted an equity award. For 2021, the equity award had a value of $200,000, and was granted as restricted stock units (“RSUs”) under our 2018 Equity Incentive Plan, as may be amended from time to time (the “2018 Equity Plan”). The number of RSUs was determined based on the grant date fair value of the award, calculated in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718 (“ASC Topic 718”) (based on the valuation methodology we use to value RSUs for financial reporting purposes). Each annual award vests and becomes payable upon the earlier of the one-year anniversary of the grant date or the day prior to our next annual meeting of shareholders occurring after the grant date, in each case subject to the non-employee director’s continued service through the vesting date, except as permitted below. Each annual award vests and becomes payable upon a change in control, as defined in the 2018 Equity Plan.

In the event that a non-employee director is initially elected or appointed on any date other than the date of an annual meeting of shareholders, the director will automatically receive the annual award on the date of initial election or appointment, except that the value of the award will be prorated to reflect the number of days that the director will serve based on a period of time commencing on the date of initial election or appointment and ending on the one-year anniversary of the previous annual meeting (the “prorated annual award”). In all other respects, the terms and conditions of the prorated annual award, including the vesting schedule, will be the same as the annual award granted to non-employee directors on the previous year’s annual meeting date.

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In the event a non-employee director’s service terminates for any reason other than for cause, as defined in the 2018 Equity Plan, prior to the vesting date of an annual award and the non-employee director has served less than five continuous years as a director, the annual award will become vested as to a pro rata portion based on the number of full months of service that has elapsed between the grant date of the annual award and the non-employee director’s termination date. In the event a non-employee director’s service terminates for any reason other than for cause on or after five years of continuous service, the annual award will become fully vested upon termination. In the event of termination for cause, no portion of the annual award will accelerate in vesting.

2021 Director Compensation Table

The following table provides information regarding total compensation earned by our directors during the fiscal year ended December 31, 2021. Directors who also are our employees, such as Mr. McFarlane, our Chairman and Chief Executive Officer, receive no additional compensation for their service as directors. Mr. McFarlane’s executive compensation for 2021 is presented under “Named Executive Officer Compensation Tables – 2021 Summary Compensation Table.”



Name	Fees Earned or Paid in Cash ($)		Stock Awards⁽¹⁾ ($)		Total ($)
Bruce Crawford⁽²⁾		19,000		184,528		203,528
Marion Foote		54,000		199,877		253,877
Edward Gilhuly		43,000		199,877		242,877
William Ingram		34,000		199,877		233,877
Marcela Martin⁽³⁾		14,587		150,636		165,223
Tami Reller		51,000		199,877		250,877
Brian Sharples		45,000		199,877		244,877
Rajeev Singh		59,000		199,877		258,877
Chelsea Stoner⁽⁴⁾		31,565		199,877		231,443
Srinivas Tallapragada⁽²⁾		19,000		184,528		203,528
Kathleen Zwickert		49,000		199,877		248,877

(1)

Amounts in this column represent the aggregate grant date fair value of RSUs granted during the fiscal year, as computed in accordance with ASC Topic 718.

(2)

Messrs. Crawford and Tallapragada were appointed to the Board on July 1, 2021.

(3)

Ms. Martin was appointed to the Board on September 1, 2021.

(4)

Ms. Stoner resigned from the Board on August 27, 2021.

As of December 31, 2021, non-employee directors held the following number of equity awards: Mr. Crawford, 1,145 RSUs; Ms. Foote, 1,591 RSUs and 4,386 stock options; Mr. Gilhuly, 1,591 RSUs and 1,927 stock options; Mr. Ingram, 1,591 RSUs and 111,615 stock options (of which 109,688 stock options were granted to Mr. Ingram during employment with us as our Chief Financial Officer and Treasurer); Ms. Martin, 809 RSUs; Ms. Reller, 1,591 RSUs and 4,386 stock options; Mr. Sharples, 1,591 RSUs and 2,593 stock options; Mr. Singh, 1,591 RSUs and 4,386 stock options; Mr. Tallapragada, 1,145 RSUs; and Ms. Zwickert, 1,591 RSUs.

Changes to our Director Compensation Policy for 2021

Our Board regularly reviews the total compensation of our non-employee directors and each element of compensation under our Director Compensation Policy to ensure that it remains market competitive and aligned with the interests of our shareholders. Our Board amended the Director Compensation Policy in January 2021 to improve

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alignment of our director compensation practices with those of our peer group and market practice. The changes under the amended policy, all of which were effective for director compensation paid in 2021 and are reflected in the amounts reported in the 2021 Director Compensation Table, are as follows.

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Increased the annual base cash retainer by $2,000

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Increased the annual retainer of the Lead Independent Director by $3,000

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Increased the annual retainer for the Compensation and Leadership Development Committee Chair by $4,000 and Compensation and Leadership Development Committee members by $2,000

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Increased the annual retainer for the Nominating and Corporate Governance Committee Chair by $1,500 and Nominating and Corporate Governance Committee members by $500

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Increased the annual retainer for Audit Committee members by $2,500

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Beginning with the 2021 annual meeting of shareholders, increased the value of the annual equity award by $50,000, which award is granted as RSUs

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Eliminated stock options from annual equity awards

Non-Employee Director Equity Ownership Guidelines

Our Board has adopted stock ownership guidelines for our executive officers and non-employee directors which set minimum stock ownership requirements at a total value equal to five times such director’s annual base cash retainer for Board service. Non-employee directors are expected to initially satisfy the guidelines five years following their initial election or appointment to the Board, or by December 31, 2026, for non-employee directors serving on January 1, 2022. As of April 8, 2022, all our currently serving non-employee directors were either in compliance with the stock ownership guidelines or were within the compliance period and making appropriate progress.

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Corporate Responsibility and Sustainability

Avalara is committed to being a good steward of the environment and social landscapes in which we operate to create a more sustainable world. In 2021, we conducted our first ESG materiality assessment, which will serve as the foundation for our ESG strategy going forward. More information about our ESG efforts and initiatives is available at https://investor.avalara.com.

Our People

Company Culture

We believe our corporate culture provides an advantage in recruiting new employees and retaining our best talent, as well as driving behaviors across our entire organization that help us succeed. This culture is characterized in the many employees who embody our nine success traits: optimism, passion, adaptability, humility, fun, ownership, curiosity, urgency, and simplicity. The rallying point of our culture is the color orange. Our employees wear this color with pride every day, and we have trademarked the slogan “The Power of Orange.”

Employee engagement is critical to our success and a component of our executive and leadership bonus plan. Beginning in 2019, we engaged a leading polling and analytics firm to measure our employee engagement performance and have invested in company-wide initiatives to support our engagement goals. Please see “Compensation Discussion and Analysis—Annual Cash Incentive Bonus – Pay-for-Performance Aligned with Company Strategy” below for more information about the incorporation of employee engagement as a component of our executive and leadership bonus plan. We are committed to continuous improvement through our investments in coaching, mentorship, training, and other initiatives designed to support the well-being and development of our employees. These initiatives include an employee assistance program, commuter benefits, professional training and development platforms and opportunities, tuition reimbursement for eligible employees, and free and subsidized wellness programs.

In response to the COVID-19 pandemic, we launched several initiatives to support our global workforce. We provided a remote work stipend program to our employees. We provided telemedicine resources and facilitated vaccination reimbursement and access in certain locations. We also launched a global COVID hardship fund for employees. To support working parents, we bolstered our existing AvaKids program for the children of full-time Avalara employees to introduce weekly, virtual learning opportunities, programs, and events. The company also hosted virtual employee events, including yoga sessions, trivia games, contests, a global talent show, cooking classes, in addition to sessions on mental health, fitness, and financial well-being. As further support, we also launched an employee resource group for remote workers. To assess the impact of these and other Avalara pandemic initiatives we conducted employee surveys in 2020 and 2021 to help us understand how the company was addressing employee concerns specifically relating to the impact of the pandemic. As we continue to return to office in 2022, we are adopting a flexible work schedule for most of our employees, with a portion of our employees continuing to work fully remotely.

Diversity and Inclusion

We believe in the value of a diverse culture, beginning from the top as demonstrated by the diversity of our Board of Directors, and extending into our commitment to an inclusive and diverse workforce. We have a number of employee resource groups that enhance our inclusive and diverse culture, including Women of Avalara, Veterans of Avalara, Prism (LGBTQ+), Access (disability), Ujima (African American/Black), Hola (Hispanic), and Noonchi (Asian). We continue to recruit technical talent in diverse communities, including by engaging as a sponsor of the annual Grace Hopper Celebration (the world’s largest gathering of women technologists), AfroTech (a multicultural tech conference that brings leaders in technology and business together to exchange ideas and build a strong Black technology community), and Lesbians Who Tech. We require anti-harassment training as part of our new employee onboarding process and regularly for all employees, and we also conduct managing bias training for our leadership and executive teams.

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Environmental Sustainability

Avalara is committed to responsible management of our energy consumption, waste, and recycling methods. We encourage recycling and composting in our offices, provide water dispensers in many of our office locations to encourage use of reusable containers, donate or recycle equipment we no longer use, provide compostable materials and/or reusable dishware and cutlery, and provide a public transportation stipend to employees and encourage alternative modes of transportation. Our offices are located near public transportation hubs and provide end-of-trip amenities including bike storage, locker rooms, and showers. Avalara Hawk Tower, the company’s Seattle headquarters, achieved Silver LEED.

In addition, we are continually looking at ways to include more sustainable practices in our everyday work and are committed to partnering with vendors who share our commitment to strong corporate responsibility and sustainability practices.

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Executive Officers

Our executive officers and their positions and respective ages as of April 21, 2022, are:

Our executive officers and key employees serve at the discretion of the Board. Biographical information for Mr. McFarlane is provided above.

Ross Tennenbaum has served as our Chief Financial Officer and Treasurer since April 2020 and previously served as Executive Vice President of Strategic Initiatives from March 2019 to March 2020. Prior to joining Avalara, Mr. Tennenbaum served as a vice president and later managing director in the technology investment banking division at Goldman Sachs, a financial services firm, from September 2014 to March 2019. Mr. Tennenbaum holds a B.S. with concentrations in Finance and Economics from the University of Florida and an M.B.A. from The Wharton School of the University of Pennsylvania.

Amit Mathradas has served as our President and Chief Operating Officer since March 2019. Prior to joining Avalara, from November 2015 to March 2019, Mr. Mathradas served as General Manager and Head of North American Small Business at PayPal, a digital payments company, where he led the company’s small business segment, managing teams responsible for acquisition, activation, cross-sell, and retention of small businesses. Prior to PayPal, from September 2013 to October 2015, Mr. Mathradas served as Senior Vice President and General Manager of Web.com, an internet services offering, focusing on small businesses. Mr. Mathradas holds a bachelor’s degree from Wittenberg University and an M.B.A. from Northwestern University’s Kellogg School of Management.

Alesia Pinney has served as our Chief Legal Officer (formerly entitled “General Counsel”) since April 2013, our Secretary since September 2013, and an Executive Vice President since March 2014. Ms. Pinney currently serves on the boards of directors of Winc (NYSE American: WBEV), an omni-channel winery, and Sharkbite Games, a private video game development studio. Ms. Pinney holds a B.A. in Business Administration in Accounting from Seattle University, a Master of Taxation from the University of Denver, College of Law, and a J.D. from Seattle University School of Law.

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Compensation Discussion and Analysis

This Compensation Discussion and Analysis provides information about the compensation for the following current executive officers in 2021 (our “named executive officers”), including the material elements of our executive compensation program, an overview of our executive compensation philosophy, and how and why our Compensation and Leadership Development Committee made specific compensation decisions for our named executive officers.

Our 2021 named executive officers are:


Name		Position
Scott McFarlane		Chairman and Chief Executive Officer
Ross Tennenbaum		Chief Financial Officer and Treasurer
Amit Mathradas		President and Chief Operating Officer
Alesia Pinney		Executive Vice President, Chief Legal Officer, and Secretary

Executive Summary

Our Business

Avalara is a leading provider of tax compliance automation for businesses of all sizes. Every business, regardless of size, faces a bewildering and burdensome array of constantly shifting transaction tax collection, reporting, and remittance obligations imposed by a patchwork of local, regional, state, and national taxing authorities. The rise of omnichannel commerce and international trade has increased this compliance burden. Avalara’s mission is to eliminate this burden and allow companies to focus on their core operations. We offer a leading suite of cloud-based solutions to assist companies with transactional tax and related compliance requirements. This multi-product platform – the Avalara Compliance Cloud – consists of calculation, returns, compliance document management, licensing and registration, tax content, and insight solutions. Our vision is for the Avalara Compliance Cloud to be the leading, category-defining, global cloud compliance platform.

2021 Business Results

In 2021, we delivered another strong year of financial performance and execution despite the on-going COVID-19 pandemic and macroeconomic uncertainties, reflecting the adaptability and resiliency of our business. We achieved strong revenue growth driven by the addition of new and expansion of existing customers. Our significant fiscal year 2021 financial and operational results include the following highlights.

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Total revenue was $699.0 million, an increase of 40% year-over-year

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GAAP gross margin was 71%, the same as in fiscal year 2020. Non-GAAP gross margin was 73%, compared to 74% in fiscal year 2020

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GAAP operating loss was $106.6 million, compared to $62.0 million in fiscal year 2020. Non-GAAP operating income, at $5.5 million, was positive for the first time, compared to a non-GAAP operating loss of $3.1 million in fiscal year 2020

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Net cash provided by operating activities was $34.1 million, compared to $42.6 million provided by operating activities in fiscal year 2020. Free cash flow was $12.7 million, compared to $34.0 million in fiscal year 2020. This was our third consecutive year of positive free cash flow

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Total core customers increased to approximately 18,270, up from approximately 15,020 at the end of 2020 (both figures are reflective of the revised methodology described below)

During the second quarter of 2021, we revised our core customer calculation methodology to include revenue from our Streamlined Sales Tax solution, which results in additional customers being included in reported core customers. We define a core customer as a unique account identifier in our U.S. billing systems (multiple companies or divisions

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within a single consolidated enterprise that each have a separate unique account identifier are each treated as separate customers); that is active as of the measurement date; and for which we have recognized, as of the measurement date, greater than $3,000 in total revenue during the previous twelve months.

To supplement our results determined in accordance with GAAP, we provide investors with certain non-GAAP financial measures, including non-GAAP gross margin, non-GAAP operating income (loss), and free cash flow. For a full reconciliation for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP, please see pages 51-54 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Return to Shareholders

We have delivered significant cumulative total return, as evidenced by the chart below, which shows how a $100 investment in Avalara on June 15, 2018 (the date our common stock commenced trading on the New York Stock Exchange) would have grown to $287.29 on December 31, 2021. The chart also compares the cumulative total return on an investment in our common stock to the same investment of $100 in the S&P 500 Index and the RDG Software Composite over the same period.

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The stock price performance graph is not necessarily indicative of future price performance.

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2021 Executive Compensation Highlights

In 2021, we took the following key actions with respect to named executive officer compensation:



Use of Peer Group Data		• We utilized a formal peer group and other market data as a reference point in setting target annual compensation elements, total target annual compensation, and other elements of our executive compensation program.

Changes to Target Cash Compensation		• Base salary increases (ranging from 0% to 15%) were primarily to ensure competitive base salaries among the peer companies with whom we compete for talent. • Target annual bonuses, as a percentage of each named executive officer’s annual base salary, were unchanged from their prior respective percentages. • The base salary of our Chief Executive Officer, Mr. McFarlane, increased by 15% to $575,000 to remain market-competitive.

Pay-for-Performance for Annual Incentive Bonus		• The cash-based 2021 annual executive and leadership bonus plan (“2021 Incentive Plan”) continued the historical practice of setting performance goals that were challenging and designed to appropriately incentivize strong performance. Actual bonus payouts for executives can vary below and above target, depending on Company performance against the performance metrics. • Earned bonuses for the named executive officers ranged from 121% to 122% of their target bonuses. Mr. McFarlane earned 121% of his target annual incentive bonus for 2021.

Long-Term Equity Grants		• Long-term equity awards that vest over multiple years comprise the largest component of each named executive officer’s compensation. Beginning in 2021, to further demonstrate our pay-for-performance commitment, we granted performance share units (“PSUs”) to the named executive officers that vest only upon achievement of financial performance goals and ceased granting stock options to employees, including the named executive officers. • Mr. McFarlane’s aggregate grant date fair value for 2021 target equity awards was approximately $10,000,000, consisting of 60% PSUs and 40% time-vested RSUs, to directly link a material portion of his long-term incentives to both our operational success and stock price performance.

Incentive Compensation Recoupment Policy		• We adopted an incentive compensation recoupment policy for our executive officers that applies to our annual and long-term incentive pay programs.

No CEO Perquisites		• Certain perquisites to Mr. McFarlane were discontinued at the end of 2020 and in 2021 he did not receive any perquisites or benefits not available on the same basis to all our U.S. employees.

Executive Compensation Policies and Practices

We seek to maintain executive compensation policies and practices that reflect sound governance standards. Our Compensation and Leadership Development Committee evaluates our executive compensation program on a regular basis to ensure that it is consistent with our short-term and long-term goals, given the nature of our business and the competitive market in which we compete for executive talent.

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_✓ What we do		_û What we don’t do

✓ Independent Committee. The Compensation and Leadership Development Committee consists solely of independent directors. ✓ Independent Compensation Advisor. The Compensation and Leadership Development Committee engages an independent compensation consultant. ✓ Use of Peer Group and Market Compensation Data. We review compensation data of peer companies, supplemented by other market data, to ensure competitive positioning while retaining significant flexibility. The Compensation and Leadership Development Committee annually reviews the composition of our peer group. ✓ Pay-for-Performance Philosophy. Annual incentive compensation is at-risk and tied to achievement of financial and operational goals. 80% of our named executive officers’ target cash bonus is based on objective corporate performance measures. PSUs payable only if financial performance goals are met over a multi-year period were introduced in 2021. While no stock options were granted in 2021, outstanding stock options tie value to stock price appreciation. ✓ Reasonable Severance. We have reasonable, market competitive severance and change in control benefits. ✓ Double-Trigger Change in Control for Employment Agreements. Our employment agreements provide change in control benefits only upon certain qualifying terminations. ✓ Robust Stock Ownership Guidelines. We require all executive officers and directors to maintain minimum stock ownership at significant levels to reinforce management alignment with shareholders. Stock options do not count toward the minimum stock ownership level. ✓ Incentive Compensation Recoupment Policy. In 2021, we adopted an incentive compensation recoupment policy for our executive officers that applies to our annual and long-term incentive pay programs. ✓ Annual Succession Planning. The Compensation and Leadership Development Committee annually reviews and discusses with the Board the retention of executive officers and oversees succession planning. ✓ Annual Review of Compensation Risk and Risk Mitigation. The Compensation and Leadership Development Committee annually reviews our compensation programs to confirm that they do not encourage excessive or inappropriate risk-taking. Our compensation program mitigates undue risk by including caps on the maximum level of payouts, multiple performance metrics, and Board and management processes to identify risk. ✓ Regular Reviews of Share Utilization. Management and the Compensation and Leadership Development Committee regularly evaluate share utilization levels by reviewing the cost and dilutive impact of equity compensation. ✓ Annual Say-on-Pay Vote.		û No Guaranteed Bonuses. We do not provide guaranteed bonuses, except for limited inducements for new hires. û No Pension/Defined Benefit or Supplemental Executive Retirement Plans. û No Tax Reimbursements on Severance or Change in Control Payments. û No Repricing of Underwater Stock Options without Shareholder Approval. û No Hedging or Pledging Permitted. We prohibit our employees, including our executive officers, and non-employee members of our Board from hedging or pledging our securities. û No Special Perquisites to CEO. We discontinued the perquisites previously provided to our Chief Executive Officer, except for those available on the same basis to all U.S. employees.

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Executive Compensation Philosophy and Objectives

The Compensation and Leadership Development Committee recognizes that our compensation philosophy must address the shared interests and varied focus areas of multiple parties, including employees, the Board, shareholders, and other stakeholders. Our executive compensation program is designed to achieve the following primary objectives.

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Attract, motivate, and retain highly qualified executive officers committed to our success and future growth

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Reward the achievement of key performance measures that are linked to the Company’s business strategy

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Reinforce alignment of management with the goal of creating long-term shareholder value

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Maintain reasonable internal pay parity, but reward outstanding individual, team, and Company results

The Compensation and Leadership Development Committee seeks to set both individual pay components and total compensation competitively. While market data is reviewed for context, actual pay decisions reflect the Compensation and Leadership Development Committee’s discretion and judgment based on the following factors.

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Scope of role, promotion, impact on organization, individual performance, experience, skills, and criticality

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Company performance on key metrics

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Pay parity considerations across different executives at similar levels, scope, and experience

Shareholder Engagement and Responsiveness

2021 Say-on-Pay Results and Engagement with Shareholders

Company management, the Compensation and Leadership Development Committee, and the Board value the opinions of our shareholders. We hold an annual advisory vote on executive compensation and received approximately 96% shareholder support for our 2021 Say-on-Pay vote. We interpret last year’s results as support by our shareholders for our executive compensation program, including as a result of the changes we made for 2021 compensation following shareholder feedback after our first shareholder Say-on-Pay vote in 2020.

Changes made for 2021 executive compensation following shareholder feedback include granting performance-based awards that are payable only if threshold performance goals are met over a multi-year period, discontinuing perquisites to our Chief Executive Officer, and increasing disclosure to shareholders about our annual cash incentive compensation.

The 2021 changes are reflected in the compensation disclosures in this year’s proxy statement.

We will continue to take into consideration the results of the annual advisory votes on our executive compensation program. The Compensation and Leadership Development Committee and management will continue to review the Company’s executive compensation program and related disclosure with the assistance of outside compensation consultants to identify any potential changes that might augment shareholder value, support shareholder alignment, and continue to meet the Company’s objectives.

2021 Compensation-Setting Process

Role of Compensation and Leadership Development Committee

The Compensation and Leadership Development Committee reviews and approves or recommends to the Board for approval all forms of compensation to be provided to the executive officers of the Company. The Compensation and Leadership Development Committee also has overall responsibility for overseeing our compensation and benefits policies generally, and overseeing and evaluating the compensation plans, policies, and practices applicable to our Chief Executive Officer and other executive officers.

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Role of Compensation Consultant

For 2021, the Compensation and Leadership Development Committee retained Compensia, a compensation consulting firm, to continue to serve as its compensation consultant and approved the terms of such engagement. Compensia has been engaged as a compensation consultant since 2013. Among other matters impacting our 2021 compensation program for named executive officers, Compensia assisted in establishing our 2021 peer group, evaluated our compensation philosophy, provided a total direct compensation analysis for executive officers and other senior management based on our peer group and other market data, made recommendations on compensation for newly hired executives, and made suggestions regarding target compensation and compensation programs based on our pay philosophy, business objectives, and shareholder alignment.

Role of Management

The Compensation and Leadership Development Committee also works with members of our management, including our Chief Executive Officer. Our management assists the Compensation and Leadership Development Committee by providing information on corporate and individual performance, and management’s perspective and recommendations on compensation matters, including performance metrics and programs generally.

Typically, our Chief Executive Officer will make recommendations to the Compensation and Leadership Development Committee regarding compensation for our executive officers, except with respect to his own compensation. The Compensation and Leadership Development Committee utilizes our Chief Executive Officer in this capacity because he has the most involvement in, and knowledge of, the Company’s business goals, strategies, and performance, the overall effectiveness of the management team, and each person’s individual contribution to the Company’s performance. Other key leaders also provide valuable context for the Company’s human capital management efforts as well as an understanding of peer group and general market practices regarding compensation. At the beginning of each year, our Chief Executive Officer reviews the performance of each of our other executive officers based on the executive officer’s level of success in accomplishing the business objectives established for him or her for the prior year and his or her overall performance during that year, as well as potential for advancement, retention needs, and other subjective factors. The Compensation and Leadership Development Committee reviews and discusses these factors and recommendations with our Chief Executive Officer and uses them as one factor in determining and approving the compensation for our executive officers. Our Chief Executive Officer also attends meetings of our Board and the Compensation and Leadership Development Committee at which executive compensation matters are addressed to the extent requested, except with respect to discussions involving his own compensation. Decisions with respect to our Chief Executive Officer’s compensation are made by our Compensation and Leadership Development Committee in executive session or, as in 2021, by the full Board except Mr. McFarlane.

Use of Comparative Peer Group and Market Data

For purposes of assessing our executive compensation against the competitive market as well as our compensation programs, plan design, and total equity utilization, the Compensation and Leadership Development Committee reviews and considers the compensation levels and practices of a select group of peer companies. The 2021 peer group consists of technology companies that are similar to us based on revenue, market capitalization, industry sector, and other relevant factors. The Compensation and Leadership Development Committee intends to review our compensation peer group each year and adjust its composition if warranted. The companies in the 2021 peer group were determined, in consultation with Compensia, using the following criteria.

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Revenue: approximately 0.4x to 2.5x of our last four fiscal quarter revenue as of the quarter ended June 30, 2020, of approximately $434 million (approximately $174 million to $1.1 billion)

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Market Capitalization: approximately 0.33x to 3.0x of our market capitalization as of August 2020 of approximately $10.6 billion (approximately $3.5 billion to $31.8 billion)

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Industry Sector: cloud-based software companies (primary focus) and other software companies (secondary focus)

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Other Factors: high revenue growth, high market capitalization to revenue multiple, business-to-business model, and located in Pacific Northwest or Silicon Valley

In selecting the following 2021 peer group, the Compensation and Leadership Development Committee included companies that resulted in us being near the median of the group, in terms of both revenue and market capitalization.


Alteryx	DocuSign	Paycom Software	The Trade Desk
Anaplan	Dynatrace	Paylocity Holding	Twilio
AppFolio	Five9	Q2 Holdings	Vertex
BlackLine	HubSpot	RingCentral	Zendesk
Coupa Software	New Relic	Smartsheet

The following companies in the 2020 peer group were not selected for the 2021 peer group due to financial characteristics and location: Cornerstone OnDemand, PROS Holdings, Workiva, and Zuora. The following companies were added to the 2021 peer group for the same reasons: Dynatrace, Five9, The Trade Desk, and Vertex.

Compensation Setting

In setting the elements of compensation for our named executive officers, the Compensation and Leadership Development Committee reviewed the base salaries, annual incentives, total cash compensation, long-term incentives, and total direct compensation of our named executive officers compared to those compensation elements for similarly situated executives at the companies in our compensation peer group. To analyze the compensation practices of our peer group, Compensia provided compensation data at the 25th, 50th, and 75th percentiles for our compensation peer group.

This compensation data was then used as a reference point for the Compensation and Leadership Development Committee to assess our current compensation levels in the course of its deliberations on compensation forms and amounts. The Compensation and Leadership Development Committee maintains significant flexibility to respond to evolving business conditions and to determine individual pay and did not benchmark any compensation element to a specific percentile. Rather, the Compensation and Leadership Development Committee relies on its collective experience and knowledge, its past practices, our overall performance, and other considerations it deems relevant when setting our executives’ compensation. See the factors set forth above under “—Executive Compensation Philosophy and Objectives.” No single factor is determinative in setting compensation levels, nor is the impact of any individual factor on the determination of pay levels quantifiable. We also consider potential risks in our business when designing and administering our executive compensation program.

We review the base salary levels, annual cash bonus opportunities, and long-term equity incentive compensation opportunities of our executive officers and all related performance criteria at the beginning of each year, or more frequently as warranted.

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Compensation Elements

Key Elements, Objectives, and Features of Compensation Elements

In 2021, our executive compensation program included base salaries, annual incentive bonuses, and long-term equity compensation in the form of PSUs and RSUs. As mentioned above, PSUs that are earned based on financial performance goals were introduced in 2021 as a new long-term equity award in replacement of stock options. The below table describes how each component is intended to satisfy the primary objectives of our executive compensation program.



Element	Type	Compensation Form	Objectives	Key Features

*Base Salary*	Fixed	Cash	• Designed to attract and retain highly talented executives by providing fixed compensation amounts that are competitive in the market	• Initially established at hire pursuant to employment agreement • Reviewed annually • Historically year-to-year changes have been limited and based upon peer group benchmarking and discretionary factors

*Annual Cash Incentive Bonus*	Variable	Cash	• Designed to promote the success of the Company by rewarding executives and eligible employees for outstanding results related to Company strategy, as well as motivating and retaining high performing employees	• Bonus target as a percentage of base salary • 80% based on corporate performance metrics (three core financial metrics and one customer metric) and additional performance measures that can increase payout • 20% based on an individual performance metric

Long-Term Equity Incentive Compensation	Variable		• Designed to align the long-term interests of our executives and our shareholders, support retention, encourage equity ownership, and provide motivational value

		RSUs	• RSUs provide full value upon vesting to address retention needs	• For 2021, 40% of target equity award for CEO and 50% for other executive officers, with four-year time-based vesting

		PSUs	• Vest based on achievement of revenue goals over a three-year measurement period (with certain annual interim vesting possible)	• For 2021, 60% of target equity award for the CEO and 50% for other executive officers

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Base Salary

Generally, we establish the initial base salaries of our executive officers through arm’s-length negotiation at the time of hire, taking into account their position, qualifications, experience, prior salary level, and the base salaries of our other executive officers. Thereafter, the Compensation and Leadership Development Committee reviews the base salaries of our executive officers each year as part of its annual compensation review.

In January 2021, the Compensation and Leadership Development Committee conducted its annual compensation review. The Compensation and Leadership Development Committee approved a base salary increase for Messrs. McFarlane and Tennenbaum and Ms. Pinney, each effective April 1, 2021, to bring their base salaries to levels that were competitive with those of similarly situated executives at the companies in our 2021 peer group.



Name	2020 Annual Base Salary ($)		2021 Annual Base Salary ($)		Increase (%)
Scott McFarlane		500,000		575,000		15
Ross Tennenbaum		380,000		420,000		10.5
Amit Mathradas		450,000		450,000		-
Alesia Pinney		335,000		375,000		11.9

Annual Cash Incentive Bonus – Pay-for-Performance Aligned with Company Strategy

In January 2021, the Compensation and Leadership Development Committee, with input from management, adopted our 2021 Incentive Plan, which was designed to promote the success of the Company by rewarding executives and eligible employees for outstanding business results, as well as promoting retention of high performing employees. A significant portion of the 2021 Incentive Plan was based on the Company’s actual achievement against pre-established target levels for corporate performance measures. An executive’s annual cash bonus payment is determined by multiplying the executive’s target bonus percentage by the percentage earned, based on the levels at which the applicable performance goals are achieved.

For purposes of the 2021 Incentive Plan, target annual incentive opportunities were set as a percentage of each participant’s base salary. In January 2021, the Compensation and Leadership Development Committee reviewed the target annual cash bonus opportunities of our executive officers, taking into consideration the recommendations of our Chief Executive Officer (except with respect to his own target annual cash bonus opportunity) as well as other factors described under “—Executive Compensation Philosophy and Objectives” above. Following this review, the Compensation and Leadership Development Committee decided to maintain all executive officers’ target annual incentive opportunities at their 2020 percentages. The dollar amount of the bonus targets increased for executive officers to the extent base salaries were increased, as described above.

The 2021 target annual incentive opportunities for our named executive officers were:



Name	2021 Target Annual Cash Incentive Opportunity (% of base salary)		2021 Target Annual Cash Incentive Opportunity ($)⁽¹⁾
Scott McFarlane		100		556,250
Ross Tennenbaum		75		307,500
Amit Mathradas		85		382,500
Alesia Pinney		60		219,000

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Target annual cash incentive is based on salary actually paid during 2021.

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Corporate Performance Measures

The Company used four corporate performance metrics to measure corporate performance under the 2021 Incentive Plan. The metrics were:

(i) new and upsell bookings (defined as an estimate of the 12-month value of new or upgraded signed contracts for our services);

(ii) non-GAAP gross margin (defined as GAAP gross margin before the impact of stock-based compensation expense and the amortization of acquired intangibles included in cost of revenue as a percentage of revenue);

(iii) non-GAAP operating income (loss) (defined as GAAP operating loss before stock-based compensation expense, amortization of acquired intangibles, and goodwill impairments); and

(iv) a metric reflecting customers at risk (a customer health metric, which is recalibrated from time to time and serves as a leading indicator of customer satisfaction, measured both as an average during 2021 to promote improvement throughout the year and at year-end to promote a good starting state for 2022).

New and upsell bookings reflects the expected 12-month value for software subscriptions, non-recurring services, and estimated annual values for certain non-subscription offerings that are deemed to be recurring in nature. New and upsell bookings is a non-GAAP metric that may not be a reliable indicator of future revenue and revenue growth due to timing differences between bookings and revenue recognition and accuracy of estimated values, among other factors.

Collectively, these four components comprise 80% of the participant’s total target performance bonus, each weighted at target as set forth below. The Compensation and Leadership Development Committee believes that these metrics provide incentives to achieve, and are strong indicators of our successful execution of, our annual operating plan. GAAP revenue was a metric under the 2020 Incentive Plan but was removed from the 2021 Incentive Plan as a result of becoming a performance metric for the PSUs first granted in 2021. We increased the weight of new and upsell bookings to 25% to reflect our emphasis on growth and weighted the remaining metrics substantially equally.

Achievement of each performance metric is determined independently of any other metric. Achievement of target level for a corporate performance metric results in 100% funding for that corporate performance metric. Achievement between the threshold and maximum performance for a metric results in a bonus funding percentage on a sliding scale between 25% and 200% of target, respectively, for such corporate performance metric. In January 2021, our Compensation and Leadership Development Committee set the payout levels for each of the corporate performance metrics, as set forth below. The Compensation and Leadership Development Committee considered the target performance levels challenging but achievable.

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The payouts at different percentages of achievement for each of the 2021 corporate performance metrics were:


2021 Corporate Performance Metrics ($ in 000s)
Metric	25% (threshold)			50%			75%			100% (target)			150%			200% (maximum)		Weight in Corporate Performance Metric

New and Upsell Bookings	$	264,922		$	268,761		$	273,881		$	279,000		$	291,798			$302,037		25%

Non-GAAP Gross Margin		71.5%			72.0%			72.5%			73.0%			74.0%			75.0%		18.3%

Non-GAAP Operating Income (Loss)		($25,000	)		($23,000	)		($21,000	)		($19,000	)		($10,000	)		$0		18.3%

Customers at Risk 2021 Average		19.44			19.05			18.65			18.25			17.66			17.06		9.2%

2021 Year-End		19.05			18.45			17.66			16.86			16.07			15.67		9.2%

Corporate Metrics Weight in Total Target Performance Bonus																			80%

Once the total percentage achievement of the corporate performance metrics is determined, this percentage may be increased if certain additional performance metrics, referred to as “accelerators,” are satisfied. Specific accelerators are selected to incent behaviors consistent with high-performing teams and the achievement of critical business objectives that facilitate long-term success. For 2021, two accelerators applied: (i) employee engagement at or above 4.26 out of 5.00 by the end of 2021, measured by a leading third-party polling and analytics firm; and (ii) net revenue retention at 114% or above. Achievement of an accelerator results in a 15% increase in the aggregate funding percentage of the corporate performance component. For example, if achievement of the four corporate performance metrics is calculated to be at 120% and one accelerator target is met (i.e., 15%), final Company performance would be at 138%.

Individual Performance

Under the 2021 Incentive Plan, an evaluation of each executive officer’s individual performance comprises 20% of the total target performance bonus. Generally, this evaluation involved, in the case of our Chief Executive Officer, an evaluation of his performance by the Compensation and Leadership Development Committee and the Board and, in the case of our other executive officers, an evaluation by our Chief Executive Officer and discussion with the Compensation and Leadership Development Committee. These evaluations were based on a review of the various individual performance goals established for our executive officers during our annual performance evaluation process. Such performance goals reflect each individual executive officer’s position or function within the Company and included factors that reflected corporate or departmental goals or specific operational goals within an executive officer’s area of responsibility. Generally, individual performance is based on a determination of whether the individual is a high contributor (100% to 130% payout of the individual performance factor), core contributor (up to 100% of the individual performance factor), or low contributor (0% to 50% of the individual performance factor).

2021 Annual Cash Bonus Determinations

In January 2022, the Compensation and Leadership Development Committee, based on its evaluation, as well as the recommendation of our Chief Executive Officer for certain components, determined the cash bonus payments for our executive officers pursuant to the 2021 Incentive Plan. The plan requires participants to be actively employed as of the bonus payment date, which was March 15, 2022.

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The Compensation and Leadership Development Committee reviewed our actual performance against the total corporate performance metrics and determined that we had achieved 122% funding for the portion of the bonus relating to corporate performance.



Metric	100% (target)			Actual Results		Earned (%)
New and Upsell Bookings ($ in 000s)	$	279,000		$	279,057		100.2	%
Non-GAAP Gross Margin		73.0%			73.49%		124.5	%
Non-GAAP Operating Income (Loss) ($ in 000s)	($	19,000	)	$	5,519		200	%
Customers at Risk (2021 Average)		18.25			21.27		0	%
Customers at Risk (2021 Year-End)		16.86			21.37		0	%
Corporate Performance Metrics							106	%
Impact of Accelerators⁽¹⁾							16	%
Total Corporate Performance Metrics							122	%

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The Compensation and Leadership Development Committee determined that the net revenue retention accelerator was achieved and the employee engagement accelerator was not achieved.

Our Chief Executive Officer evaluated the achievement of each other executive officer against his or her individual performance objectives and formulated a recommendation for each such executive officer’s annual cash bonus for consideration by the Compensation and Leadership Development Committee. These recommendations were based on our Chief Executive Officer’s assessment of each individual’s contributions against the personal performance objectives during the year, taking into consideration key financial, operational, and strategic objectives over which each individual has responsibility and which would help us accomplish our 2021 business plan. In the case of our Chief Executive Officer, the Compensation and Leadership Development Committee evaluated the achievement of the Chief Executive Officer against his individual performance objectives, including in relation to the execution of our 2021 business plan and the financial, operational, and strategic goals included therein, and formulated a recommended annual cash bonus payment for him.

The Compensation and Leadership Development Committee determined that Mr. McFarlane earned 115% of his individual performance factor due to the following factors: his continued leadership in navigating the business continuity, operational, and employee well-being challenges presented by the COVID-19 pandemic, which directly contributed to another year in which the Company’s operational performance exceeded expectations, leadership of our acquisition strategy that resulted in five acquisitions aligned with our long-term objectives, and success executing on the Company’s August 2021 convertible debt offering, which was important to ensure adequate resources for future growth. Additionally, the Compensation and Leadership Development Committee confirmed that the following named executive officers earned the respective individual performance measurement based on accomplishment of the following objectives: Mr. Tennenbaum earned 120% due to his leadership of the finance function, including its expansion to help acquire and integrate five strategic acquisitions, management of our strategic initiative group, cross-functional leadership that helped the Company outperform key corporate performance metrics, and his role in the August 2021 convertible debt offering; Mr. Mathradas earned 115% due to his leadership guiding the operations and sales teams, expanding our partnership moat, accelerating our international penetration, and delivering sustained financial results in most categories globally; and Ms. Pinney earned 120% due to her leadership of the legal, corporate compliance, and government relations functions, management of five acquisitions, and supervision of the August 2021 convertible debt offering.

Based on these evaluations, together with the achievement of the corporate performance-based metrics, the Compensation and Leadership Development Committee approved the following annual cash incentive payments for our named executive officers for 2021.

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Name	Target Annual Cash Incentive Payment ($)		Actual Annual Cash Incentive Payment ($)		% of Target Annual Cash Incentive Paid
Scott McFarlane		556,250	$	670,838		121%
Ross Tennenbaum		307,500	$	373,920		122%
Amit Mathradas		382,500	$	461,295		121%
Alesia Pinney		219,000	$	266,304		122%

Long-Term Equity Incentive Compensation

Beginning in 2019, the Board implemented an annual equity award program for executive officers and other key employees to address retention and incentive objectives. We believe that long-term equity incentive compensation aligns the interests of our executives and our shareholders, supports retention, encourages stock ownership, and provides motivational value.

In January 2021, the Compensation and Leadership Development Committee approved PSU and RSU awards to our executive officers, all of which are to be settled in shares of our common stock. The number of shares of our common stock subject to the PSU and RSU awards granted to our executive officers was determined by the Compensation and Leadership Development Committee. Differentiation was made among our executive officers based on the Compensation and Leadership Development Committee’s review of the competitive market data for their respective positions, the size of the equity awards previously granted to them in anticipation of our IPO, and, with respect to Mr. McFarlane, retention needs, his individual performance, and appropriately incentivizing his continued long-term stewardship of the Company.

The target aggregate grant values of the January 2021 awards were allocated 60% to PSUs and 40% to RSUs for Mr. McFarlane, and 50% to PSUs and 50% to RSUs for all other named executive officers. The PSU and RSU awards granted to our named executive officers in January 2021 were as follows:



Name	Performance Share Unit Award (#)		PSU Aggregate Grant Value ($)⁽¹⁾		Restricted Stock Unit Award (#)		RSU Aggregate Grant Value ($)⁽¹⁾		Total Aggregate Grant Value ($)
Scott McFarlane		39,898		6,600,000		26,598		4,400,000		11,000,000
Ross Tennenbaum		10,881		1,800,000		10,881		1,800,000		3,600,000
Amit Mathradas		10,881		1,800,000		10,881		1,800,000		3,600,000
Alesia Pinney		6,800		1,125,000		6,800		1,125,000		2,250,000

(1)

The Compensation and Leadership Development Committee approved a grant value for each award, and then converted the grant value to a number of PSU or RSU awards using an approximation of grant date fair value. The fair values were based on the average closing price of our common stock in accordance with our equity grant strategy. Pursuant to that strategy, we use the average closing price for the 30 days prior to the award’s grant date unless there is a 10% or greater difference between the 30-day average and the closing price on the grant date. In such cases, not applicable to 2021, we instead use the 10-trading day average closing price of our common stock prior to the grant date. As a result of this methodology, the aggregate grant values in this table differ from the grant date fair value for such awards set forth in the 2021 Summary Compensation Table.

Vesting of PSUs and RSUs

SEC Form DEF 14A filed by Avalara Inc.