Payment of Filing Fee (Check the appropriate box): | ☒ | | | | ☒ | | No fee required. | | | | | | ☐ | | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | | | | (1) | | | | | | (1) | | Title of each class of securities to which transaction applies: | | | | (2) | | Aggregate number of securities to which transaction applies: | | | | (3) | | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | | | | (4) | | Proposed maximum aggregate value of transaction: | | | | (5) | | Total fee paid: | | | | | | | | ☐ | | Fee paid previously with preliminary materials. | | | | | | | | ☐ | | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | | | | | | | | | | (1) | | Amount Previously Paid: | | | | (2) | | Form, Schedule or Registration Statement No.: | | | | (3) | | Filing Party: | | | | (4) | | Date Filed: | | | | | | | | | | | | Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.
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| Agilent Technologies, Inc.
5301 Stevens Creek Blvd.
Santa Clara, California 95051
William P. Sullivan
Chief Executive Officer |
February 2015
To our Stockholders:
I am pleased to invite you to attend the annual meeting of stockholders of Agilent Technologies, Inc. (“Agilent”) to be held on Wednesday, March 18, 2015 at 8:00 a.m., Pacific Standard Time, at Agilent’s headquarters located at 5301 Stevens Creek Blvd., Building No. 5, Santa Clara, California (U.S.A.). Details regarding admission to the annual meeting and the business to be conducted are more fully described in the accompanying Notice of Annual Meeting and Proxy Statement.
If you are unable to attend the annual meeting in person, you may listen through the Internet or by telephone. To listen to the live webcast, log on at www.investor.agilent.com and select the link for the webcast. To listen by telephone, please call (877) 312-5529 (international callers should dial (253) 237-1147). The meeting identification number is 45043300. The webcast will begin at 8:00 a.m. and will remain on Agilent’s website for one year. You cannot record your vote or ask questions on this website or at this phone number.
We have elected to take advantage of Securities and Exchange Commission rules that allow issuers to furnish proxy materials to their stockholders on the Internet. We believe that the rules will allow us to provide our stockholders with the information they need, while lowering the costs of delivery and reducing the environmental impact of the annual meeting.
Your vote is important. Whether or not you plan to attend the annual meeting, I hope that you will vote as soon as possible. Please review the instructions on each of your voting options described in the Proxy Statement and the Notice of Internet Availability of Proxy Materials you received in the mail.
Thank you for your ongoing support of, and continued interest in, Agilent.
Sincerely,
Admission to the annual meeting will be limited to stockholders. You are entitled to attend the annual meeting only if you are a stockholder of record as of the close of business on January 20, 2015, the record date, or hold a valid proxy for the meeting. In order to be admitted to the annual meeting, you must present proof of ownership of Agilent stock on the record date. This can be a brokerage statement or letter from a bank or broker indicating ownership on January 20, 2015, the Notice of Internet Availability of Proxy Materials, a proxy card, or legal proxy or voting instruction card provided by your broker, bank or nominee. Any holder of a proxy from a stockholder must present the proxy card, properly executed, and a copy of the proof of ownership. Stockholders and proxyholders may also be asked to present a form of photo identification such as a driver’s license or passport. Backpacks, cameras, cell phones with cameras, recording equipment and other electronic recording devices will not be permitted at the annual meeting. Agilent reserves the right to inspect any persons or proposals prior to their admission to the annual meeting. Failure to follow the meeting rules or permit inspection will be grounds for exclusion from the annual meeting.
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AGILENT TECHNOLOGIES, INC.
5301 Stevens Creek Blvd. Boulevard Santa Clara, California 95051
(408) 553-2424
Notice of Annual Meeting of Stockholders TIME | : | 8:00 a.m., Pacific Standard Time, on Wednesday, March 18, 201515, 2017 | | | | PLACE | : | Agilent’sCorporate Headquarters
| | | 5301 Stevens Creek Boulevard, Building No. 5
| | | Santa Clara, California (U.S.A.)95051 USA | | | | ITEMS OF BUSINESSAGENDA
| : | (1)1. To elect three directors to a 3-yearthree-year term. At the annual meeting, the Board of Directors intends to present the following nominees for election as directors:
| | | • Heidi Kunz; • Sue H. Rataj; and • George A. Scangos, PhD | | | ●Robert J. Herbold
●Koh Boon Hwee; and
●Michael R. McMullen
| | | | | | (2) To ratify the Audit and Finance Committee’s appointment ofPricewaterhouseCoopers LLP as Agilent’s independent registered public accounting firm.
| (3) To re-approve and amend the Performance-Based Compensation Plan for Covered Employees.
(4) To approve amendments to our Amended and Restated Certificate of Incorporation and Bylaws to declassify the Board.
(5)2. To approve, on a non-binding advisory basis, the compensation of Agilent’sour named executive officers.
| (6)
| | | | | 3. An advisory vote on the frequency of the stockholder vote to approve the compensation of our named executive officers. | | | | | | 4. To ratify the Audit and Finance Committee’s appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm. | | | | 5. To consider such other business as may properly come before the annual meeting. | | | | RECORD DATE | : | You are entitled to vote at the annual meeting and at any adjournments, postponements or postponementscontinuations thereof if you were a stockholder at the close of business on Tuesday, January 20, 2015.17, 2017. | | | | ANNUAL MEETING VOTING
| : | For instructions on voting, please refer to the instructions on the Notice of Internet Availability of Proxy Materials you received in the mail or, if you received a hard copy of the Proxy Statement, on your enclosed proxy card. | | | | ADMISSION | : | To be admitted to the annual meeting you must present proof of ownership of Agilentour stock as of the record date. This can be a brokerage statement or letter from a bank or broker indicating ownership on January 20, 2015,17, 2017, the Notice of Internet Availability of Proxy Materials, a proxy card, or legal proxy or voting or voting instruction card provided by your broker, bank or nominee. You may also be asked to present a form of photo identification such as a driver’s license or passport. The annual meeting will begin promptly at 8:00 a.m. Limited seating is available on a first come, first served basis. | | | | VOTINGWEBCAST
| : | For instructions on voting, please referIf you are unable to attend the annual meeting in person, you may listen through the Internet or by telephone. To listen to the instructionslive webcast, log on at www.investor.agilent.com and select the link for the webcast. To listen by telephone, please call (877) 312-5529 (international callers should dial (253) 237-1147). The meeting identification number is 23657112. The webcast will begin at 8:00 a.m. and will remain on the Notice of Internet Availability of Proxy Materials you received in the mailcompany’s website for one year. You cannot record your vote or if you received a hard copy of the Proxy Statement,ask questions on your enclosed proxy card.this website or at this phone number.
|
| By Order of the Board of Directors | | | | MMarie Oh HuberICHAEL T ANG | | Senior Vice President, General Counsel and Secretary | | |
This Proxy Statement and the accompanying proxy card are being sent or made available
on or about February 6, 2015.2, 2017.
| SUMMARY INFORMATION |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
TableThis proxy statement contains forward-looking statements as defined in the Securities Exchange Act of Contents1934 and is subject to the safe harbors created therein. The forward-looking statements contained herein are generally identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on the beliefs and assumptions of our management and on currently available information. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in our annual report on Form 10-K for the fiscal year ended October 31, 2016. We undertake no responsibility to publicly update or revise any forward-looking statement.
| SUMMARY INFORMATION |
PROXY SUMMARY The following is a summary which highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information you should consider, and you are urged to read the entire Proxy Statement carefully before voting. Voting Matters and Vote Recommendations There are fiveWe currently expect to consider four items of business which Agilent currently expects to be considered at the Annual Meeting. The following table lists those items of business and the Agilentour Board’s vote recommendation.
PROPOSAL |
PROPOSAL | BOARD VOTE RECOMMENDATION | | REASONS FOR RECOMMENDATION | MORE INFORMATION | (1) | Election of Directorsthree directors to a three-year term | For each director nomineeFOR
| The Board and the Nominating/Corporate Governance Committee believe our nominees possess the skills, experience and qualifications to effectively monitor performance, provide oversight and support management’s execution of our long-term strategy. | Page 5 | (2) | Ratification of the Independent Registered Public Accounting Firm
| For
| (3)
| Re-approval and amendment of the Performance-Based
Compensation Plan for Covered Employees
| For
| (4)
| Amendments to our Amended and Restated Certificate of
Incorporation and Bylaws to declassify the Board
| For
| (5)
| Advisory vote to approve Named Executive Officerthe compensation of our named executive officers | ForFOR
| Our executive compensation program incorporates a number of compensation governance best practices and reflects our commitment to pay for performance. | Page 51 | (3) | Advisory vote on the frequency of the stockholder vote to approve the compensation of our named executive officers | 1 YEAR | The Board and the Compensation Committee believe that conducting the advisory vote on executive compensation every year will lead to more meaningful and timely communication between the company and our stockholders on the compensation of our named executive officers. | Page 52 | (4) | Ratification of the independent registered public accounting firm | FOR | Based on its assessment, the Board and the Audit and Finance Committee believe that the appointment of PricewaterhouseCoopers LLP is in the best interests of the company and our stockholders. | Page 53 |
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| SUMMARY INFORMATION |
Proposal 1 - Director Nominees
Agilent’sOur Board is currently divided into three classes serving staggered three-year terms. On September 17, 2014, Mr. Sullivan notified the Company that he would retire as Chief Executive Officer and as a member of the Company’s board of directors effective March 18, 2015. Mr. McMullen, Agilent’s current President and Chief Operating Officer, is being nominated to fill the board vacancy left by Mr. Sullivan’s retirement and will assume the title of Chief Executive Officer on March 18, 2015. The following table provides summary information about each of the three director nominees who are being voted on at the Annual Meeting.
| | | | | COMMITTEE | OTHER | | | DIRECTOR | | INDE- | MEMBERSHIPS | PUBLIC | NAME | AGE | SINCE | OCCUPATION | PENDENT | AC | CC | NCG | EC | BOARDS | Robert J. Herbold | 72 | 2000 | Managing Director of The Herbold Group, LLC | Yes | M | | M | | 1 | Koh Boon Hwee | 64 | 2003 | Managing Partner, Credence Capital Fund II (Cayman) Ltd. | Yes | | C | M | | 4 | Michael R. McMullen | 53 | — | President and Chief Operating Officer of Agilent Technologies | No | | | | | — |
Key:
| AC: Audit Committee; CC: Compensation Committee; NCG: Nominating/Corporate Governance Committee; EC: Executive Committee; C: Chairperson; M: Member
|
| | DIRECTOR SINCE | | COMMITTEE MEMBERSHIPS | NAME | AGE | OCCUPATION | Heidi Kunz | 62 | 2000 | Retired Executive Vice President | • Audit and Finance (Chair) | | | | and Chief Financial Officer of | • Nominating/Corporate Governance | | | | Blue Shield of California | | Sue H. Rataj | 59 | 2015 | Retired Chief Executive, | • Compensation | | | | Petrochemicals for BP | • Nominating/Corporate Governance | | | | | | George A. Scangos, PhD | 68 | 2014 | Chief Executive Officer | • Compensation | | | | of Biogen Inc. | • Nominating/Corporate Governance | | | | | | | | | | |
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| SUMMARY INFORMATION |
Proposal 2 - Independent Registered Public Accounting FirmCorporate Governance Highlights
We ask that our stockholders ratify the selection of PricewaterhouseCoopers LLP as Agilent’s independent registered public accounting firm for fiscal year 2015. BelowThe Board is summary information about PricewaterhouseCoopers’ fees for services performed during fiscal years 2014committed to sound and 2013:
| | | | | | | % of | | | | % of | | | | Fee Category: | | Fiscal 2014 | | Total | | Fiscal 2013 | | Total | | | | Audit Fees | | $ | 7,791,000 | | 76.8 | | $4,984,000 | | 83.1 | | | | Audit-Related Fees | | | 1,695,000 | | 16.7 | | 762,000 | | 12.7 | | | | Tax Fees: | | | | | | | | | | | | | Tax compliance/preparation | | | 265,000 | | 2.6 | | 245,000 | | 4.1 | | | | Other tax services | | | 0 | | 0 | | 0 | | 0 | | | | Total Tax Fees | | | 265,000 | | 2.2 | | 245,000 | | 4.1 | | | | All Other Fees | | | 392,000 | | 3.9 | | 4,000 | | 0.01 | | | | Total Fees | | $ | 10,143,000 | | 100 | | $5,995,000 | | 100 | |
Proposal 3 - Re-approval and Amendment of the Performance-Based Compensation Plan for Covered Employees
At the Annual Meeting, Agilent is requesting that stockholders approve the material terms of the Agilent Technologies, Inc. Performance-Based Compensation Plan for Covered Employees (the “Performance Plan”) and approve an amendment to the Performance Plan that will provide the ability to pay awards under the Performance Plan in the form of cash and/or Agilent common stock. Subject to stockholder approval, the Performance Plan, as amended, will be effective commencing with fiscal year 2015. Section 162(m) of the Internal Revenue Code requires that the stockholders approve the material terms of the Performance Plan at least every five years. The Performance Plan was most recently approved by our stockholders at the 2010 annual meeting.
As proposed for approval, and with the exception of the ability to pay awards under the Performance Plan in the form of cash and/or Agilent common stock, the Performance Plan is substantially the same as the version approved by the stockholders in 2010.
Proposal 4 - Amendments to our Amended and Restated Certificate of Incorporation and Bylaws to Declassify the Board
As part of the Company’s commitment to effective governance practices that promote long-term stockholder value and strengthen Board and management accountability to our stockholders, customers and the Board undertook a reviewother stakeholders. The following table highlights many of currentour key governance practices. Specific details on our corporate governance trends and considered the view held by many institutional stockholders that transitioning to an annually elected board is preferable to maintaining a classified board. After careful consideration the Board has determined that it is appropriate to propose for stockholder consideration amendments to our Amended and Restated Certificate of Incorporation and Bylaws that, if adopted, would eliminate the classified structure of our Board over a three-year period.can be found starting on page 14.
If this proposal is approved by the requisite percentage of stockholders, the Company will transition to a declassified structure under which current directors will serve out their remaining terms prior to standing for election and the entire Board will stand for election annually beginning in 2018. As part of the transition, at the Annual Meetings of Stockholders in 2016 and 2017, each of the Class I and Class II directors, respectively, will begin standing for annual election. The proposed amendments will not affect the unexpired term of any director elected prior to the Annual Meeting of Stockholders in 2016.
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✓ | SUMMARY INFORMATION | Nine of our 10 directors are independent | | ✓ | | Annual board self-assessment process, including peer evaluations | ✓ | | Independent standing board committees | | ✓ | | Majority voting and director resignation policy in uncontested director elections | ✓ | | Strong independent lead director | | ✓ | | Continued assessment of highly qualified, diverse and independent candidates for nomination to the board | ✓ | | Regular meetings of our independent directors without management present | | ✓ | | Strong focus on pay-for-performance | ✓ | | Diverse board with an effective mix of skills, experience and perspectives | | ✓ | | Proactive stockholder engagement | ✓ | | Three new independent directors added during the past three years | | ✓ | | Policies prohibiting hedging, short selling and pledging of our common stock | ✓ | | Varied lengths of Board tenure with an average tenure of 10 years | | ✓ | | Stock ownership guidelines for executive officers and directors |
Proposal 5 - Approve Named Executive Officer Compensation
We are requesting your non-binding vote to approve the compensation of the Company’s named executive officers as described in the Compensation Discussion and Analysis and Executive Compensation sections of the proxy statement. The proxy statement contains information about Agilent’s executive compensation programs. In particular, you will find detailed information in the Compensation Discussion and Analysis and the Executive Compensation tables.
We believe our programs are well aligned with the interests of our shareholders and are instrumental to achieving our business strategy. In determining executive compensation for fiscal year 2014, the Compensation Committee considered the overwhelming stockholder support (97% approval of votes cast) that the “Say-on-Pay” proposal received at our March 20, 2013 annual meeting of stockholders. The Compensation Committee believes that the shareholder vote confirms the philosophy and objective of linking our executive compensation to our operating and strategic objectives and the enhancement of shareholder value. We view this level of shareholder support as an affirmation of our current pay practices for fiscal year 2014. The Compensation Committee will continue to consider the outcome of the Company’s say-on-pay votes when making future compensation decisions for the named executive officers.
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| PROPOSAL 1 - ELECTION OF DIRECTORS |
PROPOSAL 1 – ELECTION OF DIRECTORS Director Nomination Criteria: Qualifications and Experience
The Nominating/Corporate Governance Committee (the “Nominating Committee”) performs an assessment of the skills and the experience needed to properly oversee the interests of the Company. Generally the Nominating Committee reviews both the short and long term strategies of the Company to determine what current and future skills and experience are required of the Board in exercising its oversight function. The Nominating Committee then compares those skills to the skills of the current directors and potential director candidates. The Nominating Committee conducts targeted efforts to identify and recruit individuals who have the qualifications identified through this process. The Nominating Committee looks for its current and potential directors collectively to have a mix of skills and qualifications, some of which are described below:
●a reputation for personal and professional integrity and ethics;
●executive or similar policy-making experience in relevant business or technology areas or national prominence in an academic, government or other relevant field;
●breadth of experience;
●soundness of judgment;
●the ability to make independent, analytical inquiries;
●the willingness and ability to devote the time required to perform Board activities adequately;
●the ability to represent the total corporate interests of Agilent; and
●the ability to represent the long-term interests of stockholders as a whole.
In addition to these minimum requirements, the Nominating Committee will also consider whether the candidate’s skills are complementary to the existing Board members’ skills; the diversity of the Board in factors such as age, experience in technology, manufacturing, finance and marketing, international experience and culture; and the Board’s needs for specific operational, management or other expertise. The Nominating Committee from time to time reviews the appropriate skills and characteristics required of board members, including factors that it seeks in board members such as diversity of business experience, viewpoints and, personal background, and diversity of skills in technology, finance, marketing, international business, financial reporting and other areas that are expected to contribute to an effective Board of Directors. In evaluating potential candidates for the Board of Directors, the Nominating Committee considers these factors in the light of the specific needs of the Board of Directors at that time.
Current Director Terms
Agilent’sOur Board is divided into three classes serving staggered three-year terms. Directors for each class are elected at the annual meeting of stockholders held in the year in which the term for their class expires. Agilent’sOur Bylaws, as amended, allow the Board to fix the number of directors by resolution. Our Board currently consists of nineten directors divided into three classes.
If Proposal 4 is approved by the requisite percentage of stockholders at the Annual Meeting, the Company will transition to a declassified structure under which the entire Board will stand for election annually beginning in 2018. As part of the transition, at the Annual Meetings of Stockholders in 2016 and 2017, each of the Class I and Class II directors, respectively, will begin standing for annual election. The proposed amendments will not affect the unexpired term of any director elected prior to the Annual Meeting of Stockholders in 2016.
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| ELECTION OF DIRECTORS |
The terms of two currentthe three director nominees will expire at this Annual Meeting. On September 17, 2014, Mr. Sullivan notified the Company that he would retire as Chief Executive Officer and as a member of the Company’s board of directors effective March 18, 2015 and would not stand for re-election at this Annual Meeting. Mr. McMullen, Agilent’s current President and Chief Operating Officer is being nominated to fill the vacancy left by Mr. Sullivan’s retirement and will assume the title of Chief Executive Officer on March 18, 2015. The current composition of the Board and the term expiration dates for each director is as follows: Class | Directors | Term Expires | | IIIClass | | Directors | Term Expires | II | | Heidi Kunz, Sue H. Rataj and George A. Scangos, PhD | 2017 | III | | Robert J. Herbold, Koh Boon Hwee, Michael R. McMullen and William P. SullivanDaniel K. Podolsky, M.D. | 20152018 | I | | Paul N. Clark, James G. Cullen and Tadataka Yamada, M.D. | 2016 | II | Heidi Fields, A. Barry Rand and George A. Scangos, Ph.D. | 20172019 |
Director Nominees for Election to New Three-Year Terms That Will Expire in 2020 Directors elected at the 20152017 annual meeting will hold office for a three-year term expiring at the annual meeting in 20182020 (or until their respective successors are elected and qualified, or until their earlier death, resignation or removal). All nominees except Mr. McMullen, are currently directorsserving as our directors. To the best knowledge of Agilent.the Board, all of the nominees are able and willing to serve. Each nominee has consented to be named in this proxy statement and to serve if elected. Information regarding each nominee is provided below as of December 31, 2014.2016. There are no family relationships among Agilent’sour executive officers and directors. Director Nominees
Age: 62 Director Since: February 2000 | | Board Committees: | | Other Public Directorships: | • • | Audit and Finance (Chair) Nominating/Corporate Governance | • • | Financial Engines, Inc. | Halyard Health, Inc. | |
Ms. Kunz served as Executive Vice President and Chief Financial Officer of Blue Shield of California from 2003 through 2012 and as Executive Vice President and the Chief Financial Officer of Gap, Inc. from 1999 to 2003. Prior thereto, Ms. Kunz served as the Chief Financial Officer of ITT Industries, Inc. from 1995 to 1999. From 1979 to 1995, she held senior financial management positions at General Motors Corporation, including Vice President and Treasurer. Qualifications Ms. Kunz possesses significant experience and experience in management and financial matters, having served as the Chief Financial Officer of both public and private companies. Ms. Kunz is the chairperson of our Audit and Finance Committee and is qualified as a financial expert under SEC guidelines. In addition, Ms. Kunz has considerable experience and expertise with our company having been a member of our board of directors for Electionover 10 years. Age: 59 Director Since: September 2015 | | Board Committees: | | Other Public Directorships: | • • | Compensation Nominating/Corporate Governance | • • | Cabot Corporation | Bayer A.G. | |
Ms. Rataj was Chief Executive, Petrochemicals for BP, a global energy company, until she retired in April 2011. In this role, she held responsibility for all of BP’s global petrochemical operations. Prior thereto, Ms. Rataj held a variety of senior management positions with BP, most recently serving as Group Vice President, Health, Safety, Operations and Technology for the Refining and Marketing Segment. 5
| PROPOSAL 1 - ELECTION OF DIRECTORS |
Qualifications Ms. Rataj possesses significant leadership experience and business expertise from her executive positions with BP. Ms. Rataj has lived and worked extensively in the Asia Pacific and European regions and brings a global perspective to New Three-Yearour Board. In addition, Ms. Rataj brings public company director experience and knowledge of public company management and governance practices. Age: 68 Director Since: September 2014 | | Board Committees: | | Other Public Directorships: | • • | Compensation Nominating/Corporate Governance | • • | Biogen Inc. | Exelixis, Inc. | |
Dr. Scangos has served as the Chief Executive Officer and a director of Biogen Inc. since July 2010. From 1996 to July 2010, Dr. Scangos served as the President and Chief Executive Officer of Exelixis, Inc., a drug discovery and development company. From 1993 to 1996, Dr. Scangos served as President of Bayer Biotechnology, where he was responsible for research, business development, process development, manufacturing, engineering and quality assurance of Bayer’s biological products. Before joining Bayer in 1987, Dr. Scangos was a Professor of Biology at Johns Hopkins University for six years. Dr. Scangos served as the Chair of the California Healthcare Institute in 2010 and was a member of the Board of the Global Alliance for TB Drug Development from 2006 until 2010. He is also a member of the National Board of Visitors of the University of California, Davis School of Medicine and is currently an Adjunct Professor of Biology at Johns Hopkins University. Qualifications Dr. Scangos has extensive training as a scientist, significant knowledge and experience with respect to the biotechnology, healthcare and pharmaceutical industries, and a comprehensive leadership background resulting from service on various boards of directors and as an executive in the pharmaceutical industry. Vote Required Under our majority voting standard, in uncontested elections of directors, such as this election, each director must be elected by the affirmative vote of a majority of the votes cast by the shares present in person or represented by proxy and entitled to vote. A “majority of the votes cast” means that the number of votes cast “FOR” a director must exceed 50% of the votes cast with respect to that director. Abstentions and broker non-votes will not count as a vote “FOR” or “AGAINST” a nominee’s election and thus will have no effect in determining whether a director nominee has received a majority of the votes cast. The Board of Directors recommends a vote FOR the election to the Board of each of the foregoing nominees.
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| PROPOSAL 1 - ELECTION OF DIRECTORS |
The directors whose terms are not expiring this year are listed below. They will continue to serve as directors for the remainder of their terms or such other date, in accordance with our Bylaws. Information regarding each of such directors is provided below as of December 31, 2016. Directors Whose Terms That Will Expire in 2018 Age: 74 Director Since: June 2000 | | Board Committees: | Other Public Directorships: | • • | | | Age:72 | Agilent Committees: | Public Directorships: | Director Since: | Nominating/Corporate Governance | | ●•Neptune Orient Lines Limited
| None | June 2000 | ●Nominating/Corporate Governance
| | | | Former Public Directorships Held During the Past Five Years: | | | None• | Neptune Orient Lines Limited |
Mr. Herbold has served as the Managing Director of the consulting firm The Herbold Group, LLC since 2003. He served as Executive Vice President and Chief Operating Officer of Microsoft Corporation from 1994 to April 2001 and served as an Executive Vice President (part-time) of Microsoft Corporation until June 2003. Prior to joining Microsoft, Mr. Herbold was employed by The Procter & Gamble Company for twenty-six years and served as a Senior Vice President at The Procter & Gamble Company from 1990 to 1994. Qualifications Mr. Herbold possesses significant leadership experience and business expertise from his executive leadership positions with Microsoft Corporation and The Procter & Gamble Company. Having been a member of the Agilentour board for over 10 years, Mr. Herbold has a strong knowledge of Agilent’sour business. In addition, Mr. Herbold brings considerable public and private company director experience and perspective on public company management and governance issues and practices.
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| ELECTION OF DIRECTORS |
Age: 66 Director Since: May 2003 | | Board Committees: | Other Public Directorships: | | Age:64•
• | Agilent Committees: | Public Directorships: | Director Since: | Nominating/Corporate Governance | | ●•
• • • | AAC Technologies Holdings, Inc. | May 2003 | ●Nominating/Corporate Governance
| ●Sunningdale Tech, Ltd.
| | | | | | | | | | | Former Public Directorships Held During the Past Five Years: | | | ●•DBS Group Holdings Ltd.
| | | ●DBS Bank Ltd.
| | | ●Yeo Hiap Seng (Malaysia) Bhd Bhd. |
Mr. Koh is the managing partner of Credence Capital Fund II (Cayman) Ltd., a private equity fund. Mr. Koh has served as the non-Executive Chairman of Sunningdale Tech Ltd. since January 2009 and previously served as its Executive Chairman and Chief Executive Officer from July 2005 to January 2009. He has served as the non-Executive Chairman of Yeo Hiap Seng Ltd. since April 2010, the non-Executive Chairman of Rippledot Capital Advisers Pte. Ltd. since February 2011 and the non-Executive Chairman of Far East Orchard Ltd. since April 2013. He served as Executive Director of MediaRing Limited from February 2002 to August 2009; Chairman of DBS Bank Ltd. from January 2006 to April 2010; Chairman of Singapore Airlines from July 2001 to December 2005 and Chairman of Singapore Telecom from April 1992 to August 2001. Mr. Koh spent fourteen years with Hewlett-Packard Company in its Asia Pacific region.
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| PROPOSAL 1 - ELECTION OF DIRECTORS |
Qualifications Mr. Koh possesses a strong mix of leadership and operational experience from his various senior positions with Sunningdale Tech, AAC Technologies, MediaRing Limited, DBS Bank, Singapore Airlines and Singapore Telecom. In addition, Mr. Koh has deep experience in the Asia Pacific region and brings that knowledge and perspective to the Board. Mr. Koh has extensive experience with Agilentour company and its predecessor, Hewlett-Packard, having served on the Agilentour board for over 10 years and having spent 14 years with Hewlett-Packard. Age: 55 Director Since: March 2015 | | Board Committees: | | Other Public Directorships: | • | Executive | • | None | Age:53 | Agilent Committees: | Public Directorships: | Director Since: | ●Slated to serve on
| None | New Nominee | Executive Committee | | | | Former Public Directorships Held During the Past Five Years: | | | None |
Mr. McMullen has served as President and Chief Operating Officer since September 2014 and will assume the title ofour Chief Executive Officer effectivesince March 2015 and as ofPresident since September 2014. From September 2014 to March 18, 2015.2015 he also served as our Chief Operating Officer. From September 2009 to September 2014 he served as Senior Vice President, Agilent and President, Chemical Analysis Group. From January 2002 to September 2009, he served as our Vice President and General Manager of the Chemical Analysis Solutions Unit of the Life Sciences and Chemical Analysis Group. Prior to assuming this position, from March 1999 to December 2001, Mr. McMullen served as Country Manager for Agilent’sour China, Japan and Korea Life Sciences and Chemical Analysis Group. Prior to this position, Mr. McMullen served as ourthe Controller for the Hewlett-Packard Company and Yokogawa Electric Joint Venture from July 1996 to March 1999. Qualifications Mr. McMullen has broad and deep experience with Agilentthe company and its businesses having been an employee of Agilentthe company and its predecessor, Hewlett-Packard, for over 20 years. During the course of his career, he has developed considerable expertise in, and in-depth knowledge of, Agilent’sour businesses, having seen them as an individual contributor and at numerous levels of management. This perspective gives valuable insight to the Agilentour board. Agilent’s Board recommends a vote FOR the election to the Board of each of the
foregoing nominees.
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| ELECTION OF DIRECTORS |
Continuing Directors Not Being Considered for Election at this Annual Meeting
The Agilent directors whose terms are not expiring this year are listed below. They will continue to serve as directors for the remainder of their terms or such other date, in accordance with Agilent’s Bylaws. Information regarding each of such directors is provided below.
Directors Whose Terms Will Expire in 2016
PAUL N. CLARK | | | DANIEL K. PODOLSKY, M.D. |
Age: 63 Director Since: July 2015 | | Board Committees: | Other Public Directorships: | Age:•
67•
| Agilent Committees: | Public Directorships: | Director Since:May 2006 | Nominating/Corporate Governance | | ●•Biolase, Inc.
| None | | ●Nominating/Corporate Governance
| ●Keysight Technologies, Inc.
| | | | | | Former Public Directorships Held During the Past Five Years: | | | • | GlaxoSmithKline PLC |
Dr. Podolsky has served as President of the University of Texas Southwestern Medical Center, a leading academic medical center, patient care provider and research institution, since September 2008. Previously Dr. Podolsky also served concurrently as Mallinckrodt Professor of Medicine at Harvard Medical School, the Chief of Gastroenterology at Massachusetts General Hospital. From 2005 to 2008, Dr. Podolsky served as Chief Academic Officer and Faculty Dean, Academic Programs of Partners Healthcare System, Inc., a non-profit health care system committed to patient care, research, teaching and service. Dr. Podolsky holds the Philip O’Bryan Montgomery, Jr., M.D. Distinguished Presidential Chair in Academic Administration, and the Doris and Bryan Wildenthal Distinguished Chair in Medical Science. He is a member of the National Academy of Medicine of the US National Academy of Sciences, member of the Board of the Southwestern Medical Foundation and is a member of the Scientific Advisory Board of Antibe Therapeutics, Inc., a company focused on the treatment of diseases characterized by inflammation, pain and/or vascular dysfunction. Dr. Podolsky is also a member of the National Academies of Sciences Board on Army Science and Technology. 8
| PROPOSAL 1 - ELECTION OF DIRECTORS |
Qualifications Dr. Podolsky’s current responsibilities in leading a large academic medical center give him relevant insight into healthcare delivery and bring scientific expertise to the Board. Directors Whose Terms Expire in 2019 Age:● 69 Director Since: May 2006 | | Board Committees: | Other Public Directorships: | • • | Audit and Finance Nominating/Corporate Governance | | • • | Biolase, Inc. Keysight Technologies, Inc. | | | | Former Public Directorships Held During the Past Five Years: | | | • | Amylin Pharmaceuticals, Inc. | | | ��Talecris Biotherapeutics Holdings Corp
|
Mr. Clark has beenwas a Strategic Advisory Board member of Genstar Capital, LLC sincefrom August 2007 to December 2016 and was an Operating Partner from August 2007 to January 2013. Genstar Capital LLC is a middle market private equity firm that focuses on investments in selected segments of life sciences and healthcare services, industrial technology, business services and software. Prior to that, Mr. Clark was the Chief Executive Officer and President of ICOS Corporation, a biotherapeutics company, from June 1999 to January 2007, and the Chairman of the Board of Directors of ICOS from February 2000 to January 2007. From 1984 to December 1998, Mr. Clark worked in various capacities for Abbott Laboratories, a health care products manufacturer, retiring from Abbott Laboratories as Executive Vice President and a board member. His previous experience included senior positions with Marion Laboratories, a pharmaceutical company, and Sandoz Pharmaceuticals (now Novartis Corporation), a pharmaceutical company. Qualifications Mr. Clark has significant experience in the pharmaceutical and biotechnology industries, including his experience serving in senior management positions with ICOS Corporation, (where he served as Chief Executive Officer and President), Abbott Laboratories, Marion Laboratories and Sandoz Pharmaceuticals. In addition, Mr. Clark brings considerable public company director experience as well as his extensive experience within our industry and perspective on company managementexpertise in business finance. Mr. Clark received his M.B.A. from Dartmouth College and governance issues and practices.his B.S. in finance from the University of Alabama. Age: 74 Director Since: April 2000 | | Board Committees: | Other Public Directorships: | • • | | | Age:72 | Agilent Committees: | Public Directorships: | Director Since: | ●Executive (Chair) Nominating/Corporate | ●Johnson & Johnson
| April 2000 | Governance (Chair) | | ●•
• • • | Avinger, Inc. Keysight Technologies, Inc. Neustar, Inc. Prudential Financial, Inc. | | ●Executive (Chair)
| ●Neustar, Inc.
| | | ●Keysight Technologies, Inc.
| | | | | | Former Public Directorships Held During the Past Five Years: | | | None• | Johnson & Johnson |
Mr. Cullen has served as Non-Executive Chairman of our Board since March 2005. Mr. Cullen was President and Chief Operating Officer of Bell Atlantic Corporation (now known as Verizon) from 1997 to June 2000 and a member of the office of chairman from 1993 to June 2000. Prior to this appointment, Mr. Cullen was the President and Chief Executive Officer of the Telecom Group of Bell Atlantic from 1995 to 1997. Prior to the creation of Bell Atlantic on January 1, 1984, Mr. Cullen held management positions with New Jersey Bell from 1966 to 1981 and AT&T from 1981 to 1983.
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| PROPOSAL 1 - ELECTION OF DIRECTORS |
Qualifications Mr. Cullen has considerable managerial and operational experience and expertise from his senior leadership position with Bell Atlantic and its predecessors. In addition, Mr. Cullen brings significant public company director experience and perspective on public company management and governance. Mr. Cullen has a strong understanding of Agilentthe company having served on theour board for over 10 years, including more than 5five years as the non-executive chairman. Age: 71 Director Since: January 2011 | | Board Committees: | Other Public Directorships: | • • | Compensation Nominating/Corporate Governance | | • | CSL Limited | Age:69 | Agilent Committees: | Public Directorships: | Director Since: | ●Compensation
| ●Takeda Pharmaceutical Co. Ltd.
| January 2011 | ●Nominating/Corporate Governance
| | | | Former Public Directorships Held During the Past Five Years: | | | ●Covidien plc
• | Takeda Pharmaceutical Co. Ltd. |
Dr. Yamada is currently servesa Venture Partner on the Life Sciences team of Frazier Healthcare Partners, a healthcare-focused investment firm. From June 2011 to June 2015 Dr. Yamada served as the Chief Medical and Scientific Officer of Takeda Pharmaceuticals International, Inc., a research-based global pharmaceutical company. Dr. Yamada previously served as President of the Global Health Program of the Bill & Melinda Gates Foundation from June 2006 to June 2011. From 2000 to 2006, Dr. Yamada was Chairman of Research and Development for GlaxoSmithKline Inc. and prior to that, he held research and development positions at SmithKline Beecham. Prior to joining SmithKline Beecham, Dr. Yamada was Chairman of the Department of Internal Medicine at the University of Michigan Medical School and Physician-in-Chief of the University of Michigan Medical Center. Qualifications Dr. Yamada brings a unique perspective to our Board a unique perspective with his experience as the former President of the Global Health Program of the Bill & Melinda Gates Foundation as well as his significant research and development experience. Dr. Yamada’s extensive pharmaceutical industry knowledge gives him ana unique insight into a number of issues facing Agilentwe face. 10
| COMPENSATION OF NON-EMPLOYEE DIRECTORS |
COMPENSATION OF NON-EMPLOYEE DIRECTORS Directors who are employed by us do not receive any compensation for their Board services. As a result, Mr. McMullen, our Chief Executive Officer, received no additional compensation for his services as a director. The general policy of the Board is that othercompensation for non-employee directors might not possess.should be a mix of cash and equity-based compensation that is competitive with the compensation paid to non-employee directors within our peer group. The non-employee director’s compensation plan year begins on March 1 of each year (the “Plan Year”). Directors Whose Terms Will Expire in 2017The table below sets forth the annual retainer, equity grants and committee premiums for the non-employee directors and the Non-Executive Chairman for the 2016 Plan Year:
Summary of Non-Employee Director Annual Compensation for the 2016 Plan Year The following table sets forth the compensation that we provide to non-employee directors: | | | | | | Committee Chair | Audit Committee | | | Cash Retainer (1) | Equity Grant (2) | Premium (3) | Member Premium (4) | | Non-employee director | $90,000 | | Stock Grant with a value equivalent to $180,000 | | $15,000 - Audit and Finance Committee and Nominating/ Corporate Governance Committee $20,000 – Compensation Committee | $10,000 | | Non-Executive Chairman | $245,000 | | Stock Grant with a value equivalent to $180,000 | | Not eligible | $10,000 |
HEIDI FIELDS(1) | Each non-employee director may elect to defer all or part of the cash compensation to the 2005 Deferred Compensation Plan for Non-Employee Directors (“Director Deferral Plan”). Any deferred cash compensation is converted into shares of our common stock. |
(2) | The stock will be granted on the later of (i) March 1 or (ii) the first trading day after each Annual Meeting of Stockholders. The number of shares underlying the stock grant is determined by dividing $180,000 by the average fair market value of our common stock over 20 consecutive trading days up to and including the day prior to the grant date. The stock grant vests immediately upon grant and may be deferred pursuant to the Director Deferral Plan. |
(3) | Non-employee directors (excluding the Non-Executive Chairman) who serve as the chairperson of a Board committee receive a committee chair premium which is payable in cash at the beginning of each Plan Year. |
(4) | | Age:60 | Agilent Committees: | Public Directorships: | Director Since: | ●Non-employee directors (including the Non-Executive Chairman) who serve as a member of the Audit and Finance (Chair) | ●Financial Engines, Inc.
| February 2000 | ●Nominating/Corporate Governance
| ●Halyard Health, Inc.
| | | | | | Former Public Directorships Held DuringCommittee receive an additional premium which is payable in cash at the Past Five Years: | | | Nonebeginning of each Plan Year. |
Ms. Fields served as Executive Vice President and Chief Financial Officer of Blue Shield of California from September 2003 through December 2012. She served as Executive Vice President and the Chief Financial Officer of Gap, Inc. from 1999 to January 2003. Prior to assuming that position, Ms. Fields served as the Chief Financial Officer of ITT Industries, Inc. from 1995 to 1999. From 1979 to 1995, she held senior financial management positions at General Motors Corporation, including Vice President and Treasurer.
Ms. Fields possesses significant experience and experience in management and financial matters, having served as the Chief Financial Officer of both public and private companies, including at Blue Shield of California, Gap, Inc. and ITT Industries, Inc. Ms. Fields is the chairperson of our Audit and Finance Committee and is qualified as a financial expert under SEC guidelines. In addition, Ms. Fields has considerable experience and expertise with Agilent having been a member of Agilent’s board of directors for over 10 years.
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| ELECTION OF DIRECTORS |
A. BARRY RAND | | | | | | Age:70 | Agilent Committees: | Public Directorships: | Director Since: | ●Compensation
| ●Campbell Soup Company
| November 2000 | ●Nominating/Corporate Governance
| | | | Former Public Directorships Held During the Past Five Years: | | | None |
Mr. Rand served as the Chief Executive Officer of AARP from April 2009 to August 2014. He served as Chairman and Chief Executive Officer of Equitant from February 2003 to April 2005 and as Non-Executive Chairman of Aspect Communications from February 2003 to October 2005. Mr. Rand was the Chairman and Chief Executive Officer of Avis Group Holdings, Inc. from November 1999 to April 2001. Prior to joining Avis Group, Mr. Rand was Executive Vice President, Worldwide Operations, for Xerox Corporation from 1992 to 1999. Mr. Rand is Chairman ofA non-employee director who joins the Board of TrusteesDirectors after the start of Howard Universitythe Plan Year will have his or her cash retainer, equity grant and holds a MBA from Stanford University where he also was a Stanford Sloan Executive Fellow. Mr. Rand also holds several honorary doctorate degrees.committee chair premium pro-rated based upon the remaining days in the Plan Year that the director will serve.
Mr. Rand possesses a strong mix of organizationalIn September 2016, the Compensation Committee and operational management skills having served as the chairman and/or chief executive officer of numerous companies, including past roles with Equitant, Avis Group Holdings, Aspect Communications and AARP. He brings public company director experience and perspective from his membershipBoard, based on the Campbell Souprecommendation of the Compensation Committee’s independent compensation consultant, F.W. Cook, increased the annual cash retainer (excluding the Chairman) from $90,000 to $100,000 and the annual equity grant from a value of $180,000 to $200,000 in order to remain competitive with the market. The increases will be effective on March 1, 2017.
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| COMPENSATION OF NON-EMPLOYEE DIRECTORS |
Non-Employee Director Compensation for Fiscal Year 2016 The table below sets forth information regarding the compensation earned by each of our non-employee directors during the fiscal year ended October 31, 2016: | | | | | | | | | Cash | Committee | | Audit Committee | | Stock | | | Retainer (1) | Chair Premium (1) | | Member Premium (1) | | Awards (2)(3) | Total | Name | ($) | ($) | | ($) | | ($) | ($) | Paul N. Clark | 90,000 | - | | 10,000 | | 184,820 | 284,820 | James G. Cullen (4) | 245,000 | - | | - | | 184,820 | 429,820 | Robert J. Herbold | 90,000 | - | | 10,000 | | 184,820 | 284,820 | Koh Boon Hwee | 90,000 | 22,500 | | - | | 184,820 | 297,320 | Heidi Kunz | 90,000 | 15,000 | | 10,000 | | 184,820 | 299,820 | Daniel K. Podolsky, M.D. (5) | 84,480 | - | | 10,000 | | 184,820 | 279,300 | Sue H. Rataj (6) | 87,540 | - | | - | | 184,820 | 272,360 | George A. Scangos, PhD | 90,000 | - | | - | | 184,820 | 274,820 | Tadataka Yamada, M.D. | 90,000 | - | | - | | 184,820 | 274,820 |
(1) | Reflects all cash compensation earned during fiscal year 2016, including amounts deferred pursuant to the Director Deferral Plan. The number of shares of our common stock received in lieu of cash is determined by dividing the dollar value of the deferred cash amount by the twenty (20) day average fair market value for the applicable deferral date. The aggregate number of shares of our common stock deferred by each non-employee director is set forth in the footnotes to the Beneficial Ownership Table included in this proxy statement. |
(2) | Reflects the aggregate grant date fair value for stock awards granted in fiscal year 2016 calculated in accordance with FASB ASC Topic 718. For more information regarding our application of FASB ASC Topic 718, including the assumptions used in the calculations of these amounts, please refer to Note 4 of Notes to Consolidated Financial Statements contained in our Annual Report on Form 10-K filed with the SEC on December 20, 2016. |
(3) | A supplemental table following these footnotes sets forth: (i) the aggregate number of stock awards and option awards outstanding at fiscal year-end; (ii) the aggregate number of stock awards granted during fiscal year 2016; and (iii) the grant date fair market value of equity awards granted by us during fiscal year 2016 to each of our non-employee directors. |
(4) | Mr. Cullen has served as the Non-Executive Chairman of the Board since March 1, 2005. |
(5) | Dr. Podolsky joined the board on July 21, 2015. This amount reflects the pro-rated cash retainer. |
(6) | Ms. Rataj joined the board on September 15, 2015. This amount reflects the pro-rated cash retainer. |
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| COMPENSATION OF NON-EMPLOYEE DIRECTORS |
Additional Information with Respect to Director Equity Awards The following table provides additional information on the outstanding equity awards at fiscal year-end and awards granted during fiscal year 2016 to non-employee directors. | | | | | | | Grant Date Fair | | Option Awards | Stock Awards | Value of Stock | | Outstanding at | Granted During | Awards Granted in | | Fiscal Year-End | Fiscal Year 2016 (1) | Fiscal Year 2016 (1)(2) | Name | (#) | (#) | ($) | Paul N. Clark | - | 4,704 | 184,820 | James G. Cullen | 15,482 | 4,704 | 184,820 | Robert J. Herbold | 24,107 | 4,704 | 184,820 | Koh Boon Hwee | 24,107 | 4,704 | 184,820 | Heidi Kunz | 24,107 | 4,704 | 184,820 | Daniel K. Podolsky, M.D. | - | 4,704 | 184,820 | Sue H. Rataj | - | 4,704 | 184,820 | George A. Scangos, PhD | - | 4,704 | 184,820 | Tadataka Yamada, M.D. | - | 4,704 | 184,820 |
(1) | Stock awards granted to non-employee directors vest immediately upon grant. |
(2) | Reflects the aggregate grant date fair value for stock awards granted in fiscal year 2016 calculated in accordance with FASB ASC Topic 718. The assumptions used by the company in calculating these amounts are included in Note 4 under the heading “Valuation Assumptions” of the Notes to the Consolidated Financial Statements in the company’s 2016 Annual Report on Form 10-K. |
Non-Employee Director Reimbursement Practice for Fiscal Year 2016 Non-employee directors are reimbursed for travel and other out-of-pocket expenses incurred in connection with their service on our Board. Non-Employee Director Stock Ownership Guidelines Non-employee directors are required to own shares of our common stock having a value of at least six times an amount equal to the annual cash retainer. The shares counted toward the ownership guidelines include shares owned outright and the shares of our common stock in the non-employee director’s deferred compensation account. For recently appointed non-employee directors, these ownership levels must be attained within five years from the date of their initial election or appointment to the board of directors. All of our incumbent non-employee directors and has considerable expertise with Agilent having served as a director for over 10 years.have either achieved the recommended ownership level or are expected to achieve the recommended ownership level within five years of their initial election or appointment to our Board. 13
GEORGE A. SCANGOS, Ph.D. | | | | Age:66 | Agilent Committees: | Public Directorships: | Director Since: | ●Compensation
| ●Biogen Idec, Inc.
| September 2014 | ●Nominating/Corporate Governance
| ●Exelixis, Inc.
| | | | | | Former Public Directorships Held During the Past Five Years: | | | ●Anadys Pharmaceuticals, Inc.
CORPORATE GOVERNANCE |
Dr. Scangos has served as the Chief Executive Officer and a director of Biogen Idec Inc. since July 2010. From 1996 to July 2010, Dr. Scangos served as the President and Chief Executive Officer of Exelixis, Inc., a drug discovery and development company. From 1993 to 1996, Dr. Scangos served as President of Bayer Biotechnology, where he was responsible for research, business development, process development, manufacturing, engineering and quality assurance of Bayer’s biological products. Before joining Bayer in 1987, Dr. Scangos was a Professor of Biology at Johns Hopkins University for six years. Dr. Scangos served as non-executive Chairman of Anadys Pharmaceuticals, Inc., a biopharmaceutical company, from 2005 to July 2010 and was a director of the company from 2003 to July 2010. Dr. Scangos served as the Chair of the California Healthcare Institute in 2010 and was a member of the Board of the Global Alliance for TB Drug Development from 2006 until 2010. He is also a member of the National Board of Visitors of the University of California, Davis School of Medicine and is currently an Adjunct Professor of Biology at Johns Hopkins University.
Dr. Scangos has extensive training as a scientist, significant knowledge and experience with respect to the biotechnology, healthcare and pharmaceutical industries, and a comprehensive leadership background resulting from service on various boards of directors and as an executive in the pharmaceutical industry.
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| CORPORATE GOVERNANCE |
Corporate Governance Matters
Agilent hasWe have had formal corporate governance standards in place since the Company’sour inception in 1999. We have reviewed internally and with the Board the provisions of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), the rules of the SEC and the NYSE’s corporate governance listing standards regarding corporate governance policies and processes and are in compliance with the rules and listing standards.
We have adopted charters for our Compensation Committee, Audit and Finance Committee, Compensation Committee, Executive Committee and Nominating/Corporate Governance Committee and Executive Committee consistent with the applicable rules and standards. Our committee charters, Amended and Restated Corporate Governance Standards and Standards of Business Conduct are located in the Investor Relations section of our website and can be accessed by clicking on “Governance Policies” in the “Corporate Governance” section of our web page at www.investor.agilent.com. Board Leadership Structure AgilentWe currently separatesseparate the positions of chief executive officer and chairman of the Board. Since March 2005, Mr. Cullen, one of our independent directors, has served as our chairman of the Board. The responsibilities of the chairman of the Board include: setting the
agenda for each Board meeting, in consultation with the chief executive officer; chairing the meetings of independent directors; and facilitating and conducting, with the Nominating/Corporate Governance Committee, the annual self-assessments by the Board and each standing committee of the Board, including periodic performance reviews of individual directors. Separating the positions of chief executive officer and chairman of the Board allows our chief executive officer to focus on our day-todayday-to-day business, while allowing the chairman of the Board to lead the Board in its fundamental role of providing advice to and independent oversight of management. The Board believes that having an independent director serve as chairman of the Board is the appropriate leadership structure for Agilentthe company at this time. However, our Corporate Governance Standards permit the roles of the chairperson of the Board and the chief executive officer to be filled by the same or different individuals. This provides the Board with flexibility to determine whether the two roles should be combined in the future based on Agilent’sour needs and the Board’s assessment of Agilent’sour leadership from time to time. Our Corporate Governance Standards provide that, in the event that the chairperson of the Board is also the chief executive officer, the Board may consider the election of an independent Board member as a lead independent director. In 2014, we amended the Corporate Governance Standards to raise the mandatory retirement age for directors from 72 to 75. The Board made the change in recognition of the contribution that experienced directors, with knowledge of the Company,company, bring to effective board oversight. Board’s Role in Risk Oversight The Board executes its risk management responsibility directly and through its committees. The full Board is kept abreast of risk oversight and other activities of its committees through reports of the committee chairpersons to the full Board during Board meetings. The Audit and Finance Committee has primary responsibility for overseeing Agilent’sour enterprise risk management process. The Audit and Finance Committee receives updates and discusses individual and overall risk areas during its meetings, including the Company’sour financial risk assessments, risk
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| CORPORATE GOVERNANCE |
management policies and major financial risk exposures and the steps management has taken to monitor and control such exposures. The Compensation Committee oversees risks associated with our compensation policies and practices with respect to both executive compensation and compensation generally. The Compensation Committee receives reports and discusses whether Agilent’sour compensation policies and practices create risks that are reasonably likely to have a material adverse effect on the Company.company. The full Board is kept abreast of its committees’ risk oversight and other activities via reports of the committee chairpersons to the full Board during Board meetings.
Majority Voting for Directors Our Bylaws provide for majority voting of directors regarding director elections. In an uncontested election, any nominee for director shall be elected by the vote of a majority of the votes cast with respect to the director. A “majority of the votes cast” means that the number of shares voted “FOR” a director must exceed 50% of the votes cast with respect to that director. The “votes cast” shall include votes to withhold authority and exclude votes to “ABSTAIN” with respect to that director’s election. If a director is not elected due to a failure to receive a majority of the votes cast and his or her successor is not otherwise elected and qualified, the director shall promptly tender his or her resignation following certification of the stockholder vote. 14
| CORPORATE GOVERNANCE |
The Nominating/Corporate Governance Committee will consider the resignation offer and recommend to the Board whether to accept or reject it, or whether other action should be taken. The Board will act on the Nominating/Corporate Governance Committee’s recommendation within 90 days following certification of the stockholder vote. Thereafter, the Board will promptly disclose their decision and the rationale behind it in a press release to be disseminated in the same manner as Companycompany press releases typically are distributed. Any director who tenders his or her resignation pursuant to this provision shall not participate in the Nominating/Corporate Governance Committee recommendation or Board action regarding whether to accept the resignation offer. Board Communications Stockholders and other interested parties may communicate with the Board and Agilent’sour Non-Executive Chairperson of the Board of Directors by filling out the form at “Contact Chairman” under “Corporate Governance” at www.investor.agilent.com or by writing to James G. Cullen, c/o Agilent Technologies, Inc., General Counsel, 5301 Stevens Creek Blvd., MS 1A-11, Santa Clara, California 95051. The General Counsel will perform a legal review in the normal discharge of her duties to ensure that communications forwarded to the Non-Executive Chairperson preserve the integrity of the process. For example, items that are unrelated to the duties and responsibilities of the Board such as spam, junk mail and mass mailings, product complaints, personal employee complaints, product inquiries, new product suggestions, resumes and other forms of job inquiries, surveys, business solicitations or advertisements (the “Unrelated Items”) will not be forwarded to the Non-Executive Chairperson. In addition, material that is unduly hostile, threatening, illegal or similarly unsuitable will not be forwarded to the Non-Executive Chairperson. Any communication that is relevant to the conduct of Agilent’sour business and is not forwarded will be retained for one year (other than Unrelated Items) and made available to the Non-Executive Chairperson and any other independent director on request. The independent directors grant the General Counsel discretion to decide what correspondence shall be shared with Agilentour management and specifically instruct that any personal employee complaints be forwarded to Agilent’sour Human Resources Department. Director Stockholder Meeting Attendance We encourage, but do not require, our Board members to attend the annual meeting of stockholders. Last year, all of our directors who were serving at such time, attended the annual meeting of stockholders. Director Independence AgilentWe have adopted the following standards for director independence in compliance with the NYSE corporate governance listing standards:
1. No director qualifies as “independent” unless the Board affirmatively determines that the director has no material relationship with Agilent or any of its subsidiaries (either
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| CORPORATE GOVERNANCE |
directly, or as a partner, stockholder or officer of an organization that has a relationship with Agilent). Agilent or any of its subsidiaries must identify which directorsstandards. These independence standards are independent and disclose the basis for that determination.
In addition, a director is not independent if:
2. The director is, or has been within the last three years, an employee of Agilent or any of its subsidiaries, or an immediate family member is, or has been within the last three years, an executive officer of Agilent or any of its subsidiaries.
3. The director has received, or has an immediate family member who has received, during any twelvemonth period within the last three years, more than $120,000set forth in direct compensation from Agilent or any of its subsidiaries, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service).
4. (A) The director is a current partner or employee of a firm that is Agilent’s internal or external auditor; (B) the director has an immediate family member who is a current partner of such a firm; (C) the director has an immediate family member who is a current employee of such a firm and personally works on Agilent’s audit; or (D) the director or an immediate family member was within the last three years a partner or employee of such a firm and personally worked on Agilent’s or any of its subsidiaries’ audit within that time.
5. The director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of Agilent’s or any of its subsidiaries’ current executive officers at the same time serves or served on that company’s compensation committee.
6. The director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, Agilent or any of its subsidiaries for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues.
our Corporate Governance Standards. The Board has affirmatively determined that Paul N. Clark, James G. Cullen, Heidi Fields, Robert J. Herbold, Koh Boon Hwee, George A. Scangos, Ph.D., A. Barry Rand and Tadataka Yamada, M.D. met the aforementioned independence standards. William P. Sullivan did notall of our directors meet the aforementionedthese independence standards because he is Agilent’s current Chief Executive Officer and an employeewith the exception of Agilent and Michael R. McMullen a board nominee at the 2015 Annual Meeting also did not meet the aforementioned independence standardsbecause of his role as he is Agilent’sour President and Chief Operating Officer and will become Agilent’s Chief Executive Officer on March 18, 2015.Officer. Agilent’sOur non-employee directors meet at regularly scheduled executive sessions without management. As the Non-Executive Chairman of the Board, James G. Cullen was chosen to preside at executive sessions of the non-management directors.
Compensation Committee Member Independence Agilent hasWe have adopted standards for compensation committee member independence in compliance with the NYSE corporate governance listing standards. In affirmatively determining the independence of any director who will serve on the compensation committee, the board of directors must considerconsiders all factors specifically relevant to determining whether such director has a relationship to Agilentthe company or any of its subsidiaries which is material to such director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to:
| (A)• | | the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by Agilentthe company to such director; and | |
| | • | (B) | | whether such director is affiliated with Agilent, a subsidiary of Agilentthe company, or an affiliate of a subsidiary of Agilent.the company. | |
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| CORPORATE GOVERNANCE |
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has four standing committees as set forth in the table below. Each director attended at least 75% of the aggregate number of BoardDirector Nomination Criteria: Qualifications and applicable committee meetings held when the director was serving on the Board.Experience
Director | Board | Audit and Finance | Compensation | Nominating/ Corporate Governance | Executive | Paul N. Clark | ✓ | ✓ | | ✓ | | James G. Cullen | CHAIR | | | CHAIR | CHAIR | Heidi Fields | ✓ | CHAIR | | ✓ | | Robert J. Herbold | ✓ | ✓ | | ✓ | | Koh Boon Hwee | ✓ | | CHAIR | ✓ | | George A. Scangos, Ph.D.(1) | ✓ | | ✓ | ✓ | | A. Barry Rand | ✓ | | ✓ | ✓ | | Tadataka Yamada, M.D. | ✓ | | ✓ | ✓ | | William P. Sullivan(2) | ✓ | | | | ✓ | No. of Meetings in FY2014 | 6 | 12 | 5 | 6 | 0 |
(1) | | Dr. Scangos joined our Board on September 17, 2014. | | | | (2) | | Mr. Sullivan will retire from the Board effective March 18, 2015. |
Agilent encourages, but does not require, its Board members to attend the annual meeting of stockholders. Last year, all of our directors who were serving at such time, attended the annual meeting of stockholders.
Audit and Finance Committee
The Audit and Finance Committee is responsible for the oversight of the quality and integrity of Agilent’s consolidated financial statements, its compliance with legal and regulatory requirements, the qualifications and independence of its independent registered public accounting firm, the performance of its internal audit function and independent registered public accounting firm and other significant financial matters. In discharging its duties, the Audit and Finance Committee is expected to:
● | have the sole authority to appoint, retain, compensate, oversee, evaluate and replace theindependent registered public accounting firm;
| ● | review and approve the scope of the annual internal and external audit;
| ● | review and pre-approve the engagement of Agilent’s independent registered public accountingfirm to perform audit and non-audit services and the related fees;
| ● | meet independently with Agilent’s internal auditing staff, independent registered public accounting firm and senior management;
| ● | review the adequacy and effectiveness of the system of internal control over financial reporting and any significant changes in internal control over financial reporting;
| ● | review Agilent’s consolidated financial statements and disclosures including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s reports on Form 10-K or Form 10-Q;
| ● | establish and oversee procedures for (a) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and (b) the confidential anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters; |
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| CORPORATE GOVERNANCE |
● | review funding and investment policies, implementation of funding policies and investment performance of Agilent’s benefit plans;
| ● | monitor compliance with Agilent’s Standards of Business Conduct; and
| ● | review disclosures from Agilent’s independent registered public accounting firm required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independence of accountant’s communications with the audit committee. |
Compensation Committee
The Compensation Committee reviews the performance of Agilent’s elected officers and other key employees and determines, approves and reports to the Board on the elements of their compensation, including total cash compensation and long-term equity based incentives. In addition, the Compensation Committee:
● | approves and monitors Agilent’s benefit plan offerings;
| ● | supervises and oversees the administration of Agilent’s incentive compensation, variable pay and stock programs, including the impact of Agilent’s compensation programs and arrangements on Company risk;
| ● | recommends to the Board the annual retainer fee as well as other compensation for non-employee directors;
| ● | establishes comparator peer group and compensation targets based on this peer group for the Company’s named executive officers; and
| ● | has sole authority to retain and terminate executive compensation consultants. |
For more information on the responsibilities and activities of the Compensation Committee, including the committee’s processes for determining executive compensation, see “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Executive Compensation” and the Compensation Committee’s charter.
The Compensation Committee also helps determine compensation for non-employee directors. The process the Compensation Committee undertakes for setting non-employee director compensation is similar to that of setting executive officer compensation. The Compensation Committee is aided by an independent consultant, currently Frederic W. Cook & Co., Inc. (“F.W. Cook”), who is selected and retained by the Compensation Committee. The role of the independent consultant is to measure and benchmark our non-employee director compensation against a certain peer group of companies with respect to appropriate compensation levels for positions comparable in the market. The independent consultant recommends appropriate retainers, committee chair retainers, grant values and stock ownership guidelines to the Compensation Committee. This information is reviewed, discussed and finalized at a Compensation Committee meeting and a recommendation is made to the full Board. The full Board makes the final determination on non-employee director compensation.
Nominating/Corporate Governance Committee
The Nominating/Corporate Governance Committee proposes a slate of directors for election by Agilent’s stockholders at each annual meeting and recommends to the Board candidates to fill any vacancies on the Board. It is also responsible for reviewing management succession plans, recommending to the Board the appropriate Board size and committee structure and developing and reviewing corporate governance principles applicable to Agilent.
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| CORPORATE GOVERNANCE |
The Nominating/Corporate Governance Committee will consider director candidates recommended for nomination by stockholders, provided that the recommendations are made in accordance with the procedures described in the section entitled “General Information Aboutabout the Meeting” located at the end of this Proxy Statement.proxy statement. Candidates recommended for nomination by stockholders that comply with these procedures will receive the same consideration as other candidates recommended by the Nominating/Corporate Governance Committee. AgilentWe typically hireshire a third partythird-party search firm to help identify and facilitate the screening and interview process of candidates for director. To be considered by the Nominating/Corporate Governance Committee, a director nominee must have:
● | a reputation for personal and professional integrity and ethics;
| ● | executive or similar policy-making experience in relevant business or technology areas or national prominence in an academic, government or other relevant field;
| ● | breadth of experience;
| ● | soundness of judgment;
| ● | the ability to make independent, analytical inquiries;
| ● | the willingness and ability to devote the time required to perform Board activities adequately;
| ● | the ability to represent the total corporate interests of Agilent; and
| ● | the ability to represent the long-term interests of stockholders as a whole. |
a reputation for personal and professional integrity and ethics; executive or similar policy-making experience in relevant business or technology areas or national prominence in an academic, government or other relevant field; the ability to make independent, analytical inquiries; the willingness and ability to devote the time required to perform Board activities adequately; the ability to represent the total corporate interests of the company; and the ability to represent the long-term interests of stockholders as a whole. In addition to these minimum requirements, the Nominating/Corporate Governance Committee will also consider whether the candidate’s skills are complementary to the existing Board members’ skills; the diversity of the Board in factors such as age, experience in technology, manufacturing, finance and marketing, international experience and culture; and the Board’s needs for specific operational, management or other expertise. The Nominating/Corporate Governance Committee from time to time reviews the appropriate skills and characteristics required of board members, including factors that it seeks in board members such as diversity of business experience, viewpoints and, personal background, and diversity of skills in technology, finance, marketing, international business, financial reporting and other areas that are expected to contribute to an effective Board of Directors. In evaluating potential candidates for the Board of Directors, the Nominating/Corporate Governance Committee considers these factors in the light of the specific needs of the Board of Directors at that time. The search firm screens the candidates, does reference checks, prepares a biography for each candidate for the Nominating/Corporate Governance Committee to review and helps set up interviews. The Nominating/Corporate Governance Committee and Agilent’sour Chief Executive Officer interview candidates that meet the criteria, and the Nominating/Corporate Governance Committee selects candidates that best suit the Board’s needs. We do not use a third partythird-party to evaluate current Board members. The Nominating/Corporate Governance
Compensation Committee also administers Agilent’s Related Person Transactions PolicyInterlocks and Procedures. See “Related Person Transactions Policy and Procedures” for more information. Executive CommitteeInsider Participation
The Executive Committee meets or takes written action when the Board is not otherwise meeting. The Committee has full authority to act on behalf of the Board, except that it cannot amend Agilent’s Bylaws, recommend any action that requires the approval of the stockholders, fill vacancies on the Board or any Board committee, fix director compensation, amend or repeal any non-amendable or non-repealable resolution of the Board, declare a distribution to the stockholders except at rates determined by the Board, appoint other committees or take any action not permitted under Delaware law to be delegated to a committee.
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| CORPORATE GOVERNANCE |
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Thecurrent members of the Compensation Committee are Koh Boon Hwee, A. Barry Rand,Sue H. Rataj, George A. Scangos, Ph.D.PhD and Tadataka Yamada, M.D. During the most recent fiscal year, no Agilentnone of our executive officerofficers served on the compensation committee (or equivalent), or the board of directors, of another entity whose executive officer(s) served on Agilent’sour Compensation Committee.
The members of the Compensation Committee are considered independent under the Company’scompany’s Board of Directors and Compensation Committee Independence Standards as set forth in the Company’scompany’s Amended and Restated Corporate Governance Guidelines. RELATED PERSON TRANSACTIONS POLICY AND PROCEDURES
The Company’s Standards of Business Conduct and Director Code of Ethics require that all employees and directors avoid conflicts of interests that interfere with the performance of their duties or the best interests of the Company. In addition, the Company has adopted a written Related Person Transactions Policy and Procedures (the “Related Person Transactions Policy”) that prohibits any of the Company’s executive officers, directors or any of their immediate family members from entering into a transaction with the Company, except in accordance with the policy. For purposes of the policy, a “related person transaction” includes any transaction (within the meaning of Item 404(a) of the Securities and Exchange Commission’s Regulation S-K) involving the Company and any related person that would be required to be disclosed pursuant to Item 404(a) of the Securities and Exchange Commission’s Regulation S-K.
Under our Related Person Transactions Policy, the General Counsel must advise the Nominating/Corporate Governance Committee of any related person transaction of which she becomes aware. The Nominating/Corporate Governance Committee must then either approve or reject the transaction in accordance with the terms of the policy. In the course of making this determination, the Nominating/Corporate Governance Committee shall consider all relevant information available to it and, as appropriate, must take into consideration the following:16
● | the size of the transaction and the amount payable to the related person;
| ● | the nature of the interest of the related person in the transaction;
| ● | whether the transaction may involve a conflict of interest; and
| ● | whether the transaction involved the provision of goods or services to the Company that are available from unaffiliated third parties and, if so, whether the transaction is on terms and made under circumstances that are at least as favorable to the Company as would be available in comparable transactions with or involving unaffiliated third parties.CORPORATE GOVERNANCE |
Under the Related Person Transactions Policy, Company management screens for any potential related person transactions, primarily through the annual circulation of a Directors and Officers Questionnaire (“D&O Questionnaire”) to each member
Committees of the Board of Directors and each officer Our Board met six times in fiscal 2016. Each director attended at least 75% of the Company that is a reporting person under Section 16aggregate number of Board and applicable committee meetings held when the Securities Exchange Act of 1934. The D&O Questionnaire contains questions intended to identify related persons and transactions between the Company and related persons. If a related person transaction is identified, such transaction is brought to the attention of the Nominating/Corporate Governance Committee for its approval, ratification, revision, or rejection in consideration of all of the relevant facts and circumstances. The Nominating/Corporate Governance Committee must approve or ratify each related person transaction in accordance with the policy. Absent this approval or ratification, no such transaction may be entered into by the Company with any related person.
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| CORPORATE GOVERNANCE |
In March 2008, the Nominating/Corporate Governance Committee amended the Related Person Transactions Policy to provide for standing pre-approval of limited transactions with related persons. Pre-approved transactions include:
| (a) | | Any transaction with another company at which a related person’s only relationship is as an employee (other than an executive officer or an equivalent), director or beneficial owner of less than 10% of that company’s shares, if the aggregate amount involved does not exceed the greater of (i) $1,000,000, or (ii) 2 percent of that company’s total annual revenues. | | | | (b) | | Any charitable contribution, grant or endowment by the Company to a charitable organization, foundation or university at which a related person’s only relationship is as an employee (other than an executive officer or an equivalent), a director or a trustee, if the aggregate amount involved does not exceed the lesser of $500,000, or 2 percent of the charitable organization’s total annual receipts. |
Agilent will disclose the terms of related person transactions in its filings with the SEC to the extent required.
Transactions with Related Persons
We purchase services, supplies, and equipment in the normal course of business from many suppliers and sell or lease products and services to many customers. In some instances, these transactions occur with companies with which members of our management or Board of Directors have relationships as directors or executive officers. For transactions entered into during fiscal year 2014, no related person had or will have a direct or indirect material interest. None of the fiscal year 2014 transactions exceeded or fell outside of the pre-approved thresholds set forth in our Related Party Transaction Policy except for the transactions with Biogen Idec Inc. (“Biogen”). George A. Scangos, Ph.D. is the Chief Executive Officer of Biogen and joined our board in September 2014. The Nominating/Corporate Governance Committee reviewed, approved and ratified the transactions with Biogen in accordance with the policy.
The following list identifies which of these companies purchased from Agilent, or sold to Agilent, more than $120,000 in products and/or services in fiscal 2014.
● | AAC Technologies Holdings Inc. (“AAC”). Mr. Koh Boon Hwee is the Chairman of AAC. AAC, or its affiliates, purchased from Agilent an aggregate of approximately $1.8 million of products and/or services.
| ● | Avnet, Inc. (“Avnet”). Mr. William P. Sullivan served as a director of Avnet until May 2014. Avnet, or its affiliates, purchased from Agilent an aggregate of approximately $1.3 million of products and/or services and Agilent purchased from Avnet an aggregate of approximately $913,000 in products and/or services.
| ● | Biogen Idec Inc. (“Biogen”). Mr. George A. Scangos, Ph.D. is the Chief Executive Officer and a director of Biogen. Biogen, or its affiliates, purchased from Agilent an aggregate of approximately $2.7 million in products and/or services.
| ● | Campbell Soup Company (“Campbell”). Mr. A. Barry Rand is a director of Campbell. Campbell, or its affiliates, purchased from Agilent an aggregate of approximately $208,000 of products and/or services.
| ● | Catalent Pharma Solutions (“Catalent”). Mr. Paul N. Clark served as a director of Catalent until September 2014. Catalent, or its affiliates, purchased from Agilent an aggregate of approximately $2.7 million of products and/or services. |
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| CORPORATE GOVERNANCE |
● | Harlan Laboratories, Inc. (“Harlan”). Mr. Paul N. Clark served as a director of Harlan until March 2014. Harlan, or its affiliates, purchased from Agilent an aggregate of approximately $627,000 of products and/or services.
| ● | International Rectifier Corp. (“IRC”). Mr. Didier Hirsch is a director of IRC. IRC, or its affiliates, purchased from Agilent an aggregate of approximately $124,000 of products and/or services.
| ● | Johns Hopkins University (“JHU”). Mr. George A. Scangos, Ph.D. is an adjunct professor with the JHU Department of Biology. JHU, or its affiliates, purchased from Agilent an aggregate of approximately $5.9 million in products and/or services.
| ● | Johnson & Johnson (“J&J”). Mr. James G. Cullen is a director of J&J. J&J, or its affiliates, purchased from Agilent an aggregate of approximately $12.4 million of products and/or services.
| ● | Nanyang Technological University (“Nanyang”). Mr. Koh Boon Hwee is the Chair of the Board of Trustees of Nanyang. Nanyang, or its affiliates, purchased from Agilent an aggregate of approximately $1.2 million of products and/or services.
| ● | Takeda Pharmaceutical Co. Ltd. and Takeda Pharmaceuticals International, Inc. (collectively, “Takeda”). Dr. Tadataka Yamada is a director of Takeda Pharmaceutical Co. Ltd. and the Chief Medical and Scientific Officer of Takeda Pharmaceuticals International, Inc. Takeda or its affiliates, purchased from Agilent an aggregate of approximately $2.0 million of products and/or services.
| ● | URS Corporation (“URS”). Mr. William P. Sullivan served as a director of URS until May 2014. URS, or its affiliates, purchased from Agilent an aggregate of approximately $184,000 of products and/or services. |
Agreements with Keysight
On November 1, 2014, we completed the spin-off of Keysight Technologies, Inc. (“Keysight”), our electronic measurement business (the “Spin-off”). Following the Spin-off, Agilent and Keysight have operated as separate publicly-traded companies and neither entity has any ownership interest in the other. However, two of our directors, James G. Cullen and Paul N. Clark, servedirector was serving on the board of directors of Keysight. In connection withBoard. Set forth below are the Spin-off, Agilent and Keysight entered into various agreements, as described below.
Effective as of November 1, 2014, Agilent and Keysight each operate separately as independent publicly-traded companies. Agilent has entered into a separation and distribution agreement with Keysight, which is referred to in this proxy statement as the “separation agreement” or the “separation and distribution agreement.” In connection with the Spin-off, Agilent also entered into various other agreements to effect the Spin-off and provide a framework for its relationship with Keysight after the Spin-off, including a services agreement, a tax matters agreement, an employee matters agreement, an intellectual property matters agreement, a trademark license agreement and a real estate matters agreement (collectively, the “Agreements”).
These Agreements provide for the allocation between Agilent and Keysight of Agilent’s assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after Keysight’s separation from Agilent and govern certain relationships between Keysight and Agilent after the Spin-off. The summaries of the Agreements are qualified in their entirety by reference to the full text of the applicable Agreements, which have been filed as exhibits to Agilent’s Current Report on Form 8-K filed with the Securities Exchange Commission on August 5, 2014.
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| RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
PROPOSAL 2 — | RATIFICATION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
The Audit and Finance Committeefour standing committees of the Board, has appointed PricewaterhouseCoopers LLP as Agilent’s independent registered public accounting firm to audit its consolidated financial statements fortheir primary duties, their current members and the 2015number of meetings held during fiscal year. During the 2014 fiscal year, PricewaterhouseCoopers LLP served as Agilent’s independent registered public accounting firm and also provided certain tax and other non-audit services. Although Agilent is not required to seek stockholder approval of this appointment, the Board believes it to be sound corporate governance to do so. If the appointment is not ratified, the Audit and Finance Committee will investigate the reasons for stockholder rejection and will reconsider the appointment.2016.
Representatives of PricewaterhouseCoopers LLP are expected to attend the annual meeting where they will be available to respond to questions and, if they desire, to make a statement.
Agilent’s Board recommends a vote FOR the ratification of the
Audit and Finance Committee’s appointment of
PricewaterhouseCoopers LLP as Agilent’s Independent Registered Public Accounting Firm.
Fees Paid to PricewaterhouseCoopers LLP
The following table sets forth the aggregate fees charged to Agilent by PricewaterhouseCoopers LLP for audit services rendered in connection with the audited consolidated financial statements and reports for the 2014 and 2013 fiscal years and for other services rendered during the 2014 and 2013 fiscal years to Agilent and its subsidiaries, as well as all out-of-pocket costs incurred in connection with these services:
| Fee Category: | | Fiscal 2014 | | % of Total | | Fiscal 2013 | | % of Total | | | Audit Fees | | | $ | 7,791,000 | | | 76.8 | | | $ | 4,984,000 | | | 83.1 | | | Audit-Related Fees | | | | 1,695,000 | | | 16.7 | | | | 762,000 | | | 12.7 | | | Tax Fees: | | | | | | | | | | | | | | | | | Tax compliance/preparation | | | | 265,000 | | | 2.6 | | | | 245,000 | | | 4.1 | | | Other tax services | | | | 0 | | | 0 | | | | 0 | | | 0 | | | Total Tax Fees | | | | 265,000 | | | 2.2 | | | | 245,000 | | | 4.1 | | | All Other Fees | | | | 392,000 | | | 3.9 | | | | 4,000 | | | 0.01 | | | Total Fees | | | $ | 10,143,000 | | | 100 | | | $ | 5,995,000 | | | 100 | |
Audit Fees: Consists of fees billed for professional services rendered for the integrated audit of Agilent’s consolidated financial statements and its internal control over financial reporting and review of the interim condensed consolidated financial statements included in quarterly reports. Fiscal 2014 and 2013 fees also consist of fees billed for services that are normally provided by PricewaterhouseCoopers LLP in connection with statutory reporting and regulatory filings or engagements, and attest services, except those not required by statute or regulation. Fiscal 2014 audit fees reflect additional fees of $2,800,000 for services performed by PricewaterhouseCoopers LLP in connection with the separation and spin-off of Keysight.
Audit-Related Fees: Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of Agilent’s consolidated financial statements and are not reported under “Audit Fees.” These services include employee benefit plan audits, accounting consultations in connection with acquisitions and divestitures, attest services
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| RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards. Fiscal 2014 audit related fees reflect additional fees of $1,670,000 for services performed by PricewaterhouseCoopers LLP in connection with the separation and spin-off of Keysight.
Tax Fees: Consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and international tax compliance, tax audits and appeals, customs and duties, mergers and acquisitions and international tax planning.
All Other Fees: Consists of fees for all other services other than those reported above. These services include a license for specialized accounting research software. Agilent’s intent is to minimize services in this category. The increase in this category for fiscal 2014 reflects additional fees of $388,000 for marketing consulting work provided by BGT Partners, an affiliate of PricewaterhouseCoopers LLP.
In making its recommendation to ratify the appointment of PricewaterhouseCoopers LLP as Agilent’s independent registered public accounting firm for the fiscal year ending October 31, 2015, the Audit and Finance Committee has considered whether services other than audit and audit-related services provided by PricewaterhouseCoopers LLP are compatible with maintaining the independence of PricewaterhouseCoopers LLP.
Policy on Audit and Finance Committee Preapproval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm
The Audit and Finance Committee’s policy is to preapprove all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Preapproval is generally provided for up to one year and any preapproval is detailed as to the particular service or category of services and is subject to a specific budget. The Audit and Finance Committee has delegated its preapproval authority up to a specified maximum to the Chairperson of the Audit and Finance Committee, Heidi Fields, who may preapprove all audit and permissible non-audit services so long as her preapproval decisions are reported to the Audit and Finance Committee at its next scheduled meeting.
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| AUDIT AND FINANCE COMMITTEE REPORT
|
AUDIT AND FINANCE COMMITTEE REPORT | The Audit Committee Report does not constitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any other Company filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates the Audit Committee Report by reference therein.
AUDIT AND FINANCE COMMITTEE REPORT
During fiscal year 2014, the Audit and Finance Committee of the Board reviewed the quality and integrity of Agilent’s consolidated financial statements, the effectiveness of its system of internal control over financial reporting, its compliance with legal and regulatory requirements, the qualifications and independence of its independent registered public accounting firm, the performance of its internal audit function and independent registered public accounting firm and other significant financial matters. Each of the Audit and Finance Committee members satisfies the definition of independent director and is financially literate as established in the New York Stock Exchange Listing Standards. In accordance with section 407 of the Sarbanes-Oxley Act of 2002, the Board of Directors has identified Heidi Fields as the Audit and Finance Committee’s “Financial Expert.” Agilent operates with a November 1 to October 31 fiscal year. The Audit and Finance Committee met twelve times, including telephone meetings, during the 2014 fiscal year.
The Audit and Finance Committee’s work is guided by a written charter that the Board has approved. The Audit and Finance Committee regularly reviews its charter to ensure that it is meeting all relevant audit committee policy requirements of the U.S. Securities and Exchange Commission, the Public Company Accounting Oversight Board and the New York Stock Exchange. You can access the latest Audit and Finance Committee charter by clicking on “Governance Policies” in the “Corporate Governance” section of the Web page at www.investor.agilent.com or by writing to us at Agilent Technologies, Inc., 5301 Stevens Creek Blvd., Santa Clara, California 95051, Attention: Investor Relations.
The Audit and Finance Committee has reviewed and discussed with management and PricewaterhouseCoopers LLP, Agilent’s independent registered public accounting firm, Agilent’s audited consolidated financial statements and Agilent’s internal control over financial reporting. The Audit and Finance Committee has discussed with PricewaterhouseCoopers LLP, during the 2014 fiscal year, the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (Communication with Audit Committees) as adopted by the Public Company Accounting Oversight Board in Rule 3200T.
The Audit and Finance Committee has received and reviewed the written disclosures and the letter from PricewaterhouseCoopers LLP required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit and Finance Committee concerning independence, and has discussed with PricewaterhouseCoopers LLP its independence from Agilent. Based on the review and discussions noted above, the Audit and Finance Committee recommended to the Board that Agilent’s audited consolidated financial statements be included in Agilent’s Annual Report on Form 10-K for the fiscal year ended October 31, 2014, and be filed with the U.S. Securities and Exchange Commission.
Submitted by:
Audit and Finance Committee | Members | Meetings | • | Responsible for the oversight of: | Heidi Fields, Chairperson Kunz† (Chair) Paul N. Clark
Robert J. Herbold |
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| RE-APPROVAL AND AMENDMENT OF THE PERFORMANCE-BASED
COMPENSATION PLAN FOR COVERED EMPLOYEES
|
PROPOSAL 3 — Daniel K. Podolsky, M.D.
| RE-APPROVAL AND AMENDMENT OF THEPERFORMANCE-BASED COMPENSATION PLAN FOR COVERED EMPLOYEES12
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At the 2015 annual meeting, Agilent is requesting that stockholders approve the Agilent Technologies, Inc. Performance-Based Compensation Plan for Covered Employees (the “Performance Plan”) which was amended by the Compensation Committee of the Board on November 19, 2014, subject to stockholder approval and will be effective commencing with fiscal 2015. Section 162(m) of the Internal Revenue Code requires that the stockholders approve the material terms of the Performance Plan at least every five years. The Performance Plan was most recently approved by our stockholders at the 2010 annual meeting.
As proposed for approval, and with the exception of the ability to pay awards under the Performance Plan in the form of cash and/or Agilent common stock, the Performance Plan is substantially the same as the version approved by the stockholders in 2010.
Purpose of the Request for Approval
The Board believes that a well-designed incentive compensation plan is a significant factor in improving operating and financial performance of Agilent, thereby enhancing stockholder value. Important elements of such a plan include:
● | pre-establishedo | the quality and integrity of our consolidated financial statements; | | o | compliance with legal and regulatory requirements, including our Standards of Business Conduct; | | o | qualifications and independence of our independent auditor; | | o | performance of our internal audit function and independent registered public accounting firm; and | | o | other significant financial matters, including borrowings, currency exposures, dividends, share issuance and repurchase and the financial aspects of our benefit plans. | • | Has the sole authority to appoint, compensate, oversee and replace the independent registered public accounting firm, reviews its internal quality-control procedures, assesses its independence and reviews all relationships between the independent auditor and the company; | • | Approves the scope of the annual internal and external audit; | • | Pre-approves all audit and non-audit services and the related fees; | • | Reviews our consolidated financial statements and disclosures in our reports on Form 10-K and Form 10-Q; | • | Monitors the system of internal controls over financial reporting and reviews the integrity of the company’s financial reporting process; | • | Reviews funding and investment policies and their implementation and the investment performance of our benefit plans; | • | Establishes and oversees procedures for (a) complaints received by the company regarding accounting, internal accounting controls or auditing matters, and (b) the confidential anonymous submission by employees of the company of concerns regarding questionable accounting or auditing matters; and | • | Reviews disclosures from our independent registered public accounting firm required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independence of accountant’s communications with the audit committee. | Compensation Committee | Members | Meetings | • | Approves the corporate goals and objectives for eachrelated to the compensation of the chief executive officer and other executives, evaluates their performance period;and approves their annual compensation packages; | Koh Boon Hwee (Chair) Sue H. Rataj George A. Scangos, PhD Tadataka Yamada, M.D. | 4 | • | Monitors and approves our benefit plan offerings; | ● • | objective, measurable factors bearing on reported financial resultsReviews and other metrics asapproves the basis for any payments made under the plan;Compensation Discussion and Analysis; | • | Oversees the administration of our incentive compensation, variable pay and stock programs; | ● • | administrative oversightAssesses the impact of our compensation programs and arrangements on company risk; | • | Recommends to the Board the annual retainer fee as well as other compensation for non-employee directors; and | • | Has sole authority to retain and terminate executive compensation consultants. | Nominating/Corporate Governance Committee | Members | Meetings | • | Recommends the size and composition of the planBoard, committee structures and membership; | James G. Cullen (Chair) Paul N Clark Robert J. Herbold Koh Boon Hwee Heidi Kunz Daniel K. Podolsky, M.D. Sue H. Rataj George A. Scangos, PhD Tadataka Yamada, M.D. | 5 | • | Establishes criteria for the selection of new directors and proposes a slate of directors for election at each annual meeting; | • | Reviews special concerns which require the attention of non-employee directors; | • | Oversees the evaluation of Board members and make recommendations to improve the Board’s effectiveness; and | • | Develops and reviews corporate governance principles. | Executive Committee | Members | Meetings | • | Meets or takes written action between meetings of the Board; and | James G. Cullen (Chair) Michael R. McMullen | 0 | • | Has full authority to act on behalf of the Board to the extent permitted by the Compensation Committee.law with certain exceptions. | |
The Board also believes
† Financial Expert 17
| CORPORATE GOVERNANCE |
Related Person Transactions Policy and Procedures Our Standards of Business Conduct and Director Code of Ethics require that all amounts paid pursuant to suchemployees and directors avoid conflicts of interests that interfere with the performance of their duties or the best interests of the company. In addition, we have adopted a plan should be deductible as a business expensewritten Related Person Transactions Policy and Procedures (the “Related Person Transactions Policy”) that prohibits any of Agilent. Code Section 162(m) limits the deductibility of bonuses paid to Agilent’s CEO and certain otherour executive officers, unlessdirectors or any of their immediate family members from entering into a transaction with the plan under which they are paid meets specified criteria, including stockholder approval. Code Section 162(m) generally does not allow a publicly-held corporation to deduct from its U.S. federal taxable income compensation above $1,000,000 that is paidcompany, except in any taxable year to its chief executive officer or other named executive officers (excluding its chief financial officer). Compensation above $1,000,000 may be deducted if, among other things, it is payable uponaccordance with the attainment of performance goals whose material terms are approved by the company’s stockholders. If the company’s compensation committee retains discretion to select which performance goals will apply to a particular performance period, Code Section 162(m) requires that the material terms of such performance goals be reapproved by the company’s stockholders every five years.policy. For purposes of Code Section 162(m), the material terms include (a)policy, a “related person transaction” includes any transaction involving the employees eligiblecompany and any related person that would be required to receive compensation, (b) a descriptionbe disclosed pursuant to Item 404(a) of the business criteria onSecurities and Exchange Commission’s Regulation S-K. Under our Related Person Transactions Policy, the General Counsel must advise the Nominating/Corporate Governance Committee of any related person transaction of which he becomes aware. The Nominating/Corporate Governance Committee must then either approve or reject the performance goal may be based, and (c) the maximum amount of compensation that can be paid to an employee under the performance goal. Each of these terms is discussed below. The Board believes the amendment and continuation of the Performance Plan to be in the best interest of stockholders and recommends its approval. If the Performance Plan is not approved by Agilent’s stockholders, commencing with fiscal 2015, bonuses shall no longer be paid officers and key employees of Agilent under the Performance Plan.
The complete text of the Performance Plan, marked to show the proposed amendment, is attached to this proxy statement asAnnex A. The following description of the proposed amended Performance Plan is a summary of certain provisions and is qualified in its entirety by the reference toAnnex A.
Table of Contents
| RE-APPROVAL AND AMENDMENT OF THE PERFORMANCE-BASED
COMPENSATION PLAN FOR COVERED EMPLOYEES
|
Summary of the Performance-Based Compensation Plan, as amended
General
The purpose of the Performance Plan is to motivate and reward eligible employees by making a portion of their cash compensation dependent on the achievement of certain objective performance goals related to the performance of Agilent and its affiliates. In accordance with Agilent’s compensation policy that cash compensation should vary with company performance, a substantial part of each executive’s total cash compensation may be tied to Agilent’s performance by way of performance-based bonuses under the Performance Plan.
Because of the fact-based nature of the performance-based compensation exception under Code Section 162(m) and the limited availability of binding guidance thereunder, Agilent cannot guarantee that the awards under the Performance Plan to covered employees will qualify for exemption under Code Section 162(m). However, the intention of Agilent and the Compensation Committee is to administer the Performance Plan in compliance with Code Section 162(m) with respect to covered employees or participants who may become covered employees. If any provision of the Performance Plan does not comply with the requirements of Code Section 162(m), then such provision will be construed or deemed amended to the extent necessary to conform to such requirements.
Administration
The Performance Plan will be administered by the Compensation Committee, which will have the authority to interpret the Performance Plan, to establish performance targets and to establish the amounts of awards payable under the Performance Plan.
Participation and Eligibility
Individuals eligible for Performance Plan awards are officers and key employees of Agilent (as determined by the Compensation Committee), which include Agilent’s covered employees (within the meaning of Code Section 162(m)) and executive officers. Each executive officer has an interest in Proposal No. 3. The number of key employees who will participate in the Performance Plan and the amount of Performance Plan awards are not presently determinable.
Plan Operation
The Performance Plan provides Agilent with a competitive bonus plan reflecting the more prevalent customs and practices for bonus plans among its peer group. The payment of awards to each participant is based on an individual bonus target for the performance period set by the Compensation Committee in writing and related to the satisfaction of the applicable performance goal(s) pre-established by the Compensation Committee for such performance period. The performance goals available under the Performance Plan are listed below:
Performance Goals under the Performance-Based Compensation Plan | | I. | | Pre-tax income or after-tax income | | | II. | | Income or earnings including operating income, earnings before or after taxes, interest, depreciation and/or amortization | | | III. | | Net income excluding amortization of intangible assets, depreciation and impairment of goodwill and intangible assets and/or excluding charges attributable to the adoption of new accounting pronouncements | | | IV. | | Earnings or book value per share (basic or diluted) | | | V. | | Return on assets (gross or net), return on investment, return on invested capital, or return on equity | |
Table of Contents
| RE-APPROVAL AND AMENDMENT OF THE PERFORMANCE-BASED
COMPENSATION PLAN FOR COVERED EMPLOYEES
|
Performance Goals under the Performance-Based Compensation Plan | | VI. | | Return on revenues | | | VII. | | Cash flow, free cash flow, cash flow return on investment (discounted or otherwise), net cash provided by operations, or cash flow in excess of cost of capital | | | VIII. | | Economic value created | | | IX. | | Operating margin or profit margin | | | X. | | Stock price or total stockholder return | | | XI. | | Income or earnings from continuing operations | | | XII. | | Capital expenditures, cost targets, reductions and savings and expense management | | | XIII. | | Strategic business criteria, consisting of one or more objectives based on meeting specified market penetration or market share, geographic business expansion, objective customer satisfaction or information technology goals, and objective goals relating to divestitures, joint ventures, mergers, acquisitions and similar transactions | |
Under the Performance Plan, a performance goal is an objective formula or standard utilizing one or more of the factors in the table above and any objectively verifiable adjustment(s) thereto permitted and pre-established by the Compensation Committeetransaction in accordance with Code Section 162(m).
Under the Performance Plan, the Compensation Committee has the flexibility to determine the duration of a performance period as any period not exceeding 36 months. The performance period(s)’ individual bonus target(s) and performance goal(s) will be adopted by the Compensation Committee in its sole discretion with respect to each performance period and must be adopted no later than the latest time permitted by the Internal Revenue Code in order for bonus payments pursuant to the Performance Plan to be deductible under Code Section 162(m). Additionally, the Compensation Committee may establish different performance periods for different participants, and the Committee may establish concurrent or overlapping performance periods.
Payment of Awards
The Performance Plan will allow the Compensation Committee to pay awards in either cash and/or Agilent common stock issued from Agilent’s 2009 Stock Plan. The actual amount of future bonus payments under the Performance Plan is not presently determinable. However, the Performance Plan provides that the maximum amount of any awards that can be paid under the Performance Plan to any participant with respect to any 12-month performance cycle is $10,000,000. The $10,000,000 maximum award with respect to any 12-month performance period is better aligned with current competitive maximums of Agilent’s peer group and gives the Compensation Committee greater flexibility to award incentives based on need pursuant to prevalent practices by members of Agilent’s peer group and pursuant to potential concurrent or overlapping performance periods. Further, the Compensation Committee, in its sole discretion, may exercise negative discretion to reduce or eliminate the amount of a participant’s bonus under the Performance Plan to an amount below the amount otherwise payable pursuant to the Performance Plan formula.
The payment of an award for a given performance period generally requires the participant to be employed by Agilent as of the last day of the performance period. Prior to the payment of any award under the Performance Plan, the Compensation Committee must make a determination, certified in writing, that the conditions to payment for the applicable performance period have been satisfied. The payment of awards under the Performance Plan must be made in cash or Agilent common stock and occur within a reasonable period of time after the end of the applicable performance period. Payment
Table of Contents
| RE-APPROVAL AND AMENDMENT OF THE PERFORMANCE-BASED
COMPENSATION PLAN FOR COVERED EMPLOYEES
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of an award under the Performance Plan may also be deferred for payment at a future date under the terms of the 2005 Deferred Compensation Plan (seepolicy. In the “Non-Qualified Deferred Compensation in Last Fiscal Year” table below).course of making this determination, the Nominating/Corporate Governance Committee shall consider all relevant information available to it and, as appropriate, must take into consideration the following:
Federal Income Tax Considerations
All amounts paid pursuantthe size of the transaction and the amount payable to the Performance Plan are taxable incomerelated person;
the nature of the interest of the related person in the transaction; whether the transaction may involve a conflict of interest; and whether the transaction involved the provision of goods or services to the employee when paid. Agilent willcompany that are available from unaffiliated third parties and, if so, whether the transaction is on terms and made under circumstances that are at least as favorable to the company as would be entitledavailable in comparable transactions with or involving unaffiliated third parties. Under the Related Person Transactions Policy, company management screens for any potential related person transactions, primarily through the annual circulation of a Director and Officer Questionnaire (“D&O Questionnaire”) to a federal income tax deduction for all amounts paid under the Performance Plan if it is approved by stockholders and meets the other requirements of Code Section 162(m). However, if the proposal is not approved by stockholders and the Compensation Committee implements alternative methods of paying bonuses in lieueach member of the Performance Plan beginning in fiscal 2015, the future deductibility by AgilentBoard of any such bonuses may be limited by Code Section 162(m). AmendmentDirectors and Termeach officer of the Plan
The Performance Plan will first become available for performance periods beginning in fiscal 2015. The Performance Plan does not havecompany that is a fixed termination date and may be terminated by the Compensation Committee at any time, provided that such termination will not affect the paymentreporting person under Section 16 of any award accrued prior to the time of termination. The Compensation Committee may amend or suspend, and reinstate, the Performance Plan at any time, provided that any such amendment or reinstatement shall be subject to shareholder approval if required by Code Section 162(m), or any other applicable laws, rules or regulations.
Plan Benefits
All awards under the Performance Plan to the Agilent officers named in the Summary Compensation Table on page 55 and all current executive officer participants as a group during fiscal 2015 will be based on Agilent’s actual performance during fiscal 2015 and will be made at the discretion of the Compensation Committee. Therefore, the benefits and amounts that will be received or allocated under the Performance Plan to Agilent’s executive officers during fiscal 2015 are not determinable at this time. Cash bonuses paid to our named executive officers during fiscal 2014 are shown in this Proxy Statement in the Summary Compensation Table included in the section entitled “Executive Compensation” below and discussed in more detail in the section entitled “Compensation Discussion and Analysis—Short-Term Cash Incentives” below. Bonuses under the Performance Plan are subject to the Executive Compensation Recoupment Policy, which is described in the section entitled “Compensation Discussion and Analysis—Compensation Philosophy” below.
Vote Required
The affirmative vote of a majority of the shares of Agilent common stock present or represented by proxy and voting at the annual meeting, together with the affirmative vote of a majority of the required quorum, is required for approval of this proposal. If you own shares through a bank, broker or other holder of record, you must instruct your bank, broker or other holder of record how to vote in order for them to vote your shares so that your vote can be counted on this proposal.
Agilent’s Board recommends a vote FOR the approval of the material terms of the
performance goals and related provisions under the Performance Plan for purposes of
Code Section 162(m) and of the amendment to the Performance Plan.
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| APPROVAL OF AMENDMENTS TO OUR AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION AND BYLAWS TO DECLASSIFY THE BOARD
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PROPOSAL 4 —
| APPROVAL OF AMENDMENTS TO OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION ANDBYLAWS TO DECLASSIFY THE BOARD
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The Company’s Amended and Restated Certificate of Incorporation (“Certificate”) and Amended and Restated Bylaws (the “Bylaws”) currently provide that the Board will be classified into three classes, as nearly equal in number as possible, with one class to be elected by the stockholders each year. As part of the Company’s commitment to effective governance practices, management and the Board undertook a review of current corporate governance trends and considered the view held by many institutional stockholders that transitioning to an annually elected board is preferable to maintaining a classified board. After careful consideration the Board has determined that it is appropriate to propose for stockholder consideration amendments to our Certificate and Bylaws that, if adopted, would eliminate the classified structure of our Board over a three-year period.
If this proposal is approved by the requisite percentage of stockholders, the Company will transition to a declassified structure under which current directors will serve out their remaining terms prior to standing for election and the entire Board will stand for election annually beginning in 2018. As part of the transition, at the Annual Meetings of Stockholders in 2016 and 2017, each of the Class I and Class II directors, respectively, will begin standing for annual election. The proposed amendments will not affect the unexpired term of any director elected prior to the Annual Meeting of Stockholders in 2016.
The proposed amendments to Article VII of the Certificate and Article III of the Bylaws are attached hereto asAnnexes B andC, respectively.
If the requisite percentage of stockholders approve the amendments, the Company anticipates filing the amended Certificate with the Delaware Secretary of State promptly following the Annual Meeting. Additionally, the Bylaws will be amended and restated to reflect these changes thereafter.
Vote Required
The affirmative vote of the holders of at least eighty percent (80%) of the outstanding voting stock of the Company is required for approval of this proposal.
Agilent’s Board recommends a vote FOR the approval of the proposed amendments to our
Certificate and Bylaws to declassify the Board.
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| COMMON STOCK OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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COMMON STOCK OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of December 31, 2014, concerning each person or group known by Agilent, based on filings pursuant to Section 13(d) or (g) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),1934. The D&O Questionnaire contains questions intended to own beneficially more than 5%identify related persons and transactions between the company and related persons. If a related person transaction is identified, such transaction is brought to the attention of the outstanding sharesNominating/Corporate Governance Committee for its approval, ratification, revision, or rejection in consideration of our Common Stockall of the relevant facts and circumstances.
| Name and Address of Beneficial Owner | | Amount and Nature | | | Percent of Class | | | T. Rowe Price Associates, Inc. | | | 34,580,955 | | (1) | | | | | 10.3 | % | | | | 100 E. Pratt Street | | | | | | | | | | | | | | | Baltimore, MD 21202 | | | | | | | | | | | | | | | BlackRock, Inc. | | | 22,918,085 | | (2) | | | | | 6.8 | % | | | | 40 East 52nd Street | | | | | | | | | | | | | | | New York, NY 10022 | | | | | | | | | | | | | |
The Nominating/Corporate Governance Committee must approve or ratify each related person transaction in accordance with the policy. Absent this approval or ratification, no such transaction may be entered into by the company with any related person. The Related Person Transactions Policy provides for standing pre-approval of the following transactions with related persons: (1) | (a) | Based solely on information contained inAny transaction with another company at which a Schedule 13G/A filed with the SEC on November 10, 2014 by T. Rowe Price Associates, Inc. The Schedule 13G/A indicates that T. Rowe Price Associates, Inc. has sole voting power with respect to 8,551,483 shares and sole dispositive power with respect to 34,580,955 shares. These securities are owned by various individual and institutional investors including T. Rowe Price International Ltd. and T. Rowe Price Mutual Funds which T. Rowe Price Associates, Inc. servesrelated person’s only relationship is as an investment adviser with power to direct investments and/employee (other than an executive officer or sole power to vote the securities. For purposes of the reporting requirements of the Securities Exchange Act of 1934, T. Rowe Price Associates, Inc. is deemed to be aan equivalent), director or beneficial owner of such securities; however, T. Rowe Price Associates, Inc. expressly disclaimsless than 10% of that itcompany’s shares, if the aggregate amount involved does not exceed the greater of (i) $1,000,000, or (ii) 2 percent of that company’s total annual revenues. |
| (b) | Any charitable contribution, grant or endowment by the company to a charitable organization, foundation or university at which a related person’s only relationship is in fact,as an employee (other than an executive officer or an equivalent), a director or a trustee, if the beneficial owneraggregate amount involved does not exceed the lesser of such securities. | | (2) | | Based solely on information contained in a Schedule 13G/A filed with the SEC on January 29, 2015 by BlackRock, Inc. The Schedule 13G/A indicates that BlackRock, Inc. has sole voting power with respect to 20,218,204 shares and sole dispositive power with respect to 22,918,085 shares. |
The following table sets forth information, as of December 31, 2014, concerning:
● | the beneficial ownership of Agilent’s common stock by each director and each$500,000, or 2 percent of the named executive officers included in the Summary Compensation Table herein; and | | | ● | the beneficial ownership of Agilent’s common stock by all directors and executive officers as a group.charitable organization’s total annual receipts. |
The numberWe will disclose the terms of shares beneficially owned by each entity,related person directortransactions in our filings with the SEC to the extent required.
Transactions with Related Persons We purchase services, supplies, and equipment in the normal course of business from many suppliers and sell or lease products and services to many customers. In some instances, these transactions occur with companies with which members of our management or Board have relationships as directors or executive officer is determined under the rulesofficers. For transactions entered into during fiscal year 2016, no related person had or will have a direct or indirect material interest. None of the SEC, andfiscal year 2016 transactions exceeded or fell outside of the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has the sole or shared voting power or investment power and also any shares that the individual has the right to acquire as of March 1, 2015, 60 days after December 31, 2014, through the exercise of any stock option or other right. Unless otherwise indicated, each person has sole investment and voting power, or shares such powers with his or her spouse, with respect to the sharespre-approved thresholds set forth in our Related Person Transactions Policy except for the following table.
Tabletransactions with Biogen Inc. (“Biogen”) and the University of ContentsTexas Southwestern Medical Center (“UTSW”).
18
| COMMON STOCK OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTCORPORATE GOVERNANCE |
Name of Beneficial Owner | Number of Shares of Common Stock | Deferred Stock(1) | Total Number of Shares Beneficially Owned(2) | Number of Shares Subject to Exercisable Options(3) | Total Shares Beneficially Owned Plus Underlying Units | William P. Sullivan | | 239,825 | | | | 218,342 | | | 458,167 | | | 720,836 | | | | 1,179,003 | | Paul N. Clark | | 764 | | | | 77,836 | | | 78,600 | | | 37,973 | (4) | | | 116,573 | | James G. Cullen | | 16,767 | (5) | | | 70,727 | | | 87,494 | | | 41,049 | | | | 128,543 | | Heidi Fields | | 17,861 | | | | 50,889 | | | 68,750 | | | 41,049 | | | | 109,799 | | Robert J. Herbold | | 41,449 | (6) | | | — | | | 41,449 | | | 41,049 | | | | 82,498 | | Didier Hirsch | | 4,620 | (7) | | | 91,975 | | | 96,595 | | | 286,213 | | | | 382,808 | | Marie Oh Huber | | 38,506 | | | | — | | | 38,506 | | | 169,667 | | | | 208,173 | | Koh Boon Hwee | | 40,633 | | | | 12,231 | | | 52,864 | | | 41,049 | | | | 93,913 | | Michael R. McMullen | | 73,700 | | | | — | | | 73,700 | | | 428,012 | | | | 501,712 | | Ronald S. Nersesian | | 3,083 | | | | — | | | 3,083 | | | — | | | | 3,083 | | A. Barry Rand | | 19,388 | | | | 53,316 | | | 72,704 | | | 41,049 | | | | 113,753 | | George A. Scangos, Ph.D. | | 2,353 | | | | — | | | 2,353 | | | — | | | | 2,353 | | Tadataka Yamada, M.D. | | 8,175 | | | | 15,405 | | | 23,580 | | | — | | | | 23,580 | | All directors and executive officers as a group (19) persons(8) | | 548,502 | | | | 597,123 | | | 1,145,625 | | | 2,033,718 | | | | 3,179,343 | |
(1) | | Represents the number of deferred shares or share equivalents held by Fidelity Management Trust Company under the Deferred Compensation Plan as to which voting or investment power exists. | | | | (2) | | Individual directors and executive officers as well as all directors and executive officers as a group beneficially own less than 1% of the 335,846,684 shares of Common Stock outstanding, as of December 31, 2014. | | (3) | | “Exercisable Options” means options that may be exercised as of March 1, 2015. | | (4) | | Consists of vested options gifted to Mr. Clark’s Family LLC. | | (5) | | Includes 3,000 shares held by Mr. Cullen’s Family Limited Partnership. | | (6) | | Includes 38,949 shares held by Mr. Herbold’s Revocable Trust. | | (7) | | Includes 100 shares held by Mr. Hirsch’s spouse. | | (8) | | Includes 47,780 direct and indirect shares, and 185,772 exercisable options for a total of 233,552 shares held by executive officers not separately listed in this table. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a)George A. Scangos, PhD is the Chief Executive Officer of Biogen and Daniel K. Podolsky, M.D., is the President of UTSW. The members of the Exchange Act, requires Agilent’s directors, executive officersNominating/Corporate Governance Committee, excluding Dr. Scangos and holders ofDr. Podolsky for their respective transactions only, reviewed, approved and ratified the transactions with Biogen and UTSW in accordance with the policy.
The following list identifies companies who have either purchased from or sold to us more than 10%$120,000 in products and/or services in fiscal 2016. Bayer A.G. (“Bayer”). Ms. Sue H. Rataj is a director of Agilent common stock to file reportsBayer. Bayer, or its affiliates, purchased an aggregate of approximately $17.5 million of products and/or services from us. Beijing Genomics Institute (“BGI”). Dr. Tadataka Yamada serves as a director of BGI. BGI, or its affiliates, purchased an aggregate of approximately $518,437 of products and/or services from us. Biogen Inc. (“Biogen”). Mr. George A. Scangos, PhD is the Chief Executive Officer and a director of Biogen. Biogen, or its affiliates, purchased an aggregate of approximately $4.0 million in products and/or services from us. CSL Limited (“CSL”). Dr. Tadataka Yamada has served as a director of CSL since September 2016. CSL, or its affiliates, purchased an aggregate of approximately $340,401 of products and/or services from us. GlaxoSmithKline (“GSK”). Dr. Daniel K. Podolsky served as a director of GSK until May 2016. GSK, or its affiliates, purchased from an aggregate of approximately $16.2 million of products and/or services from us. Johns Hopkins University (“JHU”). Mr. George A. Scangos, PhD is an adjunct professor with the SEC regarding their ownershipJHU Department of Biology. JHU, or its affiliates, purchased an aggregate of approximately $2.1 million of products and/or services from us and changeswe purchased approximately $75,000 in ownershipproducts and/or services from JHU. Keysight Technologies, Inc. (“Keysight”). Messrs. Paul N. Clark and James G. Cullen are directors of Agilent stock. Agilent believes that duringKeysight. We, or our affiliates, purchased an aggregate of approximately $11.1 million of products and/or services and Keysight, or its affiliates, purchased an aggregate of approximately $114,799 in products and/or services from us. These amounts exclude payments for rents and utilities covered under certain cost sharing agreements between us and Keysight which are set forth below under “Agreements with Keysight.” Nanyang Technological University (“Nanyang”). Mr. Koh Boon Hwee is the 2014 fiscal year, its executive officers, directors and holders of 10% or more of our common stock complied with all Section 16(a) filing requirements. In making these statements, Agilent has relied upon examination of copies of Forms 3, 4 and 5 provided to Agilent and the written representations of its directors and officers.
Table of Contents
| COMPENSATION OF NON-EMPLOYEE DIRECTORS |
COMPENSATION OF NON-EMPLOYEE DIRECTORS
Directors who are employed by Agilent do not receive any compensation for their Board services. As a result, Mr. Sullivan, an employee of Agilent, received no additional compensation for his Board services. The general policyChair of the Board of Trustees of Nanyang. Nanyang, or its affiliates, purchased an aggregate of approximately $1.9 million of products and/or services from us.
University of Texas Southwestern Medical Center (“UTSW”). Daniel K. Podolsky, PhD is that compensation for non-employee directors should be a mixthe President of cashUTSW. UTSW, or its affiliates, purchased an aggregate of approximately $190,279 of products and/or services from us. Agreements with Keysight On November 1, 2014, we completed the spin-off of Keysight Technologies, Inc. (“Keysight”), our electronic measurement business (the “Spin-off”). Following the Spin-off, the company and equity-based compensation that is competitive with the compensation paid to non-employee directors within Agilent’s peer group. The non-employee director’s compensation plan year begins on March 1 of each year (the “Plan Year”). The table below sets forth the annual retainer, equity grantsKeysight have operated as separate publicly-traded companies and committee premiums for the non-employee directors and the Non-Executive Chairman for the 2014 Plan Year:
Summary of Non-Employee Director Annual Compensation for the 2014 Plan Year
| Cash Retainer(1) | Equity Grant(2) | Committee Chair Premium(3) | Audit Committee Member Premium(4) | Non-employee director | | $90,000 | | $180,000 in value of a stock grant | $15,000 | $10,000 | Non-Executive Chairman | | $245,000 | | $180,000 in value of a stock grant | Not eligible | $10,000 |
(1) | | Each non-employee director may elect to defer all or part of the cash compensation to the 2005 Deferred Compensation Plan for Non-Employee Directors. Any deferred cash compensation is converted into shares of Agilent common stock. | | | | (2) | | The stock will be granted on the later of (i) March 1 or (ii) the first trading day after each Annual Meeting of Stockholders. The number of shares underlying the stock grant is determined by dividing $180,000 by the average fair market value of Agilent’s common stock over 20 consecutive trading days up to and including the day prior to the grant date. The stock grant vests immediately upon grant. Voluntary deferral is available as an option for the non-employee directors. | | (3) | | Non-employee directors (excluding the Non-Executive Chairman) who serve as the chairperson of a Board committee receive a “committee chair premium” of $15,000 in cash, paid at the beginning of each Plan Year. | | (4) | | Non-employee directors (including the Non-Executive Chairman) who serve as a member of the Audit and Finance Committee receive an additional $10,000 in cash, paid at the beginning of each Plan Year. |
A non-employee director who joins the Board of Directors after the start of the Plan Year will have his or her cash retainer, equity grant and committee chair premium pro-rated based upon the remaining daysneither entity has any ownership interest in the Plan Year that the director will serve.
In September 2014, the Compensation Committeeother. However, two of our directors, James G. Cullen and the Board, basedPaul N. Clark, serve on the recommendation of the Compensation Committee’s independent compensation consultant, F.W. Cook, concluded that the current non-employee director compensation is competitive with Agilent’s peer group and would remain unchanged for the 2015 Plan Year.
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| COMPENSATION OF NON-EMPLOYEE DIRECTORS |
Non-Employee Director Compensation for Fiscal Year 2014
The table below sets forth information regarding the compensation earned by each of Agilent’s non-employee directors during the fiscal year ended October 31, 2014:
Non-Employee Director Compensation for Fiscal Year 2014 | Name | Cash Retainer ($)(1) | Committee Fees ($)(1) | Stock Awards ($)(2) (3) | Total ($) | Paul N. Clark | $ | 90,000 | $ | 10,000 | (5) | $180,000 | $280,000 | James G. Cullen(4) | $ | 245,000 | $ | — | | $180,000 | $425,000 | Heidi Fields | $ | 90,000 | $ | 25,000 | (5) (6) | $180,000 | $295,000 | Robert J. Herbold | $ | 90,000 | $ | 10,000 | (5) | $180,000 | $280,000 | Koh Boon Hwee | $ | 90,000 | $ | 15,000 | (7) | $180,000 | $285,000 | George A. Scangos, Ph.D. | $ | 15,123 | $ | — | | $ 90,739 | $105,862 | A. Barry Rand | $ | 90,000 | $ | — | | $180,000 | $270,000 | Tadataka Yamada, M.D. | $ | 90,000 | $ | — | | $180,000 | $270,000 |
(1) | | Reflects all cash compensation earned during fiscal year 2014, whether or not any of the cash compensation was deferred into Agilent common stock pursuant to the 2005 Deferred Compensation Plan for Non-Employee Directors. The number of shares of Agilent common stock received in lieu of cash is determined by dividing the dollar value of the deferred cash amount by the twenty (20) day average fair market value for the applicable deferral date. The aggregate number of shares of Agilent common stock deferred by each non-employee director is set forth in the footnotes to the Beneficial Ownership Table included in this proxy statement. | | | | (2) | | Reflects the aggregate grant date fair value for stock awards granted in fiscal year 2014 calculated in accordance with FASB ASC Topic 718. The assumptions used by the Company in calculating these amounts are included in Note 4 under the heading “Valuation Assumptions” of the Notes to the Consolidated Financial Statements in the Company’s 2014 Annual Report on Form 10-K. | | (3) | | A supplemental table following these footnotes sets forth: (i) the aggregate number of stock awards and option awards outstanding at fiscal year-end; (ii) the aggregate number of stock awards granted during fiscal year 2014; and (iii) the grant date fair market value of equity awards granted by Agilent during fiscal year 2014 to each of our non-employee directors. | | (4) | | Mr. Cullen has served as the Non-Executive Chairman of the Board since March 1, 2005. | | (5) | | Ms. Fields and Messrs. Clark and Herbold served as members of the Audit and Finance Committee during fiscal year 2014. | | (6) | | Includes $15,000 paid to Ms. Fields for chairing the Audit and Finance Committee during fiscal year 2014. | | (7) | | Mr. Koh served as chair of the Compensation Committee during fiscal year 2014. |
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| COMPENSATION OF NON-EMPLOYEE DIRECTORS |
Additional Information With Respect to Director Equity Awards
The following table provides additional information on the outstanding equity awards at fiscal year-end and awards granted during fiscal year 2014 for non-employee directors.
Name | Stock Awards Outstanding at Fiscal Year-End (#)(1) | Option Awards Outstanding at Fiscal Year-End (#) | Stock Awards Granted During Fiscal Year 2014 (#) | Grant Date Fair Value of Stock Awards Granted in Fiscal Year 2014 ($)(1) (2) | Paul N. Clark | — | | 27,746 | | | 3,158 | | | $ | 179,059 | | James G. Cullen | — | | 29,993 | | | 3,158 | | | $ | 179,059 | | Heidi Fields | — | | 29,993 | | | 3,158 | | | $ | 179,059 | | Robert J. Herbold | — | | 29,993 | | | 3,158 | | | $ | 179,059 | | Koh Boon Hwee | — | | 29,993 | | | 3,158 | | | $ | 179,059 | | George A. Scangos, Ph.D. | — | | — | | | 1,569 | | | $ | 93,988 | | A. Barry Rand | — | | 29,993 | | | 3,158 | | | $ | 179,059 | | Tadataka Yamada, M.D. | — | | — | | | 3,158 | | | $ | 179,059 | |
(1) | | Stock awards granted to non-employee directors vest immediately upon grant. | | | | (2) | | Reflects the aggregate grant date fair value of stock awards granted in fiscal year 2014, calculated in accordance with FASB ASC Topic 718. |
Non-Employee Director Reimbursement Practice for Fiscal Year 2014
Non-employee directors are reimbursed for travel and other out-of-pocket expenses connected to Board travel.
Non-Employee Director Stock Ownership Guidelines
In 2005, the company adopted a policy that requires each non-employee director to own Agilent shares having a value of at least three times the annual cash retainer. In May 2010, the Compensation Committee, based on the recommendation of the Committee’s independent compensation consultant, F.W. Cook, amended the guidelines to increase the alignment of the non-employee directors’ interest with stockholder interests by requiring each non-employee director to own Agilent shares having a value of at least six times an amount equal to $90,000 (for the 2014 Plan Year). The shares counted toward the ownership guidelines include shares owned outright and the shares of Agilent stock in the non-employee director’s deferred compensation account. For recently appointed non-employee directors, these ownership levels must be attained within five years from the date of their initial election or appointment to the board of directors. Asdirectors of September 2014, allKeysight. In connection with the Spin-off, the company and Keysight entered into various agreements, as described below.
In connection with the Spin-off, we entered into a separation and distribution agreement with Keysight and various other agreements to effect the Spin-off and provide a framework for our relationship with Keysight after the Spin-off, including a services agreement, a tax matters agreement, an employee matters agreement, an intellectual property matters agreement, a trademark license agreement and a real estate matters agreement (collectively, the “Agreements”). These Agreements provide for the allocation between us and Keysight of our incumbent non-employee directors had achievedassets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after Keysight’s separation from us and govern certain relationships between us and Keysight after the recommended ownership level except for Dr. Yamada who was appointedSpin-off. The summaries of the Agreements are qualified in their entirety by reference to the Board in January 2011 and has until January 2016full text of the applicable Agreements, which have been filed as exhibits to meetour Current Report on Form 8-K filed with the ownership requirements and Dr. Scangos who was appointedSecurities Exchange Commission on August 5, 2014. Pursuant to the BoardAgreements, the company and Keysight share certain costs related to rents and utilities. In fiscal 2016, we paid approximately $5.3 million in September 2014rent/utilities to Keysight and has until September 2019Keysight paid approximately $12.3 million in rent/utilities to meet the ownership requirements.us. 19
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| ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION |
PROPOSAL 5 — | NON-BINDING ADVISORY VOTE TO APPROVE THE COMPENSATION OF AGILENT’S NAMED EXECUTIVE OFFICERS |
The stockholders of Agilent are entitled to cast an advisory vote at the Annual Meeting to approve the compensation of the Company’s named executive officers, as disclosed in this proxy statement. The stockholder vote is an advisory vote only and is not binding on Agilent or its Board of Directors. The Company currently intends to submit the compensation of the Company’s named executive officers annually, consistent with the advisory vote of the stockholders at the Company’s 2011 Annual Meeting.
Although the vote is non-binding, the Compensation Committee and the Board of Directors value your opinions and will consider the outcome of the vote in establishing compensation philosophy and making future compensation decisions.
As described more fully in the “Compensation Discussion and Analysis” and in “Executive Compensation” sections of the proxy statement, the Company’s named executive officers, as identified on page 38 are compensated in a manner consistent with our business strategy, competitive practice, sound compensation governance principles, and stockholder interests and concerns. Our compensation policies and decisions are focused on pay-for-performance.
2014 Highlights
● | Successful completion of the strategy to separate the Company to enhance shareholder value
| ● | Strong fiscal year 2014 financial performance
| ● | CEO pay increase aligned with strategic and financial performance
| ● | Fiscal year 2014 NEO annual compensation targeted at market median
| ● | Commencement of CEO succession plan
| ● | Compensation governance and risk safeguards including waiver of the CEOs grandfathered change of control excise tax gross-up benefit |
Agilent also has several compensation governance programs in place to manage compensation risk and align Agilent’s executive compensation with long-term stockholder interests. These programs include:
● | a compensation recoupment policy;
| ● | an independent compensation committee and compensation consultant;
| ● | a hedging and insider trading policy;
| ● | stock ownership guidelines; and
| ● | an annual risk assessment. |
We are requesting your non-binding vote to approve the compensation of the Company’s named executive officers as described in the “Compensation Discussion and Analysis” and “Executive Compensation” sections of the proxy statement.
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| ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION |
Vote Required
The affirmative vote of a majority of the shares of Agilent common stock present or represented by proxy and voting at the annual meeting, together with the affirmative vote of a majority of the required quorum, is required for approval of this proposal. If you own shares through a bank, broker or other holder of record, you must instruct your bank, broker or other holder of record how to vote in order for them to vote your shares so that your vote can be counted on this proposal.
Agilent’s Board recommends a vote FOR the approval of the compensation of
Agilent’s named executive officers for fiscal 2014.
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| COMPENSATION DISCUSSION AND ANALYSIS |
Dear Stockholder, We are very pleased with our results after our first full year under CEO Mike McMullen and our second year as a stand-alone Life Sciences company. Operating margins expanded and are on track to meet our CEO’s commitment of 22% in FY17, and the company continues to create stockholder value through dividends, stock buy-backs and smart acquisitions that bolster our market position. Meanwhile, the leadership team that Mike appointed in FY15 has built tremendous momentum throughout the year, expanding our product portfolio, extending into adjacent markets, and improving the customer experience by streamlining processes, modernizing systems and making the company more efficient and customer friendly. FY16 was also the first year for our new executive compensation program. Based on input from many of our stockholders, we changed our short-term incentive plan from a semi-annual plan to an annual plan, increased the percentage of long-term incentives delivered through performance shares, introduced a financial metric to supplement relative TSR in our long-term performance plan, and added a mandatory one-year post vest holding period to all executive equity awards. We believe these changes further strengthened executive alignment with stockholders and support our CEO’s strategy of above market growth, expanded operating margins, and efficient capital management. We previewed these changes in our 2016 Compensation Discussion and Analysis and were very pleased with the response from our stockholders, including 93% support for our 2016 Say-on-Pay proposal. We also believe these changes helped focus our executive team to deliver superior results in FY16 and put the company on a strong growth trajectory for the years ahead. During the past year, we continued to engage with our stockholders to discuss our executive compensation program. We believe that the company is best served by an executive compensation program that encourages and rewards consistent, long-term performance. As such, we consider any change very carefully to ensure optimal alignment with the company’s strategy and long-term benefit to stockholders. To collect input on the changes under consideration for FY17, we hosted a meeting for our largest stockholders to preview the ideas we were considering and were pleased that 13 of our largest stockholders representing 25% of shares outstanding participated. With this support, we are implementing two modifications to our program in FY17 that we believe further strengthen executive alignment with stockholders and the company’s strategy. First, we are replacing return on invested capital with operating margin in the short-term incentive plan, which we believe is the optimal vehicle to maintain management focus on profitability. Second, we are replacing operating margin with earnings per share in the long-term performance plan as it aligns with management’s guidance to investors and encourages superior long-term growth. The balance of our executive compensation program remains unchanged. In the Compensation Discussion and Analysis that follows, we discuss our FY16 CEO and Officer compensation in more detail and share additional information about the program refinements we will implement for FY17. You will see that our commitment to both pay for performance and clear, transparent disclosure is strong. We encourage you to review this analysis carefully and hope you agree that our executive compensation programs are achieving our objectives of supporting the company’s growth strategy and creating long-term stockholder value. Koh Boon Hwee (Compensation Committee Chair) Sue H. Rataj Dr. George A. Scangos Tadataka Yamada, M.D. 20
| COMPENSATION DISCUSSION AND ANALYSIS |
COMPENSATION DISCUSSION AND ANALYSIS Introduction
This section of the Proxy Statementproxy statement describes the compensation arrangements for our NEOsNamed Executive Officers (NEOs) for fiscal year 2014,2016, which were exclusively determined by our independent Compensation Committee. ForCommittee and which are further detailed in the 2016 Summary Compensation Table and other compensation tables contained in this proxy statement. This Compensation Discussion and Analysis (CD&A) also includes additional information on how the Compensation Committee arrived at their FY16 compensation decisions for the NEOs and an overview of our executive compensation philosophy and our executive compensation program. Our NEOs for fiscal year ended October 31, 2014, our NEOs and their titles were2016 are as follows: ● | William P. Sullivan,•Michael R. McMullen, President and Chief Executive Officer (“CEO”) (CEO) | ● | •Michael R. McMullen, President and Chief Operating Officer (“COO”)(1)
| ● | Didier Hirsch, Senior Vice President, Chief Financial Officer (“CFO”) (CFO) | ● | Marie Oh Huber,•Mark Doak, Senior Vice President, General Counsel and Secretary President Cross-Lab Group (ACG) | ● | •Ronald S. Nersesian, ExecutivePatrick Kaltenbach, Senior Vice President, Agilent, President Life Sciences and Chief Executive Officer, Keysight Technologies, Inc. (“Keysight”)(2)Applied Markets Group (LSAG) |
____________________
(1) | | Mr. McMullen was appointed President and COO on September 17, 2014 and named to succeed Mr. Sullivan as CEO as of March 18, 2015. | | | •Jacob Thaysen, Senior Vice President, President Diagnostics and Genomics Group (DGG) | (2) | | Mr. Nersesian was appointed as Executive Vice President, Agilent, and President and Chief Executive Officer, Keysight, effective September 18, 2013. Keysight became an independent company on November 1, 2014. |
In this Compensation Discussion and Analysis,CD&A, we first provide an executive summary. We next discuss the following: Determining Executive Pay Fiscal Year 2016 Compensation Committee’s philosophy and process for determining the compensation of our NEOs. We then summarize and analyze
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| COMPENSATION DISCUSSION AND ANALYSIS |
Executive Summary Fiscal Year 2016 at a glance: Performance and Compensation Highlights | CEO and NEO Compensation | • First full year with Mike McMullen as CEO and Messrs. Doak, Kaltenbach and Thaysen leading Business Groups • Delivered on financial plan outlined to investors, including strong growth, expanding margins, balanced use of capital and stockholder value creation • Strong stock performance • Completed first year of redesigned executive compensation program | On aggregate, the total target compensation for our NEOs was right above the 40th percentile of our peer group Mr. McMullen $8,310,000 at the 41st percentile of our peer group and ~88% performance-based Other NEOs (average) $2,494,250 at the 43rd percentile of our peer group and ~80% performance-based | Executive Compensation Program Changes for FY16 | Pay for Performance | • Short-term incentive now an annual program instead of semi-annual • Operating Margin added as LTI award metric • Increased amount of performance-based awards for the NEOs LTI by eliminating stock option grants and adding RSUs for retention • One-year post vest holding period added to LTI awards • Added cap to performance-based award payouts to lesser of 2x target shares or 3x target dollar value | Due to strong financial performance that beat our plan, the Short-Term Incentive program (financial targets) paid out at 103% of target. Our Long-Term Performance Plan for the period ended October 31, 2016 paid out at 96% as our three-year relative TSR was at the 49th percentile of our S&P 500 Health Care, Industrials and Materials Sectors peer group. | Stockholder Engagement | Strong stockholder support on our Say-on-Pay proposal is important to us. We continued to engage with stockholders for feedback on our fiscal year 2016 executive compensation program and received 93% support for our Say-on-Pay proposal at our 2016 stockholder meeting. In response to our stockholders’ feedback, we have made significant changes to our executive compensation programs which demonstrate a strong commitment to pay for performance. We met with stockholders again in July 2016 to review the program changes for fiscal year 2017. | Financial Performance Highlights |
Year-over-year financial results improved as compared to fiscal year 2015 results: | | Measure | Fiscal 2015 | Fiscal 2016 | YOY % | | | S&P 500 TSR* | 3,871.33 | 4,045.89 | 4.5% | | | Agilent TSR* | $37.36 | $43.57 | 12.6% | | | Revenue (Actual) | $4.0B | $4.2B | 4.1% | | | Operating Margin (non-GAAP) | 19.0% | 20.4% | 7.4% | | | Diluted EPS | $1.31 | $1.40 | 6.9% | | | Diluted EPS (non-GAAP)** | $1.74 | $1.98 | 13.8% | | *Stock prices shown for fiscal years 2015 and 2016 are as of 10/31/2015 and 10/31/2016 respectively. | **Non-GAAP Diluted EPS is further defined and reconciled to the most directly comparable GAAP financial measures in Appendix A to this proxy statement. |
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| COMPENSATION DISCUSSION AND ANALYSIS |
Changes in CEO Compensation Committee’s specific decisions regarding In fiscal year 2014, compensation for the NEOs. Executive Summary
2014 Highlights
● | Successful completion of the strategy to separate the Company to enhance shareholder value
| ● | Strong fiscal year 2014 financial performance
| ● | CEO pay increase aligned with strategicwe were a $7 billion company and financial performance
| ● | Fiscal year 2014 NEO annual total compensation targeted at market median
| ● | Commencement of CEO succession plan
| ● | Compensation governance and risk safeguards including waiver of the CEOs grandfathered change of control excise tax gross-up benefit |
Pay for Performance-Agilent’s Fiscal Year 2014 Financial Performance and Executive Compensation
The year over year increase in our CEO’s annual total direct compensation is consistent with our strong financial results, our year over year increase in stock price and reflects our strong commitment to pay for performance. The coreour former long-term CEO, who had been in his role for seven years, compared appropriately to our officer peer group at the time. At the beginning of Agilent’s executive compensation philosophy continuesfiscal year 2015, we spun-off 40% of our business and created Keysight Technologies. Following the spin-off, we became a $4 billion company and we adjusted our officer peer group to bebetter align with companies in the S&P 500 Health Care sector of similar revenue size. At this time, our former CEO retired, and we set pay for our current CEO slightly below our new peer group median.
As the following charts illustrate, our performance as discussedhas been strong during this three-year period and well-correlated to CEO pay considering the spin-off of Keysight and transition to a new CEO. Revenue has grown modestly despite the disruption of the spin-off, while net income (and corresponding margins) have improved significantly and our total stockholder return has been strong. * Non-GAAP net income is further defined and reconciled to the most directly comparable GAAP financial measure in greater detail below.Appendix A to this proxy statement.
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| COMPENSATION DISCUSSION AND ANALYSIS |
The chart below demonstrates how the historical compensation of our CEO compares to our absolutethree-year indexed TSR. The TSR during the same period.
Fiscal Year 2014, a Year of Transition and the Effectshown below assumes reinvestment of the Spin-Off of Keysight Technologies
Fiscal yearspin-off dividend on November 3rd, 2014, was a year of transition and continued building of shareholder value for Agilent. On September 19, 2013, Agilent announced its plans to spin-off its electronic measurement business into an independent publicly traded company, Keysight Technologies, Inc. Shortly after this announcement, two of our former named executive officers, Nicolas Roelofs, former Senior Vice President and President of our Life Sciences Group and Lars Holmkvist, former Senior Vice President of Agilent and President of our Life Sciences Group, left the company. To provideex-dividend date, not the stability and leadership required to assemble Agilent’s and Keysight’s respective executive teams and make the spin-off a success, as well in recognitionend of the valuemonth or the quarter, as some reporting agencies may use.
In addition to the performance highlights noted above, we delivered year-over-year improvements on a number of his almost ten years’ experience asother financial measures, including ROIC, Return on Equity and Return on Assets, which further attest to strong company performance across a seasonedrange of financial measures. Aligning CEO and the extraordinary demand being made on his time as the company embarked on its year-long separation work, Mr. Sullivan was granted a one-time grant of 40,000 restricted stock units. On November 1, 2014, we successfully completed the spin-off of Keysight into a separate publicly-traded company, and Agilent is now focused solely on the life sciences, diagnostics and applied markets.NEO Pay with Performance In September 2014 following the operational separation of Keysight from Agilent and as part of the Board’s CEO succession plan, the Board accepted Mr. Sullivan’s notice of his retirement from the position as CEO effective March 18, 2015. Another part of this plan was the Board’s appointment of Michael R. McMullen as President and COO and the announcement of the intention to appoint him as CEO upon Mr. Sullivan’s retirement in March 2015. Mr. Sullivan also agreed to remain employed as a senior advisor to the Board and Mr. McMullen for the remainder of fiscal year 2015. Concurrently with his appointment as President and COO, Mr. McMullen was granted 18,444 performance stock units for his promotion and he received a salary increase from $600,000 to $700,000.
Mr. McMullen’s Fiscal Year 2015 Compensation Approach
On November 19, 2014, the Compensation Committee met to determine NEO annual compensation and Mr. McMullen’s compensation for fiscal year 2015. No increase was made to either Mr. McMullen’s base salary of $700,000 or his target award of 100% under the Performance Based Compensation Plan. However, the Compensation Committee granted to Mr. McMullen long-term incentive equity awards with a target value of approximately $3,600,000, with approximately half of the target value in a stock option award and half of the target value in performance stock units. The stock option award vests 25% per year over four years, and the performance stock unit award vests 100% at the conclusion of the three-year performance period.
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| COMPENSATION DISCUSSION AND ANALYSIS |
The Compensation Committee anticipates that effective upon Mr. McMullen’s promotion to CEO on March 18, 2015, it will consider increasing Mr. McMullen’s total compensation to around the 25th percentile of Agilent’s peer group.
Mr. McMullen has entered into the Company’s Tier II Change of Control Agreement and will enter into the Company’s CEO Change of Agreement, neither of which includes excise tax gross-up or single trigger provisions.
Mr. Sullivan’s Fiscal Year 2015 Compensation Approach
On November 19, 2014, the Compensation Committee also met to determine Mr. Sullivan’s compensation for fiscal year 2015. For fiscal year 2015,2016, approximately 88% of Mr. Sullivan will receive a base salaryMcMullen’s and 80% of $630,000, a forty percent decrease from Mr. Sullivan’s base salaryour other NEOs’ total direct compensation consisted of $1,050,000 in fiscalshort-term and long-term incentives and is “at-risk”— which means that this component can vary year 2014. Mr. Sullivan’s target award of 150% of fiscalto year 2015 base salary underdepending on the Performance Based Compensation Plan was not changed from the previous year. Mr. Sullivan was granted long-term incentive equity awards with a target value of approximately $5,100,000, with approximately 60%performance of the target value in performancecompany and our stock units and 40% of the target value in a stock option award. This represented a decrease of fifty-one percent from Mr. Sullivan’s long-term incentive equity awards having a target value of $10,500,000 in fiscal year 2014, which had approximately 40% of its target value in a stock option award and 40% of the target value in performance stock units and 20% of the target value in restricted stock units. Mr. Sullivan has also entered into the Company’s current CEO Change of Control Agreement, which provides benefits if Mr. Sullivan’s termination as an employee occurs in fiscal year 2015 in connection with a change in control. Mr. Sullivan’s agreement no longer contains the grandfathered excise tax gross-up provision and his severance benefits are based on his fiscal year 2015 base salary and target bonus.price performance.
Listening to Our Shareholders and Say On Pay
Our programs are well aligned with the interests of our shareholders and are instrumental to achieving our business strategy. In determining executive compensation for fiscal year 2014, the Compensation Committee considered the overwhelming stockholder support (97% approval of votes cast) that the “Say-on-Pay” proposal received at our March 20, 2013 annual meeting of stockholders. The Compensation Committee believes that the shareholder vote confirms the philosophy and objective of linking our executive compensation to our operating and strategic objectives and the enhancement of shareholder value. We view this level of shareholder support as an affirmation of our current pay practices for fiscal year 2014. The Compensation Committee will continue to consider the outcome of the Company’s say-on-pay votes when making future compensation decisions for the named executive officers.
Compensation Governance24
As set forth above, the primary focus of our compensation philosophy is to pay for performance. This philosophy is executed with the following compensation governance provisions:
● | Stock ownership guidelines for officers and directors;
| ● | An independent Compensation Committee;
| ● | An independent Compensation Committee compensation consultant, Frederic W. Cook & Co., Inc. (“F.W. Cook”);
| ● | Prohibitions on executive officers and directors engaging in hedging transactions or pledging our securities as collateral for loans;
| ● | A compensation recoupment or clawback policy that applies to executive officers as described further below; |
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| COMPENSATION DISCUSSION AND ANALYSIS |
Stockholder Outreach – Program Changes We received a 93% stockholder support on our 2016 Say-on-Pay proposal, along with support from the major stockholder advisory firms. While pleased with these results, our Compensation Committee Chair and members of management believe ongoing dialog with stockholders regarding executive compensation is crucial and met with many of our largest stockholders again in 2016 to recap the changes made for fiscal year 2016 and to preview changes under consideration for fiscal year 2017. A summary of our short and long-term incentive program is set forth below with certain design changes (in bold) approved by the Compensation Committee to take effect in fiscal year 2017. ●Program / Feature | An annual review and assessment of potential compensation-related risks, conducted independently for the Committee by F.W. Cook, which for fiscal year 2014 concluded that our compensation program (including all incentive and commission arrangements at all levels) does not encourage behaviors that would create material risk for Agilent;FY16 Design | FY17 Design | Short- Term Incentive (STI) | Performance Period | Annual | No change | ●Primary Financial Metrics | No single-trigger Change of Control benefits;ROIC / Revenue | Operating Margin / Revenue | Key Business Initiatives | 0% - 25% of target bonus | No change | ●Long-Term Incentives (LTI) | Prohibition on repricing; andStock Options (Time-Based Vesting) | Not Granted | No change | LTPP Shares (Relative TSR) | 30% of target LTI value | No change | ●LTPP Shares (Financial Metric) | 30% of target LTI value (Financial Metric = OM) | 30% of target LTI value (Financial Metric = EPS) | RSUs (Time-Based Vesting) | 40% of target LTI value | No dividends/dividend equivalentschange | One Year Post-Vest Holding Period | Apply to LTPP and RSUs | No change | Payout Caps | Lower of: ✓ 2X cap on unearned performance awards.# of LTPP shares ✓ 3X cap on LTPP payout dollar value | No change |
Compensation Philosophy
The main objectives ofFor fiscal year 2016, we changed our executive compensation program are to pay for performance while aligning executives’ interestsdirectly align with shareholder interests. Our pay levels are reasonablethe company’s goals of above market growth, expanded operating margins and competitive to attractbalanced capital allocation. We diversified our long-term incentive plan and retain the best talent and structure pay to support our business objectives with appropriate rewards for short-term operating results and long-term shareholder value creation. Accordingly, we structure our executive compensation program with three basic direct elements:
Base Salary. Base salaries have historically accounted for 20% or lesscreated greater line of total compensationsight for our NEOs. This element is intendedexecutives by adding operating margin as a financial metric. We then added ROIC to establish the minimum or base-line competitive compensation level that sits beneath the variable compensation components. The remaining 80% or more of our total compensation is performance-based as described below.
Short-Term Cash Incentives. We use financial metrics such as revenue growth and operating profit percentage, as well as strategic objectives, to determine our short-term cash performance incentives. The short-term incentives are usedincentive program to provide a competitive element of total direct compensation and to focus the efforts of our executives on critical operatingefficient use of capital and strategic goals that are best measured within annual periods, where there is downside riskportfolio management. To support long-term value creation for underperformingour stockholders, we added a one-year post vest holding period to all of our long-term incentive awards and upside reward for success.
Long-Term Incentives. Our long-term incentives consistadded a cap on performance share payouts to be the lesser of a combination2X the number of (1) stock options that vest over four years and have a 10-year term and (2)target payout shares or 3X the target payout value. The 2X cap on performance shares that vest atwas already in place since the end of a three-year period based on continued employment and our relative Total Shareholder Return (“TSR”) versus peer companies. The purposeinception of the program.
To align with the company’s growth strategy for fiscal year 2017, we are replacing operating margin with earnings per share as the financial metric in the long-term incentivesincentive plan. We believe earnings per share places more direct emphasis on long-term growth and clearly aligns with stockholder value creation. While growth is a key priority, we want to provide a competitive element of total direct compensation, enable employment retention, facilitatemaintain executive stock ownership,focus on profitability, so we will replace ROIC with operating margin in our short-term incentive plan. This will maintain management’s attention on expense discipline, simplification and reward for multi-year shareholder value creation through the performance of our stock as measured against (1) historical prices and (2) the shareholder return of our peers.efficiency measures.
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| COMPENSATION DISCUSSION AND ANALYSIS |
Determining Executive Pay Our executive pay decisions are grounded in a core philosophy that applies to all elements of compensation. Our compensation philosophy: Aligns executive interests with stockholders; Supports our short- and long-term business strategy; | • | Provides competitive total direct compensation targeted, in aggregate, around the 50th percentile of our peers to attract, retain and motivate the best employees; and |
Provides pay for performance. | | Elements of Pay | Base Pay | ✓ Baseline for competitive total compensation. ✓ Normally 20% or less of total direct compensation for NEOs. | Short-Term Incentives | ✓ Focuses executives on critical operating and strategic goals best measured annually. ✓ Provides downside risk for underperformance and upside reward for success. ✓ Leverages financial measures such as revenue, operating margin and ROIC, supplemented with select strategic initiatives. | Long-Term Incentives | ✓ Performance pay representing majority of NEO target compensation. ✓ Motivates and rewards multi-year stockholder value creation. ✓ Facilitates executive stock ownership. ✓ Enables retention. ✓ Delivered through performance shares and RSUs, both with a mandatory one-year post-vest holding period. ✓ Performance measures include long-term financial objectives and relative performance of our TSR. |
Our actual total compensation for each NEO varies based on (i) company performance measured against external metrics that correlate to long-term stockholder value, (ii) performance of the business organizations against specific targets, and (iii) individual performance. These three factors are considered in positioning salaries, determining earned short-term incentives and determining long-term incentive grant values. We also have the following policies and compensation risk controls. 26
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| COMPENSATION DISCUSSION AND ANALYSIS |
Pay Practices Our executive compensation program is supported by a set of strong governance provisions and pay practices. Philosophy / Practice | Result | We structure compensation to create strong alignment with stockholder interests | ✓ Majority of pay is delivered via performance-based vehicles such as long-term performance shares and annual cash incentives. ✓ Mandatory one-year post-vest holding period on annual LTI awards. | We design our programs to avoid excessive risk taking (1) | ✓ Strong recoupment and anti-hedging policies in place. ✓ Robust stock ownership guidelines. ✓ Annual compensation risk assessment. ✓ Balanced internal and external goals. | We follow best practices in executive compensation design | ✓ Limited perquisites. ✓ No single trigger on change in control benefit provisions or new tax gross-up agreements. ✓ No dividends / dividend-equivalents on unearned performance awards. ✓ Continued vesting of equity awards and earn out of LTPP shares based on performance (rather than acceleration of target) upon retirement. ✓ Independent Compensation Committee consultant. |
(1) See Compensation Risk Controls in Additional Information | Recoupment Policy
| | In July 2009, the Compensation Committee adopted an Executive Compensation Recoupment Policy that applies to all of our executive officers covered by Section 16 of the Securities Exchange Act. Under this Policy, in the event of (A) a material restatement of financial results (wherein results were incorrect at the time published due to mistake, fraud or other misconduct), or (B) fraud or misconduct by an executive officer, the Compensation Committee will, in the case of a restatement, review all short and long-term incentive compensation awards that were paid or awarded to executive officers for performance periods beginning after July 14, 2009 that occurred, in whole or in part, during the restatement period. In the case of fraud or misconduct, the Committee will consider actions to remedy the misconduct, prevent its recurrence, and impose discipline on the wrongdoers, in each case, as the Committee deems appropriate.
These actions may include without limitation, to the extent permitted by governing law, requiring reimbursement of compensation, causing the cancellation of outstanding restricted stock or deferred stock awards, stock options, and other equity incentive awards, limiting future awards or compensation, and requiring the disgorgement of profits realized from the sale of Agilent stock to the extent such profit was, in part or in whole, resulting from fraud or misconduct. The Compensation Committee will amend the policy, as necessary, to comply with the final SEC rules regarding the recoupment policies of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
| | | Hedging and Insider
Trading Policy
| | In 2010, our insider trading policy was updated to expressly bar ownership of financial instruments or participation in investment strategies that hedge the economic risk of owning Agilent stock. We also prohibit officers and directors from pledging Agilent securities as collateral for loans. In addition, we prohibit our officers, directors and employees from purchasing or selling Agilent securities while in possession of material, non-public information, or otherwise using such information for their personal benefit. Our executives and directors are permitted to enter into trading plans that are intended to comply with the requirements of Rule 10b5-1 of the Securities Exchange Act of 1934 so that they can prudently diversify their asset portfolios and exercise their stock options before their scheduled expiration dates.
| | | A Culture of Ownership
| | Our stock ownership guidelines are designed to encourage our NEOs and other executive officers to achieve and maintain a significant equity stake in Agilent and more closely align their interests with those of our stockholders. The guidelines provide that the CEO should accumulate and hold, within five years from election to his or her position, an investment level in our stock equal to a multiple of six times his or her annual base salary. The guidelines further provide that the COO, CFO and other executive officers should accumulate and hold, within five years from appointment to their executive officer positions, an investment level in our stock equal to the lesser of either (1) a multiple of three times their annual base salary or (2) direct ownership of a certain level of shares of Agilent stock.
The investment level as a multiple of annual base salary or direct ownership guidelines is set forth below:
| | | | | Level | Investment Level =
Multiple of Annual
Base Salary | | Direct Ownership of
Agilent Stock
(# of Shares) | | | | | CEO | 6X | | | N/A | | | | | | CFO/COO | 3X | | | 80,000 | | | | | | All other executive officers | 3X | | | 40,000 | | | | | | | | | | | | | | | | An annual review is conducted to assess compliance with the guidelines. By the end of fiscal year 2014, all of our NEOs had either met or were on track to reach their stock ownership guideline requirements within the applicable timeframe.
| | | Risk Assessment
| | F.W. Cook conducts an annual review of Agilent’s compensation related risks. The risk assessment conducted during fiscal year 2014 confirmed that Agilent’s executive compensation program is well designed to encourage behaviors aligned with the long-term interests of shareholders. F.W. Cook also found an appropriate balance in fixed versus variable pay, cash and equity, corporate, business unit, and individual goals, financial and non-financial performance measures, and formulas and discretion. Finally, it was determined that there are appropriate policies in place to mitigate compensation-related risk, including stock ownership guidelines, insider-trading prohibitions, the Executive Compensation Recoupment Policy, and independent Compensation Committee oversight.
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TableIndependent Compensation Committee and Consultant
The Compensation Committee is composed solely of Contents | COMPENSATION DISCUSSION AND ANALYSIS
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Process for Determining Compensationindependent members of the Board and operates under a Board-approved charter which outlines the Committee’s major duties and responsibilities. This charter is available on our Investor Relations website.
For fiscal year 2014,2016, the Compensation Committee retained F.W. Cook as its independent compensation consultant. F.W. Cook performs nodoes not perform any other work for Agilent,us, does not trade Agilent stock;our stock, has an Independence Policyindependence policy that is reviewed annually by F.W. Cook’s Board of Directors;Directors, and proactively notifies the Compensation Committee chair of any potential or perceived conflicts of interest. The Compensation Committee found no conflict of interest with F.W. Cook during fiscal year 2014.2016. For fiscal year 2016, F.W. Cook advised the Compensation Committee on a number of compensation matters, including but not limited to: Criteria used to identify peer companies for executive compensation and performance metrics; Evaluation of our total direct compensation levels and mix for the NEOs and four other senior officers; Mix of long-term incentives, grant types and allocation of equity awards; Review of various other proposals presented to the Compensation Committee by management; and Support for stockholder outreach campaign. Process for Determining Compensation To determine total compensation for the upcoming fiscal year, the Compensation Committee considers 1) considered: the performance of each individual executive for the last fiscal year, 2) year; the most recent peer group data from F.W. Cook, and 3) Cook; 27
| COMPENSATION DISCUSSION AND ANALYSIS |
| • | our business and strategic goals for the coming fiscal year; and |
detailed tally sheets for the coming fiscal year. CEO and each NEO. F.W. Cook presents and analyzes market data for benchmarking each individual position and provides insight to market practices for the Compensation Committee’s actions, but it does not make any specific compensation recommendations on the individual NEOs. The Compensation Committee determines the form and amount of compensation for all executive officers after considering the market data and company, business unit and individual performance. NEO Compensation Peer Group Each year, the Compensation Committee meets with F.W. Cook to review and approve the peer group companies that satisfy our selection criteria. For fiscal year 2014, F.W. Cook advised2016, our peer group for NEO compensation consisted of those competitors in the Compensation Committee onS&P 500 Health Care Sector with revenues between 0.25x and 2.5x times our projected revenue, supplemented with two of our most direct competitors (Thermo Fisher and Danaher) resulting in a numberpeer group of 27 companies. The range of annual revenues for peer group members was determined so that our annual revenue would be around the median of the peer group. We used this peer group data, targeting the market median in aggregate, to set each NEO’s compensation matters, including but not limited to:for fiscal year 2016. Our peer group used for establishing fiscal year 2016 NEO compensation consists of the following 27 companies: ● | Criteria used to identify peer companies for executive compensation and performance metrics; | | | •Alexion Pharma | •Danaher | •Mallinckrodt | •Stryker | ●•Bard (C.R.) | Evaluation of our total direct compensation levels and mix for the NEOs and four other senior officers;•DENTSPLY Intl | •Mylan | •Thermo Fisher | •Becton, Dickinson | •Edwards Lifesciences | •PerkinElmer | •Varian Medical Systems | ●•Biogen | Mix of long-term incentives, grant types and allocation of stock options and full value shares;•Endo International | •Perrigo | •Waters | •Boston Scientific | •Hospira | •Quest Diagnostics | •Zimmer Holdings | ●•Celgene | Reviewing various other proposals presented to the Compensation Committee by management; and•Intuitive Surgical | •Regeneron Pharma | •Zoetis | •Cerner | | ●•Lab Corp of America | Guidance on CEO transition planning.•St. Jude Medical | |
The Compensation Committee also reviews detailed tally sheetsPeer Group for the CEO and other NEOs. Tally sheets used for 2014 included all elements of executive compensation listed in the section under “Fiscal Year 2014 Compensation”, including potential compensation to our NEOs in the event of a change of control.Long-Term Performance Program
The Compensation Committee whichbelieves that an expanded peer group is composed solely of independent membersmore appropriate for determining relative TSR under the company’s LTPP, as an expanded peer group provides a broader index for comparison and better alignment with stockholder investment choices. Therefore, the Compensation Committee uses the approximately 80 companies in the Health Care and Materials Sectors Indexes of the Board, operatesS&P 500 plus Danaher Corporation, for determining TSR under a Board-approved charterthe LTPP. Only companies that spells outare included in one of these sectors at the Committee’s major dutiesbeginning of the performance period and responsibilities. This charterhave three years of stock price performance at the end of the performance period are included in the final calculation of results. Any change in the expanded peer group is available on Agilent’s website at http://www.investor.agilent.com/ phoenix.zhtml?c=103274&p=irol-govhighlights.solely due to Standard & Poor’s criteria for inclusion in the index. Role of Management The CEO and the Senior Vice President, Human Resources consider the responsibilities, performance and capabilities of each of the Company’sour executive officers, including the NEOs, other than the CEO, and what compensation package they believe will attract, retain and motivate. The Senior Vice President, Human Resources does not provide input on setting his own compensation. A comprehensive analysis is conducted using a combination of the market data based on our NEO compensation peer group and survey data, performance against targets, and overall performance assessment. This data and analysis is used as the primary consideration to determine if an increase in compensation is warranted and the amount and type of any increase for each of the total compensation components for the then-current fiscal year. After consulting with the Senior Vice President, Human Resources, the CEO makes compensation recommendations, other than for his own compensation, to the Compensation Committee at theits first Compensation Committee meeting of the fiscal year. 28
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Benchmarking
NEO Compensation Peer Group
At the beginning of each fiscal year, the Compensation Committee meets with F.W. Cook to review and approve the peer group companies that satisfy our selection criteria. F.W. Cook has been the Compensation Committee’s consultant for a number of years. The peer group used for setting fiscal year 2013 NEO target compensation consisted of 29 product, capital market and labor market competitors with revenues between $1.8 billion and $18 billion or between 0.25x and 2.5x times Agilent’s revenue of approximately $7 billion for fiscal year 2013. Using the same criteria as noted above, the peer group used for setting fiscal year 2014 NEO target compensation, as noted below, consists of 28 companies. The range of annual revenues for peer group members was determined so that Agilent’s size measured in annual revenue would be at the median of the peer group. The 28 companies are all in the S&P 500 Information Technology, Health Care and Industrials Sector. A comparison between the old and new comparator groups showed an insignificant statistical impact on compensation levels between the two groups. F.W. Cook used the compensation information reported in the public filings of our peer group companies and survey data to make our comparisons and adjusted the data to reflect the age of the reported information. We used this peer group data, targeting the market median, to set each NEO’s compensation for FY14.
FISCAL YEAR 2014 NEO COMPENSATION PEER GROUP(1)
Bard (C.R.) | Harris Corporation | PerkinElmer | Stryker | Baxter International Inc. | JDS Uniphase | Precision Castparts | Textron | Becton Dickinson | Juniper Networks, Inc. | Qualcomm, Inc. | Thermo Fischer Scientific, Inc. | Boston Scientific Corporation | L-3 Communications | Rockwell Automation | Tyco International | Carefusion | Life Technologies Corporation | Rockwell Collins Inc. | Varian Medical Systems | Covidien PLC | Medtronic | Roper Industries | Waters | Danaher | Motorola Solutions | St Jude Medical Inc. | Zimmer Holdings, Inc. |
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(1) | | Cooper Industries no longer existed as a standalone company and was removed from the peer group in fiscal year 2014. |
In anticipation of the company separation on November 1, 2014, the Compensation Committee and F.W. Cook reviewed and approved the future peer group selection criteria for Agilent and Keysight. For Agilent, the peer group to be used for setting fiscal year 2015 NEO compensation will consist of product, capital market and labor market competitors in the S&P 500 Health Care Sector with revenues between $1.8 billion and $10 billion or between 0.25x and 2.5x times Agilent’s projected revenue. Keysight’s new peer group will consist of product, capital market and labor market competitors in the following Russell 3000 GICS sub-industries; Communications Equipment, Computer Storage & Peripherals, Electrical Components & Equipment, Electronic Components, Electronic Equipment & Instruments, Electronic Manufacturing Services and Semiconductor Equipment; with revenues between $1 billion and $9 billion or between 0.33x and 3x Keysight’s projected revenue.
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The new peer groups identified by each company’s new selection criteria will take effect for fiscal year 2015 when Agilent and Keysight are separate companies. However, the Compensation Committee considered these future peer groups when making NEO compensation decisions for fiscal year 2014. The Committee found that the new peer groups for Agilent and Keysight had similar executive compensation philosophies and programs, and that compensation for Agilent’s NEOs was in line with the peer groups identified for each company following the separation on November 1, 2014. For Agilent, this new peer group consisted of 30 companies in the S&P 500 Health Care sector listed in the table below.
Actavis | Celgene | Intuitive Surgical | St. Jude Medical | Alexion Pharma | Cerner | Lab Corp of America | Stryker | Allergan | DaVita HealthCare | Life Technologies | Varian Medical Systems | Bard (C.R.) | DENTSPLY Intl | Mylan | Waters | Becton, Dickinson | Edwards Lifesciences | PerkinElmer | Zimmer Holdings | Biogen Idec | Forest Labs | Perrigo | Zoetis | Boston Scientific | Gilead Sciences | Quest Diagnostics | | CareFusion | Hospira | Regeneron Pharma | |
For Keysight, the new peer group consisted of 27 companies in the Russell 3000 Information Technology sector listed below. This peer group was considered when determining pay for Mr. Nersesian.
AMETEK | F5 Networks | Lam Research | Rockwell Automation | Amphenol | Harris | Molex | Roper Industries | Applied Materials | Hubbell | Motorola Solutions | SanDisk | Benchmark Electronics | Itron | National Instruments | Sanmina | Brocade Comms Sys | JDS Uniphase | NetApp | Teradyne | Ciena | Juniper Networks | Plexus | Vishay Intertechnology | Echostar | KLA-Tencor | Regal-Beloit | |
Peer Group for the Long-Term Performance Program
The Compensation Committee believes that an expanded peer group is more appropriate for determining relative TSR under the Company’s Long-Term Performance (“LTP”) Program, as an expanded peer group provides a broader index for comparison and better alignment with shareholder investment choices. Therefore, the Compensation Committee uses the companies in the S&P 500, Health Care, Materials and Industrials Sectors Indexes (approximately 150 companies) for determining TSR under the LTP Program. Awards issued in FY12 and FY13 were measured against the S&P 500 Health Care, Industrials and Information Technologies Sectors. The S&P 500 constituent list is maintained by the S&P Index Committee, which is available at www.standardandpoors.com/ indices/main/en/us. Any change in the expanded peer group is due to Standard & Poor’s criteria for inclusion in the index.
CEO Compensation The Compensation Committee establishes the CEO’s compensation based on a thorough review of the CEO’s performance that includes: (i) an An objective assessment against agreed-topredetermined metrics set by the Compensation Committee; (ii) tally sheets, (iii) market Market data from F.W. Cook, (iv) aCook; A self-evaluation by the CEO that the Compensation Committee discusses with the independent directors; and (v) a A qualitative evaluation of the CEO’s performance that is developed by the independent directors, including each member of the Compensation Committee, in executive session. The Compensation Committee reviews the CEO’s total direct compensation package is reviewed annually by the Compensation Committee, which thenand presents its recommendation to the other independent directors for review and comment. The Compensation Committee then makescomment before making the final determinations on compensation for the CEO.
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Fiscal Year 20142016 Compensation For fiscal year 2014, we targeted our NEO compensation in aggregate at the median of the peer group. Compensation was set for each NEO based upon individual performance, experience and time in position. The Compensation Committee believes the targeted compensation is appropriate to attract, retain and motivate our executives as well as to provide competitive rewards for job performance, skill set, prior experience, time in the position and/or with Agilent, and superior achievement in current business conditions.
Our executives’ total compensation packages reflect Agilent’s philosophy of aligning pay with performance and rewarding top talent. Accordingly, long-term incentive awards, which for fiscal year 2014 consisted primarily of stock options that vest 25% per year for four years and performance-based stock awards that vest 100% at the conclusion of a three-year performance period, represent the largest element of pay for senior executives in order to encourage creation of lasting value for our stockholders by directly tying executive compensation to our success and our stockholders’ interests.
For fiscal year 2014, approximately 81% of our CEO’s and 53% of our NEOs’ total direct compensation consisted of long-term incentives and is “at-risk”— which means that this component varies year to year depending on Agilent’s stock price and TSR versus our peers.
CEO
| | Average of other NEOs
| | | | | | |
Base Salary Our salaries reflect the responsibilities of each NEO, the competitive market for comparable professionals in our industry, and are set to create an incentive for executives to remain with Agilent.us. Base salaries and benefits packages are the fixed components of our NEOs’ compensation and do not vary with company performance. Each NEOs’ base salaries aresalary is set by considering benchmark market data as well as the performance of eachsuch NEO. Our NEOs’ For fiscal year 2016, NEO base salaries for fiscal year 2014 were on average belowbetween the 5025th and 45th percentile, which we feel is appropriate since a majority of our peer group. In November 2013, the Compensation Committee increased the base salary for Mr. McMullen from $575,000NEOs are relatively new to $600,000 to compensate him appropriately against his respective peers. Mr. McMullen received another salary increase in September 2014 from $600,000 to $700,000 to reflect his promotion to President and Chief Operating Officer. Mr. Nersesian’s salary increased from $750,000 to $800,000 to reflect his role as CEO Designate for Keysight Technologies.their positions.
Name | FY15 Salary | FY16 Salary | Increase | Percentile | Michael R. McMullen | $950,000 | $1,050,000 | 11% | 38th | Didier Hirsch | $600,000 | $600,000 | 0% | 45th | Mark Doak | $425,000 | $475,000 | 12% | 25th | Patrick Kaltenbach | $475,000 | $500,000 | 5% | <25th | Jacob Thaysen | $400,000 | $440,000 | 10% | 28th |
Short-Term Cash Incentives The Performance-Based Compensation Plan appliesreflects our pay-for-performance philosophy and directly ties short-term incentives to our NEOs and provides the opportunity for cashshort-term business performance. These awards every six monthsare linked to specific six-monthannual financial goals and annual strategic goalskey business initiatives for the overall company and the three major lines of business for fiscal year 2014, EMG, CAGgroups (LSAG, ACG and LDG.DGG). Annual cash incentives are paid to reward achievement of critical shorter-term operating, financial and strategic measures and goals that are expected to contribute to shareholderstockholder value creation over time. Financial goals for each six-month period are pre-established by the Compensation Committee at the
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beginning of the period, based on recommendations from management. The financial goals are based on Agilent’sour fiscal year 20142016 financial plan established by the Board of Directors. AfterDirectors and cannot be changed after they have been approved by the Compensation Committee. The Compensation Committee certifies the calculations of performance against the goals for each period and payouts, if any, are made in cash. Metrics and goals cannot be changed after they have been approved by the Compensation Committee. The Performance-Based Compensation Plan reflects our pay-for-performance philosophy and directly ties short-term incentives to short-term business performance. Our NEOs’ target bonus amounts were on average slightly above the 50th percentile. For fiscal year 2014,2016, the awards under the Performance-Based Compensation Plan were calculateddetermined by multiplying the individual’s base salary for the performance period by the individual’s target award percentage and the performance determinedresults, as follows: H1
Financial | Annual
Salary / 2 | X | | | | | | Financial Goals | Annual Salary | X | Individual Target Bonus
(varies % (varies by individual) | X | Financial Portion of Target Bonus
(50%75% to 100%) | X | Attainment %
(based on actual performance) | Financial
H2 | FY
Strategic Key Business Initiatives | Annual Salary | X | Individual Target Bonus
(varies % (varies by individual) | X | Strategic Portion of Target Bonus
(0% to 50%25%) | X | Attainment %
(based on actual performance) |
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Target Award Percentages and FY16 Actual Payouts Our Compensation Committee set the fiscal year 2016 short-term incentive target amounts based on a percent of base salary pre-established for each NEO and considered the relative responsibility of each NEO. For fiscal year 2016 our NEO’s short-term incentive target bonuses were set between 80% and 120% of base salary (depending on position). The payouts under the Performance-Based Compensation Plan for fiscal year 20142016 are provided in the table below and in the “Non-Equity Incentive Plan Compensation” column in the “Summary Compensation Table”. | | | | | | | | | | Annual FY14 | | | | | | | First Half FY14 | | Second Half FY14 | | Strategic Objectives | | Actual Short-Term | | | Target | | Actual | | Target | | Actual | | Target | | Actual | | Incentives Paid for | | | Incentive | | Award | | Incentive | | Award | | Incentive | | Award | | the Fiscal Year | Name | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | William P. Sullivan | | $590,625 | | $484,194 | | $590,625 | | $359,395 | | $393,750 | | $787,500 | | | $1,631,089 | | Didier Hirsch | | $120,000 | | $98,376 | | $120,000 | | $73,020 | | $240,000 | | $462,000 | | | $633,396 | | Marie Oh Huber | | $98,438 | | $80,699 | | $98,438 | | $59,899 | | $196,875 | | $354,375 | | | $494,973 | | Michael R. McMullen | | $240,000 | | $217,534 | | $291,830 | | $249,643 | | $0 | | $0 | | | $467,177 | | Ronald S. Nersesian | | $375,000 | | $260,888 | | $375,000 | | $156,263 | | $250,000 | | $500,000 | | | $917,151 | |
Target Award PercentagesTable,”
Our Compensation Committee set the monetary value of the fiscal year 2014 short-term incentive targets based on a percent of base salary pre-established for each NEO. The Compensation Committee also considered the relative responsibility of each NEO. Each NEO’s short-term incentive target for fiscal year 2014 was set between 75% and 150% of base salary (depending on his/her position), as follows:
| Annual FY16 Financial Goals | | Annual FY16 Key Business Initiatives | Target Short- Term Incentive | Actual Short-Term Incentives Paid | | Target Bonus | Target Incentive | Actual Award | | Target Incentive | Actual Award | for the Fiscal Year | for the Fiscal Year | Name | (%) | ($) | ($) | | ($) | ($) | ($) | ($) | Michael R. McMullen | 120% | 945,000 | 972,783 | | 315,000 | 365,400 | 1,260,000 | 1,338,183 | Didier Hirsch | 80% | 480,000 | 494,112 | | - | - | 480,000 | 494,112 | Mark Doak | 80% | 285,000 | 324,273 | | 95,000 | 152,594 | 380,000 | 476,867 | Patrick Kaltenbach | 80% | 300,000 | 281,085 | | 100,000 | 137,000 | 400,000 | 418,085 | Jacob Thaysen | 80% | 264,000 | 288,539 | | 88,000 | 63,800 | 352,000 | 352,339 |
Fiscal Year 2014 Short-Term Incentive Payout Table*
| | Expressed as a % of base salary | | | First Half FY14 | | Second Half FY14 | | Annual FY14 Strategic Objectives | | Total Target Short-Term Incentives for FY14 | Name | | Target Award | | Actual Award | | Target Award | | Actual Award | | Target Award | | Actual Award | | Target Award | | Actual Award | William P. Sullivan | | | 56% | | | | 46% | | | | 56% | | | | 34% | | | | 38% | | | | 75% | | | | 150% | | | | 155% | | Didier Hirsch | | | 20% | | | | 16% | | | | 20% | | | | 12% | | | | 40% | | | | 77% | | | | 80% | | | | 106% | | Marie Oh Huber | | | 19% | | | | 15% | | | | 19% | | | | 11% | | | | 38% | | | | 68% | | | | 75% | | | | 94% | | Michael R. McMullen | | | 40% | | | | 36% | | | | 48% | | | | 41% | | | | 0% | | | | 0% | | | | 88% | | | | 77% | | Ronald S. Nersesian | | | 47% | | | | 33% | | | | 47% | | | | 20% | | | | 31% | | | | 63% | | | | 125% | | | | 115% | |
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* | | Financial performance is measured and paid out each fiscal half; performance against strategic objectives is measured and paid out annually. |
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Mr. Sullivan’s fiscal year 2014 bonus of $1,631,089 reflects our below target fiscal year 2014 financial results and the successful spin-off of Keysight resulting in above target performance for Mr. Sullivan’s strategic objective for the fiscal year.
Financial Target MetricsGoals and Fiscal Year 20142016 Operational Results The Performance-Based Compensation Plan financial target metricsgoals were based on (1) Agilent’s Operating Profit Percentageour ROIC percentage and Agilent’sour revenue goals for Mr. Sullivan, Mr. Hirsch and Ms. Huber and (2) the respective business unit’s Operating Profit PercentageROIC and revenue goals for Mr. McMullen and Mr. Nersesian. In addition, 30% of Mr. McMullen’s target bonus for each of the first half and second half of fiscal year 2014 was also subject to financial metrics and targets of the combined Chemical Analysis and Life Sciences groups (“CAG/LDG”) so as to facilitate co-operation between CAG and LDG. business units. The Compensation Committee chose those metrics because: ● | Revenue places focus on our continued growth; and
| ● | Operating Profit emphasizes innovation, profitability and efficiency in our core business operations. |
Operating Profit (segment level) is a non-GAAP measure defined as revenue lessROIC emphasizes efficient use of capital and sound portfolio management; and
Revenue places focus on delivering superior long-term growth. The financial targets that must be met to receive the sum of cost of products and services, research and development expense and selling, general and administrative expenses.target payout are based on our business plan. To determine earned awards, we use payout matrices that link the metrics and reflect threshold-to-maximum opportunities based on various achievement levels of the metrics. No awards are paid unless the Operating Profit PercentageROIC threshold is achieved. Theachieved and the maximum award under the plan is capped at 200% of the target award. The target metrics set for our short-term incentives and their corresponding results were as follows: First Half FY14 | | | Operating Profit % | | Revenue | | | Threshold | | Target | | Max | | Results | | Achievement | | Target (Mil) | | Max (Mil) | | Results (Mil) | | Achievement | Agilent | | 14% | | 19% | | 23% | | 18% | | Below Target | | $3,511 | | $3,863 | | $3,410 | | Below Target | EMG | | 15% | | 19% | | 23% | | 18% | | Below Target | | $1,485 | | $1,633 | | $1,414 | | Below Target | LDA | | 14% | | 19% | | 22% | | 18% | | Below Target | | $2,027 | | $2,229 | | $1,996 | | Below Target | CAG* | | 18% | | 22% | | 26% | | 22% | | At Target | | $1,173 | | $1,290 | | $1,170 | | Below Target | LDG | | 11% | | 16% | | 20% | | 15% | | Below Target | | $1,194 | | $1,313 | | $1,168 | | Below Target | | Second Half FY14 | | | Operating Profit % | | Revenue | | | Threshold | | Target | | Max | | Results | | Achievement | | Target (Mil) | | Max (Mil) | | Results (Mil) | | Achievement | Agilent | | 18% | | 22% | | 25% | | 20% | | Below Target | | $3,709 | | $4,080 | | $3,571 | | Below Target | EMG | | 19% | | 23% | | 26% | | 20% | | Below Target | | $1,596 | | $1,755 | | $1,519 | | Below Target | LDA | | 16% | | 21% | | 24% | | 20% | | Below Target | | $2,113 | | $2,324 | | $2,052 | | Below Target | CAG* | | 20% | | 24% | | 28% | | 24% | | At Target | | $1,214 | | $1,335 | | $1,205 | | Below Target | LDG | | 14% | | 18% | | 22% | | 17% | | Below Target | | $1,253 | | $1,378 | | $1,204 | | Below Target |
Note: There are no thresholds for Revenue metrics. | | | ROIC % | | Revenue $ | | | | | | | | | | | Threshold | | Target | | Max | Results | Goal Attainment | | Target (Mil) | | Max (Mil) | | Results (Mil) | Goal Attainment | Payout Percentage (Per Matrix) | | Agilent | | 8.3% | | 12.4% | | 14.5% | 12.5% | 101% | | $4,190 | | $4,399 | | $4,200 | 100% | 103% | | LSAG | | 12.3% | | 17.7% | | 20.4% | 16.9% | 95% | | $2,114 | | $2,220 | | $2,071 | 98% | 85% | | ACG | | 25.3% | | 34.3% | | 38.7% | 35.6% | 104% | | $1,378 | | $1,447 | | $1,420 | 103% | 125% | | DGG | | 1.8% | | 3.1% | | 3.8% | 3.3% | 106% | | $698 | | $733 | | $708 | 101% | 116% |
*ROIC is a non-GAAP measure defined as Earnings Before Interest and After Taxes (operating profit plus other income minus taxes) divided by Average Invested Capital
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* | | CAG targets and results are based on CAG Divisions plus all CAG/LDG Consumables plus all CAG/LDG Services. |
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Strategic ComponentPayout Matrices to Measure Financial Metrics
We use payout matrices to determine payout percentages for our FY16 short-term incentive program. The payout matrices are designed to reward profitable growth and Fiscal Year 2014revenue growth by increasing payout percentages commensurate with increased ROIC and / or revenue achievement as illustrated in the table below. | | | | | FY16 - Revenue Achievement (% of plan) | | | | | | | 0 - 90% | | | 96.0% | | | 100% | | | 103.0% | | | 105.0% | | | | | 117% | | | 120.00% | | | 138.00% | | | 150.00% | | | 180.00% | | | 200.00% | | FY16 - ROIC | | | 109% | | | 105.88% | | | 118.24% | | | 126.47% | | | 142.35% | | | 152.94% | | Achievement | | | 101% | | | 91.76% | | | 98.47% | | | 102.94% | | | 104.71% | | | 105.88% | | (% of plan) | | | 100% | | | 90.00% | | | 96.00% | | | 100.00% | | | 100.00% | | | 100.00% | | | | | 67% | | | 10.00% | | | 13.00% | | | 15.00% | | | 18.00% | | | 20.00% | |
Note: This specific payout matrix was used to determine the company level payout percentage. The payout percentage is determined by finding the intersection between goal attainments as a percentage of plan for each financial metric. Payout percentages are assigned to each intersection of Revenue and ROIC throughout the payout matrix. Payouts between the numbers represented in the table above are calculated on a linear payout matrix and threshold amounts for both Revenue and ROIC must be met in order for a payout to be made. Payout matrices vary by business group. Key Business Initiatives – Targets and Results For fiscal year 2014,2016, under the Performance-Based Compensation Plan, we continued to utilize annual strategic goalskey business initiatives to align each NEO’sNEOs’ objectives with strategic company priorities. In fiscal year 2014, each NEO except Mr. McMullen was measured onThese key business initiatives are established at the strategic objective of successfully completingsame time as the spin-off of Keysight Technologies. Mr. McMullen was measured entirely on financial metrics to focus his group on revenue growthgoals and profit. Mr. Hirsch and Ms. Huber had additional strategic objectives related to fiscal year 2014 expenses and fiscal year 2015 forecast. The strategic component is established within the time prescribed by Section 162(m) of the Internal Revenue Code and is determined on an annual basis. The strategic component accountsaccount for 25% to 50% of the total target bonus for each NEO who was assigned strategic objectives.to key business initiatives. The maximum payout per NEO for satisfaction of the strategic component is the lesser of (1) up to 200% of strategic objectivekey business initiative performance results or (2) 0.5%0.75% of non-GAAP pre-tax earnings, and the Compensation Committee may exercise negative discretion to the maximum payout to determine the strategic award percentage. Non-GAAP pre-tax earnings is defined as earnings before income taxes that exclude primarily the impact of acquisition and integration costs, acquisition fair value adjustments, restructuring and asset impairment charges, business acquisition and separation costs, transformational initiatives, non-cash intangibles amortization as well as gainsbusiness exit and lossesdivestiture costs. Fiscal year 2016 key business initiatives were selected to focus NEOs on strategic priorities such as revenue growth in specific markets and products, customer satisfaction scores and regulatory compliance. The following table (1) describes each key business initiative, including the threshold, target and maximum achievement levels for each (2) identifies the NEOs who were assigned to each key business initiative, and (3) reports the final attainment and payout percentage for each objective. If an NEO is assigned to more than one objective, the weighting is equally distributed. For competitive purposes, specific threshold, target and maximum amounts are not shown in the descriptions that follow. Officer Assigned | | FY16 Key Business Initiative Description | Threshold (50%) | Target (100%) | Maximum (200%) | Attainment | Payout Percentage | Mr. Doak | | Agilent Customer Satisfaction Q4 FY16 exit Brand Survey Index Score | 20% below plan 96% of plan | Achieve Plan Achieve Plan | 40% above plan 104% of plan | 8% below plan 1% below plan | 83% | Mr. Doak | | On-Line Order growth | 70% of plan | Achieve Plan | 150% of plan | 130% of plan | 160% | Messrs. McMullen, Doak and Kaltenbach | | BioPharma Revenue growth | 80% of plan | Achieve Plan | 125% of plan | 175% of plan | 200% | Messrs. McMullen, Doak and Kaltenbach | | China Revenue growth (LSG / ACG) | 67% of plan | Achieve Plan | 133% of plan | 267% of plan | 200% | Messrs. McMullen and Kaltenbach | | Project Secretariat Growth | 87% of plan | Achieve Plan | 113% of plan | 73% of plan | 0% | Mr. Kaltenbach | | Cost of Poor Quality | 7% below plan | Achieve Plan | 10% above plan | 10% above plan | 200% | Messrs. McMullen, Kaltenbach and Thaysen | | Regulatory Compliance | Below Plan | Achieve Plan | Exceed Plan | 85% of plan | 85% | Messrs. McMullen and Thaysen | | China Revenue growth (DGG) | 60% of plan | Achieve Plan | 140% of plan | 96% of plan | 95% | Mr. Thaysen | | SureSelect Revenue growth | 75% of plan | Achieve Plan | 150% of plan | 105% of plan | 110% | Mr. Thaysen | | IHC Instrument capacity | 67% of plan | Achieve Plan | 167% of plan | 0% of plan | 0% |
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| COMPENSATION DISCUSSION AND ANALYSIS |
Actual payout tables for key business initiatives use a straight-line payout slope from threshold to target and from target to maximum. Final payouts for each business initiative are recommended by the sale of investmentsCEO and disposals of businesses.approved by the Compensation Committee. Long-Term Incentives
CEO Key Business Initiatives Performance Highlights – Stock Options and Performance Stock Units116% Payout Percentage
For fiscal year 2016, Mr. McMullen was assigned five key business initiatives directly aligned with our strategic growth plan. The results for each of these initiatives varied and are explained in more detail below: BioPharma Revenue Growth: BioPharma benefitted from an unforeseen, strong pharma investment cycle. We created a market specific program with strong organizational focus which benefitted from a strong LC Infinity II portfolio. We established the BioPharma program in FY15 and this is the first full year of focused execution and measurement of this program. China Revenue Growth (LSAG/ACG): Our aim was to strengthen our market-leading position in China. We expanded our service and support footprint resulting in an increase in revenue in China. China Revenue Growth (DGG): Revenue growth in China for this business segment performed well but did not quite meet financial plan. Project Secretariat Growth: Revenue growth for this focus area did not meet the threshold goal established. Project Secretariat has been established as a key business initiative again for fiscal year 2017 to continue focus on this key growth area. Regulatory Compliance: We implemented new processes and procedures to improve regulatory readiness. Some deliverables were delayed compared to original plan. Long-Term Incentives – Performance Stock Units and Restricted Stock Units Performance Stock Units Earned in Fiscal Year 2016 The performance stock units granted in fiscal year 2014 were measured based on relative TSR versus all companies in the S&P 500 Health Care, Industrials and Materials Sectors for fiscal years 2014 through 2016. The company did not establish an absolute TSR target as we believe performance is best measured on a relative basis against our selected peer group. Our performance as compared to the peer group was as follows: | | | | | | | | | Peer Group TSR | | Payout Percentage | | | | | | | | 75th Percentile | | 58.8% | | 200% | | Median | | 28.5% | | 100% | | 25th Percentile | | 7.4% | | 25% | | Agilent | | 27.6% | | 96% |
In November 2016, the Compensation Committee grantedcertified the TSR results and approved the payout at 96% for the FY14-FY16 performance period that ended on October 31, 2016, as follows: | | Target Awards (Shares) | | Target Award (Shares) After Adjustment / Conversion (1) | | Payout at 96% (Shares) | | Cash Value of Payout at 96% ($) | Michael R. McMullen | | 25,345 | | 34,689 | | 33,300 | | 1,537,794 | Didier Hirsch | | 15,565 | | 21,303 | | 20,450 | | 944,381 | Mark Doak | | 6,383 | | 8,736 | | 8,385 | | 387,219 | Patrick Kaltenbach | | 1,915 | | 2,621 | | 2,516 | | 116,189 | Jacob Thaysen | | 3,831 | | 5,243 | | 5,033 | | 232,424 |
| (1) | The target awards were adjusted following the November 2014 spin-off of Keysight Technologies to retain the original target value. |
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| COMPENSATION DISCUSSION AND ANALYSIS |
Our TSR performance relative to peers and the payout percentages for the LTPP for the past five years are set forth below: Fiscal Year | Agilent TSR Relative Rank to Peer Group | Payout Percentage | 2014 - 2016 | 48.8% | 96.0% | 2013 - 2015 | 23.2% | 0.0% | 2012 - 2014 | 39.7% | 69.0% | 2011 - 2013 | 45.8% | 87.0% | 2010 - 2012 | 46.9% | 91.0% |
Long-Term Incentives Granted in Fiscal Year 2016 The Compensation Committee decided to place more emphasis on performance awards in fiscal year 2016, with 60% of the annual NEO grants consisting of performance awards, as opposed to 50% from the prior fiscal year. Stock options were eliminated and restricted stock units were added as retention. The target value of the long-term incentives with target values for each NEO that were on average just abovebetween the 50th30th and 61st percentile of our peer group. Stock grant values were delivered as follows: ●Equity Vehicle | Approximately halfWeighting | Metric | Vesting | Holding Period | Methodology for Determining Target Award | Payout Range | | Performance Stock Units | | | 30% | | | Relative Total Shareholder Return | | | 100% after 3rd year | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Performance Stock Units | | | 30% | | | Operating Margin % | | | 100% after 3rd year | | | One-year post-vest holding period | | | Divide the value was intarget award amount by the form of stock options calculated using the Black-Scholes model and 20-day average closing price of our common stock prior to grant. The exercise priceproduct of the option was 20-day average stock price, preceding the closing pricegrant date, multiplied by the applicable accounting valuation | | | Lesser of our common stock on the date of grant. These stock option grants vest 2X share target or 3X dollar target value' | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Restricted Stock Units | | | 40% | | | None | | | 25% each year over four years. 4 years | | | | | | | | | n/a | | ● | The remaining value of the long-term award is a performance stock unit award, delivered under the LTP Program, and determined by dividing the remaining value by the Monte-Carlo valuation factor. The resulting final stock payout award may range from 0 to 200% of the originally set target. These performance stock units vest 100% after the conclusion of the three-year performance period. | | | | | | | | | | | | | | | | | | | |
Targeting approximately half of the long-term incentive value in a stock option and half of the value in performance stock units keeps focus on improving Agilent’s stock price and Agilent’s stock price performance relative to its peers.
The Compensation Committee concluded that 2014 LTP Program awards were not appropriate for Mr. Nersesian given the performance period would extend two years beyond the planned November 2014 separation date for Keysight Technologies. As such, Mr. Nersesian received restricted stock units in lieu of performance stock units in 2014. These restricted stock units vest 25% each year over the next four years.
The target value of the long-term incentive awards is determined at the beginning of the then-current fiscal year for each NEO and is partially derived from the peer group data provided by F.W. Cook.NEO. The target value also reflects the Compensation Committee’s judgment on the relative role of each NEO’s position within Agilent,the company, as well as the performance of each NEO.NEO and peer group data provided by F.W. Cook. In addition to their annual long-term incentive awards, the Compensation Committee awarded Mr. Sullivan and Ms. Huber restricted stock units in the amounts of 40,000 shares and 5,000 shares, respectively. Mr. Sullivan’s award which vests 33% in the first year, 33% in the second year and 34% in the third year, was in recognition of the value of his almost ten years’ experience as a seasoned CEO
| | Number & Type of Award | | | Name | | Performance Stock Units - TSR (#) | | Performance Stock Units - OM (#) | | Restricted Stock Units (#) | | Total Target Value of Long Term-Incentive Awards ($) | Michael R. McMullen | | 44,085 | | 52,143 | | 70,278 | | 6,000,000 | Didier Hirsch | | 19,103 | | 22,595 | | 30,453 | | 2,600,000 | Mark Doak | | 11,388 | | 13,740 | | 18,155 | | 1,550,000 | Patrick Kaltenbach | | 10,286 | | 12,166 | | 16,398 | | 1,400,000 | Jacob Thaysen | | 5,878 | | 6,952 | | 9,370 | | 800,000 |
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| COMPENSATION DISCUSSION AND ANALYSIS |
and the extraordinary demand being made on his time as the company embarked on its year-long separation work, as well as to provide the stability and leadership required to assemble Agilent’s and Keysight’s respective executive teams and make the spin-off a success. Ms. Huber’s award, which vests 25% per year over 4 years, was in recognition of her significant current and anticipated contributionsPerformance Conditions for the separation of Keysight.
| | Number & Type of Award(1) | | Total Target Value | | | Stock Options | | Performance | | Restricted | | of Long Term- | Name | | (#)(1) | | Stock Units (#) | | Stock Units (#) | | Incentive Awards ($) | William P. Sullivan | | | 244,112 | | | | 67,848 | | | | | 40,000 | | | | $10,500,000 | | Didier Hirsch | | | 56,002 | | | | 15,565 | | | | | — | | | | $1,950,000 | | Marie Oh Huber | | | 40,206 | | | | 11,174 | | | | | 5,000 | | | | $1,650,000 | | Michael R. McMullen | | | 53,130 | | | | 33,210 | (2) | | | | — | | | | $2,900,000 | | Ronald S. Nersesian | | | 120,620 | | | | — | | | | | 40,999 | | | | $4,200,000 | |
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(1) | | Regular stock options, performance stock units and restricted stock units were granted on November 20, 2013. | | (2) | | Mr. McMullen received 14,766 performance stock units on November 20, 2013. He was granted an additional 18,444 performance stock units on September 17, 2014 upon his promotion to President and COO. |
Performance Stock Units Granted in Fiscal Year 20142016
The Compensation Committee has established rolling three-year performance periods for determining earned performance stock awards. Relative TSR aligns with stockholder interests as higher TSR results in higher potential returns for stockholders as well as ensuring a correlation between performance and payouts. As noted above, our fiscal year 2016 short-term incentive program focuses on ROIC and revenue, which drive internal business strategies that in turn impact our TSR. The addition of operating margin as a financial metric for 50% of the long-term performance shares provides a direct line of sight for our executives between the company’s financial performance and their long-term incentive rewards. 33
| COMPENSATION DISCUSSION AND ANALYSIS |
Relative TSR Performance Awards The performance stock units granted in fiscal year 20142016 with relative TSR as a metric will be measured and paid out based on relative TSR versus all companies in our new peer group, the Health Care and Materials Sectors Indexes of the S&P 500, plus Danaher for fiscal year 2016 through fiscal year 2018. Since this grant was made, Danaher has been added to the S&P 500 Health Care IndustrialsSector. The peer group companies are established at the beginning of the performance period and Materials Sectors Indexes for fiscal year 2014 through fiscal year 2016.need to have three full years of stock price data to be used in the final relative TSR calculation. The company does not establish an absolute TSR target as we believe performance is best measured on a relative basis against our selected peer group. The performancepayout schedule determined by the Compensation Committee in fiscal year 20142016 was as follows: | | Payout as a | | | %Percentage of | Relative TSR Performance | | | Target | Below 25th25th Percentile Rank (threshold) | | 0% | 0 | % | | 25th25th Percentile Rank | | 25% | 25 | % | | 50th50th Percentile Rank (target) | | 100% | 100 | % | | 75th75th Percentile Rank and Above | | 200% | 200 | % | |
Performance
Relative TSR performance stock units are completely “at-risk” compensation because Agilent’sour performance must be at or above the 25th percentile in order for the individuals to receive a payout. The Compensation Committee has established rolling three-year performance periods for determining earned awards under our LTP Program and uses relative TSR as a single metric. This metric aligns with shareholder interests as higher TSR results in higher potential returns for shareholders as well as ensuring a correlation between performance and payouts. As noted above, our short-term incentive program focuses on Operating Profit Percent and Revenue and they drive internal business strategies that in turn impact our TSR.
For purposes of determining the relative TSR awards, relative TSR reflects (i) the aggregate change in the 20-day average closing price of Agilent’sour stock versus each of the companies in Agilent’s LTP Programour LTPP peer group, each as measured at the beginning and end of the three-year performance period plus (ii) the value (if any) returned to shareholdersstockholders in the form of dividends or similar distributions, assumed to be reinvested quarterlyon distribution date on a pre-tax basis.
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| COMPENSATION DISCUSSION AND ANALYSIS |
Operating Margin Performance Stock Units Earned in Fiscal Year 2014Awards The operating margin performance stock units earnedawards will be determined by calculating the operating margin percentage attained at the end of each of the three fiscal years in the performance period compared to the targets (which were set at the beginning of the three-year performance period). We use non-GAAP operating margin adjusted to exclude material M&A during the performance period, subject to Compensation Committee approval. The final and only payout at the end of fiscal year 2014 were based on relative TSR versus all companies in the S&P 500 Information Technology, Health Care and Industrials Sectors Indexes for fiscal year 2012 through fiscal year 2014. The performance schedule determined by the Compensation Committee in fiscal year 2012 was as follows: | | Payout as a | | | %2018 will be an average of | Performance | | | Target | Below 25th Percentile Rank (threshold) | | | 0 | % | | 25th Percentile Rank | | | 25 | % | | 50th Percentile Rank (target) | | | 100 | % | | 75th Percentile Rank and Above | | | 200 | % | |
Agilent’s TSR performance relative to peers and the payout percentagespercentage for the LTP Program for the past 5 yearseach fiscal year. The threshold, target and maximum numbers are set forth in the following table:table below:
Fiscal Year | Agilent TSR Relative Rank to Peer Group | Payout % | 2012 – 2014 | | 39.7% | | | 69.0% | | 2011 – 2013 | | 45.8% | | | 87.0% | | 2010 – 2012 | | 46.9% | | | 91.0% | | 2009 – 2011 | | 54.9% | | | 120.0% | | 2008 – 2010 | | 59.6% | | | 138.0% | |
| Long-Term Performance Shares Operating Margin Percentage | | Fiscal Year | | Threshold | | Target | | Maximum | | Actual OM% | | Attainment Percentage | | FY16 | | 19.50% | | 20.50% | | 21.50% | | 20.9% | | 140% | | FY17 | | 20.50% | | 21.50% | | 22.50% | | TBD | | TBD | | FY18 | | 21.00% | | 22.00% | | 23.00% | | TBD | | TBD | | Payout | | 25% | | 100% | | 200% | | TBD | | TBD |
The table below sets forth the targeted number of units for the performance period covering fiscal year 2012 through fiscal year 2014 and the shares earned at 69% of target and the cash value of the shares based on the closing price of Agilent’s common stock on November 19, 2014. On November 19, 2014, the Compensation Committee certified the TSR results and approved the payout at 69% for the performance period concluded on October 31, 2014. The payout of these awards was made in November 2014.
Fiscal Year 2012 - 2014 LTP Program Payout Table
| | | | Target Award (Shares) | | | | | | | | | | Target Awards | | After Adjustment/ | | Payout at 69% | | Cash Value of | | | (Shares) | | Conversion(1) | | (Shares) | | Payout at 69% ($)(2) | William P. Sullivan | | 77,828 | | | 106,520 | | | 73,498 | | | $2,998,718 | | | Didier Hirsch | | 17,960 | | | 24,581 | | | 16,960 | | | $691,968 | | | Marie Oh Huber | | 11,973 | | | 16,387 | | | 11,306 | | | $461,285 | | | Michael R. McMullen | | 17,712 | | | 24,242 | | | 16,726 | | | $682,421 | | | Ronald S. Nersesian | | 29,934 | | | 53,726 | | | 37,070 | | | $1,149,170 | (3) | |
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(1) | | The target awards were adjusted following the spin-off of Keysight to retain the original target value. Mr. Nersesian’s target shares were converted to Keysight shares and his award was paid out by Keysight in November 2014. Shares are rounded for display purposes but carried out to three decimal places for final award calculation. | | (2) | | Reflects the fair market value of the shares based on the closing stock price of Agilent’s common stock on November 19, 2014. | | (3) | | Reflects the fair market value of the shares based on the closing stock price of Keysight’s common stock on November 18, 2014. |
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| COMPENSATION DISCUSSION AND ANALYSIS |
Equity Grant Practices The Compensation Committee generally makes grants of stock awards to our NEOs at the first Compensation Committee meeting of our fiscal year. Awards are neither timed to relate to the price of Agilent’sour stock nor to correspond with the release of material non-public information, although grants are generally made when Agilent’sour trading window is open. Grants to current employees are generally effective on the date of the Compensation Committee meeting approving such grants. Grants to new employees, including potential NEOs, are typically made at the next regularly scheduled Compensation Committee meeting following the employee’s start date. The standard vesting schedule for our Equityequity grants is shown100% after the third year for performance grants and 25% per year over four years for restricted stock grants. For awards granted to executive level employees and above, we added a one-year post vest holding period to our long-term performance shares and restricted stock units beginning in the table below.fiscal year 2016.
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Equity Vehicle | Standard Vesting Schedule | Stock Options | 25% each year over four years | Performance Stock Units | 100% after the third year | Restricted Stock Units | 25% each year over four yearsCOMPENSATION DISCUSSION AND ANALYSIS |
If an NEOemployee dies or isbecomes fully disabled, his or her unvested stock options or stock awards fully vest. In addition, when an NEOemployee retires from Agilent,after 55 years of age and 15 years of service, his or her stock options and stock awards continue to vest and any performanceper their original vesting schedule rather than accelerate at termination. We believe continued vesting into retirement better aligns NEO interests with stockholders beyond the date they retire from the company. Performance stock units are earned based on the satisfaction of the performance metrics. Currently, only Mr. SullivanIn addition, within the first 12 months of a performance period, the entire performance stock unit award is pro-rated based upon completion of the first 12 months of the performance period. As of October 31, 2016, Messrs. McMullen, Hirsch and Mr. Hirsch areDoak were entitled to retirement vesting.continued vesting if they retire. Finally, stock options and stock awards vest on a “double-trigger” basis in connection with a change in control as described below. BenefitsAdditional Information
Agilent’sCompensation Risk Controls
F.W. Cook conducts an annual review of our compensation-related risks. The risk assessment conducted during fiscal year 2016 confirmed that our compensation program is well designed to encourage behaviors aligned with the long-term interests of stockholders. F.W. Cook also found an appropriate balance in fixed versus variable pay, cash and equity, corporate, business unit, and individual goals, financial and non-financial performance measures, and formulas and discretion. Finally, it was determined that there are appropriate policies and controls in place to mitigate compensation-related risk, as set forth below: Recoupment Policy We maintain an Executive Compensation Recoupment Policy that applies to all of our executive officers covered by Section 16 of the Securities Exchange Act. Under this Policy, in the event of (1) a material restatement of financial results (wherein results were incorrect at the time published due to mistake, fraud or other misconduct) or (2) fraud or misconduct by an executive officer, the Compensation Committee will, in the case of a restatement, review all short and long-term incentive compensation awards that were paid or awarded to executive officers for performance periods beginning after July 14, 2009 that occurred, in whole or in part, during the restatement period. In the case of fraud or misconduct, the Committee will consider actions to remedy the misconduct, prevent its recurrence, and impose discipline on the wrongdoers, in each case, as the Committee deems appropriate. These actions may include, without limitation: • requiring reimbursement of compensation; • the cancellation of outstanding restricted stock or deferred stock awards, stock options, and other equity incentive awards; • limiting future awards or compensation; and • requiring the disgorgement of profits realized from the sale of our stock to the extent such profit resulted from fraud or misconduct. Hedging and Insider Trading Policy Our insider trading policy expressly prohibits: • ownership of financial instruments or participation in investment strategies that hedge the economic risk of owning our stock; • officers and directors from pledging our securities as collateral for loans; and • officers, directors and employees from purchasing or selling our securities while in possession of material, non-public information, or otherwise using such information for their personal benefit. Our executives and directors are permitted to enter into trading plans that are intended to comply with the requirements of Rule 10b5-1 of the Securities Exchange Act so that they can prudently diversify their asset portfolios and exercise their stock options before expiration.
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| COMPENSATION DISCUSSION AND ANALYSIS |
Stock Ownership Guidelines Our stock ownership guidelines are designed to encourage our NEOs and other executive officers to achieve and maintain a significant equity stake in our company and more closely align their interests with those of our stockholders. The guidelines provide that the CEO and CFO and other executive officers should accumulate and hold, within five years from election to his or her position, an investment level in our stock equal to a multiple of his or her annual base salary or accumulate a direct ownership of our stock as set forth below: | | Investment Level = | | Direct Ownership of | | | Multiple of Annual | | Agilent Stock | | Executive | Base Salary | | (# of Shares) | | CEO | 6X | | N/A | | | CFO | 3X | | 80,000 | | | All other executive officers | 3X | | 40,000 | |
An annual review is conducted to assess compliance with the guidelines. At the end of fiscal year 2016, all of our NEOs had either met or were on track to reach their stock ownership guideline requirements within the applicable timeframe. Benefits Our global benefits philosophy is to provide NEOs with protection and security through health and welfare, retirement, disability insurance and life insurance programs. During fiscal year 2014,2016, the CEO and other NEOs were eligible to receive the same benefits that are generally available to our other Agilent employees. In addition to the company-wide benefits, Agilent’sour NEOs have company-paid financial counseling through a third party service to assist with their personal finances. We believe that providing this service gives our NEOs a better understanding of their pay and benefits, allowing them to concentrate on Agilent’sour future success. NEOs are also provided executive physical examinations, for which we cover the costs that are not otherwise covered under each NEO’s chosen health plan. We believe that the executive physicalFinancial counseling is a prudent measure to help ensure the health of our executives. Both the financial counseling and the executive physicals are benefitsbenefit generally provided by our peer companies and areis available at a reasonable group cost to Agilent.us. Generally, it is our Compensation Committee’s philosophy to not provide perquisites to our NEOs except in limited circumstances. For example, in fiscal year 2014,2016, there were no special perquisites for our NEOs except for financial counseling the executive physicals mentioned above,and the occasional use by executive officers of company drivers to transport them and their family members to the airport for personal travel andtravel. In addition, we provided some relocation expenses for Mr. McMullen.Messrs. McMullen, Kaltenbach and Thaysen to facilitate their relocations to the San Francisco Bay Area from New Jersey, Germany and Denmark, respectively. These perquisites are included in the “All other Compensation” column in the “Summary Compensation Table.” Deferred Compensation Our NEOs on the U.S. payroll are eligible to voluntarily defer base salary, short-term incentives in the form of awards under the Performance-Based Compensation Plan and long-term incentives in the form of stock awards under the LTP Program.LTPP. The deferrals are made through our 2005 Deferred Compensation Plan.Plan, which is available to all active employees on the US payroll whose total target compensation is greater than or equal to $265,000. This is a common benefit arrangement offered by our peer companies.
Tablecompanies, and our plan does not guarantee above market or a specific rate of Contents
| COMPENSATION DISCUSSION AND ANALYSIS |
Payouts are distributed to eligible participants in January of the year following termination of employment, if termination occurs during the first six months of the calendar year. Otherwise, payouts are distributed to eligible participants in July of the year following termination. No early distributions or withdrawals are allowed. If an election is made to defer performance shares earned under the LTP Program, shares are deferred in the form of Agilent common stock only. At the end of the deferral period, the LTP Program shares are simply released to the executive.return on deferrals.
These benefits and an additional description of plan features are set forth in the section entitled “Non-Qualified Deferred Compensation in Last Fiscal Year” below and the narrative descriptions accompanying this section. Pension Plans We provide a pension plan,maintain the Agilent Technologies, Inc. Retirement Plan (“Retirement Plan”), to for our current NEOs, as well as other eligible Agilent employees, who were hired onto the U.S. payroll before November 1, 2014 for long-term employment retention and to support our career-employment strategy, as well as to provide employee retirement savings.2014. In addition, we provide the Agilent Technologies Inc. Supplemental Benefit Retirement Plan (the “Supplemental Benefit Retirement Plan”“SBRP”) to our NEOs and other eligible Agilent employees who were hired before November 1, 2014. The Supplemental Benefit Retirement Plan, which is an unfunded, non-qualified pension plan which pays amounts upon retirement that would be due under the regular Retirement Plan benefit formula, but are limited under the tax-qualified Retirement Plan by the Internal Revenue Code. Both the Retirement Plan and the Supplemental Benefit Retirement PlanSBRP were closed to new entrants effective November 1, 2014.2014, and both Plans were frozen effective April 30, 2016 such that no future benefits will be earned in either plan as of this date. We also maintain a pension plan in Germany for eligible employees, including one NEO who participated in the German pension plan for a portion of FY16. The German pension plan is described in further detail on page 46. 36
| COMPENSATION DISCUSSION AND ANALYSIS |
Additionally, we providemaintain the Agilent Technologies, Inc. Deferred Profit-Sharing Plan (the “Deferred Profit-Sharing Plan”) that provides certain amounts to our NEOs and other Agilent employees who provided services to our predecessor company, Hewlett-Packard Company, (“Hewlett-Packard”), prior to November 1, 1993. None of these plans provide any credit of benefits prior to the date of hire or where there is a break in service. Two of our NEOs are participants in this plan. Retirement benefits are set forth in the table entitled “Pension Benefits” on page 6044 and the narrative descriptions accompanying this table. Policy Regarding Compensation in Excess of $1 Million aper Year Section 162(m) of the Internal Revenue Code generally disallows a tax deduction for compensation in excess of $1 million paid to our CEO CFO and the three other most highly compensated NEOs employed at the end of the year.year (other than our CFO). Certain compensation is specifically exempt from the deduction limit to the extent that it is “performance based”“performance-based” as defined in Section 162(m) of the Code. Our Compensation Committee considers the impact of Section 162(m) in setting and determining executive compensation because it is concerned with the net cost of executive compensation to Agilentthe company (i.e., taking into account the tax treatment of the compensation), and its ability to effectively administer executive compensation in the long-term interests of stockholders. For fiscal year 2014, stock options,2016, short-term cash incentives, restricted stock units and long-term performance stock units are intended to comply with the exception for performance-based compensation under Section 162(m). Of course,However, in order to maintain flexibility in rewarding individual performance and contributions, the Compensation Committee will not limit all the amounts paid under all of Agilent’sour compensation programs to just those that qualify for tax deductibility. AgilentFurther, we cannot guarantee that compensation that is intended to comply with the performance-based compensation exception under Section 162(m) of the Code will in fact so qualify.
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| COMPENSATION DISCUSSION AND ANALYSIS |
Termination and Change of Control Consistent with the practice of many of our peers, the Compensation Committee adopted change-of-control agreements designed to provide protection to the NEOs so they are not distracted by their personal, professional and financial situations at a time when Agilent needswe need them to remain focused on their responsibilities, Agilent’sour best interests and those of all itsour stockholders. These agreements provide for a “double-trigger” payout only in the event of a change inof control and the executive officer is either terminated from his-or-her position or moved into a position that represents a substantial change in responsibilities within a limited period of time after the transaction (these agreements do not become operative unless both events occur). We have eliminated excise tax gross-ups for our CEO, Mr. McMullen, and all officers entering into newly executed change-of-control agreements after July 14, 2009. Only one officer that had such protection under an ongoing agreement will continue to have this benefit as long as the existing agreement remains in effect without material amendment. Meanwhile, our current CEO, Mr. Sullivan, has relinquished the tax gross-up in his new change-of-control agreement and Mr. McMullen, our future CEO, does not have tax gross-up in his current change-of-control agreement, nor will he when he becomes CEO. Potential payments to our NEOs in the event of a change of control under our existing agreements are reported in the “Termination and Change of Control Table.” In addition, we have a Workforce Management Program in place that is applicable to all Agilent employees, including NEOs. Employment security is tied to competitive realities as well as individual results and performance, but from time to time, business circumstances could dictate the need for Agilentus to reduce itsour workforce. The Workforce Management Program is intended to assist employees affected by restructuring by providing transition income in the form of severance benefits.
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COMPENSATION COMMITTEE REPORT | | The information contained in this report shall not be deemed to be “soliciting material,” to be “filed” with the SEC, or to be subject to Regulation 14A or Regulation 14C (other than as provided in Item 407 of Regulation S-K) or to the liabilities of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed to be incorporated by reference in future filings with the SEC except to the extent that the company specifically incorporates it by reference into a document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934. | | The company’s executive compensation program is administered by the Compensation Committee of the Board (the “Compensation Committee”). The Compensation Committee, which is composed entirely of independent, non-employee directors, is responsible for approving and reporting to the Board on all elements of compensation for the executive officers. In this regard, the Compensation Committee has reviewed and discussed the “Compensation Discussion and Analysis” section of this Proxy Statement with management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the “Compensation Discussion and Analysis” section be included in this Proxy Statement and incorporated by reference into the company’s 2016 Annual Report on Form 10-K. | | Submitted by: | | Compensation Committee | | Koh Boon Hwee, Chairperson | | Sue H. Rataj | | George A. Scangos, PhD | | Tadataka Yamada, M.D. | | |
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EXECUTIVE COMPENSATION Summary Compensation Table Agilent’s
The following table sets forth information regarding compensation earned by our NEOs for fiscal 2014 include Agilent’s (i) Presidentyear 2016 and, Chief Executive Officer, (ii) Senior Vice President, Chief Financial Officer,if applicable, during fiscal year 2015 and (iii) the other three most highly compensated executive officers who2014. All compensation is disclosed, whether or not such amounts were serving as executive officers at the end of fiscal 2014.paid in such year: Summary Compensation Table | | | | | | | | | | | | | | | | | | | | | | | Change in | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pension | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Value and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Nonqualified | | | | | | | | | | | | | | | | | | | | | | | | | Non-Equity | | Deferred | | | | | | | | | | | | | | | | | | Stock | | | Option | | Incentive Plan | | Compensation | | All other | | | Name and | | | | Salary | | Bonus | | | Awards | | | Awards | | Compensation | | Earnings | | Compensation | | | Principal Position | | Year | | ($) | | ($)(1) | | ($)(2)(3) | | ($)(2)(3) | | ($)(4) | | ($)(5) | | ($)(6) | | Total ($) | William P. Sullivan | | 2014 | | | $1,050,000 | | | $0 | | | $6,632,830 | | | | $4,569,033 | | | | $1,631,089 | | | | $0 | | | | $31,781 | | | $13,914,733 | Chief Executive | | 2013 | | | $1,045,000 | | | $0 | | | $3,789,936 | | | | $4,141,200 | | | | $1,228,875 | | | | $0 | | | | $30,661 | | | $10,235,672 | Officer | | 2012 | | | $990,000 | | | $0 | | | $3,859,183 | | | | $4,007,791 | | | | $1,247,808 | | | | $0 | | | | $30,935 | | | $10,135,717 | | Didier Hirsch | | 2014 | | | $600,000 | | | $0 | | | $1,044,826 | | | | $1,048,187 | | | | $633,396 | | | | $111,158 | | | | $16,275 | | | $3,453,842 | Senior Vice President, | | 2013 | | | $597,917 | | | $0 | | | $869,456 | | | | $950,040 | | | | $382,152 | | | | $110,862 | | | | $21,701 | | | $2,932,127 | Chief Financial Officer | | 2012 | | | $570,834 | | | $0 | | | $890,565 | | | | $924,873 | | | | $471,167 | | | | $105,788 | | | | $16,041 | | | $2,979,268 | | Marie Oh Huber(7) | | 2014 | | | $525,000 | | | $0 | | | $1,007,380 | | | | $752,534 | | | | $494,973 | | | | $96,907 | | | | $28,914 | | | $2,905,708 | Senior Vice President, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | General Counsel | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | and Secretary | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Michael R. McMullen | | 2014 | | | $606,250 | | | $0 | | | $2,332,309 | | | | $994,432 | | | | $467,177 | | | | $91,716 | | | | $39,056 | | | $4,530,940 | President and Chief | | 2013 | | | $575,000 | | | $0 | | | $802,571 | | | | $876,960 | | | | $465,704 | | | | $106,498 | | | | $30,108 | | | $2,856,840 | Operating Officer | | 2012 | | | $570,834 | | | $0 | | | $1,771,329 | | | | $873,485 | | | | $443,812 | | | | $105,787 | | | | $31,030 | | | $3,796,277 | | Ronald S. Nersesian | | 2014 | | | $795,833 | | | $0 | | | $2,109,864 | | | | $2,257,639 | | | | $917,151 | | | | $148,366 | | | | $30,998 | | | $6,259,851 | Executive Vice | | 2013 | | | $741,667 | | | $0 | | | $1,560,567 | | | | $1,705,200 | | | | $585,178 | | | | $138,164 | | | | $27,914 | | | $4,758,690 | President and Keysight | | 2012 | | | $641,667 | | | $0 | | | $1,484,309 | | | | $1,541,459 | | | | $518,870 | | | | $119,247 | | | | $26,917 | | | $4,332,469 | President and Chief | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Executive Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
____________________ | Name and | | | | Salary | | Stock Awards (2)(3) | | Option Awards (2)(3) | | Non-Equity Incentive Plan Compensation (4) | | Change in Pension Value and Nonqualified Deferred Compensation Earnings (5) | | All other Compensation (6) | | Total | | Principal Position | | Year (1) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | Michael R. McMullen | | 2016 | | 1,041,667 | | 6,341,255 | | - | | 1,338,183 | | 48,144 | | 145,166 | | 8,914,415 | | Chief Executive Officer | | 2015 | | 845,833 | | 2,520,205 | | 2,434,524 | | 1,110,963 | | 70,994 | | 225,333 | | 7,207,852 | | | | 2014 | | 606,250 | | 2,332,309 | | 994,432 | | 467,177 | | 91,716 | | 39,056 | | 4,530,940 | | Didier Hirsch | | 2016 | | 600,000 | | 2,747,816 | | - | | 494,112 | | 49,401 | | 41,066 | | 3,932,395 | | Senior Vice President, | | 2015 | | 600,000 | | 1,049,012 | | 1,001,660 | | 516,408 | | 111,075 | | 18,643 | | 3,296,798 | | Chief Financial Officer | | 2014 | | 600,000 | | 1,044,826 | | 1,048,187 | | 633,396 | | 111,158 | | 16,275 | | 3,453,842 | | Mark Doak | | 2016 | | 470,833 | | 1,638,114 | | - | | 476,867 | | 17,786 | | 36,608 | | 2,640,208 | | Senior Vice President, | | 2015 | | 422,917 | | 549,457 | | 524,676 | | 421,697 | | 29,986 | | 16,354 | | 1,965,087 | | President Cross-Labs Group | | | | | | | | | | | | | | | | | | Patrick Kaltenbach (7) | | 2016 | | 487,976 | | 1,479,571 | | - | | 418,085 | | 488,406 | | 1,520,233 | | 4,394,271 | | Senior Vice President, | | 2015 | | 407,262 | | 505,138 | | 481,253 | | 311,732 | | 792,590 | | 153,102 | | 2,651,077 | | President Life Sciences and | | | | | | | | | | | | | | | | | | Applied Markets Group | | | | | | | | | | | | | | | | | | Jacob Thaysen | | 2016 | | 436,667 | | 845,472 | | - | | 510,753 | | - | | 1,020,749 | | 2,813,641 | | Senior Vice President, | | | | | | | | | | | | | | | | | | President Diagnostics and | | | | | | | | | | | | | | | | | | Genomics Group | | | | | | | | | | | | | | | | |
(1) | | None of the executive officers received any service awards or cash bonusesCompensation is provided only for fiscal years 2014, 2013 or 2012, other than provided in the Non-Equity Incentive Compensation Plan.for which each individual qualified as an NEO. |
| (2) | | Reflects the aggregate grant date fair values, computed in accordance with Financial Accounting Standards Board, Accounting Standards Codification, Topic 718, Stock Compensation (“FASB ASC Topic 718”). TheFor more information regarding our application of FASB ASC Topic 718, including the assumptions used in calculating the expense are providedcalculations of these amounts, please refer to Note 4 of Notes to Consolidated Financial Statements contained in additional detail inour Annual Report on Form 10-K filed with the tables below.SEC on December 20, 2016. |
| (3) | | The expenses listed in these columns include expenses for stock awards and options awarded in accordance with the LTP ProgramLTPP and 2009 Stock Plan, as shownPlan. For performance-based restricted stock unit awards, the grant date fair value of such awards at the time of grant was based upon the probable outcome at the time of grant. The value of the performance-based restricted stock unit awards at the grant date assuming that the highest level of performance conditions was achieved was $7,748,994, $3,357,830, $2,001,746, $1,808,004 and $1,033,170 for Messrs. McMullen, Hirsch, Doak, Kaltenbach and Thaysen, respectively. The amounts reflected in this column do not represent the table below. The threshold and maximumactual amounts paid to or realized by the named executive officer for performance shares granted under the LTP program can be found in the Grants of Plan-Based Awards in Fiscal Year 2014 below.these awards. |
| (4) | | Amounts consist of incentive awards earned by the NEOs during the fiscal year under the Performance-Based Compensation Plan for Covered Employees. The amount for Mr. Thaysen also includes a one-time payment to correct a calculation error from a long-term cash incentive bonus that was originally granted in November 2012. |
| (5) | | Amounts represent the change in pension value for the following Agilentcompany sponsored pension plans: Agilent Technologies, Inc. Deferred Profit-Sharing Plan,Plan; Agilent Technologies, Inc. Retirement Plan andPlan; Agilent Technologies, Inc. Supplemental Benefit Retirement Plan. | | (6) | | Amounts reflect (i) employer contributions of $10,400 to Messrs. Sullivan, Hirsch,Plan; and Ms. Huber, $10,000 for Mr. McMullen and $12,667 for Mr. Nersesian for the Agilent Technologies, Inc. German Pension Plan. |
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| | | | | | | | NEO | 401(k) Employer Contribution (a) | Deferred Compensation Employer Contributions (b) | Financial Counseling (c) | Travel Expenses (d) | Relocation(e) | Employer HSA (f) | Total | Mr. McMullen | $10,500 | $0 | $36,638 | $6,937 | $90,929 | $162 | $145,166 | Mr. Hirsch | $22,525 | $8,375 | $4,369 | $5,716 | $0 | $81 | $41,066 | Mr. Doak | $13,233 | $0 | $15,935 | $7,277 | $0 | $163 | $36,608 | Mr. Kaltenbach | $15,569 | $11,745 | $16,677 | $5,069 | $1,471,173 | $0 | $1,520,233 | Mr. Thaysen | $17,800 | $0 | $16,008 | $5,551 | $981,390 | $0 | $1,020,749 |
a) Amounts reflect company contributions for the Agilent Technologies, Inc. 401(k) Plan in fiscal year 2016. In addition to the company match, Mr. Hirsch also received a transitional company contribution which was provided to all eligible employees as a result of the freeze of our pension plan.
b) Amounts reflect company contributions for the Agilent Technologies Deferred Compensation Plan in fiscal year 2016. Amounts include matching contributions on deferred base salary and /or transitional company contributions, both of which were provided to all eligible employees as a result of the freeze of our pension plan. c) Amounts reflect company contributions for services incurred from the Ayco Company, LP, the provider designated by us to provide financial counseling services to our NEOs and also for services incurred from KPMG, LLC, a tax provider designated by us to provide tax preparation services for certain NEOs. d) Amounts reflect imputed income expenses for the use of our drivers and vehicles for personal travel, including spouses and family; and expenses related to spousal travel to our annual President’s Club meeting to recognize the highest performing sales people in the company. e) Our relocation program is available to all employees including officers, and is designed to facilitate employee relocations that support our business priorities. Our relocation program does not provide any payments for loss on the sale of a home or special tax gross ups. When Mr. McMullen was named CEO, and once his management team had been identified, it was decided that it would be in the best interest of the company and its stockholders for Messrs.’ McMullen, Kaltenbach and Thaysen to relocate to the Bay Area and work at our corporate headquarters located in Santa Clara, one of the costliest housing areas in the U.S. For Messrs. Kaltenbach and Thaysen, this entailed permanent relocation from their home countries of Germany and Denmark, respectively. To facilitate these moves, each of these NEOs participated in our relocation program. For fiscal year 2016, relocation costs for Mr. McMullen were $90,929 in total for his expenses related to his relocation from New Jersey to the San Francisco Bay Area. This amount covered expense related to the purchase of a home and living expenses during his transition period. The total relocation costs for Mr. Kaltenbach’s relocation from Germany was $1,471,173. This included $447,500, payable under our Global Relocation Supplement Program that is available to all international transferees (see below). Mr. Kaltenbach was a participant in a legacy Hewlett-Packard German pension plan, and his permanent relocation onto the US payroll resulted in the loss of future benefits under this plan. Mr. Kaltenbach also received $750,000 (the gross amount before taxes) as a relocation allowance intended to support permanent relocation to the Bay Area and provided in lieu of the company continuing to pay ongoing international long-term assignment costs; $115,138 for tax preparation / consultation and host authority tax payment; $56,521 related to ongoing assignment and travel expenses; $39,583 for miscellaneous allowances; $59,254 for expenses related to the sale and purchase of a home, including rent and utilities during the transition period, $3,177 for other miscellaneous fees and expenses. The total relocation costs for Mr. Thaysen were $981,390 for his relocation from Denmark. These expenses included $83,500, payable under our Global Relocation Supplement Program; $750,000 (gross amount before taxes) as a relocation allowance intended to support permanent relocation to the Bay Area and provided in lieu of the company continuing to pay ongoing international long-term assignment costs; $60,971 for tax preparation / consultation and host authority tax payment; $18,395 related to ongoing assignment and travel expenses; $30,638 for miscellaneous allowances; $33,169 for expenses related to the sale and purchase of a home, including rent and utilities during the transition period; $4,717 for other miscellaneous fees. f) Amounts reflect employer contributions to a health savings account. (7) | Amounts included for Mr. Kaltenbach, with the exception of stock awards and option awards, are shown in U.S. Dollars but his entire salary for fiscal year 2015 and a small portion of his salary in fiscal year 2014, and , (ii) $20,305 for Mr. Sullivan, $16,455 for Ms. Huber, $15,010 for Mr. McMullen and $17,099 for Mr. Nersesian for services incurred from The Ayco Company, LP,2016 was paid to him in Euro. To convert the provider designated by Agilentamounts paid to provide financial counseling services to our NEOs, and $4,387 for Mr. Hirsch, and $5,117 for Mr. McMullen for services incurred by KPMG, LLC, a tax provider designated by Agilent to provide tax preparation services for certain NEOs, (iii) travel expensesU.S. Dollars, we used the prevailing exchange rate as of $427 for Mr. Sullivan, $664 for Mr. Hirsch, $759the last business day of the applicable fiscal year. |
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| | for Ms. Huber, $1,043 for Mr. McMullen and $332 for Mr. Nersesian for use of Agilent drivers and vehicles for personal travel, (iv) $649 for Mr. Sullivan, $824 for Mr. Hirsch, $1,300 for Ms. Huber, $1,300 for Mr. McMullen and $900 for Mr. Nersesian, for employer contribution to a health savings account and (v) $6,586 for Mr. McMullen for relocation expenses.
| | | | (7) | | Ms. Huber was not a named executive officer in the Company’s 2013 and 2014 Proxy Statements. Therefore, this table does not provide fiscal 2012 and fiscal 2013 compensation data for Ms. Huber. |
The following table itemizes the full grant date fair value of equity grants made during the 2012, 2013 and 2014 fiscal years in accordance with FASB ASC Topic 718 for the “Stock Awards” and “Option Awards” columns of the “Summary Compensation” table.
Long-term Incentive Awards | | | Long Term Performance Program | | | Total Expense | | Total Expense | | Total Expense | | | for FY14 Grants | | for FY14 Grants | | for FY14 Grants | | | | | | | Restricted | | | | | | Restricted | | | | | | Restricted | | | | | | | Stock | | | | | | Stock | | | | | | Stock | | | Stock | | Option | | Unit | | Stock | | Option | | Unit | | Stock | | Option | | Unit | | | Awards | | Awards | | Awards | | Awards | | Awards | | Awards | | Awards | | Awards | | Awards | William P. Sullivan | | $4,554,407 | | $4,569,033 | | $2,078,423 | | $3,789,936 | | $4,141,200 | | — | | $3,859,183 | | $4,007,791 | | | — | | Didier Hirsch | | $1,044,826 | | $1,048,187 | | — | | $869,456 | | $950,040 | | — | | $890,565 | | $924,873 | | | — | | Marie Oh Huber | | $750,073 | | $752,534 | | $257,307 | | — | | — | | — | | — | | — | | | — | | Michael R. McMullen | | $2,332,309 | | $994,432 | | — | | $802,571 | | $876,960 | | — | | $841,079 | | $873,485 | | | $930,250 | | Ronald S. Nersesian | | — | | $2,257,639 | | $2,109,864 | | $1,560,567 | | $1,705,200 | | — | | $1,484,309 | | $1,541,459 | | | — | |
FASB ASC Topic 718 Assumptions
The following table sets forth the weighted average FASB ASC Topic 718 assumptions used in 2011 to 2014 in the calculation of the stock awards and option awards presented in our “Summary Compensation Table”. For all periods presented, the fair value of share-based awards for employee stock options awards was estimated using the Black-Scholes option pricing model, while shares granted under the LTP Program were valued using a Monte Carlo simulation. The estimated fair value of restricted stock unit awards was determined based on the market price of Agilent’s common stock on the date of grant, adjusted for expected dividend yield. On January 17, 2012, the company’s Board of Directors approved the initiation of quarterly cash dividends to the company’s shareholders. The fair value of all the awards granted prior to the declaration of quarterly cash dividends was measured based on an expected dividend yield of 1%.
| | Years Ended October 31, 2014 | | | 2014 | | 2013 | | 2012 | | 2011 | Stock Option Plans: | | | | | | | | | Weighted average risk-free interest rate | | 1.69% | | 0.86% | | 0.88% | | 1.49% | Dividend yield | | 1% | | 1% | | 0% | | 0% | Weighted average volatility | | 39% | | 39% | | 38% | | 35% | Expected life | | 5.8 yrs | | 5.8 yrs | | 5.8 yrs | | 5.8 yrs | | LTPP: | | | | | | | | | Volatility of Agilent shares | | 36% | | 37% | | 41% | | 40% | Volatility of selected peer-company shares | | 13%-57% | | 6%-64% | | 17%-75% | | 20-76% | Price-wise correlation with selected peers | | 47% | | 49% | | 62% | | 55% |
Table of Contents
| EXECUTIVE COMPENSATION |
Grants of Plan-Based Awards in Last Fiscal YearAwards The following table sets forth certain information regarding grants of plan-based awards to each of our NEOs during fiscal year 2014.2016. For more information, please refer to the “Compensation Discussion and Analysis.” Grants of Plan-Based Awards in Fiscal Year 2014 | | | | | | | | | | | | | | | | | All Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Option | | | | | | | | | | | | | | | | | | | | | | | | | Awards: | | | | | | Exercise | | Grant Date | | | | | Estimated Possible Payouts | | | | Number of | | | | | | or Base | | Fair Value | | | | | Under Non—Equity Incentive | | Estimated Payouts Under Equity | | Securities | | All Other | | Price of | | of Stock | | | | | Plan Awards(1) | | Incentive Plan Awards(2) | | Underlying | | Stock | | Option | | and Option | | | Grant | | Threshold | | Target | | Maximum | | Threshold | | Target | | Maximum | | Options | | Awards | | Awards | | Awards | Name | | Date | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | | (#)(3) | | | (#)(4) | | ($/Sh) | | ($) | William P. Sullivan | | 11/20/2013 | | $255,938 | | $984,375 | | $1,968,750 | | — | | — | | — | | | — | | | | — | | | | — | | | | — | | | | 5/20/2014 | | $59,063 | | $590,625 | | $1,181,250 | | — | | — | | — | | | — | | | | — | | | | — | | | | — | | | | 11/20/2013 | | — | | — | | — | | $1,138,602 | | $4,554,407 | | $9,108,814 | | | — | | | | — | | | | — | | | | $4,554,407 | | | | 11/20/2013 | | — | | — | | — | | — | | — | | — | | | 244,112 | | | | — | | | | $53.53 | | | | $4,569,033 | | | | 11/20/2013 | | — | | — | | — | | — | | — | | — | | | | | | | 40,000 | | | | — | | | | $2,078,423 | | Didier Hirsch | | 11/20/2013 | | $132,000 | | $360,000 | | $720,000 | | — | | — | | — | | | — | | | | — | | | | — | | | | — | | | | 5/20/2014 | | $12,000 | | $120,000 | | $240,000 | | — | | — | | — | | | — | | | | — | | | | — | | | | — | | | | 11/20/2013 | | — | | — | | — | | $261,206 | | $1,044,826 | | $2,089,652 | | | — | | | | — | | | | — | | | | $1,044,826 | | | | 11/20/2013 | | — | | — | | — | | — | | — | | — | | | 56,002 | | | | — | | | | $53.53 | | | | $1,048,187 | | Marie Oh Huber | | 11/20/2013 | | $108,281 | | $295,313 | | $590,626 | | — | | — | | — | | | — | | | | — | | | | — | | | | — | | | | 5/20/2014 | | $9,844 | | $98,438 | | $196,876 | | — | | — | | — | | | — | | | | — | | | | — | | | | — | | | | 11/20/2013 | | — | | — | | — | | $187,518 | | $750,073 | | $1,500,146 | | | — | | | | — | | | | — | | | | $750,073 | | | | 11/20/2013 | | — | | — | | — | | — | | — | | — | | | 40,206 | | | | — | | | | $53.53 | | | | $752,534 | | | | 11/20/2013 | | — | | — | | — | | — | | — | | — | | | — | | | | 5,000 | | | | — | | | | $257,307 | | Michael R. McMullen | | 11/20/2013 | | $24,000 | | $240,000 | | $480,000 | | — | | — | | — | | | — | | | | — | | | | — | | | | — | | | | 5/20/2014 | | $29,183 | | $291,830 | | $583,660 | | — | | — | | — | | | — | | | | — | | | | — | | | | — | | | | 11/20/2013 | | — | | — | | — | | $247,798 | | $991,192 | | $1,982,383 | | | — | | | | — | | | | — | | | | $991,192 | | | | 11/20/2013 | | — | | — | | — | | — | | — | | — | | | 53,130 | | | | — | | | | $53.53 | | | | $994,432 | | | | 9/17/2014 | | — | | — | | — | | $335,289 | | $1,341,159 | | $2,682,318 | | | | | | | | | | | — | | | | $1,341,117 | | Ronald S. Nersesian | | 11/20/2013 | | $162,500 | | $625,000 | | $1,250,000 | | — | | — | | — | | | — | | | | — | | | | — | | | | — | | | | 5/20/2014 | | $37,500 | | $375,000 | | $750,000 | | — | | — | | — | | | — | | | | — | | | | — | | | | — | | | | 11/20/2013 | | — | | — | | — | | — | | — | | — | | | — | | | | — | | | | — | | | | — | | | | 11/20/2013 | | — | | — | | — | | — | | — | | — | | | 120,620 | | | | — | | | | $53.53 | | | | $2,257,639 | | | | 11/20/2013 | | — | | — | | — | | — | | — | | — | | | — | | | | 40,999 | | | | — | | | | $2,109,864 | |
____________________ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Grant Date | | | | | | Estimated Possible Payouts Under | | Estimated Payouts Under Equity | | All Other | | Fair Value | | | | | | Non-Equity Incentive Plan Awards (1) | | Incentive Plan Awards (2) | | Stock | | of Stock | | | | | | Threshold | | Target | | Maximum | | Threshold | | Target | | Maximum | | Awards (3) | | Awards | | Name | | Grant Date | | ($) | | ($) | | ($) | | (#) | | (#) | | (#) | | ($) | | ($) | | Michael R. McMullen | | 11/18/2015 | | 252,000 | | 1,260,000 | | 2,520,000 | | - | | - | | - | | - | | - | | | | | 11/18/2015 | | - | | - | | - | | 11,021 | | 44,085 | | 88,170 | | - | | 2,023,942 | | | | | 11/18/2015 | | - | | - | | - | | 13,036 | | 52,143 | | 104,286 | | - | | 1,850,555 | | | | | 11/18/2015 | | - | | - | | - | | - | | - | | - | | 2,466,758 | | 2,466,758 | | | Didier Hirsch | | 11/18/2015 | | 48,000 | | 480,000 | | 960,000 | | - | | - | | - | | - | | - | | | | | 11/18/2015 | | - | | - | | - | | 4,776 | | 19,103 | | 38,206 | | - | | 877,019 | | | | | 11/18/2015 | | - | | - | | - | | 5,649 | | 22,595 | | 45,190 | | - | | 801,897 | | | | | 11/18/2015 | | - | | - | | - | | - | | - | | - | | 1,068,900 | | 1,068,900 | | | Mark Doak | | 11/18/2015 | | 76,000 | | 380,000 | | 760,000 | | - | | - | | - | | - | | - | | | | | 11/18/2015 | | - | | - | | - | | 2,847 | | 11,388 | | 22,776 | | - | | 522,823 | | | | | 11/18/2015 | | - | | - | | - | | 3,435 | | 13,740 | | 27,480 | | - | | 478,050 | | | | | 11/18/2015 | | - | | - | | - | | - | | - | | - | | 637,241 | | 637,241 | | | Patrick Kaltenbach | | 11/18/2015 | | 80,000 | | 400,000 | | 800,000 | | - | | - | | - | | - | | - | | | | | 11/18/2015 | | - | | - | | - | | 2,572 | | 10,286 | | 20,572 | | - | | 472,230 | | | | | 11/18/2015 | | - | | - | | - | | 3,042 | | 12,166 | | 24,332 | | - | | 431,771 | | | | | 11/18/2015 | | - | | - | | - | | - | | - | | - | | 575,570 | | 575,570 | | | Jacob Thaysen | | 11/18/2015 | | 70,400 | | 352,000 | | 704,000 | | - | | - | | - | | - | | - | | | | | 11/18/2015 | | - | | - | | - | | 1,470 | | 5,878 | | 11,756 | | - | | 269,859 | | | | | 11/18/2015 | | - | | - | | - | | 1,738 | | 6,952 | | 13,904 | | - | | 246,726 | | | | | 11/18/2015 | | - | | - | | - | | - | | - | | - | | 328,887 | | 328,887 | |
(1) | | Reflects the value of the potential payout targets for fiscal year 20142016 pursuant to the annual award program under Agilent’sour Performance-Based Compensation Plan. Actual payout amounts under this plan are disclosed in the “Summary Compensation Table.” Mr. McMullen’s target amount for May 20, 2014 includes his increase in target bonus as a result of his promotion to President and COO on September 17, 2014. |
| (2) | | Reflects the value of potential payout of the target number of performance shares granted in fiscal year 20142016 for the FY14FY16 through FY16FY18 performance period under Agilent’s LTP Program.our LTPP. Actual payout of these awards, if any, will be determined by the Compensation Committee after the end of the performance period depending on whether the performance criteria set forth in Agilent’s LTP Programour LTPP were met. Payout, if any, will be in the form of Agilentour common stock. Please see section entitled “Long-Term“Compensation Discussion and Analysis - Long-Term Incentives” for disclosure regarding material terms of the LTP Program. Mr. McMullen’s target award shares under the LTP Program increased as a result of his promotion to President and COO on September 17, 2014.LTPP. |
| (3) | | Reflects optionsrestricted stock units granted in fiscal year 20142016 under the 2009 Stock Plan in accordance with Agilent’sour long-term incentive goals as described in the “Compensation Discussion and Analysis—Long-Term Incentives.” Such optionsrestricted stock units vest at 25% per year over four years. | | (4) | | Reflects restricted stock units granted in fiscal year 2014 under the 2009 Stock Plan. Mr. Sullivan’s grants vests equally over three years. Mrs. Huber’s grant vests equally over four years. Mr. Nersesian’s grant vests equally over four years.years with a one-year post-vest holding period assigned to each tranche as it vests. |
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Table of Contents
| EXECUTIVE COMPENSATION |
Outstanding Equity AwardsAwards at Fiscal Year-End The following table provides information on the current holdings of options, performance-based stock awards and restricted stock units, by our NEOs as of October 31, 2014. Outstanding Equity Awards at Fiscal Year 2014 Year End | | | | | | | | | | | | | | | | | | | | | | | | | | | Restricted Stock | | Performance Share | | | | | | | Option Awards | | Unit Awards | | Awards | | | | | | | | | | | | | | | | | | | | | | | Number | | Market | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | of Shares | | Value of | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | or Units | | Shares | | Number of | | Market | | | | | | | | | | | | | | | | | | | | | | | of Stock | | or Units | | Unearned | | Value of | | | | | | | Number of Securities | | | | | | | | | | | | | | That | | That | | Shares | | Shares | | | | | | | Underlying Unexercised | | Option | | Option | | Option | | Have Not | | Have Not | | That Have | | That Have | | | Grant | | Options (#) | | Exercise | | Vesting | | Expiration | | Vested | | Vested | | Not Vested | | Not Vested | Name | | Date | | Exercisable(1) | | Unexercisable(1) | | Price ($) | | Date | | Date | | (#)(1)(2) | | ($) | | (#)(1)(3) | | ($) | William P. Sullivan | | | 11/17/2010 | | | | — | | | | 75,889 | | | | $35.21 | | | | 11/17/2011 | | | | 11/16/2020 | | | | — | | | | — | | | | — | | | | — | | | | | 11/17/2011 | | | | 146,506 | | | | 146,506 | | | | $37.21 | | | | 11/17/2012 | | | | 11/16/2021 | | | | — | | | | — | | | | — | | | | — | | | | | 11/21/2012 | | | | 85,000 | | | | 255,000 | | | | $35.84 | | | | 11/21/2013 | | | | 11/20/2022 | | | | — | | | | — | | | | — | | | | — | | | | | 11/20/2013 | | | | — | | | | 244,112 | | | | $53.53 | | | | 11/20/2014 | | | | 11/19/2023 | | | | — | | | | — | | | | — | | | | — | | | | | 11/20/2013 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 39,060 | | | | $2,159,237 | | | | — | | | | — | | | | | 11/17/2011 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 77,828 | | | | $4,302,332 | | | | | 11/21/2012 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 86,469 | | | | $4,780,006 | | | | | 11/20/2013 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 67,848 | | | | $3,750,637 | | Total | | | | | | | 231,506 | | | | 721,507 | | | | | | | | | | | | | | | | 39,060 | | | | $2,159,237 | | | | 232,145 | | | | $12,832,976 | | | | Didier Hirsch | | | 8/18/2010 | | | | 40,363 | | | | — | | | | $29.44 | | | | 8/18/2011 | | | | 8/17/2020 | | | | — | | | | — | | | | — | | | | — | | | | | 11/17/2010 | | | | 48,875 | | | | 16,262 | | | | $35.21 | | | | 11/17/2011 | | | | 11/16/2020 | | | | — | | | | — | | | | — | | | | — | | | | | 11/17/2011 | | | | 33,809 | | | | 33,809 | | | | $37.21 | | | | 11/17/2012 | | | | 11/16/2021 | | | | — | | | | — | | | | — | | | | — | | | | | 11/21/2012 | | | | 19,500 | | | | 58,500 | | | | $35.84 | | | | 11/21/2013 | | | | 11/20/2022 | | | | — | | | | — | | | | — | | | | — | | | | | 11/20/2013 | | | | — | | | | 56,002 | | | | $53.53 | | | | 11/20/2014 | | | | 11/19/2023 | | | | — | | | | — | | | | — | | | | — | | | | | 11/17/2010 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,848 | | | | $102,157 | | | | — | | | | — | | | | | 11/17/2011 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 17,960 | | | | $992,829 | | | | | 11/21/2012 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 19,837 | | | | $1,096,589 | | | | | 11/20/2013 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 15,565 | | | | $860,433 | | Total | | | | | | | 142,547 | | | | 164,573 | | | | | | | | | | | | | | | | 1,848 | | | | $102,157 | | | | 53,362 | | | | $2,949,851 | | | | Marie Oh Huber | | | 11/29/2007 | | | | 17,250 | | | | — | | | | $37.47 | | | | 11/29/2008 | | | | 11/28/2017 | | | | — | | | | — | | | | — | | | | — | | | | | 11/17/2010 | | | | 27,645 | | | | 9,215 | | | | $35.21 | | | | 11/17/2011 | | | | 11/16/2020 | | | | — | | | | — | | | | — | | | | — | | | | | 11/17/2011 | | | | 22,539 | | | | 22,539 | | | | $37.21 | | | | 11/17/2012 | | | | 11/16/2021 | | | | — | | | | — | | | | — | | | | — | | | | | 11/21/2012 | | | | 13,000 | | | | 39,000 | | | | $35.84 | | | | 11/21/2013 | | | | 11/20/2022 | | | | — | | | | — | | | | — | | | | — | | | | | 11/20/2013 | | | | — | | | | 40,206 | | | | $53.53 | | | | 11/20/2014 | | | | 11/19/2023 | | | | — | | | | — | | | | — | | | | — | | | | | 11/17/2010 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,125 | | | | $172,750 | | | | — | | | | — | | | | | 11/20/2013 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5,000 | | | | $276,400 | | | | — | | | | — | | | | | 11/17/2011 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 11,973 | | | | $661,867 | | | | | 11/21/2012 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 13,224 | | | | $731,023 | | | | | 11/20/2013 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 11,174 | | | | $617,699 | | Total | | | | | | | 80,434 | | | | 110,960 | | | | | | | | | | | | | | | | 8,125 | | | | $449,150 | | | | 36,371 | | | | $2,010,589 | |
Table2016. In November 2014, all outstanding shares and exercise prices from grants made prior to November 1, 2014 were adjusted due to the spin-off of ContentsKeysight Technologies.
| | | | | Option Awards (1) | | Restricted Stock Unit Awards (2) | | Performance Share Awards | | | | | | | | | | | | | | | Number of Shares or | | Market Value of | | | | | | | | | | | Number of Securities Underlying | | | | | | Units of Stock | | Shares or Units | | Number of Unearned | | Market Value of | | | | | | | Unexercised Options (#) | | Option Exercise | | Option Expiration | | That Have Not | | That Have Not | | Shares That Have | | Shares That Have | | | Name | | Grant Date | | Exercisable | | Unexercisable | | Price ($) | | Date | | Vested (#) | | Vested ($) | | Not Vested (3) (#) | | Not Vested ($) | | | Michael R. McMullen | | 11/18/2009 | | 32,511 | | - | | 21.53 | | 11/17/2019 | | - | | - | | - | | - | | | | | 11/17/2010 | | 94,962 | | - | | 25.73 | | 11/16/2020 | | - | | - | | - | | - | | | | | 11/17/2011 | | 87,403 | | - | | 27.19 | | 11/17/2021 | | - | | - | | - | | - | | | | | 11/21/2012 | | 73,905 | | 24,638 | | 26.19 | | 11/20/2022 | | - | | - | | - | | - | | | | | 11/20/2013 | | 36,357 | | 36,359 | | 39.12 | | 11/19/2023 | | - | | - | | - | | - | | | | | 11/19/2014 | | 40,650 | | 121,951 | | 40.80 | | 11/18/2024 | | - | | - | | - | | - | | | | | 3/18/2015 | | 16,540 | | 49,622 | | 42.12 | | 3/17/2025 | | - | | - | | - | | - | | | | | 11/18/2015 | | - | | - | | - | | - | | 70,278 | | 3,062,012 | | - | | - | | | | | 11/20/2013 | | - | | - | | - | | - | | - | | - | | 5,052 | | 220,116 | | | | | 9/17/2014 | | - | | - | | - | | - | | - | | - | | 3,619 | | 157,680 | | | | | 11/19/2014 | | - | | - | | - | | - | | - | | - | | 9,144 | | 398,404 | | | | | 3/18/2015 | | - | | - | | - | | - | | - | | - | | 3,556 | | 154,935 | | | | | 11/18/2015 | | - | | - | | - | | - | | - | | - | | 11,021 | | 480,185 | | | | | 11/18/2015 | | - | | - | | | | - | | - | | - | | 13,035 | | 567,935 | | | Total | | | | 382,328 | | 232,570 | | | | | | 70,278 | | 3,062,012 | | 45,427 | | 1,979,254 | | | Didier Hirsch | | 11/17/2010 | | 89,026 | | - | | 25.73 | | 11/16/2020 | | - | | - | | - | | - | | | | | 11/17/2011 | | 92,545 | | - | | 27.19 | | 11/17/2021 | | - | | - | | - | | - | | | | | 11/21/2012 | | 80,064 | | 26,691 | | 26.19 | | 11/20/2022 | | - | | - | | - | | - | | | | | 11/20/2013 | | 38,323 | | 38,324 | | 39.12 | | 11/19/2023 | | - | | - | | - | | - | | | | | 11/19/2014 | | 23,712 | | 71,138 | | 40.80 | | 11/18/2024 | | - | | - | | - | | - | | | | | 11/18/2015 | | - | | - | | - | | - | | 30,453 | | 1,326,837 | | - | | - | | | | | 11/20/2013 | | - | | - | | - | | - | | - | | - | | 5,325 | | 232,010 | | | | | 11/19/2014 | | - | | - | | - | | - | | - | | - | | 5,334 | | 232,402 | | | | | 11/18/2015 | | - | | - | | - | | - | | - | | - | | 4,775 | | 208,047 | | | | | 11/18/2015 | | - | | - | | - | | - | | - | | - | | 5,648 | | 246,083 | | | Total | | | | 323,670 | | 136,153 | | | | | | 30,453 | | 1,326,837 | | 21,082 | | 918,543 | | | Mark Doak | | 11/18/2009 | | 6 | | - | | 21.53 | | 11/17/2019 | | - | | - | | | | - | | | | | 11/21/2012 | | - | | 3,969 | | 26.19 | | 11/20/2022 | | - | | - | | | | - | | | | | 11/20/2013 | | 6,288 | | 6,289 | | 39.12 | | 11/19/2023 | | - | | - | | | | - | | | | | 11/19/2014 | | 12,420 | | 37,263 | | 40.80 | | 11/18/2024 | | - | | - | | | | - | | | | | 11/18/2015 | | - | | - | | - | | - | | 18,155 | | 791,013 | | | | - | | | | | 11/20/2013 | | - | | - | | - | | - | | - | | - | | 874 | | 38,080 | | | | | 9/17/2014 | | - | | - | | - | | - | | - | | - | | 1,310 | | 57,077 | | | | | 11/19/2014 | | - | | - | | - | | - | | - | | - | | 2,794 | | 121,735 | | | | | 11/18/2015 | | - | | - | | - | | - | | - | | - | | 2,847 | | 124,044 | | | | | 11/18/2015 | | - | | - | | - | | - | | - | | - | | 3,367 | | 146,700 | | | Total | | | | 18,714 | | 47,521 | | | | | | 18,155 | | 791,013 | | 11,192 | | 487,635 | | | Patrick Kaltenbach | | 11/21/2012 | | 8,484 | | 3,287 | | 26.19 | | 11/20/2022 | | - | | - | | | | - | | | | | 11/20/2013 | | 4,716 | | 4,716 | | 39.12 | | 11/19/2023 | | - | | - | | | | - | | | | | 11/20/2014 | | 11,291 | | 33,876 | | 41.26 | | 11/19/2024 | | - | | - | | | | - | | | | | 11/18/2015 | | - | | - | | - | | - | | 16,398 | | 714,461 | | | | - | | | | | 11/20/2013 | | - | | - | | - | | - | | - | | - | | 655 | | 28,538 | | | | | 11/20/2014 | | - | | - | | - | | - | | - | | - | | 2,540 | | 110,668 | | | | | 11/18/2015 | | - | | - | | - | | - | | - | | - | | 2,571 | | 112,018 | | | | | 11/18/2015 | | - | | - | | - | | - | | - | | - | | 3,041 | | 132,496 | | | Total | | | | 24,491 | | 41,879 | | | | | | 16,398 | | 714,461 | | 8,807 | | 383,721 | | | Jacob Thaysen | | 11/20/2014 | | - | | 22,583 | | 41.26 | | 11/19/2024 | | - | | - | | | | - | | | | | 11/18/2015 | | - | | - | | - | | - | | 9,370 | | 408,251 | | | | - | | | | | 11/20/2013 | | - | | - | | - | | - | | - | | - | | 1,310 | | 57,077 | | | | | 11/20/2014 | | - | | - | | - | | - | | - | | - | | 1,270 | | 55,334 | | | | | 11/18/2015 | | - | | - | | - | | - | | - | | - | | 1,469 | | 64,004 | | | | | 11/18/2015 | | - | | - | | - | | - | | - | | - | | 1,738 | | 75,725 | | | Total | | | | - | | 22,583 | | | | | | 9,370 | | 408,251 | | 5,787 | | 252,140 | |
(1) | EXECUTIVE COMPENSATION |
| | Outstanding Equity Awards at Fiscal Year 2014 Year End | | | | | | | | | | Restricted Stock | | Performance Share | | | | | Option Awards | | Unit Awards | | Awards | | | | | | | | | | Number | | Market | | | | | | | | | | | | | | | | | | of Shares | | Value of | | | | | | | | | | | | | | | | | | or Units | | Shares | | Number of | | Market | | | | | | | | | | | | | | | | | | | | | | | | | of Stock | | or Units | | Unearned | | Value of | | | | | Number of Securities | | | | | | | | | | | | | | That | | That | | Shares | | Shares | | | | | Underlying Unexercised | | Option | | Option | | Option | | Have Not | | Have Not | | That Have | | That Have | | | Grant | | Options (#) | | Exercise | | Vesting | | Expiration | | Vested | | Vested | | Not Vested | | Not Vested | Name | | Date | | Exercisable(1) | | Unexercisable(1) | | Price ($) | | Date | | Date | | (#)(1)(2) | | ($) | | (#)(1)(3) | | ($) | Michael R. McMullen | | 11/19/2007 | | | 31,513 | | | | — | | | | $35.80 | | | | 11/19/2008 | | | | 11/18/2017 | | | | — | | | | — | | | | — | | | | — | | | | 11/18/2008 | | | 19,644 | | | | — | | | | $19.00 | | | | 11/18/2009 | | | | 11/17/2018 | | | | — | | | | — | | | | — | | | | — | | | | 11/18/2009 | | | 95,011 | | | | — | | | | $29.46 | | | | 11/18/2010 | | | | 11/17/2019 | | | | — | | | | — | | | | — | | | | — | | | | 11/17/2010 | | | 52,038 | | | | 17,346 | | | | $35.21 | | | | 11/17/2011 | | | | 11/16/2020 | | | | — | | | | — | | | | — | | | | — | | | | 11/17/2011 | | | 31,930 | | | | 31,931 | | | | $37.21 | | | | 11/17/2012 | | | | 11/16/2021 | | | | — | | | | — | | | | — | | | | — | | | | 11/21/2012 | | | 18,000 | | | | 54,000 | | | | $35.84 | | | | 11/21/2013 | | | | 11/20/2022 | | | | — | | | | — | | | | — | | | | — | | | | 11/20/2013 | | | — | | | | 53,130 | | | | $53.53 | | | | 11/20/2014 | | | | 11/19/2023 | | | | — | | | | — | | | | — | | | | — | | | | 11/17/2010 | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5,000 | | | | $276,400 | | | | — | | | | — | | | | 11/17/2011 | | | — | | | | — | | | | — | | | | — | | | | — | | | | 25,000 | | | | $1,382,000 | | | | — | | | | — | | | | 11/17/2011 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 16,962 | | | | $937,659 | | | | 11/21/2012 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 18,311 | | | | $1,012,232 | | | | 11/20/2013 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 14,766 | | | | $816,264 | | | | 9/17/2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 18,444 | | | | $1,019,584 | | Total | | | | | 248,136 | | | | 156,407 | | | | | | | | | | | | | | | | 30,000 | | | | $1,658,400 | | | | 68,483 | | | | $3,785,739 | | | | Ronald S. Nersesian | | 11/17/2010 | | | — | | | | 22,767 | | | | $35.21 | | | | 11/17/2011 | | | | 11/16/2020 | | | | — | | | | — | | | | — | | | | — | | | | 11/17/2011 | | | — | | | | 56,349 | | | | $37.21 | | | | 11/17/2012 | | | | 11/16/2021 | | | | — | | | | — | | | | — | | | | — | | | | 11/21/2012 | | | — | | | | 105,000 | | | | $35.84 | | | | 11/21/2013 | | | | 11/20/2022 | | | | — | | | | — | | | | — | | | | — | | | | 11/20/2013 | | | — | | | | 120,620 | | | | $53.53 | | | | 11/20/2014 | | | | 11/19/2023 | | | | — | | | | — | | | | — | | | | — | | | | 11/17/2010 | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5,000 | | | | $276,400 | | | | — | | | | — | | | | 11/20/2013 | | | — | | | | — | | | | — | | | | — | | | | — | | | | 40,999 | | | | $2,266,425 | | | | — | | | | — | | | | 11/17/2011 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 29,934 | | | | $1,654,752 | | | | 11/21/2012 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 35,605 | | | | $1,968,244 | | Total | | | | | — | | | | 304,736 | | | | | | | | | | | | | | | | 45,999 | | | | $2,542,825 | | | | 65,539 | | | | $3,622,996 | |
____________________
(1) | | All share amounts reflect shares outstanding asoptions vest at the rate of October 31, 2014. In November 2014, all outstanding share amounts were adjusted due to the spin-off of Keysight Technologies. | | (2) | | Amounts reflect unvested restricted stock units. The remainder of Mr. Hirsch’s award vested on November 17, 2014. The remainder of Mr. Nersesian’s 2010 award vested on November 17, 2014. His 2013 award vested 25% on November 20, 2014 and will continue to vest 25% per year over four years. |
(2) | All RSUs vest at the next three years. The remainderrate of Mr. McMullen’s November 17, 2010 award vested on November 17, 2014. Mr. McMullen’s November 17, 2011 award vested 100% on the third anniversary of the date of grant, which was November 17, 2014. The remainder of Mr. Sullivan’s November 19, 2013 grant vested approximately one-third on November 19, 2014 and will continue to vest one-third on November 19, 2015 and one-third on November 19, 2016. The remainder of Ms. Huber’s 2010 award vested on November 17, 2014. Her 2013 award vested 25% on November 20, 2014 and will continue to vest 25% per year over the next threefour years. |
42
| EXECUTIVE COMPENSATION |
(3) | | Amounts reflect multiple unvested performance share awards that are outstanding simultaneously as of the end of fiscal year 20142016 for each NEO under the LTP Program. TheLTPP. Since the FY13 – FY15 performance share awards granted on November 17, 2011 were vested and assessed on November 19, 2014. The performance share awards granted on November 21, 2012 will vest and be assessedaward did not result in November 2015.any payouts the previous year, the amounts are shown at threshold payout. The performance share awards granted on November 20, 2013 were vested and assessed on November 16, 2016. The performance share awards granted on November 19, 2014 will vest and be assessed in November 2016.2017. The performance share awards granted on November 18, 2015 will vest and be assessed in November 2018. |
Table of Contents
| EXECUTIVE COMPENSATION |
Option Exercises and Stock Vested at Fiscal Year-End The following table sets forth information on stock option exercises and stock vesting in fiscal year 20142016 and the value realized on the date of exercise, if any, by each of our NEOs. None of our NEOs had any stock which vested in fiscal year 2016. Option Exercises and Stock Vested in Fiscal Year 2014 | | | | | | | | | | | | Restricted Stock & | | | | | | | | | | | Option Awards | | Restricted Stock Units | | Performance Awards | | | Number of | | | | | | Number of | | | | | | Number of | | | | | | | Shares Acquired | | Value Realized | | Awards Acquired | | Value Realized | | Awards Acquired | | Value Realized | | | on Exercise | | on Exercise | | Upon Vesting | | on Vesting | | Upon Vesting | | on Vesting | Name | | (#) | | ($) | | (#) | | ($) | | (#)(1) | | ($)(2) | William P. Sullivan | | | 725,979 | | | | $16,867,237 | | | | — | | | | $0 | | | | 73,498 | | | | $2,998,718 | | Didier Hirsch | | | 83,645 | | | | $2,366,865 | | | | 1,848 | | | | $101,511 | | | | 16,960 | | | | $691,968 | | Marie Oh Huber | | | 60,567 | | | | $1,574,107 | | | | 3,125 | | | | $171,656 | | | | 11,306 | | | | $461,285 | | Michael R. McMullen | | | 64,779 | | | | $2,058,917 | | | | 5,000 | | | | $274,650 | | | | 16,726 | | | | $682,421 | | Ronald S. Nersesian | | | 114,147 | | | | $2,272,890 | | | | 5,000 | | | | $274,650 | | | | 37,070 | | | | $1,149,170 | |
____________________ | | | Option Awards | | Performance Awards | | | | | Number of | | | | Number of | | | | | | | Shares | | Value Realized | | Shares Acquired | | Value Realized | | | | | Acquired on | | on Exercise | | Upon Vesting (1) | | on Vesting (2) | | | Name | | Exercise (#) | | ($) | | (#) | | ($) | | | Michael R. McMullen | | 124,411 | | 3,058,552 | | 33,300 | | 1,537,794 | | | Didier Hirsch | | - | | - | | 20,450 | | 944,381 | | | Mark Doak | | 18,879 | | 323,997 | | 8,385 | | 387,219 | | | Patrick Kaltenbach | | 9,266 | | 172,730 | | 2,516 | | 116,189 | | | Jacob Thaysen | | - | | - | | 5,033 | | 232,424 | |
(1) | | Amounts reflect the performance shares granted in fiscal year 20122014 pursuant to the LTP ProgramLTPP for the fiscal year 2012-20142014-2016 performance period and paid out in calendar year 2014.2016. Mr. HirschDoak and Mr. NersesianKaltenbach had elected to defer 16,1122,095 and 35,2162,390 shares respectively, into their Deferred Compensation Accounts. |
| (2) | | The market value of these awards is based on the closing price of Agilent’sour common stock on November 19, 2014. For Mr. Nersesian,16, 2016, the value is based on the closing pricedate of Keysight’s common stock on November 18, 2014.issuance of these shares. |
43
| EXECUTIVE COMPENSATION |
Pension Benefits The following table shows the estimated present value of accumulated benefits, including years of service, payable at normal retirement age (65) to our NEOs under the Deferred Profit-Sharing Plan (“DPSP”)(DPSP), the Retirement Plan and the Supplemental Benefit Retirement Plan. There were no payments under any of our pension plans to any of our NEOs in fiscal year 2016. To calculate an eligible employee’s years of service, the pension plans will bridge each eligible employee’s service, if any, with Hewlett-Packard Company prior to June 2, 2000 to that eligible employee’s service with Agilentus on or after June 2, 2000; the total years of service will reflect employment service from both Hewlett-Packard and Agilent,us, capped at 30 years of service. The cost of all three plans is paid entirely by Agilent.us. The present value of accumulated benefit is calculated using the assumptions under Accounting Standards Codification Topic 715: Compensation – Retirement Benefits for the fiscal year end measurement (as of October 31, 2014)2016). The present value is based on a lump sum interest rate of 6.00%, DPSP rate of return of 7.5% and the “applicable mortality table” described in section 417(e)(3) of the Internal Revenue Code. See also Note 1513 to Agilent’sour consolidated financial statements in its Annual Report on Form 10-K for the fiscal year ended October 31, 2014,2016, as filed with the SEC on December 22, 2014.20, 2016. Pension Benefits | | | Eligible for | | | | | | | | | | | | Number | | | | Present | | | Full | | Deferred | | | | Supplemental | | of Years | | Payments | | Value of | | | Retirement | | Profit-Sharing | | Retirement | | Benefit Plan | | of Credited | | During Last | | Accumulated | Name | | Benefits? | | Plan ($) | | Plan ($) | | ($) | | Service (#) | | Fiscal Year ($) | | Benefit ($) | William P. Sullivan | | Yes | | | $647,028 | | | $416,685 | | | $3,424,084 | | | 30 | | $0 | | $4,487,798 | Didier Hirsch | | Yes | | | $0 | | | $547,485 | | | $462,845 | | | 15 | | $0 | | $1,010,330 | Marie Oh Huber | | No | | | $91,757 | | | $707,112 | | | $574,517 | | | 24 | | $0 | | $1,373,386 | Michael R. McMullen | | No | | | $207,179 | | | $766,201 | | | $715,956 | | | 30 | | $0 | | $1,689,336 | Ronald S. Nersesian | | No | | | $0 | | | $437,164 | | | $572,199 | | | 12 | | $0 | | $1,009,363 |
Pension Benefits | | | | Eligible for | | | Number of | | Present | | | | | Full | | | Years of | | Value of | | | | | Retirement | | | Credited | | Accumulated | | | Name | | Benefits? | | | Service (#) | | Benefit ($) | | | Michael R. McMullen | | | | | | | | | | Deferred Profit-Sharing Plan | | | | | | | 188,436 | | | U.S. Retirement Plan | | Y | | | 30 | | 789,292 | | | Supplemental Benefit Plan | | | | | | | 830,745 | | | Total | | | | | | | 1,808,474 | | | Didier Hirsch | | | | | | | | | | Deferred Profit-Sharing Plan | | | | | | | 0 | | | U.S. Retirement Plan | | Y | | | 17 | | 613,819 | | | Supplemental Benefit Plan | | | | | | | 556,987 | | | France Pension Plan | | | | | | | 141,235 | | | Total | | | | | | | 1,312,041 | | | Mark Doak | | | | | | | | | | Deferred Profit-Sharing Plan | | | | | | | 180,413 | | | U.S. Retirement Plan | | Y | | | 30 | | 690,617 | | | Supplemental Benefit Plan | | | | | | | 62,098 | | | Total | | | | | | | 933,128 | | | Patrick Kaltenbach | | | | | | | | | | Deferred Profit-Sharing Plan | | | | | | | - | | | U.S. Retirement Plan | | N | | | - | | - | | | Supplemental Benefit Plan | | | | | | | - | | | German Pension Plan | | N | | | | | 3,012,562 | | | Total | | | | | | | 3,012,562 | | | Jacob Thaysen | | | | | | | | | | Deferred Profit-Sharing Plan | | | | | | | - | | | U.S. Retirement Plan | | N | | | - | | - | | | Supplemental Benefit Plan | | | | | | | - | | | Total | | | | | | | - | |
Table of Contents44
| EXECUTIVE COMPENSATION |
Retirement Plan The Retirement Plan, which was closed to newfrozen for all participants as of April 30, 2016, was available to all employees hired onto U.S. payroll before November 1, 2014 and guarantees a minimum retirement benefit payable at normal retirement age (the later of age 65 or termination). Benefits arewere accrued on a monthly basis as a lump sum payable at normal retirement age based on eligible pay and years of service up to a maximum of 30 years as follows: For participants who have fewer than 15 years of service: 11% × target pay at the end of the month PLUS 5% × target pay at the end of the month in excess of 50% of the Social Security Wage Base For participants who have 15 or more years of service: 14% × target pay at the end of the month PLUS 5% × target pay at the end of the month in excess of 50% of the Social Security Wage Base Benefits under the Retirement Plan are payable as either (a) a single life annuity for single participants or as (b) a 50% joint and survivor annuity for married participants. Participants may elect to receive payments at any time following termination or retirement and in the above forms or as an actuarially equivalent 75% or 100% joint and survivor annuity, or as a one-time lump sum. Payments made prior to normal retirement age will be reduced in accordance with the plan provisions. All regular full-time or regular part-time employees who were employeesSupplemental Benefit Retirement Plan
The Supplemental Benefit Retirement Plan, which was frozen for all participants as of Agilent priorApril 30, 2016, is an unfunded, non-qualified deferred compensation plan. Benefits payable under this plan are equal to November 1, 2014 automatically become participantsthe excess of the combined qualified Retirement Plan and Deferred Profit-Sharing Plan amount that would be payable in accordance with the terms of the Retirement Plan disregarding the benefit and compensation limitations imposed pursuant to sections 415 and 401(a)(17) of the Internal Revenue Code. Benefits under the Supplemental Benefit Retirement Plan are payable upon termination or retirement as follows: Accruals prior to January 1, 2005 are paid in a single lump sum in the January following the fiscal year in which the participant takes his qualified Retirement Plan benefit. Accruals after December 31, 2004 are paid based on the May 1date the participant retires or November 1terminates: in January immediately following completionif retirement or termination occurs during the first six months of two yearsthe year; or in July if retirement or termination occurs during the second six months of service.the year. Participants will receive a benefit in the form of either five annual installments (if the lump sum value is at least $150,000); or in a single lump sum (if the lump sum value is less than $150,000). Deferred Profit-Sharing Plan The Deferred Profit-Sharing Plan is a closed, defined contribution plan. The Deferred Profit-Sharing Plan was created by Hewlett-Packard and covers participants’ service with Hewlett-Packard before November 1, 1993 and is used as a floor offset for the Retirement Plan for service prior to November 1, 1993. There have been no contributions into the plan since October 31, 1993. For service prior to November 1, 1993 (if any), the benefit due is the greater of (i) the benefit defined by the Retirement Plan formula, or (ii) the annuity value of the Deferred Profit-Sharing Plan account balance. Therefore, for service prior to November 1, 1993, the Retirement Plan guarantees a minimum retirement benefit. 45
| EXECUTIVE COMPENSATION |
Benefits under the Deferred Profit-Sharing Plan are payable at normal retirement age as either (i) a single life annuity for single participants, or (ii) a 50% joint and survivor annuity for married participants. Participants may elect to receive payments at any time following termination or retirement and in the above forms or as 75% or 100% joint and survivor annuity, or as a one-time lump sum.
Table of Contents
| EXECUTIVE COMPENSATION |
Supplemental Benefit Retirement Plan
The Supplemental Benefit Retirement Plan, which was closed to new participants as of November 1, 2014, is an unfunded, non-qualified deferred compensation plan. Benefits payable under this plan are equal to the excess of the combined qualified Retirement Plan and Deferred Profit-Sharing Plan amount that would be payable in accordance with the terms of the Retirement Plan disregarding the benefit and compensation limitations imposed pursuant to sections 415 and 401(a)(17) of the Internal Revenue Code.
Benefits under the Supplemental Benefit Retirement Plan are payable upon termination or retirement as follows:
● | Accruals prior to January 1, 2005 are paid in a single lump sum in the January following thefiscal year in which the participant takes his qualified Retirement Plan benefit.
| ● | Accruals after December 31, 2004 are paid based on the date the participant retires orterminates: in January immediately following if retirement or termination occurs during thefirst six months of the year; or in July if retirement or termination occurs during the secondsix months of the year. Participants will receive a benefit in the form of either five annualinstallments (if the lump sum value is at least $150,000); or in a single lump sum (if the lumpsum value is less than $150,000). |
Non-Qualified Deferred Compensation in Last Fiscal Year
For fiscal year 2014, the non-qualified deferred compensation plan was available to all active employees on the US payroll with total target cash salary, including the short-term Performance-Based Compensation Plan, greater than or equal to $260,000.
There are three types of earnings that may be deferred under the program:
| 1. | | 100% of annual base pay earnings in excess of the IRS qualified plan limit of $260,000 for 2014; | | | | 2. | | 95% of bonus earnings, discretionary and cash compensation paid under the Performance- Based Compensation Plan; and | | | | 3. | | 95% of performance based compensation paid out in accordance with the terms of Agilent’s LTP Program. Awards under this program are paid out in the form of Agilent common stock. |
Deferral elections may be made annually and are part of overall tax planning for many executives. There are several investment options available under the Plan, most of which mirror the investment choices under our tax-qualified 401(k) plan. All investment choices are made by the participant. Based on market performance, dividends and interest are credited to participants’ accounts from the funds that the participant has elected.
At the time participation is elected, employees must also elect payout in one of three forms, which can commence upon termination or be delayed by an additional one, two or three years following termination:
| 1. | | a single lump sum payment; | | | | 2. | | annual installments over a five-to-fifteen year period; or | | | | 3. | | a single lump sum payment in January or July on or after 2016. |
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| EXECUTIVE COMPENSATION |
Payouts are distributed to eligible participants in January of the year following termination, if termination occurs during the first six months of the calendar year. Otherwise, payouts are distributed to eligible participants in July of the year following termination where termination occurs during the second half of the calendar year. No early distributions or withdrawals are allowed. When and if received, a participant in the LTP Program may elect to defer his or her shares through our 2005 Deferred Compensation Plan. The LTP Program shares are deferred in the form of Agilent common stock only. At the end of the deferral period, the LTP Program shares are simply released to the executive.
We have established a rabbi trust as a source of funds to make payments under the non-qualified deferred compensation plan. As of October 31, 2014, the rabbi trust with Fidelity Management Trust Company was fully funded, so there is no need for additional funding.
The table below provides information on the non-qualified deferred compensation of the NEOs for fiscal year 2014.
Non-Qualified Deferred Compensation | | | Executive | | Registrant | | Aggregate | | | | Aggregate | | | Contributions | | Contributions | | Earnings in | | Aggregate | | Balance at | | | in Last Fiscal | | in Last Fiscal | | Last Fiscal | | Withdrawals/ | | Fiscal | | | Year | | Year | | Year | | Distributions | | Year-End | Name | | ($)(1) | | ($) | | ($)(2) | | ($) | | ($)(3) | William P. Sullivan | | | $0 | | | $0 | | | $1,071,062 | | | $0 | | | $12,518,886 | | Didier Hirsch | | | $809,158 | | | $0 | | | $496,856 | | | $0 | | | $5,360,835 | | Marie Oh Huber | | | $0 | | | $0 | | | $83,628 | | | $0 | | | $1,033,616 | | Michael R. McMullen | | | $0 | | | $0 | | | $1,484 | | | $0 | | | $10,085 | | Ronald S. Nersesian | | | $935,062 | | | $0 | | | $244,788 | | | $0 | | | $3,608,400 | |
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(1) | | The salary portion of the amounts reflected above is included in the amount reported as salary in the “Summary Compensation Table.” | | (2) | | Amounts reflected are not included in the “Summary Compensation Table” because the earnings are not “above-market.” These amounts include dividends, interest and change in market value. | | (3) | | Aggregate Balance at Last Fiscal Year End for Mr. Hirsch includes $160,599 equivalent to the aggregate lump sum balance for the Agilent Technologies, Inc. France Pension Plan (as described below). The present value is of accumulated benefit based on an interest rate of 3.00% and rate of return of 3.64% (as of January 1, 2014). The France Pension Plan is only valued once a year, and the benefit value as of October 31, 2014 is the same as that on January 1, 2014. |
Agilent Technologies, Inc. France Pension Plan
The Agilent Technologies France Pension Plan is a defined contribution plan created by Hewlett-Packard in 1982 and is open to all exempt employees in France. Since Mr. Hirsch was originally employed by Hewlett-Packard France, he is the only NEO participating in this plan. The French Pension Scheme is not a tax-qualified defined contribution plan under the U.S. Internal Revenue Code. Eligible employees must have Pensionable Salary above eight times the French Social Security Ceiling (“Tranche C” threshold) to be a participant of this plan. AgilentThe company contributes 5% of Pensionable Salary and eligible employees contribute 3% of Pensionable Salary. AgilentThe company no longer contributes to this plan on Mr. Hirsch’s behalf. Benefits under this plan are payable at the plan’s normal retirement age (age 65) or from age 60 with a 5% reduction per annum as a lifetime annuity resulting from the accumulated contributions and actual return on investments. Should the participant die prior to receiving benefits, the surviving spouse would receive 60% of the annuity accrued at the time of the participant’s death (death in service) or 60% of the actual annuity (death in retirement). In case of employment termination, the accrued benefit retirement annuity and, where appropriate, contingent spouse’s pension is deferred to normal retirement age.
TableAgilent Technologies, Inc. German Pension Plan
The Agilent Technologies German Pension Plan (PPL) is a Defined Benefit plan inherited from Hewlett-Packard and has been closed to new entrants since Dec 31, 1994. Mr. Kaltenbach is the only NEO participating in this plan. The plan offers retirement, disability and death benefits. Benefits under the plan are calculated as 0.5% of Contentsthe last two years Pensionable Salary up to the SSC (Social Security Ceiling) plus 2% of the last 2 years Pension Salary in excess of the SSC, multiplied by the pensionable service (max 40 years). There is no employee contribution. Benefits are payable at age 65 with accrual reductions before age 60. The plan also provides death and disability coverage (60% for widow and widower and 15% for orphans). Non-Qualified Deferred Compensation For fiscal year 2016, the non-qualified deferred compensation plan was available to all active employees on the US payroll with total target cash salary, including the short-term Performance-Based Compensation Plan, greater than or equal to $265,000. There are three types of earnings that may be deferred under the program: | 1. | 100% of annual base pay earnings in excess of the IRS qualified plan limit of $265,000 for 2016; |
| 2. | 95% of bonus earnings, discretionary and cash compensation paid under the Performance-Based Compensation Plan; and |
| 3. | 95% of performance based compensation paid out in accordance with the terms of our LTPP. Awards under this program are paid out in the form of our common stock. |
Deferral elections may be made annually and are part of overall tax planning for many executives. There are several investment options available under the Plan, most of which mirror the investment choices under our tax-qualified 401(k) plan. All investment choices are made by the participant. Based on market performance, dividends and interest are credited to participants’ accounts from the funds that the participant has elected. At the time participation is elected, employees must also elect payout in one of three forms, which can commence upon termination or be delayed by an additional one, two or three years following termination: | 1. | a single lump sum payment; |
| 2. | annual installments over a five to fifteen-year period; or |
| 3. | a single lump sum payment in January or July on or after 2018. |
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| EXECUTIVE COMPENSATION |
The company currently provides two types of employer contributions. The first is a matching contribution up to 6% of deferred base pay amounts above the IRS qualified plan limit. The second is a transitional company contribution (DCPTCC) which is a formulaic contribution put in place due to the freeze of the U.S. pension and supplemental benefit retirement plans respectively. Contributions made by the company to our NEOs are detailed in the table that follows. Payouts are distributed to eligible participants in January of the year following termination, if termination occurs during the first six months of the calendar year. Otherwise, payouts are distributed to eligible participants in July of the year following termination where termination occurs during the second half of the calendar year. No early distributions or withdrawals are allowed. When and if received, a participant in the LTPP may elect to defer his or her shares through our 2005 Deferred Compensation Plan. The LTPP shares are deferred in the form of our common stock only. At the end of the deferral period, the LTPP shares are released to the executive. We have established a rabbi trust as a source of funds to make payments under the non-qualified deferred compensation plan. As of October 31, 2016, the rabbi trust with Fidelity Management Trust Company was fully funded, so there is no need for additional funding. The table below provides information on the non-qualified deferred compensation of the NEOs for fiscal year 2016. | | Executive | | Company | | Aggregate | | Aggregate | | | | Contributions in | | Contributions in | | Earnings in Last | | Balance at Fiscal | | | | Last Fiscal Year (1) | | Last Fiscal Year | | Fiscal Year (2) | | Year-End (3) | | Name | | ($) | | ($) | | ($) | | ($) | | Michael R. McMullen | | - | | - | | 479 | | 11,088 | | Didier Hirsch | | 330,600 | | 7,677 | | 703,164 | | 7,409,690 | | Mark Doak | | 193,092 | | - | | 21,864 | | 403,178 | | Patrick Kaltenbach | | 11,032 | | 10,962 | | 180 | | 22,174 | | Jacob Thaysen | | - | | - | | - | | - | |
(1) | The salary portion of the amounts reflected above is included in the amount reported as salary in the “Summary Compensation Table.” |
(2) | Amounts reflected are not included in the “Summary Compensation Table” because the earnings are not “above-market.” These amounts include dividends, interest and change in market value. |
(3) | Aggregate Balance at Last Fiscal Year End for Mr. Hirsch includes $141,235, equivalent to the aggregate lump sum balance for the Agilent Technologies, Inc. France Pension Plan (as described below). The present value is of accumulated benefit based on an interest rate of 3.00% and rate of return of 3.64% (as of January 1, 2016). The France Pension Plan is only valued once a year, and the benefit value as of October 31, 2016 is the same as that on January 1, 2016. |
Agilent Technologies, Inc. Global Relocation Supplement Plan The purpose of the Agilent Technologies, Inc. Global Relocation Supplement Plan (GRS) is to offset the loss of future retirement benefits that may occur upon relocation to a new country’s retirement program. The GRS benefit is delivered in the form of a cash bonus payable in two installments at six months and eighteen months following relocation. The bonus amount has two components. The first component is available to all relocatees and is simply the product of the monthly salary multiplied by five. The second component is only available to relocatees from certain countries and is the product of the monthly salary multiplied by five, multiplied by the specific country percentage, multiplied by the employees’ years of service in the country from which they are transferring. Payments under the program may be in addition to other benefits an employee may receive upon relocation to another country. The GRS is available to all eligible employees, regardless of job level. 47
| EXECUTIVE COMPENSATION |
Agilent Technologies, Inc. International Relocation Benefit Plan The Agilent Technologies, Inc. International Relocation Benefit Plan (“IRBP”)(IRBP) is an unfunded program that was created by Hewlett-Packard in 1989 and was open to employees who transferred from one country payroll to another at the Company’scompany’s request prior to December 1, 2001. Mr. Hirsch transferred from France to the United States at the Company’scompany’s request in September 1999. Upon transfer to the US payroll, he became eligible to participate in the Company’scompany’s US retirement programs and was no longer eligible to accrue benefits under the France Pension Plan. As he transferred at the Company’scompany’s request, he became eligible for the IRBP. The objective of the IRBP is to mitigate the possible estimated retirement income loss under country social security plans, governmental programs and Agilentour retirement schemes to an employee who has transferred internationally on a permanent, company-sponsored basis. The plan was closed to new participants effective November 30, 2001. Effective May 1, 2012, the IRBP benefit was frozen for all participants. Mr. Hirsch’s benefit was $96,492$103,290 as of October 31, 2014.2016. The frozen IRBP benefit will accrue interest at 2% annum until his retirement. Any loss of retirement income resulting from Mr. Hirsch’s no longer accruing benefits under the foregoing French arrangements will be paid to Mr. Hirsch in a single lump sum upon retirement from the Company’scompany’s general assets as soon as administratively feasible. Termination and Change of Control Arrangements Set forth below is a description of the plans and agreements that could result in potential payments to the NEOs in the case of their termination of employment and/or a change of control of Agilent.the company. Change of Control Agreements Each NEO has signed a Change of Control Agreement. Under these agreements, in the event that within 24 months after a change of control of Agilent, Agilentthe company, the company or its successor terminates the employment of such executive without cause or an event constituting good reason occurs and the executive resigns within three months after such an event, the executive will be entitled to: (i) two times, or solely with respect to the CEO, three times, the sum of such executive’s base salary and target bonus, (ii) payment of $80,000 for medical insurance premiums, (iii) full vesting of all outstanding options and stock awards not subject to performance-based vesting, and (iv) a prorated portion of any bonus. The Compensation Committee amended our forms of Changechange of Control Agreementcontrol agreement to remove tax gross-ups of parachute payments. These amended forms of agreements are used with any newly executed agreements after July 14, 2009. In September 2014, the Compensation Committee further amended these agreements to expand the Changechange of Controlcontrol definition, add anticipatory termination language, more clearly define how the prorated bonus is calculated and clarify treatment of LTPP awards. For agreements entered into before July 14, 2009 and to the extent that the payment of these benefits triggers the excise tax under Section 4999 of the Code or any comparable federal, state, local or foreign excise tax, Agilentthe company will be responsible for payment of any additional tax liability arising from the application of such excise tax, subject to certain exceptions for all of the named executives officers except the CEO.exceptions. Only one officer, not the CEO, has an agreement entered into prior to July 14, 2009 that contains a tax gross-up.gross-up provision. In exchange for such consideration, eachthis executive has agreed to execute a release of all of the executive’s rights and claims relating to his or her employment. Under the current agreements, a “change of control” means the occurrence of any of the following events: (i) the sale, exchange, lease or other disposition or transfer of all or substantially all of the assets of Agilentthe company to a third party; (ii) a merger or consolidation involving Agilentthe company in which theour stockholders of Agilent immediately prior to such merger or consolidation are not the owners of more than 75% of the total voting power of the outstanding voting securities of Agilentthe company after the transaction;
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| EXECUTIVE COMPENSATION |
(iii) the acquisition of beneficial ownership of at least 25% of the total voting power of the outstanding voting securities of Agilentthe company by a third person; or (iv) Individuals who, as of Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board. 48
| EXECUTIVE COMPENSATION |
“Good reason” means (i) the reduction of the officer’s rate of pay, other than reductions that apply to employees generally and variable and performance reductions; (ii) reduction in benefits or failure to receive the same benefits as similarly situated employees; (iii) a change in the officer’s duties, responsibilities, authority, job title, or reporting relationships resulting in a significant diminution of position, subject to certain exceptions; (iv) the relocation to a worksite that is more than 35 miles from his prior worksite and which increases the distance between such Executive’sexecutive’s home and principal office by more than 35 miles, unless Executiveexecutive accepts such relocation opportunity; (v) the failure or refusal of a successor to Agilentthe company to assume Agilent’sour obligations under the agreement, or (vi) a material breach by Agilentthe company or any successor to Agilentthe company of any of the material provisions of the agreement. Under these agreements, “cause” means misconduct, including: (i) conviction of any felony or any crime involving moral turpitude or dishonesty which has a material adverse effect on Agilent’sour business or reputation; (ii) repeated unexplained or unjustified absences from Agilent;the company; (iii) refusal or willful failure to act in accordance with any specific directions, orders or policies of Agilentthe company that has a material adverse effect on Agilent’sour business or reputation; (iv) a material and willful violation of any state or federal law that would materially injure the business or reputation of Agilentthe company as reasonably determined by the Board; (v) participation in a fraud or act of dishonesty against Agilentthe company which has a material adverse effect on Agilent’sour business or reputation; (vi) conduct by the officer which the Board determines demonstrates gross unfitness to serve; or (vii) intentional, material violation by the officer of any contract between the officer and Agilentthe company or any statutory duty of the officer to Agilentthe company that is not corrected within thirty days after written notice to the officer. In addition, in the event of a change of control: | 1. | | Participants in the LTP ProgramLTPP would receive at the earlier of the end of the performance period or termination of the program, an LTP ProgramLTPP payout equivalent to the greater of the target award or the accrued amount of the payout, and in the case of termination during the first 12 months of the performance cycle, prorated for the amount of time elapsed during the first twelve months of the performance period; and |
| | 2. | 2. | | Participants who receive restricted stock unit awards would vest in full immediately prior to the closing of the transaction, unless the awards are assumed, converted or replaced in full by the successor corporation or a parent or subsidiary of the successor. |
Termination and Change of Control Table For each of the NEOs, the table below estimates the amount of compensation that would be paid in the event that (i)of a change of control of Agilentthe company occurs and executive is terminated without cause or voluntarily terminates at a time when an event constituting good reason has occurred, in both cases either within 24 months following the change of control or within 3three months prior to such change of control, involuntary termination with or without cause, voluntary termination, or death, disability or retirement occurs. control. The amounts shown assume that each of the terminations was effective October 31, 2014.2016. | | Cash Severance | Continuation of | Stock Award | Stock Award | Stock Option | Stock Option | Pension | Excise Tax | Total Termination | Name | | Payments | Benefits (1) | Acceleration | Cont'd Vesting | Acceleration (2) | Cont'd Vesting (2) | Benefits (3) | Gross-Up (5) | Benefits | Michael R. McMullen | | 6,930,000 | 80,000 | 10,979,030 | - | 999,762 | - | 1,388,286 | - | 20,377,078 | Didier Hirsch (4) | | 2,160,000 | 80,000 | 5,001,008 | - | 831,484 | - | 1,451,974 | - | 9,524,465 | Mark Doak | | 1,710,000 | 80,000 | 2,741,555 | - | 200,186 | - | 938,412 | - | 5,670,153 | Patrick Kaltenbach | | 1,800,000 | 80,000 | 2,249,345 | - | 156,368 | - | 3,012,562 | - | 7,298,274 | Jacob Thaysen | | 1,584,000 | 80,000 | 1,416,809 | - | 52,167 | - | - | - | 3,132,976 |
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(1) | EXECUTIVE COMPENSATIONFlat lump sum benefit for healthcare expenses, including additional health plan premium payments that may result from termination in the event of change of control. | |
| | | | Involuntary | | | | | | | | | | | | | Termination or | | Voluntary | | | | | | | | | Resignation for | | Termination or | | | | | | | | | Good Cause in | | Involuntary | | | | | | | | | Connection with | | Termination | | Death / | | | | | a Change of | | with or without | | Disability / | | | | | Control | | Cause | | Retirement | Name | | Type of Benefit | | ($)(1) | | ($) | | ($)(6) | William P. Sullivan | | Cash Severance Payments | | | $7,875,000 | | | | $0 | | | | $0 | | | | Continuation of Benefits(2) | | | $80,000 | | | | $0 | | | | $0 | | | | Stock Award Acceleration | | | $15,044,177 | | | | $0 | | | | $15,044,177 | | | | Stock Option Acceleration(3) | | | $9,554,847 | | | | $0 | | | | $9,554,847 | | | | Pension Benefits(4) | | | $5,377,646 | | | | $5,377,646 | | | | $5,377,646 | | | | Excise Tax Gross-Up(5) | | | $0 | | | | $0 | | | | $0 | | | | Total Termination Benefits: | | | $37,931,670 | | | | $5,377,646 | | | | $29,976,670 | | | | Didier Hirsch | | Cash Severance Payments | | | $2,160,000 | | | | $0 | | | | $0 | | | | Continuation of Benefits(2) | | | $80,000 | | | | $0 | | | | $0 | | | | Stock Award Acceleration | | | $2,810,035 | | | | $0 | | | | $2,810,035 | | | | Stock Option Acceleration(3) | | | $2,172,545 | | | | $0 | | | | $2,172,545 | | | | Pension Benefits(4) | | | $1,066,955 | | | | $1,066,955 | | | | $1,066,955 | | | | Excise Tax Gross-Up(5) | | | $2,818,108 | | | | $0 | | | | $0 | | | | Total Termination Benefits: | | | $11,107,643 | | | | $1,066,955 | | | | $6,049,535 | | | | Marie Oh Huber | | Cash Severance Payments | | | $1,837,500 | | | | $0 | | | | $0 | | | | Continuation of Benefits(2) | | | $80,000 | | | | $0 | | | | $0 | | | | Stock Award Acceleration | | | $2,459,739 | | | | $0 | | | | $2,459,739 | | | | Stock Option Acceleration(3) | | | $1,420,745 | | | | $0 | | | | $1,420,745 | | | | Pension Benefits(4) | | | $867,790 | | | | $867,790 | | | | $867,790 | | | | Excise Tax Gross-Up(5) | | | $0 | | | | $0 | | | | $0 | | | | Total Termination Benefits: | | | $6,665,774 | | | | $867,790 | | | | $4,748,274 | | | | Michael R. McMullen | | Cash Severance Payments | | | $2,520,000 | | | | $0 | | | | $0 | | | | Continuation of Benefits(2) | | | $80,000 | | | | $0 | | | | $0 | | | | Stock Award Acceleration | | | $5,444,140 | | | | $0 | | | | $5,444,140 | | | | Stock Option Acceleration(3) | | | $2,067,854 | | | | $0 | | | | $2,067,854 | | | | Pension Benefits(4) | | | $1,113,691 | | | | $1,113,691 | | | | $1,113,691 | | | | Excise Tax Gross-Up(5) | | | $0 | | | | $0 | | | | $0 | | | | Total Termination Benefits: | | | $11,225,685 | | | | $1,113,691 | | | | $8,625,685 | | | | Ronald S. Nersesian | | Cash Severance Payments | | | $3,600,000 | | | | $0 | | | | $0 | | | | Continuation of Benefits(2) | | | $80,000 | | | | $0 | | | | $0 | | | | Stock Award Acceleration | | | $6,165,820 | | | | $0 | | | | $6,165,820 | | | | Stock Option Acceleration(3) | | | $3,727,426 | | | | $0 | | | | $3,727,426 | | | | Pension Benefits(4) | | | $674,035 | | | | $674,035 | | | | $674,035 | | | | Excise Tax Gross-Up(5) | | | $0 | | | | $0 | | | | $0 | | | | Total Termination Benefits: | | | $14,247,281 | | | | $674,035 | | | | $10,567,281 | |
____________________
(1)(2) | Calculated using the in-the-money value of unvested options as of October 31, 2016, the last business day of our last completed fiscal year. The closing price of our common stock as of October 31, 2016 was $43.57. | To |
(3) | For information regarding potential payments upon termination under the Retirement Plan, the Supplemental Benefit Retirement Plan, the Deferred Profit-Sharing Plan, the German Pension Plan and the France Pension Plan, in which our NEOs participate. See “Non-Qualified Deferred Compensation in Last Fiscal Year” and “Pension Benefits” above. | |
(4) | In the case of Mr. Hirsch, to the extent that the payment of the listed benefits triggers the excise tax under Section 4999 of the Code or any comparable federal, state, local or foreign excise tax, Agilentwe will be responsible for payment of any additional tax liability arising from the application of such excise tax. However, in the case of all of the NEOs, other than Mr. Sullivan, the executive |
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| EXECUTIVE COMPENSATION |
| Hirsch shall not be entitled to receive a gross-up payment if (i) the payment of the listed benefits may be reduced to an amount (the “Reduced Amount”) sufficient to result in no portion of such payment being subject to an excise tax, and (ii) after reducing such payment by the Reduced Amount, the executive would receive, on a pre-tax basis, an amount not less than 90% of the value of the unreduced payment on a pre-taxed basis. |
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(5) | EXECUTIVE COMPENSATION |
(2) | | Flat lump sum benefit for healthcare expenses, including additional health plan premium payments that may result from termination in the event of change of control. | | (3) | | Calculated using the in-the-money value of unvested options as of October 31, 2014, the last business day of Agilent’s last completed fiscal year. The closing price of Agilent common stock as of October 31, 2014 was $55.28. | | (4) | | For information regarding potential payments upon termination under the 2005 Deferred Compensation Plan and the Retirement Plan, the Supplemental Benefit Retirement Plan and the Deferred Profit-Sharing Plan, in which our NEOs participate, see “Non-Qualified Deferred Compensation in Last Fiscal Year” and “Pension Benefits” above. | | (5) | | We determined the amount of the excise tax payment in accordance with the provisions of Section 280G of the Code. We utilized the following key assumptions to determine the tax gross-up payment: (i) the interest rate assumption was 120%129% of the applicable federal rate effective for the month of October 2014,2016, compounded semiannually; (ii) a statutory federal income tax rate of 39.6%, Medical tax rate of 2.35%2.90%, California income tax rate of 13.3% for all NEOs except Mr. McMullen who resides in the state of New Jersey which has an income tax rate of 8.97%; (iii) Section 280G “base amount” was determined based on average W-2 compensation for the period from 2009-2013;2011-2015; and (iv) equity grants made within one year of transaction were in the ordinary course of business and were not in contemplation of a transaction. | | (6) | | Under the 1999 Stock Plan, 2009 Stock Plan and the LTP Program, if a NEO dies or is fully disabled, his or her unvested stock options and stock awards shall fully vest. Also, when an employee retires from Agilent, all unvested restricted stock units and/or stock options granted on or after November 17, 2010 continue to vest per the original terms of the grant and grants prior to November 17, 2010 have accelerated vesting upon retirement. As of October 31, 2014, only Mr. Sullivan and Mr. Hirsch were eligible for such continued vesting/accelerated vesting upon retirement. |
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
50
| PROPOSAL 2 - ADVISORY VOTE ON EXECUTIVE COMPENSATION |
PROPOSAL 2 — | ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS |
Our stockholders are entitled to cast an advisory vote at the Annual Meeting to approve the compensation of our named executive officers, as disclosed in this proxy statement. The membersstockholder vote is an advisory vote only and is not binding on the company or its Board of Directors. The company currently intends to submit the compensation of the company’s named executive officers annually, consistent with the advisory vote of the stockholders at the company’s 2011 Annual Meeting. Although the vote is non-binding, the Compensation Committee and the Board of Directors value your opinions and will consider the outcome of the vote in establishing compensation philosophy and making future compensation decisions. As described more fully in the “Compensation Discussion and Analysis” and in “Executive Compensation” sections of the proxy statement, our named executive officers, as identified on page 21 are set forthcompensated in “Board Structurea manner consistent with our business strategy, competitive practice, sound compensation governance principles and Compensation.” Duringstockholder interests and concerns. Our compensation policies and decisions are focused on pay-for-performance. We are requesting your non-binding vote to approve the compensation of our named executive officers as described in the “Compensation Discussion and Analysis” and “Executive Compensation” sections of the proxy statement. Vote Required The advisory vote regarding approval of the compensation of our named executive officers requires the affirmative vote of a majority of shares present at the annual meeting, in person or by proxy, and entitled to vote on the proposal. Abstentions will have the same effect as votes against this proposal. Broker non-votes will have no effect on this proposal as brokers are not entitled to vote on such proposal in the absence of voting instructions from the beneficial owner. The Board of Directors recommends a vote FOR the approval of the compensation of our named executive officers for fiscal 2016. 51
| PROPOSAL 3 - ADVISORY VOTE ON THE FREQUENCY OF VOTE ON EXECUTIVE COMPENSATION |
PROPOSAL 3 — ADVISORY VOTE ON THE FREQUENCY OF THE STOCKHOLDER VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS In addition to providing stockholders with the opportunity to cast a “say on pay” advisory vote on the compensation of our NEOs, in accordance with SEC rules, we are also providing our stockholders with the opportunity to indicate how frequently we should seek an advisory vote on the compensation of our NEOs in the future. This non-binding advisory vote is commonly referred to as a “say on frequency” vote. Under this proposal, our stockholders may indicate whether they would prefer to have an advisory vote on executive compensation every 1 year, 2 years, or 3 years. The Compensation Committee and the Board believe that the advisory vote on executive compensation should be conducted every year because we believe this frequency will enable our stockholders to vote, on an advisory basis, on the most recent fiscal year, no Agilent executive officer servedcompensation information that is presented in our proxy statement, leading to more meaningful and timely communication between the Company and our stockholders on the compensation committee (or equivalent),of our NEOs. Stockholders are not voting to approve or disapprove the Board’s recommendation. Instead, you may cast your vote on your preferred voting frequency by choosing any of the following four options with respect to this proposal: “1 year,” “2 years,” “3 years,” or “abstain.” The say on frequency vote is advisory, and therefore not binding on the Company, the Board, or the boardCompensation Committee. However, the Board and the Compensation Committee value the opinions expressed by stockholders in their vote on this proposal, and will consider the option that receives the most votes in determining the frequency of directors,future advisory votes on compensation of another entity whoseour named executive officer(s)officers. Vote Required The advisory vote regarding the frequency of the stockholder vote described in this proposal shall be determined by a plurality of the votes cast. If you own shares through a bank, broker or other holder of record, you must instruct your bank, broker or other holder of record how to vote in order for them to vote your shares so that your vote can be counted on this proposal. The Board of Directors recommends stockholders vote for a frequency of every “1 year”. 52
| PROPOSAL 4 - RATIFICATION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
PROPOSAL 4 — | RATIFICATION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
The Audit and Finance Committee of the Board has appointed PricewaterhouseCoopers LLP (“PwC”) as our independent registered public accounting firm to audit its consolidated financial statements for the 2017 fiscal year. During the 2016 fiscal year, PwC served as our independent registered public accounting firm and also provided certain tax and other non-audit services. Although we are not required to seek stockholder approval of this appointment, the Board believes it to be sound corporate governance to do so. If the appointment is not ratified, the Audit and Finance Committee will investigate the reasons for stockholder rejection and will reconsider the appointment. Representatives of PwC are expected to attend the annual meeting where they will be available to respond to questions and, if they desire, to make a statement. Vote Required The appointment of PwC as our independent registered public accounting firm requires the affirmative vote of a majority of shares present at the annual meeting, in person or by proxy, and entitled to vote on Agilent’s Compensation Committee.the proposal. Abstentions will have the same effect as a vote against this proposal. The approval of the appointment of PwC is a routine proposal on which a broker or other nominee is generally empowered to vote in the absence of voting instructions from the beneficial owner, so broker non-votes are unlikely to result from this proposal. The Board of Directors recommends a vote FOR the ratification of the Audit and Finance Committee’s appointment of PricewaterhouseCoopers LLP as our Independent Registered Public Accounting Firm. 53
COMPENSATION | AUDIT MATTERS |
Audit Matters
Fees Paid to PricewaterhouseCoopers LLP The following table sets forth the aggregate fees charged to the company by PwC for audit services rendered in connection with the audited consolidated financial statements and reports for the 2016 and 2015 fiscal years and for other services rendered during the 2016 and 2015 fiscal years to the company and its subsidiaries, as well as all out-of-pocket costs incurred in connection with these services: | | | | | | | | | | | | | | % of | | | | % of | | | Fee Category: | Fiscal 2016 | | Total | | Fiscal 2015 | | Total | | | Audit Fees | $4,492,000 | | 91.6% | | $4,119,000 | | 80.7% | | | Audit-Related Fees | 343,000 | | 7.0% | | 706,000 | | 13.8% | | | Tax Fees | 66,000 | | 1.3% | | 227,000 | | 4.4% | | | All Other Fees | 3,000 | | 0.1% | | 54,000 | | 1.1% | | | Total Fees | $4,904,000 | | 100% | | $5,106,000 | | 100% | | | | | | | | | | | |
Audit Fees: Consists of fees billed for professional services rendered for the integrated audit of our consolidated financial statements and its internal control over financial reporting and review of the interim condensed consolidated financial statements included in quarterly reports. Fiscal 2016 and 2015 fees also consist of fees billed for services that are normally provided by PwC in connection with statutory reporting and regulatory filings or engagements and attest services, except those not required by statute or regulation. Audit-Related Fees: Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees.” These services include employee benefit plan audits, accounting consultations in connection with acquisitions and divestitures, attest services that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards. Fiscal 2016 and fiscal 2015 audit-related fees reflect additional fees of $300,000 and $665,000, respectively, for services performed by PwC. Fiscal 2016 audit-related fees were related to the implementation of a new financial system while fiscal 2015 audit-related fees were in connection with the separation and spin-off of Keysight. Tax Fees: Consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and international tax compliance, tax audits and appeals, customs and duties, mergers and acquisitions and international tax planning. All Other Fees: Consists of fees for all other services other than those reported above. We have minimized services in this category for fiscal 2016. In making its recommendation to ratify the appointment of PwC as our independent registered public accounting firm for the fiscal year ending October 31, 2017, the Audit and Finance Committee has considered whether services other than audit and audit-related services provided by PwC are compatible with maintaining the independence of PwC. Policy on Preapproval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm The Audit and Finance Committee’s policy is to preapprove all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Preapproval is generally provided for up to one year and any preapproval is detailed as to the particular service or category of services and is subject to a specific budget. The Audit and Finance Committee has delegated its preapproval authority up to a specified maximum to the Chairperson of the Audit and Finance Committee, Heidi Kunz, who may preapprove all audit and permissible non-audit services so long as her preapproval decisions are reported to the Audit and Finance Committee at its next scheduled meeting. 54
| AUDIT AND FINANCE COMMITTEE REPORT |
AUDIT AND FINANCE COMMITTEE REPORT | The information contained in this report shallAudit and Finance Committee Report does not be deemed to be “solicitingconstitute soliciting material” to be “filed” with the SEC, or to be subject to Regulation 14A or Regulation 14C (other than as provided in Item 407 of Regulation S-K) or to the liabilities of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed to be filed or incorporated by reference in future filings with the SEC except to the extent that Agilent specifically incorporates it by reference into a document filedany other company filing under the Securities Act of 1933, as amended, or the Securities Exchange Act, of 1934.except to the extent that the company specifically incorporates the Audit and Finance Committee Report by reference therein. Agilent’s executive compensation program is administered byAUDIT AND FINANCE COMMITTEE REPORT
During fiscal year 2016, the CompensationAudit and Finance Committee of the Board (the “Compensation Committee”). The Compensationreviewed the quality and integrity of the company’s consolidated financial statements, the effectiveness of its system of internal control over financial reporting, its compliance with legal and regulatory requirements, the qualifications and independence of its independent registered public accounting firm, the performance of its internal audit function and independent registered public accounting firm and other significant financial matters. Each of the Audit and Finance Committee which is composed entirelymembers satisfies the definition of independent non-employee directors,director and is responsible for approving and reporting tofinancially literate as established in the New York Stock Exchange. In addition, the Board of Directors has identified Heidi Kunz as the Audit and Finance Committee’s “Financial Expert.” The company operates with a November 1 to October 31 fiscal year. The Audit and Finance Committee met twelve times, including telephone meetings, during the 2016 fiscal year. The Audit and Finance Committee’s work is guided by a written charter that the Board has approved. The Audit and Finance Committee regularly reviews its charter to ensure that it is meeting all relevant audit committee policy requirements of the U.S. Securities and Exchange Commission, the Public Company Accounting Oversight Board and the New York Stock Exchange. You can access the latest Audit and Finance Committee charter by clicking on all elements“Governance Policies” in the “Corporate Governance” section of compensation for the executive officers. In this regard, the CompensationWeb page at www.investor.agilent.com or by writing to us at Agilent Technologies, Inc., 5301 Stevens Creek Blvd., Santa Clara, California 95051, Attention: Investor Relations. The Audit and Finance Committee has reviewed and discussed with management and PricewaterhouseCoopers LLP, the “Compensation Discussioncompany’s independent registered public accounting firm, the company’s audited consolidated financial statements and Analysis” sectionits internal controls over financial reporting. The Audit and Finance Committee has discussed with PricewaterhouseCoopers LLP, during the 2016 fiscal year, the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (Communication with Audit Committees) as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The Audit and Finance Committee has received and reviewed the written disclosures and the letter from PricewaterhouseCoopers LLP required by the applicable requirements of this Proxy Statementthe Public Company Accounting Oversight Board regarding the independent accountant’s communications with management.the Audit and Finance Committee concerning independence, and has discussed with PricewaterhouseCoopers LLP its independence from the company. Based on thisthe review and discussion,discussions noted above, the CompensationAudit and Finance Committee recommended to the Board of Directors that the “Compensation Discussion and Analysis” sectioncompany’s audited consolidated financial statements be included in this Proxy Statement and incorporated by reference into Agilent’s 2014its Annual Report on Form 10-K. 10-K for the fiscal year ended October 31, 2016, and be filed with the U.S. Securities and Exchange Commission. Submitted by: Audit and Finance Committee Heidi Kunz, Chairperson Paul N. Clark Robert J. Herbold Daniel K. Podolsky, M.D. |
55
| BENEFICIAL OWNERSHIP |
BENEFICIAL OWNERSHIP Stock Ownership of Certain Beneficial Owners The following table sets forth information, as of January 17, 2017, concerning each person or group known by us, based on filings pursuant to Section 13(d) or (g) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to own beneficially more than 5% of the outstanding shares of our common stock | Name and Address of Beneficial Owner | | Amount and Nature | | Percent of Class | | Compensation Committee
Koh Boon Hwee, Chairperson
George A. Scangos, Ph.D.
A. Barry Rand
Tadataka Yamada, M.D.T. Rowe Price Associates, Inc. | | 32,794,221 (1) | | 10.0% (1) | | 100 E. Pratt Street | | | | | | Baltimore, MD 21202 | | | | | | BlackRock, Inc. | | 21,871,854 (2) | | 6.8% (2) | | 55 East 52nd Street | | | | | | New York, NY 10022 | | | | | | FMR LLC | | 21,037,590 (3) | | 6.33% (3) | | 245 Summer Street | | | | | | Boston, MA 02210 | | | | | | The Vanguard Group | | 19,620,064 (4) | | 5.9% (4) | | 100 Vanguard Blvd. | | | | | | Malvern, PA 19355 | | | | |
Table of Contents
(1) | Based solely on information contained in a Schedule 13G/A filed with the SEC on April 11, 2016 by T. Rowe Price Associates, Inc. The Schedule 13G/A indicates that T. Rowe Price Associates, Inc. has sole voting power with respect to 8,395,224 shares and sole dispositive power with respect to 32,768,221 shares. |
(2) | Based solely on information contained in a Schedule 13G/A filed with the SEC on January 19, 2017 by BlackRock, Inc. The Schedule 13G/A indicates that BlackRock, Inc. has sole voting power with respect to 18,805,531 shares and sole dispositive power with respect to 21,871,854 shares. |
(3) | Based solely on information contained in a Schedule 13G/A filed with the SEC on February 12, 2016 by FMR LLC. The Schedule 13G/A indicates that FMR LLC has sole voting power with respect to 867,310 shares and sole dispositive power with respect to 21,037,590 shares. The Schedule 13G filing reflects the securities beneficially owned, or that may be deemed to be beneficially owned, by FMR LLC, certain of its subsidiaries and affiliates, and other companies (collectively, the “FMR Reporters”). The filing does not reflect securities, if any, beneficially owned by certain other companies whose beneficial ownership of securities is disaggregated from that of the FMR Reporters. |
(4) | Based solely on information contained in a Schedule 13G/A filed with the SEC on February 10, 2016 by The Vanguard Group. The Schedule 13G/A indicates that The Vanguard Group has sole voting power with respect to 609,849 shares, shared voting power with respect to 34,500 shares, sole dispositive power with respect to 18,965,595 shares and shared dispositive power with respect to 654,469 shares. |
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| BENEFICIAL OWNERSHIP |
Stock Ownership of Directors and Officers The following table sets forth information, as of January 17, 2017, on the beneficial ownership of our common stock by (1) each director and each of our NEOs and (2) by all directors and executive officers as a group. Unless otherwise indicated, each person has sole investment and voting power, or shares such powers with his or her spouse, with respect to the shares set forth in the following table. | | Number of | | | | Total Number | | Number of | | Total Shares | | | Shares of | | | | of Shares | | Shares Subject | | Beneficially | | | Common | | Deferred | | Beneficially | | to Exercisable | | Owned Plus | Name of Beneficial Owner | | Stock | | Stock (1) | | Owned (2) | | Options and RSUs(3) | | Underlying Units | Paul N. Clark | | 5,468 | | | | 86,310 | | | | 91,778 | | | | - | | | | 91,778 | | James G. Cullen | | 4,329 | (4) | | | 72,233 | | | | 76,562 | | | | 15,482 | | | | 92,044 | | Mark Doak | | 7,104 | | | | 3,652 | | | | 10,756 | | | | 34,278 | | | | 45,034 | | Robert J. Herbold | | 50,464 | (5) | | | - | | | | 50,464 | | | | 24,107 | | | | 74,571 | | Didier Hirsch | | 6,010 | (6) | | | 93,934 | | | | 99,944 | | | | 304,209 | | | | 404,153 | | Patrick Kaltenbach | | 4,065 | | | | 2,333 | | | | 6,398 | | | | 37,428 | | | | 43,826 | | Koh Boon Hwee | | 53,586 | | | | 12,491 | | | | 66,077 | | | | 24,107 | | | | 90,184 | | Heidi Kunz | | 5,746 | (7) | | | 51,973 | | | | 57,719 | | | | 24,107 | | | | 81,826 | | Michael R. McMullen | | 90,833 | | | | - | | | | 90,833 | | | | 465,794 | | | | 556,627 | | Daniel K. Podolsky, M.D. | | - | | | | 9,660 | | | | 9,660 | | | | - | | | | 9,660 | | Sue H. Rataj | | 6,994 | | | | - | | | | 6,994 | | | | - | | | | 6,994 | | George A. Scangos, PhD | | 10,584 | | | | 801 | | | | 11,385 | | | | - | | | | 11,385 | | Jacob Thaysen | | - | | | | - | | | | - | | | | - | | | | - | | Tadataka Yamada, M.D. | | 12,486 | | | | 25,037 | | | | 37,523 | | | | - | | | | 37,523 | | All directors and executive officers as a group (18) persons (8) | | 285,136 | | | | 358,424 | | | | 643,560 | | | | 1,078,144 | | | | 1,721,704 | | | | | | | | | | | | | | | | | | | | | |
(1) | Represents the number of deferred shares or share equivalents held by Fidelity Management Trust Company under the Deferred Compensation Plan as to which voting or investment power exists. |
(2) | Individual directors and executive officers as well as all directors and executive officers as a group beneficially own less than 1% of the 322,057,839 shares of Common Stock outstanding, as of January 17, 2017. |
(3) | Represents the number of shares subject to options exercisable or restricted stock units subject to vesting, both within 60 days following January 17, 2017. |
(4) | Includes 2,823 shares held by Mr. Cullen’s Family Limited Partnership and 1,506 shares held in an individual retirement account. |
(5) | Includes 47,964 shares held by Mr. Herbold’s Revocable Trust and 2,500 shares held in an individual retirement account. |
(6) | Includes 100 shares held by Mr. Hirsch’s spouse. |
(7) | All shares are held by Ms. Kunz in a living trust. |
(8) | Includes 27,467 direct and indirect shares, and 148,632 options exercisable or restricted stock units vesting both within 60 days following January 17, 2017, for a total of 176,099 shares held by executive officers not separately listed in this table. |
Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act, requires our directors, executive officers and holders of more than 10% of our common stock to file reports with the SEC regarding their ownership and changes in ownership of our common stock. We believe that during the 2016 fiscal year, our executive officers and directors complied with all Section 16(a) filing requirements. In making these statements, we have relied upon examination of copies of Forms 3, 4 and 5 provided to us and the written representations of our directors and officers. 57
| GENERAL INFORMATION ABOUT THE MEETING |
Q: | Who can attend the annual meeting? |
A: | Stockholders of record as of January 17, 2017 (the “Record Date”), may attend and vote at the annual meeting. |
Q: | Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials? |
A: | | A: | In accordance with rules and regulations adopted by the Securities and Exchange Commission (the “SEC”), instead of mailing a printed copy of our proxy materials to each stockholder of record, we are furnishing proxy materials, including this Proxy Statement and our 20142016 Annual Report to Stockholders, by providing access to such documents on the Internet. Stockholders will not receive printed copies of the proxy materials unless they request them. Instead, commencing on or about February 4, 2015,2, 2017, a Notice of Internet Availability of Proxy Materials (the “Notice”) was sent to most of our stockholders which will instruct you as to how to access and review the proxy materials on the Internet. The Notice also instructs you to submit your proxy via the Internet. If you would like to receive a paper or email copy of our proxy materials, please follow the instructions for requesting such materials in the Notice. |
| Q: | Why am I receiving these materials? |
| A: | Agilent’s Board of Directors (the “Board”) isWe are providing these proxy materials to you on the Internet or, upon your request, hashave delivered printed versions of these materials to you by mail, in connection with Agilent’s 2015our 2017 annual meeting of stockholders, which will take place on March 18, 2015.15, 2017. Stockholders are invited to attend the annual meeting and are requested to vote on the proposals described in this Proxy Statement. |
| Q: | Who is soliciting my proxy? |
| A: | Agilent’s Board of Directors isWe are soliciting proxies to be used at the annual meeting of stockholders on March 18, 2015,15, 2017, for the purposes set forth in the foregoing notice.Notice. |
Q: | What is included in these materials? |
A: | | A: | These materials include: | | | | ●our Proxy Statement for Agilent’s annual meeting; and
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our Proxy Statement for our annual meeting; and our 2016 Annual Report to Stockholders, which includes our audited consolidated financial statements. ●our 2014 Annual Report to Stockholders, which includes our audited consolidated financial statements.
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