Grant H. Beard brings to the Board significant management level experience together with experience in the private equity/merchant banking industry. He currently serves as a senior executive Operating Partner for Blue Point Capital and as an Executive in Residence at Summit Partners. Mr. Beard served as Chairman and CEO of Wynnchurch Industries, LLC and has served in various executive level positions including Chairman, President and CEO of Wolverine Advanced Materials LLC and President and CEO of Constar International Inc. and Trimas Corporation. Mr. Beard’s experience also includes serving as Operating Partner at private equity/merchant banking groups Anderson Group and Blue Point Capital.
Frederick A. Ball brings to the Board his extensive experience in senior management, operations, finance and auditing, having recently served as the Chief Financial Officer of a leading provider of cloud-based marketing software. He has also served as CFO, Chief Operating Officer and Senior Vice President of various public and private technology companies. Mr. Ball’s greater than 10 years of experience as an accountant with PricewaterhouseCoopers also provides finance and accounting expertise. In addition, he served on two other public company boards as either a chair or member of their audit, compensation, and nominating and governance committees. Mr. Ball’s balance of experience enables him to work very productively with both the Board and senior management, particularly on strategic, finance and audit, and executive compensation matters.
Tina M. Donikowski brings to the Board broad senior management, operations and global experience having served for 38 years in leadership positions at General Electric Company, most recently as Vice President, Global Locomotive Business, GE Transportation. Ms. Donikowski’s experience provides the Board with valuable input on strategic, operational, market and product strategies and initiatives. In addition, Ms. Donikowski’s experience as a board member of Atlas Copco AB, a large industrial multi-national corporation based in Sweden, CIRCO International and TopBuild as well as boards of other companies, provides our Board with valuable insight in terms of a broad range of governance topics and international developments.
Ronald C. Foster brings to the Board significant knowledge and experience in the semiconductor and high-tech industry. Mr. Foster served as the Chief Financial Officer and Vice President of Finance at Micron Technology, Inc., and has significant experience in executive level management positions in the semiconductor and high-tech industries. Mr. Foster also brings significant experience in financial management, accounting and finance issues as he has served in the role of CFO for various companies focused on the semiconductor industry.
Edward C. Grady brings to the Board his knowledge and experience in both the semiconductor capital equipment and solar equipment industries, as he has served as Chairman and Chief Executive Officer of an early stage solar equipment company, and has served as CEO of two companies providing services to the semiconductor industry. He shares with the Board and senior management the insight and understanding he has developed from his leadership at several companies, including in the areas of product strategy and development, service and organizational development. Mr. Grady also served on the boards of several other technology companies, providing cross-board experience.
Thomas M. Rohrs brings to the Board executive management and operations experience in the semiconductor capital equipment industry, particularly in the areas of research and development, supply chain management and product development. The Board and senior management benefit from his strategic thinking and prior involvement in the semiconductor capital equipment and solar equipment industries. Mr. Rohrs also has significant experience serving on several other public company boards, where he has been Chairman, as well as a member of the compensation and nominating committees.
John A. Roush brings to the Board significant management level experience in the medical and industrial markets together with public company experience. Mr. Roush most recently served as Chief Executive Officer of a leading global supplier of precision photonic components and subsystems to original equipment manufacturers in the medical and advanced industrial markets. The Board and senior
management benefit from his extensive experience in the industrial markets, which are a strategic focus area for the Company, and his knowledge of leading a public company.
Yuval Wasserman brings years of management experience in the semiconductor and electronics industries and has significant knowledge of the Company’s history and operations. Mr. Wasserman has held various executive level positions at the Company and currently serves as the Company’s President and Chief Executive Officer. Mr. Wasserman also currently serves on the board of FARO Technologies, Inc., a publicly traded manufacturer of three-dimensional (3D) measurement, imaging and realization systems, providing cross-board experience.
The Board believes that the qualities and skills listed above for each of the nominees, qualified each such nominee for service as a director of Advanced Energy.
Independence
The Board of Directors has determined that each of the nominees, other than Yuval Wasserman (i.e., Grant H. Beard, Frederick A. Ball, Tina M. Donikowski, Ronald C. Foster, Edward C. Grady, Thomas M. Rohrs and John A. Roush), is an “independent director” within the meaning of the Nasdaq Stock Market Rules. Under these rules, to be considered independent, the Board must affirmatively determine, among other things, that neither the director nor any immediate family member of the director has had any direct or indirect material relationship with the Company within the last three years. The Board of Directors has made an affirmative determination that none of the independent directors has had any relationship with Advanced Energy or with another director that would interfere with the exercise of his or her independent judgement in carrying out his or her responsibilities as a director. The independent directors, if all of them are elected at the Annual Meeting, will constitute a majority of the Board of Directors. There is no family relationship amongst any of the directors and executive officers of the Company. The Company’s executive officers serve at the discretion of the Board.
Involvement in Certain Legal Proceedings
During the past ten years none of the persons currently serving as executive officers and/or directors of the Company has been the subject matter of any of the following legal proceedings that are required to be disclosed pursuant to Item 401(f) of Regulation S‑K including: (a) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (b) any criminal convictions; (c) any order, judgment, or decree permanently or temporarily enjoining, barring, suspending or otherwise limiting their involvement in any type of business, securities or banking activities; (d) any finding by a court, the Securities and Exchange Commission (the “SEC”) or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud; or (e) any sanction or order of any self-regulatory organization or registered entity or equivalent exchange, association or entity. Further, no such legal proceedings are believed to be contemplated by governmental authorities against any director or executive officer.
Required Vote
Our Board has adopted a Director resignation policy (the “Policy”), which is included in the Company’s Board Governance Guidelines. The Policy applies to uncontested elections of directors, in other words, an election of directors where the number of nominees for election does not exceed the number of directors to be elected. A copy of the Policy is available on the Company’s website at http://www.advancedenergy.com within the Company’s Board Governance Guidelines. Under the Policy, any nominee for director in an uncontested
election who does not receive a majority vote “FOR” that director’s election to the Board relative to the number of votes cast with respect to that director’s election (excluding broker non-votes, abstentions and failures to vote with respect to that director’s election) will promptly tender a written offer of resignation to the Board. The Policy provides that the Nominating and Governance Committee of the Board will promptly consider the director’s offer of resignation and make a recommendation to the Board. Pursuant to the Policy, the Board would then act on that recommendation within 90 days of receiving the recommendation. When deciding what action to recommend or take regarding the director’s resignation, the Policy permits each of the Nominating and Governance Committee and the Board to consider any factors they deem relevant, including the best interests of the Company and its stockholders.
Under Delaware law, a nominee who receives a plurality of the votes cast at the Annual Meeting will be elected as a Director (subject to the Policy described above). The “plurality” standard means the nominees who receive the largest number of “FOR” votes cast are elected as directors of the Company. Thus, the number of shares not voted for the election of a nominee (and the number of “withhold” votes cast with respect to that nominee) will not affect the determination of whether that nominee has received the necessary votes for election under Delaware law. However, the number of “withhold” votes with respect to a nominee will affect whether or not our Policy will apply to that individual. If any nominee is unable or declines to serve, proxies will be voted for the balance of those named and for such person as shall be designated by the Board to replace any such nominee. However, the Board does not anticipate that this will occur.
Stockholders do not have the right to cumulate their votes for the election of directors. Unless otherwise instructed, the proxy holders will vote the proxies received by them “FOR” each of the eight (8) nominees. Votes withheld from a nominee will be counted for purposes of determining whether a quorum is present but will not be counted as an affirmative vote for such nominee.
The Board of Directors recommends a vote “FOR” the election of each of the nominees named above.
Director Compensation
The compensation policy for non-employee directors for the fiscal year ended December 31, 2019 was as follows:
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$45,000 annual cash retainer paid in equal quarterly installments in February, May, August, and November;
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An additional $50,000 annual cash retainer for the Chair of the Board, paid in equal quarterly installments in February, May, August, and November;
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Annual cash retainer fees of $26,000, $15,000 and $10,000 for the chairs of the Audit and Finance, Compensation, and Nominating and Governance Committees, respectively;
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Annual cash retainer fees of $13,000, $7,500, and $5,000 for committee members of the Audit and Finance, Compensation and Nominating and Governance Committees, respectively;
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The Board may (but is not required) to grant restricted stock units to a new non-employee director upon initial election or appointment to the Board; and
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3,500 restricted stock units annually to each non-employee director on the date of his or her re-election at the Annual Meeting; each annual grant will vest one year from the date of grant if the director continues to then-serve on the Board.
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At this time, directors are not separately compensated for their service on the Pricing Committee.
In February 2014, our Board of Directors adopted a Stock Ownership Policy that requires non-employee directors to own an amount of stock of the Company with a value equal to at least five times the annual retainer for Board service (exclusive of any compensation for Committee service, meeting fees, leadership roles, etc.), based in each case, on the volume weighted average closing price of the Company’s stock for the two fiscal years as of December 31 of the applicable year and subject to the terms in the Stock Ownership Policy. The Stock Ownership Policy provides for a phase‑in period over five years for each member to achieve the requisite ownership requirements. All non-employee members of the Board either currently conform to the policy or are on track to meet the policy within the required time frame.
The Compensation Committee regularly reviews non-employee director compensation with its independent compensation consultant, Semler Brossy.
Non-employee director equity compensation has historically been denominated as a fixed number of units rather than a specific dollar amount. The Company’s closing stock price on June 4, 2019, the date of the restricted stock unit grants, was $51.87.
The average annual value of a non-employee director restricted stock unit award from 2010 through 2019 is $210,159. The Compensation Committee believes that this long-term view validates the use of a fixed number of units approach, under which the award value is aligned with the Company’s publicly traded stock price. The Compensation Committee will continue to review and monitor non-employee director compensation, use market data for comparisons to peer programs, and work with Semler Brossy to ensure the program remains appropriate.
The following table details director compensation for 2019.
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2019 Director Compensation
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Change in
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Pension Value
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and
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Nonqualified
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Non-Equity
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Deferred
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Fee Earned or
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Option
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Incentive Plan
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Compensation
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All Other
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Paid in Cash
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Stock Awards
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Awards
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Compensation
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Earnings
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Compensation
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Total
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Name
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($)
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($) (1)
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($)
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($)
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($)
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($)
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($)
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Grant H. Beard
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$
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112,500
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$
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181,545
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—
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—
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—
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—
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$
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294,045
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Frederick A. Ball
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$
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76,000
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$
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181,545
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—
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—
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—
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—
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$
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257,545
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Tina M. Donikowski
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$
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63,000
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$
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181,545
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—
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—
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—
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—
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$
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244,545
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Ronald C. Foster
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$
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63,000
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$
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181,545
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—
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—
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—
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—
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$
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244,545
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Edward C. Grady
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$
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65,000
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$
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181,545
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—
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—
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—
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—
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$
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246,545
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Thomas M. Rohrs
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$
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63,000
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$
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181,545
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—
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—
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—
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—
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$
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244,545
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John A. Roush
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$
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57,500
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$
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181,545
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—
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—
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—
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—
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$
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239,045
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Yuval Wasserman
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(1)
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During 2019, Messrs. Beard, Ball, Foster, Grady, Rohrs and Roush and Ms. Donikowski were each granted 3,500 restricted stock units (RSUs) for their service on the Board, which were the only outstanding unvested equity awards held by our directors as of December 31, 2019.
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Board of Directors Meetings
Each Director attended well above 75% of the aggregate number of meetings of the Board of Directors (held during the period for which he or she was a director) and the committees (held during the period for which he or she was a director) on which he or she served.
The Board of Directors held nine meetings in 2019. During 2019, four executive sessions of the Board of Directors were held. The Board’s committees consist of the Audit and Finance Committee, Nominating and Governance Committee, Compensation Committee and Pricing Committee.
Report of the Audit and Finance Committee
In accordance with the Audit and Finance Committee’s written charter duly adopted by the Board of Directors, we have reviewed Advanced Energy’s audited financial statements, as of and for the year ended December 31, 2019, and met together and separately with both management and Ernst & Young LLP, the Company’s independent registered public accounting firm for 2019, to discuss Advanced Energy’s audited financial statements as of and for the year ended December 31, 2019. In addition, the Audit and Finance Committee has discussed with the independent registered public accounting firm the matters outlined in Statement on Auditing Standards No. 1301, as amended (Communication with Audit Committees), to the extent applicable and received the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). Further, the Audit and Finance Committee received the written disclosures and the letter from the independent accountants required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit and Finance Committee concerning independence, and discussed with the independent registered public accounting firm the independent accountant’s independence.
Based on its review and discussion of the foregoing matters and information, the Audit and Finance Committee recommended to the Board of Directors that the audited financial statements referenced above be included in Advanced Energy’s 2019 Annual Report on Form 10‑K. The Audit and Finance Committee has recommended the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2020, subject to stockholder ratification.
The Audit and Finance Committee
Frederick A. Ball, Chairman
Tina M. Donikowski
Ronald C. Foster
Thomas M Rohrs
This report of the Audit and Finance Committee is not deemed “soliciting material” and is not deemed filed with the SEC or subject to Regulation 14A or the liabilities under Section 18 of the Exchange Act.
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PRECISION | POWER | PERFORMANCE
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17
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2020 ANNUAL
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PROXY STATEMENT
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NOMINATING AND GOVERNANCE COMMITTEE
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Meetings: 4
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Chair: Grant H. Beard
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Other Members:
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Frederick A. Ball
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Thomas M. Rohrs
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Ronald C. Foster
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John A. Roush
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Edward C. Grady
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Tina M. Donikowski
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Independence: 100% compliance with NASDAQ rules. Each of the members of the Nominating and Governance Committee was, and is, an “independent director” within the meaning of the Nasdaq Stock Market Rules.
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Charter: Available at https://www.advancedenergy.com/about-us/leadership-team/nominatinggovernance-comm.-charter/
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Key Responsibilities:
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ensuring that a majority of the directors will be independent;
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establishing qualifications and standards to serve as a director;
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identifying and recommending individuals qualified to become directors;
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considering any candidates recommended by stockholders;
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determining the appropriate size and composition of the Board;
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ensuring that the independent directors meet in executive session quarterly;
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reviewing other directorships, positions, and business and personal relationships of directors and candidates for conflicts of interest, effect on independence, ability to commit sufficient time and attention to the Board or other suitability criteria;
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sponsoring and overseeing performance evaluations for the Board as a whole, conducting director peer evaluations, coordinating evaluations of the other committees with the other committee chairpersons;
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developing and reviewing periodically, at least annually, the corporate governance policies and guidelines of Advanced Energy, and recommending any changes to the Board;
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reviewing succession plans for the CEO and other key management positions as appropriate;
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considering any other corporate governance issues that arise from time to time and referring them to the Board;
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if the Board requests, developing appropriate recommendations to the Board; and
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overseeing the Company’s insider trading policies and procedures.
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Director Nominations
The Nominating and Governance Committee evaluates and interviews potential director candidates. All members of the Board may interview the final candidates. The Nominating and Governance Committee of the Board considers candidates for director nominees proposed by directors and stockholders, as described in more detail below. This committee may retain recruiting professionals to assist in identifying and evaluating candidates for director nominees. The Nominating and Governance Committee has no stated specific or minimum qualifications that must be met by a Board candidate. However, as set forth in the Company’s Board Governance Guidelines, the Nominating and Governance Committee strives for a mix of skills and diverse perspectives (functional, cultural and geographic) that is effective for the Board. In selecting nominees, the
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18
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PRECISION | POWER | PERFORMANCE
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2020 ANNUAL
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PROXY STATEMENT
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Nominating and Governance Committee assesses the independence, character and acumen of candidates. The Nominating and Governance Committee also endeavors to establish a number of areas of collective core competency of the Board. Therefore, the Nominating and Governance Committee assesses whether a candidate possesses skills including business judgment, leadership, strategic vision and knowledge of management, accounting, finance, industry, technology, manufacturing, international markets and marketing. Additional criteria include a candidate’s personal and professional ethics, integrity and values, as well as his or her willingness to devote sufficient time to prepare for and attend meetings and participate effectively on the Board.
The Board Governance Guidelines provide that the Nominating and Governance Committee is responsible for reviewing with the Board, from time to time, the appropriate skills and characteristics required of Board members in the context of the current make-up of the Board. In assessing the diversity of the Board, the Nominating and Governance Committee assesses such factors as leadership, character, reputation, integrity, judgment, diversity, age, understanding of and experience in manufacturing, technology expertise, finance and marketing acumen and exposure and experience in international markets. The Board values a diverse set of viewpoints and experiences, and also considers gender and ethnic diversity. These factors, which are among the factors the Board and the Nominating and Governance Committee considers useful to a well-functioning board, are reviewed in the context of assessing the perceived needs of the Board at any particular point in time and in its search for potential nominees.
The Nominating and Governance Committee will consider any and all director candidate recommendations by our stockholders that are submitted in accordance with the procedures set forth in the Company’s Amended and Restated By-laws. The Nominating and Governance Committee will apply the same processes and criteria in evaluating director candidates recommended by stockholders as it applies in evaluating director candidates recommended by directors, members of management or any other person. If you are a stockholder and wish to recommend a candidate for nomination to the Board of Directors, you should submit your recommendation in writing to the Nominating and Governance Committee, in care of the Corporate Secretary of Advanced Energy at 1595 Wynkoop St., Suite 800, Denver, Colorado 80202. Your recommendation must include all of the information set forth in Article III, Section 6(a) of the Amended and Restated By-laws of Advanced Energy, including but not limited to, your name and address, the number of shares of Advanced Energy common stock that you own, the name of the person you recommend for nomination, the reasons for your recommendation, a summary of the person’s business history and other qualifications as a director of Advanced Energy and whether such person has agreed to serve, if elected, as a director of Advanced Energy. Please also see the information under the section entitled “Proposals of Stockholders” on page 52 of this proxy statement.
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PRECISION | POWER | PERFORMANCE
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19
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2020 ANNUAL
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PROXY STATEMENT
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COMPENSATION COMMITTEE
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Meetings: 5
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Chair: Edward C. Grady
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Other Members:
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Grant H. Beard
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John A. Roush
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Independence: 100% compliance with NASDAQ rules. Each of the members of the Compensation Committee is an “independent director” within the meaning of the Nasdaq Stock Market Rules.
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Non-Employee: 100% compliance with Securities Exchange Act of 1934. Each of the members of the Compensation Committee is an “non-employee director” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended.
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Outside Director: 100% compliance with Internal Revenue Code. Each of the members of the Compensation Committee is an “outside director” within the meaning of Section 162(m) under the Internal Revenue Code, as amended.
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Charter: Available at https://www.advancedenergy.com/about-us/leadership-team/compensation-committee-charter/
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Key Responsibilities:
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recommending salaries, incentives and other compensation for directors and officers of Advanced Energy;
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administering and reviewing Advanced Energy’s incentive compensation and benefit plans;
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reviewing CEO and management succession planning in the context of executive compensation; and
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recommending to the Board of Directors policies relating to such compensation and benefit plans.
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The Compensation Committee has also, from time to time, retained an independent compensation consultant to assist and advise the Compensation Committee in fulfilling these responsibilities. In addition, the Compensation Committee has the authority, to the extent it deems necessary or appropriate, to:
form and delegate authority to subcommittees; and
ask the Company to provide the Compensation Committee with the support of one or more Company employees to assist it in carrying out its duties.
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PRICING COMMITTEE
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Members:
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Grant H. Beard
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Frederick A. Ball
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Ronald C. Foster
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Independence: 100% compliance with NASDAQ rules
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Key Responsibility:
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may exercise all of the powers and authority of the Board of Directors in connection with all matters relating to the Company’s previously authorized stock repurchase program and the issuance of any future indebtedness by the Company; including the terms and conditions, timing and other provisions of such stock repurchases or debt issuances. This committee is ad-hoc in nature and did not meet in 2019.
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20
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PRECISION | POWER | PERFORMANCE
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2020 ANNUAL
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PROXY STATEMENT
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Board Governance Structure
The Board Governance Guidelines set forth the Board’s policy that the positions of Chairman of the Board and Chief Executive Officer should be held by separate persons to aid in the Board’s oversight of management. The Board Governance Guidelines are available on our website at https://www.advancedenergy.com/about-us/leadership-team/board-governance-guidelines/. The Company believes this Board leadership structure is most appropriate for the Company because it provides the Board with increased independence. Additionally, we separate the roles of Chairman of the Board and Chief Executive Officer in recognition of the differences between the two roles as they are presently defined. The principal responsibility of the Chief Executive Officer is to manage the business of the Company. The principal responsibilities of the Chairman of the Board are to manage the operations of the Board of Directors and its committees and provide oversight and counsel to the Chief Executive Officer on behalf of the Board.
Senior management manages material risks and reviews such risks with the Chief Executive Officer, and if warranted, the Board. As part of its general oversight role, the Board reviews business reports from management that routinely outline operational risks that may exist from time to time. In addition, for risks related more specifically to the financial operations of the Company, such as credit risk and liquidity risk, the Audit and Finance Committee examines reports from management and reviews such risks in light of the Company’s business operations.
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PRECISION | POWER | PERFORMANCE
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21
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2020 ANNUAL
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PROXY STATEMENT
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PROPOSAL NO. 2 - RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS ADVANCED ENERGY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2020
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What am I voting on and how should I vote?
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You are being asked to ratify the appointment of Ernst & Young LLP as the company’s independent registered public accounting firm for the year 2020. Although our governing documents do not require us to submit this matter to stockholders, the Board believes that asking stockholders to ratify the appointment of Ernst & Young LLP is consistent with best practices in corporate governance.
We believe that Ernst &Young LLP is sufficiently qualified to conduct their duties as independent auditor.
The Board of Directors therefore recommends you vote “FOR” the ratification of the appointment of Ernst & Young LLP as Advanced Energy’s independent registered public accounting firm for 2020.
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Ratification of Independent Registered Accounting Firm
If stockholders do not ratify the appointment of Ernst & Young LLP, the Audit and Finance Committee will regard such vote as a direction to consider the appointment of a different independent registered public accounting firm. Even if the appointment of Ernst & Young LLP is ratified by the stockholders, the Audit and Finance Committee has the discretion to select a different independent registered public accounting firm at any time if it determines that a change would be in our and our stockholders’ best interests.
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22
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PRECISION | POWER | PERFORMANCE
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2020 ANNUAL
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PROXY STATEMENT
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Change in Independent Registered Public Accounting Firm in 2019
The Audit and Finance Committee is directly responsible for the appointment, retention and oversight of the work of any independent registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for us and our subsidiaries.
After completing a comprehensive competitive bid process to select an independent registered public accounting firm to provide audit and related services to Advanced Energy for the year ending December 31, 2019, on March 25, 2019, the Audit and Finance Committee dismissed Grant Thornton LLP (“Grant Thornton”) as the Company’s independent registered public accounting firm, effective immediately, and provided Grant Thornton with notice of such dismissal. The audit reports of Grant Thornton on the Company’s consolidated financial statements for each of the two most recent fiscal years ended December 31, 2018 and December 31, 2017 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. On March 27, 2019, Grant Thornton confirmed in a filing with the SEC that, during our two most recent fiscal years ended December 31, 2018 and December 31, 2017, and during the subsequent interim period through March 25, 2019, the date of the Audit and Finance Committee’s dismissal of Grant Thornton, (i) there were no disagreements with Grant Thornton on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to Grant Thornton’s satisfaction, would have caused Grant Thornton to make reference to the subject matter of the disagreements in connection with its reports, and (ii) there were no “reportable events” as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
On March 27, 2019, Advanced Energy engaged Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2019, which engagement was approved by the Audit and Finance Committee and effective on March 27, 2019.
During the Company’s two fiscal years ended December 31, 2018 and December 31, 2017, and during the subsequent interim period through March 27, 2019, neither the Company, nor anyone on its behalf, consulted Ernst & Young LLP regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and neither a written report nor oral advice was provided to the Company that Ernst & Young LLP concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue, of (ii) any matter that was either the subject of a “disagreement” (as defined in Regulation S-K Item 304(a)(1)(iv)) or a “reportable event” (as defined in Regulation S-K Item 304(a)(1)(v)). Ernst & Young LLP provided Advanced Energy with notice of acceptance of such engagement.
|
|
|
|
PRECISION | POWER | PERFORMANCE
|
23
|
2020 ANNUAL
|
|
PROXY STATEMENT
|
Independent Registered Public Accounting Firm Fees and Services
The following table presents fees billed to Advanced Energy for professional services rendered by Grant Thornton LLP, our prior independent registered public accounting firm for 2018 and Ernst & Young LLP, our current registered public accounting firm for 2019. All of the fees in the following table were approved by the Audit Committee in conformity with its pre-approval process. Pre-approval generally is provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and generally is subject to a specific budget. The independent registered public accounting firm and Advanced Energy’s management are required to periodically report to the Audit and Finance Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, including the fees for the services performed to date. In addition, the Audit and Finance Committee also may pre-approve particular services on a case-by-case basis, as required.
|
|
|
|
|
|
Fee Category
|
|
2019
|
|
2018
|
|
|
|
(In thousands)
|
Audit Fees (1)
|
|
$
|
2,650
|
$
|
2,033
|
Audit Related Fees (2)
|
|
|
175
|
|
—
|
Tax Fees (3)
|
|
|
891
|
|
—
|
Other Fees (4)
|
|
|
—
|
|
—
|
Total Fees
|
|
$
|
3,716
|
$
|
2,033
|
|
(1)
|
|
Audit Fees consisted of fees for (a) professional services rendered for the annual audit of Advanced Energy’s consolidated financial statements and internal controls over financial reporting, (b) review of the interim consolidated financial statements included in quarterly reports, and (c) services that are typically provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements.
|
|
(2)
|
|
Audit-Related Fees consisted of fees for assurance and related services that were reasonably related to the performance of the audit or review of Advanced Energy’s consolidated financial statements and are not reported under “Audit Fees.”
|
|
(3)
|
|
Tax Fees. We incurred the above listed amount to Ernst & Young LLP for tax advice and/or tax planning during 2019.
|
|
(4)
|
|
Other Fees are not applicable.
|
Required Vote
Ratification of the appointment of Ernst & Young LLP as the independent registered public accounting firm for Advanced Energy for 2020 requires the affirmative “FOR” vote of a majority of the shares of common stock cast on this proposal. For purposes of determining the number of votes cast on this proposal, only those votes cast as either “FOR” or “AGAINST” are included. Abstentions and broker non-votes are not considered votes cast on this proposal.
Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting to respond to appropriate questions and to make a statement should they so desire.
The Board of Directors recommends a vote “FOR” the ratification of the appointment of Ernst & Young LLP as Advanced Energy’s independent registered public accounting firm for 2020.
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|
|
|
24
|
PRECISION | POWER | PERFORMANCE
|
|
|
2020 ANNUAL
|
PROXY STATEMENT
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
This Compensation Discussion and Analysis describes our overall executive compensation philosophy and objectives with a particular focus on the compensation of our named executive officers that appear in the Summary Compensation Table. Our named executive officers for 2019 were the following four individuals:
|
|
Name
|
Position
|
Yuval Wasserman
|
President and Chief Executive Officer
|
Paul Oldham
|
Executive Vice President and Chief Financial Officer
|
Neil Brinker
|
Executive Vice President and Chief Operating Officer
|
Thomas McGimpsey
|
Executive Vice President, General Counsel, Governmental Affairs & Corp. Secretary
|
Executive Summary and Overview of 2019 Compensation
|
|
Our Company’s long-term success depends on our ability to fulfill the expectations of our customers in a competitive environment and deliver value to stockholders.
To achieve these goals, it is critical that we can attract, motivate, and retain highly talented individuals at all levels of the organization who are committed to the Company’s values and objectives.
|
Accordingly, the Company strives to provide compensation to its executive officers that is:
linked to stockholder value creation,
reflective of the overall performance of the Company, and
considerate of the competitive market levels of compensation needed to recruit, retain and motivate top executive talent, while remaining consistent with the other objectives.
|
|
|
As part of the Company’s continued focus on delivering improved stockholder value, the Compensation Committee designs its executive compensation program to closely align executive compensation with stockholders’ interests and reinforce a “pay for performance culture.”
|
|
|
|
|
|
PRECISION | POWER | PERFORMANCE
|
29
|
2020 ANNUAL
|
|
PROXY STATEMENT
|
Our Compensation Committee reinforces our philosophy of “pay for performance culture” by making the majority of our named executive officers’ 2019 pay contingent on the achievement of financial performance goals through our Short Term Incentive Plan (which we refer to as the 2019 STI Plan) and our Long Term Incentive Plan (which we refer to as the 2019 LTI Plan), which we discuss in more detail below. In 2019, 88% of our Chief Executive Officer’s target compensation was performance based, and over 75% of our other named executive officer’s target compensation was performance based.
Fiscal Year 2019 Business Performance
We entered 2019 with continued weakness in our business driven by several global factors including slowing growth in end market demand for semiconductor devices (especially from memory devices), digestion of equipment capacity, and uncertainty around trade policies and global economic growth. Our business was further impacted by inventory reductions in both semiconductor devices and finished goods inventory at our customers. Despite the significant reduction in our semiconductor market during this time, the company remained profitable and generated positive cash flow each quarter.
Throughout 2019, we took actions to streamline our cost structure and improve efficiency, including reducing our total headcount by approximately 10%. At the same time, we continued to invest in the future of the company, by increasing R&D spending, winning several key design wins, strengthening customer relationships and accelerating our strategy to diversify our operational risk by opening a major factory outside of China. We believe these actions will better position the company for growth and profitability and are already beginning to see the benefits as our semiconductor markets began to improve in the second half of the year.
Perhaps most importantly, we continued to execute our strategy to diversify the company and accelerate earnings growth with the acquisition of Artesyn Embedded Power on September 10, 2019. This highly strategic and transformational acquisition strengthens our position as a leader in electrical power conversion, increases our addressable market by almost four times, doubles our revenue, and broadens and diversifies our markets with greater exposure to industrial and medical markets, and new positions in data center computing and telecom & networking. Most importantly, it positions us for accelerated earnings growth as we execute on our plan to deliver significant synergies as a combined company.
|
|
We also acquired Artesyn Embedded Power on September 10, 2019 which added revenues in new markets.
|
|
Has Joined
|
|
|
|
Artesyn Embedded Power expands our addressable market to approximately $9B, doubles our annualized revenue potential to greater than $1.2B, broadens and diversifies our end markets, and creates a platform for accelerated earnings growth.
|
|
|
|
|
|
|
30
|
PRECISION | POWER | PERFORMANCE
|
|
|
2020 ANNUAL
|
PROXY STATEMENT
|
Highlights of our consolidated fiscal year 2017, 2018 and 2019 financial performance and key business metrics are provided below.
|
|
|
|
|
|
Earnings Per Share Summary
|
|
|
Cash from Operations ($M)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue ($M)
|
|
|
Operating Income ($M)
|
|
|
|
|
|
|
|
|
Note: A reconciliation of the non-GAAP measures is provided in Appendix A to this proxy statement.
Compensation Philosophy and Objectives
The Company’s executive compensation program is based on the same objectives that guide the Company in establishing all of its compensation programs:
|
Compensation should reflect the level of job responsibility as well as Company and individual performance. As employees progress to higher levels in the organization, an increasing proportion of their pay is linked to Company performance because those employees are more able to affect the Company’s results.
Compensation should reflect the value of the job in the marketplace. To attract and retain a highly skilled work force, we must remain competitive with the pay of other premier employers with whom we compete for talent.
|
Pay for Performance Philosophy
|
Compensation should promote the long-term focus required for the Company’s success by aligning executive officer’s interests with those of stockholders.
Compensation should reflect the level of job responsibility as well as Company and individual performance. As employees progress to higher levels in the organization, an increasing proportion of their pay is linked to Company performance because those employees are more able to affect the Company’s results.
Compensation should reflect the value of the job in the marketplace. To attract and retain a highly skilled work force, we must remain competitive with the pay of other premier employers with whom we compete for talent.
|
|
|
|
|
PRECISION | POWER | PERFORMANCE
|
31
|
2020 ANNUAL
|
|
PROXY STATEMENT
|
Overview of Executive Compensation Program
The Compensation Committee
The Compensation Committee is responsible for establishing, implementing and monitoring adherence with the Company’s compensation philosophy. Accordingly, the Compensation Committee strives to develop and maintain competitive, progressive programs that reward executives for continuous improvement in key financial metrics that drive Company performance and stockholder value. The Compensation Committee also recognizes the need for compensation programs to attract, retain and motivate high caliber employees, foster teamwork, and maximize the long-term success of Advanced Energy by appropriately rewarding our executives for their achievements. The Compensation Committee evaluates risk and rewards associated with the Company’s overall compensation philosophy and structure. In accordance with the Compensation Committee Charter, the Compensation Committee may delegate authority to subcommittees when appropriate.
The Compensation Committee has the authority to engage independent advisors to assist it in making determinations with respect to the compensation of our executives and other employees. For the 2019 fiscal year the Compensation Committee engaged Semler Brossy to conduct a competitive review of executive compensation and advise the Committee on other compensation related matters. Information regarding the competitive review is provided below under the heading “Use of Market Data for Comparison Against Peer Companies.” Semler Brossy has not provided any other services to the Company or the Compensation Committee and has not received compensation other than with respect to the services provided to the Compensation Committee. In connection with its engagement of Semler Brossy the Compensation Committee evaluated Semler Brossy’s independence from management including the independence of the individual representatives of Semler Brossy who served as the Compensation Committee’s consultants and determined that Semler Brossy is independent based on the Nasdaq Stock Market’s independence factors, as well as free of conflicts of interest.
Role of Executive Officers in Compensation Decisions
The Compensation Committee meets with the Company’s Chief Executive Officer and other senior executives to obtain recommendations with respect to the Company’s compensation programs and practices for executives and other employees. The Compensation Committee takes management’s recommendations into consideration but is not bound by management’s recommendations with respect to executive compensation. The compensation for the Chief Executive Officer is recommended by the Compensation Committee to the Board for its review and ratification. While management attends certain meetings of the Compensation Committee, the Compensation Committee also holds executive sessions not attended by any members of management or by non-independent directors.
Use of Market Data for Comparison Against Peer Companies
One factor that the Compensation Committee considers when making compensation decisions is the compensation paid to executives of a peer group of companies. The Compensation Committee also considers other factors discussed below under the heading “Components of Executive Compensation.”
|
|
|
|
32
|
PRECISION | POWER | PERFORMANCE
|
|
|
2020 ANNUAL
|
PROXY STATEMENT
|
The Compensation Committee reviews the peer companies annually to take into account the volatility of the industries in which Advanced Energy participates. While the Compensation Committee attempts to maintain consistency year to year, adjustments are made as needed. In consultation with Semler Brossy, the Compensation Committee reviewed its list of peer companies in August 2018 that was used for comparative review for 2019 compensation and made several changes to better reflect the company’s size and markets. The list of peer companies consists of the following 14 publicly traded companies of roughly similar size to Advanced Energy all of which are from related industries including the semiconductor and electronic equipment industries and compete with Advanced Energy for executive talent:
|
|
|
|
|
Peer Companies
|
Brooks Automation, Inc.
|
|
Entegris, Inc.
|
|
Photronics, Inc.
|
Astronics Corporation
|
|
Monolithic Power Systems, Inc.
|
|
MTS Systems Corporation
|
Rogers Corporation
|
|
Kulicke & Soffa Industries, Inc.
|
|
Veeco Instruments, Inc.
|
FormFactor, Inc.
|
|
MKS Instruments, Inc.
|
|
Power Integrations, Inc.
|
Novanta Inc.
|
|
OSI Systems, Inc.
|
|
|
Components of Executive Compensation
For 2019, the principal components of compensation for named executive officers were: (1) base salary, (2) annual performance based cash compensation under the 2019 STI Plan, (3) long term performance-based equity incentive compensation under the 2019 LTI Plan, and (4) other benefits, each of which are described in more detail below. In determining the amount and relative allocation among each component of compensation for each named executive officer, the Compensation Committee considered, among other factors, the Company’s and each executive officer’s performance during the year, historical rates of executive compensation, data obtained from management’s recruitment activities, the comparative review and analysis provided by Semler Brossy and alignment with the Company’s overall compensation philosophy. As we mentioned above, the Compensation Committee allocated the majority of our named executive officers target compensation in 2019 to performance-based compensation under our 2019 STI Plan and 2019 LTI Plan, consistent with our “pay for performance” philosophy.
|
|
|
|
PRECISION | POWER | PERFORMANCE
|
33
|
2020 ANNUAL
|
|
PROXY STATEMENT
|
|
|
|
|
|
|
|
PRINCIPAL COMPENSATION COMPONENTS FOR NEOS:
|
|
|
|
|
|
|
|
Base Salary
|
|
Long-Term
Incentive Plan
|
|
Short-Term
Incentive Plan
|
|
Other Benefits
|
|
|
|
|
|
|
|
The amount and relative allocation of each of the above components at target depends on the following factors:
|
|
Historical rates of Executive Compensation
|
|
Data obtained from management’s recruitment activities
|
|
The comparative review and analysis provided by Semler Brossy
|
|
Alignment with the Company’s overall compensation philosophy
|
Base Salary
Base salaries are set at levels that the Compensation Committee deems to be sufficient to attract and retain highly talented executive officers capable of fulfilling the Company’s key objectives. Base salaries of our named executive officers are also set with the goal of rewarding executive officers on a day to day basis for their time and services. For 2019, the Compensation Committee decided to award Mr. Wasserman, Mr. Brinker and Mr. McGimpsey a merit increase in base salary. The higher 2019 base salary increase for Mr. Oldham was based on a combination of merit increase and factors including review of his most recent salary, peer company compensation, general market trends, as well as consideration of the current salaries of the Company’s executives and senior leadership. The base salaries of each of our named executive officers in 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary
|
|
% Increase
|
|
Name
|
|
Position
|
|
(per annum)
|
|
from 2018
|
|
Yuval Wasserman
|
|
President and Chief Executive Officer
|
|
$
|
721,000
|
|
3.0
|
%
|
Paul Oldham
|
|
Executive Vice President and Chief Financial Officer
|
|
$
|
425,200
|
|
6.3
|
%
|
Neil Brinker
|
|
Executive Vice President and Chief Operating Officer
|
|
$
|
437,750
|
|
3.0
|
%
|
Thomas McGimpsey
|
|
Executive Vice President, General Counsel, Government Affairs & Corporate Secretary
|
|
$
|
360,500
|
|
3.0
|
%
|
|
|
|
|
34
|
PRECISION | POWER | PERFORMANCE
|
|
|
2020 ANNUAL
|
PROXY STATEMENT
|
2019 Short Term Incentive Plan Compensation
The 2019 STI Plan provides the Company’s management team including each of the named executive officers with an opportunity to earn an annual cash bonus based on the Company’s achievement of certain financial performance goals and in the case of Mr. Wasserman a portion is based on the achievement of individual strategic goals.
The Compensation Committee set each of our named executive officers’ target bonus opportunity as a percentage of his base salary. Actual bonuses awarded to each of our named executive officers may range from 0% to 200% of target depending on actual company and individual performance as described below. For 2019 these annual bonus targets were as follows:
|
|
|
|
|
|
Name
|
|
Target as a % of Base Salary
|
|
Target ($)
|
Yuval Wasserman
|
|
100%
|
|
$
|
721,000
|
Paul Oldham
|
|
70%
|
|
$
|
297,640
|
Neil Brinker
|
|
70%
|
|
$
|
306,425
|
Thomas McGimpsey
|
|
60%
|
|
$
|
216,300
|
Our named executive officers’ annual bonuses are paid out of a bonus pool, the size of which is contingent on the achievement of certain financial performance goals. Achievement of the various performance goals listed in the table below determines the size of the bonus pool for Messrs. Wasserman, Oldham, Brinker and McGimpsey, subject to, with respect to Mr. Wasserman, a +/- 10% strategic modifier. The Compensation Committee selected the specific financial performance metrics for the 2019 STI Plan because such metrics are aligned with the Company’s overall strategic plan. Specifically, the Compensation Committee believes that the non-GAAP metrics are better indicators of the operating performance.
Values in $MM, except as noted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual Performance
|
|
|
|
|
|
|
|
|
|
Performance Goals
|
|
|
(Excluding Artesyn)*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Threshold
|
|
Target ****
|
|
Stretch
|
|
|
|
|
|
%.
|
|
|
|
|
|
|
|
|
|
(50%
|
|
(100%
|
|
(200%
|
|
|
Dollar
|
|
Incentive
|
|
|
Weighted
|
|
Financial Performance Metric
|
|
Weight
|
|
|
Payout)
|
|
Payout)
|
|
Payout)
|
|
|
Value
|
|
Earned
|
|
|
Payout %
|
|
Revenue **
|
|
50
|
%
|
|
$
|
525
|
|
$
|
700
|
|
$
|
875
|
|
|
$
|
569
|
|
62
|
%
|
|
31
|
%
|
Non-GAAP Operating Income from Continuing Operations**
|
|
30
|
%
|
|
$
|
55
|
|
$
|
140
|
|
$
|
220
|
|
|
$
|
85
|
|
67
|
%
|
|
20
|
%
|
Operational Cash Flow ***
|
|
20
|
%
|
|
$
|
62
|
|
$
|
83
|
|
$
|
104
|
|
|
$
|
92
|
|
142
|
%
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall Achievement
|
|
80
|
%
|
* The Compensation Committee made the decision to exclude Artesyn results from the performance calculation.
** Non-GAAP Operating Income from Continuing Operations must be met to trigger pool funding for that goal and for the Revenue goal. Under the 2019 STI Plan, Non-GAAP Operating Income from Continuing Operations excludes non-cash related charges and non-recurring items.
*** Operational Cash Flow is not dependent on the other goals and represents cash flow from non-GAAP operating income, adjusted for changes in working capital and excluding any tax rate on repatriation of capital. For changes in working capital, the Compensation Committee excluded impacts resulting from acquired cash in acquisitions.
**** Achievement percentages between the threshold and target and between the target and stretch levels are linearly interpolated.
|
|
|
|
PRECISION | POWER | PERFORMANCE
|
35
|
2020 ANNUAL
|
|
PROXY STATEMENT
|
Based on our 2019 performance excluding Artesyn, the bonus pool was funded at 80%. Applying this percentage to Mr. Wasserman resulted in $576,800 for his bonus payout. In addition, Mr. Wasserman also received $58,200, or a 10% strategic modifier since he achieved the following strategic goals.
|
·
|
|
Market share and content gains as measured by key design wins. All initiatives are taken from the Company’s 2019 Annual Operating Plan and goals support our strategic plan.
|
Based on the corporate achievement of 80% as noted above and Mr. Wasserman’s strategic modifier, the NEOs achieved the following payouts for 2019:
|
|
|
|
|
|
|
|
|
Financial
|
|
|
(Actual at 80% of Target)
|
Name
|
|
Target
|
|
Actual
|
Yuval Wasserman
|
|
$
|
721,000
|
|
$
|
635,000
|
Paul Oldham
|
|
|
297,640
|
|
|
238,112
|
Neil Brinker
|
|
|
306,425
|
|
|
245,140
|
Thomas McGimpsey
|
|
|
216,300
|
|
|
173,040
|
2020 Short-Term Incentive Plan Performance Period
In an effort to address volatility in the markets the Company serves, we changed the 2020 Short Term Incentive Plan to provide for two six-month performance periods (January 1 – June 30 and July 1 – December 31) instead of a fiscal year performance period (January 1 – December 31). The Company’s management team including each of the named executive officers will have the opportunity to earn 50% of their target bonus opportunity with respect to each 6-month performance period. Please see the Company’s Form 10-K, Item 9B for further information on the 2020 Short-Term Incentive Plan.
2019 Long-Term Equity Incentive Compensation
During 2019 each of our named executive officers also participated in the 2019 LTI Plan, pursuant to which we granted equity awards under the Company’s 2017 Omnibus Incentive Plan as amended. For 2019 the Compensation Committee determined the following 2019 target dollar value for equity awards granted to each of our named executive officers:
|
|
|
|
Name
|
|
2019 LTI Plan Target Grant Date Fair Value
|
Yuval Wasserman
|
|
|
$
3,150,000
|
Paul Oldham
|
|
|
$
900,000
|
Neil Brinker
|
|
|
$
1,000,000
|
Thomas McGimpsey
|
|
|
$
700,000
|
LTI Plan targets are set at levels that the Compensation Committee deems to be sufficient to attract and retain highly talented executive officers capable of fulfilling the Company’s key objectives. In consultation with Semler Brossy, the Compensation Committee reviewed the LTI Plan targets of the Company’s executive officers compared to the peer group and general market data to determine an LTI Plan target award value. The Committee determined that each of the named executive officers listed above would receive (a) 50% of the LTI Plan award value in the form of time-based restricted stock units and (b) 50% of the LTI Plan award value in the form of performance stock units. We determined the number of restricted stock units and performance stock units to be granted to each named executive officer by dividing each named executive officer’s target grant date value indicated above by the 30‑day trailing average of the closing price of the Company’s common stock leading up to the grant date. The grant date was February 22, 2019 for the named executive officers. Further details regarding the number of restricted stock units and performance stock units that we granted to each of the named executive officers under the 2019 LTI Plan can be found in the “Grants of Plan Based Awards” table below.
|
|
|
|
36
|
PRECISION | POWER | PERFORMANCE
|
|
|
2020 ANNUAL
|
PROXY STATEMENT
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The grants of restricted stock units in 2019 vest ratably over a three-year period with 1/3 vesting on each anniversary of the grant date.
The performance stock units will vest based on the achievement of revenue and non-GAAP earnings per share (“Non-GAAP EPS”) from continuing operations over a three-year performance period (2019‑2021). All or a portion of such performance stock units can vest in any quarter during such three-year performance period if any of the performance goals are independently met over a trailing four quarter period (with the first measurement occurring at the end of the fourth quarter of 2019), contingent upon non-GAAP EPS achievement for the revenue measure. The Compensation Committee believes this early earning opportunity aligns incentives with the business strategy of accelerating growth of the organization. Three-year targets are based on aspirational goals and represent growth rates well above the underlying markets in which we operate. Some or all of the awards may be earned prior to the end of the 3‑year performance period if growth rates exceed these difficult targets. Since awards are granted annually, there is an “overlapping” effect mitigating the risk of actions to accelerate the earning of any specific year’s award. A threshold level of Non-GAAP EPS (indicated in the table below) must be met for any performance stock units to vest, including the performance stock units that would otherwise vest based on the achievement revenue goals. The performance goals for the 2019 LTI performance stock units were as follows and include Artesyn financial contribution to the overall achievement:
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2019 LTI Performance Stock Unit Performance Goals
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Threshold
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Target
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Stretch
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(50%
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(100%
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(200%
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Financial Performance Metric
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Weight
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payout)
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payout)
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payout)
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Revenue
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50
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%
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$
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950 M
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$
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1.19 B
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$
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1.31 B
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Non-GAAP EPS
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50
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%
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$
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6.50
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$
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7.00
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$
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7.50
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At the end of the 3‑year performance period, we will interpolate performance between threshold and target and target and stretch for the last trailing four quarter period in the 3‑year performance period and vest any remaining performance stock units accordingly.
Over the four-quarter period beginning on January 1, 2019 and ending on December 31, 2019, the Company did not achieve the threshold performance goals for revenue or Non-GAAP EPS, and accordingly, no vesting of such performance stock units occurred during 2019. As a result, Messrs. Wasserman, Oldham, Brinker and McGimpsey were each granted and earned the number of 2019 LTI stock units reported in the table below:
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2019 LTI Restricted
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2019 LTI Performance
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2019 LTI Performance
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2019 LTI Restricted
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Stock Units Vested
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Stock Units Granted
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Stock Units Earned
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Stock Units Granted
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during 2019
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during 2019
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during 2019
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Name
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(#)
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(#)
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(at Target) (#)
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(#)
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Yuval Wasserman
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31,256
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10,418
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31,256
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(1)
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0
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Paul Oldham
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8,930
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2,976
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8,930
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(1)
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0
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Neil Brinker
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9,922
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3,307
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9,922
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(1)
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0
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Thomas McGimpsey
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6,945
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2,315
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6,945
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(1)
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0
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(1)
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Granted at 200% of this amount should stretch targets be met.
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2018 Long-Term Incentive Plan Performance Stock Units
In 2018, we awarded each of our named executive officers performance stock units under our 2018 LTI Plan that vest based on our achievement of performance metrics over a three (3) year performance period (2018‑2020). Like the performance stock units that we granted in 2019, all or a portion of the 2018 LTI performance stock units can vest in any quarter during the three-year performance period if any of the
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PRECISION | POWER | PERFORMANCE
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37
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2020 ANNUAL
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PROXY STATEMENT
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performance goals are independently met over a trailing four quarter period. The performance goals for the 2018 LTI performance stock units were as follows:
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2018 LTI Performance Stock Unit Performance Goals
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Threshold
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Target
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Stretch
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Financial Performance Metric
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Weight
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(50% payout)
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(100% payout)
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(200% payout)
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Revenue
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50
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%
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$
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900 M
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$
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1.13 B
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$
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1.25 B
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Non-GAAP EPS
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50
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%
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$
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5.50
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$
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6.00
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$
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6.50
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Under the 2018 LTI Plan, the revenue and the Non-GAAP EPS thresholds required to trigger vesting of either the revenue or Non-GAAP EPS financial metrics were both not met; therefore, no performance stock units vested in 2019 under the 2018 grant.
2017 Long-Term Incentive Plan Performance Stock Units
In 2017, we awarded each of our named executive officers (of which, Messrs. Wasserman and McGimpsey are also current named executive officers) performance stock units under our 2017 LTI Plan that vest based on our achievement of performance metrics over a three (3) year performance period (2017‑2019). Like the performance stock units that we granted in 2019, all or a portion of the 2017 LTI performance stock units can vest in any quarter during the three-year performance period if any of the performance goals are independently met over a trailing four quarter period, contingent upon non-GAAP EPS achievement for the revenue measure. The performance goals for the 2017 LTI performance stock units were as follows:
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2017 LTI Performance Stock Unit Performance Goals
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Threshold
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Target
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Stretch
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Financial Performance Metric
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Weight
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(50% payout)
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(100% payout)
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(200% payout)
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Revenue
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50
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%
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$
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650 M
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$
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750 M
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$
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850 M
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Non-GAAP EPS
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50
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%
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$
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3.00
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$
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3.50
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$
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4.00
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Prior to 2019, all the 2017 LTI performance stock units based on Non-GAAP EPS had already vested because we achieved the Non-GAAP EPS stretch goal in 2017 (the first four quarters of the performance period), and a 25% portion of the 2017 LTI performance stock units based on revenue had already vested because we achieved the threshold revenue goal during 2017. During 2019, an additional 44.4% of the 2017 LTI performance stock units based on revenue vested because we achieved revenue of $788.9M by the end of 2019. As a result, Messrs. Wasserman and McGimpsey each earned the number of 2017 LTI stock units reported in the table below during 2019. After 2019, there will be no more vesting of the 2017 LTI performance stock units because the performance period expired, and any unearned 2017 LTI performance stock units were forfeited at the end of 2019.
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2017 LTI Performance Stock Units
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Name
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Earned in 2019 (#)
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Yuval Wasserman
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9,630
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Thomas McGimpsey
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2,408
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Additional information regarding the number of stock units that vested under our 2017‑2018 and 2019 LTI Plans for each named executive officer in 2019 can be found below in the “2019 Option Exercises and Stock Vested” table and information regarding the number of stock units that are unvested but remain outstanding for each named executive officer can be found below in the “2019 Outstanding Awards at Fiscal Year End” table.
Artesyn Performance-Based Integration Cash Incentive Program
On October 25, 2019, the Company approved a performance-based cash integration incentive program for select employees and members of management (including the named executive officers) that would reward
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38
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PRECISION | POWER | PERFORMANCE
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2020 ANNUAL
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PROXY STATEMENT
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participants should the Company achieve identified synergies, accretion targets and significant milestones related to factory and facility optimization, all with respect to the integration of Artesyn Embedded Technologies, Inc.’s Embedded Power business during the 2020 and 2021 performance period (the “Integration Incentive Program”). The Integration Incentive Program is in addition to other incentive programs and may pay out early if targets and milestones are achieved early. Under the Integration Incentive Program, an eligible participant can achieve between 0% and 150% of target with a threshold achievement of 50% of target based on achievement of specific financial and integration goals. The eligible named executive officers under the Integration Incentive Program and their target cash incentive opportunity (shown in parenthesis) are as follows: Yuval Wasserman, President & Chief Executive Officer ($725,000), Paul Oldham, EVP & Chief Financial Officer ($725,000), Neil Brinker, EVP & Chief Operating Officer ($725,000) and Tom McGimpsey, EVP - Integration Manager ($600,000).
Other Benefits
As U.S. employees, the executives were eligible to participate in health and welfare benefits, as offered to our U.S. workforce. These benefits are designed to attract and retain a skilled workforce in a competitive marketplace. These benefits also help ensure that the Company has a healthy and focused workforce through reliable and competitive health and other personal benefits. These benefits were considered in relation to the total compensation package but did not materially impact decisions regarding other elements of executive officer compensation.
All U.S. employees of the Company including the executive officers are eligible to participate in the Company’s 401(k) savings plan and are eligible to receive matching contributions from the Company of fifty percent (50%) of the first six percent (6%) of compensation contributed to the plan by the employee. All U.S. employees of the Company excluding the executive and senior leadership team through vice presidents are eligible to participate in the Company’s Employee Stock Purchase Plan (“ESPP”) which allows for employees to purchase shares of the Company’s common stock with funds withheld directly from their pay. The ESPP also provides participants with a right to purchase a limited number of shares of common stock of the Company at a purchase price equal to the lesser of eighty five percent (85%) of the fair market value of the stock on either the opening or closing date of an offering period under the plan.
Tax and Accounting Implications
When determining the compensation packages of our named executive officers, the Compensation Committee considers all factors that may have an impact on our financial performance such as accounting rules and tax regulations, including Section 162(m) of the Internal Revenue Code. Section 162(m) generally disallows a tax deduction to publicly traded corporations for compensation in excess of $1 million paid for any fiscal year to certain covered executives. Prior to the Tax Cuts and Jobs Act enacted in 2017 (the “Tax Reform Act”), certain performance-based compensation was potentially exempt from the $1 million deduction limit. However, under the Tax Reform Act, only qualifying performance-based compensation that is paid pursuant to a written binding contract in effect on November 2, 2017 will be exempt from the deduction limit. Only Mr. Wasserman and Mr. McGimpsey have qualifying performance-based compensation that may be paid pursuant to written binding contracts in effect as of November 2, 2017.
Accordingly, any compensation paid pursuant to new compensation arrangements entered into after November 2, 2017, even if performance based, will count towards the $1 million fiscal year deduction limit if paid to a covered executive.
Response to the 2018 Advisory Vote on Executive Compensation
As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act and the SEC’s rulemakings thereunder, we offered our stockholders an advisory vote on executive compensation as set forth more fully in
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PRECISION | POWER | PERFORMANCE
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39
|
2020 ANNUAL
|
|
PROXY STATEMENT
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