PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
GENERAL INFORMATION ABOUT THE MEETING
The Board of Directors of IPG Photonics Corporation is soliciting proxies from our stockholders in connection with our annual meeting of stockholders to be held on Tuesday, June 5, 2018 and any and all adjournments thereof. No business can be conducted at the annual meeting unless a majority of all outstanding shares entitled to vote are either present in person or represented by proxy at the meeting. As far as we know, the only matters to be brought before the annual meeting are those referred to in this proxy statement. If any additional matters are presented at the annual meeting, the persons named as proxies may vote your shares in their discretion.
This proxy statement and our 2017 annual report are first being made available to stockholders of record on or about April 18, 2018 atinvestor.ipgphotonics.com.Information on the website does not constitute part of this proxy statement.
Unless otherwise noted, the information in this proxy statement covers our 2017 fiscal year (or "fiscal 2017"), which ran from January 1, 2017 through December 31, 2017, and in some cases our 2016 fiscal year (or "fiscal 2016"), which ran from January 1, 2016 through December 31, 2016.
Questions and Answers about the Meeting and Voting
When and Where Is the Annual Meeting?
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DIRECTOR
INDEPENDENCE | BALANCED TENURE | AGE | DIVERSITY |
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When: | | Tuesday, June 5, 2018, at 10:00 a.m. Eastern Time |
Where: | | IPG Photonics Corporation | | |
6/9 50 Old Webster Roaddirectors
are independent**
| 10 years Oxford, Massachusetts 01540Average Tenure
| 63 years Average Age
| 22% Female |
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What Matters Am I Being Asked to Vote On at* Following the Annual Meeting and What Vote is Required to Approve Each Matter?
You are being asked to vote on two proposals.
Proposal 1 requests the election of directors. Each director will be elected by the vote of the plurality of the votes cast when a quorum is present. A "plurality of the votes cast" means that the nine persons receiving the greatest number of votes cast "for" will be elected. "Votes cast" excludes "withhold votes" and any broker non-votes (as defined below). Accordingly, withhold votes and broker non-votes will have no effect on Proposal 1. If you hold your shares in "street name," it is critically important that you submit your voting instructions to your bank or broker if you want your shares to count for Proposal 1.
Proposal 2 requests the ratification of the appointment of our independent registered public accounting firm for 2018. The affirmative vote of a majority of the shares which are present at the meeting in person or by proxy, and entitled to vote thereon, is required for approval of Proposal 2. Abstentions have the same effect as voting against Proposal 2.
Who Is Entitled to Vote at the Meeting?
You are entitled to vote at the meeting if you owned IPG Photonics shares (directly or in "street name," as defined below) as of the close of business on April 6, 2018, the record date for the meeting. On that date, 53,732,790 shares of our common stock were outstanding and entitled to vote and no shares of our preferred stock were outstanding. Each share of our common stock is entitled to one vote with respect to each matter on which it is entitled to vote. There is no cumulative voting with respect to any proposal.
What Do I Need to Do If I Plan to Attend the Meeting in Person?
If you plan to attend the annual meeting in person, you must provide proof of your ownership of our common stock and a form of personal identification, such as a driver's license, for admission to the meeting. If you are a stockholder of record, the top half of your proxy card is your admission ticket and will serve as proof of ownership. If you hold your shares in street name, a recent brokerage statement or a letter from your bank or broker are examples of proof of ownership. If you hold your shares in street name and you also wish to be able to vote at the meeting, you must obtain a proxy, executed in your favor, from your bank or broker.
What Is the Difference Between Holding Shares Directly as a Stockholder of Record and Holding Shares in "Street Name" at a Bank or Broker?
Most of our stockholders hold their shares directly through a broker, bank or other nominee rather than directly in their own name. As summarized below, there are differences between shares held of record and those held in "street name."
Stockholder of Record: If your shares are registered directly in your name with our transfer agent, Computershare, N.A., you are considered the stockholder of record with respect to those shares, and the proxy statement and annual report were sent directly to you. As the stockholder of record, you have the right to vote your shares as described herein.
"Street Name" Stockholder: If your shares are held by a bank, broker or other nominee on your behalf, you are considered the beneficial owner of shares held in "street name," and the proxy statement and annual report were forwarded to you by your bank,broker or other nominee who is considered the stockholder of record with respect to those shares. Your bank, broker or other nominee sent to you, as the beneficial owner, a document describing the procedure for voting your shares. You should follow the instructions provided by your bank, broker or other nominee to vote your shares. You are also invited to attend the annual meeting. However, if you wish to be able to vote at the meeting, you must obtain a proxy card, executed in your favor, from your bank, broker or other nominee.
What Does it Mean to Give a Proxy?
Your properly completed proxy/voting instruction card will appoint Valentin P. Gapontsev and Angelo P. Lopresti as proxy holders or your representatives to vote your shares in the manner directed therein by you. Dr. Gapontsev is our Chairman of the Board and Chief Executive Officer. Mr. Lopresti is our Senior Vice President, General Counsel and Secretary. Your proxy permits you to direct the proxy holders to vote "For" or "Withhold" for the nominees for director (Proposal 1), and "For," "Against," or "Abstain" the vote to ratify the appointment of our independent registered accounting firm (Proposal 2).
All of your shares entitled to vote and represented by a properly completed proxy or voting instruction received prior to the meeting and not revoked will be voted at the meeting in accordance with your instruction.
What Happens If I Sign, Date and Return My Proxy But Do Not Specify How I Want My Shares Voted on One of the Proposals?
Stockholder of Record: Your proxy will be counted as a vote "For" all of the nominees for director (Proposal 1), and "For" the vote to ratify the appointment of our independent registered accounting firm (Proposal 2).
"Street Name" Stockholder: Your bank, broker or nominee may vote your shares only on those proposals on which it has discretion to vote. Under New York Stock Exchange rules, your bank, broker or nominee does not have discretion to vote your shares on non-routine matters such as the election of directors (Proposal 1). This is called a "broker non-vote." However, your bank, broker or nominee does have discretion to vote your shares on routine matters such as the vote to ratify the appointment of our independent registered public accounting firm (Proposal 2). Accordingly, if you do not give your bank, broker or nominee specific instructions with respect to Proposal 2, your shares will be voted in such entity's discretion (but only with respect to Proposal 2). We urge you to promptly
provide your bank, broker or nominee with appropriate voting instructions so that all of your shares may be voted at the meeting.
Can I Change My Vote Before the Meeting?
You can change your vote at any time before your proxy is exercised by delivering a properly executed, later-dated proxy (including an internet or telephone vote), by revoking your proxy by written notice to the Secretary of IPG Photonics, or by voting in person at the meeting. If you choose to revoke your proxy by attending the annual meeting, you must vote your shares for revocation to be effective. The method by which you vote by a proxy will in no way limit your right to vote at the meeting if you decide to attend in person.
If your shares are held in street name, please refer to the information forwarded by your bank, broker or nominee for procedures on changing your voting instructions.
Is the Proxy Statement Available on the Internet?
Yes. We are delivering our proxy statement and 2017 annual report pursuant to the Securities and Exchange Commission rules that allow companies to furnish proxy materials to their stockholders over the internet. On or about April 18, 2018, we will mail to our stockholders a notice (the “Notice”) containing instruction on how to access this proxy statement and our annual report and to vote via the internet or by telephone. Stockholders can view these documents on the internet by accessing the website at investor.ipgphotonics.com.
What does it mean if I receive more than one Notice of Internet Availability of Proxy Materials?
You may receive more than one Notice, more than one e-mail or multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you may receive a separate Notice, a separate e-mail or a separate voting instruction card for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you may receive more than one Notice, more than one e-mail or more than one proxy card. To vote all of your shares by proxy, you must complete, sign, date and return each proxy card and voting instruction card that you receive and vote over the internet the shares represented by each Notice that you receive (unless you have requested and received a proxy card or voting instruction card for the shares represented by one or more of those Notices).
Who Is Soliciting my Proxy and Who is Paying for the Cost of this Proxy Solicitation?
The Board of Directors of IPG Photonics is soliciting your proxy to vote at the 2018 annual meeting of stockholders. IPG Photonics will bear the expense of preparing, posting to the internet, printing and mailing this proxy material, as well as the cost of any required solicitation. Our directors, officers or employees may solicit proxies on our behalf. We have not engaged a proxy solicitation firm to assist us in the solicitation of proxies, but we may if we deem it appropriate. In addition, we will reimburse banks, brokers and other custodians, nominees and fiduciaries for reasonable expenses incurred in forwarding proxy materials to beneficial owners of our stock and obtaining their proxies.
Who Counts the Votes?
We have engaged Computershare, N.A. as our independent agent to receive and tabulate stockholder votes. Computershare, N.A. will separately tabulate "For," "Against" and "Withhold" votes, abstentions and broker non-votes. Computershare, N.A. will also act as independent election inspector to certify the results, determine the existence of a quorum and the validity of proxies and ballots, and perform any other acts required under the General Corporation Law of Delaware.
How Can I Vote?
Most stockholders have a choice of voting in one of four ways:
via the internet,
using a toll-free telephone number,
completing a proxy/voting instruction card and mailing it in the postage-paid envelope provided or
in person at the meeting.
The telephone and internet voting facilities for stockholders of record will close at 1:00 a.m. Central Time on June 5, 2018. The internet and telephone voting procedures are designed to authenticate stockholders by use of a control number and to allow you to confirm that your instructions have been properly recorded.
If you hold your shares in "street name," your bank, broker or other nominee will send you a separate package describing the procedures and options for voting your shares. Please read this information carefully. If you hold your shares in "street name," and wish to vote in person at the annual meeting, you must obtain a "legal proxy" from the organization that holds your shares. A legal proxy is a written document that will authorize you to vote your shares held in "street name" at the annual meeting. Please contact the organization that holds your shares for instructions regarding obtaining a legal proxy. You must bring a copy of the legal proxy to the annual meeting and ask for a ballot when you arrive.
What Is the Quorum Required to Transact Business?
At the close of business on April 6, 2018, the record date, there were 53,732,790shares of our common stock outstanding. Our by-laws require that a majority of our common stock be represented, in person or by proxy, at the meeting in order to constitute the quorum we need to transact business at the meeting. We will count withhold votes, abstentions and broker non-votes in determining whether a quorum exists.
CORPORATE GOVERNANCE
Significant Corporate Governance Practices and Policies
At IPG Photonics, we believe that strong and effective corporate governance procedures and practices are an extremely important part of our corporate culture. We have summarized several of our corporate governance practices below.
Independent Director Majority and Presiding Independent Director. Seven of the ten directors currently on our Board of Directors (the "Board") are non-employees of the Company who meet the independence criteria under the applicable rules of the Securities and Exchange Commission ("SEC") and NASDAQ guidelines. Only independent directors sit on our three standing Board Committees. Several years ago, the Board established the role of a presiding independent director who is elected annually by the independent directors.
Executive Sessions. Our Board meets regularly in executive sessions without the presence of management, including our Chairman and Chief Executive Officer. These sessions are led by our Presiding Independent Director.
Annual Election of Entire Board. Stockholders elect each director annually. We do not have a classified board.
Related Person Transactions. Our Nominating and Corporate Governance Committee is responsible for approving or ratifying transactions involving our Company and related persons and determining if the transaction is in, or not inconsistent with, the best interests of our Company and our stockholders.
Stock Ownership Guidelines. Our directors and executive officers are required to own a minimum amount of IPG Photonics shares. We believe that stock ownership requirements align the interests of the directors and officers with our stockholders. Our directors and executive officers fully complied with our guidelines in 2017.
Prohibition on Hedging; Limits on Pledging. Our insider trading policy expressly prohibits directors and employees from engaging in short sales of our common stock or buying or selling puts, calls or derivative securities in connection with IPG Photonics shares. The policy also limits the pledging of IPG Photonics shares.
Annual Self-Assessments. Our Board engages in annual self-evaluations and our committees perform bi-annual self-assessments to determine if they are functioning effectively.
Oversight of Risk Management. As part of its oversight, the entire Board reviews Company strategy and performance and the principal risks involved. The Board allocates risk oversight responsibility among the full Board, the independent directors acting as a group and the three standing committees.
Additional information is provided below regarding these and certain other key corporate governance policies, which we believe enable us to manage our business in accordance with high standards of business practices and in the best interest of our stockholders. Several of our policies may be found at investor.ipgphotonics.com/corporate-governance/governance-documents. Note that information on our website does not constitute part of this proxy statement.
Corporate Governance Guidelines
Our Board has adopted Corporate Governance Guidelines that outline, among other matters, the roles and functions of the Board, the responsibilities of various Board committees and the mission of the Board. Each of the Board committees has a written charter that sets forth the purposes, goals and responsibilities of the committees as well as qualification for committee membership, procedures for committee membership, appointment and removal, committee structure and operations and committee reporting to the entire Board.
The Corporate Governance Guidelines provide, among other things, that:
a majority of our Board must be independent,
the Presiding Independent Director presides over executive sessions of independent directors,
the Board appoints all members and chairpersons of the Board committees,
the** Audit, Compensation and Nominating and Corporate Governance Committees consist solelyare composed entirely of independent directors
Skills and Experience*
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| Lasers and
Technology | | | | Risk
Management | |
| Financial
Literacy | | | | Executive
Leadership | |
| Global
Business | | | | Other Public
Company Boards | |
| Manufacturing
and Operating | | | | Non-Corporate Experience | |
| Business
Development
and M&A | | | | | |
* Following the independent directors meet periodically in executive sessions withoutAnnual Meeting
6 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Corporate Governance Highlights
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üNew policy to require external director candidate pool to include female and/or racially/ethnically diverse candidates adopted in October 2020 üStockholder proxy access right adopted in March 2019 ü Director majority voting policy adopted in October 2018 ü Ongoing Board refreshment: 2 female directors added in 2021; 3 new directors in 3 years ü Supermajority of independent directors and 100% independent Board committees | ü 67% of Board members were born outside of the U.S.A., bringing international perspectives ü 22% of Board members are women ü Lead independent director ü Single class of voting stock and no supermajority voting provisions ü Annual election of all directors ü Stockholder right to act by written consent E | ü 79% of director compensation at risk based upon stock performance ü Annual Board performance evaluations ü Robust director and executive officer stock ownership guidelines ü Anti-hedging policy applicable to all employees and directors ü Bylaw adopted in 2020 to ensure Board decision-making and continuity in event of director unavailability due to emergency, such as pandemic | |
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Stockholder Engagement
We value the presence of the non-independent directors or membersviews of our management,
directors may not servestockholders and we believe that building positive relationships with our stockholders is critical to our long-term success. Our investor communications and outreach include periodic site visits, investor conferences and quarterly conference calls. Our quarterly conference calls and presentations at investor conferences are open to the public and are available live and as archived webcasts on the boards of more than three other public companies or on more than two other audit committees of public companies,
evaluation ofour website. To help management and the Board is conducted annuallyunderstand and consider the issues that matter most to our stockholders, we periodically engage with our stockholders on a range of topics including performance, executive compensation, governance and sustainability matters; our Board has been responsive to feedback it has received.
In response to a stockholder proposal at the 2020 annual meeting, which did not win a majority of votes cast, the Board considered management diversity at IPG and key officers should havesupported advancing our human capital management strategy to ensure more opportunities for diverse candidates, including new programs to recruit diverse candidates, developing internal candidates for executive openings and seeking out diverse candidates in outside searches. Following investor requests for greater diversity in director recruitment, the Board added two female members to the Board in January 2021 and formally adopted a meaningful financial stakewritten policy to require external director candidate pools to include female and/or racially/ethnically diverse candidates. We engaged with a number of stockholders regarding other environmental, social, and governance (ESG) topics last year and we are committed to enhancing disclosure in this area. In December 2020, we published our first Corporate Sustainability Report, which highlighted the Company.efforts we are taking to address public policy issues and ESG matters, including health, safety and environmental and sustainability policies.
The Board reviews changing legal and regulatory requirements, evolving best practices and other developments. The Board modifies the Corporate Governance Guidelines and its other corporate governance policies and practices from time to time, as appropriate.Features of our Executive Compensation Program
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| PRACTICES WE EMPLOY | | PRACTICES WE AVOID |
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ü Align our officer pay with performance ü Balance annual and long-term incentives ü Use long-term incentives to link executive pay to company performance ü Cap incentive award payouts ü Maximize stockholder value while mitigating risk ü Independent compensation consultant ü Robust stock ownership requirements ü Clawbacks on executive compensation | | û No guaranteed annual bonuses û No retirement benefits û No tax gross-ups û No significant perquisites û Prohibit hedging of Company stock û No severance for “cause” terminations û No single-trigger change in control provisions û No stock option repricing without stockholder approval û Pledging of Company stock is limited
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2020 Executive Compensation Highlights
Executive Sessions.As further discussed in Compensation Discussion and Analysis Our independent directors meet privately, without employee directors or management present, at least four times duringstarting on page 37, the year. These private sessionsguiding principles of our executive compensation philosophy are generally held in conjunctionpay-for-performance, accountability for annual and long-term performance, alignment with the regular quarterly Board meetings. Other private meetings of the independent directors are held as often as deemed necessary by them. stockholders’ interests, and providing competitive pay to attract and retain executives. The 2020 compensation program for our named executive officers ("NEOs") has three primary components: annual base salary, annual cash incentives and long-term equity incentives. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fixed | | | At-risk | | | | |
| Base Salary | | Annual Cash Incentive | | Long-Term Equity Incentives |
| Target Mix | CEO* | OTHER NEOs (Average) | | CEO | OTHER NEOs (Average) | | OTHER NEOs
(Average) |
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| * CEO receives no equity awards | | | | | | PSUs (Performance Based) | RSUs (Service Based) |
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| Performance | • Executive base salaries were not increased for 2020 in light of the challenging macro-economic environment continuing to face the Company | | • Annual cash incentive amounts for our NEOs were based on full year financial targets set in early February 2020, in spite of the challenges brought by the COVID-19 pandemic • Individual performance awards were earned for managing effectively through unprecedented business environment | | • In 2020, we increased the percentage of our long-term incentives that are performance-based and added an operating metric to our PSUs • Our CEO, as the founder and a significant stockholder, has not received an equity award since the Company’s 2006 IPO, resulting in lower compensation expenses and equity burn rate |
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| Objectives | • Provide a competitive fixed component to attract and retain talented and experienced executives | | • Variable cash compensation opportunity is based upon annual net sales and profitability against threshold, target and maximum performance goals • Additional compensation opportunities are based upon individual performance | | • Align interests of our executives and stockholders by motivating executive officers to increase long-term stockholder value • PSU awards provide incentives and are earned based on IPG’s total stockholder return relative to a comparable stock index and, new for 2020, an operating metric based upon operating cash flow • Service-based RSUs awards vest over four years providing long-term retention and additional compensation opportunity for stock price increases |
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8 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Compensation Alignment with Stockholder Interests and Performance
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• Annual cash incentive payouts are capped and have challenging performance goals linked to key financial performance metrics • Long-term equity incentives are aligned with long-term stockholder value creation • At-risk compensation based upon performance increased in 2020. Approximately 80% of NEO compensation (excluding the CEO) in 2020 was performance based • Executives exceed stock ownership guidelines, aligning with interests of stockholders | | Say-on-pay approval
during last
stockholder vote in 2020 |
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Proposal
2 | Ratify Deloitte & Touche LLP as our Independent
Registered Public Accounting Firm for 2021 The Board recommends a vote FOR this proposal. |
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The Audit Committee has sole authority to appoint and replace the CompensationCompany’s independent registered public accounting firm, which reports directly to the Audit Committee, and is directly responsible for its compensation and oversight of its work. The Audit Committee conducted its annual evaluation of Deloitte & Touche LLP and, after assessing the Nominatingperformance and Corporate Governanceindependence of Deloitte & Touche LLP, the Audit Committee meet without employee directors or management present from timeconcluded that the best course of action was to timereappoint Deloitte & Touche LLP as they deem necessary.our independent external auditor for 2021.
We are asking you to ratify this appointment. If stockholders fail to ratify the appointment, the Audit Committee will consider it a directive to consider other accounting firms for the subsequent year.
Director Meetings and Policy Regarding Board Attendance. It has been the practice of our Board and its committeesFees Paid to hold at least four in-person regular meetings each year. The Board and its committees also have telephone meetings throughout the year. In accordance with our Corporate Governance Guidelines, our directors are expected to prepare for, attend and actively participate in meetings of the Board and its committees. Our directors are expected to spend the time needed at each meeting and to meet as frequently as necessary to properly discharge their responsibilities. We encourage members of our Board to attend annual meetings of stockholders, but we do not have a formal policy requiring them to do so.
Stock Ownership Guidelines.Deloitte & Touche. The Board adopted stock ownership guidelines to more closely align the interestsfees for services provided by Deloitte & Touche LLP, member firm of our directorsDeloitte Touche Tohmatsu, and executive officers with those of our long-term stockholders. Under the guidelines, the following persons are expected to maintain a minimum investment in our common stock as follows: for non-employee directors, the lesser of 3,000 shares or three times their annual cash Board retainer (excluding committee retainers); for the Chief Executive Officer, five times his annual salary; and for senior executive officers, the lesser of 5,000 shares or one times their respective annual salaries. Vested stock optionsaffiliates, to the Company were:
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| Fees |
| Fee Category | 2020 | | 2019 | |
| Audit fees | $ | 2,247,738 | | $ | 2,440,990 | |
| Audit-related fees | — | — |
| Tax fees | 145,000 | 90,000 |
| All other fees | — | — |
| Total Fees | $ | 2,392,738 | | $ | 2,530,990 | |
In 2020 and unvested restricted stock units count toward2019, the stock ownership levels. Indirect ownershippercentage of shares through a separate legal entity counts toward fulfillment of the ownership guidelines. These ownership levels aretotal fees paid to be achieved no later than four years after the election as a director or as an executive officer, except that prior to such time the director or officer is expected to retain a certain portion of stock issued upon exercise of stock options or vesting of restricted stock units until the minimum ownership levels are attained. All directorsour independent registered public accounting firm for audit fees were 94% and executive officers were in compliance with our stock ownership guidelines as of December 31, 2017.96%, respectively.
Board Self-Assessments.
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| This Proxy Statement contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and we intend that such forward-looking statements be subject to the safe harbors created thereby. For this purpose, any statements contained in this Proxy Statement except for historical information are forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. The forward-looking statements included herein are based on current expectations of our management based on available information and involve a number of risks and uncertainties, all of which are difficult or impossible to accurately predict and many of which are beyond our control. As such, our actual results may differ significantly from those expressed in any forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to, those discussed in more detail in the section titled “Risk Factors” and elsewhere in our Annual Report and other filings with the SEC. We undertake no obligation to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. |
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10 The Board conducts annual self-evaluations and the committees conduct bi-annual self-assessments to determine whether they are functioning effectively. NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
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Proposal
1 | Election of Nine Directors The Board of Directors recommends a vote FOR each director nominee named in this Proxy Statement. |
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The Nominating and Corporate Governance Committee oversees the Board(the "NCGC") is responsible for identifying and committee self-assessments. Each committee also reviews its own performance bi-annually and reports the results to the Board. Each committee reviews and reassesses the adequacy of its charter annually and recommends proposed changes to the Board.
Prohibition on Hedging; Limits on Pledging. Under our insider trading policy, no director or employee may engage in shorting shares of our common stock, or buying or selling puts, calls or derivatives related to our common stock. A director or officer of the Company may not pledge shares constituting more than 20% of his or her total stock ownership. Pledges of shares constituting 20% or less of total stock ownership are subject to certain conditions.
Governance Trends and Director Education. The Board and its committees proactively monitor legislative and regulatory initiatives, as well as other corporate governance trends and their potential impact on the Company. Each director has access to publications and other resources that cover these matters. In addition, we reimburse relevant director education expenses.
The Board receives presentations from professionals with expertise in corporate law, governance and other related topics.These experts have specialized knowledge of regulatory actions, governance trends and various other corporate governance topics. Additionally, our directors participate in continuing education sessions to remain informed on recent trends applicable to their committee duties. Likewise, newly elected directors attend a comprehensive director orientation program that covers, among other things, our strategy, business structure, financial performance, and competitive landscape. New committee members are also provided training on committee policies, practices and trends. As part of this program, directors are invited to participate in a tour of selected facilities of the Company. To further familiarize directors with our expanding operations, we conduct Board meetings at our major facilities from time to time.
The committees actively engage with senior management and other parties when necessary to further assess the current environment or respond to governance related matters. The Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee each routinely receive updates on matters applicable to their responsibilities from legal counsel, auditors and independent consultants.
Code of Business Conduct. We have a code of business conduct that applies to all of our directors and employees, including our Chief Executive Officer, Chief Financial Officer and other executive officers. Our code of business conduct includes provisions covering conflicts of interest, business gifts and entertainment, outside activities, compliance with laws and regulations, insider trading practices, antitrust laws, payments to government personnel, bribes or kickbacks, corporate record keeping and accounting records. The code of business conduct is posted on our website at investor.ipgphotonics.com/corporate-governance/governance-documents.
Proceduresevaluating nominees for Submitting Complaints. We have procedures to treat complaints regarding accounting, internal accounting controls, auditing matters, fight against bribery, banking, and financial crime, including submission of confidential and anonymous concerns regarding questionable accounting, internal accounting controls or auditing matters raised by our directors, officers and employees. These procedures are posted on our website at investor.ipgphotonics.com/corporate-governance/governance-documents.
Board Leadership Structure
As of the date of this proxy statement, the positions of Chairman of the Board and Presiding Independent Director are held by two different individuals. Dr. Gapontsev, our Chief Executive Officer, also serves as the Chairman of the Board. Our independent directors determined several years ago that, for effective board governance, it is important to have a presiding independent director. Mr. Peeler has been selected as the Presiding Independent Director for the term ending June 2018.
Dr. Gapontsev became our Chief Executive Officer and Chairman in 1998. His dual role was created when the Board was first established in 2000. Our directors believe that each of the possible leadership structures for a board has its particular benefits and drawbacks which must be considered in the context of the specific circumstances, culture and challenges facing a company, and that such consideration is the responsibility of a company's board that has a diversity of views and experiences. Our directors come from a variety of organizational backgrounds and have direct experience with a wide range of leadership and management structures. The makeup of our Board puts it in a strong position to evaluate the pros and cons of the various types of board leadership structures and to ultimately decide which form is in the best interests of our stockholders. The independent directors believe that having Dr. Gapontsev serve in both capacities is in the best interest of the Company and its stockholders because it allows Dr. Gapontsev to more effectively execute the Company's strategic initiatives and business plans. He is the founder of the Company and beneficially owns approximately 14% of the Company's common stock. The duality of Dr. Gapontsev's roles as Chairman and Chief Executive Officer creates clear and unambiguous authority, which is essential to effective management. The Board and management can respond more effectively to a distinct line of authority. Further, given that he is closer to the Company's business than any other Board member and he has the benefit of over twenty years of operations and executive management experience within the Company, Dr. Gapontsev is best-positioned to set the Board's agenda and provide leadership. Dr. Gapontsev's extensive scientific and business experience also gives him vast industry knowledge, which the Board believes is critical for the chairman of the board of a company that operates in a highly technical industry. The combined Chairman/Chief Executive structure is a leadership model that has served our stockholders well for many years.
The Board also recognizes the importance of having in place, and building upon, a counterbalancing structure to ensure that it functions in an appropriately independent manner. As a result, the Board enhanced its governance structure several years ago by creating the position of Presiding Independent Director with leadership authority and responsibilities. The duties and responsibilities of the Presiding Independent Director include: setting the agenda for, and leading, executive sessions of the independent directors; providing consolidated feedback from those meetings to the Chairman and Chief Executive Officer; providing input on the agenda for Board meetings; periodically providing feedback on the quality and quantity of information flow from management; having the authority to call meetings of the independent directors; facilitating discussions outside of scheduled Board meetings among the independent directors on key issues as required; serving as a non-exclusive liaison with the Chairman and Chief Executive Officer in consultation with the other independent directors; interviewing Board candidates as appropriate; and leading the determination of the goals and objectives for the Chairman and Chief Executive Officer with the input of the independent directors and the annual performance evaluation for him with the input of the independent directors and providing that evaluation to the Compensation Committee. In the event of a crisis, the Presiding Independent Director would have an increased role in crisis management oversight. The independent directors of our Board elected Mr. Peeler as the Presiding Independent Director for the term ending June 2018, and this position is voted upon annually by our independent directors.
The Board believes that the position and responsibilities of a presiding independent director and the regular use of executive sessions of the independent directors without the Chief Executive Officer or other executive officers present, along with the Company's strong committee system and substantial majority of independent directors, allow the Board to maintain effective oversight.
Risk Oversight
The Board and management recognize that effectively monitoring and managing risk are essential to the successful execution of the Company's strategy. The Board reviews strategy regularly with management and provides input to management. As part of its oversight of operations, the entire Board reviews and discusses the performance of the Company and the principal risks involved in the operations and management of the Company. The Board allocates risk oversight responsibility among the full Board, the independent directors acting as a group and the three standing committees of the Board. The Nominating and Corporate Governance Committee periodically reviews risk oversight matters and responsibilities, then makes recommendations to the Board to allocate risk oversight responsibilities.
The Board as a whole reviews risk management practices and a number of significant risks in the course of its reviews of corporate strategy, management reports and other presentations. The independent directors as a group, the Audit Committee and the Compensation Committee all participate in senior executive succession and resource planning. The standing committees also contribute to succession and resource planning oversight for management. The Audit Committee oversees certain financial risks and recommends guidelines to monitor and control such exposures. The Compensation Committee reviews the Company's executive compensation programs, their effectiveness at both linking executive pay to performance and aligning the interests of our executives and our stockholders, and oversees an entity-wide compensation risk assessment. The Nominating and Corporate Governance Committee reviews significant related person transactions with directors, executives and managers and may conduct negotiations on behalf of the Company in connection with related person transactions and retain independent advisors to assist it. The Board's risk oversight role is independent from the Company's day-to-day management, as more than two-thirds of the current directors are independent and therefore have no conflicts that might discourage critical review of the Company's risks.
Communication with our Board of Directors
Interested parties wishing to writerecommending to the Board a specified directorslate of nominees for election at the Annual Meeting. The NCGC has recommended, and the Board has approved, the following nominees for terms expiring at the annual meeting to be held in 2022, until a successor is elected and qualified or until his or her earlier death, resignation or removal and, unless otherwise marked, a committeeproxy will be voted for such nominees: Dr. Gapontsev, Dr. Scherbakov, Mr. Child, Ms. Desmond, Mr. Dougherty, Mr. Meurice, Ms. Pavlova, Mr. Peeler, and Mr. Seifert. All of the Board should send correspondencedirector nominees set forth in our proxy card have consented to the Office of the Secretary, IPG Photonics Corporation, 50 Old Webster Road, Oxford, Massachusetts 01540. All written communications receivedbeing named in such manner from stockholders ofthis Proxy Statement and to serving if elected. For more information regarding the Company will be forwarded to the members or committee of the Board to whom the communication is directed or, if the communication is not directed to any particular member(s) or committee(s) of the Board, the communication shall be forwarded to all members of the Board.
RELATED PERSON TRANSACTIONS
The Board adopted a related person transaction policy that requires the Company's executive officers, directors, nominees for director, and owners of more than 5% of the Company's shares to promptly notify the Secretary in writing of any transaction in which (i) the amount exceeds $100,000, (ii) the Company is, was or is proposed to be a participant and (iii) such person or such person's immediate family members ("Related Persons") has, had or may have a direct or indirect material interest (a "Related Person Transaction"). Subject to certain exceptions in the policy, Related Person Transactions must be brought to the attention of the Nominating and Corporate Governance Committee for an assessment of whether the transaction or proposed transaction should be permitted. In deciding whether to approve or ratify the Related Person Transaction, the Nominating and Corporate Governance Committee considers relevant facts and circumstances. If the Nominating and Corporate Governance Committee determines that a Related Person has a direct or indirect material interest in any such transaction, the Committee must review and approve, ratify or disapprove the Related Person Transaction.
Pursuant to our Corporate Governance Guidelines, we expect each of our directors to ensure that other existing and future commitments do not conflict with or materially interfere with his or her service as a director. Directors are expected to avoid any action, position or interest that conflicts with our interests or gives the appearance of a conflict. In addition, directors are required to inform the chairman of our Nominating and Corporate Governance Committee prior to joining the Board of another public company to ensure that any potential conflicts, excessive time demands or other issues are carefully considered.
The Nominating and Corporate Governance Committee reviewed and approved the following Related Person Transactions which were conducted on an "arm's length" basis with the Company. Members of the Nominating and Corporate Governance Committee having an interest in a transaction excuse themselves for the consideration and approval of the transaction in which they have an interest.
In 2017, the Company purchased from Veeco Instruments Inc. various equipment, parts and services amounting to approximately $2,296,000. Mr. Peeler, a non-employee member of our Board, is the Chief Executive Officer and Chairman of the Board of Directors of Veeco Instruments Inc. For several years before Mr. Peeler was elected to our Board, Veeco Instruments Inc. was a provider of equipment, parts and services to the Company.
Previously, Dr. Gapontsev leased the annual right to use 25% of the Company's corporate aircraft under an October 2014 lease (the "2014 Lease"), which was superseded by a new lease signed in July 2017 (the "2017 Lease") in connection with the purchase of a different aircraft. The 2017 Lease expires in July 2022. The annual lease rate under the 2017 Lease is $924,700 and future rent payments are adjusted annually based upon the costs of operating the aircraft. The annual lease rate under the 2014 Lease was $651,000. Dr. Gapontsev paid the Company $753,000 in 2017 for use of the aircraft, and in addition directly paid an unrelated flight management firm for the direct and incidental operating costs of his private use including pilot fees, fuel and other costs.
BOARD OF DIRECTORS
Mr. William Hurleysee Director Nominees below. Ms. Catherine P. Lego decided toshe will not stand for re-election toat the Annual Meeting. We extend our Board of Directors at our 2018 annual meeting. IPG Photonics extends its sincere appreciation to Mr. HurleyMs. Lego for the valuable contributions heand guidance she provided to our Company and stockholders during hisher service as a member of our Board since 2006. 2016.
In considering each director nominee and the composition of the Board as a whole, the NCGC evaluates members based on their expertise and diverse perspectives, experiences, qualifications, attributes and skills because the NCGC believes that these attributes enable a director nominee to make significant contributions to the Board, IPG and our stockholders.
The director nominees have a mix of various skills and qualifications, some of which are listed in the table below. These collective attributes enable the Board currently has set the numberto provide insightful leadership as it strives to advance our strategies and deliver returns to stockholders.
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| | Lasers and Technology | | We have sought directors with management and operational experience in the industries in which we compete. For example, in 2019 we added a director with expertise in optical and electronics components, and telecommunications products. As a diversified technology, science-based company, directors with technology backgrounds understand the Company’s technology platforms and the importance of investing in new technologies for future growth. |
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| | Financial Literacy | | Knowledge of finance or financial reporting; experience with debt/capital market transactions and/or mergers and acquisitions strengthen the Board’s oversight of financial reporting and internal controls. Financial metrics are used to measure our performance. All directors must understand finance and financial reporting processes. Two of the Audit Committee members qualify as “audit committee financial experts.” |
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| | Global Business | | Global business experience is critical to the Company’s international operations and growth with 79% of sales from outside the U.S. in 2020. Knowledge of Asian and European business practices are valuable to understanding our business and strategy. |
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| | Manufacturing
and Operating | | As a vertically-integrated company, manufacturing experience and customer service on a global scale are important to understanding the operations and capital needs of the Company. |
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| | Business Development
and M&A | | We have used and will continue to use acquisitions to achieve our strategic goals. Directors with experience in business development and mergers and acquisitions provide valuable perspectives regarding process, due diligence, risk assessment and integration of potential partners. |
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11 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of directors at ten. The numberNine Directors
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| | Risk Management | | In light of the Board’s role in overseeing risk management and understanding the most significant risks facing the Company, including cybersecurity risk, we continue to require directors with experience in risk management and oversight. |
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| | Executive Leadership | | Significant leadership experience, including services as a CEO, senior executive, division president or functional leader within a complex organization enhances the Board’s leadership role. |
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| | Other Public Company Boards | | Directors with current or recent membership on other public company boards provide valuable perspectives in many areas including operations, strategy, governance and compensation. |
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| | Non-Corporate Experience | | Experience from backgrounds beyond the executive suite, including non-corporate backgrounds such as non-profit organizations, government and academia. |
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| | Gapontsev | Scherbakov | Child | Desmond | Dougherty | Meurice | Pavlova | Peeler | Seifert | |
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| Lasers and Technology | ● | ● | | | ● | ● | | ● | | |
| Financial Literacy | ● | ● | ● | ● | ● | ● | ● | ● | ● | |
| Global Business | ● | ● | ● | ● | ● | ● | | ● | ● | |
| Manufacturing
and Operating | ● | ● | ● | ● | ● | ● | | ● | ● | |
| Business Development
and M&A | ● | ● | ● | ● | ● | ● | | ● | ● | |
| Risk Management | ● | ● | ● | ● | ● | ● | | ● | ● | |
| Executive Leadership | ● | ● | | ● | ● | ● | | ● | ● | |
| Other Public
Company Boards | | | ● | ● | ● | ● | | ● | ● | |
| Non-Corporate Experience | | | | ● | | | ● | | | |
| Years on Board | 23 | 21 | 21 | 0 | 2 | 7 | 0 | 9 | 7 | |
| Age | 82 | 73 | 66 | 54 | 61 | 64 | 42 | 66 | 57 | |
| Gender | M | M | M | F | M | M | F | M | M | |
| Born Outside of U.S.A. | ● | ● | | ● | | ● | ● | | ● | |
| Race/Ethnicity | C | C | C | C | C | C | C | C | C | |
C = Caucasian/White
12 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of directors will be set at nine directors from and after the 2018 annual meeting.Nine Directors
The following table sets forth certain information as of the date of this proxy statementProxy Statement regarding the director nominees. Each of our incumbent directors, other than Mr. Hurley who decided to not stand for re-election, has been nominated by the Board for election at our 2018 annual meeting.
Valentin P. Gapontsev, Ph.D.
Director since 1998
Chief Executive Officer and Chairman of the Board
Age 79
Dr. Gapontsev has been the Chief Executive Officer and Chairman of the Board of IPG since our inception. Prior to founding the company in 1990, Dr. Gapontsev served as senior scientist in laser material physics and head of the laboratory at the Soviet Academy of Science's Institute of Radio Engineering and Electronics in Moscow. In 2006, he was awarded the Ernst & Young® Entrepreneur of the Year Award for Industrial Products and Services in New England, and in 2009, he was awarded the Arthur L. Schawlow Award by the Laser Institute of America. In 2011, he received the Russian Federation National Award in Science and Technology, and he was selected as a Fellow of the Optical Society of America. Dr. Gapontsev holds a Ph.D. in Physics | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | Dr. Gapontsev has been the CEO and Chairman of the Board of IPG since our inception. Prior to founding the Company's predecessor in 1990, Dr. Gapontsev served as senior scientist in laser material physics and head of the laboratory at the Soviet Academy of Science’s Institute of Radio Engineering and Electronics in Moscow. His innovations and inventions are credited with having created the high power fiber laser industry. Dr. Gapontsev is the named inventor on over 100 patents and author of over 200 scientific papers. In 2006, he was awarded the Ernst & Young® Entrepreneur of the Year Award for Industrial Products and Services in New England and in 2009, he was awarded the Arthur L. Schawlow Award by the Laser Institute of America. In 2011, he received the Russian Federation National Award in Science and Technology, and he was selected as a Fellow of the Optical Society of America. Dr. Gapontsev holds a Ph.D. in Laser Materials from the Moscow Institute of Physics and Technology. KEY ATTRIBUTES, EXPERIENCE AND SKILLS Dr. Gapontsev is the founder of the Company and has successfully led the Company and the Board since the Company was formed to now. In the roles of CEO and Chairman of the Board, he has been responsible for formulation and execution of IPG’s strategy and providing leadership and oversight of IPG’s business during a period of rapid and profitable growth, as well as business contractions. He has over thirty years of academic research experience in the fields of solid state laser materials, laser spectroscopy and non-radiative energy transfer between rare earth ions and is the author of numerous scientific publications and several international patents. His strategic foresight and entrepreneurial spirit along with his deep scientific understanding has guided the Company’s continued growth, innovation and technology leadership. |
AGE: 82 DIRECTOR SINCE: 1998 COMMITTEES: None | |
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| | Lasers and Technology | Financial Literacy | Global
Business | Manufacturing
and Operating | Business
Development
and M&A | Risk
Management | Executive
Leadership | |
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13
Proposal 1 Election of Nine Directors
Key Attributes, Experience and Skills
He is the founder of the Company and has successfully led the Company and the Board since the Company was formed. In the roles of Chief Executive Officer and Chairman of the Board, he has been responsible for formulation and execution of IPG's strategy and providing leadership and oversight of IPG's business during a period of rapid and profitable growth, as well as business contractions. He has over thirty years of academic research experience in the fields of solid state laser materials, laser spectroscopy and non-radiative energy transfer between rare earth ions and is the author of many scientific publications and several international patents. His strategic foresight and entrepreneurial spirit along with his deep scientific understanding has guided the Company's continued growth and technology leadership. Under Dr. Gapontsev's leadership, the Company continues to generate strong revenue and earnings growth.
Eugene A. Scherbakov, Ph.D.
Director since 2000
Chief Operating Officer, Managing Director of IPG Laser GmbH and Senior Vice President of Europe and Director
Age 70 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | Dr. Scherbakov has served as Chief Operating Officer since February 2017, Managing Director of IPG Laser GmbH, our German subsidiary, since August 2000 and Senior Vice President-Europe since 2013. He served as the Technical Director of IPG Laser from 1995 to August 2000. From 1983 to 1995, Dr. Scherbakov was a senior scientist in fiber optics and head of the optical communications laboratory at the General Physics Institute, Russian Academy of Science in Moscow. Dr. Scherbakov graduated from the Moscow Physics and Technology Institute with an M.S. in Physics. In addition, Dr. Scherbakov attended the Russian Academy of Science in Moscow, where he received a Ph.D. in Quantum Electronics from its Lebedev Physics Institute and a Dr.Sci. degree in Laser Physics from its General Physics Institute.
Key Attributes, Experience and Skills
Dr. Scherbakov has extensive knowledge of the Company's business as Managing Director of IPG Laser GmbH, which produces a large volume of our products and is the source of many developments in products, technology and applications. The leadership and operational expertise of Dr. Scherbakov have contributed to IPG increasing
KEY ATTRIBUTES, EXPERIENCE AND SKILLS Dr. Scherbakov has extensive knowledge of the Company’s business as Managing Director of IPG Laser GmbH, which produces a large volume of our products and is the source of many developments in products, technology and applications. He applies his knowledge and experience across our many international branches. The leadership and operational expertise of Dr. Scherbakov have contributed to IPG increasing production, lowering manufacturing costs, managing risk and maintaining high margins compared to our industry peers. He also has extensive technological knowledge of fiber lasers, their components and manufacturing processes. His service as an executive officer of the Company provides the Board with a detailed understanding of the Company’s operations, sales and customers. |
AGE: 73 DIRECTOR SINCE: 2000 COMMITTEES: None | |
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| | Lasers and Technology | Financial Literacy | Global
Business | Manufacturing
and Operating | Business
Development
and M&A | Risk
Management | Executive
Leadership | |
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14NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
production, lowering manufacturing costs and maintaining high margins compared to our industry peers. He also has extensive technological knowledge of fiber lasers, their components and the manufacturing process. His service as an executive officer of the Company provides the Board with a detailed understanding of the Company's operations, sales and customers.
Igor Samartsev
Director since 2006
Chief Technology Officer
Age 55
Since 2011, Mr. Samartsev has served as our Chief Technology Officer and since 2005, he was the Deputy General ManagerProposal 1 Election of our Russian subsidiary, NTO IRE-Polus. Prior to that time, he served in technical leadership roles at NTO IRE-Polus. Mr. Samartsev holds an M.S. in Physics from the Moscow Institute of Physics and Technology.Nine Directors
Key Attributes, Experience and Skills
Mr. Samartsev is one of the founders of the Company and has a significant management role in the Company as Chief Technology Officer. As one of the key developers of the technology platform of the Company and leader in the development of many new optical technologies and products that form part of the Company's strategic plan, the Board values Mr. Samartsev's understanding of technology developments at our company.
Michael C. Child
Director since 2000
Independent Director
Age 63
Nominating and Corporate Governance Committee
Directorship at Other Public Company: Finisar Corporation
Since July 1982, Mr. Child has been employed by TA Associates, Inc., a private equity investment firm, where he currently serves as Senior Advisor and, prior to January 2011, he was Managing Director. Mr. Child holds a B.S. in Electrical Engineering from the University of California at Davis and an M.B.A. from the Stanford University Graduate School of Business.From September 2011 until December 2015, Mr. Child was a Lecturer at the Stanford University Graduate School of Business.
Key Attributes, Experience and Skills | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | Since July 1982, Mr. Child has been employed by TA Associates, Inc., a private equity investment firm, where he currently serves as Senior Advisor and, prior to January 2011, he was Managing Director. Mr. Child served previously on the boards of Finisar Corporation, a developer and manufacturer of optical subsystems and components for networks, Eagle Test Systems, Inc., a manufacturer of semiconductor test equipment, and Ultratech Inc., a developer and manufacturer of advanced packaging lithography systems and laser processing technologies. Mr. Child holds a B.S. in Electrical Engineering from the University of California at Davis and an M.B.A. from the Stanford University Graduate School of Business. From September 2011 until December 2015, Mr. Child was a Lecturer at the Stanford University Graduate School of Business. KEY ATTRIBUTES, EXPERIENCE AND SKILLS Mr. Child is an established and experienced investor, including in technology companies, from his three decades of experience at TA Associates, Inc., a private equity investment firm. Over the course of his career, he has overseen numerous investments and sales of portfolio companies, and served on the boards of many public and private companies. Through his experiences, he has gained valuable knowledge in the management, operations and finance of technology growth companies. |
AGE: 66 DIRECTOR SINCE: 2000 COMMITTEES: NCGC | |
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| Financial Literacy | Global
Business | Manufacturing
and Operating | Business
Development
and M&A | Risk
Management | Other Public
Company
Boards | | |
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15
Proposal 1 Election of Nine Directors
Jeanmarie F. Desmond
Independent Director
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| | From April 2019 to February 2020, Ms. Desmond was the Executive Vice President and Chief Financial Officer of DuPont de Nemours, Inc., a global multi-industry specialty solutions company (“DuPont”). Ms. Desmond previously served as Vice President and Co-Controller for DuPont from August 2017 to April 2019, and as finance leader for the Specialty Products division following the merger of DuPont with Dow Chemical. Ms. Desmond served in various leadership roles within DuPont in her 30-year career with the company. She also serves on the board and is treasurer of Delaware Prosperity Partnership, a public-private partnership overseeing economic development in Delaware. Since 2020, she has served on the board of Trinseo S.A., a materials solutions provider and a manufacturer of plastics, latex binders and synthetic rubber. Ms. Desmond earned a B.S. in Accounting from Mt. St. Mary’s University and is a certified public accountant (inactive). KEY ATTRIBUTES, EXPERIENCE AND SKILLS Ms. Desmond brings to the Board substantial finance and accounting experience and extensive experience in technology-driven companies. Her long management experience in a number of key strategic areas including finance leadership and operations financial planning and analysis, tax, internal audit, accounting controls, risk management, mergers and acquisitions, investor relations and public-private partnership brings depth to the skillsets of the Board. |
AGE: 54 DIRECTOR SINCE: 2021 COMMITTEES: Audit Committee DIRECTORSHIP AT OTHER PUBLIC COMPANY: Trinseo S.A. | |
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| Financial Literacy | Global
Business | Manufacturing
and Operating | Business
Development
and M&A | Risk
Management | Executive
Leadership | Other Public
Company
Boards | Non-Corporate Experience |
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16 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Gregory P. Dougherty
Independent Director
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| | Mr. Dougherty served as Chief Executive Officer of Oclaro, Inc., a maker of optical components and modules for the long-haul, metro and data center markets, from June 2013 and has served as a director of Oclaro from April 2009, until its December 2018 acquisition. Prior to Oclaro, Mr. Dougherty served as a director of Avanex Corporation, a leading global provider of intelligent photonic solutions, from April 2005 to April 2009. Mr. Dougherty also served as a director of Picarro, Inc., a manufacturer of ultra-sensitive gas spectroscopy equipment using laser-based technology, from October 2002 to August 2013, and as its Interim Chief Executive Officer from January 2003 to April 2004. From February 2001 until September 2002, Mr. Dougherty was the Chief Operating Officer at JDS Uniphase Corporation (“JDS”), an optical technology company. Prior to JDS he was the Chief Operating Officer of SDL, Inc., a maker of laser diodes, from March 1997 to February 2001 when they were acquired by JDS. Mr. Dougherty serves on the boards of directors of Infinera Corporation, a provider of optical transport networking equipment, software and services to telecommunications service providers and others, since January 2019, Fabrinet, a provider of advanced optical packaging and precision optical, electro-mechanical, and electronic manufacturing services to OEMs of complex products, since February 2019, and MaxLinear, Inc., a provider of radio frequency (RF), analog and mixed-signal integrated circuits, since March 2020. Mr. Dougherty earned a B.S. in optics from the University of Rochester. KEY ATTRIBUTES, EXPERIENCE AND SKILLS Mr. Dougherty contributes to the Board significant leadership, operations, sales, marketing and general management experience in optics and components for telecommunications and other applications. For over three decades, Mr. Dougherty has worked in the optical and components industry and can provide the Board with insight into the industry and conditions in which the Company operates. Having been recently a CEO at a publicly-held company and now serving as a member of the board of several optical and electronics companies, he is familiar with a large range of management, corporate and board responsibilities and brings valuable perspectives to the Board as an independent director. |
AGE: 61 DIRECTOR SINCE: 2019 COMMITTEES: Audit Committee, Compensation Committee (Chair) DIRECTORSHIP AT OTHER PUBLIC COMPANY: Infinera Corporation, Fabrinet and MaxLinear, Inc. | |
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| | Lasers and Technology | Financial Literacy | Global
Business | Manufacturing
and Operating | Business
Development
and M&A | Risk
Management | Executive
Leadership | Other Public
Company
Boards |
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17
Proposal 1 Election of Nine Directors
Eric Meurice
Independent Director
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| | Mr. Meurice was President and Chief Executive Officer of ASML Holding NV, a provider of semiconductor manufacturing equipment and technology, from October 2004 to June 2013, and Chairman until March 2014. From 2001 to 2004, he was Executive Vice President of the Thomson Television Division of Thomson, SA, an electronics manufacturer. From 1995 to 2001, he served as head of Dell Computer’s Western, Eastern Europe and EMEA emerging market businesses. Before 1995, he gained significant technology experience at ITT Semiconductors and at Intel Corporation. Mr. Meurice serves on the boards of Umicore S.A., a recycling and materials company, since April 2015, Soitec S.A., a semiconductor materials manufacturer, since July 2018, and where he was appointed Chairman since March 2019, and Global Blue Group Holding AG, a leader in currency and value added tax processing, since September 2020. He previously served on the boards of Verigy Ltd., a manufacturer of semiconductor test equipment, ARM Holdings plc, a semiconductor intellectual property supplier, NXP Semiconductors N.V., a semiconductor company, and Meyer Burger Technology AG, a solar equipment vendor. Mr. Meurice earned a Master’s degree in Mechanics and Energy Generation at the Ecole Centrale de Paris, a Master’s degree in Economics from la Sorbonne University, Paris, and an M.B.A. from the Stanford University Graduate School of Business. KEY ATTRIBUTES, EXPERIENCE AND SKILLS Mr. Meurice has extensive skills and experience as a manager of several rapidly-growing, complex and global businesses in the capital equipment and electronics fields with several billions of dollars in revenues, most recently as former President and Chief Executive Officer of ASML Holding NV. He has experience managing a publicly-held company as well as experience on serving on several public company boards in the equipment and technology fields such as Soitec S.A., NXP Semiconductors N.V., Umicore S.A., Verigy Ltd. and ARM Holdings plc. Mr. Meurice also has a record of proven leadership as a strategic thinker, operator and marketer at the businesses he managed. |
AGE: 64 DIRECTOR SINCE: 2014 COMMITTEES: NCGC (Chair), Compensation Committee DIRECTORSHIP AT OTHER PUBLIC COMPANY: Umicore S.A., Soitec S.A. and Global Blue Group Holding AG | |
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| Lasers and Technology | Financial Literacy | Global
Business | Manufacturing
and Operating | Business
Development
and M&A | Risk
Management | Executive
Leadership | Other Public
Company
Boards |
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18 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Natalia Pavlova
Director
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| | Ms. Pavlova has worked in a variety of roles at non-profit art institutions including the RISD Museum, Worcester Historical Museum and The Willard House and Clock Museum. She also served in sales and marketing roles at the Company previously. Ms. Pavlova holds a Qualification for Fine Art Critic and Historian of Art and Culture from the Russian State University for the Humanities, and an M.S. in Arts Administration from Boston University. She is the wife of co-founder and Chief Technology Officer, Igor Samartsev, and the former daughter-in-law of founder and CEO, Valentin P. Gapontsev. KEY ATTRIBUTES, EXPERIENCE AND SKILLS As a significant stockholder with family association to founders of the Company as well as having served as an employee of the Company in sales and marketing, Ms. Pavlova’s membership on the Board provides it with further engagement by individuals having a long-term perspective and strong economic ties with the Company. Among her specific attributes that qualify her to serve as a member of the Board, Ms. Pavlova possesses extensive knowledge of our history and culture. Ms. Pavlova strengthens the connection between the Company’s founding members and our Board, thereby assisting in the alignment of the Board with the interests of all IPG stockholders. Her experience working for nonprofit organizations adds different perspectives to the boardroom. |
AGE: 42 DIRECTOR SINCE: 2021 COMMITTEES: None | |
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| | Financial Literacy | Non-Corporate Experience | | | | | | |
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19
Proposal 1 Election of Nine Directors
John R. Peeler
Lead Independent Director
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| | Mr. Peeler was Chief Executive Officer of Veeco Instruments Inc. (“Veeco”) from July 2007 until September 2018, and Chairman or Executive Chairman of its board of directors from May 2012 until May 2020. Veeco is a developer and manufacturer of MOCVD, molecular beam epitaxy, ion beam and other advanced semiconductor processes equipment. He was Executive Vice President of JDS and President of the Communications Test & Measurement Group of JDS, which he joined upon the closing of JDS’s merger with Acterna, Inc. in August 2005. Before joining JDS, Mr. Peeler served as President and Chief Executive Officer of Acterna. He has a B.S. and M.E. in Electrical Engineering from the University of Virginia. KEY ATTRIBUTES, EXPERIENCE AND SKILLS Over the course of his career, Mr. Peeler has managed several high-growth technology companies. In addition, he has developed managerial leadership skills through his former position as Chief Executive Officer of Veeco, a publicly-traded company with substantial international operations. His managerial positions have provided him with in-depth knowledge of the service needs of customers in demanding markets, including semiconductor capital equipment, various manufacturing models, research and development, marketing and sales. In these roles, he has also been responsible for attracting and incentivizing executives on his team. These experiences have provided him important insights in support of his positions as Lead Independent Director and a member of the Compensation Committee and the NCGC. |
AGE: 66 DIRECTOR SINCE: 2012 COMMITTEES: Compensation
Committee,
NCGC
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| | Lasers and Technology | Financial Literacy | Global
Business | Manufacturing
and Operating | Business
Development
and M&A | Risk
Management | Executive
Leadership | Other Public
Company
Boards |
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20 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Thomas J. Seifert
Independent Director
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| | Mr. Seifert is Chief Financial Officer of Cloudflare, Inc., an internet performance and security provider, from June 2017 to the present. Since July 2020, he is a member of the board of First Derivatives plc, a publicly held company in Ireland, that is a global technology provider working with some of the world's largest finance, technology, automotive, manufacturing and energy institutions. Mr. Seifert was a member of the board of CompuGroup Medical SE, a publicly held company in Germany, which provides software to support medical and organization activities in medical offices and facilities, from February 2018 to June 2020. Mr. Seifert was the Executive Vice President and Chief Financial Officer of Symantec Corporation, a provider of security, backup and availability solutions, from March 2014 to December 2016. Mr. Seifert served as Executive Vice President and Chief Financial Officer of Brightstar Corporation, a wireless distribution and services company, from December 2012 to March 2014. He was Senior Vice President and Chief Financial Officer at Advanced Micro Devices Inc., a semiconductor company, from October 2009 to August 2012, and served as Interim Chief Executive Officer from January 2011 to September 2012. From October 2008 to August 2009, Mr. Seifert served as Chief Operating Officer and Chief Financial Officer of Qimonda AG, a German memory chip manufacturer, and as Chief Operating Officer from June 2004 to October 2008. He also held executive positions at Infineon AG, White Oak Semiconductor, including the position as Chief Executive Officer, and Altis Semiconductor. Mr. Seifert has a Bachelor’s degree and a Master’s degree in Business Administration from Friedrich Alexander University and a Master’s degree in Mathematics and Economics from Wayne State University. KEY ATTRIBUTES, EXPERIENCE AND SKILLS Mr. Seifert has extensive experience as both an operating executive and chief financial officer of large publicly-held international technology businesses, such as Symantec and Advanced Micro Devices. In these and other senior positions, he developed deep financial and accounting knowledge, as well as managerial leadership skills, in larger organizations. With his background in accounting, finance and management, Mr. Seifert brings broad skills and knowledge to the Board, the Audit Committee and the NCGC including internal controls, mergers and acquisitions, integrations and information technology security. |
AGE: 57 DIRECTOR SINCE: 2014 COMMITTEES: Audit Committee
(Chair) - Audit
Committee Financial
Expert, NCGC DIRECTORSHIP AT OTHER PUBLIC COMPANY: First Derivatives plc | |
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| Financial Literacy | Global
Business | Manufacturing
and Operating | Business
Development
and M&A | Risk
Management | Executive
Leadership | Other Public
Company
Boards | |
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The Board of Directors recommends that you vote FOR each director nominee named in this Proxy Statement. |
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21
Proposal 1 Election of Nine Directors
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| Board Refreshment and Composition |
Board Succession Planning
Our Board’s succession planning focuses primarily on the composition of our Board and its committees, anticipated retirements, succession plans for committee members and chairs, our commitment to Board diversity and recruiting strategies for adding new directors. In its succession planning, the NCGC and our Board consider the results of our Board’s annual self-assessment, as well as other appropriate information, including the types of skills and experience desirable for future Board members and the needs of our Board and its committees at the time in light of the Company’s long-term strategy.
•Thoughtful, Deliberate Board Refreshment Process. The Board’s refreshment actions reflect a thoughtful and deliberate process that is informed by our Company’s strategic needs as well as the Board’s annual self-assessment and director nomination processes.
•Appropriately Balance Experience and Perspectives While Ensuring an Orderly Transition. Our Board takes care as part of its Board refreshment process to appropriately balance new perspectives and the experience of existing directors while undergoing an orderly transition of roles and responsibilities on the Board and its committees. In the last three years, three new directors have joined our Board.
•Importance of Board Diversity. In addition, our Board continues to focus on the importance of Board diversity. Three of our four most recent directors who joined our Board are female. As described below, in 2020, our Board adopted a policy to ensure the Board's external candidate pool contains diverse candidates.
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DIRECTOR TENURE AND RETIREMENT AGE POLICIES • No Term Limits. • Our Board recognizes the importance of periodic Board refreshment and maintaining an appropriate balance of tenure, experience and perspectives on the Board. • We believe it is desirable to maintain a mix of longer-tenured, experienced directors with institutional memory and understanding of our business and culture and newer directors with fresh perspectives. However, we do not impose director tenure limits. • The Board believes that directors should not have an expectation of being re-nominated annually and that the NCGC’s assessment is a key component of its director nomination process. • In connection with the Board’s annual self-assessment and director nomination processes, the Board considers upcoming retirements, the average tenure and overall mix of individual director tenures of the Board, the overall mix of the skills, knowledge, experience and diversity, each individual director’s performance and contributions to the work of the Board and its committees, the personal circumstances and other time commitments of directors, along with other factors the Board deems appropriate. • The Board believes that, as an alternative to term limits, non-management directors should submit their resignation from the Board upon attaining the age of 72 and on each subsequent anniversary. The Board then considers the needs and circumstances confronting the Board and, upon recommendation of the NCGC, determines whether to accept or decline the resignation. • Our Board’s age resignation policy is intended to facilitate our Board’s recruitment of new directors with appropriate skills, experience and backgrounds and provides for an orderly transition of leadership on our Board. |
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22 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Board Nomination Process
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EVALUATION OF
BOARD COMPOSITION | | IDENTIFICATION OF POOL OF CANDIDATES | | MEETINGS WITH
POTENTIAL
CANDIDATES | | RECOMMENDATION OF
POTENTIAL DIRECTORS
FOR APPROVAL |
• The NCGC and the Board evaluate Board composition annually and identify skills, experience and capabilities desirable for new directors in light of the Company’s long-term strategy | | • The NCGC identifies potential nominees through multiple sources, including third-party search firm and input from stakeholders | | • Evaluation and assessment of candidate interest, minimum qualifications, conflicts, independence, background and other information • Members of the NCGC, other Board members and executives meet with qualified candidates | | • NCGC recommends potential nominees to the Board for approval • Stockholders vote on nominees approved by Board at next annual meeting of stockholders |
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The NCGC’s evaluation process and criteria does not vary based upon whether a candidate is recommended by a stockholder. However, the procedural requirements set forth in our bylaws and the procedures described below in Additional Information - 2022 Annual Meeting and Nominations must be met.
The composite skills of the Board members and the ability and willingness of individual Board members to complement each other and to rely on each other's knowledge and expertise should produce informed Board members who are not afraid to disagree and who can intelligently assess management's performance and evaluate our strategic direction. In considering whether to recommend any candidate for nomination to the Board, including candidates recommended by stockholders, the NCGC must be satisfied that the recommended nominee meets the following qualifications at a minimum:
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| Character and Integrity | Must be an individual of the highest character and integrity |
| Leadership Experience | Demonstrated excellence, leadership and significant experience in their field of endeavor |
Financial Literacy and Commitment
to Representing Stockholders | Ability to read and understand financial statement fundamentals and commitment to representing the long-term interests of the Company’s stockholders, while keeping in perspective the interests of the Company’s customers, employees and the public |
Independence and Constructive
Collegiality | Must have a demonstrated ability to think and act independently as well as the ability to work constructively in a collegial environment. Must satisfy independence criteria of the SEC and Nasdaq, where independence is desired |
| Age | A potential director (excluding any incumbent) cannot be aged less than 21 or greater than 72 years |
| Limit on Other Public Boards | Independent directors – 3 (or 4 with Board approval) CEO - 1 |
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The NCGC believes that our Board should be composed of directors who, as a group, have the experience and skills that are collectively required to make informed Board decisions and provide effective Board oversight to allow the Board to fulfill its responsibilities. The NCGC considers experience in our industry or markets, international business and cultural experience, experience serving on the boards of public companies, experience acquiring companies and private companies. He now servesdiversity to be favorable characteristics in evaluating recommended nominees. With over two-thirds of our sales and employees in locations outside of the U.S.A., it is important to have the appropriate experience and background coming from being born and operating in other countries. We interpret diversity broadly, including with respect to gender, age, race, national origin, geographic background as well as differences of professional experience, global experience, education, and other individual qualities and attributes. The NCGC does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. The Board recognizes that the diversity of its members is directly impacted by the diversity of the pool of potential director candidates. As a result, the Board adopted a written policy in October 2020 requiring the pool of external candidates from which the NCGC recommends nominees to include female and/or racially/ethnically diverse candidates. To implement this policy, third-party search firms hired by the NCGC are instructed to include in the pool qualified candidates who reflect diverse backgrounds, including diversity of gender and/or race/ethnicity.
23
Proposal 1 Election of Nine Directors
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| Board Roles and Responsibilities |
Role in Risk Management
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BOARD OVERSIGHT OF RISK The Board recognizes that effectively monitoring and managing risk are essential to the successful execution of the Company’s strategy. The Board has oversight for risk management at IPG with a focus on the most significant risks facing the Company, including strategic, operational, financial and compliance risks. Upon recommendation of the NCGC, the Board allocates risk oversight responsibility among the full Board, the independent directors acting as a group and the three standing committees of the Board as described below. Throughout the year, the Board, the independent directors and the committees to which the Board has delegated responsibility dedicate a portion of their meetings to review and discuss specific risk topics in greater detail. |
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AUDIT COMMITTEE The Audit Committee oversees the policies, processes and risk relating to the financial statements, financial reporting processes, auditing, cybersecurity and compliance risks. The Audit Committee discusses with management the Company’s risk assessment and risk management practices and, when reviewing and approving the annual audit plan for the Company’s internal audit function, prioritizes audit focus areas based on their potential risk. | COMPENSATION COMMITTEE The Compensation Committee oversees risk associated with management resources, including executive retention and non-CEO succession planning. It reviews the Company’s executive compensation practices, their effectiveness at linking executive pay to performance and aligning the interests of our executives and our stockholders, without encouraging excessive risk taking. The Compensation Committee annually reviews management’s assessment of compensation risk. | THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE The NCGC oversees risk related to the Company’s governance structure and processes, and risks arising from related person transactions. It reviews processes and risk related to Board succession planning, authority delegated to management and certain compliance risk. |
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FULL BOARD Our entire Board as a whole reviews risk management practices and a number of significant risks in the course of its reviews of corporate strategy, management reports and reports from outside experts and professional advisors. |
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INDEPENDENT DIRECTORS As a group, the independent directors oversee risks related to CEO succession planning. |
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The Board’s risk oversight process builds upon management’s risk assessment and mitigation processes, which include reviews of strategic and operational planning, compliance under the Company’s Code of Business Conduct and other policies, the Company’s integrity programs, health, safety and other compliance, financial reporting and controllership, human capital management; environment, society and governance matters, and information technology and cybersecurity programs. The Board's oversight role is independent from the Company’s day-to-day management, as more than two-thirds of the current directors are independent and therefore have no conflicts that might discourage critical review of the Company’s risks.
24 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Role in Management Succession Planning
The Board is focused on ensuring that the Company has emergency and long-term succession plans in place for key senior executive positions. The entire Board annually reviews with the CEO the Company’s plan for succession for the position of the chief executive officer, including the appropriate individual or individuals who are candidates to succeed to this position. In the event of an unexpected departure of the CEO, an emergency succession plan allows for smooth transfer of responsibilities to an individual who may or may not be permanently tasked with the new role. The Compensation Committee, composed entirely of independent directors, annually reviews the Company’s plan for succession for other senior executive officers.
If the succession plan is triggered for any of these roles, the full Board would participate in the discussion and consideration of any action with a final decision to be made by the full Board. In the event of a senior executive’s departure, both internal and external candidates may be considered for permanent appointment to a given role.
Role in Ethics
All directors, officers and employees are required to abide by IPG’s Code of Business Conduct to ensure that our business is conducted in a consistently legal and ethical manner. These policies form the foundation of a comprehensive process that includes compliance with corporate policies and procedures and a Company-wide focus on uncompromising integrity in every aspect of our operations. Our Code of Business Conduct covers many topics, including antitrust and competition law, conflicts of interest, financial reporting, protection of confidential information, and compliance with all laws and regulations applicable to the conduct of our business. All of our directors and employees receive bi-annual training on our Code of Business Conduct, which can be found on the boardinvestor section of Finisar Corporation, a developerour website under "Governance Documents." If the Board grants any waivers from our Code of Business Conduct to any directors or executive officers, or if we amend our Code of Business Conduct, we will, if required, disclose these matters via updates on our website.
Role in Stockholder Engagement
Accountability to our stockholders is an important component of the Company’s success. We recognize the value of building informed relationships with our investors that promote further transparency and manufacturer of optical subsystemsaccountability.
While proxy voting is one direct way to influence corporate behavior, proactive engagement with our investors can be effective and components for networks. Through his experiences, he has gained valuable knowledgeimpactful. Investor views are continuously communicated to the Board and are instrumental in the management, operationsdevelopment of our governance, compensation and financeother policies and inform our business strategy. The Board continues to seek investor input on a range of technology growth companies.issues and practices in furtherance of enhancing long-term stockholder value.
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| Publish Annual Report and Proxy Statement. Speak with investors about topics to be addressed at the annual meeting. | | | | | Review results of the annual meeting, governance trends, regulatory developments. Board conducts annual self-assessment of its performance and effectiveness. | |
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| Consider input from investors to enhance disclosures, governance practices and compensation programs. | | Communicate investor feedback to the Board. Board uses self-assessment to develop and implement changes improving effectiveness. | |
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25
Proposal 1 Election of Nine Directors
Board Leadership Structure
Henry E. Gauthier•Chairman of the Board and Chief Executive Officer: Dr. Valentin P. Gapontsev
•Lead Independent Director: John R. PeelerDirector since 2006
◦Lead Independent Director position is appointed annually by independent directors
Age 77•All three Board committees composed of independent directors
Audit Committee - Audit Committee Financial Expert•Independent directors meet in executive session at each of the Board's regular meetings and as needed outside of such meetings
There is no single board leadership structure that is optimal in all circumstances. The Board, with its diverse skills and experience, considers the most appropriate leadership structure for the Company in the context of the specific circumstances and challenges facing IPG. The directors come from a variety of organizational backgrounds with direct experiences in a wide range of leadership and management structures. The independent directors, who comprise two-thirds of our Board, appropriately challenge management and demonstrate the independence necessary for effective oversight. As a result, the Board is in the best position to evaluate the relative benefits and challenges of different leadership structures and ultimately decide which one best serves the interests of our stockholders.
He servedThe independent directors believe that having Dr. Gapontsev serve as Chairman of the boardBoard in addition to his role as CEO is in the best interest of directorsthe Company and its stockholders. Dr. Gapontsev is the Company's founder and beneficially owns approximately 14% of Coherent, Inc., a manufacturer of photonics products, from February 1997the Company’s common stock. The Board believes that Dr. Gapontsev is best-positioned to October 2002set the Board’s agenda and was its President from 1983 to 1996. Mr. Gauthier served as Vice Chairmanprovide leadership of the board of a company operating in a highly technical industry due to his thirty years of operations, technology, strategy and executive management experience within the Company and its subsidiaries and his deep understanding of the Company's business.
The Board also recognizes the importance of having in place, and building upon, a counterbalancing structure to ensure that it functions in an appropriately independent manner. The governance structure approved by the Board endows the position of Lead Independent Director with leadership duties and responsibilities including:
•providing input on Board meeting agendas, including the ability to request changes
•setting the agenda for and leading executive sessions of the independent directors
•calling and managing meetings of the independent directors
•facilitating discussions outside of scheduled Board meetings among the independent directors on key issues
•providing consolidated feedback from those meetings to the Chairman and CEO
•providing feedback on the quality and quantity of information flow from management
•serving as a liaison with the Chairman and CEO
•interviewing Board candidates
•leading the independent directors in setting the Chairman's and CEO's compensation, goals and objectives, and the assessment of his annual performance in relation to such goals and objectives and
•performing other functions as directed by the Board.
In the event of a crisis, the Lead Independent Director has an increased role in crisis management oversight. The independent directors of Coherent, Inc. from October 2002 to March 2006.our Board elected Mr. Gauthier was President from February 2005 to May 2005, consultant from January 2004 to February 2005 and June 2005 to December 2006, and Chairman of the board of directors from May 2005 to December 2008, of Reliant Technologies, Inc., which was acquired in December 2008 by Solta Medical, Inc., a manufacturer of medical laser systems. Since July 1996, Mr. Gauthier has served as a principal at Gauthier Consulting. Mr. Gauthier attended the United States Coast Guard
Academy, San Jose State University, and the Executive Institute of the Stanford University Graduate Business School.
Key Attributes, Experience and Skills
Mr. Gauthier has extensive management and operational experience in the laser industry from over two decades as an executive of a large publicly-held laser company, Coherent, Inc., as well as emerging growth companies such as Reliant Technologies, Inc. He has obtained an in-depth knowledge of operations, manufacturing, sales and markets, and finances through his CEO positions at these laser-related companies. Having been a past member of the audit, compensation, and nominating and corporate governance committees of public and private company boards in the technology field, Mr. Gauthier is familiar with a full range of corporate and board functions and lends this experience to the Company's Board as an independent director.
Catherine P. Lego
Director since 2016
Independent Director
Age 61
Audit Committee - Audit Committee Financial Expert
Compensation Committee (Chair)
Directorship at Other Public Companies: Lam Research Corporation and Cypress Semiconductor Corp.
Ms. Lego is principal and founder of Lego Ventures, LLC, a California-based firm that provides consulting services to early-stage technology companies. From 1999 to 2009 Ms. Lego servedPeeler as the general partnerLead Independent Director for the term ending May 2021, and this position is voted upon annually by our independent directors. Taking into account the increasing duties and role of The Photonics Fund, LLP, a venture capital investment firm focused on early stage investing in component, module and systems companies in the fiber optic telecommunications market. She served as the director of finance and investment analyst at Oak Investment Partners from 1981 to 1984, and as a general partner from 1985 to 1992. Ms. Lego serves on the board of directors of technology company Lam Research Corporation and is the chair of its compensation committee. Also, she is a member ofthis position, the Board changed title of Directors of Cypress Semiconductor Corp. and its audit committee.
Ms. Lego holds a B.A.this position in Economics and Biology2020 from Williams College and an M.S. in Accounting from the New York University Stern Graduate School of Business.
Key Attributes, Experience and Skills
Ms. Lego has extensive experience working with advanced technology and semiconductor companies. From her current and prior service on the boards of several technology companies as well as her memberships of other audit, compensation and nominating and corporate governance committees, she is familiar with the issues faced and the processes that boards use to manage growth, risk, accounting, acquisitions, due diligence and integration, compensation and investor relations. In addition, she is a frequent speaker on board governance, ethics and audit quality at directors’ colleges and events, including the E&Y Tapestry and KPMG audit committee round tables. Ms. Lego is a member of the NACD’s Audit Committee Advisory Council. She brings valuable perspectives on the latest developments in audit, compensation and other matters to the Board.
Eric Meurice
Director since 2014
Independent Director
Age 61
Nominating and Corporate Governance Committee (Chair)
Compensation Committee
Directorship at Other Public Companies: NXP Semiconductor N.V. and UMICORE S.A.
Mr. Meurice was President and Chief Executive Officer of ASML Holding NV, a provider of semiconductor manufacturing equipment and technology, from October 2004 to June 2013, and Chairman until March 2014. From 2001 to 2004, he was Executive Vice President of the Thomson Television Division of Thomson, SA, an electronics manufacturer. From 1995 to 2001, he served as head of Dell Computer's Western, Eastern Europe and EMEA emerging market businesses. Before 1995, he gained significant technology experience at ITT Semiconductors and at Intel Corporation. Mr. Meurice served on the boards of Verigy Ltd. (a manufacturer of semiconductor test equipment), until its acquisition by Advantest Corporation in 2011, and ARM Holdings plc (a semiconductor
intellectual property supplier) from July 2013 to March 2014. He has been on the board of NXP Semiconductors N.V. (a semiconductor company) since April 2014 and of UMICORE S.A. (a recycling and materials company), since April 2015. Mr. Meurice earned a Master's degree in mechanics and energy generation at the Ecole Centrale de Paris, a Master's degree in Economics from la Sorbonne University, Paris, and an M.B.A. from the Stanford University Graduate School of Business.
Key Attributes, Experience and Skills
Mr. Meurice has extensive skills and experience as a manager of several rapidly-growing, complex and global businesses in the capital equipment and electronics fields with several billions of dollars in revenues, most recently as former President and Chief Executive Officer of ASML. He has experience managing a publicly-held company as well as experience on serving on several public company boards in the equipment and technology fields, such as NXP Semiconductor N.V., UMICORE, Verigy, Ltd. and ARM Holdings plc. Mr. Meurice also has a record of proven leadership as a strategic thinker, operator and marketer at the businesses he managed.
John R. Peeler
Director since 2012
Presiding Independent Director
Age 63
Compensation Committee
Nominating and Corporate Governance Committee
Directorship at Other Public Company: Veeco Instruments Inc.
Mr. Peeler has been Chief Executive Officer and a director of Veeco Instruments Inc. since July 2007. He has been serving as its Chairman of the Board since May 2012. Veeco is a developer and manufacturer of MOCVD, molecular beam epitaxy, ion beam and other advanced thin film processes equipment. He was Executive Vice President of JDS Uniphase Corp. ("JDSU") and President of the Communications Test & Measurement Group of JDSU, which he joined upon the closing of JDSU's merger with Acterna, Inc. ("Acterna") in August 2005. Before joining JDSU, Mr. Peeler served as President and Chief Executive Officer of Acterna. He has a B.S. and M.E. in Electrical Engineering from the University of Virginia.
Key Attributes, Experience and Skills
Over the course of his career, Mr. Peeler has managed several high-growth technology companies. In addition, he has developed managerial leadership skills through his position as Chief Executive Officer of Veeco, a publicly-traded company with substantial international operations. His managerial positions have provided him with in-depth knowledge of the service needs of customers in demanding markets, including semiconductor capital equipment, various manufacturing models, marketing and sales. In these roles, he has also been responsible for attracting and incentivizing executives on his team. These experiences have provided him important insights in support of his positions as Presiding Independent Director to Lead Independent Director.
The Board believes that the position and a memberresponsibilities of the Compensation CommitteeLead Independent Director and the Nominating and Corporate Governance Committee.
Thomas J. Seifert
Director since 2014
Independent Director
Age 54
Audit Committee (Chair) - Audit Committee Financial Expert
Nominating and Corporate Governance Committee
Directorship at Other Public Company: CompuGroup Medical, SE
Mr. Seifert is Chief Financial Officerregular use of Cloudflare, Inc., an internet performance and security provider, from June 2017 to the present. Since February 2018, he is a memberexecutive sessions of the boardindependent directors without the CEO or other executive officers present, along with the Company’s strong committee system and substantial majority of CompuGroup Medical SE, a publicly held company in Germany, which provides softwareindependent directors, allow the Board to support medical and organization activities in medical offices and facilities. Mr. Seifertmaintain effective oversight.
was the Executive Vice President and Chief Financial Officer of Symantec Corporation, a provider of security, backup and availability solutions, from March 2014 to December 2016. Mr. Seifert served as Executive Vice President and Chief Financial Officer of Brightstar Corporation, a wireless distribution and services company, from December 2012 to March 2014. He was Senior Vice President and Chief Financial Officer at Advanced Micro Devices Inc., a semiconductor company, from October 2009 to August 2012, and served as Interim
1726 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Chief Executive Officer from January 2011 to September 2012. From October 2008 to August 2009, Mr. Seifert served as Chief Operating Officer and Chief Financial Officer of Qimonda AG, a German memory chip manufacturer, and as Chief Operating Officer from June 2004 to October 2008. He also held executive positions at Infineon AG, White Oak Semiconductor, including the position as Chief Executive Officer, and Altis Semiconductor. Mr. Seifert has a Bachelor's degree and a Master's degree in Business Administration from Friedrich Alexander University and a Master's degree in Mathematics and Economics from Wayne State University.
Key Attributes, Experience and Skills
Mr. Seifert has extensive experience as both an operating executive and chief financial officer of large publicly-held international technology businesses, such as Symantec and Advanced Micro Devices. In these and other senior positions, he developed deep financial and accounting knowledge, as well as managerial leadership skills, in larger organizations. With his background in accounting, finance and management, Mr. Seifert brings broad skills and knowledge to the Board, the Audit Committee, and the Nominating and Corporate Governance Committee including internal controls, mergers and acquisitions and integrations.
Director Independence
SevenSix of our ten current directorsnine director nominees are independent.independent as defined by Nasdaq and SEC rules. A predominantly independent Board ensures that the Board is acting objectively and in the best interests of our stockholders. The independent directors also bring expertise and a diversity of perspectives to the Board. The culture of the Board enables directors to openly express their opinions in the boardroom and to raise challenges. The NASDAQNasdaq listing standards governing independence require that a majority of the members of the Board be independent as defined by NASDAQ. Nasdaq. Also, our Corporate Governance Guidelines require that a majority of the Board members be independent. In general, our Corporate Governance Guidelines also require that an independent director must have no material relationship with the Company, directly or indirectly, that might interfere with the exercise of independent judgment in the performance of director responsibilities.
The BoardNCGC conducted its annual review of directorthe independence of the directors (and candidates for membership on the Board) in March 2018.2021, taking into account relevant facts and circumstances, and reported its findings to the full Board. The NCGC determines independence on the basis of the standards specified by Nasdaq, the additional standards referenced in our Corporate Governance Guidelines, and other facts and circumstances the Board considers relevant. During this review, the BoardNCGC examined all direct and indirect transactions or relationships between the Company or any of its subsidiaries and each current director and any immediate family member of the director and determineddetermined that no material relationships with the Company existed during 2017.2020. On the basis of this review, the BoardNCGC determined that each of the following directorsdirector nominees qualifies as an independent director as defined in the NASDAQNasdaq guidelines, SEC rules and SEC rules:under our Corporate Governance Guidelines: Michael C. Child, Henry E. Gauthier, William S. Hurley, CatherineJeanmarie F. Desmond, Gregory P. Lego,Dougherty, Eric Meurice, John R. Peeler and Thomas J. Seifert. The Board also determined that Catherine P. Lego, who is comprisednot standing for reelection as a director this year, was independent. Additionally, the Board has determined that each member of the Audit Committee and the Compensation Committee meets the independence standards specific for members of such committees under Nasdaq guidelines and SEC rules. Ms. Pavlova is not considered independent because she is the spouse of Igor Samartsev, an executive officer of the Company, and she is the former daughter-in-law of Dr. Gapontsev.
Executive Sessions. Our independent directors meet privately, without employee directors or management present, at least four times during the year. These private sessions are generally held in conjunction with the regular quarterly Board meetings. Other private meetings of the independent directors are held as often as deemed necessary by them and are led by the Lead Independent Director. The Audit Committee, the Compensation Committee and the NCGC meet without employee directors or management present from time to time as they deem necessary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of our Compensation Committee (Ms. Lego and Messrs. Dougherty, Meurice and Peeler) is or has been an officer or employee of our Company or any of our subsidiaries. None of our executive officers served as a member of:
•the compensation committee of another entity in which one of the executive officers of such entity served on our Compensation Committee;
•the compensation committee of another entity in which one of the executive officers of such entity served as a member of our Board; or
•the board of directors with short and long-term tenures with the Company. Different tenures coupled with an independent and objective Board have provided stockholders with strong financial results.of another entity, one of whose executive officers served on our Compensation Committee.
27
Proposal 1 Election of Nine Directors
| | |
| Standing Committees and Board Committee Membership |
The Board has a standing Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee,NCGC, each composed entirely of non-employee, directors determined to be independent under the listing standards of the NASDAQ stock market.directors. Under their written charters adopted by the Board, each of these committees is authorized and assured appropriate funding to retain and consult with external advisors, consultants and counsel. Below we provide the principal functions and current members of the standing Board committees.
Audit Committee
| | | | | |
| |
| MEMBERS | FUNCTIONS: |
Thomas J. Seifert (Chair) Jeanmarie F. Desmond Gregory P. Dougherty Catherine P. Lego Meetings in 2020: 8 | • Providing oversight of financial management, the internal auditor function and the independent auditor. • Providing oversight with respect to our internal controls including that management is maintaining an adequate system of internal control such that there is reasonable assurance that assets, systems and processes are safeguarded and that financial reports and certain other datasets are properly prepared; that there is consistent application of generally accepted accounting principles; and that there is compliance with management’s financial reporting policies and procedures. • Pre-approving audit and permissible non-audit services by our independent auditor, reviewing and discussing our annual and quarterly financial statements and related disclosures. • Meeting periodically with the independent auditor, management and internal auditor function (including in private sessions) to review their work and confirm that they are properly discharging their respective responsibilities. • Appointing the independent auditor. For more information on Audit Committee activities in 2020, see the Audit Committee Report on page 61 of this Proxy Statement and Proposal 2: Ratify Deloitte & Touche LLP as Our Independent Registered Public Accounting Firm for 2021 on page 59. |
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The Board has determined that each member of the Audit Committee is independent and financially literate. The Board has designated Ms. Desmond, Ms. Lego and Mr. Seifert, who are each independent directors under the Nasdaq listing standings and the SEC's audit committee requirements, as “audit committee financial experts” pursuant to the SEC’s final rules implementing Section 407 of the Sarbanes-Oxley Act. Stockholders should understand that the designation of Ms. Desmond, Ms. Lego and Mr. Seifert each as an “audit committee financial expert” is an SEC disclosure requirement and that it does not impose upon them any duties, obligations or liabilities that are greater than those imposed on them as members of the Audit Committee and the Board in the absence of such designation.
28 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Compensation Committee
| | | | | |
| |
| MEMBERS | FUNCTIONS: |
Gregory P. Dougherty (Chair) Catherine P. Lego Eric Meurice John R. Peeler Meetings in 2020: 10 | • Reviewing and recommending to the independent directors the CEO’s base salary and opportunities for annual and long-term compensation. • Reviewing and approving compensation recommendations by the CEO for the other executive officers, including base salaries, annual performance bonuses, long-term incentive awards, severance benefits, perquisites and employment agreements. • Setting our compensation philosophy and composition of the group of peer companies used for comparison of executive compensation. • Reviewing and recommending for approval by the Board the compensation for non-employee directors. • Administering the equity compensation plans under which we compensate our executive officers and other key employees. • Retaining an independent compensation consultant firm, Aon ("Aon"), for matters related to executive officer and director compensation, and outside legal counsel to provide advice on compensation-related matters. • Preparing the Compensation Committee Report included in this Proxy Statement on page 36 and overseeing management’s risk assessment of compensation for all employees and compensation-related risks as delegated by the Board. |
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Nominating and Corporate Governance Committee
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| |
| MEMBERS | FUNCTIONS: |
Eric Meurice (Chair) Michael C. Child John R. Peeler Thomas J. Seifert Meetings in 2020: 5 | • Overseeing matters of corporate governance, including the evaluation of the performance and practices of the Board. • Developing and recommending criteria for Board membership. • Reviewing possible candidates for the Board and recommending director nominees to the Board for approval. • Overseeing the process for the performance evaluations of the Board and its committees. • Engaging in Board succession planning to ensure boardroom skills are aligned with IPG’s long-term strategic plan. • Reviewing and recommending director orientation, stock ownership guidelines, delegation of authority to management, insider trading guidelines, and consider questions of possible conflict of interest, including related party transactions, as such questions arise. • Reviewing and recommending risk oversight responsibilities of the Board and its committees and of the independent directors as a group. |
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Each of the Board committees has a written charter that states their respective purposes, goals and responsibilities as well as qualifications for committee membership, appointment and removal, committee structure and operations and reporting to the entire Board. The three committee charters and our Corporate Governance Guidelines can be found on the investor section of our website under "Governance Documents." Information on our website does not constitute part of this Proxy Statement.
29
Proposal 1 Election of Nine Directors
| | |
| Board Practices, Policies and Processes |
IPG’s Ongoing Commitment to Enhancing Governance Practices
Director Meetings and Policy Regarding Board Attendance
It has been the practice of our Board and its committees to hold at least four in-person quarterly meetings each year preceding the announcement of our quarterly results and to also conduct telephone meetings throughout the year. In light of the ongoing COVID-19 pandemic, however, the Board has conducted all quarterly meetings since April 2020 by videoconference. Our directors are expected to spend the time needed to prepare for and participate in each meeting and to meet as frequently as necessary to properly discharge their responsibilities. We encourage members of our Board to attend annual meetings of stockholders, but we do not have a formal policy requiring them to do so. In 2020, five of the directors in office attended the annual meeting of stockholders by teleconference.
The table below sets forth the directors who are currently members or chairs of each of the standing Board committees, and the number of meetings held by each committee and the full Board in 2017.2020. All incumbent directors attended 75% or more of the aggregate meetings of the Board and committees on which they served during 2017. We encourage directors to attend2020.
| | | | | | | | | | | | | | |
| Board of Directors | Audit | Compensation | Nominating and
Corporate Governance |
| Meetings held in 2020 | 6 | 8 | 10 | 5 |
| Written consents in 2020 | 3 | 0 | 0 | 0 |
30 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Corporate Governance Guidelines
Our Board adopted Corporate Governance Guidelines that outline, among other matters, the annual meeting of stockholders, but we do not have a formal policy regarding such attendance. Last year, tworoles and functions of the directors in office attendedBoard, the annual meeting.responsibilities of various Board committees and the mission of the Board. Our Corporate Governance Guidelines can be found on the investor section of our website under "Governance Documents." Information on our website does not constitute part of this Proxy Statement.
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| | | | | | | | |
| | | Board of Directors | | Audit | | Compensation | | Nominating and Corporate Governance |
| Meetings held in 2017 | | 6 | | 7 | | 8 | | 5 |
| Written consents in 2017 | | 2 | | — | | — | | 1 |
| Valentin P. Gapontsev, Ph.D. | | Chair | | — | | — | | — |
| Michael C. Child | | Member | | — | | — | | Member |
| Henry E. Gauthier | | Member | | Member | | — | | — |
| William S. Hurley | | Member | | Member | | Member | | — |
| Catherine P. Lego | | Member | | Member | | Chair | | — |
| Eric Meurice | | Member | | — | | Member | | Chair |
| John R. Peeler | | Member, and Presiding Independent Director | | — | | Member | | Member |
| Igor Samartsev | | Member | | — | | — | | — |
| Eugene A. Scherbakov, Ph.D. | | Member | | — | | — | | — |
| Thomas J. Seifert | | Member | | Chair | | — | | Member |
The Corporate Governance Guidelines provide, among other things, that:
The •Audit Committee a majority of our Board must be independent
•assists the Lead Independent Director presides over executive sessions of independent directors
•the Board by providing oversightappoints all members and chairpersons of financial management, the internal auditor function andBoard committees, including filling of vacancies, after the independent auditor and providing oversight with respect to our internal controls including that management is maintaining an adequate system of internal control such that there is reasonable assurance that assets are safeguarded and that financial reports are properly prepared; that there is consistent application of generally accepted accounting principles; and that there is compliance with management's financial reporting policies and procedures. The Audit Committee also pre-approves auditing and permissible non-audit services by our independent auditor, reviews and discusses our annual and quarterly financial statements and related disclosures, and coordinates the oversight of our internal and external controls over financial reporting, disclosure controls and procedures and code of business conduct. In performing these functions, NCGC recommends appropriate candidates
•the Audit Committee, meets periodicallyCompensation Committee, and NCGC consist solely of independent directors
•the independent directors meet at least quarterly in executive sessions without the employee directors or management
•independent directors may not serve on the boards of more than three other public companies or, with the independent auditor, managementpermission of the Board, four; the CEO may not serve on more than one other public company board
•the Board annually reviews the succession plan of the CEO
•directors cannot disclose confidential information to any person or entity outside of the Company or use such information for personal benefit
•Board self-assessments are conducted annually and internal auditor function (includingcommittee self-assessments bi-annually and
•the Board and key officers should have a meaningful financial stake in private sessions) to review their work and confirm that they are properly discharging their respective responsibilities. In addition, the Audit Committee appoints the independent auditor. For more information on Audit Committee activities in 2017, see the Audit Committee Report on page 47 of this proxy statement and "Company.Proposal 2: Ratify Independent Registered Public Accounting Firm" on page 48.
The Board monitors changing legal and regulatory requirements, evolving best practices and other developments. The Board modifies the Corporate Governance Guidelines and its other corporate governance policies and practices from time to time, as appropriate.
Director Orientation and Continuing Education
The Board and its committees proactively monitor legislative and regulatory initiatives, as well as other corporate governance trends and their potential impact on the Company. The Board receives presentations from professionals with expertise in corporate law, governance and other related topics. These experts have specialized knowledge of regulatory actions, governance trends, various other corporate governance topics and technical matters. In 2020, the Board and its committees received presentations on board oversight and stockholder engagement, environment, social and governance topics, critical accounting matter disclosures and cybersecurity. Additionally, our directors engage in continuing education to remain informed on recent trends applicable to their committee duties.
Likewise, newly elected directors attend a comprehensive director orientation program that covers, among other things, our strategy, business structure, manufacturing operations, sales, target markets and applications, financial performance, risks and competitive landscape. New committee members are also provided training on committee policies, practices and trends. As part of this program, directors are asked to tour facilities as appropriate. To further familiarize directors with our expanding operations, we conduct Board meetings at our major manufacturing facilities from time to time.
Board Performance Evaluations
The Board conducts annual self-assessments and its committees conduct bi-annual self-assessments to determine whether they are functioning effectively. Further, the performance of the Lead Independent Director is evaluated annually. The NCGC oversees the Board and committee self-assessments. Each committee also reviews its own performance bi-annually and reports the results to the Board. Each committee reviews and reassesses the adequacy of its charter annually and recommends proposed changes to the Board.
31
Proposal 1 Election of Nine Directors
Prohibition on Hedging; Limits on Pledging
Under our insider trading policy, no director or employee, including NEOs, may engage in shorting shares of our common stock; buying or selling puts, calls or derivatives related to our common stock or other Company securities, which includes equity compensation; or engaging in hedging transactions, including through the use of financial instruments such as prepaid variable forwards, equity swaps, collars and exchange funds. No director or officer, including NEOs, may pledge shares constituting more than 20% of his or her total stock ownership. Pledges of shares constituting 20% or less of total stock ownership are subject to certain conditions.
Communication with our Board of Directors
Interested parties wishing to write to the Board, a specified director or a committee of the Board should send correspondence to the Office of the Secretary, IPG Photonics Corporation, 50 Old Webster Road, Oxford, Massachusetts 01540. All written communications received in such manner from stockholders of the Company will be forwarded to the members or committee of the Board to whom the communication is directed or, if the communication is not directed to any particular member(s) or committee(s) of the Board, the communication will be forwarded to all members of the Board.
Procedures for Submitting Complaints
We have procedures to treat complaints regarding accounting, internal accounting controls, auditing matters, fight against bribery, banking, and financial crime, including submission of confidential and anonymous concerns regarding questionable accounting, internal accounting controls or auditing matters raised by our directors, officers and employees. These procedures can be found on the investor section of our website under "Governance Documents." Information on our website does not constitute part of this Proxy Statement.
Transactions with Related Parties
The Board adopted a written related person transaction policy that requires the NCGC to approve or ratify any transaction or series of transactions exceeding $120,000 in which our Company is a participant and any related person has determineda direct or indirect material interest (other than solely as a result of being a director or trustee or less than 10% owner of another entity) ("Related Party Transactions"). Related persons include our directors, director nominees and officers and their immediate family members and persons sharing their households. It also includes persons controlling more than 5% of our outstanding common stock. Subject to certain exceptions in the policy, related parties are required to notify the NCGC of the Related Party Transaction for an assessment of whether the transaction or proposed transaction should be permitted. Management also has established procedures for monitoring transactions that Mr. Seifert,could be subject to approval or ratification under the Related Party Transactions policy.
In deciding whether to approve or ratify the Related Party Transaction, the NCGC considers relevant facts and circumstances. The committee takes into account, among other factors, whether the transaction is on terms no more favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction. Once a Related Party Transaction has been identified, the NCGC reviews all of the relevant facts and circumstances and approves or disapproves entry into the transaction. Members of the NCGC having an interest in a transaction excuse themselves for the consideration and approval of the transaction in which they have an interest. Certain transactions are exempt from the policy including compensation paid by the Company for service as a director or an officer.
Pursuant to our Corporate Governance Guidelines, we expect each of our directors to ensure that other existing and future commitments do not conflict with or materially interfere with his or her service as a director. In addition, directors are required to inform the chairman of our NCGC and the Chairman of the Audit Committee,Board prior to joining the board of another public company to ensure that any potential conflicts, excessive time demands or other issues are carefully considered.
The NCGC reviewed and approved the following Related Party Transactions for 2020 in compliance with our policy:
Dr. Gapontsev leases the annual right to use 25% of the Company’s corporate aircraft under a July 2017 lease agreement (the “Aircraft Lease”). The Aircraft Lease expires in July 2022. The annual lease rate is $924,700 and future rent payments are adjusted annually. The Company invoiced Dr. Gapontsev $936,658 in 2020 for use of the aircraft. Dr. Gapontsev directly paid an unrelated flight management firm for the operating costs of his private use of the aircraft, including pilot fees, fuel and other costs.
From time to time, certain institutional investors may become beneficial owners of 5% or more of the voting securities of the Company and, as well as each of Messrs. Gauthier and Hurley and Ms. Lego qualify as an audit committee financial expert (as defineda result, are considered a related person under the rules and regulations of the SEC) after determining that each has the necessary experience and qualifications.
The primary function of the Compensation Committee is to discharge the Board's duties and
responsibilities relating to compensation of our non-employee directors and executive officers, and oversee the design and management of the long-term incentive and savings plans that cover our employees. The Compensation Committee's duties and responsibilities under its charter with respectpolicy. These organizations may provide services to the compensationCompany or its benefit plans. In 2020, participants in our 401(k) Retirement Plan paid approximately $138,079 in fees to
32 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of our executive officers and directors include:Nine Directors
affiliates of The Vanguard Group representing expense ratios associated with the Vanguard investment funds in the 401(k) Retirement Plan.
Our non-employee directors receive the following annual compensation from us:
| | | | | |
• | | reviewing and approving the Chairman and Chief Executive Officer's base salary compensation;Amount |
| Board Retainer | $ | |
• | | determining the annual performance bonus of the Chairman and Chief Executive Officer based upon the corporate goals and objectives set by the independent directors and their input on the attainment of such goals and objectives; |
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• | | reviewing and approving compensation decisions recommended by the Chairman and Chief Executive Officer for the other executive officers, including setting base salaries, annual performance bonuses, long-term incentive awards, severance benefits and perquisites; |
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• | | setting our compensation philosophy and composition of the group of peer companies used for comparison of executive compensation; and |
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• | | reviewing and recommending for approval by the Board the compensation for the non-employee directors. |
The Compensation Committee has retained an independent compensation consultant firm, Radford, a unit of Aon Hewitt ("Radford"), for matters related to executive officer and director compensation. The Compensation Committee also retains outside legal counsel to provide advice on compensation-related matters, including executive officers, directors and compensation plans. For further discussion of the role of the Compensation Committee in the executive compensation decision-making process and activities in 2017, and for a description of the nature and scope of the consultant's assignment, see "Compensation Discussion and Analysis - Role of Compensation Committee" on page 37 of this proxy statement. Additionally, the Compensation Committee reviews the Compensation Discussion and Analysis, prepares the Compensation Committee Report in this proxy statement on page 29 and oversees management's risk assessment of the Company's compensation for all employees and compensation-related risks as delegated by the Board.
The Nominating and Corporate Governance Committee is responsible for overseeing matters of corporate governance, including the evaluation of the performance and practices of the Board. The Nominating and Corporate Governance Committee develops and recommends criteria for Board membership (see "Board of Directors- Nomination of Directors" for a description of such criteria), reviews possible candidates for the Board as discussed on pages 20 and 21 of this proxy statement, and recommends the nominees for directors to the Board for approval. In addition, the Nominating and Corporate Governance Committee oversees the process for the performance evaluations of the Board and its committees. An important role of this Committee is to engage in Board succession planning to ensure boardroom skills are aligned with IPG’s long-term strategic plan. It is also within the responsibilities of the Nominating and Corporate Governance Committee to review and recommend director orientation, stock ownership guidelines, delegation of authority to management, insider trading guidelines, and consider questions of possible conflicts of interest, including related party transactions, as such questions arise. The Nominating and Corporate Governance Committee also reviews and recommends risk oversight responsibilities of the Board and its committees and of the independent directors as a group.
Copies of the charters of each of the three committees can be found on our website at investor.ipgphotonics.com/corporate-governance/governance-documents.
Nomination of Directors
Director Eligibility. Our Corporate Governance Guidelines and director membership guidelines approved by the Nominating and Corporate Governance Committee contain Board membership criteria considered by the Nominating and Corporate Governance Committee in recommending nominees for a position on IPG’s Board. The Nominating and Corporate Governance Committee believes that, at a minimum, a director candidate must possess the qualities of high personal integrity and ethics, sound business judgment and support for our Code of Business Conduct. A director candidate must also have sufficient time to devote to the affairs of IPG and service on the Board and committees, and not be engaged in any activity adverse to the Company's interest. The Nominating and Corporate Governance Committee considers, among other things, the following criteria when reviewing a director candidate or an incumbent director:
|
| 40,000 | |
•Lead Independent Director Retainer | $ | the extent that the director/potential director has demonstrated excellence, leadership and significant experience in a field of endeavor,30,000 | |
| Audit Committee Retainers | | |
•Chair | $ | whether the director/potential director assists in achieving a collective membership on the Board with a broad spectrum of experience and expertise,25,000 | |
| Non-Chair | $ | 12,500 | |
•Compensation Committee Retainers | | whether the director/potential director meets the independence requirements of the listing standards of the NASDAQ guidelines and SEC rules (where independence is desired), |
| Chair | $ | 22,500 | |
•Non-Chair | $ | whether the director/potential director can read and understand financial statement fundamentals and is committed to representing the long-term interests of the Company’s stockholders, while keeping in perspective the interests of the Company’s customers, employees and the public and10,000 | |
| Nominating and Corporate Governance Committee Retainers | | |
•Chair | $ | whether the director/potential director, by virtue of relevant technical expertise, experience or specialized skill relevant to IPG’s current or future business, can add specific value as a Board member.17,500 | |
| Non-Chair | $ | 7,500 | |
| Annual Equity Award | $ | 250,000 | |
In addition, no potential director (excluding any incumbent director) with an age less than 21 years or greater than 72 years is eligible for election as a Board member. Each director/potential director must comply with the limits on other board memberships inFollowing our Corporate Governance Guidelines.
The Nominating and Corporate Governance Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. In addition to the criteria set forth above, the Nominating and Corporate Governance Committee considers how the skills and attributes of each individual candidate or incumbent director work together to create a Board that is collegial, engaged and effective in performing its duties. The Nominating and Corporate Governance Committee seeks a Board that reflects diversity, in experience, gender and ethnicity, although it does not have formal objective criteria for determining the degree of diversity desired on the Board.
In the last few years, the Board has taken an active approach to refreshing its members in order to increase the effectiveness of the Board, including by increasing its focus on Board diversity. For example, the Board has added a female director and two directors born in Europe with significant international experience. Of these newer directors, two were under 60 years old when they joined our Board. The Board seeks a diverse set of backgrounds, experiences and skills in its directors to help guide IPG as it grows and enters new businesses as part of our long-term strategy. We typically seek candidates with experience on public company boards as such candidates understand the role and duties of directors. As described in the director biographies under "Key Attributes, Experiences and Skills," our Board seeks directors who add different sets of experience and skills that are important to the Company. Based on this criterion, we have added directors with photonics, electronics and semiconductor equipment industry backgrounds, larger company and entrepreneurial experience, non-U.S. and Asia experience, as well as experience in positions associated with accounting, finance and information technology, all of which contribute to the quality of the review and oversight by the Board, Board-management discussions and IPG's long-term strategy.
Director Nomination Process. The Nominating and Corporate Governance Committee identifies potential director nominees through contacts of the Board, executives and a variety of other sources. The Committee may retain a search firm or utilize third-party database search tools to identify director nominees. Stockholders may nominate candidates for election as directors as described below.
The Nominating and Corporate Governance Committee will consider several factors prior to nominating a candidate. Generally, the Committee will consider the existing size, future requirements of the Board, composition and skills of the Board, evaluate biographical information and other background material and interview each candidate selected. The Nominating and Corporate Governance Committee will apply any director selection criteria adopted by it based on the circumstances at the time and the criteria set forth in our Corporate Governance Guidelines.
The Nominating and Corporate Governance Committee will consider all director candidates identified through the processes described above and will evaluate each of them, including incumbents, based on the same criteria. Director candidates are evaluated at regular or special meetings of the Nominating and Corporate Governance Committee and may be considered at any point during the year. If based on the Committee’s initial evaluation, a director candidate continues to be of interest to the Nominating and Corporate Governance Committee, the chair of such Committee and other Committee members will interview the candidate and communicate the evaluation to the Committee and executive management. Additional interviews are conducted and all members of the Board may interview the final candidates. Ultimately, the Nominating and Corporate Governance Committee will meet to finalize its list of recommended candidates for the Board’s consideration.
The Nominating and Corporate Governance Committee will also consider candidates for nomination as a director submitted by stockholders. The Nominating and Corporate Governance Committee’s evaluation process and criteria does not vary based upon whether a candidate is recommended by a stockholder. However, the procedural requirements set forth in our by-laws and the procedures described under "Other Matters - 2018 Annual Meeting and Nominations" must be met.
Compensation Committee Interlocks and Insider Participation
No member of our Compensation Committee (Ms. Lego and Messrs. Peeler, Hurley and Meurice) is or has been an officer or employee of our Company or any of our subsidiaries. None of our executive officers served as a member of:
the compensation committee of another entity in which one of the executive officers of such entity served on our Compensation Committee,
the compensation committee of another entity in which one of the executive officers of such entity served as a member of our Board or
the board of directors of another entity, one of whose executive officers served on our Compensation Committee.
DIRECTOR COMPENSATION
The objectives for our non-employee director compensation program are to attract and attain highly-qualified individuals to serve on our Board and align their interests with those of our stockholders. Our non-employee directors are paid pursuant to our non-employee director compensation plan described below. Our Compensation Committee reviews our director compensation program periodically to confirm that the program remains appropriate and competitive and recommends any changes to our full Board for consideration and approval.
Director Compensation Plan
Our non-employee director compensation plan provides for both cash and equity compensation for our non-employee directors. Directors who are also our employees receive no additional compensation for their service on the Board. In 2017, the Compensation Committee engaged independent compensation consultant firm, Radford, to provide a comprehensive review of compensation for non-employee directors in comparison to the Company's compensation peer group. The compensation our Directors received in 2017 reflects Radford’s recommendations and is provided in the chart below.
Cash Compensation. Our non-employee directors receive the annual retainers from us set forth in the table below. Directors do not receive separate fees for attending meetings of the Board, committees or stockholders.
|
| | | |
| | Amount |
| Board Retainer | $ | 40,000 |
|
| Presiding Independent Director Retainer | $ | 20,000 |
|
| Audit Committee Retainers | |
| Chair | $ | 25,000 |
|
| Non-Chair | $ | 12,500 |
|
| Compensation Committee Retainers | |
| Chair | $ | 22,500 |
|
| Non-Chair | $ | 10,000 |
|
| Nominating and Corporate Governance Committee Retainers | |
| Chair | $ | 17,500 |
|
| Non-Chair | $ | 7,500 |
|
Equity Compensation. Each non-employee director continuing in office after the annual meeting of stockholders receives a dollar value annual grantin 2020, non-employee directors received an equity award of equity totaling $250,000 (determined pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 718 ("ASC Topic 718")). Of this award, one-third is service-based stock options and two-thirds are service-based restricted stock units.units ("RSUs"). The annual awards vest in a single installment on the earlier of the one-yearfirst anniversary of the date of grant or the next annual meeting of stockholders.
Upon initial election to the Board, each new non-employee director receives a grant (determined pursuant to ASC Topic 718 ) of $125,000approximately $250,000 in stock options and $125,000 in restricted stock unitsRSUs vesting on the first anniversary of the date of grant subject to the director'sdirector’s continued service on the Board. The exercise priceIf the election to the Board for a new director occurs other than at an annual meeting of each ofstockholders, the stock optionssubsequent annual equity grant is pro-rated based upon time the closing market price of our common stock on the date of grant. director served since first election.
Any director who retires after at least eight years of service on the Board will be entitled to full vesting of all options and restricted stock unitsRSUs then held by the director.
Director Compensation TableCOMPENSATION COMMITTEE
The following table summarizesCompensation Committee oversees risk associated with management resources, including executive retention and non-CEO succession planning. It reviews the Company’s executive compensation of eachpractices, their effectiveness at linking executive pay to performance and aligning the interests of our non-employeeexecutives and our stockholders, without encouraging excessive risk taking. The Compensation Committee annually reviews management’s assessment of compensation risk.
THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE The NCGC oversees risk related to the Company’s governance structure and processes, and risks arising from related person transactions. It reviews processes and risk related to Board succession planning, authority delegated to management and certain compliance risk. | | | |
|
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FULL BOARD Our entire Board as a whole reviews risk management practices and a number of significant risks in the course of its reviews of corporate strategy, management reports and reports from outside experts and professional advisors. |
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INDEPENDENT DIRECTORS As a group, the independent directors for 2017:oversee risks related to CEO succession planning. | | | | | | | | | | | Name | | Fees Earned or Paid in Cash ($) | | Stock Awards ($)(1) | | Option Awards ($)(1) | | Total ($) | | Michael C. Child | | 51,458 | | 165,091 | | 83,319 | | 299,868 | | Henry E. Gauthier | | 65,208 | | 165,091 | | 83,319 | | 313,618 | | William S. Hurley | | 67,708 | | 165,091 | | 83,319 | | 316,118 | | Catherin P. Lego | | 76,042 | | 165,091 | | 83,319 | | 324,452 | | Eric Meurice | | 73,125 | | 165,091 | | 83,319 | | 321,535 | | John R. Peeler | | 80,833 | | 165,091 | | 83,319 | | 329,243 | | Thomas J. Seifert | | 75,417 | | 165,091 | | 83,319 | | 323,827 |
The Board’s risk oversight process builds upon management’s risk assessment and mitigation processes, which include reviews of strategic and operational planning, compliance under the Company’s Code of Business Conduct and other policies, the Company’s integrity programs, health, safety and other compliance, financial reporting and controllership, human capital management; environment, society and governance matters, and information technology and cybersecurity programs. The Board's oversight role is independent from the Company’s day-to-day management, as more than two-thirds of the current directors are independent and therefore have no conflicts that might discourage critical review of the Company’s risks. 24 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors Role in Management Succession Planning The Board is focused on ensuring that the Company has emergency and long-term succession plans in place for key senior executive positions. The entire Board annually reviews with the CEO the Company’s plan for succession for the position of the chief executive officer, including the appropriate individual or individuals who are candidates to succeed to this position. In the event of an unexpected departure of the CEO, an emergency succession plan allows for smooth transfer of responsibilities to an individual who may or may not be permanently tasked with the new role. The Compensation Committee, composed entirely of independent directors, annually reviews the Company’s plan for succession for other senior executive officers. If the succession plan is triggered for any of these roles, the full Board would participate in the discussion and consideration of any action with a final decision to be made by the full Board. In the event of a senior executive’s departure, both internal and external candidates may be considered for permanent appointment to a given role. Role in Ethics All directors, officers and employees are required to abide by IPG’s Code of Business Conduct to ensure that our business is conducted in a consistently legal and ethical manner. These policies form the foundation of a comprehensive process that includes compliance with corporate policies and procedures and a Company-wide focus on uncompromising integrity in every aspect of our operations. Our Code of Business Conduct covers many topics, including antitrust and competition law, conflicts of interest, financial reporting, protection of confidential information, and compliance with all laws and regulations applicable to the conduct of our business. All of our directors and employees receive bi-annual training on our Code of Business Conduct, which can be found on the investor section of our website under "Governance Documents." If the Board grants any waivers from our Code of Business Conduct to any directors or executive officers, or if we amend our Code of Business Conduct, we will, if required, disclose these matters via updates on our website. Role in Stockholder Engagement Accountability to our stockholders is an important component of the Company’s success. We recognize the fair value of building informed relationships with our investors that promote further transparency and accountability. While proxy voting is one direct way to influence corporate behavior, proactive engagement with our investors can be effective and impactful. Investor views are continuously communicated to the Board and are instrumental in the development of our governance, compensation and other policies and inform our business strategy. The Board continues to seek investor input on a range of issues and practices in furtherance of enhancing long-term stockholder value. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Publish Annual Report and Proxy Statement. Speak with investors about topics to be addressed at the annual meeting. | | | | | Review results of the restricted stock unit and stock option awards as of the grant date determined pursuant to ASC Topic 718 with respect to 2017. The assumptions that we used with respect to the valuation of restricted stock unit and stock option awards are set forth in Note 2 to our Consolidated Financial Statements in our Annual Report on Form 10-K filed with the SEC on February 28, 2018. On June 1, 2017, each continuing director serving on the Board was granted restricted stock units for 1,185 shares of common stock and options to purchase 2,993 shares of common stock at an exercise price of $140.64 per share. Both restricted stock units and options vest in a single installment on June 1, 2018. |
.
Outstanding Equity Awards Table
The following table provides information regarding unexercised stock options and unvested restricted stock units held by each of our non-employee directors on December 31, 2017: | | | | | | | | | Name | | Unvested Restricted Stock Units (#) | | Total Option Awards Held (#) | | Exercisable Option Awards (#) | | Michael C. Child | | 1,185 | | 52,264 | | 49,925 | | Henry E. Gauthier | | 1,185 | | 7,596 | | 5,257 | | William S. Hurley | | 1,185 | | 14,096 | | 11,757 | | Catherine P. Lego | | 3,444 | | 10,847 | | 2,127 | | Eric Meurice | | 2,175 | | 17,019 | | 12,324 | | John R. Peeler | | 1,185 | | 25,596 | | 23,257 | | Thomas J. Seifert | | 2,175 | | 4,695 | | — |
We also reimburse directors for all reasonable out-of-pocket expenses incurred for attending Board and committee meetings and director education programs. Non-employee directors do not receive any additional payments or perquisites.
Our certificate of incorporation limits the dollar amount of personal liability of our directors for breaches by them of their fiduciary duties. Our certificate of incorporation requires us to indemnify our directors to the fullest extent permitted by the Delaware General Corporation Law. We have also entered into indemnification agreements with all of our directors and we have purchased directors' and officers' liability insurance.
PROPOSAL 1: ELECTION OF DIRECTORS
The stockholders are being asked to elect Dr. Gapontsev, Dr. Scherbakov, Mr. Samartsev, Mr. Child, Mr. Gauthier, Ms. Lego, Mr. Meurice, Mr. Peeler and Mr. Seifert to terms ending with the annual meeting, governance trends, regulatory developments. Board conducts annual self-assessment of its performance and effectiveness.
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| Consider input from investors to be held in 2019, until a successor is electedenhance disclosures, governance practices and qualified or until his or her earlier death, resignation or removal. The Board nominated each of these individuals for election at the 2018 annual meeting of stockholders upon the recommendation of the Nominating and Corporate Governance Committee. Each nominee is currently a director of our company. All of the director nominees set forth in the proxy card have consented to being named in this proxy statement and to serving if elected. For more information regarding the nominees for director, see "Board of Directors."The Board does not contemplate that any of the nominees will be unable to stand for election, but should any nominee become unable to serve or for good cause will not serve, all proxies (except proxies markedcompensation programs.
| | Communicate investor feedback to the contrary) will be voted for the election of a substitute nominee nominated by the Board.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" ALL OF THE NOMINEES FOR DIRECTOR
COMMON STOCK OWNERSHIP
The following table provides information about the beneficial ownership of our common stock as of April 6, 2018 by:
each of the Named Executive Officers,
each person who is a director or nominee,
all of our executive officers Board uses self-assessment to develop and directors as a group and
each person or entity known by us to own beneficially more than five percent of our common stock.
Percentage of beneficial ownership is based on 53,732,790 shares of common stock outstanding as of April 6, 2018.
| | | | | | | | | | | | | | | Name | | Shares Owned | | Right to Acquire Shares within 60 Days | | Total Beneficial Ownership (1) | | Percent | | Named Executive Officers and Directors (2) | |
|
| |
| |
|
| |
|
| | Michael C. Child | | 10,719 |
| | 53,449 |
| | 64,168 |
| | * |
| | Valentin P. Gapontsev, Ph.D. (3) | | 7,249,935 |
| | — |
| | 7,249,935 |
| | 13.5 | % | | Henry E. Gauthier | | 13,919 |
| | 8,781 |
| | 22,700 |
| | * |
| | William S. Hurley | | 9,820 |
| | 11,781 |
| | 21,601 |
| | * |
| | Catherine P. Lego | | 3,753 |
| | 7,914 |
| | 11,667 |
| | * |
| | Angelo P. Lopresti (4) | | 16,512,586 |
| | 35,296 |
| | 16,547,882 |
| | 30.8 | % | | Timothy P.V. Mammen | | 20,186 |
| | 23,900 |
| | 44,086 |
| | * |
| | Trevor D. Ness | | 4,074 |
| | 18,968 |
| | 23,042 |
| | * |
| | Eric Meurice | | 6,291 |
| | 19,194 |
| | 25,485 |
| | * |
| | John R. Peeler | | 5,819 |
| | 20,596 |
| | 26,415 |
| | * |
| | Igor Samartsev (5)(6) | | 884,283 |
| | 7,300 |
| | 891,583 |
| | 1.7 | % | | Eugene Scherbakov, Ph.D. (4)(5) | | 16,489,381 |
| | 24,092 |
| | 16,513,473 |
| | 30.7 | % | | Thomas J. Seifert | | 4,156 |
| | 6,870 |
| | 11,026 |
| | * |
| | All executive officers and directors as a group (15 persons) | | 17,771,401 |
| | 289,712 |
| | 18,061,113 |
| | 33.4 | % | | Other >5% Stockholders | |
|
| |
| |
|
| |
|
| | The Valentin Gapontsev Trust I (2)(7) | | 14,612,004 |
| | — |
| | 14,612,004 |
| | 27.2 | % | | IP Fibre Devices (UK) Ltd. (2)(8) | | 7,014.004 |
| | — |
| | 7,014.004 |
| | 13.1 | % | | BlackRock, Inc. (9) | | 3,874,614 |
| | — |
| | 3,874,614 |
| | 7.2 | % | | The Vanguard Group (10) | | 3,121,013 |
| | — |
| | 3,121,013 |
| | 5.8 | % |
implement changes improving effectiveness. | | | | | | | | | | | | | | | | | | | | | * | Less than 1.0% |
| | (1) | In accordance with SEC rules, beneficial ownership includes any shares for which a person or entity has sole or shared voting power or investment power and any shares for which the person or entity has the right to acquire beneficial ownership within 60 days after April 6, 2018 through the exercise of any option or the vesting of a restricted stock unit. |
| | (2) | The contact address for each person or entity is in care of IPG Photonics Corporation, 50 Old Webster Road, Oxford, Massachusetts 01540. |
| | (3) | Includes 7,014,004 shares beneficially owned by IP Fibre Devices (UK) Ltd. (“IPFD”), of which Dr. Gapontsev is the sole managing director. See note 8 below. |
| | (4) | Includes (a) 7,598,000 shares owned of record by Valentin Gapontsev Trust I (“Gapontsev Trust I”), (b) 7,014,004 shares owned of record by IPFD which are deemed to be beneficially owned by Gapontsev Trust I (see notes 7 and 8 below), (c) 908,450 shares beneficially owned by Valentin Gapontsev Trust II ("Gapontsev Trust II"), and (d) 962,450 shares beneficially owned by Valentin Gapontsev Trust III ("Gapontsev Trust III"), because such person is a trustee of each said trust. Gapontsev Trust I, Gapontsev Trust II and Gapontsev Trust III were formed by CEO Valentin Gapontsev. Dr. Scherbakov and Mr. Lopresti are trustees of Gapontsev Trust I, Gapontsev Trust II and Gapontsev Trust III. |
| | (5) | Such person disclaims beneficial ownership of the shares held by IPFD except to the extent of his economic interest therein. See note 8 below. |
| | (6) | Includes 539,650 shares held by the spouse of Mr. Samartsev and family trusts formed by her. Mr. Samartsev disclaims beneficial ownership of such shares. |
| | (7) | Includes 7,014,004 shares beneficially owned by IPFD, in which Gapontsev Trust I has a 48% economic interest. Gapontsev Trust I disclaims beneficial ownership of the shares held by IPFD except to the extent of its economic interest therein. See note 8 below. |
| | (8) | Dr. Gapontsev has sole voting and investment power with respect to the shares held of record by IPFD. The following officers and directors of the Company or related parties have economic interests in IPFD: Gapontsev Trust I (48%), Dr. Gapontsev (3%), Mr. Samartsev (8%), Dr. Scherbakov (8%) and Gapontsev Trust III (2%). Each such person and entity (other than Dr. Gapontsev) does not possess voting or investment power with respect to such interest and each disclaims beneficial ownership of the shares held by IPFD except to the extent of his or its economic interest therein. |
| | (9) | The address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055. Based solely on a Schedule 13G filed with the SEC on January 25, 2018. |
| | (10) | The address of The Vanguard Group is 100 Vanguard Boulevard, Malvern, PA 19355. Based solely on a Schedule 13G filed with the SEC on February 9, 2018. |
EXECUTIVE OFFICERS
The following table sets forth certain information regarding our executive officers as of April 1, 2018.
25
Proposal 1 Election of Nine Directors | | | | Board Structure | Valentin P. Gapontsev, Ph.D. | | 79 | | Chief Executive Officer and |
Board Leadership Structure •Chairman of the Board and Chief Executive Officer: Dr. Valentin P. Gapontsev •Lead Independent Director: John R. Peeler ◦Lead Independent Director position is appointed annually by independent directors •All three Board committees composed of independent directors •Independent directors meet in executive session at each of the Board's regular meetings and as needed outside of such meetings There is no single board leadership structure that is optimal in all circumstances. The Board, with its diverse skills and experience, considers the most appropriate leadership structure for the Company in the context of the specific circumstances and challenges facing IPG. The directors come from a variety of organizational backgrounds with direct experiences in a wide range of leadership and management structures. The independent directors, who comprise two-thirds of our Board, appropriately challenge management and demonstrate the independence necessary for effective oversight. As a result, the Board is in the best position to evaluate the relative benefits and challenges of different leadership structures and ultimately decide which one best serves the interests of our stockholders. The independent directors believe that having Dr. Gapontsev serve as Chairman of the Board in addition to his role as CEO is in the best interest of the Company and its stockholders. Dr. Gapontsev is the Company's founder and beneficially owns approximately 14% of the Company’s common stock. The Board believes that Dr. Gapontsev is best-positioned to set the Board’s agenda and provide leadership of the board of a company operating in a highly technical industry due to his thirty years of operations, technology, strategy and executive management experience within the Company and its subsidiaries and his deep understanding of the Company's business. The Board also recognizes the importance of having in place, and building upon, a counterbalancing structure to ensure that it functions in an appropriately independent manner. The governance structure approved by the Board endows the position of Lead Independent Director with leadership duties and responsibilities including: •providing input on Board meeting agendas, including the ability to request changes •setting the agenda for and leading executive sessions of the independent directors •calling and managing meetings of the independent directors •facilitating discussions outside of scheduled Board meetings among the independent directors on key issues •providing consolidated feedback from those meetings to the Chairman and CEO •providing feedback on the quality and quantity of information flow from management •serving as a liaison with the Chairman and CEO •interviewing Board candidates •leading the independent directors in setting the Chairman's and CEO's compensation, goals and objectives, and the assessment of his annual performance in relation to such goals and objectives and •performing other functions as directed by the Board. In the event of a crisis, the Lead Independent Director has an increased role in crisis management oversight. The independent directors of our Board elected Mr. Peeler as the Lead Independent Director for the term ending May 2021, and this position is voted upon annually by our independent directors. Taking into account the increasing duties and role of this position, the Board changed title of this position in 2020 from Presiding Independent Director to Lead Independent Director. The Board believes that the position and responsibilities of the Lead Independent Director and the regular use of executive sessions of the independent directors without the CEO or other executive officers present, along with the Company’s strong committee system and substantial majority of independent directors, allow the Board to maintain effective oversight.
26 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors Director Independence Six of our nine director nominees are independent as defined by Nasdaq and SEC rules. A predominantly independent Board ensures that the Board is acting objectively and in the best interests of our stockholders. The independent directors also bring expertise and a diversity of perspectives to the Board. The culture of the Board enables directors to openly express their opinions in the boardroom and to raise challenges. Nasdaq listing standards governing independence require that a majority of the members of the Board be independent as defined by Nasdaq. Also, our Corporate Governance Guidelines require that a majority of the Board members be independent. In general, our Corporate Governance Guidelines also require that an independent director must have no material relationship with the Company, directly or indirectly, that might interfere with the exercise of independent judgment in the performance of director responsibilities. The NCGC conducted its annual review of the independence of the directors (and candidates for membership on the Board) in March 2021, taking into account relevant facts and circumstances, and reported its findings to the full Board. The NCGC determines independence on the basis of the standards specified by Nasdaq, the additional standards referenced in our Corporate Governance Guidelines, and other facts and circumstances the Board considers relevant. During this review, the NCGC examined all direct and indirect transactions or relationships between the Company or any of its subsidiaries and each current director and any immediate family member of the director and determined that no material relationships with the Company existed during 2020. On the basis of this review, the NCGC determined that each of the following director nominees qualifies as an independent director as defined in Nasdaq guidelines, SEC rules and under our Corporate Governance Guidelines: Michael C. Child, Jeanmarie F. Desmond, Gregory P. Dougherty, Eric Meurice, John R. Peeler and Thomas J. Seifert. The Board also determined that Catherine P. Lego, who is not standing for reelection as a director this year, was independent. Additionally, the Board has determined that each member of the Audit Committee and the Compensation Committee meets the independence standards specific for members of such committees under Nasdaq guidelines and SEC rules. Ms. Pavlova is not considered independent because she is the spouse of Igor Samartsev, an executive officer of the Company, and she is the former daughter-in-law of Dr. Gapontsev. Executive Sessions. Our independent directors meet privately, without employee directors or management present, at least four times during the year. These private sessions are generally held in conjunction with the regular quarterly Board meetings. Other private meetings of the independent directors are held as often as deemed necessary by them and are led by the Lead Independent Director. The Audit Committee, the Compensation Committee and the NCGC meet without employee directors or management present from time to time as they deem necessary. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No member of our Compensation Committee (Ms. Lego and Messrs. Dougherty, Meurice and Peeler) is or has been an officer or employee of our Company or any of our subsidiaries. None of our executive officers served as a member of: •the compensation committee of another entity in which one of the executive officers of such entity served on our Compensation Committee; •the compensation committee of another entity in which one of the executive officers of such entity served as a member of our Board; or •the board of directors of another entity, one of whose executive officers served on our Compensation Committee.
27
Proposal 1 Election of Nine Directors | | | | Standing Committees and Board Committee Membership |
The Board has a standing Audit Committee, Compensation Committee and NCGC, each composed entirely of non-employee, independent directors. Under their written charters adopted by the Board, each of these committees is authorized and assured appropriate funding to retain and consult with external advisors, consultants and counsel. Below we provide the principal functions and current members of the standing Board committees. Audit Committee | | | | Eugene A. Scherbakov, Ph.D. | | 70 | | Chief Operating Officer, Managing Director of IPG Laser GmbH, Senior Vice President, Europe and Director | Timothy P.V. Mammen | | 48 | | Chief Financial Officer and Senior Vice President | Angelo P. Lopresti | | 54 | | General Counsel, Secretary and Senior Vice President | Alexander Ovtchinnikov, Ph.D. | | 57 | | Senior Vice President, Components | Trevor D. Ness | | 45 | | Senior Vice President, World Wide Sales and Marketing | Igor Samartsev | | 55 | | Chief Technology Officer and Director | Felix Stukalin | | 56 | | Senior Vice President, North America Operations |
| | | MEMBERS | FUNCTIONS: | Thomas J. Seifert (Chair) The biographiesJeanmarie F. Desmond
Gregory P. Dougherty Catherine P. Lego Meetings in 2020: 8 | • Providing oversight of Dr. Gapontsev, Dr. Scherbakovfinancial management, the internal auditor function and Mr. Samartsevthe independent auditor. • Providing oversight with respect to our internal controls including that management is maintaining an adequate system of internal control such that there is reasonable assurance that assets, systems and processes are presentedsafeguarded and that financial reports and certain other datasets are properly prepared; that there is consistent application of generally accepted accounting principles; and that there is compliance with management’s financial reporting policies and procedures. • Pre-approving audit and permissible non-audit services by our independent auditor, reviewing and discussing our annual and quarterly financial statements and related disclosures. • Meeting periodically with the independent auditor, management and internal auditor function (including in private sessions) to review their work and confirm that they are properly discharging their respective responsibilities. • Appointing the independent auditor. For more information on pages 14 and 15Audit Committee activities in 2020, see the Audit Committee Report on page 61 of this proxy statement. The biographies of ourProxy Statement and Proposal 2: Ratify Deloitte & Touche LLP as Our Independent Registered Public Accounting Firm for 2021 on page 59. | | | The Board has determined that each member of the Audit Committee is independent and financially literate. The Board has designated Ms. Desmond, Ms. Lego and Mr. Seifert, who are each independent directors under the Nasdaq listing standings and the SEC's audit committee requirements, as “audit committee financial experts” pursuant to the SEC’s final rules implementing Section 407 of the Sarbanes-Oxley Act. Stockholders should understand that the designation of Ms. Desmond, Ms. Lego and Mr. Seifert each as an “audit committee financial expert” is an SEC disclosure requirement and that it does not impose upon them any duties, obligations or liabilities that are greater than those imposed on them as members of the Audit Committee and the Board in the absence of such designation.
28 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors Compensation Committee | | | | | | | | | MEMBERS | FUNCTIONS: | Gregory P. Dougherty (Chair) Catherine P. Lego Eric Meurice John R. Peeler Meetings in 2020: 10 | • Reviewing and recommending to the independent directors the CEO’s base salary and opportunities for annual and long-term compensation. • Reviewing and approving compensation recommendations by the CEO for the other executive officers, are presented below.including base salaries, annual performance bonuses, long-term incentive awards, severance benefits, perquisites and employment agreements. Timothy P.V. Mammen• has served asSetting our Chief Financial Officer since July 2000compensation philosophy and as Vice President since November 2000. He was promoted to Senior Vice President in February 2013. Between May 1999 and July 2000, Mr. Mammen served as the Group Finance Director and General Managercomposition of the United Kingdom operationsgroup of peer companies used for IPFD. Mr. Mammen was Finance Directorcomparison of executive compensation.
• Reviewing and General Managerrecommending for approval by the Board the compensation for non-employee directors. • Administering the equity compensation plans under which we compensate our executive officers and other key employees. • Retaining an independent compensation consultant firm, Aon ("Aon"), for matters related to executive officer and director compensation, and outside legal counsel to provide advice on compensation-related matters. • Preparing the Compensation Committee Report included in this Proxy Statement on page 36 and overseeing management’s risk assessment of United Partners Plc, a commodities trading firm, from 1995 to 1999compensation for all employees and prior to that, he workedcompensation-related risks as delegated by the Board. | | |
Nominating and Corporate Governance Committee | | | | | | | | | MEMBERS | FUNCTIONS: | Eric Meurice (Chair) Michael C. Child John R. Peeler Thomas J. Seifert Meetings in 2020: 5 | • Overseeing matters of corporate governance, including the finance department of E.I. du Pont de Nemours and Company. Mr. Mammen holds an Upper Second B.Sc. Honours degree in International Trade and Development from the London School of Economics and Political Science. He is a Chartered Accountant and a memberevaluation of the Instituteperformance and practices of Chartered Accountants of Scotland.the Board. Angelo P. Lopresti• has served as our General CounselDeveloping and Secretary and one of our Vice Presidents since February 2001. He was promoted to Senior Vice President in February 2013. Prior to joining us, Mr. Lopresti was a partner at the law firm of Winston & Strawn LLP from 1999 to 2001. He was a partner at the law firm of Hertzog, Calamari & Gleason from 1998 to 1999 and an associate there from 1991 to 1998. He is on the board of Coastway Bancorp, Inc., the holding company of Coastway Community Bank. Mr. Lopresti holds a B.A. in Economics from Trinity College and a J.D. from the New York University School of Law.recommending criteria for Board membership.
Alexander Ovtchinnikov, Ph.D.,• has served as our Vice President, Components, since September 2005Reviewing possible candidates for the Board and as Director of Material Sciences from October 2001recommending director nominees to September 2005. He was promoted to Senior Vice President in February 2013. Prior to joining us, Dr. Ovtchinnikov was Material Science Manager of Lasertel, Inc., a maker of high-power semiconductor lasers, from 1999 to 2001. For 15 years prior to joining Lasertel, Inc., he worked on the development and commercialization of high power diode pump technology at the Ioffe Institute, Tampere University of Technology, Coherent, Inc. and Spectra-Physics Corporation. He holds an M.S. in Electrical Engineering from the Electrotechnical University of St. Petersburg, Russia, and a Ph.D. from Ioffe Institute of the Russian Academy of Sciences.Board for approval.
Trevor D. Ness• has served as our Senior Vice President, World Wide Sales and Marketing since February 2013. From January 2011 until February 2013, he served as our Vice President-Asian Operations. Prior to joining us, Mr. Ness was Director of GSI Precision Technologies China from May 2005 to December 2010 and prior to that he held technical sales management roles with GSI Group, Inc. and Cobham Plc, located in UK, Japan and Taiwan. Mr. Ness holds a B.S. in Geology from Imperial College, a H.N.C. from Bournemouth University and an M.B.A. from The Open University.
Felix Stukalin has served as our Senior Vice President, North America Operations since February 2013. From March 2009 until February 2013, he served as our Vice President, Devices. Prior to joining us, he was Vice President, Business Development of GSI Group Inc. from April 2002 to September 2008, and from March 2000 to April 2002 he was Vice President of Components and President ofOverseeing the Wave Precision divisions of GSI Lumonics, Mr. Stukalin holds a B.S. in Mechanical Engineering fromprocess for the University of Rochester and he is a graduate of the Harvard Business School General Management Program.
COMPENSATION COMMITTEE REPORT
The Compensation Committeeperformance evaluations of the Board and its committees.
• Engaging in Board succession planning to ensure boardroom skills are aligned with IPG’s long-term strategic plan. • Reviewing and recommending director orientation, stock ownership guidelines, delegation of Directors has reviewedauthority to management, insider trading guidelines, and discussed with managementconsider questions of possible conflict of interest, including related party transactions, as such questions arise. • Reviewing and recommending risk oversight responsibilities of the Compensation DiscussionBoard and Analysis included in this proxy statement. Based on this reviewits committees and discussion,of the independent directors as a group. | | |
Each of the Board committees has a written charter that states their respective purposes, goals and responsibilities as well as qualifications for committee membership, appointment and removal, committee structure and operations and reporting to the entire Board. The three committee charters and our Corporate Governance Guidelines can be found on the investor section of our website under "Governance Documents." Information on our website does not constitute part of this Proxy Statement. 29
Proposal 1 Election of Nine Directors | | | | Board Practices, Policies and Processes |
IPG’s Ongoing Commitment to Enhancing Governance Practices Director Meetings and Policy Regarding Board Attendance It has been the practice of our Board and its committees to hold at least four in-person quarterly meetings each year preceding the announcement of our quarterly results and to also conduct telephone meetings throughout the year. In light of the ongoing COVID-19 pandemic, however, the Board has conducted all quarterly meetings since April 2020 by videoconference. Our directors are expected to spend the time needed to prepare for and participate in each meeting and to meet as frequently as necessary to properly discharge their responsibilities. We encourage members of our Board to attend annual meetings of stockholders, but we do not have a formal policy requiring them to do so. In 2020, five of the directors in office attended the annual meeting of stockholders by teleconference. The table below sets forth the number of meetings held by each committee and the full Board in 2020. All incumbent directors attended 75% or more of the aggregate meetings of the Board and committees on which they served during 2020. | | | | | | | | | | | | | | | | Board of Directors | Audit | Compensation | Nominating and
Corporate Governance | | Meetings held in 2020 | 6 | 8 | 10 | 5 | | Written consents in 2020 | 3 | 0 | 0 | 0 |
30 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors Corporate Governance Guidelines Our Board adopted Corporate Governance Guidelines that outline, among other matters, the roles and functions of the Board, the responsibilities of various Board committees and the mission of the Board. Our Corporate Governance Guidelines can be found on the investor section of our website under "Governance Documents." Information on our website does not constitute part of this Proxy Statement. The Corporate Governance Guidelines provide, among other things, that: •a majority of our Board must be independent •the Lead Independent Director presides over executive sessions of independent directors •the Board appoints all members and chairpersons of the Board committees, including filling of vacancies, after the NCGC recommends appropriate candidates •the Audit Committee, Compensation Committee, and NCGC consist solely of independent directors •the independent directors meet at least quarterly in executive sessions without the employee directors or management •independent directors may not serve on the boards of more than three other public companies or, with the permission of the Board, four; the CEO may not serve on more than one other public company board •the Board annually reviews the succession plan of the CEO •directors cannot disclose confidential information to any person or entity outside of the Company or use such information for personal benefit •Board self-assessments are conducted annually and committee self-assessments bi-annually and •the Board and key officers should have a meaningful financial stake in the Company. The Board monitors changing legal and regulatory requirements, evolving best practices and other developments. The Board modifies the Corporate Governance Guidelines and its other corporate governance policies and practices from time to time, as appropriate. Director Orientation and Continuing Education The Board and its committees proactively monitor legislative and regulatory initiatives, as well as other corporate governance trends and their potential impact on the Company. The Board receives presentations from professionals with expertise in corporate law, governance and other related topics. These experts have specialized knowledge of regulatory actions, governance trends, various other corporate governance topics and technical matters. In 2020, the Board and its committees received presentations on board oversight and stockholder engagement, environment, social and governance topics, critical accounting matter disclosures and cybersecurity. Additionally, our directors engage in continuing education to remain informed on recent trends applicable to their committee duties. Likewise, newly elected directors attend a comprehensive director orientation program that covers, among other things, our strategy, business structure, manufacturing operations, sales, target markets and applications, financial performance, risks and competitive landscape. New committee members are also provided training on committee policies, practices and trends. As part of this program, directors are asked to tour facilities as appropriate. To further familiarize directors with our expanding operations, we conduct Board meetings at our major manufacturing facilities from time to time. Board Performance Evaluations The Board conducts annual self-assessments and its committees conduct bi-annual self-assessments to determine whether they are functioning effectively. Further, the performance of the Lead Independent Director is evaluated annually. The NCGC oversees the Board and committee self-assessments. Each committee also reviews its own performance bi-annually and reports the results to the Board. Each committee reviews and reassesses the adequacy of its charter annually and recommends proposed changes to the Board. 31
Proposal 1 Election of Nine Directors Prohibition on Hedging; Limits on Pledging Under our insider trading policy, no director or employee, including NEOs, may engage in shorting shares of our common stock; buying or selling puts, calls or derivatives related to our common stock or other Company securities, which includes equity compensation; or engaging in hedging transactions, including through the use of financial instruments such as prepaid variable forwards, equity swaps, collars and exchange funds. No director or officer, including NEOs, may pledge shares constituting more than 20% of his or her total stock ownership. Pledges of shares constituting 20% or less of total stock ownership are subject to certain conditions. Communication with our Board of Directors Interested parties wishing to write to the Board, a specified director or a committee of the Board should send correspondence to the Office of the Secretary, IPG Photonics Corporation, 50 Old Webster Road, Oxford, Massachusetts 01540. All written communications received in such manner from stockholders of the Company will be forwarded to the members or committee of the Board to whom the communication is directed or, if the communication is not directed to any particular member(s) or committee(s) of the Board, the communication will be forwarded to all members of the Board. Procedures for Submitting Complaints We have procedures to treat complaints regarding accounting, internal accounting controls, auditing matters, fight against bribery, banking, and financial crime, including submission of confidential and anonymous concerns regarding questionable accounting, internal accounting controls or auditing matters raised by our directors, officers and employees. These procedures can be found on the investor section of our website under "Governance Documents." Information on our website does not constitute part of this Proxy Statement. Transactions with Related Parties The Board adopted a written related person transaction policy that requires the NCGC to approve or ratify any transaction or series of transactions exceeding $120,000 in which our Company is a participant and any related person has a direct or indirect material interest (other than solely as a result of being a director or trustee or less than 10% owner of another entity) ("Related Party Transactions"). Related persons include our directors, director nominees and officers and their immediate family members and persons sharing their households. It also includes persons controlling more than 5% of our outstanding common stock. Subject to certain exceptions in the policy, related parties are required to notify the NCGC of the Related Party Transaction for an assessment of whether the transaction or proposed transaction should be permitted. Management also has established procedures for monitoring transactions that could be subject to approval or ratification under the Related Party Transactions policy. In deciding whether to approve or ratify the Related Party Transaction, the NCGC considers relevant facts and circumstances. The committee takes into account, among other factors, whether the transaction is on terms no more favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction. Once a Related Party Transaction has been identified, the NCGC reviews all of the relevant facts and circumstances and approves or disapproves entry into the transaction. Members of the NCGC having an interest in a transaction excuse themselves for the consideration and approval of the transaction in which they have an interest. Certain transactions are exempt from the policy including compensation paid by the Company for service as a director or an officer. Pursuant to our Corporate Governance Guidelines, we expect each of our directors to ensure that other existing and future commitments do not conflict with or materially interfere with his or her service as a director. In addition, directors are required to inform the chairman of our NCGC and the Chairman of the Board prior to joining the board of another public company to ensure that any potential conflicts, excessive time demands or other issues are carefully considered. The NCGC reviewed and approved the following Related Party Transactions for 2020 in compliance with our policy: Dr. Gapontsev leases the annual right to use 25% of the Company’s corporate aircraft under a July 2017 lease agreement (the “Aircraft Lease”). The Aircraft Lease expires in July 2022. The annual lease rate is $924,700 and future rent payments are adjusted annually. The Company invoiced Dr. Gapontsev $936,658 in 2020 for use of the aircraft. Dr. Gapontsev directly paid an unrelated flight management firm for the operating costs of his private use of the aircraft, including pilot fees, fuel and other costs. From time to time, certain institutional investors may become beneficial owners of 5% or more of the voting securities of the Company and, as a result, are considered a related person under the policy. These organizations may provide services to the Company or its benefit plans. In 2020, participants in our 401(k) Retirement Plan paid approximately $138,079 in fees to 32 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors affiliates of The Vanguard Group representing expense ratios associated with the Vanguard investment funds in the 401(k) Retirement Plan. Our non-employee directors receive the following annual compensation from us: | | | | | | | Amount | | Board Retainer | $ | 40,000 | | | Lead Independent Director Retainer | $ | 30,000 | | | Audit Committee Retainers | | | Chair | $ | 25,000 | | | Non-Chair | $ | 12,500 | | Compensation Committee recommended to the Board of Directors that the Compensation DiscussionRetainers | | | Chair | $ | 22,500 | | | Non-Chair | $ | 10,000 | | Nominating and Analysis be included in the Company's proxy statement for the Company's 2018 annual meeting of stockholders and in the Company's Corporate Governance Committee Retainers | | | Chair | $ | 17,500 | | | Non-Chair | $ | 7,500 | | Annual Report on Form 10-K for the year ended December 31, 2017.Equity Award | $ | 250,000 | |
Following our annual meeting of stockholders in 2020, non-employee directors received an equity award of service-based restricted stock units ("RSUs"). The annual awards vest in a single installment on the earlier of the first anniversary of the date of grant or the next annual meeting of stockholders. Upon election to the Board, each new non-employee director receives a grant of approximately $250,000 in RSUs vesting on the first anniversary of the date of grant subject to the director’s continued service on the Board. If the election to the Board for a new director occurs other than at an annual meeting of stockholders, the subsequent annual equity grant is pro-rated based upon time the director served since first election. Any director who retires after at least eight years of service on the Board will be entitled to full vesting of all RSUs then held by the director. The information in this Compensation Committee Report shall not be considered "soliciting material" or "filed" with the SEC, nor shall this information be incorporated by reference into any previous or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company incorporates it by specific reference.
COMPENSATION COMMITTEE The Compensation Committee oversees risk associated with management resources, including executive retention and non-CEO succession planning. It reviews the Company’s executive compensation practices, their effectiveness at linking executive pay to performance and aligning the interests of our executives and our stockholders, without encouraging excessive risk taking. The Compensation Committee annually reviews management’s assessment of compensation risk. | THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE The NCGC oversees risk related to the Company’s governance structure and processes, and risks arising from related person transactions. It reviews processes and risk related to Board succession planning, authority delegated to management and certain compliance risk. |
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FULL BOARD Our entire Board as a whole reviews risk management practices and a number of significant risks in the course of its reviews of corporate strategy, management reports and reports from outside experts and professional advisors. |
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INDEPENDENT DIRECTORS As a group, the independent directors oversee risks related to CEO succession planning. |
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For 2021, the Compensation Committee considered peer compensation data and increased executive base salaries approximately 3%, however CEO salary increased 7.5% and CFO salary increased 5%. Annual and long term incentive levels remained the same as 2020, except for the CEO whose target annual incentive level increased to 125% of base salary.
37
Proposal 1 Election of Nine Directors
Our operating income increased 51% | | | | | | | | |
| Stockholder Feedback | | |
At our 2020 annual meeting of stockholders, our stockholders overwhelmingly approved our executive compensation structure in 2017 and achieved its highest levels to date, reaching $551 million compared to $364 milliona “say-on-pay” advisory vote, with over 95% voting in 2016 and $342 million in 2015.Our gross margin increased to 56.6% in 2017 up from 54.9% in 2016, as a result of increased manufacturing efficiency offset by increasing depreciation from increased investment in plant and equipment. IPG's gross margins are industry-leading as compared to our laser peers.
We also increased our cash and cash equivalents and short term investments to $1.12 billion at December 31, 2017, compared to $831 million at December 31, 2016, while investing $127 million in property, plant, equipment and technology in 2017 so that we are well-positioned for future demand growth for our industry-leading products.
For more information about our business, please read "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the SEC on February 28, 2018.
Summary of Executive Compensation Pay Practices
The guiding principlesfavor of our executive compensation structure. As a result of the 2020 vote, the Compensation Committee determined not to change its pay philosophy or practices. At our annual meeting in 2017, our stockholders approved a proposal for “say-on-pay” advisory votes every three years and, practice continuetherefore, we elected to submit the advisory “say-on-pay” proposal to our stockholders on a triennial basis. The next "say-on-pay" advisory vote will be pay-for-performance, accountabilityin 2023.
| | Say-on-pay approval
during last
stockholder vote (2020) |
Stockholder-Minded Compensation Practices
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| PRACTICES WE EMPLOY | | PRACTICES WE AVOID |
üAlign our NEO Pay with Performance: Strong links of compensation to Company performance and stockholder returns for annual and long-term performance, alignmentincentives. Annual bonus tied to stockholders'revenue and net income and long-term incentives include performance-based stock units which are earned based upon IPG’s total stockholder return relative to a stock market index and the ratio of operating cash flow to adjusted net income. üBalance Annual and Long-Term Incentives: Incentive programs provide an appropriate balance of annual and long-term incentives and include multiple measures of performance. üUse Long-Term Incentives to Link Executive Pay to Company Performance: Approximately 64% of NEO (other than the CEO) pay consists of long-term incentives linked to increasing our stock price. CEO receives no equity. üCap Incentive Award Payouts: Annual incentive plan award payouts and certain long-term incentive awards are capped. üMaximize Stockholder Value While Mitigating Risk: Service-based equity awards vest over four years. This incentivizes long-term growth and discourages short-term risk taking. üIndependent Compensation Consultant: The Compensation Committee retains a compensation consultant, who is independent and without conflicts of interest with the Company. üRobust Stock Ownership Requirements: Officers and directors are subject to stock ownership guidelines to further align their interests with stockholder interests. Our NEOs substantially exceed the ownership guidelines. üClawbacks on Executive Compensation: We maintain a compensation recovery policy covering cash and equity. | | ûNo Guaranteed Annual Bonuses: Our annual incentive compensation plan is performance-based and does not include any minimum payout levels. ûNo Retirement Benefits: We have no supplemental executive retirement plans (SERPs) or defined benefit pension plans. ûNo Tax Gross-Ups: We do not provide tax gross reimbursements for change in control payouts or executive perquisites. ûNo Significant Perquisites: We provide limited perquisites to our NEOs. ûHedging of Company Stock is Prohibited. ûNo Severance For “Cause” Terminations. ûNo Single-Trigger Change in Control Provisions. Equity awards for NEOs generally require a “double-trigger” of both a change-in-control and termination of employment for both cash and equity compensation acceleration. ûNo Stock Option Repricing without Stockholder Approval. Our equity plans prohibit repricing underwater stock options. ûPledging of Company stock is limited. |
38 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
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| 2020 Compensation of Named Executive Officers |
Our Business and Our Compensation Philosophy
The guiding principles of our executive compensation philosophy and practices continue to be pay-for-performance, accountability for annual and long-term performance, alignment to stockholders’ interests and providing competitive pay to attract and retain executives. We believe our compensation program strikes the appropriate balance between utilizing responsible, measured pay practices and effectively incentivizing our executives to dedicate themselves fully to value creation for our stockholders.
Our executive compensation program is designed to focus our executive officers on both annual and long-term financial and operational performance without encouraging unnecessary risk. The following graphs show that approximately 50% of the CEO’s total direct compensation and approximately 80% of the average total direct compensation of all of the other NEOs’, as reflected in the 2020 rows of the Summary Compensation Table, is at risk.
Our CEO, the Company’s founder, does not receive long-term incentive compensation because of his significant level of common stock ownership which the independent directors believe provides him with sufficient incentives to act in the best long-term interest of our stockholders. As a result, a smaller percentage of his total compensation is performance-based as compared to the chief executives of our peer companies who typically receive additional compensation in the form of substantial long-term incentives.
39
Proposal 1 Election of Nine Directors
The PSU awards in the chart below are presented at target based upon grant date fair value. The annual incentive plan amounts are presented based on actual amounts earned under the annual incentive plan for services rendered in 2020.
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| Compensation Element | Objective |
| Base Salary | • Provide a competitive fixed component of cash compensation to attract and retain executives. We believe ourtalented and experienced executives with the knowledge and skills necessary to achieve the Company’s strategic business objectives • The Compensation Committee uses the services of an independent compensation program strikesconsultant to assess the appropriate balance between utilizing responsible, measured pay practicesbase salaries as compared to a competitive target range of the Company’s peer group • The Compensation Committee considers these factors when setting base salaries of the NEOs: scope of the NEO's responsibilities, contributions, skills, knowledge, experience, seniority and effectively incentivizing our executives to dedicate themselves fully to value creation for our stockholders. Executive Compensation Design
Our executive compensation program is designed to focus executive officers on both annual and long-term Company performance
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| CEO* | OTHER NEOs |
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| *CEO receives no equity awards | |
| Annual Incentive Plan | • Offer a variable cash compensation opportunity that may be earned based upon the level of achievement of challenging corporate goals, with an additional compensation opportunity based upon individual performance • Foster a shared commitment among executives through establishment of uniform Company financial and operationalgoals • Award payouts are subject to a cap of 225% of target in a performance without encouraging unnecessary risk. The following graphs show approximately 63 percentperiod |
| CEO | OTHER NEOs |
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| Long-Term Incentives | • Align interests of the Chief Executive Officer's total direct compensation and approximately 78 percent of the average total direct compensation of all of the other Named Executive Officers' compensation, as reflected in the 2017 column of the Summary Compensation Table, is at risk. Our Chief Executive Officer, the Company's founder,our NEOs (other than our CEO, who does not receive long-term incentives becauseincentive awards) and stockholders by motivating executive officers to increase long-term stockholder value
• Service-based equity awards consist of his significant level of common stock ownership. As a result, a smaller percentage of his total compensation is performance-based as compared to the chief executives of our peer companies who typically receiveRSUs. They offer certainty and long-term retention while providing additional compensation in the form of long-term incentives. The performance-based stock units in the chart below are presented at targetopportunity based upon grant date fair value.
increased stock price levels
The following provides details• PSUs provide an additional incentive to our NEOs (other than the CEO) based on performance. 50% (at target) of PSUs are based on the componentsCompany's total stockholder return relative to a stock market index of our executive compensation program:companies in similar industries and 50% (at target) are based upon the ratio of operating cash flow to adjusted net income, measuring the Company's performance over three years | | | | Compensation Element | | Objective | Base salary | • | Provide a competitive fixed component of cash compensation to attract and retain talented and experienced executives with the knowledge and skills necessary to achieve the Company's strategic business objectives. | | • | The Compensation Committee uses the services of an independent compensation consultant to assess the base salaries as compared to a competitive target range of the Company's named peer group. | | • | The Compensation Committee considers these when setting base salaries of the executive officers: scope of the executive's responsibilities, performance, contributions, skills and experience, annual and long-term Company performance.
| Annual• Enhance retention with vesting over four years for RSUs and three years for PSUs
| | OTHER NEOs | incentive plan
| • | Offer a variable cash compensation opportunity earned based upon the level of achievement of challenging corporate goals, with additional compensation opportunity based upon individual performance. | | • | Foster a shared commitment among executives through establishment of uniform Company financial goals.
| | • | Award payouts are subject to a cap of 225% of target in a performance period.
| Long-term
incentives
| • | Align interests of our executives and stockholders by motivating executive officers to increase long-term stockholder value. | | • | Service-based equity awards offer certainty and long-term retention while providing additional compensation opportunity based upon increased stock price levels. | | • | Performance-based stock units provide additional incentive to our NEOs (other than the CEO) and are earned based on IPG's total stockholder return relative to the Russell 3000 index. | | • | Enhance retention with vesting over four years. | 401(k) Retirement Savings Plan
| • | | | Performance-based Equity Award | Service-based
Equity Award | | | | 401(k)
Retirement
Savings Plan | •Provides participants the opportunity to defer a portion of their compensation and receive a company match of 50% of deferrals subject to a maximum of 6% of eligible compensation. | | • | The plan is available to all eligible U.S. employees of the Company. | Pension Plan | • | We provide no pension plan or deferred compensation plan. | Perquisites | • | Perquisites are limited. |
2017 Base Salaries
We provide base salary to our Named Executive Officers and other employees to compensate them for services rendered on a day-to-day basis during the fiscal year. Unlike annual cash incentives and long-term equity incentives, base salary is not subject to performance risk. The Compensation Committee reviews information provided by its compensation consultant and considers the experience, skills, knowledge and responsibilities of the executive and the individual's performance assessment provided by the Chief Executive Officer to assist it in evaluating base salary for each Named Executive Officer. With respect to the Chief Executive Officer, the Compensation Committee additionally considers the performance of the Company as a whole.
In 2017, the Compensation Committee evaluated the base salaries and total cash compensation for the Named Executive Officers with the assistance of Radford. The Compensation Committee reviewed Radford's assessment in connection with positioning the midpoint of the Company's target total cash compensation range near the 65thpercentile of our peer group. Based upon this review, the Compensation Committee approved increases of the Named Executive Officers in the following manner: Dr. Gapontsev received an increase in base salary of 13% bringing his base salary in line with the market 65th percentile of our peer group, which also factored in the fact that the Compensation Committee does not grant any equity awards to Dr. Gapontsev. Likewise, the salary of Dr. Scherbakov increased from approximately $500,000 to $540,000 which also factored in his additional management responsibilities related to his appointment as Chief Operating Officer in February 2017. Finally, the Compensation Committee approved merit increases of 5%, 8% and 3% for the base salaries of Messrs. Mammen, Ness and Lopresti.
Update 2018. In 2018, the Compensation Committee approved increases to each of the Named Executive Officers following an updated assessment of base salaries and total cash compensation conducted by Radford. The CEO's base salary was increased by12% to $930,000. Also, the salary of Dr. Scherbakov increased from approximately $540,000 to $679,400. Finally, the Compensation Committee approved increases of 5%, 6% and 5% to the base salaries of Messrs. Mammen, Ness and Lopresti, respectively.
2017 Cash Incentive Awards
To focus each executive officer on the importance of the Company's performance, a significant portion of the individual's potential short-term compensation is in the form of annual cash incentive pay that is tied to the achievement of goals set by the Compensation Committee. Our Named Executive Officers participate in our Senior Executive Annual Incentive Plan (the "AIP") administered by the Compensation Committee. The Compensation Committee determines who is eligible to receive awards under the AIP, defines performance goals and objectives for executives, establishes target awards for each participant for the relevant performance period, and determines the percentage of the target award that should be allocated to the achievement of each of the chosen performance goals in consultation with the Chief Executive Officer with respect to other executive officers. The target award percentages established by the Compensation Committee are chosen with input from the compensation assessment conducted by Radford and the seniority level of the executive.
Consistent with prior years, in 2017 the Compensation Committee identified two financial performance measures: net sales and adjusted EBIT and assigned a 50% weighting factor to each financial performance goal. "Adjusted EBIT" is a performance measure that is equal to our earnings before interest income and expense, income taxes, equity-based compensation expenses and expenses for litigation matters approved by the Compensation Committee. Further, the Compensation Committee intentionally focused on net sales growth and pretax profits so that our executive officers would be incentivized to deliver the types of growth that benefit our stockholders, namely increasing sales and profits.
Under the 2017 AIP, the executives could receive cash incentive payments in the table below as a percentage of base salaries based upon achievement of the minimum to maximum objectives for both financial performance measures and for individual performance. If the financial performance exceeds one or more of the stretch objectives, the incentive payments to the executive would increase as determined by linear interpolation, subject to limits on maximum award payouts. Consistent with our pay-for-performance philosophy, no cash incentive payments would be made if the minimum financial objectives established by the Compensation Committee in 2017 were not met. The individual goals and objectives for the Chief Executive Officer include operational and strategic targets determined by the independent directors.
The overall target awards in the table below are a percentage of the respective base salaries. The company-wide financial objectives are the same for all executive officers in order to foster a shared commitment among executives. | | | | | | | | | | | Name | Target as % of Base Salary | Financial Performance Minimum | Financial Performance Maximum | Individual Performance Maximum | Maximum Award Payout (1) | Target Award ($)(2) | Actual Payout ($) | | Valentin P. Gapontsev, Ph.D. | 100% | 18.8% | 225.0% | 25.00% | 225% | 832,000 | 1,399,100 |
| | Eugene A. Scherbakov, Ph.D. | 75% | 14.0% | 225.0% | 19.00% | 225% | 405,000 | 769,300 |
| | Timothy P.V. Mammen | 75% | 14.0% | 225.0% | 19.00% | 225% | 344,000 | 577,000 |
| | Trevor D. Ness | 75% | 14.0% | 225.0% | 19.00% | 225% | 308,000 | 516,200 |
| | Angelo P. Lopresti | 75% | 14.0% | 225.0% | 19.00% | 225% | 316,000 | 530,000 |
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| | (1) | Maximum award payout is presented as a percentage of the target award. |
| | (2) | Target award includes both financial and individual performance targets. |
While objectives were intended to be achievable by the Company, a maximum bonus would require very high levels of Company performance. In 2017, the Compensation Committee adjusted the targets to reflect the acquisition of OptiGrate Corporation and Innovative Laser Technology, Inc. The adjusted target levels for net sales and Adjusted EBIT were $1,134 million and $422 million, respectively, representing 13% and 7% increases, respectively, from prior year levels. The Compensation Committee's adjusted minimum and stretch targets for net sales were $964 million and $1,304 million, and for Adjusted EBIT were $338 million and $507 million.
During 2017, the Company achieved net sales of $1,409 million and Adjusted EBIT of $593 million. These results represented a 40% increase in net sales and a 51% increase in Adjusted EBIT over 2016 levels. Despite exceeding the stretch targets in 2017, payouts were not limited by the plan maximums, which are set at 225% of the target award for financial and individual performance. The independent directors set
the individual goals and objectives for the Chief Executive Officer in 2017. In 2017, the independent directors also reviewed the Chief Executive Officer's attainment of goals and objectives and approved his payout under the 2017 AIP. As a result of this process, the independent directors awarded the Chief Executive Officer 25.0% of his base salary for his individual performance during 2017. The Compensation Committee, with input from the Chief Executive Officer, awarded the other Named Executive Officers 19.0% of their respective base salaries for their individual performances in 2017.
The Compensation Committee may award discretionary bonuses to executives for exceptional performance. For 2017, the Compensation Committee did not exercise this right.
2018 Update. In February 2018, the Committee approved annual targets and incentive payouts to the Named Executive Officers for fiscal year 2018 under the AIP, as set forth below. The awards noted below have financial and individual performance goals. The Compensation Committee approved the targets under the AIP to the Named Executive Officers in February 2018 in the following payout amounts:
| | | | | | | | | Name | | Target as % of Base Salary | Financial Performance Minimum | Financial Performance Maximum | Individual Performance Maximum | Maximum Award Payout (1) | | Valentin P. Gapontsev, Ph.D. | | 110% | 20.63% | 220.0% | 27.50% | 225% | | Eugene A. Scherbakov, Ph.D. | | 100% | 18.75% | 200.0% | 25.00% | 225% | | Timothy P.V. Mammen | | 80% | 15.00% | 160.0% | 20.00% | 225% | | Trevor D. Ness | | 80% | 15.00% | 160.0% | 20.00% | 225% | | Angelo P. Lopresti | | 80% | 15.00% | 160.0% | 20.00% | 225% |
(1) Maximum award payout is presented as a percentage of the target award.
Equity-Based Incentives Granted in 2017
The goal of our equity-based award program is to provide employees and executives with the perspective of an owner with a long-term financial stake in our success, further increasing alignment with stockholders. Our equity-based incentives align the interests of our executives and stockholders by motivating executive officers to increase long-term stockholder value.
In 2017, our equity-based award program for executives included service-based stock options (33%), service-based restricted stock units (33%), and performance-based stock units (at target, 33%). The type and proportion of the equity grants reflected a 2017 review by our Compensation Committee with the assistance of Radford of grant practices at peer companies. The value of stock options, restricted stock units and performance-based stock units are tied to the Company stock price which links pay to performance.
Consistent with our pay-for-performance philosophy, the service-based stock option awards have no value unless our stock price increases after the grant date. Another reason why we use service-based stock options is because it fosters an innovative environment focused on long-term growth of the Company and stockholder value.
The addition of performance-based stock units in 2015 to the equity mix increases the portion of the executives' compensation that is based upon the Company's performance. The Compensation Committee decided to measure performance of the Company's stock as compared to the Russell 3000 Index, which includes the Company. Also, it directly aligns executives' compensation with stockholders interest because the number of shares earned depends upon performance against the Russell 3000 Index and the value of the shares fluctuates based on the stock price. For each 1% that IPG's common stock exceeds the performance of the Russell 3000 Index for the trailing 60 trading days from the end of the performance measurement period (March 1, 2020) against the comparable period from the beginning of the performance measurement period (March 1, 2017), the grant recipient would receive a 2% increase in the number of shares above target (up to a maximum cap of 200% of the target award). For each 1% below the Russell 3000 Index's performance, the grant recipient would receive a 2% decrease in the number of shares (down to zero). In addition, Name Executive Officers cannot receive a number of shares that exceeds 400% of the value of the target award on the date of grant. The vesting date is March 1, 2020, should any performance-based stock units vest at all.
In 2017, the Compensation Committee targeted granting equity compensation near the 65th percentile of the target compensation of our peer group, balancing the perspective of delivering competitive compensation based upon Black-Scholes option pricing values and Monte Carlo simulations for performance-based stock units. The Compensation Committee analyzed several aspects of the equity grant program, including (i) the "in the money" value, the degree to which executives have incentives to remain employed by the Company through unvested option values, and (ii) the aggregate equity usage in terms of (a) annual usage, typically called burn rate, and (b) cumulative equity delivery, typically called overhang, to determine the dilutive effect of equity awards on investors. The majority of outstanding equity award holdings of the executives were allocated to unvested shares in the aggregate, and all such executives had a minimum of two years' worth of annual award values in unvested equity value. Based upon this information, Radford advised the Compensation Committee that our equity program provides strong retention incentives.
Since the Company's initial public offering in 2006, the Compensation Committee has not granted the Chief Executive Officer any equity compensation awards. As the Company's founder and the beneficial owner of a large number of our shares, he has the perspective of an owner with a significant financial stake in the Company's success. This practice has resulted in substantially lower total compensation earned by our Chief Executive Officer as compared to the chief executives of our named peers despite our outstanding business and earnings growth. In addition, this practice results in a lower compensation expense and lower equity burn rate for the Company.
The table below provides information on grants of service-based stock options, service-based restricted stock units and performance-based stock units to the Named Executive Officers in 2017. All awards in the table below vest on March 1, 2021, except for the performance-based stock units which vest on March 1, 2020.
| | | | | | | | | | | | | Name | | Service-Based Stock Options (#) | | Exercise Price ($) | | Service-Based Restricted Stock Units (#) | | Performance-Based Stock Units (at Target) (#) | | Performance-Based Stock Units Range (Based upon Achievement) (#) | | Valentin P. Gapontsev, Ph.D. | | — | | — | | — | | — | | — | | Eugene A. Scherbakov, Ph.D. | | 10,367 | | 119.50 | | 3,388 | | 3,388 | | 0 - 6,776 | | Timothy P.V. Mammen | | 8,799 | | 119.50 | | 2,876 | | 2,876 | | 0 - 5,752 | | Trevor D. Ness | | 7,871 | | 119.50 | | 2,572 | | 2,572 | | 0 - 5,144 | | Angelo P. Lopresti | | 7,184 | | 119.50 | | 2,348 | | 2,348 | | 0 - 4,696 |
The Compensation Committee believes that vesting of awards of service-based options and restricted stock units over four years provides a strong incentive for executives to remain employed by us and to focus on increasing our financial performance over the long-term, while discouraging excessive short-term risk taking. The Compensation Committee believes that the performance-based stock units should vest over three years, instead of four years, because having a four year performance period would reduce the utility of the performance award and not properly align pay with performance. The service-based restricted stock units granted in 2017 may be entitled to dividends, should any be paid, at the discretion of the Compensation Committee. Any dividends on shares underlying the performance-based stock units do not vest until the performance-based stock units vest.
2018 Update. The Compensation Committee approved the grant of service-based stock options and restricted stock units and performance-based stock units to the Named Executive Officers in February 2018. All equity awards in the table below vest according to the vesting schedule approved by the Compensation Committee: service-based stock options and restricted stock units vest 25% on each anniversary of March 1, 2018 and performance-based stock units vest on March 1, 2021, the last day of the performance period which is three years after the start of the performance period on March 1, 2018.
| | | | | | | | | | | | | Name | | Service-Based Stock Options (#) | | Exercise Price ($) | | Service-Based Restricted Stock Units (#) | | Performance-Based Stock Units (at Target) (#) | | Performance-Based Stock Units Range (Based upon Achievement) (#) | | Valentin P. Gapontsev, Ph.D. | | — | | — | | — | | — | | — | | Eugene A. Scherbakov, Ph.D. | | 13,744 | | 239.72 | | 4,014 | | 4,014 | | 0 - 8,028 | | Timothy P.V. Mammen | | 6,642 | | 239.72 | | 1,940 | | 1,940 | | 0 - 3,880 | | Trevor D. Ness | | 5,689 | | 239.72 | | 1,661 | | 1,661 | | 0 - 3,322 | | Angelo P. Lopresti | | 5,786 | | 239.72 | | 1,690 | | 1,690 | | 0 - 3,380 |
All Other Compensation
Severance Benefits.The severance benefits we offer assist us in recruiting and retaining talented individuals and are consistent with the range of severance benefits offered by our peer group. The severance provisions of our employment agreements are summarized below in the section titled "Potential Payments upon Termination or Change in Control."
Retirement Benefits.We do not offer an executive retirement plan or a non-qualified deferred compensation plan. Executive officers in the United States are eligible to participate in our 401(k) retirement savings plan on the same terms as all other U.S. employees. Our 401(k) retirement savings plan is a tax-qualified plan and therefore is subject to certain Internal Revenue Code limitations on the dollar amounts of deferrals and Company contributions that can be made to plan accounts. These limitations apply to our more highly-compensated employees (including the Named Executive Officers). We made matching contributions to our employees at a rate of 50% of deferrals subject to a maximum of 6% of eligible compensation under the 401(k) retirement savings plan, including the Named Executive Officers, who participate in the plan as set forth in the Summary Compensation Table. Our executives outside of the United States participate in government-sponsored retirement programs.
Personal Benefits.• Our executives are eligible to participate in employee benefit plans, including medical, dental, life and disability insurance and vacation plans as well as an employee stock purchaseThe plan which is intended to be qualified under Section 423 of the Code. The employee stock purchase plan allows participants to purchase Company shares at a price equal to 85% of the lesser of the fair market value at the first day or last day of the six month offering period, subject to limitations on the amount of shares. These plans generally are available to all salariedeligible U.S. employees and do not discriminate in favor of executive officers. Benefits
|
| Pension Plan | • We provide no pension plan or deferred compensation plan |
| Perquisites | • Perquisites are intended to be competitive with the overall market in order to facilitate attraction and retention of high-quality employees.limited |
Base Salary
We provide base salary to our NEOs and other employees to compensate them for services rendered on a day-to-day basis during the fiscal year. Unlike annual cash incentives and long-term equity incentives, base salary is not subject to performance risk. The Compensation Committee reviews data provided by its independent compensation consultant and considers the factors when setting base salaries of the NEOs: experience, skills, seniority, knowledge and responsibilities of the executive and the individual’s performance assessment provided by the CEO. With respect to the CEO, the Compensation Committee additionally considers the performance of the Company as a whole in its recommendation to the independent directors, who set CEO compensation.
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Proposal 1 Election of Nine Directors
In 2020 the Compensation Committee evaluated the base salaries and total cash compensation for the NEOs with the assistance of Aon, its independent compensation consultant. Due to the challenging macroeconomic and foreign trade conditions beginning in 2018 and continuing into 2020, the independent directors accepted the Compensation Committee’s recommendation to not increase the base salary of the CEO. In addition, the Compensation Committee determined not to increase the base salaries of the other NEOs in 2020.
2021 Update. For 2021, the CEO's base salary increased 7.5% and his annual target incentive payout increased to 125% of base salary from 110% as the Compensation Committee considered the CEO's total compensation as compared to peer compensation data. Dr. Gapontsev does not receive equity compensation as a founder of the Company. His compensation is substantially below that of the chief executive officers of peers even though his leadership, innovation and contribution are high. After giving effect to the increases, our CEO's total compensation at target remains less than half of peer chief executive compensation at the 25th market percentile.The Compensation Committee also increased the CFO's base salary by 5% and other NEOs' base salaries by 3% after considering peer compensation data. Prior to these recent updates, the base salaries of the CEO and other NEOs had not changed since 2018.
Annual Incentives
To focus each NEO on the importance of the Company’s performance, a significant portion of the individual’s potential short-term compensation is in the form of annual cash incentive pay that is tied to the achievement of goals set by the Compensation Committee. Our NEOs participate in our Senior Executive Annual Incentive Plan (the “AIP”) administered by the Compensation Committee. The Compensation Committee determines who is eligible to receive awards under the AIP, defines performance goals and objectives for executives, establishes target awards for each participant for the relevant performance period, and determines the percentage of the target award that should be allocated to the achievement of each of the chosen performance goals in consultation with the CEO with respect to other executives.
Under the AIP, if a performance goal is met at the target level as determined by the Compensation Committee, the target bonus is paid for that goal. Performance above target results in a payout of a higher percentage of salary, up to 200% of the NEO’s target cash bonus. Performance below target results in a lower bonus payout for that goal if a minimum threshold is met, with 18.75% of the NEO’s target cash bonus as the minimum in such circumstance, or no payout if the minimum threshold is not met. At target, the financial performance payout accounts for 75% of the overall target award. The CEO can earn up to 25% of his target award based upon goals and objectives determined by the independent directors. For 2020, targets included managing effectively through the COVID-19 pandemic, executive and management development and business growth drivers. The other NEOs also are eligible for payouts up to 25% of the target award based on their individual performance and other factors the Compensation Committee deems relevant.
ILLUSTRATION OF IPG’S ANNUAL INCENTIVE PLAN (AIP)
(1)Non-GAAP “Adjusted EBIT” is an internally defined performance measure that is derived from GAAP net income by adding back the provision for income taxes, interest expense and stock-based compensation expenses, deducting interest income and excluding foreign currency transaction gains and losses.
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Proposal 1 Election of Nine Directors
In February 2020, the Compensation Committee approved annual targets and incentive payouts for the Company’s NEOs and other executive officers for fiscal year 2020 under the AIP. Consistent with prior years, the Compensation Committee identified two financial performance measures: net sales and adjusted EBIT, each as determined under the AIP, and assigned a 50% weighting factor to each financial performance goal. The Compensation Committee chose to focus on revenue and pretax profits so that our NEOs and other executive officers would be incentivized to deliver the types of financial performance that benefit our stockholders in the economic conditions that exist during the year, namely sales and profits.
In July and August of 2020, the Compensation Committee evaluated and discussed whether to adjust the AIP to account for the impact of the COVID-19 pandemic and other factors impacting the Company’s 2020 performance. The Company’s performance for the first half of 2020 was generally in line with targeted amounts, with Adjusted EBIT above budget by 1.9%, and revenue lower than budget by 4.5%. However, due to the ongoing effects of the COVID-19 pandemic, including restrictions on travel and business activity, recession and business uncertainty, the Company’s performance overall in the second half of 2020 was then expected to be below target.
As the payout under the AIP was very sensitive to performance in the second half of the year, underperformance in the second half of 2020 would likely result in no compensation for the financial performance elements of the AIP formula. The Compensation Committee reviewed materials highlighting the impact on the AIP of below budgeted performance in the second half of 2020. While the challenging demand environment and increasingly competitive market in China exacerbated the uncertainties created by COVID-19 and created difficulty in forecasting Q3 and Q4 performance, the Compensation Committee determined that revisions to the AIP were needed in the light of the Company’s potential performance for the second half of 2020. In light of the highly competitive environment in which the Company operates and other factors mentioned above, the Compensation Committee determined that changes to the AIP would also contribute to incentivizing and retaining executives.
In consultation with Aon, the Compensation Committee's independent compensation consultant, the Compensation Committee determined to split the 2020 AIP performance period into two one-half year performance periods, January 1 to June 30, 2020, and July 1 to December 31, 2020. This change reduced the volatility of the impact of the financial performance factors while continuing to use the performance metrics approved in early February. In the event that the amount earned under the full year AIP was greater than the minimum that could be earned for the first six-month performance period, but less than the amount that could be earned for both six-month performance periods, the Compensation Committee determined that the AIP calculation would revert to the full year results basis of calculation. This was to ensure that the change approved in July 2020 would not result in a NEO or other executive of the Company earning a windfall financial payout if the pandemic did not so adversely affect the Company’s performance in the second half of 2020. None of the performance metrics or weighting in the 2020 AIP were changed. As a result, an NEO could not earn more under the AIP as a result of the change to two six-month performance periods than under the AIP approved in February. As detailed below, the financial performance was ultimately calculated based on full year results, not two six-month periods. The graphic below illustrates performance relative to the full-year goals that were set in February 2020 prior to the onset of the COVID-19 pandemic.
2020 AIP FINANCIAL PERFORMANCE TARGETS
($ in millions)
| | | | | | | | | | | | | | | | | |
| Threshold
18.75% Payout | Target
100% Payout | Maximum
200% Payout | Component
Weighing (%) | Financial Performance Award Earned (% of Target) |
| Revenue | | 37.5 | 96 |
| Adjusted EBIT | | 37.5 | 101 |
Revenue in 2020 was $1,201 million and adjusted EBIT in 2020 was $270 million. Revenue was achieved at 96% of target and adjusted EBIT was achieved at 101% of target. At the beginning of 2020, the Compensation Committee set goals for management based upon a weak demand outlook and the uncertain conditions known then at the onset the COVID-19 pandemic. As the year progressed, different geographic markets were impacted by the global health and economic crises at different times and in different degrees. Government and business restrictions and safety considerations greatly affected
42 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
the way and how we did business in 2020, as demand for industrial capital equipment fell rapidly. The impact of increased price competition together with lower industrial machinery purchasing activity also adversely affected revenues and earnings. China's recovery starting in the second quarter helped offset some, but not all, of the decreases we experienced in other regions.
The full year results yielded a financial performance payout that was greater than the minimum financial performance payout that could be earned for the first six-month period, but less than the total payout that would have resulted by reference to two separate six-month periods that the Compensation Committee had approved in August 2020. As a result, the Compensation Committee used the full year financial performance targets established in February 2020 as the basis for calculating the payouts under the 2020 AIP.
The Committee adjusted the earnings results to add back a $45 million goodwill impairment expense taken in the third quarter from the acquisition of Genesis Systems Group ("Genesis") in 2018. Genesis had forecasted an increase in sales for 2020 from opportunities in automotive, other transportation and aerospace based on projected demand for Genesis’s high-value automated materials processing systems. The impact of COVID-19 on capital expenditure in the first half of 2020 was significant and particularly acute in relation to high-value capital equipment as projects were delayed and cancelled. Furthermore, the impact of the pandemic on the global aerospace industry, previously a growth area for Genesis, was grave, resulting in customer order deferrals and cancellations. In the third quarter of 2020, the Company identified the global pandemic as a triggering event requiring a goodwill impairment evaluation ahead of its regular fourth quarter impairment testing. The Compensation Committee considered these factors were largely outside of management’s control when reaching a decision to add back the Genesis goodwill impairment charge to calculate Adjusted EBIT for the AIP. This had the effect of increasing financial performance payouts based on Adjusted EBIT by $200,800, $122,900, $74,500, $69,400 and $68,800 for Drs. Gapontsev and Scherbakov, Messrs. Mammen and Lopresti and Dr. Ovtchinnikov, respectively.
Each NEO earned the full payouts with respect to the individual performance component as they managed effectively through the COVID-19 pandemic, having kept our employees, their families and customers safe, generated growing sales of newer products, introduced products and made progress on developing new technologies, components and photonics devices for the future. Additionally, in February 2021, the Compensation Committee awarded Mr. Mammen a payment of 5% of his base salary in recognition of his contributions in 2020, which included effective financial leadership during the onset and continuation of the pandemic, strong financial management and accounting execution, effective investor relations and other contributions.
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Proposal 1 Election of Nine Directors
The table below shows, for each NEO, the total target annual incentive award, the threshold, target and maximum payouts with respect to financial performance, the maximum payout with respect to individual performance and actual bonus payout for 2020.
($ in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Named Executive Officer | Target
as a % of
Base Salary(1) | Target Award(1) | Financial Performance | Individual Performance Maximum | Actual Award |
| Threshold | Target | Maximum |
| Valentin P. Gapontsev | 110% | $1,023 | | $256 | $935 |
| Eugene A. Scherbakov | 100% | $679 | | $154 | $574 |
| Timothy P.V. Mammen | 80% | $385 | | $96 | $376 |
| Angelo P. Lopresti | 80% | $354 | | $88 | $323 |
| Alexander Ovtchinnikov | 80% | $351 | | $88 | $320 |
(1)Target award includes both financial (weighted at 75%) and individual performance (weighted at 25%) targets. Maximum award from all performance elements limited to 225% of target.
None of the NEOs' target bonus percentages were increased for 2020.
2021 Update. For 2021, annual incentive payouts targets as a percentage of salary remained the same as 2020, except for the CEO whose target annual incentive level increased to 125% of base salary for the reasons discussed above.
44 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Long-Term Incentives
The goal of our equity-based award program is to provide employees and executives with the perspective of an owner with a long-term financial stake in our success, further increasing alignment with stockholders. Our equity-based incentives align the interests of our executives and stockholders by motivating executives to increase long-term stockholder value.
In 2020, our equity-based award program for our NEOs (other than our CEO) included RSUs and PSUs, with each award type representing half of the overall 2020 long-term incentive award opportunity (at target for the PSUs). The type and proportion of the equity grants reflected a 2020 review by our Compensation Committee with the assistance of Aon of equity award practices at peer companies. The value of the RSUs and PSUs are tied to the Company's stock price which links pay to performance.
The Compensation Committee compared the Company's executive perquisites policies against the 2017 peer group and made no changes. The Company provides the use of a corporate aircraft to the Chief Executive Officer and other executives for business travel integral to the performance of their duties. Executives are encouraged to use the aircraft for efficiency, safety and security. However, executives are not allowed to use the aircraft for personal use that has not been paid for, except that family and other guests may accompany executives on the aircraft for business travel. The Company provides the Chief Executive Officer | | | | | |
| 2019 EQUITY ELEMENTS | 2020 EQUITY ELEMENTS |
| |
In February 2020, the Compensation Committee determined to weight 50% of the PSU value on relative total stockholder return, a metric accounting for 100% of PSU value in prior years, and 50% on the ratio of operating cash flow to adjusted net income, a new metric introduced in 2020. For the PSUs based upon relative total stockholder return ("TSR PSU"), the performance of the Company’s stock is measured against the S&P Composite 1500 Electronic Equipment, Instrument and Components Index, the same index used since 2019. For each 1% that IPG’s common stock exceeds the performance of such index for the trailing 60 trading days from the end of the performance measurement period (March 1, 2023) against the comparable period from the beginning of the performance measurement period (March 1, 2020), the grant recipient would receive a 2% increase in the number of shares above target (up to a maximum cap of 200% of the target award). For each 1% below such index’s performance, the grant recipient would receive a 2% decrease in the number of shares (down to zero).
For the PSUs based upon operating cash flow ("OCF PSUs"), the value of the PSU is based upon the ratio of the Company's operating cash flow to adjusted net income measured over a three-year performance period starting on January 1, 2020, and ending on December 31, 2022 (the "OCF Ratio"). For such awards, the Compensation Committee annually sets a target, threshold and maximum numerical value for the OCF Ratio for the then present year. The performance of the actually achieved OCF Ratio to the target ratio for each individual year in the performance period is averaged over the three-year performance period to calculate the final award earned. Performance below the target would decrease the award, subject to a minimum performance level below which no award would be earned, and performance above the target would increase the award, subject to a maximum cap of 200% of the target award.
The Compensation Committee believes that vesting RSUs over four years provides a strong incentive for executives to remain employed by us and to focus on increasing our financial performance over the long-term, while discouraging excessive short-term risk taking. The Compensation Committee believes that PSUs should vest over three years, rather than four years, because having a four-year performance period would reduce the utility of the performance award and not properly align pay with performance. RSUs and PSUs granted in 2020 are entitled to dividends, should any be paid. Any dividends on shares underlying the PSUs do not vest until the PSUs vest.
In 2020, the Compensation Committee used competitive market data from the total compensation study of peer companies to gain perspective of appropriately competitive executive compensation. The Compensation Committee analyzed several aspects of the equity grant program, including (i) the degree to which executives have incentives to remain employed by the Company through unvested award value and (ii) the aggregate equity usage in terms of (a) annual usage, typically called burn rate and (b) cumulative equity delivery, typically called overhang, to determine the dilutive effect of equity awards on investors. The majority of outstanding equity award holdings of the executives were allocated to unvested shares in the aggregate, and all such executives had a minimum of two years’ worth of annual award values in unvested equity value. Based upon this information, Aon advised the Compensation Committee that our equity program provides strong retention incentives.
Since the Company’s initial public offering in 2006, the Compensation Committee has not granted the CEO any equity compensation awards. As the Company’s founder and the beneficial owner of a large number of our shares, he has the
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Proposal 1 Election of Nine Directors
perspective of an owner with a significant financial stake in the Company’s success and a long-term outlook. This practice has resulted in substantially lower total compensation earned by our CEO as compared to the chief executives of our named peers despite our outstanding business and earnings growth over the long term. In addition, this practice results in a lower compensation expense and lower equity burn rate for the Company.
In February 2020, the Compensation Committee decreased the target long-term incentive award to Dr. Scherbakov to 380% of base salary from 425% in 2019, and increased the target long-term incentive award to Mr. Mammen to 300% of base salary from 290% in 2019 after considering peer compensation data.
Adjustment of Operating Metric.
In July and August 2020, the Compensation Committee evaluated the new operating cash flow metric for the OCF PSUs to determine whether the incentive was working as planned and to determine whether any appropriate adjustments were needed because 2020 was the first year utilizing such metric for performance-based awards. The OCF PSUs are intended to incentivize and reward executives and other senior employees for managing working capital appropriately.
As described above, the Compensation Committee annually sets a target, threshold and maximum for the OCF Ratio for each year in the performance period of the OCF PSUs. The comparison of the actual OCF Ratio to target ratios for each individual year in the performance period is averaged to calculate the final award earned.
During a mid-year review to assess if the new operating metric was working as intended, the Committee with the input of its independent compensation consultant and Company management, determined that it was not and adjustments were necessary. The Compensation Committee modified the model for generating threshold, target and maximum to address greater than intended sensitivities in the multiplier used to calculate the threshold and maximum based on target. The OCF ratio is primarily driven by two working capital metrics: inventory days and account receivable days. The Compensation Committee determined to establish working capital metrics to generate the maximum OCF Ratio for various revenue scenarios and then to set threshold and target relative to the maximum. This adjustment enabled the Compensation Committee to set threshold and target that were more reasonable relative to the maximum under a range of revenues.
During the mid-year assessment, the Compensation Committee expanded the range of maximum and minimum targets to 30% +/- target from the previously approved 20%. The maximum cap of 200% of the target award was not changed. Because the Compensation Committee establishes metrics one year at a time, these metrics applied only to 2020. The potential impact of COVID-19 did not factor into the adjustments made to the model for setting and determining the OCF Ratios.
The Committee considered that an appropriately formulated cash flow metric biases executive and management behaviors in the right direction, including sales (payment terms), operations (business inventory) and cash flow (accounts receivables collections). The changes to the OCF PSUs are consistent with the Company’s expectations for continued contributions by NEOs, which will remain crucial to achieving the targets, and with the purpose of the Company’s executive compensation plans to promote stockholder value creation at an acceptable level of risk. After a review of a full year of the operating metric in February 2021, the Compensation Committee believed that adjustments to the metric worked as intended and applied the same model for 2021.
The table below provides information on grants of service-based RSUs and performance-based TSR PSUs and OCF PSUs to the NEOs in 2020. All awards in the table below vest 25% on each anniversary of March 1, 2020, except for the PSUs, which vest on March 1, 2023, the last day of the three-year performance measurement period.
| | | | | | | | | | | | | | | | | | | | |
| Name | Equity Incentive as a Percentage of Base Salary (%) | Service-Based
Restricted
Stock Units
(#) | TSR PSUs
(at Target)
(#) | TSR PSUs
Range (Based
upon Achievement)
(#) | OCF PSUs
(at Target)
(#) | OCF PSUs Range (Based
upon Achievement)
(#) |
| Valentin P. Gapontsev | — | — | — | — | — | — |
| Eugene A. Scherbakov | 380 | 8,139 | 4,069 | 0 - 8,138 | 4,069 | 0 - 8,138 |
| Timothy P.V. Mammen | 300 | 5,014 | 2,507 | 0 - 5,014 | 2,507 | 0 - 5,014 |
| Angelo P. Lopresti | 275 | 4,223 | 2,111 | 0 - 4,222 | 2,111 | 0 - 4,222 |
| Alexander Ovtchinnikov | 275 | 4,184 | 2,092 | 0 - 4,184 | 2,092 | 0 - 4,184 |
46 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Actual Performance of Performance-Based Stock Units.
TSR PSUs granted in 2018 vested in March 2021, but IPG performance fell under minimum so no shares were paid out for this award. The table below contains information concerning award performance for TSR PSUs awarded from 2017 to 2020 which vest three years after the date of grant.
| | | | | | | | | | | | | | | | | | | | |
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| 2017 PSUs | | | | | | |
Target TSR Index (Russell 3000® Index) | | 47.9% | | | | |
| IPG Performance | | 31.8% | | | | |
| Final 2017 Payout | | 67.7% | | | | |
| | | | |
| 2018 PSUs | | | | | | |
Target TSR Index (Russell 3000® Index) | | | 49.8% | | | |
| IPG Performance | | | (2.7)% | | | |
| Final 2018 Payout | | | 0 | | | |
| | | | |
| 2019 PSUs | | | | | | |
| Target TSR Index (S&P Electronics Index) | | | | TBD | | |
| IPG Performance and Payout | | | | TBD | | |
| | | | |
| 2020 PSUs | | | | | | |
| Target TSR Index (S&P Electronics Index) | | | | | TBD | |
| IPG Performance and Payout | | | | | TBD | |
| | | | |
Other Compensation
Severance Benefits.The severance benefits that we offer to our NEOs assist us in recruiting and retaining talented individuals and are consistent with the range of severance benefits offered by our peer group. The severance provisions of our NEO employment agreements are summarized in Potential Payments upon Termination or Change in Control below.
Retirement Benefits. We do not offer an executive retirement plan or a non-qualified deferred compensation plan. Executives in the United States are eligible to participate in our 401(k) retirement savings plan on the same terms as all other U.S. employees. Our 401(k) retirement savings plan is a tax-qualified plan and therefore is subject to certain Internal Revenue Code limitations on the dollar amounts of deferrals and company contributions that can be made to plan accounts. These limitations apply to our more highly-compensated employees (including the NEOs). We made matching contributions to our employees at a rate of 50% of deferrals subject to a maximum of 6% of eligible compensation under the 401(k) retirement savings plan, including the NEOs, who participate in the plan as set forth in the Summary Compensation Table. Dr. Scherbakov, who resides in Germany, participates in a German government-sponsored retirement program.
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Proposal 1 Election of Nine Directors
Personal Benefits. Our executives are eligible to participate in employee benefit plans, including medical, dental, life and disability insurance and vacation plans as well as an employee stock purchase plan, which is intended to be qualified under Section 423 of the Code. The employee stock purchase plan allows participants to purchase Company shares at a price equal to 85% of the lesser of the fair market value at the first day or last day of the six month offering period, subject to limitations on the amount of shares. These plans generally are available to all salaried employees and do not discriminate in favor of executives. Benefits are intended to be competitive with the overall market in order to facilitate attraction and retention of high-quality employees.
The Compensation Committee compared the Company’s executive perquisites policies against the 2020 peer group and made no changes. The Company provides the use of a corporate aircraft to the CEO and other executives for business travel integral to the performance of their duties. Executives are encouraged to use the aircraft for efficiency, safety and security. However, executives are not allowed to use the aircraft for personal use that has not been paid for, except that family and other guests may accompany executives on the aircraft for business travel and except for compassion circumstances. The Company provides the CEO with a car and driver in the United States so that he may use his travel time for company purposes. The Company also provides Dr. Scherbakov use of an automobile, as it does for other high-ranking employees in Germany.
Executive Compensation Decision-Making
Role of Compensation Committee
The Compensation Committee determines, approves and administers the compensation programs for our executive officers, including our Named Executive Officers.NEOs. The Compensation Committee recommends to the independent directors the CEO'sCEO’s annual base salary, annual incentive opportunity and long-term incentive opportunity. The independent directors approve the CEO'sCEO’s compensation and our Compensation Committee approves the compensation for other executive officers in consultation with our CEO. Our Compensation Committee is also responsible for making recommendations to the Board with respect to the adoption of equity plans and certain other benefit plans. The Compensation Committee and the independent directors meet in executive decisions when determining executive compensation.
The Compensation Committee may delegate authority whenever it deems appropriate. In 2017,2020, the Compensation Committee delegated authority to grant
equity awards for non-executive officersnon-executives to the Chief Executive OfficerCEO, subject to certain conditions, including amounts of awards and review of awards by the Compensation Committee.
Our Compensation Committee'sCommittee’s policy is to set executive officer pay in accordance with the objectives of the Company'sCompany’s compensation programs as described above. In the Compensation Committee'sCommittee’s view, the Company'sCompany’s executive compensation program provides an overall level of compensation opportunity that is competitive with peer companies. Actual compensation levels may be greater or less than target compensation levels provided by similar companies based upon annual and long-term Company performance, as well as individual performance, contributions, skills, seniority, knowledge, experience and responsibilities.
Role of Management
The Chief Executive OfficerCEO participates in the establishment of the compensation targetslevels and payout levelspayouts for theindividual performance for other Named Executive Officers.NEOs. He assesses the performance of all Named Executive OfficersNEOs and recommends to the Compensation Committee the overall levels of achievement and personal performance in the year. Upon request, Named Executive Officersthe NEOs provide supplemental material to the Compensation Committee to assist in the determination and implementation of compensation, policies and practices. The Chief Executive OfficerCEO is not involved in decisions regarding the setting of any component of his compensation. The Chief Executive OfficerCEO and other members of senior management attend Compensation Committee meetings at the invitation of the Compensation Committee.
Role of Independent Consultant
The Compensation Committee engaged Radford,Aon, an independent compensation consultant, to conduct a comprehensive review and analysis of our executive and non-employee director compensation programs and to make recommendations for compensation related to 2017.2020. The consultation included non-executive compensation data and valuation services for equity incentives. Radford’sAon’s parent company, Aon Hewitt, does not perform any other work for the Company. The Compensation Committee reviews the independence of RadfordAon in light of SEC rules and NASDAQNasdaq listing standards regarding compensation consultants. The Compensation Committee believes that there were no actual or potential conflicts of interest with RadfordAon in 2017.2020.
48 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Pay Positioning Strategy and Peer Group
In 2017,Consistent with prior years, in 2020 the midpoint of the Company's target total cash compensation range was adjusted to near the 65thpercentile. The Compensation Committee positioned our targetedused competitive compensation data from the annual total compensation competitively within ourstudy of peer group. An individual's actualcompanies to inform its decisions about overall compensation may fall below or aboveopportunities and specific compensation elements. Aon performed an analysis of similarly-situated public companies, supplemented the target positions based on the individual's experience, seniority, skills, knowledge, performance, responsibilitiespeer group with published survey data providing a broad market representation of companies and contributionsdeeper position reporting, as well as set parameters for the Company's performance. These factors are weighedpeer group study. Additionally, the Committee used multiple reference points when establishing targeted compensation levels. Within the comparative framework, the primary data was the named peer group of specific peers selected by the Compensation Committee and the secondary data was broader, size-appropriate comparisons in itsthe high technology industry using Aon/Radford High Technology Survey Data. The Committee does not benchmark specific compensation elements or total compensation to any specific percentile relative to the peer companies or the broader United States market. Instead, the Committee applies judgment and nodiscretion in establishing targeted pay levels, taking into account not only competitive market data, but also factors such as Company, business and individual performance, scope of responsibility, critical needs and skill sets, leadership potential, length of tenure and succession planning. No single factor takes precedence over othersany other, nor is any formula used in making these decisions.
In analyzing our executive compensation program relative to this target market positioning, the Compensation Committee utilizes a comparative analysis of the compensation of our executive officers measured against a group ofThe peer companies selected by the Compensation Committee. The peer companiesCommittee are companies that operate in the laser sourcesemiconductor equipment and photonics industry, as well as a broader groupelectronic manufacturing industries, and are comparable in terms of technology companies of comparable sizerevenue, market capitalization and complexity with international scope that experience growth.headcount.
For 2017,2020, the peer companies were:
|
| | | | | | | | |
| | |
| Barnes Group, Inc. | | Cognex Corporation | | Coherent, Inc. |
| | |
| Dolby Laboratories, Inc. | Donaldson Company, Inc. | Entegris, Inc. |
| Fabrinet | |
| FLIR Systems, Inc. | | Graco, Inc. | IDEX Corporation |
| | |
| II-VI Incorporated |
IDEX Corporation | | ITT, Inc. | Lumentum Holdings Inc. |
| | |
| MKS Instruments, Inc. |
| National Instruments, Inc. | | Nordson Corporation |
| OSI Systems, Inc.
| |
| Teradyne, Inc. | | Trimble Navigation Limited | Waters Corporation |
| Zebra | |
| Watts Water Technologies, Inc. | | |
| | |
The Compensation Committee reviews this peer group annually with input from RadfordAon to ensure that the comparisons are meaningful. In this review, the Compensation Committee considers several factors in developing a peer group: it considers the current peer group to determine appropriateness, the peers used by institutional governance advisors, the companies that list our company as a peer to understand crossover peers and broader research based upon established selection criteria to identify potential future peers. The Committee then develops criteria for business sector, including but not limited to revenue, operating income and market capitalization, revenue and headcount. Radfordcapitalization. Aon also supplements its peer analysis with the data from a broader list of high-technology public company participants in the AON Radford ExecutiveGlobal Technology Survey targeting technology companies with comparable revenue levels. Companies that are no longer publicly traded have beenare omitted from the peer group. Based upon the process and applying the criteria above, the Compensation Committee (i) added Dolby Laboratories, Inc., Fabrinet, IDEX Corporation, ITT,Lumentum Holdings Inc. and Trimble Navigation Limited to the peer groupWatts Water Technologies, Inc. and (ii) removed Analogic Corporation, Brooks Automation,Arista Networks, Inc., Diodes, Inc., FEI Company and Rofin-SinarZebra Technologies, Inc. from the peer group.
49
Proposal 1 Election of Nine Directors
COMPANY VS. PEER GROUP
20182021 Update. For 20182021 compensation determinations, the Compensation Committee, with input from Aon, applied the methodology above and removed Fabrinet and OSI Systems, Inc. because such peers fell belowdetermined the targeted scope of one or more of market value, revenue and headcount or were acquired. Additionally, the Compensation Committee added Arista Networks,Inc., Donaldson Company and Waters Corporation to thehistorical peer group continues to be appropriate for 2018.2021.
Other Factors Affecting Compensation
Tax Deductibility under Section 162(m). Section 162(m) of the Internal Revenue Code ("(“Section 162(m)"”) limits the deductibility for federal income tax purposes of certain compensation paid in any year by a publicly held corporation to its "covered employees"“covered employees” as defined by Section 162(m) (generally, our current and former NEOs) to $1 million per executive (the "$“$1 million cap"cap”). Due to the recently enacted U.S. Tax Cuts and Jobs Act, the "performance-based" compensation exception to the $1 million cap does not apply for tax years after 2017, unless certain limited transition relief is met. The Compensation Committee retainsbelieves it is appropriate to retain the discretionflexibility to grant or payauthorize payments of compensation that may exceed the $1 million cap or may not qualify forif, in the Compensation Committee’s judgment, it is in the Company’s best interest to do so. We generally will continue to emphasize performance-based compensation, exception to Section 162(m).even though it may no longer be deductible.
Accounting Considerations. We consider the accounting implications of our executive compensation program. In addition, accounting treatment is just one of many factors impacting plan design and pay determinations. Our executive compensation program is designed to achieve a favorable accounting and tax treatment asso long as doing so does not conflict with the intended plan design or program objectives.
50 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Compensation Risk
Management conducts an annual risk assessment of the Company'sCompany’s compensation policies and practices for all employees, including non-executive officers,non-executives, and reports its findings to the Compensation Committee. In 2017,2020 management concluded that the Company'sCompany’s compensation policies and practices are balanced and do not motivate imprudent risk taking. Management believes that IPG’sthe Company's compensation policies do not create risks that are reasonably likely to have a material adverse effect on IPG.the Company.
In reaching this conclusion, they considered the following factors:
•our compensation program is designed to provide a mix of both fixed and variable incentive compensation,compensation;
•our senior executives are subject to stock ownership guidelines, which we believe incentivize our executives to consider the long-term interests of the Company and our stockholders and discourage excessive risk-taking that could negatively impact our stock price, andprice;
•our senior executives are subject to compensation recovery policy, which discourages excessive risk-taking that could negatively affect our stock price;
•our incentive compensation programs are designed with vesting terms that are relatively consistent, spread out over several years, and do not contain steep payout "cliffs"“cliffs” that might encourage short-term business decisions in order to meet a vesting or payout threshold.threshold; and
•our senior executive incentive compensation program caps the amounts that may be paid for performance above target level.
Other Policies
Anti-Hedging and Limitations on Pledging of Company Stock.The Board adopted policies prohibiting hedging transactions and limiting the pledging of our common stock. Under our insider trading policy, no director or employee may engage in shorting shares of our common stock or any type of securities that we may issue, or buying or selling puts,
calls or derivatives related to our common stock. A director or officer of the Company may not pledge shares constituting more than 20% of his or her total stock ownership. Pledges of shares constituting 20% or less of total stock ownership are subject to certain conditions.
Stock Ownership Guidelines.The Board adopted stock ownership guidelines to closely align the interests of our executive officersexecutives with those of our long-term stockholders. Under the guidelines, the Chief Executive Officer is expected to maintain a minimum investment on our common stock of five times his annual salary and other senior executive officers are expected to maintain a minimum investment on our common stock of the lesser of 5,000 shares or one times their respective annual salaries. All of our senior executive officers substantially exceed the ownership requirements under our stock ownership guidelines. These ownership levels are to be achieved no later than four years after the election as an executive officer, except that prior to such time the officer is expected to retain a certain portion of stock issued upon exercise of stock options or vesting of restricted stock awards until the minimum ownership levels are attained. For more information see "Corporate GovernanceProposal 1 - Director Compensation - Director and Executive Officer Stock Ownership Guidelines."
Clawback Policies.In 2015, the Compensation Committee approved a compensation recovery policy that allows the Company to recapture cash and equity performance-based compensation from executives if the amount of the award was based upon achieving certain financial results that were later restated due to the participant'sparticipant’s misconduct. In addition, all equity awarded to employees since 2007 contain a provision under which employees may be required to forfeit equity awards or profit from equity awards if they engage in certain conduct, including competing against the Company, disclosing confidential information, or soliciting its employees or customers.
51
Executive Compensation Tables
EXECUTIVE COMPENSATION TABLES | | |
| Executive Compensation Tables |
Summary Compensation Table
The following table provides information regarding compensation earned by our Chief Executive Officer, our Chief Financial Officer and our three other most highly compensated executives for the fiscal years indicated below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name and Principal Position | Year | Salary
($) | Bonus
($) | Stock
Awards
($)(1) | Option
Awards
($)(1) | Non-Equity
Incentive Plan
Compensation
($)(2) | All Other
Compensation
($)(3) | Total
($) |
Valentin P. Gapontsev
Chief Executive Officer and
Chairman of the Board(4) | 2020 | 930,000 | | — | | — | | — | | 934,900 | | 79,000 | | 1,943,900 | |
| 2019 | 930,000 | | — | | — | | — | | 255,750 | | 66,234 | | 1,251,984 | |
| 2018 | 930,000 | | — | | — | | — | | 568,000 | | 124,735 | | 1,622,735 | |
Eugene Scherbakov
Chief Operating Officer,
Managing Director of IPG Laser
GmbH, Senior Vice President,
Europe and Director(4) | 2020 | 627,819 | | | 2,441,338 | | — | | 573,604 | | 25,554 | | 3,668,315 | |
| 2019 | 616,730 | | | 2,152,254 | | 930,281 | | 154,155 | | 24,647 | | 3,878,067 | |
| 2018 | 673,694 | | — | | 2,095,549 | | 924,421 | | 351,800 | | 23,472 | | 4,068,936 | |
| | | | | | | |
Timothy P.V. Mammen
Chief Financial Officer and
Senior Vice President | 2020 | 481,200 | | — | | 1,504,074 | | — | | 375,900 | | 26,561 | | 2,387,735 | |
| 2019 | 481,200 | | — | | 1,040,106 | | 449,556 | | 96,240 | | 9,642 | | 2,076,744 | |
| 2018 | 481,200 | | — | | 1,012,796 | | 446,741 | | 213,700 | | 9,060 | | 2,163,497 | |
Angelo P. Lopresti
Senior Vice President, General
Counsel and Secretary | 2020 | 442,100 | | | 1,266,637 | | — | | 323,200 | | 12,162 | | 2,044,099 | |
| 2019 | 442,100 | | | 906,066 | | 391,686 | | 88,420 | | 10,722 | | 1,838,994 | |
| 2018 | 442,100 | | — | | 882,281 | | 389,166 | | 196,400 | | 10,572 | | 1,920,519 | |
Alexander Ovtchinnikov
Senior Vice President,
Components | 2020 | 438,100 | | | 1,255,095 | | — | | 320,300 | | 39,122 | | 2,052,617 | |
| 2019 | 438,100 | | | 897,754 | | 388,154 | | 87,620 | | 10,722 | | 1,882,350 | |
| 2018 | 438,100 | | — | | 873,928 | | 385,669 | | 194,600 | | 10,572 | | 1,902,869 | |
(1)Valuation based on the fair value of such awards as of the grant date determined pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC Topic 718”). The assumptions that we used with respect to the valuation of equity awards are set forth in Note 15 to our Consolidated Financial Statements in our Annual Report. As discussed above, during the year ended December 31, 2020, the Company did not grant stock options, instead granting PSUs and service-based RSUs, which are reflected in the Stock Awards column for 2020. The value of the PSUs is based on the probable outcome of the performance conditions (at the grant date) in accordance with ASC Topic 718 assuming no forfeiture. For PSUs granted in 2020, the values assuming the highest level of performance conditions will be achieved, as limited by the 600% value cap, are $7,028,302, $4,330,291, $3,646,288, and $3,613,470 for Dr. Scherbakov, Messrs. Mammen and Lopresti and Dr. Ovtchinnikov, respectively. There is no assurance that any of the performance targets will be achieved, that the service-based awards will vest or that the any of the recipients will realize the values listed above.
(2)Represents amounts earned under our AIP for services rendered in 2020, 2019 and 2018, respectively.
(3)The amount in 2020 for Dr. Gapontsev consists of premiums paid for group life insurance, the direct variable cost to the Company associated with a non-employee guest accompanying him on the Company’s aircraft when traveling to a specific destination for a business purpose, the expense of an automobile and driver ($42,188) provided by us for his transportation to the Company’s headquarters and $21,462 in a one-time cash payment for accrued but unused paid time off as of December 31, 2019, which was paid in 2020 as a result of the Company's adoption of new policies. The amount in 2018 for Dr. Gapontsev includes $74,585 in cash paid in lieu of accrued vacation. The amount in 2020 for Dr. Scherbakov is the expense of an automobile provided by us. The amount in 2020 for Messrs. Mammen and Ovtchinnikov include one-time cash payments of $16,079 and $26,960, respectively, for accrued but unused paid time off.
(4)Portions of the amounts paid to Drs. Gapontsev and Scherbakov were denominated in Euros and Rubles. Dr. Scherbakov’s 2019 and 2020 salary was approved in Euro. Amounts paid in foreign currencies were translated into U.S. Dollars at the average daily exchange rates for the full years. The average daily rates in 2020, 2019 and 2018 for the Euro were 0.88, 0.89 and 0.84, respectively, and for the Ruble were 72.13, 64.66 and 62.69, respectively. As a result of compensation being paid in one or more currencies that fluctuate against the U.S. Dollar, the amount of salary paid may vary slightly from the salary stated in an employment agreement or approved by the Compensation Committee.
52 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Executive Compensation Tables
|
| | | | | | | | | | | | | | | | |
| Name and Principal Position | | Year | | Salary ($)(1) | | Bonus ($) | | Stock Awards ($)(2) | | Option Awards ($)(2) | | Non-Equity Incentive Plan Compensation ($)(3) | | All Other Compensation ($)(4) | | Total ($) |
| Valentin P. Gapontsev, Ph.D. Chief Executive Officer and Chairman of the Board (5) | | 2017 | | 832,000 | | — | | — | | — | | 1,399,100 | | 53,583 | | 2,284,683 |
| 2016 | | 735,400 | | — | | — | | — | | 709,044 | | 36,953 | | 1,481,397 |
| 2015 | | 687,981 | | — | | — | | — | | 713,582 | | 11,853 | | 1,413,416 |
| Eugene A. Scherbakov, Ph.D. Chief Operating Officer, Managing Director of IPG Laser GmbH, Senior Vice President, Europe and Director(5) | | 2017 | | 510,000 | | — | | 899,514 | | 340,038 | | 769,300 | | 23,028 | | 2,541,880 |
| 2016 | | 510,677 | | — | | 643,031 | | 228,899 | | 361,928 | | 30,138 | | 1,774,672 |
| 2015 | | 450,449 | | — | | 636,664 | | 305,714 | | 363,675 | | 30,231 | | 1,973,841 |
Timothy P.V. Mammen,
Chief Financial Officer and Senior Vice President | | 2017 | | 458,300 | | — | | 763,578 | | 288,607 | | 577,000 | | 8,910 | | 2,096,395 |
| 2016 | | 436,025 | | — | | 643,031 | | 228,899 | | 315,694 | | 8,760 | | 1,632,409 |
| 2015 | | 440,067 | | — | | 823,772 | | 305,714 | | 342,223 | | 8,764 | | 1,920,540 |
| Trevor Ness, Senior Vice President, World Wide Sales and Marketing | | 2017 | | 410,000 | | — | | 682,866 | | 258,169 | | 516,200 | | 8,910 | | 1,876,145 |
| 2016 | | 379,724 | | — | | 527,502 | | 187,744 | | 275,121 | | 8,490 | | 1,378,581 |
| 2015 | | 383,543 | | — | | 673,995 | | 250,130 | | 298,267 | | 8,511 | | 1,614,446 |
| Angelo P. Lopresti, Senior Vice President, General Counsel and Secretary | | 2017 | | 421,000 | | — | | 623,394 | | 235,635 | | 530,000 | | 9,342 | | 1,819,372 |
| 2016 | | 408,256 | | — | | 496,333 | | 176,709 | | 263,042 | | 9,192 | | 1,353,532 |
| 2015 | | 412,015 | | — | | 636,664 | | 236,234 | | 284,911 | | 9,240 | | 1,579,063 |
| |
(1) | Salaries for 2015 reflect 27 pay periods occurring in the year. |
| |
(2) | Valuation based on the fair value of such award as of the grant date determined pursuant to ASC Topic 718. The assumptions that we used with respect to the valuation of service-based restricted stock unit, performance-based stock units and stock option awards are set forth in Note 2 to our Consolidated Financial Statements in our Annual Report on Form 10-K filed with the SEC on February 28, 2018. The amounts in the Stock Awards column reflect service-based restricted stock units and performance-based stock units granted in 2017. The value of the performance-based stock units is based on the probable outcome of the performance conditions (at the grant date) in accordance with ASC Topic 718 assuming no forfeiture. The values of performance-based stock units at the grant date assuming the highest level of performance conditions will be achieved are $1,619,464, $1,374,728, $1,229,416 and $1,122,344 for Dr. Scherbakov and Messrs Mammen, Ness and Lopresti, respectively. There is no assurance that any of the performance targets will be achieved, that the service-based awards will vest or that the any of the recipients will realize the values listed above. |
| |
(3) | Represents amounts earned under our AIP for services rendered in 2017, 2016 and 2015, respectively. |
| |
(4) | The amount in 2017 for Dr. Gapontsev consists of premiums paid for group life insurance, the incremental cost for non-employee guests accompanying him on the Company's aircraft and the cost of a car and driver ($36,776) at the Company's headquarters. The amount in 2017 for Dr. Scherbakov is the expense of an automobile provided by us. |
| |
(5) | Portions of the amounts paid to Dr. Gapontsev and Dr. Scherbakov were denominated in Euros and Rubles. Dr. Scherbakov's salary is approved in US dollars and payments are converted to Euro at then prevailing Euro exchange rate. Amounts paid in foreign currencies were translated into U.S. Dollars at the average daily exchange rates for the full years. The average daily rates in 2017, 2016 and 2015, for the Euro were 0.89, 0.90 and 0.90, respectively, and for the Ruble were 58.3, 67.0 and 61.2, respectively. As a result of compensation being paid in one or more currencies that fluctuate against the U.S. Dollar, the amount of salary paid may vary slightly from the salary stated in an employment agreement or approved by the Compensation Committee. |
Employment Agreements | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | Grant
Date | Estimated Possible Payouts
Under Non-Equity Incentive Plan
Awards
($)(1) | | Estimated Future Payouts
Under Equity Incentive Plan
Awards
(#)(2) | All Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#)(3) | All Other Option
Awards:
Number of
Securities
Underlying
Options
(#) | Exercise
or Base
Price of
Option
Awards
($/Share) | Grant Date
Fair Value
of Stock
and Option
Awards
($)(4) |
| Threshold | Target | Maximum | | Threshold | Target | Maximum |
Valentin P.
Gapontsev | 2/19/2020 | 447,563 | | 1,023,000 | | 2,301,750 | | | — | | — | | — | | — | | — | | — | | — | |
Eugene
Scherbakov | 2/19/2020 | 269,771 | | 616,620 | | 1,387,395 | | | — | | — | | — | | — | | — | | — | | — | |
| 2/19/2020 | — | | — | | — | | | 4,069 | | 8,138 | | 16,276 | | — | | — | | — | | 1,272,742 | |
| 2/19/2020 | — | | — | | — | | | — | | — | | — | | 8,139 | | — | | — | | 1,168,596 | |
Timothy P.V.
Mammen | 2/19/2020 | 168,420 | | 384,960 | | 866,160 | | | — | | — | | — | | — | | — | | — | | — | |
| 2/19/2020 | — | | — | | — | | | 2,507 | | 5,014 | | 10,028 | | — | | — | | — | | 784,165 | |
| 2/19/2020 | — | | — | | — | | | — | | — | | — | | 5,014 | | — | | — | | 719,909 | |
Angelo P.
Lopresti | 2/19/2020 | 154,740 | | 353,680 | | 795,780 | | | — | | — | | — | | — | | — | | — | | — | |
| 2/19/2020 | — | | — | | — | | | 2,111 | | 4,222 | | 8,444 | | — | | — | | — | | 660,300 | |
| 2/19/2020 | — | | — | | — | | | — | | — | | — | | 4,223 | | — | | — | | 606,337 | |
Alexander Ovtchinnikov
| 2/19/2020 | 153,335 | | 350,480 | | 788,580 | | | — | | — | | — | | — | | — | | — | | — | |
| 2/19/2020 | — | | — | | — | | | 2,092 | | 4,184 | | 8,368 | | — | | — | | — | | 654,357 | |
| 2/19/2020 | — | | — | | — | | | — | | — | | — | | 4,184 | | — | | — | | 600,738 | |
(1)Amounts shown include possible payouts under the AIP for 2020 financial performance at the three performance measures plus individual performance at maximum for each. The performance measures used in determining AIP payments are discussed in Compensation Discussion and Analysis-Annual Incentives above. Actual amounts paid for 2020 performance are shown in the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table above.
(2)For a description of the PSUs, see Compensation Discussion and Analysis–Long-Term Incentives above.
(3)The amounts listed reflect service-based RSUs granted under our 2006 Incentive Compensation Plan, which vest in four annual installments commencing on March 1, 2021.
(4)The awards are reported based on the fair value as of the grant date determined pursuant to ASC Topic 718. The assumptions that we used with respect to the valuation of equity awards are set forth in Note 15 to our Consolidated Financial Statements in our Annual Report on Form 10-K filed with the SEC on February 22, 2021. Regardless of the value placed on an equity award on the grant date, the actual value of the equity award will depend on the market value of our common stock when such equity award vests, and, with respect to PSUs, on the Company's performance relative to the applicable performance metrics under such PSUs, as described above under Compensation Discussion and Analysis-Long Term Incentives. For informational purposes, if the maximum level of performance were achieved for the PSUs, the values as limited by the 600% value cap, are $7,028,302, $4,330,291, $3,646,288, and $3,613,470 for Dr. Scherbakov, Messrs. Mammen and Lopresti and Dr. Ovtchinnikov, respectively.
53
Executive Compensation Tables
2020 Outstanding Equity Awards at Fiscal Year-End
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards(1) | | Stock Awards(1) |
| Name |
Grant Date | Securities
Underlying
Unexercised
Options
Exercisable
(#) | Securities
Underlying
Unexercised
Options
Unexercisable
(#) | Option
Exercise
Price
($)(2) | Option
Expiration
Date | | Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#) | Market
Value of
Shares
or Units
of Stock
That
Have
Not
Vested
($)(3) | Equity
incentive
plan awards:
Number of
unearned
shares, units
or other rights
that have not
vested
(#)(1)(4) | Equity
incentive
plan awards:
Market or
payout value
of unearned
shares, units
or other
rights that
have not
vested
($)(4) |
Valentin P.
Gapontsev | — | | — | | — | | — | | — | | | — | | — | | — | | — | |
Eugene
Scherbakov | 2/14/2012 | 1,500 | | — | | 58.65 | | 2/13/2022 | | — | | — | | — | | — | |
| 3/1/2013 | 3,000 | | — | | 60.11 | | 2/28/2023 | | — | | — | | — | | — | |
| 2/28/2014 | 13,000 | | — | | 71.77 | | 2/27/2024 | | — | | — | | — | | — | |
| 2/25/2015 | 7,326 | | — | | 97.65 | | 2/24/2025 | | — | | — | | — | | — | |
| 2/18/2016 | 7,592 | | — | | 81.89 | | 2/17/2026 | | — | | — | | — | | — | |
| 2/17/2017 | 7,775 | | 2,592 | | 119.50 | | 2/16/2027 | | 847 | | 189,550 | | — | | — | |
| 2/22/2018 | 6,872 | | 6,872 | | 239.72 | | 2/21/2028 | | 2,007 | | 449,147 | | 8,028 | | 1,796,586 | |
| 2/15/2019 | 4,477 | | 13,431 | | 154.88 | | 2/14/2029 | | 4,660 | | 1,042,861 | | 12,428 | | 2,781,262 | |
| 2/19/2020 | — | | — | | — | | — | | | 8,139 | | 1,821,427 | | 16,276 | | 3,642,406 | |
Timothy P.V.
Mammen | 2/25/2015 | 7,362 | | — | | 97.65 | | 2/24/2025 | | — | | — | | — | | — | |
| 2/17/2017 | 6,599 | | 2,200 | | 119.50 | | 2/26/2027 | | 719 | | 160,905 | | — | | — | |
| 2/22/2018 | 3,321 | | 3,321 | | 239.72 | | 2/21/2028 | | 970 | | 217,076 | | 3,880 | | 868,305 | |
| 2/15/2019 | 2,164 | | 6,490 | | 154.88 | | 2/14/2029 | | 2,252 | | 503,975 | | 6,006 | | 1,344,083 | |
| 2/19/2020 | — | | — | | — | | — | | | 5,014 | | 1,122,083 | | 10,028 | | 2,244,166 | |
Angelo P.
Lopresti | 2/25/2015 | 5,661 | | — | | 97.65 | | 2/24/2025 | | — | | — | | — | | — | |
| 2/18/2016 | 5,861 | | — | | 81.89 | | 2/17/2026 | | — | | — | | — | | — | |
| 2/17/2017 | 5,388 | | 1,796 | | 119.50 | | 2/16/2027 | | 587 | | 131,365 | | — | | — | |
| 2/22/2018 | 2,893 | | 2,893 | | 239.72 | | 2/21/2028 | | 845 | | 189,103 | | 3,380 | | 756,410 | |
| 2/15/2019 | 1,885 | | 5,655 | | 154.88 | | 2/14/2029 | | 1,962 | | 439,076 | | 5,232 | | 1,170,869 | |
| 2/19/2020 | — | | — | | — | | — | | | 4,223 | | 945,065 | | 8,444 | | 1,889,683 | |
Alexander
Ovtchinnikov | 2/17/2017 | 5,339 | | 1,780 | | 119.50 | | 2/16/2027 | | 581 | | 130,022 | | — | | — | |
| 2/22/2018 | 2,867 | | 2,867 | | 239.72 | | 2/21/2028 | | 837 | | 187,312 | | 3,348 | | 749,249 | |
| 2/15/2019 | 1,868 | | 5,604 | | 154.88 | | 2/14/2029 | | 1,944 | | 435,048 | | 5,184 | | 1,160,127 | |
| 2/19/2020 | — | | — | | — | | — | | | 4,184 | | 936,337 | | 8,368 | | 1,872,675 | |
(1)The vesting dates assume the continued service of the NEO. Service-based stock options and RSUs granted in 2017, 2018 and 2019 and service-based RSUs granted in 2020 vest in four annual installments commencing on March 1 of the year following the grant. PSUs granted in 2018, 2019 and 2020 vest in one installment on March 1, 2021, March 1, 2022 and March 1, 2023, respectively.
(2)Represents the closing common stock price of a share on the grant date.
(3)Based upon the closing common stock price on December 31, 2020, which was $223.79 per share.
(4)The PSU performance measurement periods end March 1, 2021, 2022 and 2023 for units granted in 2018, 2019, and 2020, respectively. The numbers of unearned awards range from 0% to 200% based upon achievement of performance metrics and the amounts presented above assume attainment of the maximum performance levels (200%) not limited by dollar value caps. PSUs have dollar payout caps of 600% of the value of the target award on the date of grant. PSUs granted in 2018, which vested on March 1, 2021, did not result in a payout.
54 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Executive Compensation Tables
Option Exercises and Stock Vested in 2020
The following table provides information on NEO stock option exercises and vesting of RSUs and PSUs during 2020.
| | | | | | | | | | | | | | | | | |
| Option Awards | | Stock Awards |
| Name | Number of
Shares Acquired
on Exercise
(#) | Value Realized
on Exercise
($)(1) | | Number of
Shares Acquired
on Vesting
(#) | Value Realized
on Vesting
($)(2) |
| Valentin P. Gapontsev | — | — | | — | — |
| Eugene A. Scherbakov | 4,000 | 509,309 | | 14,247 | 1,818,487 |
| Timothy P.V. Mammen | 29,292 | 3,202,938 | | 12,451 | 1,589,246 |
| Angelo P. Lopresti | 33,500 | 3,591,055 | | 9,851 | 1,257,382 |
| Alexander Ovtchinnikov | 24,555 | 1,716,602 | | 10,422 | 1,330,264 |
(1)The value realized is based on the difference between the reported closing common stock price on the date of exercise and the exercise price of the stock option.
(2)The value realized is based on the closing common stock prices on the vesting dates of PSUs and service-based RSUs.
Potential Payments upon Termination or Change in Control
The Company has entered into employment agreements with each of the above-named executives,NEOs, effective through December 31, 2018.2021. Upon expiration, the employment agreements will automatically renew for successive one yearone-year periods, unless the Company or a Named Executive OfficerNEO provides written notice of non-renewal at least six months prior to the end of the then currentthen-current term. In the event of a change in control, the agreements would extend through the second anniversary of the change in control.
The employment agreements set the annual base salaries and stipulate that the Compensation Committee may adjust the salaries annually, as noted in the above "Compensation Discussion and Analysis - 2017 Base
Salaries" Salary section.above. The agreements entitle these executive officers to participate in bonus plans, standard insurance plans such as life, short-term disability and long-term disability insurance and retirement benefits, such as the 401(k) retirement savings plan and equity award plans described above, on similar terms and on a similar basis as such benefits are available to executives at similar levels within the Company. Each of these executive officers also entered into a separate restrictive covenant agreement with the Company in 2013 that prohibits each of them from competing with the Company for a period of one year after the termination of his employment with the Company for any reason and from hiring or attempting to hire the Company's employees or soliciting customers or suppliers of the Company for a period ending eighteen months following the termination of his employment for any reason. Each of the officers is entitled to receive his base salary for the period during which the Company enforces the non-competition provisions of the agreement but not for more than one year following the termination of his employment. The severance provisions of the agreements are summarized below in the section titled "Potential Payments upon Termination or Change in Control."
2017 Grants of Plan-Based Awards |
| | | | | | | | | | | | | | | | | | | | | | |
| | | Grant Date | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards ($)(1) | | Estimated Future Payouts Under Equity Incentive Plan Awards (#)(2) | | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | | Option Awards Number of Securities Underlying Options (#)(3) | | Exercise or Base Price of Option Awards ($/Sh) | | Grant Date Fair Value of Stock and Option Awards ($)(4) |
| Name | | Threshold | | Target | | Maximum | | Threshold | | Target | | Maximum | |
| Valentin P. Gapontsev | | 2/17/2017 | | 364,000 | | 832,000 | | 1,872,000 | | — | | — | | — | | — | | — | | — | | — |
| Eugene A. Scherbakov | | 2/17/2017 | | 178,200 | | 405,000 | | 911,250 | | — | | — | | — | | — | | — | | — | | — |
| | 2/17/2017 | | — | | — | | — | | 1,694 | | 3,388 | | 6,776 | | — | | — | | — | | 498,883 |
| | 2/17/2017 | | — | | — | | — | | — | | — | | — | | 3,388 | | — | | — | | 400,631 |
| | 2/17/2017 | | — | | — | | — | | — | | — | | — | | — | | 10,367 | | 119.50 | | 340,038 |
| Timothy P.V. Mammen | | 2/17/2017 | | 151,239 | | 343,725 | | 773,381 | | — | | — | | — | | — | | — | | — | | — |
| | 2/17/2017 | | — | | — | | — | | 1,438 | | 2,876 | | 5,752 | | — | | — | | — | | 423,491 |
| | 2/17/2017 | | — | | — | | — | | — | | — | | — | | 2,876 | | — | | — | | 340,087 |
| | 2/17/2017 | | — | | — | | — | | — | | — | | — | | — | | 8,799 | | 119.50 | | 288,607 |
| Trevor D. Ness | | 2/17/2017 | | 135,300 | | 307,500 | | 691,875 | | — | | — | | — | | — | | — | | — | | — |
| 2/17/2017 | | — | | — | | — | | 1,286 | | 2,572 | | 5,144 | | — | | — | | — | | 378,727 |
| 2/17/2017 | | — | | — | | — | | — | | — | | — | | 2,572 | | — | | — | | 304,139 |
| | 2/17/2017 | | — | | — | | — | | — | | — | | — | | — | | 7,871 | | 119.50 | | 258,169 |
| Angelo P. Lopresti | | 2/17/2017 | | 138,930 | | 315,750 | | 710,438 | | — | | — | | — | | — | | — | | — | | — |
| 2/17/2017 | | — | | — | | — | | 1.694 | | 2.348 | | 4.696 | | — | | — | | — | | 345,743 |
| 2/17/2017 | | — | | — | | — | | — | | — | | — | | 2,348 | | — | | — | | 277,651 |
| | 2/17/2017 | | — | | — | | — | | — | | — | | — | | — | | 7,184 | | 119.50 | | 235,635 |
| |
(1) | Amounts shown include the payouts under the AIP for 2017 financial performance at the three goals plus individual performance at maximum for each. The performance goals used in determining AIP payments are discussed in the above Compensation Discussion and Analysis above. Actual amounts paid for 2017 performance are shown in the "Non-Equity Incentive Plan Compensation" column in the Summary Compensation Table above.
|
| |
(2) | For a description of the performance-based stock units, see Compensation Discussion and Analysis-Equity-Based Incentives Granted in 2017.
|
| |
(3) | The amounts listed reflect service-based restricted stock units and stock options granted under our 2006 Incentive Compensation Plan and are described in the Outstanding Equity Awards Table below. |
| |
(4) | The awards are reported based on the fair value of such award as of the grant date determined pursuant to ASC Topic 718. The assumptions that we used with respect to the valuation of equity awards are set forth in Note 2 to our Consolidated Financial Statements in our Annual Report on Form 10-K filed with the SEC on February 28, 2018. The option exercise price has not been deducted from the amounts indicated above and we disregard an estimate of forfeitures. Regardless of the value placed on an equity award on the grant date, the actual value of the equity award will depend on the market value of our common stock at such date in the future when the restricted stock unit vests or the stock option is exercised, and the performance of our common stock in relation to the Russell 3000 on the measurement date with respect to the performance-based stock unit. For informational purposes, if the maximum level of performance was achieved for the performance-based stock units, the values as limited by the 400% value cap are $1,619,464, $1,374,728, $1,229,416 and $1,122,344 for Dr. Scherbakov and Messrs. Mammen, Ness and Lopresti, respectively. |
2017 Outstanding Equity Awards at Fiscal Year-End
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Option Awards (1) | | Stock Awards (1) |
| Name | | Year of Grant | | Securities Underlying Unexercised Options Exercisable (#) | | Securities Underlying Unexercised Options Unexercisable (#) | | Option Exercise Price ($)(2) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | | Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#)(1)(4) | | Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($)(4) |
| Valentin P. Gapontsev | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Eugene A. Scherbakov | | 2/26/2010 |
| | 1,000 |
| | — |
| | 15.82 |
| | 2/25/2020 |
| | — |
| | — |
| | — |
| | — |
|
| | 3/1/2011 |
| | 3,000 |
| | — |
| | 53.76 |
| | 2/28/2021 |
| | — |
| | — |
| | — |
| | — |
|
| | | 2/14/2012 |
| | 1,500 |
| | — |
| | 58.65 |
| | 2/13/2022 |
| | — |
| | — |
| | — |
| | — |
|
| | | 3/1/2013 |
| | 3,000 |
| | — |
| | 60.11 |
| | 2/28/2023 |
| | — |
| | — |
| | — |
| | — |
|
| | | 2/28/2014 |
| | — |
| | 13,000 |
| | 71.77 |
| | 2/27/2024 |
| | 2,000 |
| | 428,620 |
| | — |
| | — |
|
| | | 2/25/2015 |
| | — |
| | 7,326 |
| | 97.65 |
| | 2/24/2025 |
| | 3,663 |
| | 785,018 |
| | 7,326 |
| | 1,430,768 |
|
| | | 2/18/2016 |
| | — |
| | 7,592 |
| | 81.89 |
| | 2/17/2026 |
| | 3,796 |
| | 813,521 |
| | 7,592 |
| | 1,243,418 |
|
| | | 2/17/2017 |
| | — |
| | 10,367 |
| | 119.50 |
| | 2/16/2027 |
| | 3,388 |
| | 726,082 |
| | 6,776 |
| | 1,619,464 |
|
| Timothy P.V. Mammen | | 2/14/2012 |
| | 10,000 |
| | — |
| | 58.65 |
| | 2/13/2022 |
| | — |
| | — |
| | — |
| | — |
|
| | 3/1/2013 |
| | 15,000 |
| | — |
| | 60.11 |
| | 2/28/2023 |
| | — |
| | — |
| | — |
| | — |
|
| | | 2/28/2014 |
| | — |
| | 14,200 |
| | 71.77 |
| | 2/27/2024 |
| | 2,200 |
| | 471,482 |
| | — |
| | — |
|
| | | 2/25/2015 |
| | — |
| | 7,326 |
| | 97.65 |
| | 2/24/2025 |
| | 3,663 |
| | 785,018 |
| | 7,326 |
| | 1,430,768 |
|
| | | 2/18/2016 |
| | — |
| | 7,592 |
| | 81.89 |
| | 2/17/2026 |
| | 3,796 |
| | 813,521 |
| | 7,592 |
| | 1,243,418 |
|
| | | 2/17/2017 |
| | — |
| | 8,799 |
| | 119.50 |
| | 2/26/2027 |
| | 2,876 |
| | 616,356 |
| | 5,752 |
| | 1,374,728 |
|
| Trevor D. Ness | | 2/14/2012 |
| | 4,000 |
| | — |
| | 58.65 |
| | 2/13/2022 |
| | — |
| | — |
| | — |
| | — |
|
| | 3/1/2013 |
| | 2,000 |
| | — |
| | 60.11 |
| | 2/28/2023 |
| | — |
| | — |
| | — |
| | — |
|
| | 2/28/2014 |
| | — |
| | 11,000 |
| | 71.77 |
| | 2/27/2024 |
| | 1,700 |
| | 364,327 |
| | — |
| | — |
|
| | | 2/25/2015 |
| | — |
| | 5,994 |
| | 97.65 |
| | 2/24/2025 |
| | 2,997 |
| | 642,287 |
| | 5,994 |
| | 1,170,628 |
|
| | 2/18/2016 |
| | — |
| | 6,227 |
| | 81.89 |
| | 2/17/2026 |
| | 3,114 |
| | 667,361 |
| | 6,228 |
| | 1,020,022 |
|
| | | 2/17/2017 |
| | — |
| | 7,871 |
| | 119.50 |
| | 2/16/2027 |
| | 2,572 |
| | 551,205 |
| | 5,144 |
| | 1,229,416 |
|
| Angelo P. Lopresti | | 3/1/2011 |
| | 9,500 |
| | — |
| | 53.76 |
| | 2/28/2021 |
| | — |
| | — |
| | — |
| | — |
|
| | 3/1/2013 |
| | 13,000 |
| | — |
| | 60.11 |
| | 2/28/2023 |
| | — |
| | — |
| | — |
| | — |
|
| | | 2/28/2014 |
| | — |
| | 11,000 |
| | 71.77 |
| | 2/27/2024 |
| | 1,800 |
| | 385,758 |
| | — |
| | — |
|
| | | 2/25/2015 |
| | — |
| | 5,661 |
| | 97.65 |
| | 2/24/2025 |
| | 2,831 |
| | 606,712 |
| | 5,662 |
| | 1,105,789 |
|
| | | 2/18/2016 |
| | — |
| | 5,861 |
| | 81.89 |
| | 2/17/2026 |
| | 2,930 |
| | 627,928 |
| | 5,860 |
| | 959,751 |
|
| | | 2/17/2017 |
| | — |
| | 7,184 |
| | 119.50 |
| | 2/16/2027 |
| | 2,348 |
| | 503,200 |
| | 4,696 |
| | 1,122,344 |
|
| |
(1) | The vesting dates assume the continued service of the Named Executive Officer. All awards granted in 2014, 2015 and 2016 vest in one installment on March 1, 2018, 2019 and 2020, respectively. Service-based stock options and restricted stock units granted in 2017 vest in four annual installments commencing on March 1, 2018 and performance-based stock units granted in 2017 vest in one installment on March 1, 2020. |
| |
(2) | Represents the closing common stock price of a share on the grant date. |
| |
(3) | Based upon the closing common stock price on December 31, 2017, which was $214.31 per share. |
| |
(4) | The performance-based stock unit performance determination dates are March 1, 2018, 2019 and 2020 for units granted in 2015, 2016 and 2017, respectively. The numbers of unearned awards range from 0% to 200% based upon achievement of performance metrics and assumes attainment of the maximum performance levels not limited by dollar value cap. The dollar payout values represent estimated values assuming attainment of maximum performance levels as limited by the dollar value cap of 400% of target values on the dates of grant. |
Option Exercises and Stock Vested in 2017
|
| | | | | | | | |
| | | Option Awards | | Stock Awards |
| Name | | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise ($)(1) | | Number of Shares Acquired on Vesting (#) | | Value Realized on Vesting ($)(2) |
| Valentin P. Gapontsev |
| — |
| — |
| — |
| — |
| Eugene A. Scherbakov |
| 31,954 |
| 3,290,285 |
| 2,200 |
| 265,650 |
| Timothy P.V. Mammen |
| 37,850 |
| 4,251,554 |
| 2,500 |
| 301,875 |
| Trevor D. Ness |
| 25,000 |
| 2,435,923 |
| 1,900 |
| 229,425 |
| Angelo P. Lopresti |
| 11,750 |
| 1,230,011 |
| 2,000 |
| 241,500 |
| |
(1) | The value realized is based on the difference between the reported closing common stock price on the date of exercise and the exercise price of the stock option. |
| |
(2) | The value realized is based on the reported closing common stock prices on the vesting dates of the restricted stock units. |
Potential Payments upon Termination or Change in Control
If the Company terminates the employment of any of the Named Executive OfficersNEOs without cause (as defined in the respective employment agreements) or any of the Named Executive OfficersNEOs terminates his employment for good reason (as defined in the respective employment agreements) ("cause"(“cause” and "good reason"“good reason” are referred to below as "Involuntary Terminations"“Involuntary Terminations”), then the officerNEO would receive:
(a) •continuation of salary for eighteen months, except in the case of Dr. Gapontsev, who would receive continuation of salary for thirty-six months,months;
(b) •a portion of the annual bonus that the executiveNEO would have received had he remained employed through the end of the applicable bonus period, based on actual performance, including the individual performance element (the(such portion based uponon the percentage of the year that hethe NEO was employed by the Company),;
(c) •cash reimbursement for continuation of health benefits for up to eighteen months, except in the case of Dr. Gapontsev, who would receive continuation of health benefits by payment of the officer'sofficer’s COBRA premiums for thirty-six-months;thirty-six months; and
(d) •accelerated vesting of equity compensation awards that otherwise would have vested within twelve months of the termination of employment.
55
Executive Compensation Tables
Upon an Involuntary Termination within twenty-four months following a change in control of the Company, the Named Executive OfficerNEO would be entitled to continuation of salary and reimbursement of COBRA premiums for health benefits for twenty-four months, the pro-rated bonus for the year of termination plus a payment of two times the average annual bonus paid to the Named Executive OfficerNEO for the three full years preceding the year of termination. In the case of the Chief Executive Officer,CEO, he would be entitled to continuation of salary and health benefits for thirty-six months, the pro-rated bonus for the year of termination plus a payment of three times the average annual bonus paid to him for the three full years preceding the termination. Under the employment agreements, all equity awards vest fully ifupon an Involuntary Termination that occurs within two years of a change in control occurs followed within two years by an Involuntary Termination.control. Upon a change in control, the officers'NEOs’ employment periods under the agreements would automatically be extended to the second anniversary of the change in control if such date is later than expiration of the current term.
If the total value of all payments and benefits, including any equity vesting ("(“total payments"payments”), made to a Named Executive OfficerNEO following a change in control would result in an excise tax under the provisions of Internal Revenue Code Section 4999 (the "golden“golden parachute tax"tax”), the total payments will be reduced so that the maximum amount of total payments (after reduction) is $1.00 less than the amount that would cause the total payments to be subject to the golden parachute tax; provided, however, that the total payments will only be reduced to the extent that the after-tax value of amounts received by the officer after application of the above reduction would exceed the after-tax value of the total payments received without application of such reduction (so called "best“best after-tax treatment"treatment”).
If the employment period of any of the Named Executive OfficersNEOs terminates and the Company does not offer such officerNEO continued employment in the same or a substantially similar position or in a higher position than the officer'sNEO's position at the end of the employment period and at a compensation level that is the same or substantially similar to the compensation level in effect at the end of the employment period, then such officerNEO may resign from employment and would receive continuation of salary and health benefits for twelve months, except for the Chief Executive OfficerCEO who would receive the same for twenty-four months, plus a pro-rated bonus for the year of termination.
If a Named Executive Officer'sNEO's employment is terminated by death or disability, the officerNEO would receive a pro-rated bonus for the year of termination. Under the employment agreements, the Company would not be obligated to make any cash payments if employment were terminated by the Company for cause or by the executiveNEO not for
good reason. Additionally, if the officer'sNEO's employment is terminated due to death, the non-vested portions of stock options, service-based restricted stock unitsRSUs and performance-based stock unitsPSUs would immediately vest.
Severance payments to the officersNEOs are conditioned upon the release of claims by the Named Executive OfficerNEO in favor of the Company. Each of the Named Executive Officers also has anNEOs entered into a separate restrictive agreement with the Company that prohibits himeach from competing with the Company for a period of one year after the termination of his employment with the Company for any reason and from hiring or attempting to hire the Company'sCompany’s employees or soliciting customers or suppliers of the Company for a period ending eighteen months following the termination of his employment for any reason. Each of the Named Executive OfficersNEOs is entitled to receive his base salary for the period during which the Company enforces the non-competition provisions of the agreement but not for more than one year following termination of his employment.
56 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
Executive Compensation Tables
The following table provides information regarding compensation and benefits that would be payable to our
Named Executive OfficersNEOs as of December 31,
2017,2020, upon an Involuntary Termination absent a change in control and preceded by a change in control and upon terminations in other circumstances. The incentive plan severance was calculated using the actual amount awarded under the
20172020 AIP. There can be no assurance that the event triggering payments would produce the same or similar results as those described below if such event occurs on any other date or at any other price, or if any other assumption used to estimate the potential payments and benefits is incorrect. Any actual payments and benefits may be different due to a number of factors that affect the nature and amount of any potential payments or benefits.
|
| | | | | | | | | | | | | | | | | |
| Name | | Benefit | | Termination Without Cause or For Good Reason ($) | | Termination Without Cause or For Good Reason Following a Change in Control ($) | | Termination following Death ($) | | Termination following Disability ($) | | Termination following Non-Renewal ($) |
| Valentin P. Gapontsev | | Salary Severance and Benefits Continuation | | 2,539,383 |
| | 2,539,383 |
| | — |
| | — |
| | 1,692,922 |
|
| | | Incentive Plan Severance | | 1,399,100 |
| | 3,431,506 |
| | 1,399,100 |
| | 1,399,100 |
| | 1,399,100 |
|
| | | Equity Acceleration | | — |
| | — |
| | — |
| | — |
| | — |
|
| | | Total | | 3,938,483 |
| | 5,970,889 |
| | 1,399,100 |
| | 1,399,100 |
| | 3,092,022 |
|
| Eugene A. Scherbakov | | Salary Severance and Benefits Continuation | | 816,921 |
| | 1,089,228 |
| | — |
| | — |
| | 544,614 |
|
| | | Incentive Plan Severance | | 769,300 |
| | 1,473,816 |
| | 769,300 |
| | 769,300 |
| | 769,300 |
|
| | | Equity Acceleration | | 2,324,502 |
| | 11,785,651 |
| | 11,785,651 |
| | — |
| | — |
|
| | | Total | | 3,910,723 |
| | 14,348,695 |
| | 12,554,951 |
| | 769,300 |
| | 1,313,914 |
|
| Timothy P.V. Mammen | | Salary Severance and Benefits Continuation | | 719,973 |
| | 959,963 |
| | — |
| | — |
| | 479,982 |
|
| | | Incentive Plan Severance | | 577,000 |
| | 1,215,050 |
| | 577,000 |
| | 577,000 |
| | 577,000 |
|
| | | Equity Acceleration | | 2,495,550 |
| | 11,453,574 |
| | 11,453,574 |
| | — |
| | — |
|
| | | Total | | 3,792,523 |
| | 13,628,588 |
| | 12,030,574 |
| | 577,000 |
| | 1,056,982 |
|
| Trevor D. Ness | | Salary Severance and Benefits Continuation | | 647,523 |
| | 863,363 |
| | — |
| | — |
| | 431,682 |
|
| | Incentive Plan Severance | | 516,200 |
| | 1,068,970 |
| | 516,200 |
| | 516,200 |
| | 516,200 |
|
| | Equity Acceleration | | 1,932,267 |
| | 9,483,276 |
| | 9,483,276 |
| | — |
| | — |
|
| | Total | | 3,095,990 |
| | 11,415,609 |
| | 9,999,476 |
| | 516,200 |
| | 947,882 |
|
| Angelo P. Lopresti | | Salary Severance and Benefits Continuation | | 664,023 |
| | 885,363 |
| | — |
| | — |
| | 442,682 |
|
| | Incentive Plan Severance | | 530,000 |
| | 1,051,163 |
| | 530,000 |
| | 530,000 |
| | 530,000 |
|
| | Equity Acceleration | | 1,953,698 |
| | 8,997,062 |
| | 8,997,062 |
| | — |
| | — |
|
| | Total | | 3,147,721 |
| | 10,933,589 |
| | 9,527,062 |
| | 530,000 |
| | 972,682 |
|
| |
(1) | Equity acceleration is calculated using the full value of service-based restricted stock units and the maximum amount of shares for performance-based stock units based upon the closing sale price of our common stock on December 31, 2017 of $214.31 per share and the aggregate difference between the exercise prices of outstanding stock options and the closing sale price of our common stock on December 31, 2017. |
| | | | | | | | | | | | | | | | | | | | |
| Name | Benefit | Termination
Without Cause
or For Good
Reason
($) | Termination
Without Cause or
For Good Reason
Following a Change
in Control
($) | Termination
following
Death
($) | Termination
following
Disability
($) | Termination
following Non-
Renewal
($) |
Valentin P.
Gapontsev | Salary Severance and
Benefits Continuation | 2,837,582 | 2,837,582 | — | | — | | 1,891,721 |
| Incentive Plan Severance | 934,900 | 2,693,550 | 934,900 | 934,900 | 934,900 |
| Equity Acceleration | — | | — | | — | | — | | — | |
| Total | 3,772,482 | 5,531,132 | 934,900 | 934,900 | 2,826,621 |
Eugene A.
Scherbakov | Salary Severance and
Benefits Continuation | 950,261 | 1,267,015 | — | | — | | 633,507 |
| Incentive Plan Severance | 573,604 | 1,293,310 | 573,604 | 573,604 | 573,604 |
Equity Acceleration(1) | 3,592,516 | 12,919,089 | 12,919,089 | — | | — | |
| Total | 5,116,382 | 15,479,414 | 13,492,693 | 573,604 | 1,207,111 |
Timothy P.V.
Mammen | Salary Severance and
Benefits Continuation | 757,492 | 1,009,989 | — | | — | | 504,995 |
| Incentive Plan Severance | 375,900 | 833,127 | 375,900 | 375,900 | 375,900 |
Equity Acceleration(1) | 1,964,774 | 7,137,257 | 7,137,257 | — | | — | |
| Total | 3,098,166 | 8,980,373 | 7,513,157 | 375,900 | 880,895 |
Angelo P.
Lopresti | Salary Severance and
Benefits Continuation | 663,150 | 884,200 | — | | — | | 442,100 |
| Incentive Plan Severance | 323,200 | 728,547 | 323,200 | 323,200 | 323,200 |
Equity Acceleration(1) | 1,682,151 | 6,098,562 | 6,098,562 | — | | — | |
| Total | 2,668,501 | 7,711,308 | 6,421,762 | 323,200 | 765,300 |
Alexander
Ovtchinnikov | Salary Severance and
Benefits Continuation | 678,300 | 904,400 | — | | — | | 452,200 |
| Incentive Plan Severance | 320,300 | 721,980 | 320,300 | 320,300 | 320,300 |
Equity Acceleration(1) | 1,666,387 | 6,042,578 | 6,042,578 | — | | — | |
| Total | 2,664,987 | 7,668,958 | 6,362,898 | 320,300 | 772,500 |
(1)Equity acceleration is calculated at the full value of service-based RSUs. PSUs are presented at the maximum possible amount of shares. Values use the closing common stock price on December 31, 2020, of $223.79 per share and the aggregate difference between the exercise prices of outstanding stock options and the closing common stock price on December 31, 2020. Includes for Dr. Scherbakov, Messrs. Mammen, Lopresti and Dr. Ovtchinnikov PSUs vesting on March 1, 2021 with values of $1,796,586, $868,305, $756,410 and $749,249, respectively, calculated pursuant to SEC rules, which did not meet the minimum performance threshold and resulted in no actual payout on March 1, 2021.
4557
Executive Compensation Tables
CEO PAY RATIO
Pay Ratio
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K, we are providing the following information on the relationship of the annual total compensation of our employees and the annual total compensation of Dr. Valentin P. Gapontsev, our Chief Executive Officer. The pay ratio included in this information is a reasonable estimate calculated in a manner consistent with rules promulgated by the SEC.
CEO.
Determining our Median Employee: As of December 31, 2017,2020, the measurement date, we employed 5,3896,216 employees, 63%65% of whom were located outside of the U.S.A.U.S. This includes all full-time, part-time, and temporary employees. It does not include independent contractors.
We have employees in nineteentwenty-three countries. As permitted by theapplicable SEC rules, in identifying our median employee, we excluded 158used the "de minimis" exemption to exclude from our employee population 185 workers in the following jurisdictions (employees excluded in parenthesis): Belarus (38)Canada (36), Korea (29)(33), India (23)(27), Turkey (15)(22), Poland (13)(17), United Kingdom (10)(11), Brazil (7)(9), France (6), Spain (5)(7), Czech Republic (5)(7), Mexico (5)Spain (6), Thailand (4), Taiwan (3), Malaysia (1), Singapore (1) and Russia (2)Vietnam (1). We also excluded approximately 10726 employees who became our employees as a result of our 2017 acquisitions2020 acquisition of OptiGrate Corporation, Innovative Laser Technology, LLC and Laser Depth Dynamics, Inc.
Pi-Technologia S.A.
The SEC rules required us to identify our median employee by use of a consistently applied compensation measure (“CACM”). We chose a CACM that closely approximates the annual total cash compensation of our employees. Specifically, we identified the median employee as of December 31, 2020, by looking at total wages and bonuses paid in 2017.2020. An average 2020 U.S. dollar exchange rate was applied to compensation reported in a foreign currency. After applying our CACM methodology and excluding the employees listed above, we identified the median employee.
Calculating the Pay Ratio: As required by the SEC rules, we then calculated our median employee’s total annual compensation in accordance in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K (which is the calculation method for reporting CEO compensation in the Summary Compensation Table).
The total compensation of our median employee was $32,676.$36,416. Our CEO’s total compensation as reported in the Summary Compensation Table for 2020 was $2,231,100.$1,943,900. Therefore, the ratio of the annual total compensation of our CEO to median employee in 2020 was approximately 53 to 1.
The pay ratio included in this information is approximately 68.3:1.
a reasonable estimate calculated in a manner consistent with rules promulgated by the SEC. This information is being provided solely for compliance purposes. The Compensation Committee does not consider this ratio when evaluating compensation arrangements.
58 NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT
AUDIT COMMITTEE REPORT
The primary role of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities by reviewing the financial information proposed to be provided to stockholders and others, the adequacy of the system of internal control over financial reporting and disclosure controls and procedures established by management and the Board, and the audit process and the independent registered public accounting firm's qualifications, independence and performance.
Management has primary responsibility for the financial statements and is responsible for establishing and maintaining the Company's system of internal controls over preparation of the Company's financial statements. The Company's independent registered public accounting firm, Deloitte & Touche LLP, is responsible for performing an integrated audit of the Company's consolidated financial statements and the effectiveness of internal controls over financial reporting in accordance with standards of the Public Company Accounting Oversight Board (United States) (PCAOB) and issuing an opinion on the financial statements and the effectiveness of internal controls over financial reporting. The Audit Committee also employs an international auditing firm to conduct internal audits throughout the Company of various financial, operational and information technology areas as selected each year by the Audit Committee. The Audit Committee periodically met and held separate discussions with the internal auditors and the Company's independent registered public accounting firm, with and without management present, to review the adequacy of the Company's internal controls, financial reporting practices and audit process.
The Audit Committee has reviewed and discussed the Company's audited consolidated financial statements for the year ended December 31, 2017 with management and the independent registered public accounting firm. As part of this review, the Audit Committee discussed with Deloitte & Touche LLP the required communications described in Auditing Standard No. 16, Communication with Audit Committees, and those matters required to be reviewed pursuant to Rule 2-07 of Regulation S-X as well as the results of their audit of the effectiveness of internal controls over financial reporting.
The Audit Committee has received from Deloitte & Touche LLP a written statement describing all relationships between that firm and the Company that might bear on their independence, consistent with PCAOB Ethics and Independence Rule 3526, Communications with Audit Committees Concerning Independence. The Audit Committee has discussed the written statement with the independent registered public accounting firm and has considered whether its provision of any other non-audit services to the Company is compatible with maintaining the auditors' independence.
Based on the above-mentioned reviews and discussions, the Audit Committee recommended to the Board of Directors that the Company's audited consolidated financial statements be included in its Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC.
The information in this Audit Committee Report shall not be considered "soliciting material" or "filed" with the SEC, nor shall this information be incorporated by reference into any previous or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company incorporated it by specific reference.
AUDIT COMMITTEE
Thomas J. Seifert, Chair
Henry E. Gauthier
William S. Hurley
Catherine P. Lego
March 28, 2018
PROPOSAL 2: RATIFY INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | | | | | |
| |
Proposal
2 | Ratify Deloitte & Touche LLP as Our Independent
Registered Public Accounting Firm for 2021 |
| |
Deloitte & Touche LLP currently serves as our independent registered public accounting firm and audited our consolidated financial statements for the year ended December 31, 2017.2020. Our Audit Committee has appointed Deloitte & Touche LLP to serve as our independent registered public accounting firm for 2018,2021, and to conduct an integrated audit of our consolidated financial statements for the year ending December 31, 20182021 and of our internal control over financial reporting as of December 31, 2018.2021. Deloitte & Touche LLP has served as the Company'sCompany’s auditor since 1999. A representative of Deloitte & Touche LLP will attend the Annual Meeting where he or she will have the opportunity to make a statement, if he or she desires, and will be available to respond to appropriate stockholder questions.
The Audit Committee is solely responsible for the appointment, retention, termination and oversight of the work of our independent registered public accounting firm, including the approval of all engagement fees, terms, and the annual audit plan. In determining whether to reappoint Deloitte & Touche LLP as the Company'sCompany’s independent external auditor, the Audit Committee took into consideration several factors, including an assessment of the professional qualifications and past performance of the lead audit partner and the Deloitte & Touche LLP team, the quality and level of transparency of the Audit Committee'sCommittee’s relationship and communications with Deloitte & Touche LLP. The Audit Committee considered, among other things, the knowledge and skills of Deloitte & Touche LLP'sLLP’s auditing experts that would be providing services to the Company, international scope and knowledge of the Company and its operations. After its assessment, the Audit Committee concluded that the best course of action was to reappoint Deloitte & Touche LLP as the Company'sCompany’s independent external auditor for 2018.2021. Lead and concurring audit partners are subject to rotation requirements that limit the number of consecutive years an individual partner may provide services. The maximum number of consecutive years of service in that capacity is five years and 2019 will be2024 is a year of lead audit partner rotation. The Audit Committee was directly involved in the selection process of the current and prior lead audit partners. In 2014, the process for rotation of the Company's lead audit partner involvedinvolves an inquiry into the backgrounds and experiences of several potential lead partners, a narrowing of the list to one or more, a meeting between the candidate or candidates for the role with the Chair of the Audit Committee, and the successor candidate, as well as meetings with management. This is accompanied by several discussions with and a final approval by the entire Audit Committee.
Fees Paid to Deloitte & Touche.The fees for services provided by Deloitte & Touche LLP, member firm of Deloitte Touche Tohmatsu, and their respective affiliates, to the Company were:
| | | | | Fees | | Fees |
| Fee Category | | 2017 | | 2016 | Fee Category | 2020 | | 2019 | |
| Audit fees | | $ | 1,873,535 |
| | $ | 1,662,214 |
| Audit fees | $ | 2,247,738 | | $ | 2,440,990 | |
| Audit-related fees | | $ | 212,072 |
| | $ | 150,258 |
| Audit-related fees | — |
| Tax fees | | $ | 95,200 |
| | $ | 278,753 |
| Tax fees | 145,000 | 90,000 |
| All other fees | | $ | — |
| | $ | — |
| All other fees | — |
| Total Fees | | $ | 2,180,807 |
| | $ | 2,091,225 |
| Total Fees | $ | 2,392,738 | | $ | 2,530,990 | |
Audit fees.These fees comprise fees for professional services rendered in connection with the audit of the Company'sCompany’s consolidated financial statements that are customary under auditing standards generally accepted in the United States. Audit fees also include fees for consents and reviews related to SEC filings and quarterly services with respect to the preparation of our unaudited quarterly financial statements. The decrease in audit fees relates to decreases in audit hours related to purchase accounting and goodwill evaluations for acquired companies, implementation of new accounting standards and control testing for new software implementation.
Audit-related fees.These fees comprise fees for services that are reasonably related to the performance of the audit or review of the Company'sCompany’s financial statements. The increase in audit-related fees in 2017 primarily relate to additional audit work required for acquisitions completed in 2017.
59 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Tax fees.Fees for tax services consist of fees for tax compliance services and tax planning and advice services. Tax compliance services are services rendered based upon facts already in existence or transactions that have already occurred to document, compute and obtain government approval for amounts to be included in tax filings. Tax planning and advice are services rendered with respect to proposed transactions or that alter a transaction to obtain a particular tax result. The tax fees in 2017 and 2016 relate primarily to assistance with the analysis of research and development tax credits and incentives and assistance. The decrease in tax fees relates to one-time work for research and development tax incentives outside the United States in 2016.
All other fees. These are fees for any services not included in the other three categories.
Policy on Pre-Approval of Audit and Permissible Non-Audit Services.The Audit Committee pre-approves all audit and permissible non-audit services provided by the independent registered public accounting firm. These
services may include audit services, audit-related services and tax services as well as specifically designated non-audit services that, in the opinion of the Audit Committee, will not impair the independence of the independent registered public accounting firm. Pre-approval is generally provided for each fiscal year, and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent registered public accounting firm and our management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with the pre-approval, including the fees for the services performed to date. In addition, the Audit Committee also may pre-approve particular services on a case-by-case basis, as required. All of the services performed by Deloitte & Touche LLP in 2020 were pre-approved by the Audit Committee.
Our Audit Committee is solely responsible for selecting and appointing our independent registered public accounting firm, and this appointment is not required to be ratified by our stockholders. However, our Audit Committee has recommended that the Board submit this matter to the stockholders in a non-binding advisory vote as a matter of good corporate practice. If the stockholders fail to ratify the appointment, the Audit Committee will reconsider whether to retain Deloitte & Touche LLP, and may retain that firm or another without re-submitting the matter to our stockholders. Even if the appointment is ratified, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our stockholders.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
RATIFICATION OF DELOITTE & TOUCHE LLP AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
| | |
|
Our Board of Directors Recommends a vote FORratification of Deloitte & Touche LLP as
our independent registered public accounting firm for 2021. |
|
