Vanda Pharmaceuticals Inc

This advisory Say-on-Pay proposal asks shareholders to approve, on a non-binding basis, the compensation disclosed for the Company’s named executive officers (NEOs) in the Proxy Statement. Management is seeking shareholder support to affirm that its executive-pay framework — which for 2025 combined base salary, formulaic annual cash incentives tied to quantitative and qualitative objectives, and long-term equity awards (historically RSUs and beginning in 2026 PSUs tied to Relative TSR) — is appropriate and aligned with stockholder interests. The Compensation Committee highlights recent program changes intended to strengthen alignment, including formal stock ownership guidelines adopted in 2025, expansion of the clawback policy to cover incentive-based equity and cash, and the introduction of multi‑year PSUs that vest only after the three‑year performance period and committee certification. The Company emphasizes a pay-for-performance orientation: 2025 cash incentives were earned at 108% of target based on combined quantitative (revenue) and qualitative (R&D, regulatory, business development, people) achievements, while long-term awards emphasize retention and performance linkage via TSR-relative PSUs. Management also points to investor outreach and the 2025 Say-on-Pay result (approximately 74% approval) as part of its ongoing engagement and iterative program refinements. Governance safeguards cited include independent committee oversight, engagement of Willis Towers Watson as an independent compensation consultant, limits on change-in-control single-trigger payouts, no option repricing without stockholder approval, and anti-hedging/anti-pledging policies. A sophisticated evaluation should weigh the program’s stronger performance linkage (PSUs, clawback, ownership guidelines) against dilution from large equity grants (noting substantial RSU/PSU grants to NEOs and employees) and the non-binding nature of the vote; the Board intends to consider the advisory outcome when making future compensation decisions. Overall, management frames the proposal as confirming a compensation design that rewards execution on commercial and clinical objectives while reinforcing retention and long-term alignment with stockholders.

This proposal asks stockholders to approve an amendment to the Company’s 2016 Equity Incentive Plan that increases the aggregate share reserve by 2,500,000 shares. Management and the Compensation Committee assert the increase is necessary to support recruiting, retention and ongoing equity grant needs given headcount growth (533 employees as of Dec 31, 2025, rising modestly as noted) and the Company’s practice of using RSUs and PSUs as primary long-term incentives. Prior to this amendment the Plan reserve stood at 18,190,000 shares (after prior board-approved increases), with only 5,416,104 shares available for future grants as of Dec 31, 2025; the requested increase would expand the available pool to support planned grants. The proposal is framed as a practical, forward-looking request rather than a substantive change to governance: the Plan contains anti‑repricing protections (no repricing without stockholder approval), per-person annual grant limits (500,000 shares, higher on commencement), no evergreen provision, and restrictions on accelerated issuance, which management highlights to address dilution concerns. From a governance and valuation perspective, analysts should weigh the incremental dilution from 2.5 million additional shares against the potential benefits of retaining and incentivizing employees who drive product commercialization and clinical progress (notably Fanapt®, HETLIOZ®, PONVORY® and pipeline programs). The Compensation Committee also notes that director compensation will continue to be granted as RSUs with fixed grant date values, and that awards historically have included a mix of time-based RSUs and performance-based PSUs introduced in 2026 tied to Relative TSR, which can mitigate some misalignment risks. The Board recommends a FOR vote, arguing that without approval the Company may lack sufficient authorized shares to make competitive awards which could impede talent acquisition and retention; opponents or activist investors might instead focus on share usage rates, past dilution, and prefer alternatives such as share buybacks or more conservative grant practices. Overall, the amendment is a routine share reserve increase designed to preserve flexibility for compensation and hiring, with built‑in plan constraints intended to limit excessive dilution.