LRCX Lam Research Corporation

Figure 7. Executive Compensation Highlights

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The terms of any outstanding stock options that are now exercisable or will become exercisable within 60 days after September 4, 2020, and RSUs that will vest within that time period, are reflected in “Figure 50. FYE2020 Outstanding Equity Awards,” except as described in the following sentences. Scott G. Meikle, Ph.D. and Vahid Vahedi, Ph.D. have options covering 3,876 and 4,861 shares, respectively, which are unexercised and exercisable within 60 days of September 4, 2020. The grants for Drs. Meikle and Vahedi have terms consistent with the terms reflected in “Figure 50. FYE2020 Outstanding Equity Awards.”

As discussed in “Governance Matters – Director Compensation” below, the non-employee directors receive an annual equity grant as part of their compensation. These grants generally vest on October 31, 2020, subject to continued service on the board as of that date, with immediate delivery of the shares upon vesting. For 2020, Messrs. Ahmed, Brandt, Cannon, and Talwalkar; Drs. El-Mansy and Tsai; and Mses. Lego, Mayer and Varon each received grants of 770 RSUs.

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Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires our executive officers, directors, and people who own more than 10% of a registered class of our equity securities to file an initial report of ownership (on a Form 3) and reports on subsequent changes in ownership (on Forms 4 or 5) with the SEC by specified due dates. Our executive officers, directors, and greater-than-10% stockholders are also required by SEC rules to furnish us with copies of all section 16(a) forms they file. We are required to disclose in this proxy statement any failure to file any of these reports on a timely basis. Based solely on our review of the copies of the forms filed electronically with the SEC, and on written representations from certain reporting persons, we believe that all of these requirements were satisfied during fiscal year 2020, with the exception of one late Form 4 for Scott Meikle, Ph.D., filed on November 21, 2019 to report the sale of 2,000 shares of Lam Research common stock on November 1, 2019. In addition, on August 12, 2020, Dr. El-Mansy filed a Form 5 reporting transfers of shares of Lam Research common stock held by Dr. El-Mansy to a family trust on nine occasions during fiscal years 2014, 2015, 2016, 2017 and 2018. Following the transfers, the transferred shares held by the trust continued to be reported as directly held and beneficially owned by Dr. El-Mansy. The transfers should have been reported on Form 5s filed within 45 days following the end of each of those fiscal years, and the shares held by the trust thereafter reported as indirectly held and beneficially owned by Dr. El-Mansy.

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Corporate Governance

Our Board and members of management are committed to responsible corporate governance to manage the Company for the long-term benefit of its stockholders. To that end, the Board and management periodically review and update, as appropriate, the Company’s corporate governance policies and practices. As part of that process, the Board and management consider the requirements of federal and state law, including rules and regulations of the SEC; the listing standards for the Nasdaq Global Select Market, or “Nasdaq”; published guidelines and recommendations of proxy advisory firms; published guidelines of some of our top stockholders; published guidelines of other selected public companies; and any feedback we receive from our stockholders. A list of key corporate governance practices is provided in the “Proxy Statement Summary” above.

Corporate Governance Policies

We have instituted a variety of policies and procedures to foster and maintain responsible corporate governance, including the following:

Our Approach To Ensuring Board Effectiveness

As part of the Board’s commitment to responsible corporate governance, we have developed a number of practices that together serve to ensure that, over time, the Board continues to function in an effective manner that serves the long-term interests of the Company and its stockholders. Several of the practices that we consider to be most important and summarized in Figure 10 below, and the practices themselves are described in greater detail below.

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Figure 10. Board Effectiveness Practices

Board and committee evaluations. Every year, the Board conducts a self-evaluation of the Board, its committees, and the individual directors, overseen by the nominating and governance committee. From time to time, the evaluation is facilitated by an independent third-party consultant. The evaluation solicits the opinions of the directors regarding the effectiveness of the Board, Board committees, and individual directors in fulfilling its/their obligations. Feedback on Board and committee effectiveness is provided to the full Board for discussion, and feedback regarding individual director performance is provided to each individual director. The Board and committees identify and hold themselves accountable for action items stemming from the evaluation. The results of the evaluations are also considered as part of the director nomination process.

Board composition, diversity and refreshment. The Board and the nominating and governance committee regard board refreshment as important, and strive to maintain an appropriate balance of tenure, turnover, diversity, and skills to meet the needs of the Company and the Board. In consideration of the Company’s evolving strategic priorities and as part of its refreshment planning, the nominating and governance committee regularly evaluates the Board’s composition, skills and experiences, diversity, and committee assignments to ensure that the Board functions effectively. See “Proxy Statement Summary - Figure 4. Director Nominee Key Qualifications, Skills and Experiences Highlights” and “Proxy Statement Summary - Figure 5. Director Nominee Composition Highlights” for additional information. In line with the Board’s pursuit of board refreshment and balanced tenure, the Board in 2019 appointed three new directors.

The Board is committed to diversity, and for many years, the composition of the Board has reflected that commitment. As illustrated in “Proxy Statement Summary - Figure 5. Director Nominee Composition Highlights”, 67% of our nominees are diverse either as to gender or as to ethnicity/race. Every year since 2006, the Board has had at least two female directors, and starting in 2019, the total number of female directors increased to three. This year, 33% of our nominees are diverse with respect to ethnicity/race. In addition, over the last 10 years, the Board has appointed directors who have expanded the experiences, areas of substantive expertise, and geographic and industry diversity of the Board, as illustrated by the information provided in their biographies under “Voting Proposals - Proposal No. 1: Election of Directors - 2020 Nominees for Director” below.

The Board is also committed to the pursuit of Board refreshment and balanced tenure. The Board believes that new perspectives and ideas are important to a forward-looking and strategic board, as is the ability to benefit from the valuable experience and familiarity of longer-serving directors who can bring to bear their learnings from their experience with the Company and with the industry and business environment in which the Company operates. Our corporate governance guidelines do not impose a term limit on Board service; however, the Board regularly assesses the directors’ tenure mix and strives to maintain a balance that will ensure both fresh perspectives and experience on the Board.

The Board also considers refreshment and tenure with respect to the leadership and membership of its standing committees, and the nominating and governance committee evaluates short-term and long-term roadmaps for committee membership and leadership on a regular basis.

Director onboarding and education. To ensure that new directors are able to effectively participate in and contribute to the Board as quickly as possible, we provide a comprehensive orientation and onboarding program for our new directors. Upon joining the Board, new directors participate in an orientation program which includes introductions to other Board members and our senior management team, and in depth learning about our industry, business, technology, operations, culture, people, performance, strategic plans, risk management and corporate governance practices, among other topics. The onboarding process also includes tours of one or more of our manufacturing or lab facilities. In addition, each new director is partnered with a longer-tenured director to facilitate his or her integration into the Board. First time directors (i.e. those without prior public company board experience) are encouraged to attend an outside course shortly after joining the Board.

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Our Board is also committed to ongoing education. Our corporate governance guidelines provide that directors are expected to participate in educational events sufficient to maintain their understanding of their duties as directors and to enhance their ability to fulfill their responsibilities. In addition to any external educational opportunities that the directors find useful, the Company and the board leadership are expected to facilitate such participation by arranging for appropriate educational presentations from time to time.

Board Nomination Policies and Procedures

Board membership criteria. Under our corporate governance guidelines, the nominating and governance committee is responsible for recommending nominees to the independent directors, and the independent directors nominate the slate of directors for approval by our stockholders. In making its recommendations, whether for new or incumbent directors, the committee assesses the appropriate balance of experience, skills, and characteristics required for the Board at the time.

Factors to be considered by the nominating and governance committee may include, but are not limited to:

In addition, our corporate governance guidelines provide that a director may not be nominated for re-election or reappointment to the Board after having attained the age of 75 years. To be nominated, a new or incumbent candidate must provide an irrevocable conditional resignation that will be effective upon (1) the director’s failure to receive the required majority vote at an annual meeting at which the nominee faces re-election and (2) the Board’s acceptance of such resignation.

Upon the recommendations of the nominating and governance committee, the independent members of the Board have nominated nine of our current directors for re-election to serve on the Board. One current director, Dr. El-Mansy, was ineligible to be nominated under the age requirement described above, and as previously disclosed in a current report on Form 8-K, is retiring from the Board effective as of November 1, 2020. The size of the Board will be reduced to nine prior to the annual meeting. Each nominee’s key qualifications, skills, and attributes considered most relevant to the nomination of the candidate to serve on the Board are reflected in his or her biography under “Voting Proposals - Proposal No. 1: Election of Directors - 2020 Nominees for Director” below. For a summary of the key qualifications, skills, and attributes of the nominees to the Board, see “Proxy Statement Summary - Figure 4. Director Nominee Key Qualifications, Skills and Experiences Highlights.”

Nomination procedure. The nominating and governance committee sets specific qualifications for new directors, and identifies, screens, evaluates, and recommends qualified candidates for appointment or election to the Board. The committee considers recommendations from a variety of sources, including search firms, Board members, executive officers, and stockholders. Nominations for election by the stockholders are made by the independent members of the Board. New candidates to join the Board typically meet with our chair, our lead independent director (if applicable), members of the nominating and governance committee, additional board members, and our president and CEO, as well as representatives of the Company’s executive team, prior to being considered for recommendation by the nominating and governance committee for appointment to the Board. See “Voting Proposals - Proposal No. 1: Election of Directors - 2020 Nominees for Director” below for additional information regarding the 2020 candidates for election to the Board.

Certain provisions of our bylaws apply to the nomination or recommendation of candidates by a stockholder. For example, our bylaws provide that under certain circumstances, a stockholder, or group of up to 20 stockholders, who have maintained continuous ownership of at least three percent (3%) of our common stock for at least three years may nominate and include a specified number of director nominees in our annual meeting proxy statement that cannot exceed the greater of two or 20% of the aggregate number of directors then serving on the Board (rounded down). Information regarding the nomination procedure is provided in the “Voting and Meeting Information - Other Meeting Information - Stockholder-Initiated Proposals and Nominations for 2021 Annual Meeting” section below.

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Director Independence Policies

Board independence requirements. Our corporate governance guidelines require that a majority of the Board members be independent. No director will qualify as “independent” unless the Board affirmatively determines that the director qualifies as independent under the Nasdaq rules and has no relationship that would interfere with the exercise of independent judgment as a director. In addition, no non-employee director may serve as a consultant or service provider to the Company without the approval of a majority of the independent directors (and any such director’s independence must be reassessed by the full Board following such approval).

Board member independence. The Board has determined that all current directors, other than Mr. Archer, are independent in accordance with Nasdaq criteria for director independence. In making the determination, the Board considered prior employment with the Company, disclosed related party transactions, known familial relationships of directors with employees (not involving immediate family members) and commercial transactions involving other parties with common directorships, none of which qualified as related party transactions or were considered by the Board to interfere with the exercise of independent judgment as a director.

Board committee independence. All members of the Board’s audit, compensation and human resources, and nominating and governance committees must be non-employee or outside directors and independent in accordance with applicable Nasdaq criteria as well as Rule 16b-3 of the Exchange Act. See “Board Committees” below for additional information regarding these committees.

Lead independent director. Our corporate governance guidelines authorize the Board to designate a lead independent director from among the independent members. As described below under “Leadership Structure of the Board,” an independent director, Mr. Talwalkar, currently serves as chairman of the Board, and as a result the Board has not designated a lead independent director.

Executive sessions of independent directors. The Board and its audit, compensation and human resources, and nominating and governance committees hold meetings of the independent directors and committee members, without management present, as part of each regularly scheduled meeting and at any other time at the discretion of the Board or committee, as applicable.

Board access to independent advisors. The Board as a whole, and each standing Board committee separately, has the complete authority to retain, at the Company’s expense, and terminate, in their discretion, any independent consultants, counselors, or advisors as they deem necessary or appropriate to fulfill their responsibilities.

Leadership Structure of the Board

The Company’s governance framework provides the Board with the authority and flexibility necessary to select the appropriate leadership structure for the Board. In making determinations about the leadership structure, the Board considers many factors, including the specific needs of the business and what is in the best interests of the Company’s stockholders.

Under our corporate governance guidelines, the Board’s leadership structure includes a chair and may also include a separate lead independent director. Currently, Mr. Talwalkar, an independent director, serves as chairman of the Board, and as a result the Board has not designated a lead independent director.

The chair’s duties include (1) preparing the agenda for the Board meetings with input from the CEO, the Board, and the committee chairs; (2) upon invitation, attending meetings of any of the Board committees of which he or she is not a member; (3) conveying to the CEO, together with the chair of the compensation and human resources committee, the results of the CEO’s performance evaluation; (4) reviewing proposals submitted by stockholders for action at meetings of stockholders and, depending on the subject matter, determining the appropriate body, among the Board or any of the Board committees, to evaluate each proposal, and making recommendations to the Board regarding action to be taken in response to such proposal; (5) as requested by the Board, providing reports to the Board on the chair’s activities; (6) coordinating and developing the agenda for, and moderating executive sessions of the Board’s independent directors; (7) conveying to the CEO, as appropriate, discussions from executive sessions of the Board’s independent directors; and (8) performing such other duties as the Board may reasonably request from time to time.

Other Governance Practices

In addition to the principal policies and procedures described above, we have established a variety of other practices to enhance our corporate governance, including the following:

Director resignation or notification of change in executive officer status. Under our corporate governance guidelines, any director who is also an executive officer of the Company must offer to submit his or her resignation as a director to the Board if the director ceases to be an executive officer of the Company. The Board may accept or decline the offer, in its discretion. The corporate governance guidelines also require a non-employee director to notify the nominating and governance committee if the director changes or retires from his or her executive position at another public company. The nominating and governance committee reviews the appropriateness of the director’s continuing Board membership under the circumstances, and the director is expected to act in accordance with the nominating and governance committee’s recommendations.

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Limitations on other board and committee memberships. The Board believes that it is critical that directors dedicate sufficient time to their service on the Board. Under our corporate governance guidelines, Board members may not serve on more than four public company boards (including service on the Company’s Board). Non-employee directors who are executive officers at other public companies may not serve on more than two public company boards (including the Company’s Board). In addition, non-employee directors may not serve on more than three audit committees of public company boards (including the Company’s audit committee), unless approved by the nominating and governance committee. Finally, the Company’s CEO may not serve on more than one other public company board.

Director and executive stock ownership. Under the corporate governance guidelines, each director is expected to own at least the lesser of five times the value of the annual cash retainer (not including any committee chair or other supplemental retainers for directors) or 5,000 shares of Lam common stock, by the fifth anniversary of his or her initial election to the Board. Guidelines for stock ownership by designated members of the executive management team are described below under “Compensation Matters—Executive Compensation and Other Information—Compensation Discussion and Analysis.” All of our directors and designated members of our executive management team were in compliance with the Company’s applicable stock ownership guidelines at the end of fiscal year 2020 or have a period of time remaining under the guidelines to meet the requirements.

Communications with board members. Any stockholder who wishes to communicate directly with the Board, with any Board committee, or with any individual director regarding the Company may write to the Board, the committee, or the director c/o Secretary, Lam Research Corporation, 4650 Cushing Parkway, Fremont, California 94538. The Secretary will forward all such communications to the appropriate director(s).

Any stockholder, employee, or other person may communicate any complaint regarding any accounting, internal accounting control, or audit matter to the attention of the Board’s audit committee by sending written correspondence by mail (to Lam Research Corporation, Attention: Board Audit Committee, P.O. Box 5010, Fremont, California 94537-5010) or by telephone (855-208-8578) or internet (through the Company’s third-party provider website at www.lamhelpline.ethicspoint.com). The audit committee has established procedures to ensure that employee complaints or concerns regarding audit or accounting matters will be received and treated anonymously (if the complaint or concern is submitted anonymously and if permitted under applicable law).

Meeting Attendance

Our Board held a total of ten meetings during fiscal year 2020. The number of committee meetings held is shown in Figures 11-13. All of the directors attended at least 75% of the aggregate number of Board meetings and meetings of Board committees on which they served during their tenure in fiscal year 2020.

We expect our directors to attend the annual meeting of stockholders each year unless unusual circumstances make attendance impractical. All of the individuals who were directors as of the 2019 annual meeting of stockholders attended that meeting.

Board Committees

The Board has three standing committees: an audit committee, a compensation and human resources committee, and a nominating and governance committee. The purpose, membership, and charter of each are described below. Copies of each charter are available on the Investors section of our website at https://investor.lamresearch.com/corporate-governance.

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Board’s Role and Engagement

General. The Board oversees the management of the business and affairs of the Company. In this oversight role, the Board serves as the ultimate decision-making body of the Company, except for those matters reserved for the stockholders. Board agendas facilitate dialogue between the Board and management regarding drivers of long-term stockholder value and key strategic and operational risks.

The Board and its committees have the primary responsibilities for:

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Risk Oversight. The Board is actively engaged in risk oversight. Management regularly reports to the Board on its risk assessments and risk mitigation strategies for the major risks of our business. Generally, the Board exercises its oversight responsibility directly; however, in specific cases, such responsibility has been delegated to committees of the Board. Committees that have been charged with risk oversight regularly report to the Board on those risk matters within their areas of responsibility. Risk oversight responsibility has been allocated between the Board and its committees as summarized in Figure 14 and described in more detail below.

Figure 14. Risk Oversight

Stockholder Engagement

We believe that engagement with our stockholders is an important part of effective corporate governance. Our senior management, including our president and CEO, chief financial officer (CFO) and members of our Investor Relations team, maintain regular contact with a broad base of investors through quarterly earnings calls, meetings, investor day events, industry conferences and other investor and industry events. In addition, we regularly engage with major stockholders on governance matters, including executive compensation and ESG topics. The outreach is generally conducted outside of our proxy solicitation period and, depending on the topics, includes members of our Legal, Investor Relations and Human Resources functions, and may also include members of the Board. During the proxy solicitation period, we may also engage with our stockholders about topics to be addressed at our annual meeting of stockholders. Our process for engaging with stockholders on governance topics and annual meeting proposals is summarized in Figure 15 below.

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Through these engagements, we receive valuable input from our stockholders which helps us to evaluate key initiatives from additional perspectives. We share the opinions and information received from our stockholders with the Board. Over the last few years, we have heard from stockholders about their views on subjects such as executive compensation, ESG considerations, culture, leadership transitions, proxy access, returning capital to stockholders, director tenure, board refreshment, director skills and experiences, and board and workforce diversity. Understanding the feedback shared with us, we have adopted proxy access, have maintained our focus on board diversification, board refreshment based on skills and experiences, workforce diversity, and pay for performance, and have enhanced our proxy statement and Corporate Social Responsibility, or CSR, Report disclosures.

We engaged in extensive stockholder outreach on governance topics and annual meeting proposals in 2019, both prior to and during the proxy solicitation period, as illustrated in Figure 16 below. After Institutional Shareholder Services, or ISS, issued a voting recommendation against our Say on Pay proposal, we supplemented the outreach we had carried out prior to the proxy solicitation period, by contacting stockholders holding in total over 50% of our shares and offering the opportunity to discuss any concerns they might have with either Ms. Lego, the chair of the compensation and human resources committee, or Mr. Talwalkar, our then lead independent director (and current Board chairman). Ms. Lego or Mr. Talwalkar participated in meetings with stockholders holding in total approximately 29% of our shares. We have summarized our governance outreach efforts, and described the topics discussed, in Figure 16 below, as well as in “Compensation Discussion and Analysis – Overview of Executive Compensation – 2019 Say on Pay Voting Results and Stockholder Outreach”:

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Culture and Human Capital Management

The Board is actively engaged in overseeing our culture and the management of human capital. In 2019, the Board amended the charter of what was previously known as the compensation committee (now the compensation and human resources committee) to include additional responsibilities with respect to organizational and people matters, including the review of executive officer succession plans as described below, review of employee engagement programs, and review of ESG matters relating to the Company’s workforce, including inclusion and diversity and the workforce portion of the Company’s CSR report.

One of the Board’s primary responsibilities is to oversee the performance, development and succession of our executive talent; however, the Board’s investment in people development extends beyond the executive team. The Board and the compensation and human resources committee engage with management across a broad range of human capital related topics. Under the Board’s oversight, we have focused on employee engagement, inclusion and diversity, professional development, recognition, safety, and wellness, with the goal of ensuring Lam is a place where everyone can do their best work. In 2019, we started conducting a new series of employee pulse surveys focused on employee engagement, culture, inclusion and diversity, manager effectiveness, and communications. The surveys provide management and the Board with valuable employee feedback and help ensure the executive leadership team is focused on and held accountable for fostering and promoting a culture that is consistent with Lam’s Mission, Vision and Core Values and our inclusion and diversity goals. Based on employee feedback, we launched a new inclusion and diversity training program focused on unconscious bias and microinequities, expanded self-service resources available for professional development, facilitated the creation of additional employee resource groups, created new job rotation and mentoring programs, and expanded our management training offerings. As is discussed below in “Compensation Matters – Executive Compensation and Other Information – Compensation Discussion and Analysis,” for calendar year 2020, all of our named executive officers have compensation goals related to culture, talent, and inclusion and diversity, to help ensure the members of our executive team are aligned with our corporate goals in these areas and are accountable for the results achieved.

The Board believes that visits to Company facilities and direct engagement with employees enable it to judge the Company’s cultural journey first-hand. Since 2017, the Board has visited our facilities in Fremont, Livermore, Tualatin, Taiwan and South Korea, and met directly with employees in small groups at all these locations in order to engage with and hear directly from them. Due to the pandemic, these in-person meetings have been paused in recent months, and are expected to resume when the circumstances permit.

We are committed to equal opportunity and non-discrimination in our employment practices, including equitable compensation for work performed. The charter of our compensation and human resources committee includes oversight responsibility for our compensation policies and practices related to pay equity laws. We maintain robust employment policies and procedures to reinforce our commitment to equal opportunity, non-discrimination, and pay equity. Our policies and procedures prohibit discrimination, harassment or retaliation in any aspect of employment, including recruiting, hiring, promotion, or compensation.

Corporate Social Responsibility

An important part of advancing the industry and empowering progress is being a socially responsible company. We invest in environmental, social, and economic responsibility across our business and integrate corporate social responsibility principles into our day-to-day operations. Our CSR strategy is composed of six key pillars. This framework focuses our attention on our most important topics and pressing challenges, while helping us to deliver value to our stakeholders.

Business and Governance. Our core values underpin our commitments to sustainable growth and to making a positive contribution to people and the planet. We are committed to responsible and sustainable business practices and continuous improvement in our own operations, in our partnerships with our customers, across our supply chain and in our engagements with our other stakeholders. Goals and objectives are approved by senior leadership, including the CEO. Our management also meets regularly with the Board and its committees to discuss CSR strategy, gain alignment on plans and goals, and report on progress.

Workplace. As described above in the “Culture and Human Capital Management” section, guided by our Core Values, we strive to provide a work environment that fosters inclusion and diversity, ensures every voice can be heard, and enables employees to achieve their full potential. We aim to maintain a collaborative, supportive, and opportunity-rich culture that enhances innovation and employee engagement. Throughout the COVID-19 pandemic, our focus and priority have remained on the health, safety, and well-being of our employees. We implemented health and safety procedures throughout our sites, distributed relief and recovery funds to employees, and offered benefits and other employee assistance programs to those experiencing disruptions due to the pandemic.

Community. We believe that positively involving our employees and giving back to our community is central to our culture and an expression of our Core Values. Our charitable giving includes employee volunteer hours, the Lam Research Foundation grant program, and employee donations. Our global philanthropy and volunteerism programs provide financial and human services to improve education and quality of life in the communities in which we operate. As a successful equipment supplier in the technology industry, we encourage students to pursue science, technology, engineering and math, or “STEM,” careers, engage in activities

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that give young people visibility into careers in the semiconductor industry, and support those students who demonstrate excellence in the STEM fields. We are also committed to creating positive impacts in communities around the world by contributing to local, national, and international organizations that support community needs such as hunger, food and water security, disadvantaged children and senior citizens, health improvement, and environmental protection. As part of our COVID-19 relief and recovery efforts, we have donated funds to our communities for both short-term assistance and longer-term recovery, including a portion dedicated to organizations supporting Black communities that have been disproportionately affected by the pandemic. We have also donated funds in support of initiatives fighting social injustice, by contributing to organizations that are working to end systemic racism through education, reform, and legislation.

Sustainable Operations. As the world tackles climate change and other critical environmental issues, we seek to do our part by responsibly managing our impact with global goals for energy efficiency, greenhouse gas emissions, water conservation, and waste reduction. We carefully monitor and manage our environmental impact across our business and work to implement cost-effective best practices, focusing our efforts where we believe we can have the biggest long-term impact. We look at impacts from procurement to manufacturing, during research and development, or “R&D,” and product design, and throughout a product’s lifecycle. We carefully manage our greenhouse gas emissions, set goals, and report progress annually to the CDP (formerly the Carbon Disclosure Project) and through our annual CSR report. We aim to protect the health and safety of our personnel throughout our entire operation, including our offices, manufacturing sites, R&D centers, and our field team working at customer sites.

Products and Customers. We develop innovative products and solutions that meet or exceed safety requirements and incorporate energy efficiency features that benefit our customers and the environment. We also strive to extend the life of our products and solutions to enable our customers to realize greater value from our products with a potentially lower environmental impact.

Responsible Supply Chain. We understand the importance of an ethical and responsible supply chain, and we engage with our suppliers to address a wide range of issues including human rights, supplier diversity, environmental impact, and mineral sourcing. We are a strong proponent of supply chain-related industry standards and have adopted the standard guidelines published by the Institute for Supply Management, or “ISM,” “Principles And Standards Of Ethical Supply Management Conduct With Guidelines.” In 2019, Lam joined as an affiliate member of the Responsible Business Alliance, or “RBA. We have also adopted the RBA Code of Conduct. All direct suppliers are expected to comply with our Global Supplier Code of Conduct, which requires suppliers’ adherence to both the RBA Code of Conduct and the ISM Guiding Principles, which cover ethics, integrity, transparency, anti-corruption, conflict minerals, human trafficking, environmental sustainability, and social responsibility.

For more information about our corporate social responsibility efforts, please refer to our CSR report available on the Corporate Social Responsibility section of our website at https://www.lamresearch.com/company/corporate-social-responsibility/.

Each non-employee director also receives an annual equity grant on the first Friday following the annual meeting. For the grants made in November 2019, these had a targeted grant date value equal to $210,000 (the number of RSUs subject to the award is determined by dividing $210,000 by the closing price of a share of Company common stock as of the date of grant, rounded down to the nearest 10 shares). These grants generally vest on October 31 in the year following the grant and are subject to the terms and conditions of the Company’s 2015 Stock Incentive Plan, as amended, or the “2015 Plan,” and the applicable award agreements. These grants immediately vest in full: (1) if a non-employee director dies or becomes subject to a “disability” (as determined pursuant to the 2015 Plan), (2) upon the occurrence of a “Corporate Transaction” (as defined in the 2015 Plan), or (3) on the date of the annual meeting, if the annual meeting during the year in which the award was expected to vest occurs prior to the vest date and the non-employee director is not re-elected or retires or resigns effective immediately prior to the annual meeting. Non-employee directors who commence service after the annual award has been granted receive on the first Friday following the first regularly scheduled, quarterly Board meeting attended a pro-rated grant based on the number of regularly scheduled, quarterly Board meetings remaining in the year as of the effective date of the director’s appointment. The pro-rated grants are subject to the same vesting schedule, terms and conditions as the annual equity awards, except that if the award is granted on the first Friday following the regularly scheduled quarterly November Board meeting, the grant vests immediately.

On November 8, 2019, each director at such time other than the president and CEO received a grant of 770 RSUs for service during calendar year 2020. Unless there is an acceleration event, these RSUs granted to each current director for service during calendar year 2020 will vest in full on October 31, 2020, subject to the director’s continued service on the Board. The following table shows compensation for fiscal year 2020 for persons serving as directors during fiscal year 2020 other than Mr. Archer:

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Other benefits. Any members of the Board enrolled in the Company’s health plans on or prior to December 31, 2012, can continue to participate after retirement from the Board in the Company’s Retiree Health Plans. The Board eliminated this benefit for any person who became a director after December 31, 2012. The most recent valuation of the Company’s accumulated post-retirement benefit obligation under Accounting Standards Codification 715, Compensation-Retirement Benefits as of June 28, 2020, for eligible directors and the current directors who may become eligible, is shown below. Factors affecting the amount of post-retirement benefit obligation include current age, age at retirement, coverage tier (e.g., single, plus spouse, plus family), interest rate, and length of service.

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Executive Compensation and Other Information

Compensation Discussion and Analysis

This Compensation Discussion and Analysis, or “CD&A,” describes our executive compensation program. Our CD&A discusses compensation earned by our fiscal year 2020 “Named Executive Officers,” or “NEOs,” who are as follows:

Our CD&A is organized according to the following structure:

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I. OVERVIEW OF EXECUTIVE COMPENSATION

To align with stockholders’ interests, our executive compensation program is designed to foster a pay-for-performance culture and achieve the executive compensation objectives described in “Executive Compensation Philosophy and Program Design - Executive Compensation Philosophy” below. We have structured our compensation program and payouts to reflect these goals. Highlights of our executive compensation program are listed in “Proxy Statement Summary – Figure 7. Executive Compensation Highlights” above. Our president and CEO’s compensation in relation to each of our revenue and net income, as well as the Company’s cumulative five-year total shareholder return on common stock compared against the cumulative returns of other indexes, are shown below.

Figure 21. FY2015-FY2020 CEO Pay for Performance

CEO Pay for Performance

The graph below compares Lam’s cumulative five-year total shareholder return on common stock with the cumulative total returns of the Nasdaq Composite Total Return Index, the Standard & Poor’s (“S&P”) 500 (TR) Index, and the Philadelphia Semiconductor Sector Total Return Index. The graph tracks the performance of a $100 investment in our common stock and in each of the indices (with the reinvestment of all dividends) for the five years ended June 28, 2020.

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Figure 22. Comparison of Cumulative Five-Year Total Return

COMPARISON OF CUMULATIVE FIVE-YEAR TOTAL RETURN*

Among the Company, the Philadelphia Semiconductor Sector Total Return Index,

the Nasdaq Composite Total Return Index, and

the S&P 500 (TR) Index

To understand our executive compensation program fully, we believe it is important to understand:

Our Business, Our Industry Environment, and Our Financial Performance

An overview of our business and industry environment is set forth in “Proxy Statement Summary” on page 1.

Although we have a June fiscal year end, our executive compensation program is generally designed and oriented on a calendar year basis to correspond with our calendar year-based business planning. This CD&A generally reflects a calendar year, or “CY”, orientation rather than a fiscal year, or “FY”, orientation, as shown below. The Executive Compensation Tables at the end of this CD&A are based on our fiscal year, as required by SEC regulations.

Figure 23. Executive Compensation Calendar-Year Orientation

In calendar year 2019 demand for semiconductor equipment declined relative to calendar year 2018, with memory segment spending in particular declining significantly year-over-year. Against this challenging backdrop, Lam delivered strong financial performance.

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Highlights for calendar year 2019:

In the first half of calendar year 2020, wafer fabrication equipment spending has strengthened in the NAND and Foundry/Logic segments, driven by increases in semiconductor demand and our customers’ technology-oriented investments. The COVID-19 pandemic has created volatility for the semiconductor industry, but we are seeing improvements in our own operations and those of our suppliers.

In an improved wafer fabrication spending environment, Lam has delivered solid operating income and cash generation with revenues of $5.3 billion, and operating cash flows of $1.4 billion earned from the March and June 2020 quarters combined.

Executive Compensation Philosophy and Program Design

Executive Compensation Philosophy

The philosophy of our compensation and human resources committee that guided this year’s awards and payout decisions is that our executive compensation program should:

Our compensation and human resources committee’s executive compensation objectives are to motivate:

Program Design

Our program design incorporates an annual review of the compensation elements. However, a review can be undertaken whenever there is a change in roles or responsibilities or a new hire joins the Company.

Our program design uses a mix of annual and long-term components, and a mix of cash and equity components. Our executive compensation program includes base salary; an annual incentive program, or “AIP”; a long-term incentive program, or “LTIP”; promotion, retention and/or new hire awards whenever necessary; as well as stock ownership guidelines and a compensation recovery policy. The primary elements of our executive compensation program are listed in Figure 24 below and are described in more detail in “III. Primary Components of NEO Compensation; CY2019 Compensation Payouts; CY2020 Compensation Targets and Metrics” below.

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As illustrated below, our program design is weighted toward performance and stockholder value. The performance-based program components include annual incentive program cash payouts and market-based equity and stock option awards under the LTIP.

Figure 25. CY2020 Average NEO Target Pay Mix

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2019 Say on Pay Voting Results and Stockholder Outreach

We evaluate our executive compensation program and practices at least annually. Among other things, we consider the outcome of our most recent advisory vote on executive compensation, or Say on Pay, and input we receive from our stockholders. The primary components of our executive compensation program have remained consistent over the last several years, and until last year, stockholders have historically cast greater than 90% of votes in favor of the Say on Pay proposal, as shown in Figure 26 below. In 2019, our stockholders approved our 2019 Say on Pay proposal by a vote of 67.1% of votes cast in favor, 29.3% cast against, and 3.6% abstaining. Excluding abstentions, 69.6% of votes were cast for, as compared to 30.4% of votes cast against.

Figure 26. Historical Say on Pay Votes ⁽¹⁾

While we believe that our most recent Say on Pay vote signifies our stockholders’ continuing support of our executive compensation program and practices, we recognize that some of our stockholders have concerns regarding certain compensation decisions made in fiscal year 2019, which contributed to the lower level of support our Say on Pay proposal received in 2019.

As is described above in more detail above in “Governance Matters – Corporate Governance – Stockholder Engagement,” we engage regularly with our stockholders, typically outside of our proxy solicitation period, on matters including compensation. In 2019, after Institutional Shareholder Services, or ISS, recommended that stockholders vote against our Say on Pay proposal, we engaged in additional outreach to our stockholders during the proxy solicitation period, in order to understand and address any concerns they might have relating to executive compensation and our Say on Pay proposal. The chair of our compensation and human resources committee, Catherine P. Lego, or our then-Lead Independent Director, Abhijit Y. Talwalkar, led these discussions.

The primary topic of discussion was the one-time issuance of promotion and retention equity awards that we granted to our CEO and CFO, respectively, in connection with our leadership transition that occurred at the end of 2018, and in particular, with the absence of performance-based vesting. In addition, some stockholders also expressed an interest in better understanding how the individual performance factor component of our annual incentive program is associated with the achievement of business results and supports our pay for performance philosophy. Figure 27 below summarizes what we heard from our stockholder outreach with respect to executive compensation, our perspective on those views, and what we are doing in response.

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Other than the changes noted above, our compensation and human resources committee determined to maintain our executive compensation program and practices in their current form for calendar year 2020, in light of our stockholders’ continuing support.

II. EXECUTIVE COMPENSATION GOVERNANCE AND PROCEDURES

Role of the Compensation and Human Resources Committee

Our Board has delegated certain responsibilities to the compensation and human resources committee, or for purposes of this CD&A, the “committee,” through a formal charter. The committee¹ oversees the compensation programs in which our president and chief executive officer and our CEO’s direct executive and senior vice president reports participate. The independent members of our Board approve the compensation packages and payouts for our CEO. The CEO is not present for any decisions regarding his compensation packages and payouts.

Committee responsibilities include, but are not limited to:

The committee is authorized to delegate its authority and responsibilities as it deems proper and consistent with legal requirements to its members, any other committee of the Board and/or one or more officers of the Company, in accordance with the provisions of

¹ For purposes of this CD&A, a reference to a compensation action or decision by the committee with respect to our chief executive officer means an action or decision by the independent members of our Board after considering the recommendation of the committee and, in the case of all other NEOs, an action or decision by the committee.

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the Delaware General Corporation Law. For additional information on the committee’s responsibilities and authorities, see “Governance Matters - Corporate Governance - Board Committees - Compensation and Human Resources Committee” above.

In order to carry out these responsibilities, the committee receives and reviews information, analyses, and proposals prepared by our management and by the committee’s compensation consultant (see “Role of Committee Advisors” below).

Role of Committee Advisors

The committee is authorized to engage its own independent advisors to assist in carrying out its responsibilities. The committee has engaged the services of Compensia, Inc., or “Compensia,” a national compensation consulting firm, as the committee’s compensation consultant. Compensia provides the committee with independent and objective guidance regarding the amount and types of compensation for our chair, non-employee directors, and executive officers, and how these amounts and types of compensation compare to other companies’ compensation practices, as well as guidance on market trends, evolving regulatory requirements, compensation of our independent directors, peer group composition, and other matters as requested by the committee.

Representatives of Compensia regularly attend committee meetings (including executive sessions without management present), communicate with the committee chair outside of meetings, and assist the committee with its consideration of performance metrics and goals. Compensia reports to the committee, not to management. At the committee’s request, Compensia meets with members of management to gather and discuss information that is relevant to advising the committee. The committee may replace Compensia or hire additional advisors at any time. Compensia has not provided any other services to the committee or to our management, and has received no compensation from us other than with respect to the services described above. The committee assessed the independence of Compensia pursuant to SEC rules and Nasdaq listing standards, including the following factors: (1) the absence of other services provided by it to the Company; (2) the fees paid to it by the Company as a percentage of its total revenue; (3) its policies and procedures to prevent conflicts of interest; (4) the absence of any business or personal relationships with committee members; (5) the fact that it does not own any Lam common stock; and (6) the absence of any business or personal relationships with our executive officers. The committee assessed this information and concluded that the work of Compensia had not raised any conflict of interest.

Role of Management

Our CEO, with support from our human resources and finance organizations, develops recommendations for the compensation of our other executive officers. Typically, these recommendations cover base salaries, annual incentive program target award opportunities, long-term incentive program target award opportunities, and the criteria upon which these award opportunities may be earned, as well as actual payout amounts under the annual and long-term incentive programs.

The committee considers the CEO’s recommendations within the context of competitive compensation data, the Company’s compensation philosophy and objectives, current business conditions, the advice of Compensia, and any other factors it considers relevant.

Our CEO attends committee meetings at the request of the committee but leaves the meeting for any deliberations related to and decisions regarding his own compensation, when the committee meets in executive session, and at any other time requested by the committee.

Peer Group Practices and Survey Data

In establishing the total compensation levels of our executive officers, as well as the mix and weighting of individual compensation elements, the committee monitors compensation data from a group of comparably sized companies in the technology industry, or the “Peer Group,” which may differ from peer groups used by stockholder advisory firms. The committee selects the companies constituting our Peer Group based on their comparability to our lines of business and industry, annual revenue, and market capitalization, and our belief that we are likely to compete with them for executive talent. Our Peer Group is focused on U.S.-based, public semiconductor, semiconductor equipment and materials companies, and similarly-sized high-technology equipment and hardware companies with a global presence and a significant investment in research and development. The table below summarizes how the Peer Group companies compare to the Company:

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Based on these criteria, the Peer Group and targets may be modified from time to time. Our Peer Group was reviewed in August 2019 for calendar year 2020 compensation decisions and based on the criteria identified above, one company was added to the peer group (Seagate Technology PLC) and one company was removed (Maxim Integrated Products, Inc.). Our Peer Group consists of the companies listed as follows:

We derive revenue, market capitalization, and NEO compensation data from public filings made by our Peer Group companies with the SEC and from other publicly available sources. Radford Technology Survey data may be used to supplement compensation data from public filings as needed. The committee reviews compensation practices and selected data on base salary, bonus targets, total cash compensation, equity awards, and total compensation drawn from the Peer Group companies and/or the Radford Technology Survey as a reference to help ensure compensation packages are consistent with market norms.

Base pay levels for each executive officer are generally set with reference to market-competitive levels and in reflection of each officer’s skills, experiences, and performance. Variable pay target award opportunities and total direct compensation for each executive officer are generally designed to deliver market-competitive compensation for the achievement of stretch goals, with downside risk for underperforming and upside reward for overperforming. For those executive officers who are new to their roles, compensation arrangements may be designed to deliver below-market compensation for a period of time. However, the committee does not “target” pay at any specific percentile. Rather, individual pay positioning depends on a variety of factors, such as prior job performance, job scope and responsibilities, skill set, prior experience, time in position, internal comparisons of pay levels for similar skill levels or positions, our goals to attract and retain executive talent, Company performance, and general market conditions.

Assessment of Compensation Risk

Management, with the assistance of Compensia, the committee’s independent compensation consultant, conducted a compensation risk assessment in 2020 and concluded that the Company’s current employee compensation programs are not reasonably likely to have a material adverse effect on the Company’s business.

Tax and Accounting Considerations

Deductibility of Executive Compensation

Prior to 2018, and where applicable for grandfathered awards, section 162(m) of the Code imposed limitations on the deductibility for federal income tax purposes of compensation in excess of $1 million paid to our chief executive officer, and any of our three other most highly compensated executive officers (other than our chief financial officer) in a single tax year unless the compensation qualified as “performance-based compensation” within the meaning of the Code.

The committee considers a number of factors, including the deductibility of such compensation when making compensation decisions and retains the discretion to award compensation even if it is not deductible.

Taxation of “Parachute” Payments

Sections 280G and 4999 of the Code provide that “disqualified individuals” within the meaning of the Code (which generally includes certain officers, directors and employees of the Company) may be subject to additional tax if they receive payments or benefits in connection with a change in control of the Company that exceed certain prescribed limits. The Company or its successor may also forfeit a deduction on the amounts subject to this additional tax.

We did not provide any of our executive officers, any director, or any other service provider with a “gross-up” or other reimbursement payment for any tax liability that the individual might owe as a result of the application of sections 280G or 4999 during fiscal year 2020, and we have not agreed and are not otherwise obligated to provide any individual with such a “gross-up” or other reimbursement as a result of the application of sections 280G and 4999.

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Internal Revenue Code Section 409A

Section 409A of the Code imposes significant additional taxes on an executive officer, director, or service provider that receives non-compliant “deferred compensation” that is within the scope of section 409A. Among other things, section 409A potentially applies to cash awards under the LTIP, if any, the Elective Deferred Compensation Plan, certain equity awards, and severance arrangements.

To assist our employees in avoiding additional taxes under section 409A, we have structured the LTIP, the Elective Deferred Compensation Plan, and our equity awards in a manner intended to qualify them for exclusion from, or compliance with, section 409A.

Accounting for Stock-Based Compensation

We follow Accounting Standards Codification (“ASC”) 718 for accounting for our stock options and other stock-based awards. ASC 718 requires companies to calculate the grant date “fair value” of their stock option grants and other equity awards using a variety of assumptions. This calculation is performed for accounting purposes. ASC 718 also requires companies to recognize the compensation cost of stock option grants and other stock-based awards in their income statements over the period that an employee is required to render service in exchange for the option or other equity award.

III. PRIMARY COMPONENTS OF NEO COMPENSATION; CY2019 COMPENSATION PAYOUTS; CY2020 COMPENSATION TARGETS AND METRICS

This section describes the components of our executive compensation program. It also describes, for each component, the payouts to our NEOs for calendar year 2019 and the forward-looking actions taken with respect to our NEOs in calendar year 2020.

Base Salary

Adjustments to base salary are generally considered by the committee each year in February.

For calendar years 2020 and 2019, base salaries for NEOs were determined by the committee in February of each year (other than the calendar year 2019 base salary for Mr. Bettinger, which was determined by the committee in November 2018 in connection with the expansion of the scope of his responsibilities) and became effective on March 1 or the first day of the pay period that included March 1 (if earlier), based on the factors described above. The following base salary adjustments for 2020 were made to remain competitive relative to our Peer Group and reflect performance as follows: Mr. Archer’s base salary was increased by 5%, Mr. Bettinger’s base salary was increased by 3%, Dr. Gottscho’s base salary was increased by 2%, Dr. Lord’s base salary was increased by 10% in connection with his promotion to executive vice president and increased scope of responsibility as the executive responsible for both the customer support business group and global operations organization, and Mr. Varadarajan’s base salary was increased by 6%. The base salaries of the NEOs for calendar years 2020 and 2019 are shown below.

Annual Incentive Program

Annual Incentive Program Components

The components of our annual incentive program, each of which plays a role in determining actual payments made, are described in Figure 31 below.

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