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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.    )

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CUBIST PHARMACEUTICALS, INC.
65 Hayden Avenue
Lexington, MA 02421

NOTICE OF 2013 ANNUAL MEETING OF STOCKHOLDERS
To Be Held On June 12, 2013

To Our Stockholders:

        The 2013 Annual Meeting of Stockholders of Cubist Pharmaceuticals, Inc., or the 2013 Annual Meeting, will be held at our offices at 55 Hayden Avenue, Lexington, MA 02421, on Wednesday, June 12, 2013 at 8:30 A.M. local time, to consider and act upon the following matters:

1.

To elect three (3) Class II directors to our Board of Directors, each to hold office for a three-year term and until his or her successor has been duly elected and qualified.



2.

To approve, on an advisory basis, the compensation of our Named Executive Officers (as that term is defined in the Proxy Statement for the 2013 Annual Meeting).



3.

To approve a proposal to amend our Amended and Restated By-Laws (the "By-Laws") to implement a majority voting standard in uncontested elections of directors beginning with our 2014 Annual Meeting of Stockholders.



4.

To approve a proposal to amend our By-Laws to make certain changes related to Cubist's recent separation of the roles of Chief Executive Officer and President.



5.

To approve a proposal to amend our By-Laws to make certain changes regarding the conduct of, and procedures for, our stockholder meetings.



6.

To approve a proposal to amend our Restated Certificate of Incorporation to substitute the authority of the President to call a special meeting of stockholders with the authority of the Chief Executive Officer to do the same.



7.

To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ending December 31, 2013.



8.

To transact such other business as may properly come before the 2013 Annual Meeting or any adjournments or postponements thereof.

        The Board of Directors has fixed April 16, 2013 as the record date for the determination of stockholders entitled to notice of, and to vote at, the 2013 Annual Meeting. Accordingly, only stockholders of record at the close of business on the record date will be entitled to notice of, and to vote at, the meeting or any adjournments thereof.

        To ensure your representation at the 2013 Annual Meeting, you are urged to vote by proxy by one of the following steps as promptly as possible:

(a)

Vote via the Internet pursuant to the instructions provided in the Notice of Internet Availability of Proxy Materials, or Notice of Internet Availability, that we will mail no later than May 3, 2013 to all stockholders of record and beneficial owners as of the record date; or



(b)

Request email or printed copies of the proxy materials pursuant to the instructions provided in the Notice of Internet Availability and either:



(i)

complete, date, sign and return the proxy card that you will receive in response to your request; or



(ii)

vote via telephone (toll-free) in the United States or Canada in accordance with the instructions on the proxy card.

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        The Internet and telephone voting procedures are designed to authenticate stockholders' identities, to allow stockholders to vote their shares, and to confirm that stockholders' instructions have been properly recorded. Your shares cannot be voted unless you vote by one of the methods described above or attend the 2013 Annual Meeting in person. Regardless of the number of shares you own, your careful consideration of, and vote on, the matters before the stockholders is important.

		By Order of the Board of Directors,
		THOMAS J. DESROSIER Secretary

Lexington, Massachusetts
April 26, 2013

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CUBIST PHARMACEUTICALS, INC.
65 Hayden Avenue
Lexington, MA 02421

PROXY STATEMENT

FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 12, 2013

GENERAL INFORMATION

Why are we soliciting proxies?

        We are furnishing this Proxy Statement to the holders of our common stock, $0.001 par value per share, in connection with the solicitation of proxies on behalf of our Board of Directors, or our Board, for use at our 2013 Annual Meeting of Stockholders, or the 2013 Annual Meeting.

When and where is the 2013 Annual Meeting?

        The 2013 Annual Meeting will be held at our offices at 55 Hayden Avenue, Lexington, Massachusetts on Wednesday, June 12, 2013 at 8:30 A.M. local time or at any future date and time following an adjournment or postponement of the meeting.

What are the purposes of the 2013 Annual Meeting?

        The purposes of the 2013 Annual Meeting and the matters to be acted upon are set forth in the accompanying Notice of 2013 Annual Meeting of Stockholders, or the Notice. The Board knows of no other business that will come before the 2013 Annual Meeting.

How will I receive proxy materials?

        We are furnishing our proxy materials, including the Notice, this Proxy Statement, our 2012 Annual Report to Stockholders and the proxy card for the 2013 Annual Meeting, by providing access to such documents on the Internet. We will send a Notice of Internet Availability of Proxy Materials, or the Notice of Internet Availability, no later than May 3, 2013 to our stockholders of record and beneficial owners as of April 16, 2013, the record date for the 2013 Annual Meeting. The Notice of Internet Availability contains instructions for accessing and reviewing our proxy materials on the Internet and voting by proxy over the Internet. If you prefer to receive email or printed copies of our proxy materials, the Notice of Internet Availability contains instructions on how to request such materials. You will not receive printed copies of the proxy materials unless you request them or have requested them in response to a Notice of Internet Availability in the past. Viewing our proxy materials and voting by proxy electronically will save us the cost of printing and mailing documents to you and will reduce the impact on the environment.

Who will pay the costs of soliciting proxies and how would you solicit proxies?

        We will pay the costs of soliciting proxies. We will solicit proxies by email from stockholders who are our employees or who previously requested to receive proxy materials electronically. Members of the Board, whom we refer to as our directors, and our officers and employees also may solicit proxies on our behalf, personally or by telephone, without additional compensation. We also may utilize the assistance of third parties in connection with our proxy solicitation efforts, and we would compensate such third parties for their efforts. We have engaged one such third party, The Proxy Advisory Group, LLC, to assist in the solicitation of proxies and provide related advice and informational

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support, for a services fee and the reimbursement of expenses that are not expected to exceed $22,000 in the aggregate.

Who can vote?

        Only stockholders of record at the close of business on April 16, 2013, the record date for the 2013 Annual Meeting, are entitled to notice of, and to vote at, the 2013 Annual Meeting or any adjournment or postponement of the meeting. On the record date, we had outstanding 65,204,705 shares of common stock, each of which is entitled to one vote upon each of the matters to be presented at the 2013 Annual Meeting.

How do I vote?

        Stockholders of record can vote their shares (1) via the Internet, (2) via a toll-free telephone call from the U.S. or Canada, (3) by mailing a signed proxy card, or (4) in person at the 2013 Annual Meeting.

        You will be asked to vote, as follows:

•

For Proposal No. 1, you will be asked, with respect to each nominee for Class II director, to vote "FOR" such nominee or to "WITHHOLD" your vote from such nominee.



•

For Proposal No. 2, you will be asked to vote, on an advisory, non-binding basis, "FOR" the compensation paid to our Named Executive Officers in 2012 (as defined in the Management Stockholders section of this Proxy Statement), "AGAINST" such compensation or to "ABSTAIN" from voting on such compensation. We sometimes refer to this Proposal No. 2 as the "Say-on-Pay Proposal."



•

For Proposal No. 3, you will be asked to vote "FOR" the approval of the amendment to our Amended and Restated By-Laws, or By-Laws, to implement a majority voting standard in uncontested elections of directors beginning with our 2014 Annual Meeting of Stockholders, "AGAINST" such approval or to "ABSTAIN" from voting on Proposal No. 3.



•

For Proposal No. 4, you will be asked to vote "FOR" the approval of the amendment to our By-Laws to make certain changes related to Cubist's recent separation of the roles of Chief Executive Officer and President, "AGAINST" such approval or to "ABSTAIN" from voting on Proposal No. 4.



•

For Proposal No. 5, you will be asked to vote "FOR" the approval of the amendment to our By-Laws to make certain changes regarding the conduct of, and procedures for, our stockholder meetings, "AGAINST" such approval or to "ABSTAIN" from voting on Proposal No. 5.



•

For Proposal No. 6, you will be asked to vote "FOR" the approval of the amendment to our Restated Certificate of Incorporation, or Charter, "AGAINST" such approval or to "ABSTAIN" from voting on Proposal No. 6.



•

For Proposal No. 7, you will be asked to vote "FOR" the ratification of our selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2013, "AGAINST" such ratification or to "ABSTAIN" from voting on Proposal No. 7.

        Generally, voting via the Internet or telephone must be completed by 2:00 A.M. Eastern Time on June 12, 2013 (assuming the meeting is not postponed or adjourned), although you may be notified of an earlier deadline by your broker, custodian or other third party. Stockholders may revoke the authority granted by their execution of proxies at any time before the effective exercise of such authority by filing with our Secretary, at Cubist Pharmaceuticals, Inc., 65 Hayden Avenue, Lexington,

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MA 02421, a written revocation or a duly executed proxy bearing a later date or by voting in person at the 2013 Annual Meeting. Shares represented by executed and unrevoked proxies will be voted in accordance with the choice or instructions specified thereon. If no choices or instructions are given, the persons named as proxies intend to vote the shares represented thereby:

•

"FOR" Proposal No. 1 to elect the Class II director nominees to the Board;



•

"FOR" Proposal No. 2 to approve, on an advisory basis, the compensation paid to our Named Executive Officers in 2012;



•

"FOR" Proposal No. 3 to approve the amendment to our By-Laws to implement a majority voting standard in uncontested elections of directors beginning with our 2014 Annual Meeting of Stockholders;



•

"FOR" Proposal No. 4 to approve the amendment to our By-Laws to make certain changes related to Cubist's recent separation of the roles of Chief Executive Officer and President;



•

"FOR" Proposal No. 5 to approve the amendment to our By-Laws to make certain changes regarding the conduct of, and procedures for, our stockholder meetings;



•

"FOR" Proposal No. 6 to approve the amendment to our Charter;



•

"FOR" Proposal No. 7 to ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2013; and



•

in accordance with the best judgment of the persons named as proxies on any other matters that may properly come before the 2013 Annual Meeting.

What is the vote required for a quorum?

        The presence, in person or by proxy, of a majority of the issued and outstanding shares of common stock on the record date, will constitute a quorum for the transaction of business at the 2013 Annual Meeting. Votes withheld from any nominee, abstentions, and broker non-votes (as described below) are counted as present or represented for purposes of determining the presence or absence of a quorum for the 2013 Annual Meeting.

What is a broker non-vote and what is the impact of not voting?

        A broker "non-vote" occurs when a nominee holding shares for a beneficial owner, who is also sometimes referred to as someone who holds shares in street name, does not vote on one or more proposals because the nominee does not have discretionary voting power and has not received instructions from the beneficial owner. Your bank or broker does not have discretion to vote uninstructed shares on the proposals in this Proxy Statement, except for Proposal No. 7 to ratify the appointment of our independent registered public accounting firm. As a result, if you hold your shares in street name it is critical that you provide instructions to your bank or broker if you want your vote to count in the election of directors, the advisory vote related to executive compensation, the votes for approval of the amendments to our By-Laws, and the vote for approval of the amendment to our Charter.

        If you are a stockholder of record and you do not cast your vote, no votes will be cast on your behalf on any of the items of business at the Annual Meeting.

What is the vote required for a proposal to pass?

•

Proposal No. 1—Election of directors:  The affirmative vote of a plurality of the shares of common stock present or represented and entitled to vote at the 2013 Annual Meeting, in person or by proxy, is required for the election of each of the nominees. Abstentions and broker

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non-votes will have no effect on the voting outcome with respect to the election of directors. We are proposing to adopt an amendment to our By-Laws to implement a majority voting standard in uncontested elections of directors, which if approved by the stockholders at the 2013 Annual Meeting, will become effective with respect to future elections of directors beginning with the 2014 Annual Meeting. See "Proposal No. 3—Majority Voting Amendment to the Amended and Restated By-Laws" for more information.

•

Proposal No. 2—Say-on-Pay:  Because this Proposal No. 2 asks for a non-binding, advisory vote, there is no required vote that would constitute approval. We value the opinions expressed by our stockholders in this advisory vote, and our Compensation Committee, which is responsible for overseeing and administering our executive compensation programs, will consider the outcome of the vote when designing our compensation programs and making future compensation decisions for our Named Executive Officers. Abstentions and broker non-votes, if any, will not have any impact on this advisory vote.



•

Proposal No. 3—Approval of Majority Voting Amendment to our By-Laws:  The affirmative vote of the holders of at least 75% of the outstanding shares of our common stock is required to approve the amendment to our By-Laws to implement a majority voting standard in uncontested elections of directors beginning with our 2014 Annual Meeting of Stockholders. Abstentions and broker non-votes will have the practical effect of a vote against approval of this amendment to our By-Laws.



•

Proposal No. 4—Approval of Amendment to our By-Laws regarding separation of Chief Executive Officer and President roles:  The affirmative vote of the holders of at least 75% of the outstanding shares of our common stock is required to approve the amendment to our By-Laws to make certain changes related to Cubist's recent separation of the roles of Chief Executive Officer and President. Abstentions and broker non-votes will have the practical effect of a vote against approval of this amendment to our By-Laws.



•

Proposal No. 5—Approval of Amendment to our By-Laws regarding conduct of stockholder meetings:  The affirmative vote of the holders of at least 75% of the outstanding shares of our common stock is required to approve the amendment to our By-Laws to make certain changes regarding the conduct of, and procedures for, our stockholder meetings. Abstentions and broker non-votes will have the practical effect of a vote against approval of this amendment to our By-Laws.



•

Proposal No. 6—Approval of Amendment to our Charter:  The affirmative vote of the holders of at least 75% of the outstanding shares of our common stock is required to approve the amendment to our Charter. Abstentions and broker non-votes will have the practical effect of a vote against approval of the amendment to our Charter.



•

Proposal No. 7—Ratification of the selection of our independent registered public accounting firm: The affirmative vote of the holders of a majority of the shares of common stock present or represented and entitled to vote at the 2013 Annual Meeting, in person or by proxy, is required to ratify our selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2013. Abstentions will have the practical effect of a vote against ratification of our selection. Because Proposal No. 7 is a routine proposal on which a broker or other nominee is generally empowered to vote, we do not expect any broker non-votes on this proposal. To the extent there are any broker non-votes, they will have the practical effect of a vote against this proposal.

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PRINCIPAL AND MANAGEMENT STOCKHOLDERS

Principal Stockholders

        The following table sets forth certain information with respect to each person known to us to be the beneficial owner of more than 5% of our issued and outstanding common stock as of April 16, 2013. On April 16, 2013, we had 65,204,705 shares of common stock outstanding.

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Management Stockholders

        The following table sets forth information as of April 16, 2013, as reported to us, with respect to the beneficial ownership of common stock by our directors and each Named Executive Officer, or NEO⁽¹⁾, and by all of our current directors and Executive Officers⁽²⁾ as a group⁽³⁾. Beneficial ownership is determined in accordance with the rules and regulations of the SEC. Except as indicated below and pursuant to applicable community property laws, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder's name.

⁽¹⁾

Our NEOs, as defined by Item 402(a)(3) of Regulation S-K, for 2012 are: (1) Michael Bonney, our Chief Executive Officer, or CEO, (2) David McGirr, our former Senior Vice President and Chief Financial Officer, or CFO, (3) Robert Perez, our President and Chief Operating Officer, (4) Steven Gilman, Ph.D., our Executive Vice President, Research & Development and Chief Scientific Officer, and (5) Patrick Vink, M.D., our Senior Vice President and General Manager of International Business.

⁽²⁾

The term "Executive Officers" means all of our executive officers who are subject to the reporting requirements under Section 16 of the Securities and Exchange Act of 1934, or the Securities Exchange Act.

⁽³⁾

Includes Michael Tomsicek, who was promoted to Senior Vice President and Chief Financial Officer on March 4, 2013, and Thomas DesRosier, who was appointed as Senior Vice President, Chief Legal Officer, General Counsel and Secretary on March 18, 2013.

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EXECUTIVE COMPENSATION

Compensation Discussion & Analysis

Executive Summary

        This Compensation Discussion & Analysis, or CD&A, describes the company's executive compensation program and objectives as they relate to our 2012 NEOs. Our programs are designed to align compensation paid to our NEOs with company and individual performance. We provide cash compensation, in the form of salary and annual cash bonuses, to our NEOs based on performance in prior periods. We reserve a majority of NEO pay as long-term non-cash compensation, in the form of equity-based incentives, which rewards our NEOs for their contribution to successful company performance over time, as reflected in our stock price. We set our NEOs' pay to be competitive as compared to the pay of comparable executive officers at a peer group⁽⁴⁾ established by our Compensation Committee.

NEO Compensation and Company Performance

        The total compensation of Michael Bonney, our CEO, increased by 23% in 2012 over 2011, and the total compensation of our NEOs other than Mr. Bonney, or our Other NEOs, who were also NEOs in 2011 increased by 23% in 2012 over 2011. We believe that our 2012 NEO compensation correlates to the company's strong performance in 2011 and 2012, which is reflected in the following:

•

Our total net revenues were $754 million in 2011, an increase of 18% over 2010, and $926 million in 2012, an increase of 23% over 2011.



•

Our strong total stockholder return, or TSR, as reflected in our stock price increasing from $21.40 to $42.05, an increase of $20.65, or 96%, from December 31, 2010 to December 31, 2012.



•

During this period, we have transitioned from a company with one commercial product and no Phase 3 clinical development candidates to a company with two commercial products, one co-promoted commercial product and three Phase 3 clinical development candidates.



•

In 2011 and 2012, we initiated Phase 3 programs for three of our development candidates and are concurrently carrying out five Phase 3 trials relating to these three programs, which is more than twice as many Phase 3 trials as the company had ever previously conducted at one time.



•

We successfully executed many of our business development objectives, including entering into a co-promotion agreement with Optimer Pharmaceuticals, Inc., in April 2011, and acquiring Adolor Corporation, or Adolor, in December 2011 and integrating Adolor into our business in the first half of 2012.



•

In June 2012, we introduced our Building Blocks of Growth five-year goals and have been executing against those goals.

        The detailed breakdown of total compensation for each of our NEOs can be found in the Summary Compensation Table of this Proxy Statement.

Pay for Performance

        Aligning compensation paid to our NEOs with high levels of company performance is at the core of our compensation philosophy. Compensation paid to our CEO is one example of how we adhere to this philosophy. Mr. Bonney's compensation is competitive when compared to our peer group, particularly when taking into account our TSR relative to the peer group.

⁽⁴⁾

The details and selection of our peer group are described in more detail in the Compensation Benchmarking and Survey Data section of this CD&A.

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        The following chart shows how our TSR and Mr. Bonney's total compensation ranked among the 15 companies in our peer group for 2012 and over the three-year period 2010-2012.

        We believe that over time Mr. Bonney's total compensation also relates appropriately to our TSR, as represented in the table below, which compares Mr. Bonney's total compensation⁽⁵⁾ to our indexed TSR⁽⁶⁾ over the past five fiscal years:

Elements of 2012 NEO Compensation

        We compensate our NEOs as follows:

•

Base salary paid in cash. Decisions on 2012 NEO base salary levels were made early in 2012 and were based on our NEOs' performance in 2011.



•

Annual cash performance awards.  Decisions on 2012 NEO annual cash performance awards were made after the end of 2012. Mr. Bonney's award was based entirely, and our Other NEOs' awards were based primarily, on the company's performance in 2012.



•

Long-term incentives, or LTIs, made up of time-based vesting stock option and RSU awards⁽⁷⁾. Decisions on long-term incentive awards were made in early 2012 and were based on our performance in 2011, expected future individual performance, and retention considerations. LTIs also align the interests of our NEOs with those of our stockholders and reward our NEOs for the long-term performance of the company because their value is tied to our stock price and vest over time.

⁽⁵⁾

Rounded to the nearest thousand dollars.

⁽⁶⁾

Indexed TSR was calculated based on an assumed $100 investment in Cubist common stock on December 31, 2007 and then adjusted for each year based on the return that would have been made on that investment as of December 31 of each year.

⁽⁷⁾

Stock options vest ratably on a quarterly basis over four years and RSUs vest ratably on an annual basis over four years.

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Compensation Mix

        We weight a significant amount of our NEOs' total compensation in long-term incentives. This weighting aligns our executives' compensation with long-term stockholder return, as well as the long-term development and business cycle in the biopharmaceutical industry.

        For 2012, our NEOs' total compensation was distributed among the three main elements of our compensation, as follows:

        For 2012, Mr. Bonney's total compensation and the average total compensation⁽⁸⁾ of our Other NEOs, other than Dr. Vink⁽⁹⁾, broken down into these three elements, compared to our peer group, as follows:

Performance-Based Restricted Stock Units

        While our CEO's and Other NEOs' compensation for 2012 does not include performance-based equity grants, the equity grants made to our CEO and Other NEOs in February 2013 include grants of performance-based restricted stock units, or PRSUs, which will be earned only upon the achievement by the company of certain performance targets and upon completion of a requisite three-year service period. Approximately 50% of the total value of our CEO's 2013 equity grants and approximately 25% of the total value of our Other NEOs 2013 equity grants were comprised of PRSUs. These PRSU grants are considered part of our CEO's and Other NEOs' 2013 compensation and will be described in more detail in our 2014 Proxy Statement.

Corporate Governance

        Our pay practices emphasize good governance and market practice. To this end:

•

Perquisites:  We generally do not provide any significant perquisites to our NEOs that are not also offered to all employees of the company.

⁽⁸⁾

Rounded to the nearest thousand dollars.

⁽⁹⁾

There were not a sufficient number of executives at our peer group companies who held a comparable position to Dr. Vink's to allow for a comparison of Dr. Vink's compensation to the peer group.

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•

Risk Assessment:  We conducted a comprehensive risk assessment of our compensation programs and believe that our programs are structured in a manner to motivate strong performance with appropriate risk taking while discouraging excessive risk taking. The details of this risk assessment can be found in the section of this Proxy Statement entitled "Corporate Governance."



•

Stock Ownership Guidelines:  We have stock ownership guidelines that require our NEOs to own certain levels of our common stock. The guidelines are designed to align the interests of our NEOs with those of our stockholders by ensuring that our NEOs have a meaningful financial stake in the company. As of January 1, 2013, all of our NEOs who are required to be in compliance based on their years of employment at the company were in compliance with our stock ownership guidelines.



•

Recoupment:  We have a recoupment policy that covers our CEO and CFO which provides that the independent directors of our Board may take any action they deem necessary or appropriate to remedy fraud, gross negligence or intentional misconduct by our CEO or CFO, including seeking reimbursement of bonus or incentive compensation payments or the cancellation of equity awards. A more detailed description of our recoupment policy is described below under the heading "Recoupment Policy."



•

Anti-Hedging/Pledging:  We do not allow any of our employees, including our NEOs, to enter into any hedging-type transactions in our stock or to pledge our stock.



•

Independent Compensation Consultant:  Our Compensation Committee engages an independent advisor on topics related to Board and executive compensation.



•

Retention Letters/Double-Trigger:  We have retention letters with all of our NEOs, other than Mr. McGirr, and a transition agreement with Mr. McGirr, providing each of our NEOs with severance payments in connection with their departure from the company in certain circumstances. In the case of a change of control of our company, severance is only paid in the event of termination following a change of control, or a "double trigger."



•

No Section 280G Gross-Ups:  We do not provide Section 280G tax gross-ups or any other tax gross-ups to our NEOs.

Say-on-Pay Feedback from Stockholders

        We pay careful attention to any feedback we receive from our stockholders about our executive compensation program, which includes the 93% support we received from our stockholders on the advisory say-on-pay vote at our 2012 Annual Meeting of Stockholders, or the 2012 Annual Meeting. While our Compensation Committee did not find the need to change any of our compensation programs based on the support we received, it did and will continue to consider carefully our stockholders' feedback on our executive compensation programs and practices. We hold an annual non-binding vote of our stockholders on our executive compensation program as a result of a majority of our stockholders voting at our 2011 Annual Meeting of Stockholders to have the company hold such a vote annually.

Objectives and Targets of our Compensation

Compensation Objectives

        All three of our compensation elements (base salary, annual cash bonus and long-term incentives) support our main compensation objectives, which include:

•

aligning pay with performance;

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•

providing competitive compensation that differentiates and rewards overall contribution; and



•

attracting and retaining high-quality executive officers and motivating high performance.

        In addition, our annual cash bonuses and long-term incentives promote the additional key objective of our compensation program, which is to further our short- and long-term strategic goals to promote the creation and protection of long-term stockholder value and align the long-term interests of our NEOs with those of our stockholders.

Compensation Targets

        In making our compensation decisions for our NEOs, we aim for the following targets, based on peer group information and survey data, which is compiled by our Compensation Committee's independent compensation consultant, Pearl Meyer & Partners, or PM&P:

•

Base Salaries.  We target the median of the marketplace. In certain circumstances, we offer starting base salaries higher than the median for positions that require more complex work, have critical value to the company, are in high demand in the marketplace or have fewer qualified candidates, or in situations where candidates enter the position with extraordinary relevant experience. Higher base salaries may also be paid over time to reflect superior individual performance.



•

Annual Cash Performance Awards.  We target potential annual cash performance awards that would allow total cash compensation to exceed the median of the marketplace, depending on company and individual NEO performance.



•

LTIs.  We target at or above the median of the marketplace. We target overall equity awards to account for a significant portion, typically more than 50%, of each NEO's total annual compensation. We generally target an allocation of the total value of annual equity awards of approximately 70% in stock options and approximately 30% in RSUs. As further discussed in this CD&A, we believe this allocation provides the appropriate incentive to our NEOs to increase stockholder value while encouraging retention and performance with the appropriate level of risk-taking.

Compensation Determinations and Use of Compensation Consultant

        Our non-employee directors, based on recommendations from the Compensation Committee, make all of the compensation determinations with respect to Mr. Bonney. The Compensation Committee makes all of the compensation determinations with respect to our Other NEOs. In making its determinations relating to the Other NEOs, the Compensation Committee takes into account the recommendations of Mr. Bonney, and in making its determination relating to Dr. Vink, the Compensation Committee took into account Mr. Perez's recommendation.

        Pursuant to its charter, the Compensation Committee has the authority to select and retain independent advisors and counsel to assist it with carrying out its duties and responsibilities, and we have provided appropriate funding to the Committee to do so. The Compensation Committee has exercised this authority to engage PM&P as its compensation consultant. PM&P serves as an advisor to the Compensation Committee on topics primarily related to Board and executive compensation. PM&P reports directly to the Compensation Committee Chair, takes direction from the Compensation Committee, and does not provide us with any services other than the services provided at the request of the Compensation Committee.

        The Committee regularly reviews the services provided by its outside consultants and believes that PM&P is independent in providing executive compensation consulting services. The Committee conducted a specific review of its relationship with PM&P in 2012 and determined that PM&P's work

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for the Committee did not raise any conflicts of interest, consistent with the guidance provided under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and by the SEC and the NASDAQ Global Market. The Compensation Committee continues to monitor the independence of its compensation consultant on a periodic basis.

Information Used to Make Compensation Determinations

Compensation Benchmarking and Survey Data

        In September 2011, the Compensation Committee, after considering the recommendation of PM&P, approved a peer group based on the pre-defined selection criteria set forth below:

•

industry and product similarity;



•

annual revenues of between $215 million and $1.965 billion, which is approximately one-third to three times what Cubist's revenue was at the time the peer group was approved by the Compensation Committee; and



•

market capitalization of between $500 million and $4.5 billion, which is approximately one-third to three times what Cubist's market capitalization was at the time the peer group was approved by the Compensation Committee.

        At the time the Compensation Committee approved the 2012 peer group, the median annual revenues for the peer group was $468 million and the median market capitalization for the peer group was $1.908 billion, as compared to the Company's 2011 revenues of $754 million and market capitalization of approximately $2.0 billion at the time the 2012 peer group was approved in September 2011. In 2012, the median annual revenues for our 2012 peer group was $559 million, as compared to Cubist's 2012 total net revenues of $926 million. As of December 31, 2012, the median market capitalization for our 2012 peer group was $2.465 billion, as compared to Cubist's market capitalization as of December 31, 2012 of $2.7 billion. In selecting this peer group, the Compensation Committee also sought to have a group that includes a large enough number of companies such that the data will not be skewed heavily if there are one or two outliers on any of the items for which we use the peer group for comparison. The peer group contracted from 17 companies for determination of 2011 compensation to 15 for determination of 2012 compensation because two of the peer group companies were acquired. The compensation paid by peer group companies to their respective executive officers does not factor into the Compensation Committee's determination of the peer group.

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        The peer groups that were approved by the Compensation Committee for each of 2011 and 2012, and the explanations of any changes are detailed in the following table:

        The Compensation Committee utilized the 2012 peer group to provide context for its compensation decision-making for 2012. The data from the 2012 peer group companies was compiled during the summer of 2011 after the 2011 proxy statements for the peer group companies were filed and, as a result, not all companies remain within the pre-defined selection criteria as of the date of this Proxy Statement. After the peer group companies are selected, PM&P prepares and presents a report to the Compensation Committee summarizing the competitive data and comparisons of the compensation of our NEOs to comparable market data, based on executive officers at the peer group companies who have similar jobs as our NEOs, utilizing publicly available data from the comparable companies and broad survey data from companies of similar size in the pharmaceutical and

⁽¹⁰⁾

Alkermes, Inc. has become Alkermes, plc as a result of a merger between Alkermes, Inc. and Elan Drug Technologies in September 2011. However, the data that we used for our peer group was that of Alkermes, Inc. prior to the merger.

⁽¹¹⁾

Although Amylin Pharmaceuticals, Inc. was acquired in August 2012 and Medicis Pharmaceuticals Company was acquired in December 2012, they both remained part of our peer group for 2012 because they met out peer group criteria and we had 2011 proxy statement data for both of these companies at the time that we compiled data for our 2012 peer group.

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biotechnology industries. We use the broad survey data in conjunction with peer group data in evaluating our NEO compensation practices. Data from survey sources and the peer companies are combined to develop a primary market composite based on an average of survey data and peer company data. The Compensation Committee does not rely upon data from any individual company participating in any of the surveys in making compensation decisions. Each element of our compensation is reviewed as part of this analysis and evaluation.

        At the time of Mr. Perez's promotion to President and Chief Operating Officer in July 2012, this title was not present among our peer group companies, except in the case of United Therapeutics Corporation. Therefore, in connection with Mr. Perez's promotion, PM&P prepared a special group of comparator companies, or special peer group, within the biotechnology and pharmaceutical industries that had executives with the combined title of President and Chief Operating Officer. The special peer group consisted of Emergent BioSolutions Inc., Forest Laboratories, Inc., Gilead Sciences, Inc., Integra LifeSciences Holdings Corporation, Life Technologies Corporation and United Therapeutics Corporation. The Compensation Committee utilized the special peer group to provide context for its decision-making related to Mr. Perez's compensation in connection with his promotion.

Other Evaluation Criteria and Factors

        NEO compensation can be above or below the compensation target assigned to each NEO by the peer group and survey comparison analysis described above due to a number of factors, including retention considerations, individual and corporate performance, relative value of the position within the company as compared to peer companies, and internal equity considerations.

        As part of making its decisions with respect to Mr. Bonney's compensation, our non-employee directors and the Compensation Committee also utilized the following data and other information:

•

Quantitative evaluations of our performance against our annual corporate goals and objectives;



•

Qualitative input on Mr. Bonney's performance from all directors and many of our Executive Officers;



•

Our and Mr. Bonney's historical performance;



•

Retention considerations; and



•

Mr. Bonney's total cash compensation as compared to Mr. Perez, our second highest paid NEO based on total cash compensation, in order to determine whether Mr. Bonney's relative cash compensation is fair and reasonable in the context of internal equity.

        As part of making its compensation decisions with respect to Other NEOs, the Compensation Committee took into account:

•

Quantitative evaluations of our performance against annual corporate goals and each Other NEO's performance against individual goals;



•

Qualitative evaluations, conducted by Mr. Bonney and, in the case of Dr. Vink, by Mr. Perez of each Other NEO's contribution to our corporate goals, performance against individual goals and potential future contributions to our success;



•

Retention considerations; and



•

Mr. Bonney's recommendations and, in the case of Dr. Vink, Mr. Perez's recommendations.

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Compensation Determinations

Base salary

        Base Salary—CEO:    Mr. Bonney's 2012 base salary was set at $700,000, which represented a 17% increase from his 2011 base salary of $600,000. In recommending this salary increase to the Board, the Compensation Committee determined that Mr. Bonney performed at a very high level in 2011, as evidenced by our very strong 2011 performance (135% achievement against corporate goals), the overall strength of his leadership, his past and potential future contributions to the company, and the benchmarking and other data and information described above. The Compensation Committee also sought to align Mr. Bonney's pay more closely with that of CEOs at our peer group companies. The Compensation Committee seeks to maintain Mr. Bonney's base salary approximately at the median of the market, based on our peer group and broader market data in order to emphasize pay for performance and to keep Mr. Bonney's base salary reasonable and consistent with our Other NEOs. Mr. Bonney's 2012 base salary was at the 50^th percentile as compared to the peer group and survey data used by the Compensation Committee, and his 2011 base salary was at the 30^th percentile as compared to such data.

        Base salary—Other NEOs:    The Compensation Committee sets our Other NEOs salaries based upon the benchmarking and evaluation criteria described above. The 2012 base salaries of these NEOs were, on average, at about the 40^th percentile, as compared to the peer group and survey data used by the Compensation Committee, including the special peer group used to determine Mr. Perez's compensation.

        The following table details the increases from 2011 to 2012 in the base salary of each of our Other NEOs:

        The Compensation Committee, based in part on Mr. Bonney's input, determined that these base salary increases were justified based on each individual NEO's performance and the level of each NEO's base salary as compared to that of similar officers at our peer group companies and to broad industry survey data of executive compensation. Mr. Perez's increase in base salary from 2011 to 2012 is higher than the base salary increases for Mr. McGirr and Dr. Gilman as a result of Mr. Perez's promotion from Executive Vice President and Chief Operating Officer to the new position of President and Chief Operating Officer in July 2012. In February 2012, Mr. Perez's 2012 base salary was set at $505,250, an increase of 7.5% over his 2011 base salary. In July 2012, when he was promoted, Mr. Perez's base salary was increased from $505,250 to $600,000. The amount in this table represents the actual amount of base salary that Mr. Perez was paid in 2012, which is a blend of his two salary levels.

Annual cash performance awards

        Description of plans:    Our top four most-highly compensated employees other than our CFO are subject to our Performance-Based Management Incentive Plan, or Management Incentive Plan. Our

⁽¹²⁾

Dr. Vink was hired in July 2012 and, therefore, did not receive a salary from the company in 2011. His 2012 base salary was set by the Compensation Committee at 511,500 Swiss francs. The amount in this table represents what Dr. Vink was actually paid in 2012, converted to U.S. dollars using a December 31, 2012 exchange rate of USD 1 = CHF 0.9154.

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CFO is subject to our Short-Term Incentive Plan, or STIP. In 2012, both the Management Incentive Plan and the STIP conditioned the payment of any annual cash performance award on the company achieving at least 90% of our 2012 U.S. CUBICIN revenue goal. In addition, the STIP required us to achieve at least 70% of our corporate goals for any annual performance awards to be paid. If the foregoing thresholds were achieved, which they were in 2012, the annual cash performance award pool under each of the Management Incentive Plan and the STIP was funded at the maximum 200% level. The actual 2012 annual cash performance awards for the NEOs were then determined based on a combination of the achievement of our 2012 corporate goals and each individual NEO's objectives for the year.

        Target awards are expressed as a percentage of base salary as follows:

        The relative weighting of corporate and individual goals are expressed as percentages of the total target award percentage, with a higher percentage tied to corporate goals the more senior a position the individual holds at the company, as follows:

        Corporate goals/achievement against goals:    The Board, based upon the recommendation of the Compensation Committee and after discussion with the Compensation Committee and Mr. Bonney, approved the company's 2012 corporate goals. The corporate goals for 2012 were set at a reasonable level of difficulty that could be met if our NEOs and the company as a whole performed at the high level that we expect but were sufficiently challenging such that the likelihood of attaining these goals was not assured. Our historical level of achievement against corporate goals for the past five years is 89% in 2012, 135% in 2011, 92% in 2010, 95% in 2009, and 136% in 2008.

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        For 2012, our corporate goals and our detailed achievement against such goals were as follows:

        Annual cash performance award—CEO:    Mr. Bonney's annual cash performance award is determined by reference to our achievement against corporate goals, with discretion retained by the Compensation Committee to adjust Mr. Bonney's annual cash performance award down based on other considerations. Mr. Bonney was awarded a 2012 annual cash performance award of 89% of his target award, resulting in a bonus payment of $623,000. This performance award was determined based on our achievement of 89% of our 2012 corporate goals. Mr. Bonney's 2012 annual cash performance award was at the 40^th percentile as compared to the most recent information available for our peer

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group, which was 2011 fiscal year information and survey data used by the Compensation Committee. Taken together, the 2012 base salary and annual cash performance award paid to Mr. Bonney were at about the 40^th percentile as compared to our peer group and survey data used by the Compensation Committee.

        Annual cash performance award—Other NEOs:    Our Other NEOs have individual goals, and a combination of their level of achievement against such goals and the company's level of achievement against the company goals combine to determine their annual cash performance award. The individual goals for these Other NEOs are determined by Mr. Bonney and, in the case of Dr. Vink, by Mr. Perez and are designed to focus them on individual behaviors that support our overall performance and success. These goals generally consist of both objective and subjective goals that are relevant to each Other NEO's responsibilities. Each Other NEO's level of achievement against his individual goals is initially evaluated by Mr. Bonney and, in the case of Dr. Vink, by Mr. Perez. Mr. Bonney and, in the case of Dr. Vink, Mr. Perez then recommend a final level of achievement against individual goals of each Other NEO to the Compensation Committee, which then can approve or adjust the proposed levels of achievement up or down. The 2012 annual cash performance awards for our Other NEOs were calculated based on individual Other NEO performance against 2012 individual goals and company performance against 2012 company goals using the formula set forth in the 2012 STIP. Details of the amounts of the 2012 annual cash performance awards for our Other NEOs can be found in the Summary Compensation Table in this Proxy Statement. On average, our Other NEOs' 2012 annual cash performance awards, other than Dr. Vink's,⁽¹³⁾ were at approximately the 30^th percentile as compared to the most recent information available for our peer group and survey data used by the Compensation Committee, including the special peer group used to determine Mr. Perez's compensation. Taken together, the 2012 base salary and annual cash performance awards paid to these NEOs were at approximately the 35^th percentile as compared to our peer group and survey data used by the Compensation Committee, including the special peer group used to determine Mr. Perez's compensation.

⁽¹³⁾

There were not a sufficient number of executives at our peer group companies who held a comparable position to Dr. Vink's to allow for a comparison of Dr. Vink's compensation to the peer group.

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        The following is a summary of the 2012 individual goals of our Other NEOs and their aggregate performance against these goals, as approved by the Compensation Committee:

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Long-term incentive awards

        Our LTI (equity) program is a broad-based, long-term employee retention program that is intended to attract, retain, and motivate our NEOs and align their interests with those of our stockholders. We use stock options to reward long-term value creation and RSUs as a retention tool and as a way to enable our executives to accumulate stock ownership in the company. In a volatile stock market, RSUs continue to provide value when stock options may not, which our Compensation Committee and Board believe is useful in retaining talented executives in uncertain economic times. We believe that our equity program is critical to our efforts to hire and retain the best talent in the extremely competitive biotechnology and pharmaceutical industries.

        For 2012, the size of our equity awards to our NEOs were targeted such that approximately 70% of the value came from stock options (based on Black-Scholes value calculations) and 30% from RSUs (based on grant date fair values), both of which vest over four years. We believe this mix of stock options and RSUs provided an appropriate balance of incentive and retention for our NEOs in light of our company's stage of growth. Furthermore, we believe that weighting our long-term equity awards in favor of stock options aligned the incentives of our executives with the interests of our stockholders and our long-term performance by directly tying a large portion of the value that may be realized from our equity compensation to an increase in our stock price. The Compensation Committee, with the assistance of PM&P, reviews this mix each year to ensure that appropriate balance is given to our retention and incentive objectives and that we remain aligned with the practices of our peer group. Starting in 2013, our Compensation Committee and our Board have decided to award our CEO PRSUs rather than RSUs with time-based vesting and to include PRSUs in the mix of equity vehicles used for our Other NEOs. Our CEO's 2013 annual LTI equity grant is divided approximately equally in value

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between stock options and PRSUs. The value of our Other NEOs' 2013 annual LTI equity-based compensation is divided approximately as follows: 50% stock options, 25% RSUs with time-based vesting and 25% PRSUs.

        In addition, the Compensation Committee and the Board are mindful of stockholder dilution when determining the annual equity grant amounts for our NEOs and other employees and the guidelines that it sets for grants that can be made for employee promotions and new hires. As a result, our average annual gross dilution percentage from 2010 to 2012, calculated as the average number of shares of common stock underlying new equity grants made during each year during the period, divided by the total number of outstanding shares of our common stock as of the end of the period, was 3.5%. We believe this level to be reasonable because it is the same as the median annual average of 3.5% for our peer group over this same period and when balanced against the goals of our LTI compensation program.

        The size of the equity awards approved by our Compensation Committee for each NEO, or by the Board in the case of Mr. Bonney, reflects Cubist's desired competitive positioning relative to peer company counterparts, the executive's individual responsibilities, individual contributions to company performance, expected future performance and retention value. In 2011 and 2012, the Compensation Committee and the Board authorized grants of stock options and RSUs to our NEOs, as follows:

        In determining the guidelines for the size of the 2012 annual LTI awards to our NEOs in February 2012, the Compensation Committee considered the equity compensation levels of comparable executives at our peer group companies and other companies across our industry using survey data compiled by PM&P, the company's performance, the NEO's performance relative to company annual and long-term objectives, the criticality of his role to our company and potential future contributions to our performance. The Compensation Committee and the Board increased the annual award value guidelines relative to the prior year's award values for all NEOs, largely in consideration of the significant company and individual NEO achievements in 2011.⁽¹⁶⁾

        With a grant date fair value of approximately $4.5 million, Mr. Bonney's 2012 long-term incentive compensation was above the 75^th percentile compared to the peer group and survey data used by the Compensation Committee. The Board determined this level to be appropriate given Mr. Bonney's significant contributions to the Company during 2011, his expected future performance and the desire to retain his services into the future.

⁽¹⁴⁾

In February 2012, Mr. Perez received a grant of 100,000 stock options and 20,000 RSUs. In connection with his promotion to President and Chief Operating Officer in July 2012, Mr. Perez received an additional grant of 25,000 stock options and 8,500 RSUs in August 2012.

⁽¹⁵⁾

Dr. Vink was hired in July 2012 and, therefore, did not receive a LTI award from the company in 2011. In connection with his hiring, Dr. Vink received 55,000 stock options and 8,500 RSUs.

⁽¹⁶⁾

Other than for Dr. Vink, who was hired in July 2012 and, therefore, was not an employee of the company in 2011.

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        On average, the grant date fair value of the 2012 LTI awards to our Other NEOs was approximately $1.7 million, putting our Other NEOs' 2012 long-term incentive compensation at about the 50^th percentile compared to the peer group and survey data used by the Compensation Committee. The Compensation Committee determined this level to be appropriate given the significant contributions of our Other NEOs during 2011, their respective expected future performance, and the desire to retain their respective services into the future.

Overall Relative Compensation

        The following table shows how our NEOs' base salary, annual cash-performance awards, LTI awards, and total compensation in 2011 and 2012 compare to our peers, as demonstrated by the percentiles at which our NEOs, other than Dr. Vink,⁽¹⁷⁾ rank in these categories based on the information available for our peer group and survey data used by the Compensation Committee, including the special peer group used to determine Mr. Perez's compensation.

Retention Letters

        All of our NEOs, other than Mr. McGirr, have retention letters with a fixed term of three years and which provide for severance payments, consisting of 24 months of salary continuation for Mr. Bonney and 18 months of salary continuation for Mr. Perez, Dr. Gilman and Dr. Vink, and other benefits if the NEO is terminated without cause or if the NEO is terminated without cause or resigns for good reason within 24 months after a change-in-control of the company. Mr. McGirr also had a retention letter during 2012 with the same terms as described above, but when he transitioned to Senior Advisor to the Chief Executive Officer on March 4, 2013, he entered into a transition agreement with the company that supersedes the terms of his retention letter. The transition agreement, which has a fixed term until June 1, 2014, provides for severance payments and other benefits if Mr. McGirr is terminated, other than for cause, following a change-in-control of the company. Termination benefits under the retention letters and transition agreement are not triggered solely by a change-in-control, and are therefore considered "double triggers."

        Among the other benefits included in the retention letters and transition agreement is that the equity incentives held by each NEO will fully vest in the event the NEO is entitled to severance payments. The retention letters and transition agreement do not provide for tax gross-up payments (including but not limited to Section 280G tax gross-ups) or any other perquisites or benefits to NEOs. Full details of the terms of the retention letters and the transition agreement and the value of the payments to be received thereunder pursuant to various termination scenarios can be found in the section of this Proxy Statement entitled "Termination of Employment and Change-in-Control Agreements." We believe that the benefits of the retention letters and transition agreement outweigh the potential costs in that they, among other things: assist us in attracting and retaining top executive talent by providing our executives with competitive severance arrangements; encourage frank discourse by our NEOs with Mr. Bonney and the Board, and between Mr. Bonney and the Board, by providing a

⁽¹⁷⁾

There were not a sufficient number of executives at our peer group companies who held a comparable position to Dr. Vink's to allow for a comparison of Dr. Vink's compensation to the peer group.

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financial safety net in order to limit the NEOs' fear of adverse consequences in response to their opinions; and better enable our NEOs to act in the best interest of our stockholders in a situation involving a potential change-in-control of the company. To ensure that these agreements remain reasonable and competitive, the Compensation Committee periodically reviews competitive data provided by PM&P, as well as potential costs to the company of the retention letters under various potential termination scenarios.

Perquisites and Personal Benefits

        Our Executive Officers are eligible to participate in the benefit programs that we provide to all employees at the same level as all other employees. We generally do not provide any significant perquisites to our NEOs that are not also offered to all employees of the company. In 2012, however, we provided Dr. Vink with perquisites valued at $27,689 for an educational benefit, a medical insurance benefit and a car allowance. We believe these benefits are consistent with compensation practices in Switzerland, where Dr. Vink is based.

Stock Ownership

        Our NEOs are subject to the stock ownership guidelines described in the table below. The guidelines are designed to align the interests of our NEOs with those of our stockholders by ensuring that our NEOs have a meaningful financial stake in our success. The amount of stock required to be held to satisfy ownership requirements, which includes vested in-the-money stock options, was established by the Board of Directors upon recommendation of the Compensation Committee. In making its recommendation, the Compensation Committee reviewed market practices of our then current peer group companies and determined the level of ownership that would best align the interests of our executives with those of our stockholders.

        As of January 1, 2013, Mr. Bonney and our Other NEOs who are required to meet the ownership requirement by January 1, 2013 had achieved the ownership requirement. The guidelines require that any Executive Officer who has passed the date on which he or she is required to meet the ownership requirement and does not meet the requirement may only sell vested in-the-money stock options and vested RSUs, provided that he or she retains shares of common stock with a market value of at least 50% of the net proceeds received as a result of such sale.

Anti-Hedging Policy

        As part of our Policy on Insider Trading and Confidentiality, all of our employees, including our NEOs, as well as our directors and consultants, are prohibited from engaging in speculative transactions in our stock, including short sales, puts/calls, hedging transactions and margin accounts or pledges.

Recoupment Policy

        The Board has adopted a policy providing that, if the independent members of the Board determine, in their reasonable and sole discretion, that any fraud, gross negligence or intentional misconduct by our CEO or CFO caused or contributed to us having to restate all or a portion of our financial statements, then the independent directors may take any action they deem necessary or appropriate to remedy the misconduct and prevent its recurrence. The policy further provides that the independent directors, to the fullest extent permitted by law in cases they deem appropriate, will

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require reimbursement to us by our CEO or CFO of any bonus or incentive compensation awarded to him, effect the cancellation of outstanding equity awards to him and seek reimbursement of any gains realized by him on the exercise or sale of any equity-based awards if and to the extent that: (a) the amount of the bonus or equity compensation was calculated based upon the achievement of certain financial results that were subsequently reduced due to a restatement, (b) our CEO or CFO engaged in any fraud, gross negligence or intentional misconduct that caused or contributed to the need for the restatement, and (c) the amount of the bonus or equity compensation that would have been awarded to our CEO or CFO had the results been properly reported would have been lower than the amount actually awarded. When final regulations regarding recoupment are available under the Dodd-Frank Act, we will revisit this policy and revise as necessary in accordance with then-existing law.

Impact of Accounting and Tax

        The Compensation Committee has considered the impact of Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation, or ASC Topic 718, on our use of equity incentives as a key retention tool. The Compensation Committee has determined that the current estimated costs of continuing to use equity incentives, including stock options and RSUs, relative to the benefits we believe these programs provide does not warrant any change to our current equity incentive framework.

        Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, limits the tax deduction for compensation paid to NEOs (with the exception of CFOs) to $1,000,000. This deduction limitation does not apply to compensation that constitutes "qualified performance-based compensation" within the meaning of Section 162(m) of the Internal Revenue Code and regulations promulgated thereunder, including certain performance-based compensation that has been approved by stockholders. Our stockholders have approved our existing employee equity incentive plan, the 2012 Equity Incentive Plan, or the 2012 Plan, and all of our previous equity incentive plans, which are designed to allow the deduction of income recognized in connection with stock options with time-based vesting and equity awards with performance-based vesting criteria awarded under the plans. In addition, our stockholders have approved our Management Incentive Plan, which is designed to allow the deduction of payments made under the plan. The Management Incentive Plan applies to annual cash performance awards to our four most highly compensated executives, other than our CFO, beginning with payments attributable to our 2011 performance. We have in the past, and may in the future, award compensation that is not fully deductible under the Internal Revenue Code when we view such compensation as consistent with our compensation policies and in the best interests of the company and our stockholders.

        Under our retention letters with our NEOs and transition agreement with Mr. McGirr, we do not compensate executives for any excise tax liability they may incur by reason of payments and benefits received pursuant to the letters. As a result, if an NEO is assessed any excise tax liability under Section 280G of the Internal Revenue Code as a result of payments and benefits received under a retention letter, that NEO is responsible for the payment of such excise tax.

Equity Granting Practices

        We have never had a program or policy in place to coordinate equity grants with the release of material, non-public information. Throughout the year, we issue stock option and RSU awards to our employees and, beginning in 2013, PRSU awards to our NEOs, in connection with hiring, promotion and our annual performance cycle. In addition, the Compensation Committee has authorized a pool of shares of our common stock from which Mr. Bonney may issue equity awards from time to time during the year in recognition of extraordinary results. All options are priced no lower than the closing market price of our common stock on the grant date. The Compensation Committee approves guidelines for equity awards issued in connection with hiring, promotion and our annual performance cycle. Mr. Bonney is required to further approve or delegate authority to approve all individual awards issued in accordance with the foregoing pools and guidelines. The Compensation Committee must approve all awards of stock options, RSUs and PRSUs to Executive Officers other than Mr. Bonney and all awards to non-Executive Officers that are made outside of pre-approved guidelines, and the Board must approve all awards of stock options, RSUs and PRSUs to Mr. Bonney.

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Summary Compensation Table

        The following table summarizes the compensation paid to or earned by our NEOs in the years covered in the table.

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Grants of Plan-Based Awards in 2012

        The following table sets forth information concerning grants of plan-based awards made to our NEOs during 2012.