Compensation Risk Oversight
While our Board has overall responsibility for risk oversight, the Compensation Committee, with the assistance of its independent compensation consultant, annually reviews and restatementdiscusses the risks that relate to all of our 2012 Plan,compensation policies and practices, including incentive and commission arrangements below the executive management promotionslevel.
Internal Pay Parity
While we do not maintain a formal policy regarding internal pay parity, it is considered by the Compensation Committee and the independent directors when determining compensation.
Consistent with market practice and competitive market benchmarking, our CEO is compensated at a higher level than our other executives due to his higher level of experience, peer market benchmarks, responsibility and accountability. Given Mr. Tan’s responsibility for Broadcom’s overall performance, the independent directors believe weighting his total compensation more heavily toward long-term, performance-based incentive compensation.compensation is consistent with market practice, appropriately reflects his contributions and directly aligns his incentives with the interests of our stockholders. Accordingly, Mr. Tan receives more of his total compensation in the form of LTI compensation through PSU awards as compared to our other executive officers.
Say-on-PayRole of the Compensation Committee
AtThe Compensation Committee devotes extensive time throughout the 2021 annual meeting, we submittedyear to our executive compensation program to ensure that it aligns executive pay with corporate performance and rewards our executive officers for pursuing corporate financial, operational and strategic goals that will continue Broadcom’s ongoing success and increase long-term stockholder value.
The Compensation Committee reviews and approves the compensation of our NEOs to a non-binding, advisory vote ofexecutive officers, except our stockholders (the “say-on-pay proposal”). Stockholders representing 95% of the shares present and voting on the matter were in favor of the proposal. In light of this approval,CEO, for whom the Compensation Committee did not make any significant changesmakes recommendations for review and approval by the independent directors.
Individual Executive Compensation Assessment
In addition to our executivemarket compensation structure.
Fiscal Year 2021 Compensation Highlights
Annual Cash Incentive Bonus Payouts Reflect Fiscal Year 2021 Company Performance
Payouts underdata provided by its independent compensation consultant, the APB Plan were tied to challenging pre-established annual corporate and divisional performance goals, as well as the individual contributions and performance of each executive. The APB Plan payouts reflected the following considerations:
• The Compensation Committee set the two Fiscal Year 2021 corporate performance goals – revenue and adjusted non-GAAP operating margin (as defined in “Elements of Executive Compensation – Annual Cash Incentive Bonus Plan” below) – at target attainment levels that would potentially enhance stockholder value and require substantial effort to achieve. Both the revenue and adjusted non-GAAP operating margin targets were set significantly above our Fiscal Year 2020 actual performance. The divisional performance goals were also set at levels difficult to attain by the division and the NEO in charge of the division.
• Our Fiscal Year 2021 revenue, which increased 15% over Fiscal Year 2020, and our adjusted non-GAAP operating margin both exceeded the maximum attainment levels, resulting in 150.0% attainment of the corporate performance goals under the APB Plan.
• The divisional performance goals unrelated to revenue and operating margin exceeded target performance levels. This combined with the attainment of our corporate goals resulted in payouts for all eligible employees under both our executive and employee APB plans.
• The Compensation Committee considers our CEO’s recommendations (other than with respect to himself) and judiciously applies individual performance multipliers to recognize the extraordinary efforts of our executives and exceptional performance with respect to our corporate performance goals and divisional results.
• The Compensation Committee (and, the independent directors in the case of our CEO) carefully assessed the extraordinary efforts of our executive officers and our significant increase in revenue and adjusted non-GAAP operating margin year-over-year despite the challenges of the COVID-19 pandemic, macroeconomic uncertainty and supply chain constraints. Based on the assessment, our NEOs received individual performance multipliers of 100% to 150%. Our CEO, (upon approval of the independent directors) received anconsiders the following information, among other factors, for each executive officer when determining his or her compensation:
current base salary, target APB Plan opportunities (and prior fiscal year payouts), the accumulated value of outstanding and unvested equity awards and other benefits;
the individual’s overall performance, role, responsibilities, knowledge, skills, leadership and contributions to Broadcom’s values and culture; and
our CEO’s recommendation on compensation and individual performance multiplier of 150%, resulting in a payout of 225% of his target bonus.(other than for himself).
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COMPENSATION DISCUSSION AND ANALYSIS |
Compensation Changes in Connection with Promotions
Ms. Spears, Dr. Kawwas and Mr. Krause were promoted and assumed broader responsibilities to ensure the long-term stability of our leadership and culture. Their new roles are CFO, Chief Operating Officer and President, Broadcom Software Group (which was previously known as the Infrastructure Software Group), respectively.
The Compensation Committee approved the following changes in recognition of the competitive talent market and the executives’ increased responsibilities.
• Ms. Spears, Dr. Kawwas and Mr. Krause received base salary increases effective December 10, 2020.
• Ms. Spears’ APB Plan bonus target percentage was increased to 100% of eligible earnings effective December 10, 2020.
• The performance goals under the APB Plan for Dr. Kawwas and Mr. Krause were changed to the attainment of overall corporate goals instead of divisional performance goals effective December 10, 2020.
• Ms. Spears, Dr. Kawwas and Mr. Krause were granted promotion equity incentive awards for their increased responsibilities due to their promotions that were not anticipated when they were granted the 2019 Multi-Year Equity Awards. These promotion equity incentive awards consist of 50% service-based RSU awards and 50% PSU awards at target.
The aggregate target market value of each of the promotion equity incentive awards for Dr. Kawwas and Mr. Krause that the Compensation Committee approved was $15,000,000; however, the value of each of these promotion equity incentive awards in the “Fiscal Year 2021 Summary Compensation Table” below is $20,115,046 because it is the accounting grant date fair value under ASC 718 on April 5, 2021, when the stockholders approved the 2012 Plan and the actual grant date for accounting purposes. The factors provided below in the “Equity Awards Granted in Fiscal Year 2021” section explain the difference between the target market value approved byThis information helps the Compensation Committee and the accounting grant date fair value.
Seeindependent directors to understand the “Elements of Executive Compensation – Long-Term Incentive Compensation” section below for more information relatinglong-term retentive elements and total compensation delivered to these awards.
There were no other increases to NEO base salaries or target bonus opportunities in Fiscal Year 2021. Further, Ms. Spears, Messrs. Brazeal and Krause and Dr. Kawwas were not granted regular annual equity incentive awards in Fiscal Year 2021 because of their previously granted 2019 Multi-Year Equity Awards.
PSU Grant for our CEO
Mr. Tan received an annual PSU award due to the importance of his continued commitment, his retention in a competitive talent market and his leadership in continued stockholder value creation. Absent this award, Mr. Tan would not have had any unvested equity awards after June 2021. See the “Elements of Executive Compensation – Long-Term Incentive Compensation” section below for more information relating to this award.
Overview of Our Executive Compensation Program
The Compensation Committee believes that, in general, about half of our executive officers’, and more of our CEO’s, target total direct compensation should be dependent upon our performance. Accordingly, our executive compensation program is designed to reward our executive officers for producing sustainable growth in stockholder value consistent with our strategic plan, align their interests with the interests of our stockholders, and attract and retain top talent.
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COMPENSATION DISCUSSION AND ANALYSIS |
Target Total Direct Compensation
Our annual total direct compensation consists of three principal elements:
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Base Salary | Individual salaries reflect the executive’s responsibilities and sustained individual performance. Salaries are set to be competitive with market and industry norms. |
Short-Term
Incentives (STI)
| The APB Plan is intended to reward the achievement of pre-established annual corporate and divisional performance goals, as well as the individual contributions and performance of each executive.
In Fiscal Year 2021, our corporate performance goals were (i) revenue and (ii) adjusted non-GAAP operating income as a percentage of revenue. Pre-established attainment levels are designed to significantly enhance stockholder value, to be difficult to attain and to require substantial effort to achieve.
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Long-Term
Incentives (LTI)
| RSU awards and PSU awards are granted to encourage and reward the efforts of our executives to grow sustainable, long-term stockholder value. These equity awards further encourage retention and mitigate compensation-related risks. |
The following charts compare the Fiscal Year 2021 target total direct compensation for our CEO and our other NEOs. Target total direct compensation consists of (i) base salary, (ii) target STI through the APB Plan, and (iii) target LTI in the form of equity awards comprised of service-based RSU awards and PSU awards based on the fair market value of the awards on the grant date or the effective date, as the case may be. As shown in the charts below, approximately 95% of our NEOs’ target total direct compensation in Fiscal Year 2021 is comprised of variable compensation elements.
The CEO chart includes Mr. Tan’s Fiscal Year 2021 PSU award based on its fair market value on the December 15, 2020 effective date and assuming target performance.
The Other NEO chart includes the equity awards granted in connection with the promotion of three NEOs: (i) the service-based RSU awards and PSU awards granted to Ms. Spears, assuming target performance, and (ii) the annualized value of the service-based RSU awards and PSU awards, which vests over three years, granted to Dr. Kawwas and Mr. Krause, in each case based on the fair market value on the December 15, 2020 effective date and assuming target performance. In addition, the Other NEO chart includes the portion of the 2019 Multi-Year Equity Awards granted to the NEOs other than our CEO in January 2019 that began vesting in March 2021, based on the January 2019 grant date fair market value and assuming target performance. The 2019 Multi-Year Equity Awards vest on the same basis as if four annual equity grants were made on March 15 each year, beginning in 2019 for four successive years.
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COMPENSATION DISCUSSION AND ANALYSIS |
Executive Compensation Program Governance
The table below highlights our key executive compensation program governance practices.
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Best Practices We Employ
| Practices We Do Not Employ
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ü | Majority of NEO compensation tied to long-term performance | X | No excessive risk taking in incentive plan designs |
ü | Performance metrics directly tied to value creation for stockholders | X | No re-pricing of underwater stock options |
ü | Caps on cash and equity incentive plan payouts | X | No excise tax gross-ups |
ü | Annual risk assessment of compensation programs | X | No supplemental retirement or pension benefits |
ü | Engagement of an independent compensation consultant | X | No guaranteed bonuses |
ü | CEO compensation reviewed and approved by the independent directors | X | No “single trigger” change in control payments or benefits
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ü | Stock ownership guidelines for all executive officers and directors (see page 7) | X | No perquisites, other than in modest amounts |
ü | Anti-hedging and anti-pledging policy for employees and directors (see page 7) | | |
Compensation Philosophy and Objectives
Our executive compensation program is designed to achieve the following:
• attract qualified, experienced and talented executives in a highly competitive market;
• retain, motivate and reward these executives, whose skills, knowledge and performance are critical to our on-going success;
• encourage our executives to focus on the achievement of our corporate financial and operational performance goals by aligning their APB Plan payout to the achievement of pre-established annual corporate and divisional goals, as well as the individual contributions and performance of each executive; and
• align our executives’ interests with our stockholders interests by linking a significant portion of each executive’s target total direct compensation opportunity to stockholder returns in the form of PSUs that are subject to the attainment of pre-established performance-based objectives, and the rest in the form of service-based RSUs, the value of which fluctuates based on our stock price.
Equity awards are a long-term retention tool for our key executives. When granting equity awards or when recommending to the independent directors an equity award grant to our CEO, the Compensation Committee considers each executive’s level of experience and expertise and overall value to Broadcom, as well as how much vested and unvested equity the executive then holds.
The Compensation Committee has adopted a compensation philosophy that is designed to keep our executives’ target total direct compensation competitive with the compensation of executives in comparable positions at other companies in our compensation peer group and third-party market pay surveys. Generally, target total cash compensation falls below the median of the competitive market, but in combination with equity, target total direct compensation may be higher. The Compensation Committee bases its decisions on the needs of Broadcom and an executive’s level of sustained performance, expertise, experience, marketability and internal equitability.officers.
While the Compensation Committee and our Boardthe independent directors generally consider the accounting and tax implications of their executive compensation decisions, neither element has been a material consideration in the compensation awarded to our NEOsexecutive officers historically.
Stockholder Engagement