Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

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

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  Preliminary Proxy Statement
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  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Pursuant to §240.14a-12

LAM RESEARCH CORPORATION

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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Table of Contents
    

 

LOGO

September 23, 2020

Dear Lam Research Stockholders,

We cordially invite you to attend the Lam Research Corporation 2020 Annual Meeting of Stockholders. The annual meeting will be held on Tuesday, November 3, 2020, at 2:00 p.m. Pacific Standard Time. This year’s annual meeting will be a virtual meeting. You may attend the annual meeting, vote, and submit your questions during the live webcast of the annual meeting by visiting www.virtualshareholdermeeting.com/LRCX2020 and entering the 16-digit control number included in our Notice of Internet Availability or on your proxy card.

At this year’s annual meeting, stockholders will be asked to elect the nine nominees named in the attached proxy statement as directors to serve until the next annual meeting of stockholders, and until their respective successors are elected and qualified; to cast an advisory vote to approve our named executive officer compensation, or “Say on Pay”; and to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2021. The Board of Directors recommends that you vote in favor of each director nominee and each of these proposals. Management will not provide a business update during this meeting; please refer to our latest quarterly earnings report for our most recently-provided outlook.

Please refer to the proxy statement for detailed information about the annual meeting, each director nominee, and each of the proposals, as well as voting instructions. Your vote is important, and we strongly urge you to cast your vote as soon as possible by the internet, telephone, or mail, even if you plan to attend the meeting.

Sincerely yours,

 

     LOGO

Abhijit Y. Talwalkar

Chairman of the Board


Table of Contents
    

 

Notice of 2020 Annual Meeting of Stockholders

 

 

LOGO

4650 Cushing Parkway

Fremont, California 94538

Telephone: 510-572-0200

 

Meeting Information

 

   

    

  Category

 

    

Details

Date and Time

 

Tuesday, November 3, 2020

2:00 p.m. Pacific Standard Time

Place

 

Via the Internet at www.virtualshareholdermeeting.com/LRCX2020

Record Date

 

Only stockholders of record at the close of business on September 4, 2020, the “Record Date,” are entitled to notice of, and to vote at, the annual meeting.

Proxy and Annual Report Materials

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2020 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON NOVEMBER 3, 2020

Our notice of 2020 Annual Meeting of Stockholders, proxy statement, and annual report to stockholders are available on the Lam Research website at https://investor.lamresearch.com.

 

  Elect Electronic Delivery - Save Time, Money & Trees

As part of our efforts to be an environmentally responsible corporate citizen, we encourage Lam stockholders to voluntarily elect to receive future proxy and annual report materials electronically.

 

•  If you are a registered stockholder, please visit
https://enroll.icsdelivery.com/lrcx
for simple instructions.

 

  If you are a stockholder who owns stock through a broker or brokerage account, please opt for e-delivery at https://enroll.icsdelivery.com/lrcx or by contacting your nominee.

 

Date of Distribution

This notice, proxy statement and proxy card are first being made available and/or mailed to our stockholders on or about September 23, 2020.

Items of Business

 

       

  #

 

Proposal

 

Our Board’s
Recommendation

   

1.

 

Election of nine directors to serve until the next annual meeting of stockholders, and until their respective successors are elected and qualified

 

    FOR each Director Nominee

   

2.

 

Advisory vote to approve our named executive officer compensation, or “Say on Pay”

 

    FOR

   

3.

 

Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2021

 

    FOR

   

Transaction of such other business as may properly come before the annual meeting (including any adjournment or postponement thereof)

   

Voting

Please vote as soon as possible, even if you plan to attend the annual meeting, on all of the voting matters. You have three options for submitting your vote before the annual meeting:

LOGO   by the internet,
LOGO   by telephone, or
LOGO   by mail.

The proxy statement and the accompanying proxy card provide detailed voting instructions.

IT IS IMPORTANT THAT YOU VOTE to play a part in the future of the Company. Please carefully review the proxy materials for the 2020 Annual Meeting of Stockholders.

By Order of the Board of Directors,

 

 

LOGO

Ava M. Hahn

Secretary

 

 

 


Table of Contents

  LAM RESEARCH CORPORATION

  Proxy Statement for 2020 Annual Meeting of Stockholders

TABLE OF CONTENTS

 

Proxy Statement Summary      1  

About Lam Research Corporation

     1  

Figure 1. Fiscal Year 2020 Financial Highlights

     2  

Figure 2. Proposals and Voting Recommendations

     2  

Figure 3. Summary Information Regarding Director Nominees

     2  

Figure 4. Director Nominee Key Qualifications and Skills Highlights

     3  

Figure 5. Director Nominee Composition Highlights

     3  

Figure 6. Corporate Governance Highlights

     4  

Figure 7. Executive Compensation Highlights

     5  
Stock Ownership      6  

Security Ownership of Certain Beneficial Owners and Management

     6  

Delinquent Section 16(a) Reports

     8  
Governance Matters      9  

Corporate Governance

     9  

Corporate Governance Policies

     9  

Our Approach to Ensuring Board Effectiveness

     9  

Board Nomination Policies and Procedures

     11  

Director Independence Policies

     12  

Leadership Structure of the Board

     12  

Other Governance Practices

     12  

Meeting Attendance

     13  

Board Committees

     13  

Board’s Role and Engagement

     14  

Stockholder Engagement

     15  

Culture and Human Capital Management

     17  

Corporate Social Responsibility

     17  

Director Compensation

     18  
Compensation Matters      21  

Executive Compensation and Other Information

     21  

Compensation Discussion and Analysis (see Table of Contents on page 21)

     21  

Compensation Committee Report

     40  

Compensation Committee Interlocks and Insider Participation

     40  

Executive Compensation Tables

     41  

CEO Pay Ratio

     50  

Securities Authorized for Issuance under Equity Compensation Plans

     50  
Audit Matters      52  

Audit Committee Report

     52  

Relationship with Independent Registered Public Accounting Firm

     53  

Annual Evaluation and Selection of Independent Registered Public Accounting Firm

     53  

Fees Billed by Ernst & Young LLP

     53  

Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services

     54  

Certain Relationships and Related Party Transactions

     54  
Voting Proposals      55  

Proposal No. 1: Election of Directors

     55  

2020 Nominees for Director

     56  

Proposal No.  2: Advisory Vote to Approve Our Named Executive Officer Compensation, or “Say on Pay”

     63  

Proposal No. 3: Ratification of the Appointment of Ernst  & Young LLP as our Independent Registered Public Accounting Firm for Fiscal Year 2021

     64  

Other Voting Matters

     64  
Voting and Meeting Information      65  

Information Concerning Solicitation and Voting

     65  

Other Meeting Information

     66  

 


Table of Contents
    

 

Proxy Statement Summary

 

 

To assist you in reviewing the proposals to be acted upon at the annual meeting, we call your attention to the following summarized information about the Company, the proposals and voting recommendations, the Company’s director nominees, highlights of the directors’ key qualifications, skills and experiences, board composition, corporate governance, and executive compensation. For more complete information about these topics, please review the complete proxy statement before voting. We also encourage you to read our latest annual report on Form 10-K, which is also available at: https://investor.lamresearch.com. The content of any website referred to in this proxy statement is not a part of nor incorporated by reference in this proxy statement unless expressly noted.

We use the terms “Lam Research,” “Lam,” the “Company,” “we,” “our,” and “us” in this proxy statement to refer to Lam Research Corporation, a Delaware corporation. We also use the term “Board” to refer to the Company’s Board of Directors.

ABOUT LAM RESEARCH CORPORATION

Lam Research is a global supplier of innovative wafer fabrication equipment and services to the semiconductor industry. We have built a strong global presence with core competencies in areas like nanoscale applications enablement, chemistry, plasma and fluidics, advanced systems engineering, and a broad range of operational disciplines. Our products and services are designed to help our customers build smaller, faster, and better performing devices that are used in a variety of electronic products, including mobile phones, personal computers, servers, wearables, automotive vehicles, and data storage devices. Our vision is to realize full value from the natural technology extensions of our Company.

Our customer base includes leading semiconductor memory, foundry, and integrated device manufacturers that make products such as non-volatile memory, dynamic random-access memory (DRAM), and logic devices. We aim to increase our strategic relevance with our customers by contributing more to their continued success. Our core technical competency is integrating hardware, process, materials, software, and process control enabling results on the wafer.

 

 

LOGO

Semiconductor manufacturing, our customers’ business, involves the complete fabrication of multiple dies or integrated circuits on a wafer. This involves the repetition of a set of core processes and can require hundreds of individual steps. Fabricating these devices requires highly sophisticated process technologies to integrate an increasing array of new materials with precise control at the atomic scale. Along with meeting technical requirements, wafer processing equipment must deliver high productivity and be cost-effective.

Demand from the Cloud, Internet of Things (IoT), and other markets is driving the need for increasingly powerful and cost-efficient semiconductors. At the same time, there are growing technical challenges with traditional scaling. These trends are driving significant inflections in semiconductor manufacturing, such as the increasing importance of vertical 3D scaling strategies as well as multiple patterning to enable shrinks.

We believe we are in a strong position with our leadership and competency in deposition, etch, and clean to facilitate some of the most significant innovations in semiconductor device manufacturing. Several factors create opportunity for sustainable differentiation for us: (i) our focus on research and development, with several on-going programs related to sustaining engineering, product and process development, and concept and feasibility; (ii) our ability to effectively leverage cycles of learning from our broad installed base; (iii) our collaborative focus with ecosystem partners; and (iv) our focus on delivering our multi-product solutions with a goal to enhance the value of Lam’s solutions to our customers.

 

Continues on next page  u

 

Lam Research Corporation 2020 Proxy Statement     1


Table of Contents

Figure 1. Fiscal Year 2020 Financial Highlights

 

 

LOGO

Figure 2. Proposals and Voting Recommendations

 

   

  Voting Matters

 

Board Vote

Recommendation

 

Proposal No. 1: Election of Directors

 

 

FOR each nominee

 

Proposal No. 2: Advisory Vote to Approve Our Named Executive Officer Compensation, or “Say on Pay”

 

 

FOR

 

Proposal No. 3: Ratification of the Appointment of Ernst & Young LLP as our Independent Registered Public Accounting Firm for Fiscal Year 2021

 

 

FOR

 

Transaction of such other business as may properly come before the annual meeting (including any adjournment or postponement thereof)

   

 

 

 

 

 

Figure 3. Summary Information Regarding Director Nominees

You are being asked to vote on the election of these nine directors. The following table provides summary information about each director nominee as of September 2020, and their biographical information is contained in the “Voting Proposals – Proposal No. 1: Election of Directors – 2020 Nominees for Director” section below.

 

       
 

 

  Director   Committee
Membership (2)
 

Other Current Public

Boards

   Name   Age      Since           Independent (1)          AC    CC    NGC

Sohail U. Ahmed

 

 

62

 

  

 

2019

 

 

Yes

   

 

    

 

    

 

   

 

Timothy M. Archer

 

 

53

 

  

 

2018

 

 

No

   

 

    

 

    

 

   

 

Eric K. Brandt

 

 

58

 

  

 

2010

 

 

Yes

 

C/FE

    

 

  

M

 

Dentsply Sirona,

Macerich,

NortonLifeLock

Michael R. Cannon

 

 

67

 

  

 

2011

 

 

Yes

 

M/FE

    

 

  

C

 

Dialog Semiconductor,

Seagate Technology

Catherine P. Lego

 

 

63

 

  

 

2006

 

 

Yes

 

*

  

C

  

M

 

Cirrus Logic,

Guidewire Software,

IPG Photonics

Bethany J. Mayer

 

 

58

 

  

 

2019

 

 

Yes

 

M/FE

    

 

    

 

 

Box,

Marvell Technology Group,

Sempra Energy

Abhijit Y. Talwalkar

 

 

56

 

  

 

2011

 

 

Yes

(Chairman)

 

*

  

M

  

M

 

Advanced Micro Devices,

iRhythm Technologies,

TE Connectivity

Lih Shyng (Rick L.) Tsai

 

 

69

 

  

 

2016

 

 

Yes

   

 

  

M

    

 

 

MediaTek

Leslie F. Varon

 

 

63

 

  

 

2019

 

 

Yes

 

M/FE

    

 

    

 

 

Dentsply Sirona,

Hamilton Lane

 

(1)

Independence determined in accordance with Nasdaq rules.

 

(2)

Membership and leadership shown will continue through November 1, 2020, on which date certain membership and leadership changes will take effect. See “Governance Matters - Corporate Governance - Board Committees” for details.

 

AC - Audit committee   

C - Chair

CC - Compensation and human resources committee   

M - Member

NGC - Nominating and governance committee   

FE - Audit committee financial expert (as determined based on SEC rules)

  

* - Qualifies as an audit committee financial expert (as determined based on SEC rules)

 

2


Table of Contents

Figure 4. Director Nominee Key Qualifications, Skills and Experiences Highlights

The table below summarizes the key qualifications, skills and experiences of our nominees. Not having a mark does not mean the director nominee does not possess that qualification, skill or experience. The director biographies contained in the “Voting Proposals – Proposal No. 1: Election of Directors – 2020 Nominees for Director” section below describe each director nominee’s background and relevant experience in more detail, and identifies those qualifications, skills and experiences considered most relevant to the decision to nominate candidates to serve on our Board.

 

                   

 

  Key Qualifications, Skills & Experiences of Director Nominees

LOGO

 

LOGO

 

LOGO

 

LOGO

 

LOGO

 

LOGO

 

LOGO

 

LOGO

 

LOGO

 

                 

Industry Knowledge - Knowledge of and experience with our semiconductor and broader technology industries and markets

 

X

 

X

 

X

 

X

 

X

 

X

 

X

 

X

 

X

                 

Customer/Deep Technology Knowledge - Deep knowledge and understanding of semiconductor processing equipment technologies, including an understanding of our customers’ markets and needs

 

X

 

X

 

X

 

 

 

 

X

 

X

 

                 

Marketing Experience - Extensive knowledge and experience in business-to-business marketing and sales, and services and/or business development, preferably in a capital equipment industry

 

 

X

 

X

 

X

 

 

X

 

X

 

X

 

                 

Leadership Experience - Experience as a current or former chief executive officer (“CEO”), president, chief operating officer and/or general manager of a significant business

 

 

X

 

X

 

X

 

 

X

 

X

 

X

 

                 

Finance Experience - Profit and loss (“P&L”) and financing experience as an executive responsible for financial results of a breadth and level of complexity comparable to the Company

 

 

X

 

X

 

X

 

X

 

X

 

X

 

X

 

X

                 

Global Business Experience - Experience as a current or former business executive of a business with substantial global operations

 

X

 

X

 

X

 

X

 

 

X

 

X

 

X

 

X

                 

Mergers and Acquisitions (“M&A”) Experience - M&A and integration experience (including buy- and sell-side and hostile M&A experience) as a public company director or officer

 

 

X

 

X

 

X

 

X

 

X

 

X

 

X

 

X

                 

Board/Governance Experience Experience with corporate governance requirements and practices

 

X

 

X

 

X

 

X

 

X

 

X

 

X

 

X

 

X

                 

Cybersecurity ExpertiseUnderstanding of and/or experience overseeing corporate cybersecurity programs, and having a history of participation in relevant cyber education

 

 

 

X

 

X

 

 

X

 

X

 

 

Figure 5. Director Nominee Composition Highlights

The Board is committed to diversity and the pursuit of board refreshment and balanced tenure. The following charts show the tenure, age and diversity of the director nominees. We also separately present the diversity of the director nominees in terms of gender and ethnic/racial diversity.

 

 

LOGO

 

Continues on next page  u

 

Lam Research Corporation 2020 Proxy Statement     3


Table of Contents

Figure 6. Corporate Governance Highlights

 

   
  Board and Other Governance Information   As of September 2020  

Size of Board as Nominated

 

 

9

 

Number of Independent Nominated Directors

 

 

8

 

Number of Nominated Directors Who Attended ³75% of Meetings

 

 

9

 

Number of Nominated Directors on More Than Four Public Company Boards

 

 

0

 

Number of Nominated Non-Employee Executive Officer Directors Who Are on More Than Two Public Company Boards

 

 

0

 

Limitations on Other Board and Committee Memberships (Page 13)

 

 

Yes

 

Directors Subject to Stock Ownership Guidelines (Page 13)

 

 

Yes

 

Hedging and Pledging Prohibited (Page 9)

 

 

Yes

 

Annual Election of Directors (Page 55)

 

 

Yes

 

Voting Standard (Page 55)

 

 

Majority

 

Plurality Voting Carveout for Contested Elections

 

 

Yes

 

Separate Chair and CEO

 

 

Yes

 

Independent Board Chair (Page 12)

 

 

Yes

 

Independent Directors Meet Without Management Present (Page 12)

 

 

Yes

 

Annual Board (Including Individual Director) and Committee Self-Evaluations (Page 10)

 

 

Yes

 

Annual Independent Director Evaluation of CEO (Pages 14-15)

 

 

Yes

 

Risk Oversight by Full Board and Committees (Page 15)

 

 

Yes

 

Commitment to Board Refreshment and Diversity (Page 10)

 

 

Yes

 

Robust Director Nomination Process (Pages 11)

 

 

Yes

 

Significant Board Engagement (Pages 14-15)

 

 

Yes

 

Board Orientation/Education Program (Pages 10-11)

 

 

Yes

 

Code of Ethics Applicable to Directors (Page 9)

 

 

Yes

 

Stockholder Proxy Access (Pages 11, 67-68)

 

 

Yes

 

Stockholder Ability to Act by Written Consent

 

 

Yes

 

Stockholder Engagement Program (Pages 15-16)

 

 

Yes

 

Poison Pill

 

 

No

 

Publication of annual Corporate Social Responsibility Report on Our Website (Pages 17-18)

 

 

Yes

 

 

4


Table of Contents

Figure 7. Executive Compensation Highlights

 

  What We Do

Pay for Performance (Pages 22-25) – Our executive compensation program is designed to pay for performance with 100% of the annual incentive program tied to company financial, strategic, and operational performance metrics; 50% of the long-term incentive program tied to relative total shareholder return, or “TSR,” performance; and 50% of the long-term incentive program awarded in stock options and service-based restricted stock units, or “RSUs.”

Three-Year Performance Period for Our 2020 Long-Term Incentive Program (Pages 35-37) – Our current long-term incentive program is designed to pay for performance over a period of three years.

Absolute and Relative Performance Metrics (Pages 25, 30-37) – Our annual and long-term incentive programs for executive officers include the use of absolute and relative performance factors.

Balance of Annual and Long-Term Incentives – Our incentive programs provide a balance of annual and long-term incentives.

Different Performance Metrics for Annual and Long-Term Incentive Programs (Pages 25, 30-37) – Our annual and long-term incentive programs use different performance metrics.

Capped Amounts (Pages 31-37) – Amounts that can be earned under the annual and long-term incentive programs are capped.

Compensation Recovery/Clawback Policy (Page 38) – We have a policy pursuant to which we can recover the excess amount of cash incentive-based compensation granted and paid to our officers who are covered by section 16 of the Securities Exchange Act of 1934, as amended, or the “Exchange Act.”

Prohibit Option Repricing – Our stock incentive plans prohibit option repricing without stockholder approval.

Stock Ownership Guidelines (Page 39) – We have stock ownership guidelines for each of our executive officers and certain other senior executives; each of our named executive officers as set forth in Figure 20 has met his or her individual ownership level under the current program or has a period of time remaining under the guidelines to do so.

Independent Compensation Advisor (Page 28) – The compensation and human resources committee benefits from its utilization of an independent compensation advisor retained directly by the committee that provides no other services to the Company.

Stockholder Engagement (Pages 16, 26-27) – We engage with stockholders on an annual basis and stockholder advisory firms on an as needed basis to obtain feedback concerning our compensation program.

  What We Don’t Do

Tax “Gross-Ups” for Perquisites, for Other Benefits or upon a Change in Control (Pages 39, 41, 45-49) – Our executive officers do not receive tax “gross-ups” for perquisites, for other benefits, or upon a change in control.(1)

Single-Trigger Change in Control Provisions (Pages 39, 45-47) – None of our executive officers have single-trigger change in control agreements.

 

(1)

Our executive officers may receive tax gross-ups in connection with relocation benefits that are widely available to all of our employees.

 

Continues on next page  u

 

Lam Research Corporation 2020 Proxy Statement     5


Table of Contents
    

 

Stock Ownership

 

 

Security Ownership of Certain Beneficial Owners and Management

The table below sets forth the beneficial ownership of shares of Lam common stock by: (1) each person or entity who we believe, based on our review of filings made with the United States Securities and Exchange Commission, or the “SEC,” beneficially owned more than 5% of Lam’s common stock on the date set forth below; (2) each current director of the Company; (3) each NEO identified below in the “Compensation Matters – Executive Compensation and Other Information – Compensation Discussion and Analysis” section; and (4) all current directors and current executive officers as a group. With the exception of 5% owners, and unless otherwise noted, the information below reflects holdings as of September 4, 2020, which is the Record Date for the 2020 Annual Meeting of Stockholders and the most recent practicable date for determining ownership. For 5% owners, holdings are as of the dates of their most recent ownership reports filed with the SEC, which are the most practicable dates for determining their holdings. The percentage of the class owned is calculated using 145,087,944 as the number of shares of Lam common stock outstanding on September 4, 2020.

Figure 8. Beneficial Ownership Table

 

     
  Name of Person or Identity of Group

 

 

Shares Beneficially
Owned

(#) (1)

 

   

                     Percentage
of Class

 

 

5% Stockholders

   

 

 

 

 

 

   

 

 

 

 

 

BlackRock, Inc.
55 East 52nd Street
New York, NY 10055

 

 

12,507,354

    (2) 

 

 

8.62

The Vanguard Group, Inc.
100 Vanguard Boulevard
Malvern, PA 19355

 

 

11,789,265

    (3) 

 

 

8.13

FMR LLC
245 Summer Street
Boston, MA 02210

 

 

8,975,609

    (4) 

 

 

6.19

Ameriprise Financial, Inc.
145 Ameriprise Financial Center
Minneapolis, MN 02100

 

 

7,927,471

    (5) 

 

 

5.46

Directors

   

 

 

 

 

 

   

 

 

 

 

 

Sohail U. Ahmed

 

 

1,244

 

 

 

Timothy M. Archer (also a Named Executive Officer)

 

 

134,752

 

 

 

Eric K. Brandt

 

 

26,965

 

 

 

Michael R. Cannon

 

 

16,860

 

 

 

Youssef A. El-Mansy

 

 

19,286

 

 

 

Catherine P. Lego

 

 

51,368

 

 

 

Bethany J. Mayer

 

 

1,240

 

 

 

Abhijit Y. Talwalkar

 

 

14,497

 

 

 

Lih Shyng (Rick L.) Tsai

 

 

5,640

 

 

 

Leslie F. Varon

 

 

1,240

 

 

 

Named Executive Officers (“NEOs”)

   

 

 

 

 

 

   

 

 

 

 

 

Douglas R. Bettinger

 

 

122,328

 

 

 

Richard A. Gottscho

 

 

21,376

 

 

 

Patrick J. Lord

 

 

1,807

 

 

 

Seshasayee (Sesha) Varadarajan

 

 

33,614

 

 

 

All current directors and executive officers as a group (17 people)

 

 

498,536

 

 

 

 

*

Less than 1%

 

6


Table of Contents
(1)

Includes shares subject to outstanding stock options that are now exercisable or will become exercisable within 60 days after September 4, 2020, as well as RSUs, that will vest within that time period, as follows:

 

   
 

 

  Shares  

Sohail U. Ahmed

 

 

770

Timothy M. Archer

 

 

66,978

Eric K. Brandt

 

 

770

Michael R. Cannon

 

 

770

Youssef A. El-Mansy

 

 

770

Catherine P. Lego

 

 

770

Bethany J. Mayer

 

 

770

Abhijit Y. Talwalkar

 

 

770

Lih Shyng (Rick L.) Tsai

 

 

770

Leslie F. Varon

 

 

770

Douglas R. Bettinger

 

 

52,361

Richard A. Gottscho

 

 

 

Patrick J. Lord

 

 

 

Seshasayee (Sesha) Varadarajan

 

 

4,861

All current directors and executive officers as a group (17 people)

 

 

139,867

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.

 

(2)

All information regarding BlackRock Inc., or “BlackRock,” is based solely on information disclosed in amendment number 12 to Schedule 13G filed by BlackRock with the SEC on February 5, 2020 on behalf of BlackRock and certain subsidiaries. According to the Schedule 13G filing, of the 12,507,354 shares of Lam common stock reported as beneficially owned by BlackRock as of December 31, 2019, BlackRock had sole voting power with respect to 10,810,314 shares, did not have shared voting power with respect to any shares, had sole dispositive power with respect to 12,507,354 shares, and did not have shared dispositive power with respect to any shares of Lam common stock.

 

(3)

All information regarding The Vanguard Group, Inc., or “Vanguard,” is based solely on information disclosed in amendment number eight to Schedule 13G filed by Vanguard with the SEC on February 12, 2020. According to the Schedule 13G filing, of the 11,789,265 shares of Lam common stock reported as beneficially owned by Vanguard as of December 31, 2019, Vanguard had sole voting power with respect to 223,325 shares, had shared voting power with respect to 40,960 shares, had sole dispositive power with respect to 11,537,870 shares, and had shared dispositive power with respect to 251,395 shares of Lam common stock. The 11,789,265 shares of Lam common stock reported as beneficially owned by Vanguard include 171,910 shares beneficially owned by Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of Vanguard, as a result of it serving as investment manager of collective trust accounts, and 128,396 shares beneficially owned by Vanguard Investments Australia, Ltd., a wholly–owned subsidiary of Vanguard, as a result of it serving as investment manager of Australian investment offerings.

 

(4)

All information regarding FMR LLC, or “FMR,” is based solely on information disclosed in the Schedule 13G filed by FMR with the SEC on February 7, 2020 on behalf of FMR, Abigail P. Johnson, certain of FMR’s subsidiaries and affiliates, and other companies. According to the Schedule 13G filing, of the 8,975,609 shares of Lam common stock reported as beneficially owned by FMR as of December 31, 2019, FMR had sole voting power with respect to 1,174,896 shares, did not have shared voting power with respect to any shares, had sole dispositive power with respect to 8,975,609 shares, and did not have shared dispositive power with respect to any shares of Lam common stock.

 

(5)

All information regarding Ameriprise Financial, Inc., or “Ameriprise,” is based solely on information disclosed in amendment number seven to Schedule 13G filed by Ameriprise with the SEC on February 14, 2020. According to the Schedule 13G filing, of the 7,927,471 shares of Lam common stock reported as beneficially owned by Ameriprise as of December 31, 2019, Ameriprise did not have sole voting power with respect to any shares, had shared voting power with respect to 7,276,439 shares, did not have sole dispositive power with respect to any shares, and had shared dispositive power with respect to 7,927,471 shares of Lam common stock. According to the Schedule 13G filing, Ameriprise, as the parent company of Columbia Management Investment Advisers, LLC, or “Columbia,” may be deemed to have, but disclaims, beneficial ownership of the shares reported by Columbia in the Schedule 13G filing. Accordingly, the shares reported as beneficially owned by Ameriprise include those shares separately reported as beneficially owned by Columbia.

 

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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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Governance Matters

 

 

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:

Figure 9. Policies and Procedures Summary

 

   
  Policy or
  Procedure
  Summary

Board committee charters*

 

Each of the Board’s audit, compensation and human resources, and nominating and governance committees has a written charter adopted by the Board that delegates authority and responsibilities to the committee.

 

Each committee reviews its charter, and the nominating and governance committee reviews the charters of all of the committees, annually and recommends changes to the Board, as appropriate. See “Board Committees” below for additional information regarding these committees.

Corporate governance guidelines*

 

We adhere to written corporate governance guidelines, adopted by the Board and reviewed annually by the nominating and governance committee and the Board.

 

Selected provisions of the guidelines are discussed below, including in the “Board Nomination Policies and Procedures,” “Director Independence Policies,” and “Other Governance Practices” sections below.

Corporate Code of Ethics*

 

We maintain a code of ethics that applies to all employees, officers, and members of the Board.

 

The code of ethics establishes standards reasonably necessary to promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, and full, fair, accurate, timely, and understandable disclosure in the periodic reports we file with the SEC and in other public communications. We will promptly disclose to the public any amendments to, or waivers from, any provision of the code of ethics to the extent required by applicable laws. We intend to make this public disclosure by posting the relevant material on our website, to the extent permitted by applicable laws.

Global Standards of Business Conduct*

  We maintain written standards of business conduct to address a variety of situations that apply to our worldwide workforce. Among other things, these global standards of business conduct address relationships and/or conduct with one another, with Lam (including conflicts of interest, safeguarding of Company assets, and protection of confidential information), and with other companies and stakeholders (including anti-corruption).

Insider Trading Policy

  Our insider trading policy restricts the trading of Company stock by our directors, officers, and employees, and includes provisions addressing insider blackout periods and prohibiting pledges of Company stock, and prohibiting such persons from engaging in hedging transactions, such as “cashless” collars, forward sales, equity swaps and other similar arrangements. Investments in exchange funds may be permitted on a case-by-case basis if the fund is broadly diversified.

 

*

A copy is available on the Investors section of our website at https://investor.lamresearch.com/corporate-governance.

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

 

 

LOGO

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:

 

   

experience;

   

business acumen;

   

wisdom;

   

integrity;

   

judgment;

   

the ability to make independent analytical inquiries;

   

the ability to understand the Company’s business environment;

   

the candidate’s willingness and ability to devote adequate time to board duties;

   

diversity with respect to any attribute(s) the Board considers appropriate, including geographic, gender, age, and ethnic diversity;

   

specific skills, background, or experience considered necessary or desirable for board or committee service;

   

specific experiences with other businesses or organizations that may be relevant to the Company or its industry; and

   

the interplay of a candidate’s experiences and skills with those of other Board members.

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.

Figure 11. Audit Committee

 

       
  Membership (1)(2)   Independence (4)  

Meetings in

FY2020

  Purpose

Eric K. Brandt (Chair) (3)

Michael R. Cannon (3)

Bethany J. Mayer (3)

Leslie F. Varon (3)

  4 of 4   10  

Purpose is to oversee the Company’s accounting and financial reporting processes, the Company’s Internal Audit Program, its investment policies and performance, its information security (including cybersecurity), its Ethics and Compliance Program, and the audits of our financial statements, including the system of internal controls.

 

As part of its responsibilities, the audit committee reviews and oversees potential conflict of interest situations, transactions required to be disclosed pursuant to Item 404 of Regulation S-K of the SEC, and any other transaction involving an executive or Board member.

 

(1)

As of September 4, 2020. Effective November 1, 2020, Leslie F. Varon will become the chair and Catherine P. Lego will become a member, and Eric K. Brandt will no longer be a member of the committee.

 

(2)

Each member is able to read and understand fundamental financial statements as required by the Nasdaq listing standards.

 

(3)

Each is an “audit committee financial expert” as defined in the SEC rules.

 

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(4)

The Board concluded that all members are non-employee directors who are independent in accordance with the Nasdaq listing standards and SEC rules for audit committee member independence.

Figure 12. Compensation and Human Resources Committee

 

  Membership (1)   Independence (2)   Meetings in
FY2020
  Purpose

Youssef A. El-Mansy
Catherine P. Lego (Chair) Abhijit Y. Talwalkar
Lih Shyng (Rick L.) Tsai

  4 of 4   5  

Purpose is to discharge certain responsibilities of the Board relating to executive compensation; to oversee incentive, equity-based plans, and other compensatory plans in which the Company’s executive officers and/or directors participate; to produce an annual report on executive compensation for inclusion as required in the Company’s annual proxy statement; and to discharge certain responsibilities of the Board with respect to organization and people matters.

 

The committee is authorized to perform the responsibilities referenced above and described in its charter.

 

(1)

As of September 4, 2020. Effective November 1, 2020, Eric K. Brandt will become the chair and Sohail U. Ahmed will become a member, and Youssef A. El-Mansy and Catherine P. Lego will no longer be members of the committee.

 

(2)

The Board concluded that all members of the compensation and human resources committee are non-employee directors who are independent in accordance with Rule 16b-3 of the Exchange Act and the Nasdaq criteria for director and compensation committee member independence.

Figure 13. Nominating and Governance Committee

 

       
  Membership (1)   Independence (2)   Meetings in
FY2020
  Purpose

Eric K. Brandt
Michael R. Cannon (Chair) Catherine P. Lego
Abhijit Y. Talwalkar

  4 of 4   4  

Purpose is to identify individuals qualified to serve as members of the Board of the Company, to recommend nominees for election as directors of the Company, to oversee self-evaluations of the Board’s performance, to develop and recommend corporate governance guidelines to the Board, and to provide oversight with respect to corporate governance.

 

The nominating and governance committee will consider for nomination persons properly nominated by stockholders in accordance with the Company’s bylaws and other procedures described below under “Voting and Meeting Information - Other Meeting Information - Stockholder-Initiated Proposals and Nominations for the 2021 Annual Meeting.” Subject to then-applicable law, stockholder nominations for director will be evaluated by the Company’s nominating and governance committee in accordance with the same criteria as is applied to candidates identified by the nominating and governance committee or other sources.

 

(1)

As of September 4, 2020.

 

(2)

The Board concluded that all members of the nominating and governance committee are non-employee directors who are independent in accordance with the Nasdaq criteria for director independence.

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:

 

   

overseeing the Company’s business strategies, and approving the Company’s capital allocation plans and priorities, annual operating plan, and major corporate actions as set forth in the below sub-bullets;

  °   

A strategic plan is presented to the Board for discussion on an annual basis;

  °   

An operating plan is presented to the Board for discussion on an annual basis, and updates are presented at each quarterly Board meeting;

  °   

Capital allocation plans and priorities are discussed on a quarterly basis; and

 

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  °   

Other major corporate actions are presented and discussed as part of management updates and as special agenda topics, as appropriate.

   

appointing, annually evaluating the performance of, and approving the compensation of the CEO;

   

reviewing with the CEO the performance of the Company’s other executive officers and approving their compensation;

   

reviewing and approving CEO and top leadership succession planning;

   

advising and mentoring the Company’s senior management;

   

overseeing the Company’s internal controls over financial reporting and disclosure controls and procedures;

   

overseeing the Company’s ethics and compliance programs, including the Company’s code of ethics; and

   

overseeing the Company’s material risks and enterprise risk management processes and programs.

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

 

 

LOGO

 

   

Our audit committee oversees risks related to the Company’s accounting and financial reporting, internal controls, annual financial statement audits, independent registered public accounting firm, internal audit function, related party transactions, ethics and compliance program, investment policy and portfolio, hedging strategies, and tax strategies. The audit committee also oversees our information security program (including cybersecurity), with the responsibility of recommending such Board action as it deems appropriate.

 

   

Our compensation and human resources committee oversees risks related to the Company’s equity and executive compensation programs and plans, executive succession plans, employee engagement programs, and environmental, social and governance, or “ESG,” matters relating to the Company’s workforce, including inclusion and diversity.

 

   

Our nominating and governance committee oversees risks related to corporate governance, board effectiveness, director independence, Board and committee composition, and ESG matters not assigned to other committees.

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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Figure 15. Stockholder Governance Engagement Cycle

 

 

Before Annual Meeting

 

Engage with stockholders to answer questions and obtain feedback on governance matters and annual meeting matters

 

 

        

 

During Annual Meeting

 

Stockholders vote on election

of directors, say on pay,

and other management

and stockholder proposals

 

 

        

 

After Annual Meeting

 

Review annual meeting results and stockholder feedback with Board and recommend responsive actions

 

 

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”:

Figure 16. 2019 Stockholder Governance Outreach Summary

 

LOGO

 

     
Topics    What we heard from our
stockholders
  Our Perspective/How we responded

Leadership, culture and human capital

   Certain stockholders were interested in the leadership changes, company culture, and the Board’s role with respect to culture and human capital   We consider leadership succession, culture and employee engagement to be top priorities. Under the Board’s supervision, we have taken various initiatives to create a more open, inclusive and diverse culture. We have added additional detail to explain the Board’s role in the Company’s culture and leadership (seeCulture and Human Capital Management” on page 17). In addition, for calendar year 2020, all of our named executive officers have goals and objectives related to culture, talent, and inclusion and diversity as part of our annual incentive program (see “Compensation Discussion and Analysis – Overview of Executive Compensation –2019 Say on Pay Voting Results and Stockholder Outreach” on pages 26-27).

Corporate governance

   Certain stockholders were interested in Board changes and the director nomination and onboarding processes   We have added additional detail regarding our director onboarding process and our director refreshment process (see “Our Approach To Ensuring Board Effectiveness” on pages 9-11).

Corporate Social Responsibility

   Our stockholders expressed satisfaction with our CSR program and reporting   We continue to enhance our CSR program and reporting. We have added additional detail regarding our CSR program (see “Corporate Social Responsibility” on pages 17-18).

Executive Compensation

   See “Compensation Discussion and Analysis – Overview of Executive Compensation – 2019 Say on Pay Voting Results and Stockholder Outreach” on pages 26-27.

 

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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/.

 

 

Director Compensation

Our director compensation is designed to attract and retain high-caliber directors and to align director interests with those of stockholders. Director compensation is reviewed and determined annually by the Board (in the case of Mr. Archer, as our president and CEO, by the independent members of the Board) following a recommendation from the compensation and human resources committee. Non-employee director compensation is described below. Mr. Archer, whose compensation as president and CEO is described below under “Compensation Matters - Executive Compensation and Other Information - Compensation Discussion and Analysis,” does not receive additional compensation for his service on the Board.

Non-employee director compensation. Non-employee directors receive annual cash retainers and equity awards. The chair of the Board, the lead independent director (if applicable), and committee chairs and members receive additional cash retainers. Non-employee directors who join the Board or a committee mid-year receive pro-rated cash retainers and equity awards, as applicable. Our non-employee director compensation program is based on service during the calendar year; however, SEC rules require us to report compensation in this proxy statement on a fiscal year basis. Cash compensation paid to non-employee directors for the fiscal year ended June 28, 2020, together with the annual cash compensation program components in effect for calendar years 2020 and 2019, is shown below.

 

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Figure 17. Director Annual Retainers

 

  Annual Retainers(1)   Calendar Year 2020
($)
          Calendar Year 2019
($)
          Fiscal Year 2020
($)
 

Non-employee Director

    75,000     75,000     75,000

Chair

    130,000     120,000     130,000

Audit Committee – Chair

    30,000     30,000     30,000

Audit Committee – Member

    12,500     12,500     12,500

Compensation and Human Resources Committee – Chair

    20,000     20,000     20,000

Compensation and Human Resources Committee – Member

    10,000     10,000     10,000

Nominating and Governance Committee – Chair

    15,000     15,000     15,000

Nominating and Governance Committee – Member

    5,500     5,500     5,500

 

(1)

Each Director is entitled to an annual non-employee director cash retainer. Directors are also entitled to supplemental retainer fees if they have board leadership positions (e.g., chair) and/or are either committee chairs or members.

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:

Figure 18. FY2020 Director Compensation

 

 
Director Compensation for Fiscal Year 2020  
 

 

  Fees Earned or Paid in
Cash
($)
   

      Stock Awards

($)(1)

   

All Other
            Compensation

($)(2)

                             Total
($)
 

Sohail U. Ahmed

    112,500   (3)      305,059   (4)(5)            417,559

Eric K. Brandt

    110,500   (6)      206,476   (4)            316,976

Michael R. Cannon

    102,500   (7)      206,476   (4)            308,976

Youssef A. El-Mansy

    85,000   (8)      206,476   (4)      33,516     324,992

Christine A. Heckart(9)

                       

Catherine P. Lego

    100,500   (10)      206,476   (4)      32,096     339,072

Bethany J. Mayer

    131,250   (11)      305,059   (4)(5)            436,309

Stephen G. Newberry(9)

                33,516     33,516

Abhijit Y. Talwalkar

    220,500   (12)      206,476   (4)            426,976

Lih Shyng (Rick L.) Tsai

    85,000   (13)      206,476   (4)            291,476

Leslie F. Varon

    131,250   (14)      305,059   (4)(5)            436,309

 

(1)

The amounts shown in this column represent the grant date fair value of unvested RSU awards granted during fiscal year 2020 in accordance with Financial Accounting Standards Board Accounting Standards Codification 718, Compensation — Stock Compensation, or “ASC 718.” However, pursuant to SEC rules, these values are not reduced by an estimate for the probability of forfeiture. The assumptions used to calculate the fair value of the RSUs in fiscal year 2020 are set forth in Note 5 to the Consolidated Financial Statements of the Company’s annual report on Form 10-K for the fiscal year ended June 28, 2020.

 

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(2) 

Represents the portion of medical, dental, and vision premiums paid by the Company.

 

(3) 

Mr. Ahmed received $112,500, representing his annual retainer for calendar year 2020 of $75,000 for service as a director and prorated annual retainer for calendar year 2019 of $37,500 for service as a director.

 

(4)

On November 8, 2019, each non-employee director who was on the board at such time received an annual grant for calendar year 2020 of 770 RSUs based on the $272.68 closing price of Lam’s common stock and the target value of $210,000, rounded down to the nearest 10 shares.

 

(5)

On August 30, 2019, Mr. Ahmed and Mses. Mayer and Varon each received a prorated annual grant for calendar year 2019 of 470 RSUs based on the $210.51 closing price of Lam’s common stock and the target value of $100,000, rounded down to the nearest 10 shares.

 

(6)

Mr. Brandt received $110,500, representing his annual retainers for calendar year 2020 of $75,000 for service as a director, $30,000 for service as the chair of the audit committee, and $5,500 for service as a member of the nominating and governance committee.

 

(7)

Mr. Cannon received $102,500, representing his annual retainers for calendar year 2020 of $75,000 for service as a director, $15,000 for service as the chair of the nominating and governance committee, and $12,500 for service as a member of the audit committee.

 

(8)

Dr. El-Mansy received $85,000, representing his annual retainers for calendar year 2020 of $75,000 for service as a director and $10,000 for service as a member of the compensation and human resources committee.

 

(9)

Ms. Heckart resigned from and Mr. Newberry retired from the Board effective as of November 4, 2019 and as a result these former directors did not receive annual retainers during fiscal year 2020.

 

(10)

Ms. Lego received $100,500, representing her annual retainers for calendar year 2020 of $75,000 for service as a director, $20,000 for service as the chair of the compensation and human resources committee, and $5,500 for service as a member of the nominating and governance committee.

 

(11)

Ms. Mayer received $131,250, representing her annual retainers for calendar year 2020 of $75,000 for service as a director and $12,500 for service as a member of the audit committee, and prorated annual retainers for calendar year 2019 of $37,500 for service as a director and $6,250 for service as a member of the audit committee.

 

(12)

Mr. Talwalkar received $220,500, representing his annual retainers for calendar year 2020 of $75,000 for service as a director, $130,000 for service as chairman, $10,000 for service as a member of the compensation and human resources committee, and $5,500 for service as a member of the nominating and governance committee.

 

(13)

Dr. Tsai received $85,000, representing his annual retainers for calendar year 2020 of $75,000 for service as a director and $10,000 for service as a member of the compensation and human resources committee.

 

(14)

Ms. Varon received $131,250, representing her annual retainers for calendar year 2020 of $75,000 for service as a director and $12,500 for service as a member of the audit committee, and prorated annual retainers for calendar year 2019 of $37,500 for service as a director and $6,250 for service as a member of the audit committee.

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.

Figure 19. FY2020 Accumulated Post-Retirement Benefit Obligations

 

  Name   Accumulated
Post-Retirement
Benefit Obligation,
as of June  28, 2020
($)
 

Sohail U. Ahmed

     

Eric K. Brandt

     

Michael R. Cannon

     

Youssef A. El-Mansy

    594,000

Christine A. Heckart

     

Catherine P. Lego

    481,000

Bethany J. Mayer

     

Stephen G. Newberry

    849,000

Abhijit Y. Talwalkar

     

Lih Shyng (Rick L.) Tsai

     

Leslie F. Varon

     

 

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Compensation Matters

 

 

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:

Figure 20. FY2020 NEOs

 

   
  Named Executive Officer   Position(s)

Timothy M. Archer

  President and Chief Executive Officer

Douglas R. Bettinger

  Executive Vice President and Chief Financial Officer

Richard A. Gottscho

  Executive Vice President, Chief Technology Officer

Patrick J. Lord

  Executive Vice President, Customer Support Business Group and Global Operations

Seshasayee (Sesha) Varadarajan

  Senior Vice President and General Manager, Deposition Business Unit

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

 

     
 

 

  Table of Contents   Page
   
I.   Overview of Executive Compensation   22
   
 

 

  Our Business, Our Industry Environment, and Our Financial Performance   23
   
 

 

  Executive Compensation Philosophy and Program Design   24
   
 

 

  2019 Say on Pay Voting Results and Stockholder Outreach   26
   
II.   Executive Compensation Governance and Procedures   27
   
 

 

  Role of the Compensation and Human Resources Committee   27
   
 

 

  Role of Committee Advisors   28
   
 

 

  Role of Management   28
   
 

 

  Peer Group Practices and Survey Data   28
   
 

 

  Assessment of Compensation Risk   29
   
 

 

  Tax and Accounting Considerations   29
   
III.   Primary Components of NEO Compensation; CY2019 Compensation Payouts; CY2020 Compensation Targets and Metrics   30
   
 

 

  Base Salary   30
   
 

 

  Annual Incentive Program   30
   
 

 

  Long-Term Incentive Program   35
   
 

 

  Compensation Recovery, or “Clawback” Policy   38
   
 

 

  Stock Ownership Guidelines   39
   
 

 

  Employment/Change in Control Arrangements   39
   
 

 

  Other Benefits Not Available to All Employees   39

 

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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

 

 

LOGO

 

(1) 

“CEO Total Compensation” consists of base salary, annual incentive payments, accrued values of the cash payments under the long-term incentive program when applicable and grant date fair values of equity-based awards both under the long-term incentive program or otherwise, and all other compensation as reported in the “Summary Compensation Table” below.

 

  

The CEO Total Compensation for fiscal year 2019 represents Mr. Archer’s compensation for service as president and COO until December 5, 2018 and thereafter until the end of the 2019 fiscal year as president and CEO. For 2020 and years prior to fiscal year 2019, the CEO Total Compensation relates to the compensation of the applicable CEO.

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

 

 

LOGO

 

*

$100 invested on June 28, 2015 in stock or June 30, 2015 in index, including reinvestment of dividends. Indexes calculated on month-end basis.

*

Copyright © 2020 Standard & Poor’s, a division of S&P Global. All rights reserved.

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

 

   

our business, our industry environment, and our financial performance; and

   

our executive compensation philosophy and program design.

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

 

 
  Fiscal Year 2020  
 
  Relevant for executive compensation tables  
   
Calendar Year 2019   Calendar Year 2020
 
Relevant for compensation program design and orientation
     
Jan-Jun   Jul-Dec   Jan-Jun   Jul-Dec
   
2019   2020

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:

 

   

achieved revenues of approximately $9.5 billion for the calendar year;

   

generated operating cash flow of approximately $2.6 billion, which represents approximately 27% of revenues; and

   

generated sufficient cash flow to support payment of approximately $662 million in dividends to stockholders, a 31% increase compared to calendar year 2018.

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:

 

   

provide competitive compensation to attract and retain top talent;

   

provide total compensation packages that are fair to employees and reward corporate, organizational, and individual performance;

   

align pay with business objectives while driving exceptional performance;

   

optimize value to employees while maintaining cost-effectiveness to the Company;

   

create stockholder value over the long-term;

   

align our annual program to annual performance and our long-term program to longer-term performance;

   

recognize that a long-term, high-quality management team is a competitive differentiator for Lam, enhancing customer trust/market share and, therefore, stockholder value; and

   

provide rewards when results have been demonstrated.

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

 

   

performance that creates long-term stockholder value;

   

outstanding performance at the corporate, organization, and individual levels; and

   

retention of a long-term, high-quality management team.

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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Figure 24. Compensation Components

 

     

  Element

 

 

How it is Paid

 

 

Purpose/Design

 

Base Salary

  Cash   We believe the purpose of base salary is to provide competitive compensation to attract and retain top talent and to provide employees, including our NEOs, with a fixed and fair amount of compensation for the jobs they perform. Accordingly, we seek to ensure that our base salary levels are competitive in reference to Peer Group practice and market survey data.

Annual Incentive Program (AIP)

  Cash  

Our annual incentive program is designed to provide annual, performance-based compensation that is based on the achievement of pre-set annual financial, strategic, and operational objectives aligned with outstanding performance, and will allow us to attract and retain top talent, while maintaining cost-effectiveness to the Company.

 

For more details regarding the design of the annual incentive program, see “III. Primary Components of NEO Compensation; CY2019 Compensation Payouts; CY2020 Compensation Targets and Metrics - Annual Incentive Program” below.

Long-Term Incentive Program (LTIP)

 

50% Market-based PRSUs

 

50% combination of stock options and service-based RSUs

 

Our long-term incentive program is designed to attract and retain top talent, provide competitive levels of compensation, align pay with stock performance over a multi-year period, reward our NEOs for outstanding Company performance, and create stockholder value over the long-term.

 

The program design provides that 50% of the target award opportunity is awarded in Market-based PRSUs and the remaining 50% in a combination of stock options and service-based RSUs, with at least 10% of the award in each of these two vehicles. In 2020, the percentages of the LTIP target award opportunity awarded in stock options and service-based RSUs were 10% and 40%, respectively.

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

 

 

LOGO

 

(1) 

The Company’s LTIP design provides that 50% of the target award opportunity is awarded in Market-based PRSUs and the remaining 50% in a combination of stock options and service-based RSUs with at least 10% of the award in each of these two vehicles. In 2020, the percentages of the LTIP target award opportunity awarded in stock options and service-based RSUs were 10% and 40%, respectively. See “III. Primary Components of Named Executive Officer Compensation; Calendar Year 2019 Compensation Payouts; Calendar Year 2020 Compensation Targets and Metrics – Long-Term Incentive Program – Design” for further information regarding the impact of such a target pay mix..

 

(2) 

For purposes of this illustration, we include Market-based PRSUs and stock options as performance-based, but do not classify service-based RSUs as performance-based.

 

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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)

 

 

LOGO

 

(1) 

Percentages represented are as a percentage of votes cast. Abstentions are treated as votes cast and have the effect of “no” votes with respect to the Say on Pay proposal.

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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Figure 27. Executive Compensation Stockholder Outreach

 

       
    What we heard from investors   Our perspective   What we are doing

Use and Structure of Special Equity Awards

  Some stockholders were concerned by our issuance, in December 2018, of one time promotion or retention awards to two of our NEOs in connection with a management transition, and in particular, with the structure of these awards, including the lack of performance conditions.  

We view the special equity awards as a one-time supplement to our regular compensation program that served a critical purpose in our management transition, by stabilizing our leadership structure, maintaining our focus on execution to its plans, and avoiding potential disruption and distraction at a critical time.

 

  We do not anticipate granting significant one-time awards to current NEOs without a performance-based component.

Our Regular Executive Compensation Program

 

Our stockholders generally view our executive compensation practices as appropriately aligning pay and performance.

 

 

Some stockholders would like to see more disclosure relating to the individual performance factor component of the annual incentive program in order to better understand how the program supports pay for performance. Some stockholders also expressed interest in understanding whether our program includes goals and objectives related to ESG matters.

 

 

While we do not disclose in detail the specific metrics and goals that make up the individual performance factors for our NEOs, because they relate to strategic, operational, and organizational activities that we regard as competitively sensitive, we have an opportunity to better explain how the individual performance factors contribute to our business and financial performance and to explain how topics of interest to stockholders, such as ESG, may be reflected in individual performance factors.

 

 

We have added additional detail to better explain the linkage between the operating metrics we use to manage our business, and the individual performance factor metrics and goals against which our NEOs’ performance is assessed.

 

 

For calendar year 2020, all of our NEOs have individual performance factor metrics and goals related to culture, talent, and inclusion and diversity as part of the annual incentive program.

 

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:

 

   

reviewing and approving the Company’s executive compensation philosophy, objectives, and strategies;

   

reviewing and approving the appropriate peer group companies for purposes of evaluating the Company’s compensation competitiveness;

   

causing the Board to perform a periodic performance evaluation of the CEO;

   

recommending to the independent members of the Board (as determined under Nasdaq’s listing standards) corporate goals and objectives under the Company’s compensation plans, compensation packages (e.g., annual base salary level, annual cash incentive award, long-term incentive award and any employment agreement, severance arrangement, change-in-control arrangement, equity grant, or special or supplemental benefits, and any material amendment to any of the foregoing) as applicable to the CEO, and compensation payouts for the CEO;

   

annually reviewing with the CEO the performance of the Company’s other executive officers in light of the Company’s executive compensation goals and objectives and approving the compensation packages and compensation payouts for such individuals;

   

reviewing and recommending for appropriate Board action all cash, equity-based and other compensation packages, and compensation payouts applicable to the chair and other members of the Board; and

   

reviewing, and approving where appropriate, equity-based compensation plans.

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:

Figure 28. 2020 Peer Group Revenue and Market Capitalization

 

       
  Metric   Lam Research
($M)
  Target for
Peer Group
      Peer Group
Median
($M)
 

Revenue (last completed reported four quarters as of June 18, 2019)

  10,418   Approximately 0.33 to 3 times Lam     6,237

Market Capitalization (30-day average as of June 18, 2019)

  27,772   Approximately 0.33 to 3 times Lam     23,688  

 

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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:

Figure 29. CY2020 Peer Group Companies

 

     

Advanced Micro Devices, Inc.

  KLA Corporation   Seagate Technology PLC

Agilent Technologies, Inc.

  Microchip Technology Incorporated   Skyworks Solutions, Inc.

Analog Devices, Inc.

  Micron Technology, Inc.   Texas Instruments Inc.

Applied Materials, Inc.

  NetApp, Inc.   Western Digital Corporation

Broadcom Limited

  NVIDIA Corporation   Xilinx, Inc.

Corning Incorporated

  ON Semiconductor Corporation    

 

Juniper Networks, Inc.

  Qualcomm Incorporated    

 

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.

Figure 30. NEO Annual Base Salaries

 

  Named Executive Officer  

Annual Base Salary
2020 (1)

($)

   

Annual Base Salary
2019 (2)

($)

 

Timothy M. Archer

    1,050,000     1,000,000

Douglas R. Bettinger

    659,200       640,000  

Richard A. Gottscho

    596,031     584,344

Patrick J. Lord

    509,850       463,500  

Seshasayee (Sesha) Varadarajan

    480,392       453,200  

 

(1) 

Effective February 24, 2020

 

(2) 

Effective February 25, 2019

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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Figure 31. Annual Incentive Program Components

 

     

Component

  Role   Extent of Discretion Permitted

Funding Factor

 

Create a maximum payout amount from which annual incentive program payouts may be made.

 

Achievement of a minimum level of performance against the Funding Factor goals is required to fund any program payments.

 

The committee may exercise negative (but not positive) discretion against the Funding Factor result.

 

The committee primarily tracks the results of the Corporate Performance Factor and the Individual Performance Factors as a guide to using negative discretion.

 

Generally, the entire funded amount is not paid out.

Corporate Performance Factor

 

A corporate-wide metric and goal that is designed to be a stretch goal.

 

Applies to all NEOs.

  The committee may exercise positive or negative discretion, provided the Funding Factor result is not exceeded.

Individual Performance Factors

  Based on organization-specific metrics and goals that are designed to be stretch goals that apply to each individual NEO.   The committee may exercise positive or negative discretion, provided the Funding Factor result is not exceeded.

Target Award Opportunity

  The committee establishes individual target award opportunities for each NEO as a percentage of base salary. Specific target award opportunities are determined based on job scope and responsibilities, as well as an assessment of Peer Group data. Awards have a maximum payment amount defined as a multiple of the target award opportunity. The maximum award for 2019 and 2020 was set at 2.25 times target, consistent with prior years.   N/A

 

LOGO

For making payout decisions, the committee primarily tracks the results of the Corporate Performance Factor and Individual Performance Factors, which are typically weighted equally.

The specific metric and goal for the Corporate Performance Factor, and the relative weightings of the Corporate Performance Factor and the Individual Performance Factors, are determined by the committee considering the recommendation of our CEO. The specific metric and goals for the Individual Performance Factors are determined by our CEO, or in the case of the CEO, by the committee.

The metrics and goals for the Corporate and Individual Performance Factors are set annually in connection with our annual business planning cycle, and are directly connected to our annual business plans and goals. Goals are set depending on the business environment and the Company’s annual objectives and strategies, encompassed in the Annual Operating Plans for the company and the organizations managed by each of the NEOs, to ensure that they remain stretch goals regardless of changes in the business environment, which can vary significantly from year-to-year in our industry. Accordingly, as business conditions improve, goals are calibrated to require better performance, and if business conditions deteriorate, goals are calibrated to incentivize stretch performance under more difficult conditions. The interplay between our corporate planning cycle and our compensation planning and evaluation cycle is summarized in Figure 32 below.

 

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Figure 32. Annual Planning and Compensation Decision Cycle

 

LOGO

We believe that, over time, outstanding business results create stockholder value. Consistent with this belief, multiple performance-based metrics (non-GAAP operating income, product market share, and strategic, operational, and organizational metrics embodied in organizational Annual Operating Plans) are established for our NEOs as part of the Corporate and Individual Performance Factors.

We believe the metrics and goals set under this program, together with the exercise of discretion by the committee as described above, have been effective to motivate our NEOs and the organizations they lead, and to achieve pay-for-performance results.

Figure 33. CY2017-CY2019 Annual Incentive Program Payouts

 

     

Calendar                

Year

  Average NEO’s
Annual Incentive
Payout as % of Target
Award  Opportunity
    Business Environment

2019

    97     Strong revenue, profitability, and cash generation performance despite an overall decrease in demand for semiconductor equipment driven by a decrease in memory investments partially offset by foundry/logic spending.

2018

    137   Strong operating performance and continued expansion of served available markets. Growth in demand for semiconductor equipment driven by the memory segment for both capacity and technology investments.

2017

    204   Strong operating performance and continued expansion of served available markets, supported by overall economic environment. Healthy demand for semiconductor equipment driven by capacity and technology investments.

Calendar Year 2019 Annual Incentive Program Parameters

In February 2019, the committee set the calendar year 2019 target award opportunities and established the metrics and goals for the Funding Factor, the metrics and annual goals for the Corporate Performance Factor, and the metrics and goals for the Individual Performance Factors for each then-employed NEO.

2019 Annual Incentive Program Funding Factor. In February 2019, the committee set non-GAAP operating income2 as a percentage of revenue, or “non-GAAP operating profit,” as the metric for the Funding Factor for calendar year 2019, with the following goals:

 

   

a minimum achievement of 5% non-GAAP operating profit was required to fund any program payments, and

   

achievement of non-GAAP operating profit greater than or equal to 20% would result in the maximum funding of 225% of target,

   

with actual funding levels interpolated between those points.

The committee selected non-GAAP operating profit as the performance metric because it believes that it is the performance metric that best reflects core operating results. Non-GAAP operating profit is considered useful to investors for analyzing business trends and comparing performance to prior periods. By excluding certain costs and expenses that are not indicative of core results, non-GAAP results are more useful for analyzing business trends over multiple periods.

 

2 Non-GAAP operating income is derived from GAAP results, with charges and credits in the following line items excluded from GAAP results for applicable quarters during fiscal years 2020 and 2019: amortization related to intangible assets acquired through certain business combinations; gains and losses on elective deferred compensation-related liability; and restructuring charges.

 

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2019 Annual Incentive Program Target Award Opportunities. The annual incentive program target award opportunities for calendar year 2019 for each NEO were as set forth below in Figure 36 in accordance with the principles described above under “Executive Compensation Governance and Procedures - Peer Group Practices and Survey Data.”

2019 Annual Incentive Program Corporate Performance Factor. In February 2019, the committee set non-GAAP operating profit as the metric for the calendar year 2019 Corporate Performance Factor, and set:

 

   

a goal of 26.5% of revenue for the year, which was designed to be a stretch goal, and which would result in a Corporate Performance Factor of 1.00; and

   

a maximum Corporate Performance Factor of 1.50 for the maximum payout.

These goals were designed to be stretch goals. As shown in Figure 34, over the calendar years from 2015 through 2018, we steadily raised the Corporate Performance Factor goal year over year, as our outlook and the industry outlook improved. For calendar year 2019, the Corporate Performance Factor goal was set at a level that was only slightly below that of the prior year, even as the industry outlook for wafer fabrication equipment spending weakened, particularly within the memory segment, which was expected to decline from significant levels of investment in calendar year 2018.

Figure 34. CY2015-CY2019 Corporate Performance Factor Goals

 

LOGO

2019 Annual Incentive Program Individual Performance Factors. For calendar year 2019, the performance metrics and goals for each NEO’s Individual Performance Factor were set based on the annual operating plans for the organization or organizations managed by that NEO, which collectively were intended to drive overall company performance. For competitive reasons, we do not disclose in detail the specific metrics and goals that make up the Annual Operating Plans for our business units, because they relate to strategic, operational, and organizational activities that we regard as competitively sensitive. However, all such metrics and goals constitute specific strategic, operational, and organizational performance objectives, are designed to be stretch goals, and are intended to deliver business results and create stockholder value. The calendar year 2019 metrics and goals that made up the Annual Operating Plans for our business units generally related to key areas such as financial performance, customer satisfaction, market share, product development and organizational development. For each of our NEOs, the relationship of their respective Individual Performance Factors for calendar year 2019 to the Annual Operating Plans for the organizations they managed is described in more detail below:

 

   

Mr. Archer’s Individual Performance Factor was based on the average of the Individual Performance Factors of all the executive and senior vice presidents reporting to him, subject to discretion based on the Company’s performance to business, strategic, and operational objectives. In approving Mr. Archer’s Individual Performance Factor, the independent members of the Board also evaluated Mr. Archer’s performance against his individual metrics and goals, which included metrics and goals related to financial performance, quality, safety, customer satisfaction, and human capital, including organizational health and inclusion and diversity.

   

Mr. Bettinger’s Individual Performance Factor was based on the Annual Operating Plan metrics and goals for the finance, global information systems, communications and investor relations organizations, including metrics and goals relating to financial performance, compliance, operational and organizational flexibility and speed, productivity, quality, and organizational effectiveness.

   

Dr. Gottscho’s Individual Performance Factor was based on the Annual Operating Plan metrics and goals for the central engineering group and the office of the chief technology officer, including metrics and goals related to financial performance, including revenue and profitability, expansion of served available markets, engineering productivity, research and development, and organizational development.

   

Dr. Lord’s Individual Performance Factor was based on the Annual Operating Plan metrics and goals for the customer support business group (CSBG), including metrics and goals related to financial performance, including revenue and profitability, customer experience, engineering and operational execution, product development, and organizational development.

 

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Mr. Varadarajan’s Individual Performance Factor was based on the Annual Operating Plan metrics and goals for the deposition business unit, including metrics and goals related to market share, strategic risk reduction, financial performance, including revenue and profitability, customer experience, product development, engineering and operational execution, safety and organizational development.

Calendar Year 2019 Annual Incentive Program Payout Decisions

In February 2020, the committee considered the actual results under these factors and made payout decisions for the calendar year 2019 program. Actual non-GAAP operating profit was 26.17% for calendar year 2019. This performance resulted in a Funding Factor of 225% of target and a Corporate Performance Factor of 0.967 for calendar year 2019.

In addition, in recommending to the committee the Individual Performance Factors for calendar year 2019 for each of the other NEOs reporting to him, Mr. Archer considered the performance against Annual Operating Plan metrics and goals of the organizations respectively managed by each NEO. The committee, in turn, in recommending to the independent members of our board Mr. Archer’s Individual Performance Factor, considered Mr. Archer’s performance against his individual goals and objectives, taking into consideration the individual performance of all the executive and senior vice presidents reporting to him as reflected in the average of their Individual Performance Factors. The committee declined to exercise its discretion to recommend an adjustment to Mr. Archer’s Individual Performance Factor. Following a robust discussion by the committee (and, in the case of Mr. Archer’s Individual Performance Factor, by the independent members of our board), these recommendations were approved, resulting in the Individual Performance Factors for calendar year 2019 shown in Figure 35 below.

Figure 35. CY2019 Individual Performance Factors

 

   

Named Executive Officer

  Individual Performance Factor  

Timothy M. Archer

    0.967

Douglas R. Bettinger

    0.960  

Richard A. Gottscho

    0.960

Patrick J. Lord

    0.960  

Seshasayee (Sesha) Varadarajan

    0.980  

Based on the above results and decisions, the committee approved for the calendar year 2019 annual incentive program payouts for each NEO as shown below in Figure 36, which were less than the maximum payout available under the Funding Factor:

Figure 36. CY2019 Annual Incentive Program Payouts

 

         

Named Executive Officer

  Target Award
Opportunity
(% of Base Salary)
   

    Target Award

Opportunity

($) (1)

   

Maximum Payout under

Funding Factor (225.0% of

        Target Award Opportunity)

($) (2)

       Actual
        Payouts
($)
 

Timothy M. Archer

    150     1,500,000     3,375,000        1,450,500

Douglas R. Bettinger

    100     640,000       1,440,000          616,960  

Richard A. Gottscho

    90     525,910     1,183,298        506,977

Patrick J. Lord

    85     393,975       886,444          379,792  

Seshasayee (Sesha) Varadarajan

    85     385,220       866,745        375,204  

 

(1)

Calculated by multiplying each NEO’s annual base salary as of October 1, 2019 by his or her respective target award opportunity percentage.

 

(2)

The Funding Factor resulted in a potential payout of up to 225.0% of target award opportunity for the calendar year (based on the actual non-GAAP operating profit results detailed under “2019 Annual Incentive Program Corporate Performance Factor” above and the specific goals described under “Calendar Year 2019 Annual Incentive Program Parameters - 2019 Annual Incentive Program Funding Factor” above).

Calendar Year 2020 Annual Incentive Program Parameters

In February 2020, the committee set the target award opportunity for each NEO as a percentage of base salary, and consistent with prior years set a cap on payments equal to 2.25 times the target award opportunity. The target award opportunity for each NEO is shown below. The target percentages increased for Dr. Lord to reflect 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.

 

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Figure 37. CY2020 Annual Incentive Program Target Award Opportunities

 

   

Named Executive Officer

  Target Award Opportunity
(% of Base Salary)
 

Timothy M. Archer

    150

Douglas R. Bettinger

    100

Richard A. Gottscho

    90

Patrick J. Lord

    90

Seshasayee (Sesha) Varadarajan

    85

The committee also approved non-GAAP operating profit as the annual metric for the Funding Factor and the Corporate Performance Factor, and set the annual goals for the Funding Factor and the Corporate Performance Factor. Consistent with the program design, the Corporate Performance Factor goal is more difficult to achieve than the Funding Factor goal. Individual Performance Factor metrics and goals were also established for each NEO. These include strategic and operational performance goals specific to individuals and their business organization. As a result, each NEO has multiple performance metrics and goals under this program. For calendar year 2020, all of our NEOs have individual performance factor metrics and goals related to culture, talent, and inclusion and diversity. All Corporate and Individual Performance Factor goals were designed to be stretch goals.

Long-Term Incentive Program

 

 

Design

Our LTIP is designed to attract and retain top talent, provide competitive levels of compensation, align pay with achievement of business objectives and with stock performance over a multi-year period, reward our NEOs for outstanding Company performance, and create stockholder value over the long-term.

Under the current long-term incentive program, at the beginning of each multi-year performance period, target award opportunities (expressed as a U.S. dollar value) and performance metrics are established for the program. Of the total target award opportunity, 50% is awarded in Market-based PRSUs, and the remaining 50% is awarded in a combination of stock options and service-based RSUs with at least 10% of the award in each of these two vehicles. The specific percentage of service-based RSUs and stock options is reviewed annually to determine whether service-based RSUs or stock options are the more efficient form of equity for the majority of the award based on criteria such as the current business environment and the potential value to motivate and retain the executives. We consider Market-based PRSUs and stock options to be performance-based, but do not classify service-based RSUs as performance-based. This means that if options constitute 10% of the total target award opportunity, the long-term incentive program will be 60% performance-based. If options constitute 40% of the total target award opportunity, the long-term incentive program will be 90% performance-based.

While service-based RSUs and stock options vest on an annual basis over three years, Market-based PRSUs cliff vest after three years. Cliff, rather than annual, vesting provides for both retention and for aligning NEOs with longer-term stockholder interests.

 

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Equity Vehicles

The equity vehicles used in our 2020/2022 long-term incentive program are as follows:

Figure 38. 2020/2022 LTIP Program Equity Vehicles

 

     

Equity Vehicles

  Vesting   Terms

Market-based
PRSUs

50% of Target Award Opportunity    

 

•  Awards cliff vest three years from the March 2, 2020 grant date, or “Grant Date,” subject to satisfaction of a minimum performance requirement and continued employment.

 

•  Awards that vest at the end of the performance period are distributed in shares of our common stock.

 

•  The number of Market-based PRSUs granted is determined by dividing 50% of the target opportunity by the 30-day average of the closing price of our common stock prior to the Grant Date, $312.94, rounded down to the nearest share.

 

•  The number of shares represented by the Market-based PRSUs that can be earned over the performance period is determined according to the performance parameters described in Figure 39 below.

Stock Options

10% of Target Award Opportunity

 

•  Awards vest one-third on the first, second, and third anniversaries of the March 2, 2020 grant date, or “Grant Date,” subject to continued employment.

 

•  Awards are exercisable upon vesting.

 

•  Expiration is on the seventh anniversary of the Grant Date.

 

•  The number of stock options granted is determined by dividing 10% of the target opportunity by the 30-day average of the closing price of our common stock prior to the Grant Date, $312.94, rounded down to the nearest share and multiplying the result by four. The ratio of four options for every RSU is based on a Black Scholes fair value accounting analysis.

 

•  The exercise price of stock options is the closing price of our common stock on the Grant Date.

Service-based RSUs

40% of Target Award Opportunity

 

•  Awards vest one-third on the first, second, and third anniversaries of the March 2, 2020 grant date, or “Grant Date,” subject to continued employment.

 

•  Awards are distributed in shares of our common stock upon vesting.

 

•  The number of RSUs granted is determined by dividing 40% of the target opportunity by the 30-day average of the closing price of our common stock prior to the Grant Date, $312.94, rounded down to the nearest share.

Figure 39. 2020/2022 Market-based PRSU Performance Parameters

 

   
  Parameter    Terms

Performance Period

   Three years from the first business day in February (February 3, 2020 through February 2, 2023).

Performance Index

   PHLX Semiconductor Sector Total Return Index (XSOX)

Number of Shares

  

•   Based on our “total return” stock price performance compared to the market price performance of the Performance Index, subject to a ceiling as described below. The stock price performance or market price performance is measured using the closing price for the 50 trading days prior to the dates the performance period begins and ends, assuming that any dividends paid on our common stock are reinvested on the ex-dividend date (consistent with the treatment of dividends in the Performance Index).

•   The target number of shares represented by the Market-based PRSUs is increased by 2% of target for each 1% that our stock price performance exceeds the market price performance of the Performance Index; similarly, the target number of shares represented by the Market-based PRSUs is decreased by 2% of target for each 1% that our stock price performance trails the market price performance of the Performance Index. The result of the vesting formula is rounded down to the nearest whole number.

•   A table reflecting the potential payouts depending on various comparative results is shown below in Figure 40.

Award Ceiling/Minimum

   The final shares awarded cannot exceed 150% of target (requiring a positive percentage change in our stock price performance compared to that of the market price performance of the Performance Index equal to or greater than 25 percentage points) and can be as little as 0% of target (requiring a percentage change in our stock price performance compared to that of the market price performance of the Performance Index equal to or lesser than negative 50 percentage points).

 

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Figure 40. Market-based PRSU Potential Payouts

 

   

  Lam’s Total Return % Change Performance

  Compared to XSOX Index % Change Performance

 

Market-based PRSUs That Can Be Earned

(% of Target) (1)

 

+ 25% or more

    150

10%

    120

0% (equal to index)

    100

- 10%

    80

- 25%

    50

- 50% or less

    0

 

(1)

The results of the vesting formula (reflecting the number of Market-Based PRSUs that can be earned) are linearly interpolated between the stated percentages using the formula described in the third row of Figure 39.

Target Award Opportunity

Under the long-term incentive program, the committee sets a target award opportunity for each participant based on the NEO’s position and responsibilities and an assessment of competitive compensation data. The target award opportunities for each participant are expressed in a U.S. dollar value. The target amounts for each NEO under the program cycles affecting fiscal year 2019 are shown below.

Figure 41. LTIP Target Award Opportunities

 

   
 

 

  Target Award Opportunity ($) by  Long-Term Incentive Program  
  Named Executive Officer   2017/2019 (1)     2018/2020 (2)     2019/2021 (3)     2020/2022 (4)  

Timothy M. Archer

    4,500,000       5,000,000     7,200,000     9,500,000

Douglas R. Bettinger

    2,750,000       2,250,000     2,700,000     2,750,000

Richard A. Gottscho

    3,250,000       2,500,000     2,250,000     2,500,000

Patrick J. Lord

    1,350,000       1,900,000     1,800,000     2,500,000

Seshasayee (Sesha) Varadarajan (5)

    1,200,000       1,700,000     1,575,000     2,150,000

 

(1) 

The three-year performance period for the 2017/2019 LTIP began on February 1, 2017 and ended on January 31, 2020.

 

(2)

The three-year performance period for the 2018/2020 LTIP began on February 1, 2018 and ends on January 31, 2021.

 

(3) 

The three-year performance period for the 2019/2021 LTIP began on February 1, 2019 and ends on January 31, 2022.

 

(4)

The three-year performance period for the 2020/2022 LTIP began on February 3, 2020 and ends on February 2, 2023.

 

(5)

Of the target award opportunities for the awards to Mr. Varadarajan under the 2017/2019 vice president long-term incentive program, 50% were awarded in Market-based PRSUs and 50% in service-based RSUs on terms otherwise similar (except in determining the number of shares representing the Market-Based PRSUs and number of RSU, using 50% as the percentage) to those of securities awarded to other NEOs under the 2017/2019 LTIP.

Calendar Year 2017/2019 LTIP Award Parameters and Payouts

On March 1, 2017, the committee granted to each then-current NEO (Mr. Archer, Mr. Bettinger, Dr. Gottscho and Dr. Lord), as part of the calendar year 2017/2019 CEO staff long-term incentive program, or “2017/2019 CEO Staff LTIP Awards,” Market-based PRSUs, and service-based RSUs and stock options, with a total target award opportunity shown below. On March 1, 2017, the equity award grant board committee granted to the remaining current NEO (Mr. Varadarajan), as part of the 2017/2019 vice president long-term incentive program, or “2017/2019 VP LTIP Awards” (which we refer to collectively with the 2017/2019 CEO Staff LTIP Awards as the “2017/2019 LTIP Awards”), Market-based PRSUs and service-based RSUs with a total award opportunity shown below. The service-based RSUs and stock options (only under the 2017/2019 CEO Staff LTIP Awards) vested over three years, one-third on each anniversary of the grant date. The Market-based PRSUs cliff vested three years from the grant date. The terms of the Market-based PRSUs and service-based RSUs granted to all the NEOs as part of the 2017/2019 LTIP Awards were the same.

 

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Figure 42. 2017/2019 LTIP Award Grants

 

         

Named Executive Officer

  Target Award
Opportunity
($)
   

Market-based PRSUs
Award

(#) (1)

    Stock Options Award
(#)
                 Service-based
RSUs Award
(#)
 

Timothy M. Archer

    4,500,000     19,428     15,540     15,542

Douglas R. Bettinger

    2,750,000     11,872     9,496     9,498

Richard A. Gottscho

    3,250,000     14,031     11,224     11,225

Patrick J. Lord

    1,350,000     5,828     4,660     4,662

Seshasayee (Sesha) Varadarajan

    1,200,000       5,180             5,180  

 

(1) 

The number of Market-based PRSUs awarded is reflected at target. The final number of shares that may be earned is 0% to 150% of target.

In February 2020, the committee determined the payouts for the calendar year 2017/2019 LTIP Awards of Market-based PRSUs. The number of shares represented by the Market-based PRSUs earned over the performance period was based on our stock price performance compared to the market price performance of the Philadelphia Semiconductor Sector (SOX) index.

Based on the above formula and Market-based PRSU Vesting Summary set forth in Figures 39 and 40 (but substituting the SOX index for the XSOX index, and disregarding the impact of dividends paid, consistent with that index), the Company’s stock price performance over the three-year performance period was equal to 166.83% and the performance of the SOX index (based on market price) over the same three-year performance period was equal to 100.15%. Lam’s stock price outperformed the SOX index by 66.68%, which resulted in the maximum possible performance payout of 150% of the target number of Market-based PRSUs granted to each NEO. Based on such results, the committee made the following payouts to each NEO for the 2017/2019 LTIP Award of Market-based PRSUs.

Figure 43. 2017/2019 LTIP Market-based PRSU Award Payouts

 

     

Named Executive Officer

  Target Market-based
PRSUs
(#)
                     Actual Payout of Market-based PRSUs
(150% of Target Award Opportunity)
(#)
 

Timothy M. Archer

    19,428     29,142

Douglas R. Bettinger

    11,872     17,808

Richard A. Gottscho

    14,031       21,046  

Patrick J. Lord

    5,828     8,742

Seshasayee (Sesha) Varadarajan

    5,180       7,770  

Calendar Year 2020 LTIP Awards

Calendar Year 2020 decisions for the 2020/2022 long-term incentive program. On March 2, 2020, the committee made a grant under the 2020/2022 long-term incentive program, of Market-based PRSUs, stock options, and service-based RSUs on the terms set forth in Figures 38 and 39 with a combined value equal to the NEO’s total target award opportunity, as shown below.

Figure 44. 2020/2022 LTIP Award Grants

 

         

Named Executive Officer

  Target Award
Opportunity
($)
   

Market-based PRSUs
Award

(#) (1)

    Stock Options Award
(#)
    Service-based
RSUs Award
(#)
 

Timothy M. Archer

    9,500,000     15,178     12,140     12,142

Douglas R. Bettinger

    2,750,000     4,393     3,512     3,515

Richard A. Gottscho

    2,500,000     3,994     3,192     3,195

Patrick J. Lord

    2,500,000     3,994     3,192     3,195

Seshasayee (Sesha) Varadarajan

    2,150,000     3,435     2,748     2,748

 

(1) 

The number of Market-based PRSUs awarded is reflected at target. The final number of shares that may be earned will be 0% to 150% of target.

Compensation Recovery, or “Clawback” Policy

 

Our executive officers covered by section 16 of the Exchange Act are subject to the Company’s compensation recovery, or “clawback,” policy. The clawback policy was adopted in August 2014 and took effect starting in calendar year 2015. It enables us,

 

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in the event that a material restatement of financial results is required, to recover, within 36 months of the issuance of the original financial statements, the excess amount of cash incentive-based compensation issued to covered individuals. A covered individual’s fraud must have materially contributed to the need to issue restated financial statements in order for the clawback policy to apply to that individual. The recovery of compensation is not the exclusive remedy available in the event that the clawback policy is triggered.

Stock Ownership Guidelines

 

For senior vice presidents and above, we also have stock ownership guidelines that foster a long-term orientation. Our stock ownership guidelines for our NEOs and certain other senior executives are shown below. The requirements are specified in the alternative of shares or dollars to allow for stock price volatility. Ownership levels as shown below must be achieved within five years of appointment to one of the below positions. Increased requirements due to promotions or an increase in the ownership guideline must be achieved within five years of promotion or a change in the guidelines. At the end of fiscal year 2020, all NEOs were in compliance with our stock ownership guidelines or have a period of time remaining under the guidelines to meet the required ownership level.

Figure 45. Executive Stock Ownership Guidelines

 

   

Position

  Guidelines (lesser of)

President and Chief Executive Officer

  5x base salary or 50,000 shares

Executive Vice Presidents

  2x base salary or 10,000 shares

Senior Vice Presidents

  1x base salary or 5,000 shares

Employment/Change in Control Arrangements

 

The Company enters into employment or change in control agreements to help attract and retain our NEOs, and believes that these agreements facilitate a smooth transaction and transition planning in connection with change in control events. Effective January 2018, the Company entered into new three-year term employment agreements with Mr. Archer (amended on March 16, 2018 and August 8, 2019), Mr. Bettinger (amended on November 30, 2018) and Dr. Gottscho, and a new change in control agreement with Mr. Varadarajan, and effective September 8, 2020, the Company entered into a new employment agreement with Dr. Lord with a term ending on the same date as the employment agreements with Mr. Archer, Mr. Bettinger and Dr. Gottscho. The employment agreements generally provide for designated payments in the event of an involuntary termination of employment, death or disability, as such terms are defined in the applicable agreements. The employment agreements, and also the change in control agreements, generally provide for designated payments in the case of a change in control when coupled with an involuntary termination (i.e., a double trigger is required before payment is made due to a change in control), as such terms are defined in the applicable agreements.

For additional information about these arrangements and detail about post-termination payments under these arrangements, see the “Potential Payments upon Termination or Change in Control” section below.

Other Benefits Not Available to All Employees

 

Elective Deferred Compensation Plan

The Company maintains an Elective Deferred Compensation Plan that allows eligible employees (including all the NEOs) to voluntarily defer receipt of all or a portion of base salary and certain incentive compensation payments until a date or dates elected by the participating employee. This allows the employee to defer taxes on designated compensation amounts. In addition, the Company is obligated to pay a limited Company contribution to the plan for all eligible employees.

Supplemental Health and Welfare

We provide certain health and welfare benefits not generally available to other employees, including the payment of premiums for supplemental long-term disability insurance and Company-provided coverage in the amount of $1 million for both life and accidental death and dismemberment insurance for all NEOs.

We also provide post-retirement medical and dental insurance coverage for eligible former executive officers under our Retiree Health Plans, subject to certain eligibility requirements. The program was closed to executive officers who joined the Company or

 

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became executive officers through promotion effective on or after January 1, 2013. We have an independent actuarial valuation of post-retirement benefits for eligible NEOs conducted annually in accordance with generally accepted accounting principles. The most recent valuation was conducted in June 2020 and reflected the retirement benefit obligation for the NEOs as shown below.

Figure 46. NEO Post-Retirement Benefit Obligations

 

   

Named Executive Officer

  As of June 28, 2020
($)
 

Timothy M. Archer

    959,000

Douglas R. Bettinger (1)

     

Richard A. Gottscho

    673,000

Patrick J. Lord (1)

     

Seshasayee (Sesha) Varadarajan (1)

     

 

(1) 

Mr. Bettinger, Dr. Lord and Mr. Varadarajan are not eligible to participate under the terms of the program.

Compensation Committee Report

The compensation and human resources committee has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of SEC Regulation S-K. Based on this review and discussion, the compensation and human resources committee has recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and the Company’s Annual Report on Form 10-K.

This Compensation Committee Report shall not be deemed “filed” with the SEC for purposes of federal securities law, and it shall not, under any circumstances, be incorporated by reference into any of the Company’s past or future SEC filings. The report shall not be deemed soliciting material.

MEMBERS OF THE COMPENSATION AND HUMAN RESOURCES COMMITTEE

Youssef A. El-Mansy

Catherine P. Lego (Chair)

Abhijit Y. Talwalkar

Lih Shyng (Rick L.) Tsai

Compensation Committee Interlocks and Insider Participation

None of the compensation and human resources committee members has ever been an officer or employee of Lam Research. No interlocking relationship exists as of the date of this proxy statement or existed during fiscal year 2020 between any member of our compensation and human resources committee and any member of any other company’s board of directors or compensation committee.

 

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Executive Compensation Tables

The following tables (Figures 47-52) show compensation information for our named executive officers:

Figure 47. Summary Compensation Table

 

Summary Compensation Table

Name and Principal

Position

  Fiscal
Year
  Salary
($)
  Bonus
($)
  Stock
Awards
($) (1)
  

Option
Awards

($)(2)

  Non-Equity
Incentive Plan
Compensation
($)
 

All Other

Compensation

($)(3)

 

Total  

($)  

Timothy M. Archer

President and Chief Executive Officer

      2020       1,017,308             8,350,730        923,416       1,450,500   (4)        11,050       11,753,004  
   

 

 

 

2019

 

   

 

 

 

809,512

 

   

 

 

 

 

   

 

 

 

7,829,921

 

    

 

 

 

3,911,321

 

   

 

 

 

1,181,842

 

  (5) 

   

 

 

 

12,513

 

   

 

 

 

13,745,109  

 

   

 

 

 

2018

 

   

 

 

 

674,922

 

   

 

 

 

 

   

 

 

 

4,180,920

 

    

 

 

 

600,122

 

   

 

 

 

1,599,068

 

  (6) 

   

 

 

 

9,856

 

   

 

 

 

7,064,888  

 

Douglas R. Bettinger

Executive Vice President and

Chief Financial Officer

      2020       646,646             2,417,174        267,136       616,960   (4)        9,759       3,957,675  
   

 

 

 

2019

 

   

 

 

 

620,518

 

   

 

 

 

 

   

 

 

 

9,856,919

 

    

 

 

 

529,186

 

   

 

 

 

739,421

 

  (5) 

   

 

 

 

9,073

 

   

 

 

 

11,755,117  

 

   

 

 

 

2018

 

   

 

 

 

586,874

 

   

 

 

 

 

   

 

 

 

1,881,292

 

    

 

 

 

270,066

 

   

 

 

 

914,560

 

  (6) 

   

 

 

 

9,123

 

   

 

 

 

3,661,915  

 

Richard A. Gottscho

Executive Vice President,

Chief Technology Officer

      2020       588,390       6,400   (7)        2,197,418        257,676       506,977   (4)        9,694       3,566,555  
   

 

 

 

2019

 

   

 

 

 

584,126

 

   

 

 

 

10,971

 

  (7) 

   

 

 

 

1,755,652

 

    

 

 

 

474,750

 

   

 

 

 

707,680

 

  (5) 

   

 

 

 

9,553

 

   

 

 

 

3,542,732  

 

   

 

 

 

2018

 

   

 

 

 

567,324

 

   

 

 

 

5,867

 

  (7) 

   

 

 

 

2,090,283

 

    

 

 

 

316,208

 

   

 

 

 

1,072,242

 

  (6) 

   

 

 

 

9,384

 

   

 

 

 

4,061,308  

 

Patrick J. Lord

Executive Vice President,

Customer Support Business

Group and Global Operations

      2020       479,544               2,197,418        242,796       379,792   (4)        8,972       3,308,522  
   

 

 

 

2019

 

   

 

 

 

463,327

 

   

 

 

 

 

 

   

 

 

 

1,404,389

 

    

 

 

 

352,790

 

   

 

 

 

554,243

 

  (5) 

   

 

 

 

8,668

 

   

 

 

 

2,783,417  

 

   

 

 

 

2018

 

   

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

    

 

 

 

 

   

 

 

 

 

   

   

 

 

 

 

   

 

 

 

—  

 

Seshasayee (Sesha) Varadarajan

Senior Vice President and

General Manager, Deposition

Business Unit

      2020       462,613       10,074   (8)        1,889,916        209,024       375,204   (4)        8,829       2,955,660  
   

 

 

 

2019

 

   

 

 

 

453,031

 

   

 

 

 

 

   

 

 

 

1,229,006

 

    

 

 

 

308,609

 

   

 

 

 

494,802

 

  (5) 

   

 

 

 

8,785

 

   

 

 

 

2,494,233  

 

   

 

 

 

2018

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

    

 

 

 

 

   

 

 

 

 

  

   

 

 

 

 

   

 

 

 

—  

 

 

(1)

The amounts shown in this column represent the value of service-based and market-based performance RSU awards, under the LTIP, granted in accordance with ASC 718. However, pursuant to SEC rules, these values are not reduced by an estimate for the probability of forfeiture. The assumptions used to calculate the fair value of the RSUs in fiscal year 2020 are set forth in Note 5 to the Consolidated Financial Statements of the Company’s annual report on Form 10-K for the fiscal year ended June 28, 2020. For additional details regarding the grants see “FY2020 Grants of Plan-Based Awards” table below.

 

(2)

The amounts shown in this column represent the value of the stock option awards granted, under the LTIP, in accordance with ASC 718. However, pursuant to SEC rules, these values are not reduced by an estimate for the probability of forfeiture. The assumptions used to calculate the fair value of stock options in fiscal year 2020 are set forth in Note 5 to the Consolidated Financial Statements of the Company’s annual report on Form 10-K for the fiscal year ended June 28, 2020. For additional details regarding the grants see “FY2020 Grants of Plan-Based Awards” table below.

 

(3)

Please refer to “FY2020 All Other Compensation Table” which immediately follows this table, for additional information.

 

(4)

Represents the amount earned by and subsequently paid under the calendar year 2019 AIP.

 

(5)

Represents the amount earned by and subsequently paid under the calendar year 2018 AIP.

 

(6)

Represents the amount earned by and subsequently paid under the calendar year 2017 AIP.

 

(7)

Represents patent awards.

 

(8)

Represents Mr. Varadarajan’s patent awards of $8,571 and gift of $1,503 received from the Company in connection with achieving his 20-year anniversary milestone.

 

Continues on next page  u

 

Lam Research Corporation 2020 Proxy Statement     41


Table of Contents

Figure 48. FY2020 All Other Compensation Table

 

All Other Compensation Table for Fiscal Year 2020  
 

 

  Company Matching
Contribution to
the Company’s
Section 401(k) Plan
($)
   

Company

Paid Long-Term
Disability Insurance
Premiums

($) (1)

   

Company

Paid Life
Insurance
Premiums

($) (2)

    Company
Contribution to the
Elective Deferred
Compensation Plan
($)
                    Total
($)
 
  Timothy M. Archer     8,550    

 

 

 

 

 

   

 

 

 

 

 

    2,500     11,050
  Douglas R. Bettinger     8,666    

 

 

 

 

 

   

 

 

 

 

 

    1,093     9,759  
  Richard A. Gottscho     8,618     1,076    

 

 

 

 

 

   

 

 

 

 

 

    9,694
  Patrick J. Lord     8,906    

 

 

 

 

 

    66    

 

 

 

 

 

    8,972
  Seshasayee (Sesha) Varadarajan     8,727    

 

 

 

 

 

    102    

 

 

 

 

 

    8,829

 

(1) 

Represents the portion of supplemental long-term disability insurance premiums paid by the Company.

 

(2) 

Represents the portion of life insurance premiums paid by the Company in excess of the non-discriminatory life insurance benefits provided to all Company employees.

Figure 49. FY2020 Grants of Plan-Based Awards

 

 
Grants of Plan-Based Awards for Fiscal Year 2020  
                Estimated Future
Payouts Under
Non-Equity Incentive
Plan Awards
          Estimated Future
Payouts Under
Equity Incentive Plan
Awards
    All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)
          All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
          Exercise
or Base
Price of
Option
Awards
($/Sh)
   

Grant Date
Fair Value
of Stock
and
Option
Awards

($) (3)

 
  Name   Award Type   Grant
Date
  Approved
Date
 

Target

($) (1)

   

Maximum

($) (1)

         

Target

(#) (2)

         

Maximum

(#) (2)

                   

Timothy M. Archer

  Annual Incentive Program   N/A   2/20/20     1,575,000       3,543,750      

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

  LTIP-Equity    

 

   

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

 

Market-based PRSUs

  3/2/20   2/20/20    

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

    15,178     (4)        22,767     (4)       

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

    4,867,433
 

Service-based RSUs

  3/2/20   2/20/20    

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

    12,142       (5)       

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

    3,483,297
 

Stock Options

  3/2/20   2/20/20    

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

    12,140       (6)        300.33     923,416

Douglas R. Bettinger

  Annual Incentive Program   N/A   2/19/20     659,200       1,483,200      

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

  LTIP-Equity    

 

   

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

 

Market-based PRSUs

  3/2/20   2/19/20    

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

    4,393       (4)        6,589     (4)       

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

    1,408,791
 

Service-based RSUs

  3/2/20   2/19/20    

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

    3,515       (5)       

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

    1,008,383
 

Stock Options

  3/2/20   2/19/20    

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

    3,512       (6)        300.33     267,136

Richard A. Gottscho

  Annual Incentive Program   N/A   2/19/20     536,428       1,206,963      

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

  LTIP-Equity    

 

   

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

 

Market-based PRSUs

  3/2/20   2/19/20    

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

    3,994     (4)        5,991     (4)