UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Ciena Corporation
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Proxy
Statement
2017 Annual Meeting
of Stockholders
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A Message from our Board of Directors
Dear Fellow Stockholders:
Fiscal 2016 was an outstanding year for Ciena! The company achieved record revenue, orders, adjusted gross margin and adjusted net income, and ended the year with record backlog. In order to achieve those strong financial results, Ciena successfully executed on several strategic imperatives. We continued to diversify the business to include additional solutions offerings, customer segments and geographies, which created new growth drivers and enabled us to differentiate our performance from our competitors. We successfully integrated the Blue Planet software business acquired last year, and we acquired and integrated the high-speed photonics components business of TeraXion to ensure security of supply and profitable development of next-generation packet-optical solutions. We believe that Ciena’s execution against the strategic and operating plans that we oversee as a Board of Directors has laid a strong foundation for continued success in the market.
Our management and our Board believe that good corporate governance and high ethical standards are essential to Ciena’s continued success. In 2016, we undertook an extensive review and assessment of our corporate governance practices and documents, and made a number of changes as a result. Recently, the Board approved an amendment of our bylaws to proactively adopt proxy access, which provides eligible stockholders the right to nominate candidates for election to our Board and be included in our proxy statement. We made changes with respect to Board leadership and are pleased to announce that, effective as of the Annual Meeting, Patrick Gallagher has been appointed to serve as our new lead independent director and as chair of our Governance and Nominations Committee. We also adopted a new Code of Ethics for Directors, refreshed our Principles of Corporate Governance, and each of our Board Committees revised their respective charters.
On behalf of our Board of Directors, I would also like to take this opportunity to highlight some of the proposals on which you are being asked to vote at this year’s Annual Meeting.
I encourage you to read more about our Board, Ciena’s corporate governance practices and executive compensation, and the above proposals in the attached proxy statement. Thank you for your continued support of Ciena and your participation in this year’s Annual Meeting.
On Behalf of the Board of Directors,
Patrick H. Nettles, Ph.D.
Executive Chairman of the Board of Directors
Ciena Corporation
(Name of Registrant as Specified in Its Charter)
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PROXY STATEMENT 2019 Annual Meeting of Stockholders
Patrick H. Nettles, Ph.D. Executive Chairman of the Board of Directors | Message from our Board of Directors Dear Fellow Stockholders: Ciena’s strong business and financial performance in 2018 reflects the consistent execution of our strategy and the ability to leverage our competitive strengths – diversification, innovation leadership and global scale. The result is that we are a global market leader, with #1 or #2 share in every segment in which we participate. We have a diverse portfolio across systems, components, software and services. We sell into a broad set of geographies and customers, with a focus on meeting demand in higher-growth market applications. We are forcing the pace of innovation with our significant R&D investment capacity and Adaptive Network vision for next-generation networks. And, we are delivering sustained industry-leading revenue growth, gaining market share, improving our profitability and strengthening our balance sheet. Our management and our Board believe strongly that good corporate governance and high ethical standards are essential to Ciena’s success. In 2018, we took several meaningful steps to improve our existing strong governance practices, including: • As part of our ongoing commitment to Board refreshment and diversity, we appointed a new director, Joanne B. Olsen. In accordance with our bylaws, Ms. Olsen will stand for election at the Annual Meeting. • We substantially increased our minimum stock ownership requirements for executive officers and directors and added a holding requirement until the relevant minimum ownership level is achieved. • We issued our first public Corporate Social Responsibility (CSR) Report. • We refreshed our Principles of Corporate Governance and revised the charters for each of our standing Board Committees. As we look to the future, we are very pleased with the maturity and strength of Ciena’s business and believe we have a strong platform for continued success. This confidence allowed us to provide a new set of three-year financial targets for how we intend to manage the business going forward. It also allowed us to continue our commitment to returning capital to our stockholders, by replacing our previous share repurchase program with a new program to repurchase up to $500 million of our shares over the next few years. I encourage you to read more about our Board of Directors, Ciena’s corporate governance practices and our executive compensation in the attached proxy statement. Thank you for your continued support of Ciena and your participation in this year’s Annual Meeting. On behalf of the Board of Directors, Patrick H. Nettles, Ph.D. |
Ciena Corporation
7035 Ridge Road
Hanover, Maryland 21076
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Date: March
Time: 3:00 p.m.
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To the Stockholders of Ciena Corporation:
The 20172019 Annual Meeting of Stockholders of Ciena Corporation will be held on March 23, 201728, 2019 at 3:00 p.m. Eastern Time. Our Annual Meeting will be a virtual meeting held over the Internet. You will be able to attend the Annual Meeting, vote your shares electronically and submit your questions during the live webcast of the meeting by visitingwww.virtualshareholdermeeting.com/ciena2017ciena2019 and entering your16-digit control number.
Items of Business:number included in the notice containing instructions on how to access Annual Meeting materials, your proxy card, or the voting instructions that accompanied your proxy materials.
Items of Business | ||||
1.Elect |
2. |
Ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending October 31, |
3.Conduct an advisory vote on our named executive officer compensation, as described in these proxy materials; |
4.Consider and act upon such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof. | ||||
These matters are more fully described in the proxy statement accompanying this notice.
You are entitled to notice of, and are eligible to vote at, this year’s Annual Meeting if you were a stockholder of record as of the close of business on January 26, 2017.February 1, 2019.
In accordance with Securities and Exchange Commission rules, we are furnishing these proxy materials and our Annual Report to Stockholders for fiscal 20162018 via the Internet. On February 8, 2017,12, 2019, we mailed to stockholders as of the record date a notice with instructions on how to access our Annual Meeting materials and vote via the Internet, or by mail or telephone.
We believe that your vote, and the vote of every Ciena stockholder, is important. Whether or not you plan to participate in the Annual Meeting, we encourage you to review the accompanying proxy statement for information relating to each of the proposals and to cast your vote promptly.
By Order of the Board of Directors,
David M. Rothenstein
Senior Vice President, General Counsel and Secretary
Hanover, Maryland
February 8, 201712, 2019
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SUMMARY
This summary highlights information that is contained elsewhere in this proxy statement. It does not include all information necessary to make a voting decision and you should read this proxy statement in its entirety before casting your vote.
VOTING OVERVIEW
Proposals
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Elect two Class I Director nominees and one Class II Director nominee
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FOR each nominee
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FOR
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Advisory vote on named executive officer compensation(“Say-on-Pay”)
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FISCAL 2018 COMPENSATION HIGHLIGHTS
Salaries
| Did not increase the base salary of the CEO
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| Did not increase the target cash incentive opportunities for the CEO or the other NEOs |
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Award Values | Increased the values of |
Structure
| Continued to structure the equity awards so that 60% of the target award value for the CEO, and 50% of the target award value for the other NEOs, was allocated toat-risk, performance-based equity
| Introduced market stock units as a component of performance-based equity, based on a relative TSR goal measured over a three-year performance period
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CEO FY 2018 Target Total Direct Compensation Mix |
At-Risk Performance-Based Compensation 59% 10% 46% 31% 13% Time-Based Compensation 41% Base Salary Time-Based Equity (RSUs) Target Annual Cash Incentive Performance-Based Equity (PSUs/MSUs) |
2019 Proxy Statement 1
CORPORATE GOVERNANCE HIGHLIGHTSAND STOCKHOLDER OUTREACH
(see page8)Stockholder Outreach
We believe that strong corporate governance practices should include regular outreach and conversations with our stockholders, with whom we regularly discuss our business, financial performance and industry dynamics. During fiscal 2018, we engaged with a number of stockholders to obtain feedback on their perception and understanding of our business, markets and industry. These engagements have helped to shape our long-term targets and communications to stockholders around the key elements of our long-term strategy and financial targets. We also engage in regular communications with our stockholders with respect to corporate governance practices and have used their feedback to make meaningful changes in recent years.
Fiscal 2018 Governance Changes
| WHAT WE’VE DONE | |
Board Composition | ❖ | |
❖ Three of nine directors are female | ||
Return of Capital to Stockholders | ❖ Repurchased 4.3 million shares for $111 million pursuant to previous share repurchase program | |
❖ Authorized new $500 million share repurchase program | ||
❖ Mitigated dilution by electing to cash settle 2018 convertible notes at maturity and exercising an early conversion option on 2020 convertible notes | ||
❖ Changed tax withholding method for employee stock awards to repurchase and retire shares and reduce dilution | ||
Stock Ownership Guidelines | ❖ Substantially increased the minimum ownership requirements, including 5x base salary for CEO and 5x cash retainer fornon-employee directors | |
❖ Added a holding requirement until the relevant minimum ownership level is achieved | ||
Policies and Charters | ❖ Updated Principles of Corporate Governance | |
❖ Issued first Corporate Social Responsibility (CSR) Report | ||
❖ Updated Charters of standing Board committees |
Existing Strong Governance Structure
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❖ ❖ Separate Chairman and CEO roles ❖ Code of Ethics for Directors |
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❖ Limits on annual director compensation ❖ Independent directors meet without management present |
2 2019 Proxy Statement
FISCAL 20162018 PERFORMANCE AND BUSINESS HIGHLIGHTS
(see page64)Business Highlights
❖ ❖ Grew annual revenue fromnon-service provider customers to 35%, from the ❖ Acquired and integrated two companies, Packet Design and DonRiver, into our software automation business
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FISCAL 2016 COMPENSATION HIGHLIGHTS
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stockholders by repurchasing 4.3 million shares for $111 million |
Financial Performance
10% |
Achievedover 10% annual revenue growth
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Generated adjusted earnings per share representing22% annual growth | |||||
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Reduced adjusted operating expense as a percentage of revenue to32.1% |
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Increased adjusted net income by19% year-over-year, to$211M | |||||
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Reduced gross debt-to-EBIDTA leverage ratio to2.0x
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47% | Generated total stockholder return of47%
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REVENUE FY2017 FY2018 ADJ. OPERTATING EXPENSE AS % OF AREVENUE ADJ. OPERATING INCOME ADJ. NET INCOME ADJ. EARNINGS PER SHARE GROSS DEBT-TO- EBIDTA LEVERAGE RATIO
Contained above, and elsewhere in this proxy statement, are certainnon-GAAP measures of Ciena’s financial performance for fiscal 2017 and 2018. These measures, along with their corresponding GAAP measures and reconciliations thereto, have been previously disclosed in exhibits to Ciena’s Current Report on Form8-K filed with the SEC on December 13, 2018. Also see“Non-GAAP Measures” below for more information about these measures and how they are used.
2017 2019 Proxy Statement 13
ELECTION OF CLASSElection of Class I and Class II DIRECTORSDirectors
Overview
Our Board of Directors currently consists of nine directors divided into three classes. Each class of our Board of Directors serves a staggered three-year term. At the Annual Meeting, threetwo directors will be elected to fill positions in Class II,I, whose term expires at the Annual Meeting. Harvey B. Cash, Judith M. O’BrienLawton W. Fitt and Gary B. Smith,Patrick H. Nettles, Ph.D., each of whom is a current Class III director, are the nominees for election at the Annual Meeting. The nomination of these directors to stand for election at the Annual Meeting has been recommended by the Governance and Nominations Committee and has been approved by the Board of Directors. Each of the nominees for Class II,I, if elected, will serve for a three-year term expiring at the 20202022 Annual Meeting, or until his or her successor is elected and qualified, or until such director’s earlier death, resignation or removal from the Board.
Effective October 16, 2018, the Board of Directors increased the size of the Board from eight to nine directors and appointed Joanne B. Olsen to fill the newly created vacancy in Class II of the Board. The term of office for Class II directors continues until the 2020 Annual Meeting, or until their successors are duly elected and qualified. Our bylaws, however, limit the term of office of any director elected by the Board of Directors to fill a vacancy to a term that lasts until the first annual meeting following election. Ms. Olsen is therefore a nominee for election at the Annual Meeting. Our bylaws also provide that any director so elected will serve the remainder of the term of the class to which such director was elected. Accordingly, if elected by stockholders at the Annual Meeting, Ms. Olsen will serve the remainder of her term as a Class II director until the 2020 Annual Meeting, or until her successor is elected and qualified, or until her earlier death, resignation or removal from the Board.
Michael J. Rowny, who is a current Class I director, has not been nominated and is not standing for re-election as a director and accordingly the size of the Board of Directors will be reduced from nine directors to eight directors following the Annual Meeting. This decision was made in consultation with Mr. Rowny and was not due to any performance issues or any disagreement relating to Ciena’s operations, policies, or practices. We would like to thank Mr. Rowny for his many years of service on the Board and his many important contributions to Ciena. The Board intends to continue its ongoing review of its composition and approach to refreshment over time and expects to add a new independent director in 2019.
Director Qualifications
The Governance and Nominations Committee reviews candidates for service on the Board and recommends nominees for election to fill vacancies on the Board of Directors, including nomination forre-election of directors whose terms are due to expire. In discharging itsthis responsibility, to nominate candidates for election to the Board of Directors, the Governance and Nominations Committee endeavors to identify, recruit and nominate candidates characterized bywho possess a combination of wisdom, sound judgment, excellent business skills, maturity and high integrity. In particular, the Governance and Nominations Committee seeks individuals with a record of accomplishment and senior leadership experience in their chosen fields who display the independence of mind and strength of character to be committed to representing the long-term interests of our stockholders.
The Governance and Nominations Committee also seeks to ensure that the Board of Directors is composed of individuals of diverse backgrounds, including with respect to age and gender, who have a variety of complementary experience, skills and relationships relevant to Ciena’s business.business and industry. This diversity of background and experience includes ensuring that the Board includes individuals with experience or skills sufficient to meet the requirements of the various rules and regulations of The New York Stock Exchange and the Securities and Exchange Commission (the “SEC”), such as the requirements to have a majority of independent directors and an audit committee financial expert. The Governance and Nominations Committee Charter requires the Committee to develop and use criteria for maintaining a balanced board of directors representing a diversity of characteristics and to recommend criteria, establish procedures for, and conduct an annual review of the Board and the diversity and other characteristics of individual directors and report to the Board on the results of the review.
In nominating candidates to fill vacancies created by the expiration of the term of a director, the Governance and Nominations Committee determines whether the incumbent director is willing to stand forre-election. If so, the Governance and Nominations Committee evaluates his or her performance to determine suitability for continued service, taking into consideration, among other things, each director’s contributions to the Board, the value of the continuity of his or her service, and the individual’s familiarity with Ciena’s business, operations orand markets.
The table below sets forth some of the key qualifications considered by the Governance and Nominations Committee in their recommendation of nominees.
4 2019 Proxy Statement
BOARD COMPOSITION AND DIVERSITY
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Each Skills and Experience Strategic Planning Experience International Business Experience Other Public Company Board Service M&A Experience Industry Experience Accounting and Financial Expertise Senior Leadership Experience Independence and Gender Diversity Independence 75% Independence Gender Diversity 38% Female
The above charts reflect information for all nominees and continuing directors.Each of the nominees has consented to serve if elected. However, if any of the persons nominated by the Board of Directors fails to stand for election, or declines to accept election, or is otherwise unavailable for election prior to our Annual Meeting, proxies solicited by our Board of Directors will be voted by the proxy holders for the election of any other person or persons as the Board of Directors may recommend, or our Board of Directors, at its option, may reduce the number of directors that constitute the entire Board of Directors.
2 2017 2019 Proxy Statement 5
Information Regarding Nominees and Continuing Directors
Information for each person nominated for election as a director at the Annual Meeting, including age, term of office and business experience, including directorships during the past five years, as well as for each director continuing service on theour Board, is set forth below. In addition, for each person, we have included information regarding the business or other experience, qualifications, attributes or skills that factored into the determination by the Governance and Nominations Committee and by our Board of Directors that each such person should serve as a director on our Board.
DIRECTOR NOMINEES
Class I Director Nominees with Terms Expiring in 2022
Lawton W. Fitt | ||||||
Director Since November 2000 • Audit Committee (Chair) Age65 | Professional Highlights Ms. Fitt has served as Chairperson of The Progressive Corporation since May 2018. From October 2002 to March 2005, Ms. Fitt served as Director of the Royal Academy of Arts in London. From 1979 to October 2002, Ms. Fitt was an investment banker with Goldman Sachs & Co., where she was a partner from 1994 to October 2002. Skills and Qualifications • Substantial investment banking experience and expertise in structuring and negotiating acquisition and financing transactions • Understanding of the capital markets • Brings a strong financial background to her service as Chair of the Audit Committee | • Significant experience in the areas of raising capital, financial oversight and enterprise risk analysis • Executive management experience • Service as a director and member of the audit committee of other companies Other Current Board Experience • The Carlyle Group LP • Micro Focus International PLC • The Progressive Corporation, Chairperson Previous Board Experience • ARM Holdings PLC • Thomson Reuters Corporation |
6 2019 Proxy Statement
Patrick H. Nettles, Ph.D. | ||||||
Director Since April 1994 • Executive Chairman Age75 | Professional Highlights Dr. Nettles has served as Executive Chairman of the Board of Directors since May 2001. From October 2000 to May 2001, Dr. Nettles was Chairman of the Board of Directors and Chief Executive Officer of Ciena, and he was President and Chief Executive Officer from April 1994 to October 2000. Skills and Qualifications • Founder and former Chief Executive Officer of Ciena • Significant institutional and industry knowledge • Provides key insight and advice in the Board’s consideration and oversight of corporate strategy and management development • Executive management experience with Ciena, along with operational management experience and technical expertise, provide the Board a unique perspective and enable him to make significant contributions to the Board | • Experience as a public company director Other Current Board Experience • Trustee for the California Institute of Technology • Trustee for the Georgia Tech Foundation, Inc. • The Progressive Corporation Previous Board Experience • Axcelis Technologies, Inc., Independent Chairman of the board • Apptrigger, Inc. • Optiwind Corp. | ||||
Class II Director Nominee with Term Expiring in 2020
Joanne B. Olsen | ||||||
Director Since October 2018 • Compensation Committee • Governance and Nominations Committee Age60 | Professional Highlights Ms. Olsen previously served as Executive Vice President of Global Cloud Services and Support at Oracle from November2016 until her retirement in August 2017. In that role, she drove Oracle’s cloud transformation services and support strategy, partnering with leaders across all business units. Ms. Olsen previously served as Senior Vice President and leader of Oracle’s applications sales, alliances, and consulting organizations in North America from 2012 through November2016, and from 2010 through 2012 served in various general management positions at Oracle. Ms. Olsen began her career with IBM, where, between 1979 and 2010, she held a variety of executive management positions across sales, global financing and hardware. | Skills and Qualifications • Significant industry experience and knowledge of cloud infrastructure applications • Senior leadership experience with large, multinational technology companies • International business experience and insight into doing business in key international markets • Executive management experience across a range of sales, services and alliances • Experience as a public company director Other Current Board Experience • Teradata Corporation |
2019 Proxy Statement 7
CONTINUING DIRECTORS
Class II Directors with Terms Expiring in 2020
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Director Since July 2000 • Compensation Committee (Chair) • Governance and Nominations Committee Age68 | Professional Highlights Since February 2018, Ms. O’Brien
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Skills and Qualifications
• Experience working in a private law firm focused on technology companies • Service as a venture capital professional andasin-house general | • Important perspective with respect to the overall technology sector and in identifying and assessing legal and regulatory risks • Expertise in assessing and structuring strategic transactions, including capital raising opportunities, intellectual property matters, acquisitions, joint ventures and strategic alliances • Brings extensive knowledge and experience in the areas of executive compensation and corporate governance to her service as Chair of the Compensation Committee and her membership on the Governance and Nominations Committee Other Current Board Experience • MagicCube, Inc • Theatro Labs, Inc. Previous Board Experience • Adaptec, Inc. • Inform, Inc. |
2017 Proxy Statement 3
DIRECTOR NOMINEES
Class II Directors with Terms Expiring in 2020
Gary B. Smith
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Director Since October 2000 Age58 | Professional Highlights Mr. Smith
Mr. Smith is a member of the President’s National Security Telecommunications Advisory Committee, the Global Information Infrastructure Commission and the Center for Corporate Innovation (CCI).
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Skills and Qualifications
• As Chief Executive Officer of Ciena, brings leadership skills, industry experience and comprehensive knowledge of Ciena’s business, financial position, and operations to Board deliberations | • Has led Ciena for over • Unique perspective on the strategic and operational challenges and opportunities faced by Ciena • Almost 30 years of experience in the telecommunications industry, during which time he has lived and worked on four continents • Global industry sales and marketing experience that provide the Board an important perspective into Ciena’s markets and business and selling strategies Other Current Board Experience • CommVault Systems, Inc. Previous Board Experience • Avaya, Inc. |
8 2019 Proxy Statement
CONTINUING DIRECTORS
Class IIII Directors with Terms Expiring in 20192021
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4 2017 Proxy Statement
CONTINUING DIRECTORS
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2017 Proxy Statement 5
CONTINUING DIRECTORS
Class III Directors with Terms Expiring in 2018
Bruce L. Claflin
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Director Since August 2006 • Audit Committee • Compensation Committee Age67 |
Mr. Claflin served as President and Chief Executive Officer of 3Com Corporation from January 2001 until his retirement in February 2006. Mr. Claflin joined 3Com as President and Chief Operating Officer in August 1998. Prior to 3Com, Mr. Claflin served as Senior Vice President and General Manager, Sales and Marketing, for Digital Equipment Corporation. Mr. Claflin also worked for 22 years at IBM, where he held various sales, marketing and management positions, including general manager of IBM PC Company’s worldwide research and development, product and brand management, as well as president of IBM PC Company Americas.
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Skills and Qualifications
• Prior service as a Chief Executive Officer of a technology company in an adjacent industry provides the Board with a high level of expertise and experience in the operations of a global, high technology company • Provides strategic insights | • Previous management and oversight experience relating to sales, marketing, research and development, supply chain management and manufacturing • Experience in international business transactions, risk management, executive compensation and a business-oriented approach to resolving operational challenges • Service as a fellow on the National Association of Corporate Directors and as a director of a public technology company Other Current Board Experience • IDEXX Laboratories, Inc., Chair of the Nominating and Governance Committee Previous Board Experience • Advanced Micro Devices (AMD) |
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6 2017 Proxy Statement
CONTINUING DIRECTORS
Class III Directors with Terms Expiring in 2018
T. Michael Nevens
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Director Since February 2014 • Audit Committee Age69 |
Since 2006, Mr. Nevens has served as senior adviser to Permira Advisers, LLC, an international private equity fund. He has served as Chairman of NetApp, Inc. since 2009. From 1980 to 2002, Mr. Nevens held various leadership positions at McKinsey & Co., most recently as a director (senior partner) and as managing partner of the firm’s Global Technology Practice. He also served on the board of the McKinsey Global
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Skills and Qualifications
• Substantial experience with and exposure to a wide variety of companies and their corporate strategies, both as a private equity | adviser and management consultant, provides the Board with expertise in the areas of strategic and long-term business planning and competitive strategy • Provides the Board with insight on corporate governance changes affecting public companies • Experience as a director of other global, high technology companies Other Current Board Experience • NetApp, Inc., Chairman Previous Board Experience • Altera Corporation |
Proposal No. 1 — Recommendation of the Board of Directors 2019 Proxy Statement 9
Patrick T. Gallagher | ||||||
Director Since May 2009 • Lead Independent Director • Compensation Committee • Governance and Nominations Committee (Chair) Age64 | Professional Highlights Mr. Gallagher currently serves as Chairman of Harmonic Inc. From March 2008 until April 2012, Mr. Gallagher was Chairman of Ubiquisys Ltd. From January 2008 until February 2009, Mr. Gallagher was Chairman of Macro 4 plc, and from May 2006 until March 2008, served as Vice Chairman of Golden Telecom Inc. From 2003 until 2006, Mr. Gallagher was Executive Vice Chairman and served as Chief Executive Officer of FLAG Telecom Group and, prior to that role, held various senior management positions at British Telecom. Skills and Qualifications • Extensive international business experience provides the Board with expertise and an important perspective regarding international transactions and markets • Experience as a senior executive of major European telecommunications service providers offers the Board insight into carrier customer perspectives as well as industry opportunities, marketing and sales strategies and operational challenges outside of the United States | • Industry knowledge and prior management expertise provide the Board with significant industry knowledge and expertise in submarine and wireless network applications and strategic growth market opportunities for Ciena • Experience as a public company director in both the U.S. and Europe provide strong background as lead independent director and Chair of the Governance and Nominations Committee Other Current Board Experience • Intercloud SAS, Chairman • Harmonic, Inc., Chairman Previous Board Experience • Sollers JSC |
Proposal No. 1 — Recommendation of the Board of Directors |
The Board of Directors recommends that you vote
“FOR”
the election of the three Class II nominees listed above
The Board of Directors recommends that you vote “FOR” the election of the two Class I nominees and the Class II nominee listed above |
201710 2019 Proxy Statement 7
CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS
Ciena has adopted a number of policies and practices some of which are described below, whichthat highlight itsour commitment to sound corporate governance principles. Ciena also maintains a corporate governance page on its website that includes additional related information, as well as Ciena’sour bylaws, codes of conduct, principles of corporate governance, and the charters for each of the standing committees of the Board of Directors. The corporate governance pageThis information can be found by clicking on the “Corporate Governance” linkpage of the “Investors” section of our website atwww.ciena.com.
In accordance with the current listing standards of The New York Stock Exchange, the Board of Directors, on an annual basis, affirmatively determines the independence of each director or nominee for election as a director. The Board of Directors has determined that, with the exception of Dr. Nettles and Mr. Smith, both of whom are employees and executive officers of Ciena, all of its members during fiscal 2018 are or during their tenure were “independent directors,” using the definition of that term in the listed company manual of The New York Stock Exchange. Also, as more fully described below, all members of the Board’s standing Audit, Compensation and Governance and Nominations Committees are independent directors, and all members of the Board’s standing Audit and Compensation Committees are independent directors in accordance with the additional listing standards applicable to those committees.
Communicating with the Board of Directors
The Board of Directors has adopted a procedure for receiving and addressing communications from all interested parties, including Ciena’s stockholders. Interested parties may send written communications to the entire Board of Directors (or any committee thereof), Ciena’s lead independent director,Lead Independent Director, or all of the independent directors serving on the Board, by addressing communications to:
Ciena Corporation
7035 Ridge Road
Hanover, Maryland 21076
Attention: Corporate Secretary
Please address any communication bye-mail toir@ciena.com and markwith “Attention: Corporate Secretary” in the “Subject” field.subject line.
Our General Counsel serves as Corporate Secretary and determines, in his discretion, whether the nature of the communication is such that it should be brought to the attention of the Board of Directors or a committee thereof, the lead independent director,Lead Independent Director, or all of the independent directors. As a general matter, the Corporate Secretary does not forward spam, junk mail, mass mailings, job inquiries, surveys, business solicitations or advertisements, or offensive or inappropriate material.
Principles of Corporate Governance, Bylaws and Other Governance Documents
OurThe Board of Directors has adopted Principles of Corporate Governance and other corporate governance policies that supplement certain provisions of our bylaws and relate to among other things, the composition, structure, interaction and operation of the Board of Directors. Some of our key governance policies and practices are summarized below.
❖ | Proxy Access |
In January 2017, we amended ourOur bylaws to implement proxy access,include a “proxy access” provision by which provides, among other things, that eligible stockholders may nominate director candidates for inclusion in our proxy statement and proxy card. Proxy access may be used by a stockholder or group of up to 20 stockholders owningwho own at least three percent (3%)3% of our outstanding common stock continuously for a minimum of three years to nominate up to the greater of 20% of the Board of Directors or two directors, subject to certain limitations. OurThe Board of Directors believes this proxy access provision reflects a balanced approach to proxy access that provides a meaningful proxy access right, mitigates the risk of abuse, and protects the interests of all of our stockholders. The full text of theour proxy access bylaw can be found as an exhibit to the Current Report on Form8-K filed by Ciena with the SEC on January 27, 2017.
2019 Proxy Statement 11
❖ | Stock Ownership Requirements |
To align the interests of Ciena’s executive officers and members of the Board of Directors with those of our stockholders, and to promote our commitment to sound corporate governance, we maintain stock ownership guidelines for our executive officers andnon-employee directors. During fiscal 2018, we amended these guidelines to substantially increase our minimum ownership requirements. The amended guidelines require such persons to hold shares of Ciena common stock of a value equal to a multiple of their annual base salary or annual cash retainer, as applicable, as follows:
Position | Stock Ownership Requirement | |
CEO | 5x base salary | |
Executive Chairman | 5x base salary | |
Executive Officers | 2x base salary | |
Non-Employee Directors | 5x cash retainer |
We also added a requirement that our executive officers andnon-employee directors hold 50% of all shares of Ciena common stock acquired from Ciena equity awards (net of any shares withheld for taxes or payment of exercise price), until they achieve the applicable minimum ownership level.
Each executive officer andnon-employee director is subject to these guidelines, provided he or she has five years to attain the requisite stock ownership from the date such individual first becomes subject to the guidelines. Shares that count toward satisfaction of the stock ownership guidelines include: (i) shares owned outright by such person or his or her immediate family members residing in the same household; (ii) shares held in trust for the benefit of such person or his or her family; (iii) shares held through our Deferred Compensation Plan; and (iv) shares purchased on the open market. Unexercised stock options, whether or not vested, unvested restricted stock units, and unearned and unvested performance stock units or market stock units, do not count toward the satisfaction of the guidelines. The guidelines may be waived, at the Compensation Committee’s discretion, if compliance would create hardship or prevent compliance with a court order.
❖ | Majority Vote Standard in Director Elections |
Ciena’s bylaws and Principles of Corporate Governance provide that, in the case of an uncontested election, each director be elected by the vote of a majority of the votes cast by holders of shares present in person or represented by proxy at the Annual Meeting. For this purpose, “a majority of the votes cast” means that the number of votes cast “FOR” a director’s election exceeds the number of votes cast “AGAINST” that director’s election. In the case of a contested election (i.e., an election in which the number of candidates exceeds the number of directors to be elected), however, directors will be elected by plurality vote.
As a condition of nomination, all directors areeach director is required to submit to Ciena an irrevocable resignation that becomes effective if the nominee does not receive majority vote (in an uncontested election) and the Board of Directors accepts
8 2017 Proxy Statement
the resignation. If the director fails to receive the requisite votes, the Governance and Nominations Committee will promptly consider the resignation and recommend to the Board whether to accept or reject it, or whether other action should be taken. No later than 90 days following the date of the certification of the election results, the Board of Directors will disclose its decision by press release and aForm 8-K filed with the SEC. The Board of Directors will provide a full explanation of the process by which the decision was reached and, if applicable, the rationale for rejecting the resignation. If a resignation is accepted by the Board, the Governance and Nominations Committee will recommend to the Board whether to fill the vacancy or to reduce the size of the Board of Directors.
Any director whose resignation is being considered is not permitted to participate in the recommendation of the Governance and Nominations Committee or the decision of the Board as to his or her resignation. If the resignations of a majority of the members of the Governance and Nominations Committee were to become effective as a result of the voting, the remaining independent directors will appoint a special committee among themselves for the purpose of considering the resignations and recommending whether to accept or reject them.
❖ | Selection of Board Members; Vacancies |
For any director elected by the Board of Directors to fill a vacancy, Ciena’s bylaws limit the term of office of such person to the period from election until the first annual meeting following election, at which time such person is required to stand for election by the stockholders to serve out the remainder of the term of the class to which such person was elected.
❖ | Service on Other Boards of Directors |
OurThe Board of Directors believes that directors should not serve on the boards of more than four other boards of public companies in addition to our Board of Directors, and that the CEO should not serve on more than two other boards of public
12 2019 Proxy Statement
companies in addition to our Board.Board of Directors. In the event that a director wishes to join the board of directors of another public company in excess of this limit, our Board, in its sole discretion, will determine whether service on the additional board of directors is likely to interfere with the performance of the director’s duties to Ciena, taking into account a number of factors. In addition, time constraints and demands of potential director nominees are reviewed and factored into the decisiondecisions of the Governance and Nominations Committee and the Board.
❖ | Change in Principal Occupation of Director or Change Affecting Independence |
In some cases when a director changes his or her principal occupation, the change may affect his or her ability to continue to serve on ourthe Board of Directors. As a result, when a director substantially changes his or her principal occupation, including by retirement, or there is a change in circumstances that causes an independent director to no longer be considered independent under New York Stock Exchange rules, that director willis required to tender his or her resignation to the Board.Board of Directors. In considering the notice of resignation, the Governance and Nominations Committee will weigh such factors as it deems relevant and recommend to the Board of Directors whether the resignation should be accepted, and the Board will act promptly on the matter, with any acceptance of such resignation to be promptly publicly disclosed.
❖ | Term Limits and Mandatory Retirement Age |
OurThe Board of Directors does not believe it should establish a maximum length of service or a mandatory retirement age for directors. The Board believes that the skill set and perspectives of its members should remain sufficiently current and broad in dealing with current and changing business dynamics, and therefore seeks to maintain a balance of directors with varying lengths of service and ages. While the Board recognizes that term limits and/or a mandatory retirement age could assist in this regard, they may have the unintended consequence of forcing the Board and the Company to lose the contribution of directors who over time have developed increased judgment, knowledge and valuable insight into the Company and its operations. The Board also believes that there are other, more effective means to address board refreshment, including through a robust annual self-assessment process.
❖ |
To align the interests of Ciena’s executive officers and members of our Board of Directors with those of Ciena’s stockholders, and to illustrate and promote our commitment to sound corporate governance, we maintain stock ownership guidelines for our executive officers andnon-employee directors. These guidelines require such persons to hold shares of Ciena common stock of a value equal to the lesser of a multiple of their annual base salary or annual retainer, as applicable, or a fixed number of shares as follows:
2017 Proxy Statement 9
Each executive officer andnon-employee director is subject to these guidelines, provided he or she has five years from the date such individual first becomes subject to the guidelines to attain the requisite stock ownership. Shares that count toward satisfaction of the stock ownership guidelines include: (i) shares owned outright by such person or his or her immediate family members residing in the same household; (ii) shares held in trust for the benefit of such person or his or her family; and (iii) shares purchased on the open market. Unexercised stock options, whether or not vested, and unvested restricted stock units, do not count toward the satisfaction of the guidelines. The guidelines may be waived, at the Compensation Committee’s discretion, if compliance would create hardship or prevent compliance with a court order.
Prohibition Against Pledging Ciena Securities and Hedging Transactions |
In accordance with Ciena’s Insider Trading Policy,our executive officers and members of ourthe Board of Directors are prohibited from pledging Ciena securities and engaging in hedging transactions with respect to Ciena securities. Ciena specifically prohibits our executive officers andnon-employee directors from holding Ciena securities in any margin account for investment purposes or otherwise using Ciena securities as collateral for a loan. Such persons are also prohibited from purchasing certain instruments (including prepaid variable forward contracts, equity swaps and collars) and engaging in short sales of Ciena stock and other similar transactions designedthat could be used to hedge or offset any decrease in the value of Ciena securities.
❖ | Committee Responsibilities |
OurThe Board of Directors has three standing committees: the Audit Committee, the Compensation Committee and the Governance and Nominations Committee. Each committee meets regularly and has a written charter that can be found on the “Corporate Governance” page of the “Investors” section of our website atwww.ciena.com. At each regularly scheduled Board meeting, the chairpersonChair or a member of each committee reports on any significant matters addressed by the committee.
❖ | Executive Sessions |
Our independent directors on the Board of Directors and the standing committees thereof meet regularly in executive session without employee-directors or other executive officers present. The lead independent director,Lead Independent Director, or the chairpersonChair of such committee, presides at these meetings.
❖ | Outside Advisors |
The Board of Directors and each of its standing committees may retain outside advisors and consultants at its discretion and at Ciena’s expense. Management’s consent to retain outside advisors is not required.
❖ | Annual Assessment of Board Effectiveness |
To ensure that our Board of Directors and its committees are performing effectively and in the best interests of Ciena and its stockholders, the Board performs an annual assessment, overseen by the Governance and Nominations Committee, of itself, its committees and each of its members. This assessment typically consists of the Chair of the Governance and Nominations Committee conducting a one on one interview with each director and presenting the results of those discussions to the full Board of Directors.
2019 Proxy Statement 13
Copies of our Principles of Corporate Governance and bylaws can be found on the “Corporate Governance” page of the “Investors” section of our website at www.ciena.com.
Social and Environmental Responsibility
We have adopted a number of practices and policies that highlight Ciena’s commitment to social and environmental responsibility and that seek to promote sustainability in the operation of our business. These practices are designed to position Ciena as a supplier of choice to our customers, an employer of choice to our existing and prospective employees, and a neighbor of choice in our communities around the globe. We are committed to the ethical and environmentally responsible operation of our business and have undertaken a number of initiatives to reduce our environmental impact and to ensure a healthy and safe workplace. We have achieved and hold a number of industry-recognized global certifications related to our systems addressing environmental standards and health and safety standards. We enforce a number of related policies in our workplace, and we expect our suppliers and business partners to adhere to these requirements and to promote these values. Among other things, we work with an independent sustainability partner to conduct maturity assessments of key suppliers representing a significant portion of our supplier expenditures, and we use the findings from these assessments as the basis of identifying areas of future opportunity or development with respect to our practices and those of our supply chain.
We maintain the following applicable policies:
10 2017 Proxy Statement
❖ | Corporate Social Responsibility Policy |
We maintain a Corporate Social Responsibility Policy that seeks to promote the operation of our business in an ethical and socially responsible way and that reflects our commitment to the corporate social responsibility principles laid out in the Responsible Business Alliance Code of Conduct and the United Nations Global Compact. In fiscal 2018, we issued our first Corporate Social Responsibility (CSR) Report, which is published on our website at www.ciena.com.
❖ | Environmental, Health and Safety Policy |
We maintain an Environmental, Health and Safety Policy that seeks to promote the operation of our business in a manner that is environmentally responsible and protective of the health and safety of both our employees and the public.
Copies of these policies and related information can be found on the “Social Responsibility” page of the “About” section of our website at www.ciena.com.
Code of Business Conduct and Ethics
Ciena has adoptedWe maintain a Code of Business Conduct and Ethics that is applicable tosets standards of conduct for all of itsCiena’s directors, officers and employees. The Code of Business Conduct and Ethics reflects Ciena’s policy of dealing with all persons, including our customers, employees, investors, and suppliers, with honesty and integrity. All new employees are required to complete training on our Code of Business Conduct and Ethics, and we conduct both recurring employee affirmations with respect to our Code of Business Conduct and Ethics and periodic training and communication related to specific topics contained therein.
Code of Ethics for Directors
In January 2017, Ciena adoptedWe maintain a Code of Ethics for Directors, which supplements the obligations of directors under the Code of Business Conduct and Ethics and sets forth theadditional standards of conduct for Cienaour directors. Among other things, theThe Code of Ethics for Directors outlines the responsibilities of our directors with respect to their fiduciary duties, conflicts of interest, treatment of confidential Ciena information, communications and other compliance matters.
Code of Ethics for Senior Financial Officers
In accordance with the Sarbanes-Oxley Act of 2002, Ciena has also adoptedwe maintain a Code of Ethics for Senior Financial Officers that is specifically applicable to Ciena’s Chief Executive Officer, Chief Financial Officer and Controller. Its purpose is to deter wrongdoing and to promote honest and ethical conduct, and compliance with the law, particularly as it relates to the maintenance of Ciena’s financial records and the preparation of financial statements filed with the SEC.
Each of these documents can be found on the “Corporate Governance” page of the “Investors” section of our website atwww.ciena.com. YouCopies of these documents may also obtain copies of these documentsbe obtained without charge by writing to: Ciena Corporation, 7035 Ridge Road, Hanover, Maryland 21076, Attention: Corporate Secretary.
14 2019 Proxy Statement
Lead Independent Director
One of our independent Board members is elected to serveMr. Gallagher serves as lead independent director.Ciena’s Lead Independent Director. The lead independent directorLead Independent Director is responsible for coordinating the activities of the other independent directors and has the authority to preside at all meetings of the Board of Directors at which the Executive Chairman is not present, including executive sessions of the independent directors. The lead independent directorLead Independent Director serves as principal liaison on Board-wide issues between the independent directors and the Executive Chairman, approves meeting schedules and agendas and monitors the quality of information sent to the Board. The lead independent directorLead Independent Director may also recommend the retention of outside advisors and consultants who report directly to the Board of Directors. If requested by stockholders whenand as appropriate, the lead independent directorLead Independent Director will also be available, as the Board’s liaison, for consultation and direct communication. The lead independent directorLead Independent Director also assists the Governance and Nominations Committee in guiding both the Board’s annual self-assessment and the CEO succession planning process. Mr. Cash currently serves as Ciena’s lead independent director and, effective as of the Annual Meeting, Mr. Gallagher will replace him as Ciena’s lead independent director.
Separation of Chairman and CEO Roles
Although ourthe Board of Directors does not have a formal policy on whetherseparation of the roles of Chief Executive Officer and Chairman, should be separate, Ciena has separately maintainedkept these positions separate since 2001. Separating the Executive Chairman and Chief Executive Officer roles allows us efficiently to develop and implement corporate strategy that is consistent with the Board’s oversight role, while facilitating strongday-to-day executive leadership. Mr. Smith currently serves as Chief Executive Officer and Dr. Nettles, who previously served as Chief Executive Officer until Mr. Smith assumed that role in 2001, serves as Executive Chairman.
The Board believes that its leadership structure is appropriate for Ciena. Through the role of the lead independent director,Lead Independent Director, the independence of the Board’s committees, and the regular use of executive sessions of the independent directors, the Board is able to maintain independent oversight of our business strategies, annual operating plan and other corporate activities. These features, together with the role and responsibilities of the lead independent directorLead Independent Director described above, work to ensure a full and free discussion of issues that are important to Ciena and its stockholders. At the same time, the Board is able to take advantage of the unique blend of leadership, experience and knowledge of our industry and business that Dr. Nettles brings to the role of Executive Chairman.
2017 Proxy Statement 11
The Board of Directors believes that risk management is an important part of establishing, updating and executing Ciena’s business strategy. The Board, as a whole and at the committee level, has oversight responsibility relating to risks that could affect the corporate strategy, business objectives, compliance, operations and the financial condition and performance of the company. The Board focuses its oversight on the most significant risks facing the companyCiena and on its processes to identify, prioritize, assess, manage and mitigate those risks.
Among other things, the Board annually reviews and considers Ciena’s long-term strategic plan, its annual financial and operating plan, and its enterprise risk management program. The Board and its committees also receive regular reports from members of senior management on areas of material risk to the company, including strategic, operational, financial, legal and regulatory risks. While the Board has an oversight role, management is principally tasked with direct responsibility for management and assessment of risks and the implementation of processes and controls to mitigate their effects on the company.
The Board’s leadership structure, with a lead independent director,Lead Independent Director, separate Executive Chairman and CEO, independent Board committees with strong chairs,Chairs, the active participation of committees in the oversight of risk, and open communication with management, supports the risk oversight function of the Board.
2019 Proxy Statement 15
Each standing committee of the Board has the following risk oversight responsibilities and provides regular reports to the Board on at least a quarterly basis:
Audit Committee | ||||
| Oversee management of financial risks associated with:
❖ liquidity and credit risks
❖ corporate tax positions
❖ insurance coverage
❖ cash investment strategy
❖ financial results
Oversee financial and business process systems
Oversee management of risks relating to the performance of the company’s internal audit function and its independent registered public accounting firm
Oversee whistleblower complaints and internal investigations Oversee the company’s systems of internal controls and disclosure controls and procedures
Oversee IT | |||
Compensation Committee | Oversee management of risks associated with:
❖ overall compensation and benefit strategies
❖ compensation and benefit plans and arrangements
❖ compensation practices and policies
❖ Board of Directors’ compensation
| |||
Governance and Nominations Committee | Oversee management of risks associated with:
❖ compliance and ethics program
❖ director independence
❖ Board composition
❖ Board performance ❖ annual assessment of Board effectiveness
Review and assess allocation of responsibility for risk oversight among the Board and its standing committees |
12 201716 2019 Proxy Statement
CommitteesComposition and Meetings of the Board of Directors and Meetingsits Committees
DuringThe table below details the composition of Ciena’s standing Board committees as of the end of fiscal 2016,2018 and the number of Board of Directorsand committee meetings held seven meetings. The threeduring fiscal 2018. Mr. Smith and Dr. Nettles do not serve on standing committees of the Board of Directors held meetings as follows:Directors.
Class | Name | Principal Occupation | Independent | Committee Memberships | Other
| |||||||||
AC | CC | GNC | ||||||||||||
I (2019)
|
Lawton W. Fitt
|
Chairperson, The Progressive Corporation
|
Yes
|
Chair
|
3
| |||||||||
I (2019)
|
Patrick H. Nettles, Ph.D.
|
Executive Chairman, Ciena Corporation
|
No
|
1
| ||||||||||
I (2019)
|
Michael J. Rowny
|
Chairman, Rowny Capital
|
Yes
|
❖
|
0
| |||||||||
II (2020)
|
Judith M. O’Brien
|
Partner, King & Spalding LLP
|
Yes
|
Chair
|
❖
|
0
| ||||||||
II (2020)
|
Joanne B. Olsen
|
Former EVP Global Cloud Services & Support, Oracle
|
Yes
|
❖
|
❖
|
1
| ||||||||
II (2020)
|
Gary B. Smith
|
CEO, Ciena Corporation
|
No
|
1
| ||||||||||
III (2021)
|
Bruce L. Claflin
|
Former CEO, 3Com Corporation
|
Yes
|
❖
|
❖
|
1
| ||||||||
III (2021)
|
Patrick T. Gallagher
|
Chairman, Harmonic, Inc.
|
Yes
|
❖
|
Chair
|
2
| ||||||||
III (2021)
|
T. Michael Nevens
|
Senior Advisor, Permira Advisors, LLC
|
Yes
|
❖
|
1
| |||||||||
Fiscal 2018 Meetings
|
Board: 7
|
9
|
8
|
7
|
Each of our directors attended at least 75% in the aggregate of the total number of meetings of the Board of Directors and the committees on which he or she served during fiscal 2016.2018. Ciena encourages, but does not require, members of the Board of Directors to attend the Annual Meeting, and sixeight of Ciena’s then ten directors participated in the virtual Annual Meeting last year.
Composition of Standing Committees
The table below details the composition and Chairs (C) of Ciena’s standing Board committees as of the end of fiscal 2016. Mr. Smith and Dr. Nettles do not serve on committees of the Board of Directors.
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
|
Audit Committee
The Audit Committee falls within the definition of “audit committee” under Section 3(a)(58)(A) of the Securities Exchange Act of 1934 (“Exchange(the “Exchange Act”). The Board of Directors has determined that each member of the Audit Committee meets both the independence criteria established by the SEC underRule 10A-3 under the Exchange Act and qualifies under the independence standards of The New York Stock Exchange. The Board of Directors has determined that each member of the Audit Committee is financially literate, as interpreted by the Board in its business judgment. The Board has also determined that each of Ms. Fitt and Mr. Rowny is an “audit committee financial expert” as defined in Item 407(d)(5) ofRegulation S-K of the Exchange Act and an “independent director” as independence for audit committee members is defined in The New York Stock Exchange listing standards.
Among its responsibilities, the Audit Committee appoints and establishes the compensation for Ciena’s independent registered public accounting firm, approves in advance all engagements with Ciena’s independent registered public accounting firm to perform audit andnon-audit services, reviews and approves the procedures used by Ciena to prepare its periodic reports, reviews and approves Ciena’s critical accounting policies, discusses audit plans and reviews results of the audit engagement with Ciena’s independent registered public accounting firm, obtains and reviews a report of Ciena’s independent registered public accounting firm describing certain matters required by the listing standards of The New York Stock Exchange, reviews the independence of Ciena’s independent registered public accounting firm, and oversees Ciena’s internal audit function and Ciena’s accounting processes, including the adequacy of its internal controls over financial reporting.reporting and, where it determines to do so, makes recommendations to the Board of Directors with respect to rotation of the lead partner or the independent registered public accounting firm. Ciena’s independent registered public accounting firm and internal audit department report directly to the Audit Committee. The Audit Committee also reviews and considers any related person transactions in accordance with our Policy on Related Person Transactions and applicable rules of The New York Stock Exchange.
The Audit Committee is also responsible for a variety of other functions, including oversight of Ciena’s financial and business process systems, including completion of the upgrade of Ciena’s corporate enterprise resource planning platform, and oversight of IT security matters.
Governance and Nominations Committee
The Governance and Nominations Committee reviews, develops and makes recommendations regarding various aspects ofmatters related to the Board of Directors, including its size, composition, standing committees and practices. The Governance and Nominations Committee also reviews and implements corporate governance policies, practices and procedures. The Governance and
2017 2019 Proxy Statement 1317
and Nominations Committee conducts an annual review of the performance and effectiveness of the Board of Directors, its standing committees, and its individual members. The Governance and Nominations Committee is also responsible for making recommendations to the Board of Directors regarding the composition and independence of itsnon-employee members. The members of the Governance and Nominations Committee are all independent directors under applicable rules of The New York Stock Exchange.
The Governance and Nominations Committee may also consider recommendations for nomination from other sources and interested parties, including Ciena’s officers, directors and stockholders. In considering these recommendations, the Governance and Nominations Committee utilizesapplies the same standards described in “Director Qualifications” above, and considers the current size and composition of the Board, and the needs of the Board and its committees. When appropriate, the Governance and Nominations Committee may retain executive recruitment firms to assist in identifying suitable candidates. Stockholders who wish to recommend potential nominees may address their recommendations in writing to Ciena Corporation, 7035 Ridge Road, Hanover, Maryland 21076, Attention: Corporate Secretary. For a description of the process by which stockholders may nominate directors in accordance with our bylaws, please see “Stockholder Proposals for 20172020 Annual Meeting” below.
Compensation Committee
The Compensation Committee has responsibility, authority and oversight relating to the development of Ciena’s overall compensation strategy and compensation programs. The Compensation Committee establishes our compensation philosophy and policies, and it oversees compensation plans for our executive officers andnon-executive employees. Effective as ofBeginning with our fiscal 2017,2018 director compensation program, the Committee also has oversight responsibility for the compensation program for Ciena’snon-employee directors. The Compensation Committee seeks to ensure that our compensation policies and practices promote stockholder interests and support our compensation objectives and philosophy. Ciena’s compensation program for our executive officers focuses on addressing the following principal objectives:
attract and retain talented personnel individualsexecutives by offering competitive compensation packages;
motivate our executive officers to achieve strategic and tactical objectives, including the profitable growth of Ciena’s business;
align executive compensation with stockholder interests;
reward our executive officers for individual, functional and corporate performance; and
promote apay-for-performance culture.
In making compensation decisions, the Compensation Committee also seeks to promote teamwork among and high morale within our executive team.
The Compensation Committee determines the compensation of our executive officers. As part of this determination, the Compensation Committee annually evaluates the performance of our CEO Mr. Smith, and our Executive Chairman Dr. Nettles, and considers evaluations by or recommendations from our CEO regarding our other executive officers. The Committee also receives information and advice from its compensation consultant, as described below. The Committee reviews and has final authority to approve and make decisions with respect to the compensation of our executive officers. Our executive officers, including our CEO, do not participate in the determination of their own compensation, and with the exception of our CEO, do not play any role in determining or recommending the amount of executive officer compensation. For detailed information regarding the Compensation Committee, its determination of the form and amount of compensation paid to our executive officers, including the “Named Executive Officers,” and Mr. Smith’s role in such determinations, please see “Compensation Discussion and Analysis” below.
The members of the Compensation Committee qualify as “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), qualify as“non-employee directors” within the meaning ofRule 16b-3 under the Exchange Act and are independent directors under The New York Stock Exchange listing standards for purposes of compensation committee service. The Compensation Committee’s charter permits the Committee to delegate authority to our CEO to make equity awards in connection with new hires and promotions and other discretionary awards. The Board of Directors has delegated limited authority to Mr. Smith to make equity awards to employees who are not part of the executive leadership team, within certain parameters and guidelines applicablerelated to among other things, the size, terms and conditions of such awards. The Compensation Committee regularly reviews at its meetings quarterly andyear-to-date grant activity pursuant to this delegated authority.
Compensation Consultant.Consultant
To assist it in carrying out its responsibilities, the Compensation Committee is authorized to retain the services of independent advisors. For purposes of advice and consultation with respect to the compensation of our executive officers during fiscal 2016,2018, the Committee engaged Compensia, Inc., a national compensation consulting firm. Prior to engaging Compensia, the Committee considered and assessed Compensia’s independence. To ensure Compensia’s continued independence and to avoid any actual or apparent conflict of interest, the Committee does not permit Compensia to be engaged to perform any services for Ciena
18 2019 Proxy Statement
beyond those services provided to the Committee; which includes, with respect to compensation of ournon-employee directors, the review by the Governance and Nominations Committee of the report requested
14 2017 Proxy Statement
by the Compensation Committee. The Committee has sole authority to retain or terminate Compensia as its executive compensation consultant and to approve its fees and other terms of engagement. The Committee regularly, but not less than annually, considers the independence of its compensation consultant and determines whether any related conflicts of interest require disclosure.
In establishing executive compensation for fiscal 2016,2018, the Compensation Committee relied upon Compensia to:
assist in the selection of a group of peer companies;
provide information on compensation paid by such peer companies to their executive officers;
analyze compensation survey data to supplement publicly available information on compensation paid by peer companies;
advise on alternative structures or forms of compensation and allocation considerations;
advise on appropriate levels of compensation for the Named Executive Officers (“NEOs”) and the other members of the executive team; and
prepare “tally sheets” showing, for each executive officer, all elements of compensation received in previous fiscal years, equity grant detail, the projected value of vested and unvested equity awards outstanding, and a competitivecomparative analysis of compensation relative to the peer group.
In addition to its advisory work regarding executive compensation during fiscal 2016,2018, Compensia was also engaged by the Compensation Committee to provide assistance in evaluating the compensation of thenon-employee members of our Board of Directorsdirectors as set forth below, and to participate in orand provide assistance with respect to the Committee’s annual compensation risk assessment, to review Ciena’s methodology for calculating its initial CEO pay ratio measure, and itsto review of the Compensation“Compensation Discussion and AnalysisAnalysis” included in this proxy statement. Compensia was also engaged to provide data and analysis relating to the Committee’s consideration of the terms and conditions of the change in control severance agreements described under “Potential Payments Upon Termination or Change in Control” below.
Compensation Committee Interlocks and Insider Participation
Messrs. Cash, Claflin and Gallagher and Ms.Mses. O’Brien and Olsen, who comprised the Compensation Committee as of the end of fiscal 2016,2018, are independent directors and were not, at any time during fiscal 2016,2018, or at any other time, officers or employees of Ciena. During fiscal 2016,2018, no member of the Compensation Committee was an executive officer of another entity on whose compensation committee or board of directors an executive officer of Ciena served.
2017 2019 Proxy Statement 1519
Our director compensation program is designed both to attract and to fairly compensate highly qualified,non-employee directors to represent our stockholders on the Board of Directors and to act in the stockholders’ best interests. The Governance and Nominations Committee, which consists solely of independent directors, has had primary responsibility for reviewing and recommending any changes to our director compensation program with compensation changes approved or ratified by the full Board. Effective for fiscal 2017,2018 was recommended by the Compensation Committee will assume primary responsibility forand approved by our director compensation program.Board of Directors. Our executive officers do not play any role in determining or recommending the amount ofnon-employee director compensation, except that Mr. Smith and Dr. Nettles vote on the recommendations of the Governance and Nominations committeeCompensation Committee in their capacities as members of the Board.Board of Directors.
Our Board of Directors includes two Ciena executive officers: Dr. Nettles, who serves as our Executive Chairman of the Board, and Mr. Smith, who serves as our Chief Executive Officer. Dr. Nettles does not receive cash compensation for his service as a director, and Mr. Smith does not receive any compensation for his service as a director. Information regarding equity compensation to Dr. Nettles during fiscal 20162018 can be found in the tabular disclosure below. Information regarding the determination of Mr. Smith’s compensation can be found in the “Compensation Discussion and Analysis” and “Executive Compensation Tables” below.
Fiscal 20162018 Board Compensation
For the purpose of determiningnon-employee director compensation for fiscal 2016,2018, the Compensation Committee engaged Compensia to assist in evaluating the competitiveness of our director compensation program. This evaluation was then reviewed by our Governance and Nominations Committee. The Governance and NominationsCompensation Committee considered an overview of the corporate governance environment as well as recent trends and developments relating to director compensation. The Governance and NominationsCompensation Committee also specifically considered both the amounts payable under and the various components of our director compensation program, as well as the aggregate director compensation cost, in comparison to the boards of directors of the same group of peer companies that the Compensation Committee used in determining executive officer compensation. After considering those factors and based on the factors above and the recommendationsrecommendation of the Governance and NominationsCompensation Committee, ourthe Board of Directors did not make any changes to the director compensation program for fiscal 2016.2018.
Cash Compensation
Our cash compensation program fornon-employee directors for fiscal 20162018 was as follows:
Cash Compensation | Amount | |
Annual Retainer —Non-Employee Director | $60,000 | |
Additional Annual Retainer — Lead Independent Director | $ | |
Additional Annual Retainer — Audit Committee | $35,000 $15,000 (other | |
Additional Annual Retainer — Compensation Committee | $25,000 $10,000 (other | |
Additional Annual Retainer — Governance and Nominations Committee | $15,000 $ 6,000 (other |
Under this program, ournon-employee directors are not entitled to receive meeting attendance fees unless the Board, or any standing Board committee, is required to hold an unusually high number of meetings. In the event that the Board or a standing Board committee holds more than ten meetings in a fiscal year, eachnon-employee director (as applicable) will be entitled to receive an additional $1,500 per meeting for the Chairperson,Chair, or an additional $1,000 per meeting for other directors.members. In the event that the Board, or a standing Board committee, creates a special committee or subcommittee that holds more than three meetings in a fiscal year, eachnon-employee director serving on that committee or subcommittee will be entitled to receive an additional $1,000 per meeting. Directors are also reimbursed for reasonableout-of-pocket expenses incurred in connection with attendance at Board and committee meetings.
We pay theThe retainer fees set forth above are paid in quarterly installments. Meeting attendance fees, when applicable, are generally paid promptly following the end of the fiscal year.
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Equity Compensation
Our equity compensation program fornon-employee directors and Dr. Nettles for fiscal 20162018 was as follows:
Equity Compensation | Target Delivered Value ($) | |
Initial RSU Award — Upon Director Election or Appointment | $ | |
Annual RSU Award —Non-Employee Directors and Executive Chairman | $ |
TheIn order to control for possible volatility in our stock price on any one particular trading day, the actual number of shares underlying restricted stock unit (“RSU”) awards granted in order to achieve the applicable “target delivered value” in the table abovedirectors is determined based on the average closing price of Ciena’s common stock over the30-day period immediately prior to the date of the grant. Initial equity awards are made in connection with initial election or appointment to the Board of Directors, with the target delivered value prorated for the fiscal year based on the date of election or appointment. Initial equity awards vest in equal annual installments over a three-year period.on or about theone-year anniversary of the grant date. Annual equity awards are made on the date of each Annual Meeting of Stockholders and vest in equal annual installments over a three-year period.on or about theone-year anniversary of the grant date. Vesting of the RSU awards is subject to acceleration upon the director’s death, disability, retirement, or upon or in connection with a change in control of Ciena. Delivery of the shares upon vesting is subject to any applicable instruction provided by the director under the Directors’ Restricted Stock DeferralDeferred Compensation Plan described below.
Director Compensation Limits
Our 2017 Omnibus Incentive Plan (“2017 Plan”) imposes a $500,000 limit on the compensation that can be awarded to anon-employee director in any given fiscal year, including the sum of (i) cash compensation and (ii) the grant date fair value of equity compensation under the 2017 Plan. This limitation, however, would not apply to the extent anon-employee director has been or becomes an employee of Ciena during such fiscal year. In addition, the Board retains discretion to provide further exceptions for one or more individualnon-employee directors in extraordinary circumstances, such as service on a special transaction or litigation committee of the Board, provided that the director that is the subject of such exception may not participate in any decision with respect thereto.
The following table and the accompanying footnotes describe the “total compensation” receivedearned by ournon-employee directors and by Dr. Nettles during fiscal 2016:2018:
Director Compensation Table
Name | Fees Earned Paid in Cash | Stock Awards ($)(2) | All Other Compensation | Total ($) | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | All Other Compensation ($)(3) | Total ($) | ||||||||||||||||||||
Patrick H. Nettles, Ph.D. | — | $ 175,394 | $ 192,320 | $ 367,714 |
| — | $ 190,879 |
| $ 163,448 | $ 354,327 | ||||||||||||||||||
Harvey B. Cash | $ 95,000 | $ 175,394 | — | $ 270,394 |
| $ 23,501 | $ 190,879 |
| — | $ 214,380 | ||||||||||||||||||
Bruce L. Claflin | $ 85,000 | $ 175,394 | — | $ 260,394 |
| $ 85,000 | $ 190,879 |
| — | $ 275,879 | ||||||||||||||||||
William D. Fathers (5) |
| $ 38,000 | $ 190,879 |
| — | $ 228,879 | ||||||||||||||||||||||
Lawton W. Fitt | $ 95,000 | $ 175,394 | — | $ 270,394 |
| $ 95,000 | $ 190,879 |
| — | $ 285,879 | ||||||||||||||||||
Patrick T. Gallagher | $ 76,000 | $ 175,394 | — | $ 251,394 |
| $ 105,500 | $ 190,879 |
| — | $ 296,379 | ||||||||||||||||||
T. Michael Nevens | $ 75,000 | $ 175,394 | — | $ 250,394 |
| $ 75,000 | $ 190,879 |
| — | $ 265,879 | ||||||||||||||||||
Judith M. O’Brien | $ 91,000 | $ 175,394 | — | $ 266,394 |
| $ 91,000 | $ 190,879 |
| — | $ 281,879 | ||||||||||||||||||
Joanne B. Olsen |
| $ 19,000 | $ 97,521 |
| — | $ 116,521 | ||||||||||||||||||||||
Michael J. Rowny | $ 75,000 | $ 175,394 | — | $ 250,394 |
| $ 75,000 | $ 190,879 |
| — | $ 265,879 |
(1) | Reflects the aggregate dollar amount of all cash compensation earned for service as a director, including the retainers and meeting attendance fees described in “Cash Compensation” above. |
(2) | The amounts set forth in the “Stock Awards” column represent the aggregate grant date fair value of RSU awards granted during fiscal |
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granted under the |
(3) | Non-employee directors do not receive any perquisites or other personal benefits or property as part of their compensation. Dr. Nettles does not receive cash compensation for his service as a director; the amount reported as “All Other Compensation” for Dr. Nettles reflects (a) his annual base salary for service as an executive officer of Ciena during fiscal |
(4) | Mr. Cash passed away on April 10, 2018. |
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(5) | Mr. Fathers resigned from the Board of Directors on June 11, 2018. |
Outstanding Equity Awards for Directors at FiscalYear-End
The following table sets forth, on an aggregate basis, information related to the outstanding unexercised stock options and unvested RSU awards held by each of thenon-employee directors and Dr. Nettles as of the end of fiscal 2016.2018. We have not granted stock options to ournon-employee directors since fiscal 2006.
Outstanding Equity Awards at FiscalYear-End
Stock Awards | ||||||
Name |
|
| Aggregate Number of Unvested Shares or Units (#) | |||
Patrick H. Nettles, Ph.D. | 10,775 | |||||
Harvey B. Cash (1) | — | |||||
Bruce L. Claflin | 10,775 | |||||
William D. Fathers (2) | — | |||||
Lawton W. Fitt | 10,775 | |||||
Patrick T. Gallagher | 10,775 | |||||
T. Michael Nevens | 10,775 | |||||
Judith M. O’Brien | 10,775 | |||||
Joanne B. Olsen | 3,091 | |||||
Michael J. Rowny | 10,775 |
(1) | Mr. Cash passed away on April 10, 2018. |
(2) | Mr. Fathers resigned from the Board of Directors on June 11, 2018. |
Deferral of Director Compensation
Through the end of fiscal 2016, we maintained a Directors’ Restricted Stock Deferral Plan that allowednon-employee directors to defer receipt of all or a portion of the shares of Ciena common stock underlying RSU awards granted in connection with their service on the Board of Directors. For fiscal 2017, the Board of Directors adoptedWe maintain the Ciena Corporation Deferred Compensation Plan, which allows our U.S.-based directors to elect(as well as certain U.S.-based senior management employees) to defer receipt of all or a portionelements of their compensation (including shares underlying RSU awards). annual compensation. Directors may defer up to 100% of their annual cash retainer and annual equity compensation.
Generally, deferral elections may only be made for awards to be granted in a subsequent calendar year. Directors can elect the amount deferred, the deferral period, and the form of distribution of their compensation. If a director elects to defer any portion of an RSU award, upon the vesting of that award, we credit a stock account with the amount deferred. All such accounts are distributed in shares of Ciena common stock. Distributions may be made in a lump sum or installments, as designated by the participating director, subject to early distribution of vested awards in a lump sum in the event of the participant’s death or termination of service, a change in control of Ciena or termination of the plan.
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APPROVAL OF CIENA’S 2017 OMNIBUS INCENTIVE PLAN
Overview
We are requesting that our stockholders vote in favorRatification of our 2017 Omnibus Incentive Plan, which we sometimes refer to in this proposal as the “2017 Plan.” The 2017 Plan, if approved by our stockholders, will replace our existing 2008 Omnibus Incentive Plan, which we sometimes refer to in this proposal as the “2008 Plan.” Our 2008 Plan is currently the only equity incentive compensation plan under which we grant equity incentive awards, such as stock awards, to directors, officers and employees. This section provides a summaryAppointment of the terms of the 2017 Plan and the proposal that stockholders approve the plan.
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On December 7, 2016, upon recommendation of the Compensation Committee, the Board of Directors approved the 2017 Plan, subject to approval of our stockholders at the Annual Meeting. We are asking our stockholders to approve the 2017 Plan as we believe that the plan is important to our continued growth and success. The purpose of the 2017 Plan is to attract, motivate and retain highly qualified officers, directors, key employees and other key individuals. We believe that providing these individuals an opportunity to acquire a direct proprietary interest in the operations and future success of Ciena will motivate them to serve Ciena and to expend maximum effort to improve our business and results of operations. We believe that equity awards under the 2017 Plan will be a valuable incentive to participants and will benefit stockholders by aligning more closely the interests of participants in the 2017 Plan with those of our stockholders. In designing the 2017 Plan, we have engaged with certain stockholders to seek their feedback and have endeavored to align the 2017 Plan with key best practices with respect to governance and compensation. We have also designed the 2017 Plan with a view towards ensuring that its terms align with key best practices recommended by ISS and that the impact to stockholders of the shares authorized is reasonable.
The 2017 Plan will not be effective unless and until it is approved by our stockholders, and we will not make any awards thereunder until such time as the plan is effective. If our stockholders approve the 2017 Plan, we will not make any further awards under our prior equity incentive compensation plans (including the 2008 Plan) and will thereafter make awards exclusively from the 2017 Plan and our Amended and Restated Employee Stock Purchase Plan (“ESPP”).
The 2017 Plan authorizes and reserves 8.9 million shares of our common stock for issuance. In addition, on the effective date of the 2017 Plan, all shares that remain available for issuance under the 2008 Plan will be added to the 2017 Plan and made available for issuance thereunder. The number of shares available under the 2017 Plan will also be increased from time to time by: (i) the number of shares subject to outstanding awards granted under our prior equity compensation plans that are forfeited, expire or are canceled without delivery of common stock following the effective date of the 2017 Plan, and (ii) the number of shares subject to awards assumed or substituted in connection with the acquisition of another company.
The 2017 Plan is intended to be a broad-based equity plan in which Ciena’s directors, executive officers, and other eligiblenon-officer employees may participate.
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Equity Awards Outstanding and Available
The table below includes information as of January 1, 2017 with respect to our (i) outstanding equity incentive compensation awards and (ii) shares remaining available for grant under our 2008 Plan:
Equity Awards Outstanding and Available Summary
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The 2017 Plan will not be effective unless and until approved by our stockholders. Participation and the types of awards under the 2017 Plan will be subject to the discretion of the Compensation Committee and, as a result, the benefits or amounts that will be received by any participant or groups of participants if the 2017 Plan is approved are not currently determinable. On the record date, there were eight executive officers, sevennon-employee directors and approximately 5,600 employees who would be eligible to participate in the 2017 Plan if it is approved. The closing market price per share of our common stock on The New York Stock Exchange on January 26, 2017 was $24.90.
2017 Plan Highlights
The Board believes that approval of the 2017 Plan is in the interest of Ciena and its stockholders and that the 2017 Plan reflects current market best practices with respect to incentive compensation. Some of the key features of the 2017 Plan that are designed to protect our stockholders’ interests and that reflect Ciena’s commitment to best practices and effective management of equity compensation are as follows:
The 2017 Plan authorizes a fixed number of shares and requires stockholder approval to increase the maximum number of securities that may be issued thereunder. The 2017 Plan does not contain an evergreen provision or other features which periodically add new shares for grant thereunder.
The 2017 Plan contains limitations on the maximum number of shares that may be awarded to, and the maximum amount that may be earned by, any individual under the 2017 Plan in any12-month period, as well as a limitation on the compensation that may be awarded to anon-employee director in any fiscal year.
Under the 2017 Plan, every share underlying RSUs, PSUs, and other full value awards is subject to a fungible share ratio that reduces the number of shares remaining available for issuance under the plan by a factor greater than one. The proposed fungible share ratio is 1.31 shares for each full value share awarded, which is the same ratio used under the 2008 Plan.
In general, when awards granted under the 2017 Plan are forfeited, expire or are canceled without having been fully exercised, or are settled in cash, the shares reserved for those awards will be returned to the share reserve and will be available for future awards. However, shares of common stock that are delivered to the grantee or withheld by Ciena as payment of the exercise price in connection with the exercise of a stock option or payment of a tax withholding obligation in connection with any award, or are purchased by Ciena with proceeds from option exercises, are not returned to the share reserve.
The 2017 Plan provides that awards granted under the plan may not vest in full in less than one year from the date of grant. This minimum vesting period is only subject to exceptions where vesting has occurred due to (i) a grantee’s
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death or disability, or (ii) a change in control of Ciena. Only a limited number of shares, equal to five percent (5%) of the shares authorized under the 2017 Plan, may be granted with (or subsequently modified to contain) terms that do not meet the minimum vesting period restrictions above.
All stock options and stock appreciation rights will have an exercise price equal to or greater than the fair market value of our common stock on the date the stock option or stock appreciation right is granted.
Under the 2017 Plan, repricing of stock options and SARs (including reduction in the exercise price of stock options or replacement of an award with cash or another award type) is prohibited without stockholder approval.
The 2017 Plan has a definition of change in control (referred to as a “corporate transaction” in the 2017 Plan) that we believe would not be considered a liberal change of control vesting risk by ISS.
The 2017 Plan includes a mechanism that allows Ciena to recoup or “claw back” certain equity compensation in situations requiring forfeiture under the Sarbanes-Oxley Act of 2002 and circumstances where the grantee engaged in certain misconduct. The 2017 Plan also includes a comprehensive clawback provision that subjects awards to mandatory repayment by the grantee in accordance with an award agreement, any Ciena recoupment policy, or applicable law.
Under the 2017 Plan, while Ciena may grant restricted stock awards that include the right to dividends and RSUs and PSUs that include dividend equivalent rights, no dividends or dividend equivalent rights will become payable until the corresponding restricted stock award, RSU or PSU vests.
Amendments that materially increase the benefits under the 2017 Plan (including changing the vesting restrictions described above), that materially increase the aggregate number of shares that may be issued under the plan, or that materially modify the requirements for participation in the plan are prohibited without stockholder approval.
Under the 2017 Plan, the Compensation Committee maintains the flexibility to approve equity and cash awards eligible for treatment as performance-based compensation under Section 162(m) of the Internal Revenue Code.
Summary Description of the 2017 Plan
A description of the provisions of the 2017 Plan is set forth below. This summary does not purport to be complete, and is qualified in its entirety by reference to the detailed provisions of the 2017 Plan, a copy of which is attached asAnnex A to this proxy statement.
Administration. The 2017 Plan is administered by the Compensation Committee of the Board of Directors. The members of the Compensation Committee qualify as “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code, qualify as“non-employee directors” for purposes of Rule16b-3 of the Exchange Act, and comply with the independence requirements of The New York Stock Exchange. Subject to the terms of the 2017 Plan, the Compensation Committee may select grantees to receive awards, determine the types of awards and terms and conditions of awards, prescribe the form of each award agreement evidencing an award, amend, modify or supplement the terms of any outstanding award, and interpret provisions of the 2017 Plan. Members of the Compensation Committee serve at the pleasure of the Board of Directors. The Board of Directors may also appoint one or more separate committees, composed of one or more directors who need not satisfy the independence requirements described above, that may administer the 2017 Plan with respect to grantees, provided such grantees are not Ciena executive officers or directors. The Compensation Committee may delegate its authority under the Plan to the extent permitted by applicable law.
For purposes of Section 162(m) of the Internal Revenue Code, a director is an “outside director” if he or she (i) is not a current employee of Ciena; (ii) is not a former employee who receives compensation for prior services (other than under a qualified retirement plan); (iii) has not been an officer of Ciena; and (iv) does not receive, directly or indirectly (including amounts paid to an entity that employs the director or in which the director has at least a five percent (5%) ownership interest), remuneration from Ciena in any capacity other than as a director.
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Common Stock Reserved for Issuance under the Plan. The 2017 Plan authorizes and reserves 8.9 million shares of our common stock for issuance. In addition, on the effective date of the 2017 Plan, all shares that remain available for issuance under the 2008 Plan will be added to the 2017 Plan and made available for issuance thereunder. The number of shares available under the 2017 Plan will also be increased from time to time by: (i) the number of shares subject to outstanding awards granted under our prior equity compensation plans that are forfeited, expire or are canceled without delivery of common stock following the effective date of the 2017 Plan, and (ii) the number of shares subject to awards assumed or substituted in connection with the acquisition of another company. The common stock issued or to be issued under the 2017 Plan consists of authorized but unissued shares or, to the extent permitted by applicable law, issued shares that have been reacquired by Ciena.
The number of shares of common stock available for issuance under the 2017 Plan will not be increased by any shares tendered or awards surrendered in connection with the purchase of shares of common stock upon exercise of a stock option, any shares of common stock deducted or forfeited from an award in connection with Ciena’s tax withholding obligations, or any shares of common stock purchased by Ciena with proceeds from option exercises.
Eligibility. Awards may be made under the 2017 Plan to officers, employees, directors, advisors and consultants of Ciena or its affiliates, and any other individual whose participation in the plan is determined to be in the best interests of Ciena by the Compensation Committee. On the record date, there were eight executive officers, sevennon-employee directors and approximately 5,600 employees who would be eligible to participate in the 2017 Plan if it is approved.
Effective Date; Term; Amendment or Termination of the Plan. If our stockholders approve the 2017 Plan, the effective date of the 2017 Plan will be the date of the Annual Meeting (March 23, 2017), and the 2017 Plan will terminate ten years after its effective date. The Board of Directors may terminate the 2017 Plan at any time and for any reason. The Board of Directors may also amend the 2017 Plan, provided that amendments will be submitted for stockholder approval to the extent required by the Internal Revenue Code or other applicable laws, rules or regulations. In addition, amendments that materially increase the benefits under the plan (including changing the vesting restrictions described above), that materially increase the aggregate number of shares that may be issued under the plan, or that materially modify the requirements for participation in the plan must be submitted for stockholder approval.
Stock Options. The 2017 Plan permits the granting of options to purchase shares of our common stock intended to qualify as incentive stock options under the Internal Revenue Code as well as stock options that do not qualify as incentive stock options.
The exercise price of a stock option may not be less than 100% of the fair market value of our common stock on the date of grant. The fair market value is generally determined as the closing price of the common stock on the date of grant. In the case of 10% stockholders who receive incentive stock options, the exercise price may not be less than 110% of the fair market value of our common stock on the date of grant. An exception to these requirements is made for stock options that we grant in substitution for options held by employees of companies that we acquire. In such a case the exercise price is adjusted to preserve the economic value of the employee’s stock option from his or her former employer.
The term of each stock option is fixed by the Compensation Committee and may not exceed ten years from the date of grant. If the grantee is a 10% stockholder, the term of an option intended to be an incentive stock option may not exceed five years from the date of grant. Subject to the minimum vesting periods described above, the Compensation Committee determines at what time or times each option may be exercised and the period of time, if any, after retirement, death, disability or termination of employment during which options may be exercised. Options may be made exercisable in installments. The ability to exercise options may be accelerated by the Compensation Committee, subject to compliance with the 2017 Plan.
In general, a grantee may pay the exercise price of a stock option by cash, certified check, or other cash equivalent or, with Ciena’s consent, by tendering shares of our common stock or by means of a broker-assisted cashless exercise.
No amendment or modification may be made to an outstanding stock option or stock appreciation right if that amendment or modification would be treated as a repricing under the rules of the stock exchange on which the shares of our common stock are listed (currently The New York Stock Exchange), including replacement with cash or another award type, without the approval of Ciena’s stockholders.
Stock options and stock appreciation rights granted under the 2017 Plan may not be sold, transferred, pledged or assigned other than by will or under applicable laws of descent and distribution. However, the 2017 Plan provides flexibility should we determine to permit limited transfers ofnon-qualified stock options for the benefit of immediate family members of grantees to help with estate planning concerns.
Other Awards. The Compensation Committee may also award:
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Effect of Certain Corporate Transactions. Certain change in control transactions, such as a sale of Ciena, may cause awards granted under the 2017 Plan to vest, unless the awards are continued or substituted for in connection with the change in control.
Adjustments for Stock Splits, Stock Dividends and Similar Events. The Compensation Committee will make appropriate adjustments in outstanding awards and the number of shares available for issuance under the 2017 Plan, including the individual limitations on awards, to reflect stock splits and other similar events.
Section 162(m) of the Internal Revenue Code. Section 162(m) of the Internal Revenue Code limits publicly-held companies such as Ciena to an annual deduction for federal income tax purposes of $1 million for compensation paid to their covered employees. However, performance-based compensation that meets the requirements of Section 162(m) is excluded from this limitation. The 2017 Plan is designed to permit the Compensation Committee to grant awards that qualify as performance-based for purposes of satisfying the conditions of Section 162(m).
To qualify as performance-based:
(i) the compensation must be paid solely on account of the attainment of one or morepre-established, objective performance goals;
(ii) the performance goal under which compensation is paid must be established by a compensation committee comprised solely of two or more directors who qualify as outside directors within the meaning of Section 162(m) of the Internal Revenue Code for purposes of the exception;
(iii) the material terms under which the compensation is to be paid must be disclosed to and subsequently approved by stockholders before payment is made in a separate vote; and
(iv) the compensation committee must certify in writing before payment of the compensation that the performance goals and any other material terms were in fact satisfied.
In the case of compensation attributable to stock options, the performance goal requirement (summarized in (i) above) is deemed satisfied, and the certification requirement (summarized in (iv) above) is inapplicable, if the grant or award is made by the Compensation Committee; the plan under which the option is granted states the maximum number of shares with respect to which options may be granted during a specified period to an employee; and under the terms of the option, the amount of compensation is based solely on an increase in the value of the common stock after the date of grant.
Under the 2017 Plan, one or more of the following business criteria may be used to measure the performance of Ciena, a subsidiary of Ciena and/or an affiliate of Ciena, as a whole or any business unit of the foregoing, as the Compensation Committee may deem appropriate:
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Business criteria may be measured either on an absolute or relative basis and either on a GAAP ornon-GAAP basis. The performance of Ciena, a subsidiary of Ciena and/or an affiliate of Ciena, as a whole or any business unit of the foregoing, measured with respect to any of the above business criteria, may be compared to the performance of a group of comparator companies, or published or special index that the Compensation Committee, in its sole discretion, deems appropriate.
The maximum number of shares of common stock subject to stock options or stock appreciation rights that can be awarded under the 2017 Plan to any person, other than anon-employee director, is one million per year. The maximum number of shares of common stock that can be awarded under the 2017 Plan to any person, other than anon-employee director, other than pursuant to options or stock appreciation right, is one million per year. The maximum amount that may be earned as an annual incentive award or other cash award in any fiscal year by any one person is $5 million and the maximum amount that may be earned as a performance award or other cash award in respect of a performance period greater than 12 months by any one person is $25 million.
Limits on Director Compensation
Under the 2017 Plan, the maximum amount of compensation that can be awarded to a non-employee director in any given fiscal year is $500,000 in the aggregate, including (i) cash compensation and (ii) the grant date fair value of equity compensation under the 2017 Plan. This limitation, however, would not apply to the extent anon-employee director has been or becomes an employee of Ciena during such fiscal year and certain limited exceptions in extraordinary circumstances.
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New Plan Benefits
The amounts that may be received under the 2017 Plan in the future are not determinable, as the 2017 Plan will not be effective unless and until approved by stockholders, and such amounts will depend on actions of the Compensation Committee, the performance of Ciena and the value of our common stock. For more details on grants of RSUs and PSUs made to our NEOs under the 2008 Plan in fiscal 2016, see the table below entitled “Grants of Plan-Based Awards,” and for more details on grants of RSUs made to ournon-employee directors in fiscal 2016, see the table above entitled “Director Compensation Table.”
Federal Income Tax Consequences
Incentive Stock Options. The grant of an option will not be a taxable event for the grantee or for Ciena. A grantee will not recognize taxable income upon exercise of an incentive stock option (except that the alternative minimum tax may apply), and any gain realized upon a disposition of our common stock received pursuant to the exercise of an incentive stock option will be taxed as long-term capital gain if the grantee holds the shares of common stock for at least two years after the date of grant and for one year after the date of exercise (the “holding period requirement”). Ciena will not be entitled to any business expense deduction with respect to the exercise of an incentive stock option, except as discussed below.
For the exercise of an option to qualify for the foregoing tax treatment, the grantee generally must be our employee or an employee of one of our subsidiaries from the date the option is granted through a date within three months before the date of exercise of the option.
If all of the foregoing requirements are met except the holding period requirement mentioned above, the grantee will recognize ordinary income upon the disposition of the common stock in an amount generally equal to the excess of the fair market value of the common stock at the time the option was exercised over the option exercise price (but not in excess of the gain realized on the sale). The balance of the realized gain, if any, will be capital gain. Ciena will be allowed a business expense deduction to the extent the grantee recognizes ordinary income, subject to our compliance with Section 162(m) of the Internal Revenue Code and to certain reporting requirements.
Non-Qualified Stock Options. The grant of an option will not be a taxable event for the grantee or Ciena. Upon exercising anon-qualified stock option, a grantee will recognize ordinary income in an amount equal to the difference between the exercise price and the fair market value of the common stock on the date of exercise. Upon a subsequent sale or exchange of shares acquired pursuant to the exercise of anon-qualified stock option, the grantee will have taxable capital gain or loss, measured by the difference between the amount realized on the disposition and the tax basis of the shares of common stock (generally, the amount paid for the shares plus the amount treated as ordinary income at the time the option was exercised).
If Ciena complies with applicable reporting requirements and with the restrictions of Section 162(m) of the Internal Revenue Code, Ciena will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income.
A grantee who has transferred anon-qualified stock option to a family member by gift will realize taxable income at the time thenon-qualified stock option is exercised by the family member. The grantee will be subject to withholding of income and employment taxes at that time. The family member’s tax basis in the shares of common stock will be the fair market value of the shares of common stock on the date the option is exercised. The transfer of vestednon-qualified stock options will be treated as a completed gift for gift and estate tax purposes. Once the gift is completed, neither the transferred options nor the shares acquired on exercise of the transferred options will be includable in the grantee’s estate for estate tax purposes.
In the event a grantee transfers anon-qualified stock option to his or herex-spouse incident to the grantee’s divorce, neither the grantee nor theex-spouse will recognize any taxable income at the time of the transfer. In general, a transfer is made “incident to divorce” if the transfer occurs within one year after the marriage ends or if it is related to the end of the marriage (for example, if the transfer is made pursuant to a divorce order or settlement agreement). Upon the subsequent exercise of such option by theex-spouse, theex-spouse will recognize taxable income in an amount equal to the difference between the exercise price and the fair market value of the shares of common stock at the time of exercise. Any distribution to theex-spouse as a result of the exercise of the option will be subject to employment and income tax withholding at this time.
Restricted Stock. A grantee who is awarded restricted stock will not recognize any taxable income for federal income tax purposes in the year of the award, provided that the shares of common stock are subject to restrictions (that is, the restricted stock is nontransferable and subject to a substantial risk of forfeiture). However, the grantee may elect under Section 83(b) of the Internal Revenue Code to recognize compensation income in the year of the award in an amount equal to the fair market value of our common stock on the date of the award (less the purchase price, if any), determined without regard to the restrictions. If the grantee does not make such a Section 83(b) election, the fair market value of our common stock on the date the restrictions lapse (less the purchase price, if any) will be treated as compensation income to the grantee and will be taxable in the year the restrictions lapse and dividends paid while the common stock is subject to restrictions will be subject to withholding taxes. If Ciena complies with applicable reporting requirements and with the restrictions of Section 162(m) of the Internal Revenue Code, Ciena will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income.
2017 Proxy Statement 25
Restricted Stock Units. There are no immediate tax consequences of receiving an award of RSUs under the 2017 Plan. A grantee who is awarded RSUs will be required to recognize ordinary income in an amount equal to the fair market value of the shares of our common stock issued to such grantee at the end of the restriction period or, if later, the payment date. If Ciena complies with applicable reporting requirements and with the restrictions of Section 162(m) of the Internal Revenue Code, Ciena will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income.
Stock Appreciation Rights. There are no immediate tax consequences of receiving an award of stock appreciation rights under the 2017 Plan. Upon exercising a stock appreciation right, a grantee will recognize ordinary income in an amount equal to the difference between the exercise price and the fair market value of our common stock on the date of exercise. If Ciena complies with applicable reporting requirements and with the restrictions of Section 162(m) of the Internal Revenue Code, Ciena will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income.
Performance and Cash Incentive Awards. The award of a performance or cash incentive award will have no federal income tax consequences for Ciena or for the grantee. The payment of the award is taxable to a grantee as ordinary income. If Ciena complies with applicable reporting requirements and with the restrictions of Section 162(m) of the Internal Revenue Code, Ciena will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income.
Unrestricted Common Stock. Participants who are awarded unrestricted common stock will be required to recognize ordinary income in an amount equal to the fair market value of the shares of our common stock on the date of the award, reduced by the amount, if any, paid for such shares. If Ciena complies with applicable reporting requirements and with the restrictions of Section 162(m) of the Internal Revenue Code, Ciena will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income.
Section 280G. Certain payments made to employees and other service providers in connection with a change in control may constitute “parachute payments” subject to tax penalties imposed on both Ciena and the recipient under Sections 280G and 4999 of the Internal Revenue Code. In general, when the value of parachute payments equals or exceeds three times the employee’s “base amount,” the employee is subject to a 20% nondeductible excise tax on the excess over the base amount and Ciena is denied a tax deduction for the payments. The base amount is generally defined as the employee’s average compensation for the five calendar years prior to the date of the change in control. The value of accelerated vesting of equity awards in connection with a change in control can constitute a parachute payment. The 2017 Plan contains a modified form of a “safe harbor cap,” which limits the amount of potential parachute payments that a recipient may receive to no more than 299% of the recipient’s base amount, but only if such cutback results in largerafter-tax payments to the recipient.
Section 409A. Ciena intends for awards granted under the 2017 Plan to comply with Section 409A of the Internal Revenue Code. To the extent a grantee would be subject to the additional 20% excise tax imposed on certain nonqualified deferred compensation plans as a result of a provision of an award under the plan, the provision will be deemed amended to the minimum extent necessary to avoid application of the 20% excise tax.
Proposal No. 2 — Recommendation of the Board of Directors
The Board of Directors recommends that you vote
“FOR”
the approval of the 2017 Omnibus Incentive Plan
26 2017 Proxy Statement
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board of Directors has appointed PricewaterhouseCoopers LLP (“PwC”) as our independent registered public accounting firm to audit Ciena’s consolidated financial statements for the fiscal year ending October 31, 2017,2019, and is asking stockholders to ratify this appointment at the Annual Meeting.
PwC has audited our consolidated financial statements annually since Ciena’s incorporation in 1992. A representative of PwC is expected to participate inattend this year’s Annual Meeting. He or she will have the opportunity to make a statement, if desired, and will be available to respond to appropriate questions. In making its recommendation to the Board of Directors to select PwC as Ciena’s independent registered public accounting firm for fiscal 2017,2019, the Audit Committee has considered whether thenon-audit services provided by PwC are compatible with maintaining the independence of PwC.PwC, and determined that retention of PwC is in the best interests of Ciena and its stockholders. Information regarding fees billed by PwC for our 20152017 and 20162018 fiscal years is set forth under “Relationship with Independent Registered Public Accounting Firm” below.
Our bylaws do not require that stockholders ratify the appointment of our independent registered public accounting firm. We are seeking ratification because we believe it is a matter of good corporate governance. In the event that stockholders fail to ratify the appointment, the Audit Committee will reconsider whether to retain PwC, but may ultimately determine to retain PwC as our independent registered public accounting firm. Even if the appointment is ratified, the Audit Committee, in its sole discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that it is advisable to do so.
Proposal No. 3 — Recommendation of the Board of Directors
Proposal No. 2 — Recommendation of the Board of Directors |
The Board of Directors recommends that you vote
“FOR”
the ratification of the appointment of PwC as our independent registered public accounting firm for fiscal 2017
The Board of Directors recommends that you vote “FOR” the ratification of the appointment of PwC as our independent registered public accounting firm for fiscal 2019 |
2017 2019 Proxy Statement 2723
RELATIONSHIP WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The following table shows the fees that PwC billed to Ciena for professional services rendered for fiscal years 20152017 and 2016.2018.
Fee Category | Fiscal 2015 | Fiscal 2016 | Fiscal 2017 | Fiscal 2018 | ||||||||||||
Audit Fees | $ | 4,183,000 | $ | 3,502,547 |
| $ 3,696,825 |
|
| $ 3,905,000 |
| ||||||
Audit-Related Fees | 200,295 | — |
| — |
|
| 627,425 |
| ||||||||
Tax Fees | — | — |
| 14,540 |
|
| 108,560 |
| ||||||||
All Other Fees | 601,865 | 383,910 |
| — |
|
| — |
| ||||||||
|
|
|
| |||||||||||||
Total Fees | $ | 4,985,160 | $ | 3,886,457 |
| $ 3,711,365 |
|
| $ 4,640,985 |
|
Audit Fees.This category of the table above includes fees for the integrated audit of our annual financial statements, review of financial statements included in our quarterly reports onForm 10-Q, and services that are normally provided by PwC in connection with statutory and regulatory filings or engagements. The preparation of Ciena’s audited financial statements includes compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and the preparation by PwC of a report expressing its opinion regarding the effectiveness of our internal control over financial reporting. Audit fees reflect PwC’s integrated audits of financial statements for Ciena Corporation and, with respect to fiscal 2015, separate audits of the financial statements of its Canadian subsidiary.Corporation.
Audit-Related Fees.This category of the table above includes fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not included above under “Audit Fees.” Fiscal 2015The audit-related fees in fiscal 2018 reflect auditor services in connection withfees related to our acquisition of Cyan, Inc.DonRiver Holdings, LLC on October 1, 2018 and services related toour compliance with the new facilities leases in Ottawa, Canada.Accounting Standards Codification 606 - Revenue from Contracts with Customers.
Tax Fees.This category of the table above includes fees for tax compliance, tax advice, and tax planning. There were no taxFees for fiscal 2018 include fees in fiscal 2015 or fiscal 2016.related to our compliance with the U.S. Tax Cuts and Job Act.
All Other Fees.This category of the table above includes fees for services provided by PwC that are not included in the other fee categories reported above. AllThere were no other fees relate to advisory services in support of management’s strategy and assessment of (a) requirements and capabilities with respect to a systemre-engineering project relating to Ciena’s enterprise resource planning platform, (b) supply chain advisory work, and (c) with respect to fiscal 2015, sales and operations planning procedures.2017 or fiscal 2018.
Pre-Approval of Services
The Audit Committeepre-approves all services provided by our independent registered public accounting firm, including audit services (such as statutory audit engagements as required under local law of foreign jurisdictions) andnon-audit services. For audit services with respect to Ciena Corporation, each year our independent registered public accounting firm provides the Audit Committee with an engagement letter outlining the scope of the audit services proposed to be performed during the year, which must be accepted by the Audit Committee before the audit commences. Our independent registered public accounting firm also submits an audit services fee proposal, which must be approved by the Audit Committee before the audit commences.
Each year, management also submits to the Audit Committee certainnon-audit services for which it recommends the independent registered public accounting firm be engaged to provide, and an estimate of the fees to be paid for each. Management and the independent registered public accounting firm must each confirm to the Audit Committee that the performance of thenon-audit services on the list would not compromise the independence of our registered public accounting firm and would be permissible under applicable legal requirements. The Audit Committee must approve both the list ofnon-audit services and the budget for each such service before commencement of the work. Our management and our independent registered public accounting firm report to the Audit Committee at each of its regular meetings as to thenon-audit services actually provided by the independent registered public accounting firm and the approximate fees incurred by Ciena for those services.
To ensure prompt handling of unexpected matters, the Audit Committee has authorized its ChairpersonChair to amend or modify the list of approved permissiblenon-audit services and fees. If the ChairpersonChair exercises this delegation of authority, she reports the action taken to the Audit Committee at its next regular meeting.
In compliance with the Audit Committee’s internal policy and auditor independence rules of the SEC, all audit and permissiblenon-audit services provided by PwC to Ciena for the fiscal years 20152017 and 20162018 werepre-approved by the Audit Committee.
28 201724 2019 Proxy Statement
The information contained in this report shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that Ciena specifically incorporates it by reference into a document filed under the Securities Act of 1933 or the Exchange Act.
The Audit Committee is composed entirely ofnon-management directors. The members of the Audit Committee meet the independence and financial literacy requirements of the NYSE and additional, heightened independence criteria applicable to members of the Audit Committee under SEC and NYSE rules. The Audit Committee assists the Board in fulfilling its oversight responsibilities, including by assessing and monitoring the quality and integrity of Ciena’s accounting systems and practices, financial information and financial reporting practices, potential financial, legal and regulatory exposures, systems of internal controls, internal audit function and the independent audit process. Ciena’s management is responsible for Ciena’s financial statements, and its independent registered public accounting firm is responsible for planning and conducting an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Audit Committee operates under a written charter that describes the scope of its responsibilities, and which is available on the “Corporate Governance” page of the “Investors” section at www.ciena.com.
During fiscal 2016,2018, the Audit Committee discussed with PricewaterhouseCoopers LLP (“PwC”), Ciena’s independent registered public accounting firm, the overall scope and plans for the audit. The Audit Committee met regularly with PwC, with and, at times, without management present, to discuss the results of PwC’s examinations, evaluations of Ciena’s internal controls over financial reporting and the overall quality of Ciena’s financial reporting practices. The Audit Committee also met with Ciena’s management during fiscal 20162018 to consider Ciena’s internal controls over financial reporting and Ciena’s disclosure controls and procedures.
In this context, the Audit Committee hereby reports as follows:
1. The Audit Committee has reviewed and discussed Ciena’s audited financial statements for fiscal 20162018 with management and with PwC.
2. The Audit Committee has discussed with PwC the matters required to be discussed under the rules adopted by the Public Company Accounting Oversight Board (“PCAOB”).
3. The Audit Committee has received from PwC the written disclosures and the letter required by applicable requirements of the PCAOB regarding PwC’s communications with the Audit Committee concerning independence, and has discussed with PwC its independence.
4. Based on its review and discussions described in this report, the Audit Committee recommended to the Board of Directors that the audited financial statements for fiscal 20162018 be included in Ciena’s Annual Report onForm 10-K for fiscal 2016,2018, for filing with the SEC.
Submitted by the members of the Audit Committee:
Lawton W. Fitt (Chair)
Bruce L. Claflin
T. Michael Nevens
Michael J. Rowny
2017 2019 Proxy Statement 2925
The following table sets forth, as of January 9, 2017,February 1, 2019, the beneficial ownership of Ciena’s common stock for the following persons:
each stockholder (including any group as such term is used in Section 13(d)(3) of the Exchange Act) known by us to beneficially own more than 5% of our common stock;
our Chief Executive Officer and theeach other Named Executive OfficersOfficer (as that term is defined in the “Executive Compensation Tables” below);
each of our directors and director nominees; and
all of our directors and executive officers as a group.
Certain information in the table concerning beneficial owners other than our directors and executive officers is based on information contained in filings made by such beneficial owners with the SEC.
Under SEC rules, beneficial ownership of a class of capital stock includes any shares of such class as to which a person, directly or indirectly, has or shares voting power or investment power and also any shares as to which a person has the right to acquire such voting or investment power within 60 days through the exercise or conversion of any stock option, stock award, or other similar right. Beneficial ownership reported by certain stockholders of greater than 5% of our common stock also includes shares underlying outstanding convertible notes issued by Ciena as set forth in the footnoted details. If two or more persons share voting power or investment power with respect to specific securities, each such person is deemed to be the beneficial owner of such securities. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of such acquisition rights. As a result, the percentage of outstanding shares held by any person in the table below does not necessarily reflect the person’s actual voting power. As of January 9, 2017,February 1, 2019, there were 141,243,818156,336,210 shares of Ciena common stock outstanding.
Name of Beneficial Owner | Number of Shares Owned (1) | Right to Acquire (2) | Beneficial Ownership | Percent of Outstanding | Number of Shares Owned (1) | Right to Acquire (2) | Beneficial Ownership Total (3) | Percent of Outstanding Shares (%) | ||||||||||||||||||||||||||||
More than 5% Stockholders | ||||||||||||||||||||||||||||||||||||
BlackRock, Inc. (4) | 14,119,594 | — | 14,119,594 | 10.00% |
| 17,899,503 |
| - |
| 17,899,503 |
| 11.45 | % | |||||||||||||||||||||||
Loomis, Sayles & Company, L.P. (5) | 12,021,205 | — | 12,021,205 | 8.51% | ||||||||||||||||||||||||||||||||
The Vanguard Group, Inc. (6) | 10,962,207 | — | 10,962,207 | 7.76% | ||||||||||||||||||||||||||||||||
The Vanguard Group, Inc. (5) |
| 12,173,982 |
| - |
| 12,173,982 |
| 7.79 | % | |||||||||||||||||||||||||||
Directors & Named Executive Officers |
|
| ||||||||||||||||||||||||||||||||||
Patrick H. Nettles, Ph.D. (7) | 390,199 | 6,500 | 396,699 | * | ||||||||||||||||||||||||||||||||
Patrick H. Nettles, Ph.D. (6) |
| 406,590 |
| 9,649 |
| 416,239 |
| * | ||||||||||||||||||||||||||||
Gary B. Smith | 339,520 | 69,000 | 408,520 | * |
| 249,872 |
| 24,592 |
| 274,464 |
| * | ||||||||||||||||||||||||
James E. Moylan, Jr. | 293,484 | 35,000 | 328,484 | * |
| 270,301 |
| 16,653 |
| 286,954 |
| * | ||||||||||||||||||||||||
Stephen B. Alexander | 63,103 | 47,000 | 110,103 | * | ||||||||||||||||||||||||||||||||
François Locoh-Donou | 86,936 | — | 86,936 | * | ||||||||||||||||||||||||||||||||
Rick L. Hamilton |
| 5,752 |
| 5,465 |
| 11,217 |
| * | ||||||||||||||||||||||||||||
Scott A. McFeely |
| 24,420 |
| 5,189 |
| 29,609 |
| * | ||||||||||||||||||||||||||||
David M. Rothenstein | 200,098 | — | 200,098 | * |
| 214,832 |
| 5,863 |
| 220,695 |
| * | ||||||||||||||||||||||||
Harvey B. Cash | 21,113 | 59,064 | 80,177 | * | ||||||||||||||||||||||||||||||||
Bruce L. Claflin | 47,156 | 3,250 | 50,406 | * |
| 61,608 |
| 14,454 |
| 76,062 |
| * | ||||||||||||||||||||||||
Lawton W. Fitt | 3,928 | 59,064 | 62,992 | * |
| 3,928 |
| 84,720 |
| 88,648 |
| * | ||||||||||||||||||||||||
Patrick T. Gallagher | 28,793 | — | 28,793 | * |
| 43,030 |
| 3,149 |
| 46,179 |
| * | ||||||||||||||||||||||||
T. Michael Nevens | 8,703 | — | 8,703 | * |
| 31,616 |
| 3,149 |
| 34,765 |
| * | ||||||||||||||||||||||||
Judith M. O’Brien (7) | 7,343 | 41,452 | 48,795 | * | ||||||||||||||||||||||||||||||||
Judith M. O’Brien (6) |
| 10,527 |
| 60,812 |
| 71,339 |
| * | ||||||||||||||||||||||||||||
Joanne B. Olsen |
| - |
| - |
| - |
| * | ||||||||||||||||||||||||||||
Michael J. Rowny | 3,571 | 59,064 | 62,635 | * |
| 3,571 |
| 84,720 |
| 88,291 |
| * | ||||||||||||||||||||||||
All executive officers and directors (15 persons) | 1,627,768 | 422,394 | 2,050,162 | 1.45% | ||||||||||||||||||||||||||||||||
All executive officers and directors (17 persons) |
| 1,538,048 |
| 335,691 |
| 1,873,739 |
| 1.20 | % |
* | Represents less than 1% of outstanding shares. |
(1) | Excludes shares that may be acquired through the exercise of stock options, the vesting of restricted stock units or other convertible equity incentive awards. |
30 201726 2019 Proxy Statement
(2) | Except as otherwise set forth in the footnotes below, for our executive officers, represents shares of common stock that can be acquired upon the |
(3) | Except as indicated in the footnotes to this table or as set forth in the SEC reports identified below, we believe the persons named in this table, based on information they have furnished to us or the SEC, have sole voting and investment power with respect to all shares of common stock reported as beneficially owned by them, subject to community property laws where applicable. |
(4) | Stockholder’s address is 55 East 52nd Street, New York, NY |
(5) |
Stockholder’s address is 100 Vanguard Blvd, Malvern, PA 19355. Ownership information is based solely on a Schedule 13G/A filed by stockholder with the SEC on February |
Voting and investment power is shared with spouse. |
2017 2019 Proxy Statement 3127
RISK ASSESSMENT OF COMPENSATION PRACTICES
During fiscal 2016,2018, at the request and direction of the Compensation Committee, management conducted an assessment of the risks associated with Ciena’s compensation policies and practices.
ELEMENTS OF ASSESSMENT
❖ | review of plans, policies and procedures relating to the components of our various compensation programs |
❖ | review of incentive-based cash and equity compensation features |
❖ | identification of any regional or functional distinctions in our compensation programs |
❖ | identification of compensation design features that could potentially encourage excessive or imprudent risk taking, and identification of business risks that these features could potentially encourage |
❖ | consideration of the presence or absence of appropriate controls, oversight or other factors that mitigate potential risks |
❖ | consideration of risks related to our compensation policies and practices and the potential for such risks to result in a material adverse effect on Ciena as a whole |
Although the Compensation Committee considered all elements of our compensation programs, were considered,it paid particular attention was paid in fiscal 20162018 to any additions, modifications or revisions to such programs during the current and preceding fiscal years, and how these changes affected the strengths, weaknesses or controls associated withrelated to such programs. Year-over-year changes included the introduction of market stock unit (MSU) awards as a component of long-term incentive compensation for the executive officers, as well as design changes to Ciena’s Cash Incentive Bonus Plan and Sales Incentive Compensation Plan. The Compensation Committee also focused its assessment on performance-based incentive compensation programs involving variable payouts and compensation programs impacting our executive team. In substantially all cases, compensation programs were found to be centrally designed and administered and, excluding sales incentive compensation, substantially identical across function and geography. ObjectivesAnd, the objectives used to determine incentive compensation were found to be based primarily on Ciena’s reported financial results and other performance-based corporate performance goals used to manage the business or derived from Ciena’s annual operating plan approved by the Board of Directors.
In addition, the assessment identified significant controls and other mitigating factors that serve to offset elements of Ciena’s compensation policies and practices that may introduce risk.
CONTROLS AND MITIGATING FACTORS
❖ | oversight of major incentive compensation programs and decision-making by the Compensation Committee, which, in most cases, retains the ability to adjust elements of incentive compensation in its discretion |
❖ | robust internal controls over financial reporting and compensation practices regularly reviewed and/or tested by internal auditors and subject to testing as part of the annual independent integrated audit by our external auditors |
❖ | appropriate segregation of duties |
❖ | Audit Committee oversight and review of financial results andnon-GAAP adjustments used in certain components of incentive compensation |
❖ | presence of and training relating to corporate standards of business conduct and ethics |
❖ | substantial alignment of compensation and benefits for executive andnon-executive salaried employees |
❖ | stock ownership guidelines |
❖ | a recoupment or “clawback” feature for incentive compensation awarded under Ciena’s |
Based on the assessment and factors described above, the Compensation Committee determined that the risks associated with Ciena’s compensation policies and practices are not reasonably likely to result in a material adverse effect on Ciena.
32 201728 2019 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
The following “Compensation Discussion and Analysis” describes our executive compensation program and the compensation-related decisions for fiscal 20162018 made by the Compensation Committee of the Board of Directors (the “Committee”) for the Named Executive Officers (the “NEOs”) who are set forth below:
Gary B. Smith President and Chief Executive
Mr. Smith joined Ciena in 1997 | ||||||
James E. Moylan, Jr. Senior Vice President and Chief Financial Officer (CFO)
Mr. Moylan joined Ciena as CFO in December 2007. |
Senior Vice President, Planet Software
Mr. | |||||
Senior Vice President, Global
Mr. |
David M. Rothenstein Senior Vice President, General Counsel and Secretary
Mr. Rothenstein joined Ciena in 2001 and has served as General Counsel since November 2008. |
As previously disclosed, Mr. Locoh-Donou resigned as an executive officer and employee of Ciena, effective as of March 23, 2017.
2017 2019 Proxy Statement 3329
Executive SummaryCompensation Discussion & Analysis Table of Contents
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38 | ||
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38 | ||
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39 | ||
42 | ||
Factors and Process in Determining Fiscal 2018 Equity Awards | 42 | |
42 | ||
43 | ||
46 | ||
46 | ||
46 | ||
46 | ||
46 | ||
47 | ||
47 | ||
Required Reimbursement for Personal Use of Corporate Memberships or Tickets | 47 | |
47 | ||
47 | ||
48 |
30 2019 Proxy Statement
Contained below and elsewhere in this proxy statement are certainnon-GAAP measures of Ciena’s financial performance for fiscal 20152017 and 2016.2018. These measures, along with their corresponding GAAP measuremeasures and a reconciliationreconciliations thereto, have been previously disclosed and furnished by Ciena as an exhibitin exhibits to itsCiena’s Current ReportsReport on Form8-K filedfurnished with the SEC on December 10, 20157, 2017 and December 8, 2016.13, 2018. Also see“Non-GAAP Measures” below for more information on the use of these measures.
Fiscal Executive Compensation |
❖
❖
❖
❖ ❖ Based on outstanding performance against fiscal 2018 objectives, NEOs | |||
Strong Pay Practices | ❖ Core governance principles and practices are employed to align executive compensation with stockholder interests
❖ Annual cash incentive bonuses are based on combination of corporate financial and operating objectives
❖ Equity awards make up a significant portion of overall executive compensation, | |||
|
| |||
Performance | ❖ Increased annual revenue over 10% year-over-year, from $2.8 to $3.1 billion, and gained over 2% global market share ❖ Generated $1.39 adjusted earnings per share, representing 22% year-over-year growth ❖ Achieved strong year-over-year revenue growth fromnon-service provider customers, the Asia Pacific region, and the Webscale/DCI and submarine market verticals ❖ Acquired and successfully integrated two companies into our Blue Planet software automation business ❖ Significantly improved the balance sheet, eliminating all convertible debt, refinancing our existing term loan, and ending the year in a positive cash position ❖ Returned capital to stockholders by repurchasing 4.3 million shares for $111 million under stock repurchase program ❖ Generated total stockholder return (“TSR”) of 47% | |||
Why you should vote FOR our “Say-on-Pay” Proposal | ❖ At our
❖ Key elements of our executive compensation program remain essentially unchanged
❖ Our overall fiscal
❖ See Proposal No.
|
2019 Proxy Statement 31
Fiscal 2018 Executive Compensation
Highlights of our executive compensation program for fiscal 2018 include:
Base Salaries | Did not increase the base salary of the CEO Increased the base salary of two NEOs in connection with their appointment to executive leadership team and assumption of larger organizational roles | Target Cash Incentives | Did not increase the target cash incentive opportunities for the CEO or the other NEOs | |||||
Equity Award Values | Increased the values of annual equity awards for the CEO and the other NEOs in order to better align with the market values for their positions and due to the addition of new members to the executive leadership team |
Award Structure | Continued to structure equity awards so that 60% of the target award value for the CEO, and 50% of the target award value for the other NEOs, was allocated toat-risk, Introduced MSUs as a component of performance-based equity, based on a relative TSR goal measured over a three-year performance period |
of our CEO’s target total direct compensation was in the form of equity awards | of our CEO’s target total direct compensation was completely“at-risk” based on our |
Target Total Direct Compensation Mix | ||
At-Risk Performance-Based Compensation 59% 10% 46% 31% 13% Time-Based Compensation 41% Base Salary Time-Based Equity (RSUs) Target Annual Cash Incentive Performance-Based Equity (PSUs/MSUs) |
A detailed discussion relating to each element of executive compensation and the decisions summarized above is included in “Elements of Compensation” below.
The following discussion provides additional detail and analysis regarding the Committee’s specific decisions relating to compensation of our NEOs for fiscal 2018, including the background, considerations and other factors that influenced such decisions.
34 201732 2019 Proxy Statement
Executive Compensation Best Practices
The Committee’s fiscal 20162018 compensation decision-making reflects the following core governance principles and practices that we employ to align executive compensation with stockholder interests. Also listed below are certain compensation practices that we do not employ because we believe they would not serve our stockholders’ long-term interests.
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Ensure independence in establishing our executive compensation |
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Align pay with performance |
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Permit “single trigger” change in control
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Maintain stock ownership requirements |
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2017 Proxy Statement 35
Overview
Fiscal 2015 Performance Highlights
In determining our executive compensation program for fiscal 2016, the Compensation Committee considered, among other things, Ciena’s record business and financial performance in fiscal 2015. In 2010, following our acquisition of Nortel’s MEN business, we established a clear set of longer-term financial targets for the combined company, including the achievement of an adjusted operating margin in the range of7-10%. These goals were aggressive at the time, particularly given that our adjusted operating margin in fiscal 2010 was below break-even. In fiscal 2015, we exceeded our longer-term target, delivering approximately 11% adjusted operating margin and generating over $265 million in adjusted operating income for the year. We achieved this by improving our performance on every key financial metric in fiscal 2015:
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Fiscal 2015 Year-Over-Year Financial PerformanceParticipants, Comparative Framework and Qualitative Factors
We also generated more than $250 million in cash from operations in fiscal 2015, and exited the year with more than $1 billion in cash and investments.
In addition to our outstanding financial results, we had an excellent year of business performance. Fiscal 2015 highlights included:
36 2017 Proxy Statement
Fiscal 2016 Executive Compensation
In the context of our outstanding business and financial performance in fiscal 2015, the Committee took the following actions with respect to fiscal 2016 executive compensation:
These decisions resulted in an overall CEO compensation package whereby:
CEO FY 2016
Target Total Direct Compensation Mix
A detailed discussion relating to each element of executive compensation and the decisions summarized above is included in the “Elements of Compensation” below.
Say on Pay Vote
In addition to the compensation practices discussed above, we provide stockholders with the opportunity to cast an annual advisory vote on the compensation of our named executive officers. From time to time, we seek input from our stockholders relating to executive compensation matters and expect to continue to consider input from stockholders, as well as the outcome of our annualsay-on-pay votes when making future executive compensation decisions. See “Proposal No. 4” below for this year’s“say-on-pay” proposal. Last year, approximately 93% of the stockholder votes cast on this proposal were voted in favor of the proposal. The Committee believes that this substantial majority of votes cast affirms stockholders’ support for our approach to executive compensation and, as a result, did not set or change fiscal 2016 executive compensation as a direct result of last year’s stockholder vote.
The following discussion provides additional detail and analysis regarding the Committee’s specific decisions relating to compensation of our NEOs for fiscal 2016, including the background, considerations and other factors that influenced such decisions.
2017 Proxy Statement 37
Participants and Comparative Framework
Participants in Compensation-Setting Process
Compensation Committee. The Committee has oversight ofoversees Ciena’s compensation programs and has final authority to approve and make decisions with respect to the compensation of Ciena’s executive officers. For a discussion regarding the Committee’s compensation philosophy and the principal objectives of our compensation programs, see “Corporate Governance and the Board of Directors —– Composition and Meetings of the Board of Directors and its Committees – Compensation Committee” above.
Independent Compensation Consultant. In its annual review and determination of executive compensation, the Committee is assisted by Compensia, Inc., a national compensation consulting firm. Compensia is engaged directly by the Committee and, in order to maintain its independence, does not perform additional consulting or other services for Ciena or its management. The Committee assesses the independence of its compensation advisor on an annual basis. For a discussion regarding Compensia, the scope of its engagement by the Committee and its involvement in our compensation-setting process, see “Corporate Governance and the Board of Directors —– Composition and Meetings of the Board of Directors and its Committees – Compensation Committee” above.
Chief Executive Officer. Our executive officers, including our CEO, do not participate in the determination of their own compensation. Our CEO works with the Chair of the Compensation Committee to develop proposed compensation packages for our other executive officers, including the other NEOs. Based on his review and assessment of each executive officer’s overall performance, success in executing against corporate and functional goals, criticality of function, experience, expertise, retention concerns, existing equity holdings, and compensation relative to other executive officers, as well as the Market Data (as defined below), our CEO provides recommendations to the Committee with respect to the base salary, target bonus or commission percentage, and annual equity award for each executive officer. Because our CEO works most closely with and supervises our executive team, the Committee believes that his input provides critical insight in evaluating their performance. Our CEO also provides the Committee with additional information regarding the effect of market or competitive forces, changes in strategy or priorities upon an individual’s performance, and any other specific challenges faced or overcome by each person or the function that they lead during the prior fiscal year. We have identified below, with regard to any particular NEO or element of compensation, whether the Committee’s assessment of our CEO’s recommendations or other qualitative factors significantly affected the compensation components or level of compensation awarded to such NEO.
2019 Proxy Statement 33
Peer Group. In establishingTo assist in the selection of a group of peer companies against which to compare existing and proposed executive compensation levels for fiscal 2016,2018, at the request of the Committee, sought to ensure strong comparability by requiringCompensia screened all U.S.-based publicly traded companies in the technology industry using several quantitative and qualitative criteria, including those listed below. In light of Ciena’s strategy for and increased investment in network automation software, the Committee requested that each peer company meet at least four ofCompensia expand the following six criteria: the comparability of a company’s business within the communications industry to Ciena, revenue, market capitalization, headcount, total stockholder return (TSR), and alignment with the most current peer group of companies constructed by ISS. The Committee used a screen for revenue with a range of 0.5potential companies beyond communications equipment to 2.0 times Ciena’s results,include systems software, application software and a screen for market capitalization with a range of 0.3 to 3.0 times Ciena’s size.internet software and services. Among the various criteria, the Committee considered revenue as the criterion with the highest relevance in selecting peer companies for purposes of comparing compensation.companies.
Following itsCompensia’s analysis, the Committee removed two companies because they either had been or were in the process of being acquired. The Committee also added two companies, Cadence Design Systems and Harris Corporation, each of which satisfied at least four of the designated criteria. The Committee elected to retain the other 13 companies in the existing peer group. Committee:
❖ | Removed four companies from the existing peer group:Brocade Communications because of its then-pending acquisition by Broadcom;Frontier Communications because its revenue and headcount now exceeded the desired ranges;Harris because its revenue, market capitalization and headcount now exceeded the desired ranges; andPolycom because of its acquisition by Siris Capital Group. |
❖ | Added three new companies –Akamai Technologies,CA andCitrix Systems – because each was within one of the expanded range of comparable companies intended to include the software industry categories and met several of the applicable criteria. |
Based on this analysis and the selection process set forth below, the Committee determined that the following peer group constituted an appropriate comparative reference for determining executive compensation in fiscal 20162018 (the “Peer Group”):
Fiscal 2017 Peer Group Primary Selection Criteria Refinement Criteria Fiscal 2018 Peer Group
ARRIS Group Brocade Communications Cadence Design Systems CommScope Holding EchoStar F5 Networks Finisar Frontier Communications Harris Juniper Networks NETGEAR Polycom ViaSat Viavi Solutions Xilinx | Revenue ~0.5x to ~2.0x Ciena’s last four quarters revenue Market capitalization ~0.33x to ~3.0x Ciena’s 30-day average market cap Industry Communications Equipment Systems Software Application Software Internet Software & Services | Key business and/or Employee headcount Peers of current and Companies listed as peers | Akamai Technologies ARRIS Group CA Cadence Design Systems Citrix Systems CommScope Holding EchoStar F5 Networks Finisar Juniper Networks NETGEAR ViaSat Viavi Solutions Xilinx | |||
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38 2017 Proxy Statement
AtThe following charts illustrate a comparison of Ciena to the timePeer Group based on the assessment criteria of revenue, market capitalization and employee headcount, measured as of the date of the Committee’s assessment Ciena compared toin May 2017, with the Peer Group as follows:
Peer Group Comparison
Revenue ($)* | Market Capitalization ($) | Headcount (#) | Total Stockholder (%)* | |||||
Peer Group Average | $2.80B | $5.52B | 7,192 | 8.9% | ||||
Ciena | $2.35B | $2.75B | 5,161 | 24.3% | ||||
Percentile of Peer Group | 56% | 19% | 50% | 95% |
*revenue comparison based on revenue over the four fiscal quarters preceding assessmentthe assessment.
Peer Group Comparison
Revenue ($MM) Market Capitalization ($MM) Employee Headcount (#)
34 2019 Proxy Statement
The Committee noted that Ciena was at or slightly above the 50th percentile of the Peer Group for the revenue and headcount criteria, significantly above the median of the Peer Group for the TSRrevenue criterion, and significantly below the median of the Peer Group for the market capitalization criterion, and slightly below the median of the Peer Group for the headcount criterion. The Committee believed that this represented a reasonable and appropriate balance among the key quantitative criteria, particularly given its view that revenue has the highest relevance in selecting peer companies for purposes of comparing compensation.
Market Data.As a comparative framework in establishing executive compensation for our NEOs, the CommitteeCompensia uses compensation data from public filings, compensation surveys such as the Radford High Technology Executive Compensation Survey and the IPAS Global High Technology Survey, and other published market data relating to comparable executive positions in the Peer Group (collectively, the “Market Data”). In considering the Market Data, the Committee recognizes that executive officers in different companies can play different roles, with different responsibilities and scopescopes of work, even though they may hold similar titles or nominal positions. Moreover, the Market Data does not yield qualitative factors that influence compensation, such as each executive officer’s performance during the period under consideration or their perceived importance to their respective companies’ business, strategy and objectives.objectives are not easily discernible from the Market Data. Accordingly, the Market Data is just one of a number of factors used by the Committee in determining executive compensation and it serves as a frame of reference for compensation.
In any given year, and for any particular NEO, the Committee may consider a range of subjective or qualitative factors in setting his or her compensation, including:
❖ | the role the executive plays and the importance of such individual to Ciena’s business strategy and objectives; |
❖ | differences in each executive’s tenure and experience; |
❖ | the responsibilities and particular nature of the functions performed or managed by the executive; |
❖ | our CEO’s recommendations and his assessment of the executive’s performance; |
❖ | the risk that such individual would leave Ciena if not appropriately compensated and motivated; and |
❖ | the likely cost and difficulty that would be encountered in recruiting a replacement. |
The Committee’s consideration of any particular factor may range from inapplicable to significant, depending upon the individual and period under consideration. The Committee does not assign relative weights or rankings to such factors. Rather, the Committee relies upon its members’ knowledge and judgment in assessing the various qualitative and quantitative inputs it receives as to each individual and makes compensation decisions accordingly.
In determining fiscal 20162018 executive compensation, and in addition to the assessment of the Market Data and other specific factors described in the below discussion of the individual elements of compensation, the Committee broadly considered the following qualitative factors in making its compensation decisions for each NEO:NEO. Given their tenure, track record and experience, the Committee considered the NEOs to be highly desirable executives and thus potential candidates for recruitment by other companies.
❖ | Gary B. Smith |
Has successfully served as our CEO for over 1517 years
One of the longest-tenured CEOs in the telecommunications industry
Continued to demonstrate outstanding strategic leadership of and direction for Ciena, including strong leadership of our executive team and effective communications with our various external stakeholders, allcompany
Ensured that Ciena delivered another year of which resulted in the fiscal 2015 business and financialoutstanding performance described in the “Overview” above
Continued to diversify our business, substantially growing our packet networking businessexpand and diversifyingdiversify our customer base, across geographiesparticularly in the Asia Pacific region and market segmentswith Webscale and international Tier 1 service provider customers
Enhanced Ciena’s broader articulation of corporate strategy, including the long-term, profitable growthpublication of our businesslonger-term financial targets
2017 Proxy Statement 39
❖ | James E. Moylan, Jr. |
Maintained excellent relationships and communications with the financial community and our stockholders
Provided effective management and leadership over the finance and accounting, global business operations, information technology, internal audit, investor relations, tax and treasury organizations, including new leadership and approaches within information technology and treasury
Supervised the business, substantially increasedimplementation of our adjusted operating margin,first stock repurchase program
Led significant improvements to our balance sheet and generated positive cash from operations
Ensured preparation for successful adoption of ASC 606, the new revenue recognition accounting standard
2019 Proxy Statement 35
❖ | Rick L. Hamilton |
Successfully transitioned to leading our Blue Planet Automation Software and Services business
Aligned the Blue Planet portfolio strategy with Ciena’s Adaptive Network vision, leveraging a closed loop automation system
Identified the acquisitions of Packet Design and DonRiver and supervised the integration of their solutions and services offerings into equityan integrated portfolio
Developed and to serve as an executiveimplemented a targetedco-sponsorgo-to-market of our enterprise risk management programstrategy focused on top strategic customers
Focused on building abest-in-class IT professional services business
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Exhibited strong leadership of the Global Products & Services division, which capacity he participates inencompasses the developmentglobal engineering, supply chain, product line management and establishmentquality organizations
Assumed responsibility for our global attached services business and supervised a series of our strategic productrelated transformation initiatives to increase efficiencies, reduce costs and improve customer satisfaction
Oversaw industry-leading technology vision and directioninnovation from the engineering organization
• Successfully focused on developing features and features to expandgrowing sales orders for our addressable market, including the launch of our Waveserver stackable data center interconnect platform and the integration of Blue Planet, our modular service orchestration and network management software platform, from the Cyan acquisition
❖ | David M. Rothenstein |
Demonstrated strong performance as General Counsel and Secretary, including with respect to leading engagement with our Board of Directors
Managed the structuring, negotiation and structuredintegration of the acquisitions of CyanPacket Design and TeraXionDonRiver acquisitions
Made several treasurysignificant enhancements and capital structure-related transactions
Led an analysis of our real estate portfolio in the context of workforce planning, workspace evolution and initiated negotiations to secure a long-term campus solution for our R&D facilities in Gurgaon, Indiasite utilization
Continued to serve as the chairChair of our Disclosure Committee and our Corporate Compliance Committee, and as an executiveco-sponsor sponsor of our enterprise risk management program(ERM) and corporate social responsibility (CSR) programs
Internal Equity.The Committee seeks to promote strong teamwork and high morale within our executive team. While the Committee does not use any quantitative formula or multiple for comparing or establishing compensation among the executive officers, it is mindful of internal pay equity considerations, and assesses the relationship of the compensation of each executive officer to other members of the executive team. The Committee also considers each fiscal year, on a relative basis, the aggregate portion of equity awards, in terms of economic value and allocation of shares, made to the executive team, in comparison to other eligible employees.
We provide stockholders with the opportunity to cast an annual advisory vote on the compensation of our named executive officers. From time to time, we seek input from our stockholders relating to executive compensation matters and expect to continue to consider input from stockholders, as well as the outcome of our annualsay-on-pay votes when making future executive compensation decisions. See “Proposal No. 3” below for this year’s“say-on-pay” proposal. Last year, approximately 98% of the stockholder votes cast on this proposal were voted in favor of the proposal. The Committee believes that this substantial majority of votes cast affirms stockholders’ support for our approach to executive compensation and, as a result, did not set or change fiscal 2018 executive compensation as a direct result of last year’s stockholder vote.
40 201736 2019 Proxy Statement
Elements and Mix of Compensation
Principal Elements of Compensation
The principal elements of compensation of our executive officers, including our NEOs, includes three principal elements: include:
Element
Type | Form | Key Characteristics | Purpose | |||||||||||||
Base Salary | Fixed | Cash | Annual adjustments based on individual performance, relative to market pay level and internal pay equity | Attracts, retains and rewards NEOs by providing a competitive fixed amount of compensation for service that reflects skill, responsibility and experience | ||||||||||||
Annual Cash Incentive | At-Risk | Cash | Variable cash compensation, based onpre-established financial, strategic and operational goals and individual performance | Focuses NEOs on achievement of our short-term financial and operational goals Aligns interests of NEOs with stockholders by promoting strong annual operating income growth and achievement of other key corporate objectives | ||||||||||||
Long-Term Equity Incentive | At-Risk | Restricted Stock Units | RSU equity awards based on continued service vest in quarterly increments over a four-year period | Retains NEOs through multi-year vesting of equity awards Motivates and rewards NEOs for the achievement of long-term corporate performance Aligns NEO and stockholder interests | ||||||||||||
PSU equity awards based onpre-determined financial, strategic and/or operational goals have aone-year performance period and vest in | |||||||||||
Market Stock Units | MSU equity awards based on TSR relative to a comparison index over a three-year period, and vest in full at end of |
We also provide severance and change in control related benefits for our NEOs, and other benefits such as a 401(k) plan, health and wellness benefits including an annual physical examination, and financial planning and tax preparation services. In addition, our NEOs participate in the Deferred Compensation Plan available to other senior management employees and standard employee benefit plans and programs available to our other employees.
2019 Proxy Statement 37
In determining the mix of compensation among these elements, the Committee does not assign specific ratios or other relative measures that dictate the total compensation mix to be awarded or targeted to the executive team, or the portion that is either at riskat-risk or otherwise subject to performance. Nevertheless, as illustrated by the charts below, the Committee continued to structure executive compensation in fiscal 20162018 so that a significant portion of the target total direct compensation of our CEO and the other NEOs was“at-risk”, or performance-based, with the actual value realized subject to the achievement of short-term or long-term corporate and financial performance goals. Approximately 60% of our CEO’s target total direct compensation for fiscal 20162018 was structured as“at-risk” performance-based.performance-based compensation. By linking a significant portion of our executives’ compensation to
performance, the Committee emphasized incentive-based variable pay, which is consistent with ourpay-for-performance philosophy and creates a strong alignment with long-term stockholder value.
CEO FY 2018 Target Total Direct Compensation Mix | NEO FY 2018 Target Total Direct Compensation Mix | |
* Target Total Direct Compensation reflects annual base salary, annual cash incentive opportunity and grant date fair value of fiscal 20162018 equity awards. For Mr. Locoh-Donou, the above graph does not take into account an additional equity award he received in connection with his appointment as our Chief Operating Officer in November 2015.
2017 Proxy Statement 41
Base salaries provide a minimum, fixed level of cash compensation for our executive officers. Establishing base salaries that reflect the performance, skill set and value of executive talent in the competitive marketplace is an important element in attracting, retaining and rewarding our executive officers.
In determining base salaries for fiscal 2016,2018, the Committee considered a number of factors, including:
Based on those factors, together with the “Qualitative Factors” describedMarket Data showed that the base salaries for Messrs. Smith, Moylan and Rothenstein were at or slightly above the market median of equivalent positions at the time. With respect to Messrs. Hamilton and McFeely, the Committee recognized that neither had received an increase in base salary in connection with their respective appointments to the executive leadership team and assumption of larger organizational roles during fiscal 2017. Accordingly, for fiscal 2018 the Committee determined not to increase the base salaries forof Messrs. Smith, Moylan and Rothenstein, and to increase the NEOs in order to better align with the approximatemid-pointbase salaries of the Market Data for their positions,Messrs. Hamilton and McFeely, as set forth below.
Annual Base Salary
Annual Base Salary ($) | Annual Base Salary ($) | |||||||||||||||
Name | Fiscal 2015 | Fiscal 2016 | Percentage Increase | Fiscal 2017 | Fiscal 2018 | Percentage Increase | ||||||||||
Gary B. Smith | $800,000 | $900,000 | 12.5% | $ 900,000 | $ 900,000 | 0% | ||||||||||
James E. Moylan, Jr. | $450,000 | $525,000 | 16.6% | $ 525,000 | $ 525,000 | 0% | ||||||||||
Stephen B. Alexander | $400,000 | $420,000 | 5.0% | |||||||||||||
François Locoh-Donou | $420,000 | $525,000 | 25.0% | |||||||||||||
Rick L. Hamilton | $ 420,000 | $ 440,000 | 5% | |||||||||||||
Scott A. McFeely | $ 400,000 | $ 440,000 | 10% | |||||||||||||
David M. Rothenstein | $400,000 | $450,000 | 12.5% | $ 450,000 | $ 450,000 | 0% |
Except with respect to Mr. Locoh-Donou, who was promoted in November 2015, theThe above base salary increases were made effective as of Ciena’s second quarter of fiscal 2016,2018, in order to coincide with the timing of Ciena’s broad-based merit increase fornon-executive employees.
Annual Cash Incentive Opportunity
We use performance-based cash incentive bonuses to motivate our executive officers and to incent the achievement of financial, strategic and operational objectives that are closely aligned with the annual operating plan that is reviewed and approved by the Board of Directors each year. The Committee believes that its use of these objectives promotes executive focus on annual financial and operating results. Moreover, use of an incentive cash component of executive compensation enables target total cash compensation to remain competitive, while providing a significant portion of this target compensation in the form of an “at risk,” performance-based component. This annual incentive cash opportunity for our employees, including the NEOs, is expressed as a percentage of base salary. Because of this correlation, the Committee typically looks at base salary and annual cash incentive compensation in combination, and considers the effect modifications to either such element have on the “target total cash compensation” for each individual.
38 2019 Proxy Statement
The Committee considers potential incentive payments to each NEO at the “target” level (as reflected in “Annual Cash Incentive Bonus Plan” below), together with base salary, in determining the “target total cash compensation” payable to each executive.
42 2017 Proxy Statement
GivenThe Committee considered that the market median for totalMarket Data showed that, if paid at the target cash compensation also increased significantly overlevel, the past year, the Committee reached a similar conclusion with respect to theoverall target total cash compensation for our executives as with base salaries. The Market Data indicated that the overall averageeach of the NEOs except Mr. McFeely was at or above the median of equivalent positions in the market. The Committee also noted that, as a result of its decision to increase the base salary of Mr. McFeely, his overall target total target cash compensation as a group, if fully paid at the target level, had decreased from the 65th percentile ofwould be aligned with the market last year to the 50th percentile of the market, with variance by executive. However, for the reasons set forth in “Base Salary” above, the Committee determined that this differential to market would be better addressed by increasing the base salaries as set forth above.median. Accordingly, the Committee determined not to increaseagreed that the target cash incentive opportunities for the NEOs expressed as a percentage of base salary remained reasonable and appropriate and decided not to increase them for fiscal 2018, as set forth below.
Annual Cash Incentive Opportunity
Target Cash Incentive Compensation (as percentage of base salary) | Target Cash Incentive Compensation (as a percentage of base salary) | |||||||||||
Name | Fiscal 2015 | Fiscal 2016 | Percentage Increase | Fiscal 2017 | Fiscal 2018 | Percentage Increase | ||||||
Gary B. Smith | 125% | 125% | —% | 125% | 125% | 0% | ||||||
James E. Moylan, Jr. | 85% | 85% | —% | 85% | 85% | 0% | ||||||
Stephen B. Alexander | 75% | 75% | —% | |||||||||
François Locoh-Donou | 85% | 85% | —% | |||||||||
Rick L. Hamilton | 75% | 75% | 0% | |||||||||
Scott A. McFeely | 75% | 75% | 0% | |||||||||
David M. Rothenstein | 70% | 70% | —% | 75% | 75% | 0% |
Target Total Cash Compensation
The Committee’s decisions with respect to annual base salaries and annual cash incentive bonus opportunities for fiscal 2018 resulted in target total cash compensation for the NEOs as set forth below.
Target Total Cash Compensation
Target Total Cash Compensation ($) | ||||||||||
Name | Fiscal 2017 | Fiscal 2018 | Percentage Increase | |||||||
Gary B. Smith | $ 2,025,000 | $ 2,025,000 | 0% | |||||||
James E. Moylan, Jr. | $ 971,250 | $ 971,250 | 0% | |||||||
Rick L. Hamilton | $ 735,000 | $ 770,000 | 5% | |||||||
Scott A. McFeely | $ 700,000 | $ 770,000 | 10% | |||||||
David M. Rothenstein | $ 787,500 | $ 787,500 | 0% |
The amounts in the table above represent target total cash compensation for fiscal 2017 and fiscal 2018. For amounts actually earned or received by our NEOs during fiscal 2018, see “Summary Compensation Table” in the “Executive Compensation Tables” below.
Annual Cash Incentive Bonus Plan
Full-time employees, excluding our employees who receive sales commissions, generally are eligible to participate in our annual cash incentive bonus plan, which pays out a bonus upon the achievement of performance objectives established by the Committee. This plan is the mechanism for delivering the annual cash incentive opportunity discussed above. The bonus plan, which is more fully described in the “Grants of Plan-Based Awards” section of the “Executive Compensation Tables,” provides the Committee with the flexibility to establish corporate, departmental or individual performance objectives upon which bonus payments are contingent.
We have structured theThe bonus plan is structured to focus and incent our executive officers to achieve bothon the achievement of a defined set of clearly definedshort-term financial and corporate performance goals and a specific financial goal, which again was an aggregate adjusted operating income target for the fiscal year. As described below, theobjectives. The payout percentage under the bonus plan is determined by multiplying the level of achievement of the corporate performance goalsfinancial objective, which in recent years has been our aggregate adjusted operating income target for the fiscal year, by a multiplier based on the level of achievement of our adjusted operating income target.the defined corporate objectives.
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Bonus Payout Percentage
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2019 Proxy Statement 39
Fiscal 20162018 Structure.The Committee retained To determine the existing design of the annual cash incentive bonus planpercentage payout for fiscal 2016, with only one change relating to2018, thepayout-for-performance structure. Previously, the fiscal 2015 plan was designed with a1.5-to-1payout-for-performance slope, with a minimum performance threshold of 50% of Committee used Ciena’s annual adjusted operating income target resultingset forth in a 25% bonus payout,our fiscal 2018 operating plan for purposes of the financial objective and a maximum bonus payoutcombination of 175%eight corporate objectives that correlate with our annual operating plan or three-year strategic plan for achieving at least 150%purposes of Ciena’s adjusted operating income target. For fiscal 2016, however, the corporate objectives multiplier. The Committee elected to returnuse the same objectives for all eligible employees, including our NEOs, in order to align the interests of our employee base and to promote teamwork and morale.
In considering the fiscal 2018 bonus plan, the Committee recognized that the then existing structure had been initially designed several years earlier, and at a time when Ciena was approaching break-even profitability. It noted a shift in a number of bonus-related dynamics associated with an increase in Ciena’s profitability since that time. Among these, the Committee considered that the range of actual performance against the financial objective has narrowed and that previous concerns about the potential for a disproportionate impact of a bonus payment on Ciena’s profitability had abated. In addition, the Committee considered its and management’s concerns about the lack of a realistic opportunity for a meaningful upside payout despite strong performance against a range of corporate goals and the adequacy of bonus plan funding to attract and retain the company’s employees. Accordingly, the Committee made several changes to the fiscal 2018 bonus plan from the structure used in previous years:
Financial Objective | Corporate Objectives | |||
❖ Raised the minimum performance threshold to 70% (from 50% in fiscal 2017) ❖ Capped the payout at 130% performance (from 150% in fiscal 2017) ❖ Increased the payout slope for performance above target to2-to-1 (from1.5-to-1 in fiscal 2017) while retaining a1-to-1 payout slope for performance at or below target | ❖ Reduced the number of objectives to eight (from 10 in fiscal 2017) ❖ Raised the minimum performance threshold to 50% (from 30% in fiscal 2017) ❖ Added a multiplier above 1.0x for the highest levels of achievement, but conditioned its application on achievement of at least 80% of the financial objective |
These changes were intended to address more realistic ranges of possible actual performance against the financial and corporate objectives, increase the minimum thresholds required in order to earn a1-to-1payout-for-performance slope, with bonus payment, and provide an appropriate level of upside potential for outstanding performance against the objectives. As a minimum performance thresholdresult of 10%these changes, the maximum amount that could be paid under the bonus plan was 192% of Ciena’s adjusted operating incomethe target resulting in a 10% bonus payout, and a maximum bonus payout of 200% for achieving at least 200% of Ciena’s adjusted operating income target.bonus. Overall, the fiscal 20162018 bonus plan was designed to balance and align the interests of our employees and stockholders, while incentivizing the company’s workforce to drive toward improved profitability and stockholder return.
The multiplier used based on the adjusted operating income target, expressed as a percentage of the fiscal 2016 target bonus payable to eligible employees (including the NEOs), at each of the threshold, target and maximum levels is set forth in the following table, with
Financial Objective | Corporate Objectives Multiplier | |||||||
Performance (%) | Total Target Bonus Earned (%) | Objectives Achieved (#) | Multiplier | |||||
< 70% | 0% | < 4 | 0.0x | |||||
70% | 70% | 4 | 0.8x | |||||
80% | 80% |
| 5 | 0.9x | ||||
90% | 90% | 6 | 1.0x | |||||
100% | 100% | 7 | 1.1x * | |||||
110% | 120% | 8 | 1.2x * | |||||
120% | 140% | * Only applies if achieve >80% of Financial | ||||||
130% | 160% | Objective; otherwise reverts to 1.0x |
Bonus payments are interpolated for performance results falling between the designated levels.
Fiscal 2016 Cash Incentive Bonus Plan Structure
Performance Goal Achieved | Target Bonus Payable | |||
“Threshold” | 10% | 10% | ||
“Target” | 100% | 100% | ||
“Maximum” | ³200% | 200% |
2017 Proxy Statement 43
Fiscal 2016 Performance Goals.In establishing the performance goals for the fiscal 2016 cash incentive bonus plan, the Committee sought to align the Company’s operating imperatives and financial objectives to support both our long-term strategic transformation and our near-term profitability targets. The Committee determined to use a combination of ten corporate goals, together with a multiplier based on the adjusted operating income targetlevels set forth in our fiscal 2016 annual operating plan, to determine the applicable bonus funding percentage, with calculation of the total bonus payout percentage as reflected below. The Committee elected to use the same performance goals for all eligible employees (including our NEOs), in order to align the interests of our employee base and to promote teamwork and morale.
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0 - 2 | 0% | <10% | 0.0x | |||||
3 | 30% | 10% | 0.1x | |||||
4 | 45% | 50% | 0.5x | |||||
5 | 60% | 100% | 1.0x | |||||
6 | 75% | 150% | 1.5x | |||||
7 | 90% | ³200% | 2.0x | |||||
8 - 10 | 100% |
above. For illustrative purposes only and by way of example, if Ciena had achieved eight of its ten corporate performance goals, with financial results equaling 75%80% of the adjusted operating income target and seven of its eight corporate objectives, the applicable annual cash incentive award would have been 75% (100%88% (80% x 0.75)1.1) of the target bonus opportunity.
Corporate performance goalsFinancial Objective. The fiscal 2016 corporate performance goals were as follows:
Financial goal. With respect to the corporate financial goal,As noted above, the Committee has used anannual adjusted operating income target underas the planfinancial objective for the past several years and continues to believe that this performance-based measure provides the most comprehensive and effective indicator of Ciena’s operating performance. The Committee also recognized that the adjusted
44 2017 Proxy Statement
operating income measure is one of the most important and frequently reviewed metrics used by our CEO and executive team in managing Ciena’s business. In calculating the adjusted operating income, measure, the Committee gives effect to certain adjustments to our GAAP results generally consistent with those reported in our quarterly earnings releases, as well as the cost of the annual incentive bonus plan and any sales incentive compensation paid to our global field organization in excess of that budgeted in our annual operating plan. The adjusted operating income target for fiscal 20162018 was $305.0$416.0 million in the aggregate, after taking into account such adjustments.
40 2019 Proxy Statement
Corporate Performance Goals. The fiscal 2018 corporate performance goals were aligned with Ciena’s execution imperatives for the cost of the annual incentive bonus plan.fiscal year, as follows:
EXECUTION IMPERATIVES | OPTICAL LEADERSHIP | 1. Deliver at least two of three defined product releases or feature content | ||||
PACKET NETWORKING GROWTH | 2. Generate $160M in orders for Packet Networking products from customers other than AT&T | |||||
BLUE PLANET AUTOMATION SOFTWARE | 3. Generate $34M in orders for Blue Planet Automation Software and Services solutions portfolio, including orders from four of top 13 defined customers of $10M in aggregate | |||||
ONE CONTROL / MCP SOFTWARE MIGRATION | 4. Ensure that MCP domain controller software is in production in the networks of 25 defined customers | |||||
WEBSCALE CUSTOMER EXPANSION | 5. Generate $260M in revenue directly from Webscale customers | |||||
SUBMARINE MARKET EXPANSION | 6. Generate $215M in orders from submarine business | |||||
SERVICES TRANSFORMATION | 7. Achieve $34M in cost reductions across the Attached Services portfolio 8. Maintain and improve customer experience by attaining defined levels of deployment project completionon-time and customer satisfaction with technical support cases |
Attainment of Fiscal 20162018 Cash Incentive Bonus.Ciena successfully achieved nine of the ten annual corporate performance goals described above, and generated adjusted operating income of $296.1$424.9 million in fiscal 20162018 after taking into accountgiving effect to the cost of the incentive bonus plan and other adjustments to GAAP consistent with Ciena’s reported earnings.described above. Based on thepayout-for-performance modelstructure described above, this annual operating incomeresulted in a total bonus earned at 104% of target before application of the corporate objectives multiplier. Ciena also successfully achieved each of the eight corporate performance goals for fiscal 2018, which resulted in application of a 0.95x1.2x multiplier. As a result, the NEOs earned and were awarded a bonus equal to 95%125% of the annual target bonus opportunity (104% x 1.2), which resulted in cash incentive bonus payments as set forth in the table below.
Attainment of Fiscal 20162018 Cash Incentive Bonus
Name | Fiscal Cash Incentive Bonus | ||||
Gary B. Smith | $ | ||||
James E. Moylan, Jr. | $ | ||||
| $ | ||||
| $ | ||||
David M. Rothenstein | $ |
Target Total Cash Compensation
The Committee’s decisions with respect to annual base salaries and annual cash incentive bonus opportunities for fiscal 2016 resulted in changes to target total cash compensation for the NEOs as set forth below.
Target Total Cash Compensation
Target Total Cash Compensation ($) | ||||||
Name | Fiscal 2015 | Fiscal 2016 | Percentage Increase | |||
Gary B. Smith | $ 1,800,000 | $ 2,025,000 | 12.5% | |||
James E. Moylan, Jr. | $ 832,500 | $ 971,250 | 16.6% | |||
Stephen B. Alexander | $ 700,000 | $ 735,000 | 5.0% | |||
François Locoh-Donou | $ 777,000 | $ 971,250 | 25.0% | |||
David M. Rothenstein | $ 680,000 | $ 765,000 | 12.5% |
The amounts in the table above represent target total cash compensation for fiscal 2015 and fiscal 2016. For amounts actually earned or received by our NEOs during fiscal 2016, see “Summary Compensation Table” in the “Executive Compensation Tables” below.
2017 2019 Proxy Statement 4541
Equity Compensation
We have historically relied heavily on equity-based compensation as a key component of our compensation program. The Committee believes that meaningful equity-based incentive compensation performs an essential roleFactors and Process in attracting, motivating and retaining executives and a strong incentive for corporate performance and stockholder return. For the past several years, the Committee has relied upon long-term equity awards to balance the shorter-term focus of the cash incentive bonus plan. The Committee believes that this structure not only rewards the achievement of longer-term business objectives that benefit our stockholders but also serves to retain a successful executive team.
Process for Determining Fiscal 20162018 Equity CompensationAwards
In establishingdetermining equity compensation for fiscal 2016, and consistent with past practice,2018, the Committee determinedconsidered that the Market Data showed that, as a percentile of the market, the overall average equity value for the executive officers decreased substantially year-over-year – from the 60th percentile of the market the previous year to use athe 40th percentile of the market at the time of the Committee’s assessment. Compensia’s analysis indicated that this decrease was due primarily to two factors. First, the annual equity values awarded to executive officers in the market had increased substantially year-over-year, with an overall average 44% increase in value from the previous year, as compared to the smaller increases in equity values provided to Ciena’s executive officers. Second, three individuals had been promoted into the executive leadership team during fiscal 2017, including Messrs. Hamilton and McFeely, and consequently the equity values provided to them in their previous roles within Ciena were significantly lower than the equivalent market values for their new roles.
The Committee recognized that, for the first time in three years, the overall average equity value for the executive officers wasbelow its target value range of between the 50th50th and 75th75th market percentiles for the value delivered to similar executives based on the Market Data. Ciena primarily competes with and hires executives from companies that are substantially larger in all relevant comparison metrics, and therefore are not appropriate to include in the Peer Group. This dynamic requires the Committee to develop a peer group of industry-related companies with whom the Company does not directly compete but who represent an aggregate financial profile that places Ciena at or about the market median, with revenue as the most relevant criterion. As witha result, in order to better reflect market dynamics and Ciena’s resulting challenge in attracting and retaining top executives, the elements of cash compensation, Compensia prepared an analysis of market benchmarks for targetCommittee believes that it is appropriate to establish equity values in the Peer Group. Based on the Market Data, and for the second consecutive year, the overall average target equity value for the executive officers wasusing a target range at or significantly above median for the 65th percentile of the market, or approximately themid-point of our target value range. The Committee was pleased with its progress in improving the retention profile of our executive officers, and in aligning their equity-based compensation with similarly situated executives in the Peer Group and with our stockholders in driving the company’s longer-term performance and transformation strategy.values delivered to similar executives.
Based on Compensia’s analysis, as well as Ciena’s outstanding fiscal 2015strong business and financial performance described in the “Overview” above and the factors for each individual executive described in “Consideration of Qualitative“Qualitative Factors” above, our CEO prepared recommendations for target equity values for each of the NEOs (other than himself) for the Committee’s consideration. The Committee made its own similar evaluation for our CEO, based upon its assessment of his responsibilities, performance, experience and value to Ciena, as well as consideration of the below additional factors.
In determining fiscal 20162018 equity compensation, and in addition to the qualitative factors described above, the Committee considered, among other things, the following:
❖ | our CEO’s assessment of the overall responsibilities, performance, experience, expertise and value to Ciena of each individual, as well as the criticality of each position and any concerns with respect to retaining the individual; |
❖ | the existing, unvested equity holdings of each individual and assumptions relating to future values; |
❖ | the potential impact of awards at the target equity values on key compensation governance metrics, including current and three-year average burn rate, equity overhang levels, and equity grant expense as a percentage of market capitalization; |
❖ | the specific number of shares resulting from the proposed target equity values using a range of possible grant date Ciena stock prices; and |
❖ | the number of shares remaining available for issuance under the |
The Committee made its own similar evaluation for our CEO, based upon its assessment of his responsibilities, performance, experience and value to Ciena, as well as consideration of the above additional factors.
As described inabove, based on the “Overview” above, Ciena had an outstanding year of performance in fiscal 2015 andMarket Data, the targetprior year’s equity values of our executives tracked reasonably wellwere below (and, in some cases, significantly below) the Committee’s target range for the value delivered to similar executives. In particular, the Committee noted that Mr. Smith’s equity value approximated only the 35th percentile of the equity values awarded to chief executive officers in the Peer Group in 2017. The Committee agreed that, after taking steps to align executive equity compensation with the overall market.Peer Group and with Ciena’s strong business and financial performance in recent years, it was important to ensure that equity compensation for our executives kept pace with the market and that of similarly situated executives in the Peer Group. Accordingly, the Committee established target values offor the fiscal 2016 equity awards for the NEOs that represented reasonable year-over-year overall average increases in target delivered value. Specifically, the target value of Mr. Smith’s fiscal 2016 equity award represented a 5% year-over-year increase, and the aggregate target value of the fiscal 2016 equity awards to the other NEOs as a group represented a 4% year-over-year increase. The Committee considered these target values to be appropriate given that market annual equity values increased substantially year-over-year, with an overall average 22% increase in value from the previous year.
However, because Ciena’s stock price on the grant date was significantly lower than its average closing stock price over the 30 days prior to the grant date – which latter price was used to calculate the number of shares granted – the fiscal 20162018 equity awards to the NEOs that represented a substantial year-over-year decreaseincreases in grant date fair value. The grant date fair value, of Mr. Smith’s fiscal 2016 equity award represented a 24% year-over-year decrease, andwith variance by individual executive based on market benchmarking for the aggregateapplicable position. Specifically:
❖ | The grant date |
42 2019 Proxy Statement
❖ | The grant date values of the fiscal 2018 equity awards granted to Messrs. Moylan and Rothenstein represented year-over-year increases of 5% and 17%, respectively; and |
❖ | Given that Messrs. Hamilton and McFeely had been promoted to the executive leadership team during fiscal 2017, the comparison of their year-over-year increases in equity values was not relevant and was not considered by the Committee. |
Overall, the Committee believed that the values of the fiscal 2016 equityexecutive awards granted to Mr. Smith and the other NEOs as a group, represented a 24% year-over-year decrease. Whilewere reasonable and appropriate under the Committee recognized that this was not an optimal result, particularly in light of Ciena’s outstanding fiscal 2015 performance and because it did not serve to align the equity compensation of our executives with the market increases in equity value, it believed that it was important to ensure the integrity of the determination of equity awards by following the same process as in previous years.circumstances.
46 2017 Proxy Statement
Based on the trailing30-day average of Ciena’s closing stock price prior to the grant date, the individual equity values established by the Committee were calculated into a specifictarget number of shares of Ciena’s common stock underlying each equity award as set forth below:below.
Fiscal 20162018 Annual Equity Awards
Name | Total Shares (#) | Grant Date ($) | Total Shares Underlying Award (#) | Grant Date Fair Value ($) | ||||||||
Gary B. Smith | 219,480 | $ 4,246,938 | 310,855 | $ | 6,797,777 | |||||||
James E. Moylan, Jr. | 58,540 | $ 1,132,749 | 71,736 | $ | 1,565,279 | |||||||
Stephen B. Alexander | 41,820 | $ 809,217 | ||||||||||
François Locoh-Donou | 58,540 | $ 1,132,749 | ||||||||||
Rick L. Hamilton | 57,390 | $ | 1,252,250 | |||||||||
Scott A. McFeely | 57,390 | $ | 1,252,250 | |||||||||
David M. Rothenstein | 41,820 | $ 809,217 | 57,390 | $ | 1,252,250 |
Equity Award Allocation and Structure
In orderThe Committee decided to continue to ensure propermodify the allocation and structure of equity awards for the NEOs in fiscal 2018, with the goal of improving the alignment between the compensation of our NEOsexecutives and Ciena’s longer-term business and financial performance relative to the Committee decided to useapplicable market. In recent years, the same equity allocation as in previous years. Specifically, 60% ofawards for our CEO’s equity award wasexecutives have been allocated to PSUs and 40% was allocated tobetween RSUs and the awardsPSUs. For fiscal 2018, however, in addition to the other NEOscontinued use of RSUs and PSUs, the equity awards for the executive officers included a long-term relative performance goal in the form of market stock units (MSUs). The MSUs were allocated 50%based on Ciena’s total stockholder return (TSR) over a period of three fiscal years as compared to PSUs and 50% to RSUs.the total return of a stock index comprised of companies in our sector. The following table sets forthillustrates the key elements of each NEO’s allocation of the three equity awards between RSUs and PSUs andvehicles.
Equity Vehicle | Weighting (CEO) | Weighting (Other NEOs) | Metric(s) | Performance Period |
| Vesting | ||||||||||||||
Restricted Stock Units
| 40% | 50% | None | N/A | Quarterly (1/16th) over four years | |||||||||||||||
Performance Stock Units
| 36% | 30% | Sales Orders and Free Cash Flow | One Year (Fiscal 2018) | 50% after first year and 50% after second year | |||||||||||||||
Market Stock Units (NEW)
| 24% | 20% | Relative TSR | Three Years (Fiscal 2018 – 2020) | 100% after third year |
2019 Proxy Statement 43
The following table indicates the specific number of shares underlying the RSU awards and the PSU awardand MSU awards at target level based on achievement of the goals described below.
Allocation of Fiscal 20162018 Annual Equity Awards
Name | RSUs (#) | Target PSUs (#) | RSUs (#) | Target PSUs (#) | Target MSUs (#) | ||||||||||||||
Gary B. Smith | 87,790 | 131,690 | 124,342 | 111,908 | 74,605 | ||||||||||||||
James E. Moylan, Jr. | 29,270 | 29,270 | 35,868 | 21,521 | 14,347 | ||||||||||||||
Stephen B. Alexander | 20,910 | 20,910 | |||||||||||||||||
François Locoh-Donou | 29,270 | 29,270 | |||||||||||||||||
Rick L. Hamilton | 28,695 | 17,217 | 11,478 | ||||||||||||||||
Scott A. McFeely | 28,695 | 17,217 | 11,478 | ||||||||||||||||
David M. Rothenstein | 20,910 | 20,910 | 28,695 | 17,217 | 11,478 |
RSUs. The Committee used itscontinued to use a standard four-year vesting period for the RSUs –one-sixteenth of the grant amount vesting each calendar quarter over a four-year period – in order to promote long-term alignment with stockholders and longer-term decision making that provides an effective balance to the shorter-term incentive measures used in setting cash incentive bonus awards.
PSUs. The Committee structured the PSUs with a fiscal 20162018 performance period. In selecting aone-year period, the Committee sought to achieve a balance between the desire to incorporate a specific performance-based component in the long-term incentive compensation for the executive officers with an acknowledgementacknowledgment of the difficulties inherent in establishing long-term performance goals in an uncertain macroeconomic environment and a volatile sector of the telecommunications industry. Although the CommitteeAfter carefully consideredconsidering the implications of using aone-year performance period instead of a longer period for its long-term incentive compensation, itthe Committee ultimately determined that any issues related issuesto a shorter period were outweighed by the desire to avoid any unintended consequences of motivating the wrong behavior or limiting Ciena’s flexibility as a result of outdated or inapplicable long-term goals in future years. In recognition of theone-year performance period, however, the Committee incorporated a long-terman additional retention element to the performance equity compensation, whereby any PSU shares that were earned during the fiscal 20162018 performance period would be subject to a staggered vesting and delivery schedule in threetwo equal installments over the two years12 months following the fiscal 20162018 performance period, subject to the individual executive’s continued service with Ciena. In establishing this performance equity structure, the Committee was significantly influenced by the fact that it had been using the samea similar structure for the past several years and that the structure had proven extremely successful in achievingsuccessfully achieved the Committee’s desired objectives for both company performance, and long-term incentive compensation for our executives.executives and executive retention. The Committee also considered this structure to be reasonable and appropriate in light of the introduction of longer-term MSUs as part of the overall equity allocation for the executives in fiscal 2018.
2017 Proxy Statement 47
In establishing goals for the PSUs, the Committee intendedsought to align the interests of the executive officers with Ciena’s stockholders by focusing their efforts on ensuring the longer-term growth of our business while achieving increased profitabilitycash generation in the near-term. The Committee also sought to avoid any overlap between the goals for the annual cash incentive bonus plan and the long-term equity compensation for the executive officers. Accordingly, the PSUs were based on the following two goals for fiscal 2016, each2018: an aggregate sales orders target of which$3.1 billion and a free cash flow target of $225 million. Each of these goals was derived directly from the targets set forth in our fiscal 2016 annual2018 operating plan, which was reviewed and approved by the Board of Directors:
Because of the criticality of gross margins to the Company’s objective of driving improved operating leverage from our business in fiscal 2016 and beyond, the Committee elected to allocatetwo-thirds of the PSUs to the gross margin percentage goal andone-third of the PSUs to the sales orders goal. The Committee considered the prospects for attainment andnon-attainment of the PSU performance goals to be equally likely.
Any portion of the PSUs not earned by the end of the performance period would be forfeited. The PSUs were designed such that 100% of the shares underlying the award would be earned upon the achievement of 100% of both the gross margin percentagesales orders target and the sales ordersfree cash flow target. Consistent with ourpay-for-performance philosophy, and to closely align the interests of the executive officers with our stockholders and to further incentivize them to overachieve against our fiscal 20162018 operating plan, wethe Committee incorporated upside earning potential to the PSUs for extraordinary performance and downside risk for under-performance against each of the two goals. Specifically, the Committee established the following minimum performance thresholds and maximum number of additional PSUs that could be earned for achievement against the gross margin percentagesales orders and sales ordersfree cash flow targets, as set forth in the table below:
44 2019 Proxy Statement
Fiscal 20162018 PSU Performance Goals
Adjusted Gross Margin Percentage (2/3 of Total PSUs) | Aggregate Sales Orders (1/3 of Total PSUs) | |||||||||||||||
Aggregate Sales Orders (1/2 of Total PSUs) | Free Cash Flow (1/2 of Total PSUs) | |||||||||||||||
Adjusted Gross Margin (%) | Target PSUs Earned | Aggregate ($B) | Target PSUs Earned | Aggregate Sales Orders ($B) | Target Earned (%) | Free Cash Flow ($M) | Target Earned (%) | |||||||||
< 42.9% | 0% | < $2.46 | 0% | < $ 2.79 | 0% | < $ 150 | 0% | |||||||||
“Threshold” | 42.9% | 25% | $2.46 | 50% | $ 2.79 | 50% | $ 150 | 25% | ||||||||
“Target” | 45.4% | 100% | $2.73 | 100% | $ 3.10 | 100% | $ 225 | 100% | ||||||||
“Maximum” | ³ 47.9% | 200% | ³ $3.00 | 150% | $ 3.41 | 200% | ³ $ 275 | 200% |
The percentages of target PSUs earned are interpolated on a straight-line basis for results falling between the designated levels set forth above. Based on the weighting of the two goals and the above table, the maximum amount of PSUs that could be earned was 183.5%200% of the totaltarget number of shares underlying the PSU award.
MSUs. As noted above, for the first time the Committee incorporated a relative performance goal as part of the annual equity awards for the executive officers. The MSUs are based on Ciena’s TSR – i.e., its stock price appreciation – as compared to the total reported return (the “Return”) of the S&P North American Technology-Multimedia Networking Index (the “S&P Networking Index”) over a three-year measurement period covering Ciena’s fiscal 2018 through fiscal 2020 (the “Measurement Period”). The Committee selected the S&P Networking Index as the appropriate comparison index both because it is directly relevant to our business, consisting of several companies in our sector and including Ciena as a constituent, and because its overall performance has been closely correlated to that of Ciena in recent years. For purposes of determining the TSR for Ciena and the Return for the S&P Networking Index, and in order to mitigate the potential impact of stock price volatility, the beginning and ending values for each measure will be determined on an average basis over a period of 90 calendar days prior to both the beginning and the end of the Measurement Period. For the same reasons as with the PSUs, the Committee incorporated upside earning potential to the MSUs for outperformance against the S&P Networking Index and downside risk for underperformance against the S&P Networking Index. Specifically, the applicable percentage of the target number of MSUs earned will be determined based on the absolute percentage point difference between Ciena’s TSR as compared to the Return for the S&P Networking Index during the Measurement Period, as set forth below:
Fiscal 2018 MSU Performance Goal
Fiscal 2018-2020 Relative TSR (absolute percentage point difference) | Target MSUs Earned (%) | |
(50)% | 0% | |
(40)% | 20% | |
(30)% | 40% | |
(20)% | 60% | |
(10)% | 80% | |
Equal | 100% | |
10% | 120% | |
20% | 140% | |
30% | 160% | |
40% | 180% | |
³ 50% | 200% |
The percentage of target MSUs earned is interpolated on a straight-line basis for results falling between the designated levels set forth above. The maximum amount of MSUs that can be earned is 200% of the target number of shares underlying the MSU award. However, if Ciena’s TSR during the Measurement Period is negative (as a result of a decline in our stock price during such period), then the maximum number of shares than can be earned is 100% of the target number of shares underlying the MSU award. To the extent earned, the MSUs will vest in full in December 2020 following the end of the Measurement Period, subject to the individual executive’s continued service with Ciena through the vesting date. Any portion of the MSUs not earned at the end of the Measurement Period will be forfeited.
2019 Proxy Statement 45
Overall, the Committee believed that nearer-term goals focused ontop-line revenue growth and bottom-line cash generation (via the PSU goals of sales orders and free cash flow), complemented by a longer-term goal focused on relative TSR, is an effective combination that will closely align the interests of the executive officers with those of shareholders and thereby enhance stockholder value.
Attainment of Fiscal 20162018 PSUs
As set forthCiena had an overall strong year oftop-line revenue growth in the “Fiscal 2016 PSU Performance Goals” table above, the fiscal 2016 adjusted gross margin percentage target was 45.4% and the fiscal 20162018 but fell short of certain financial targets in its annual operating plan. Ciena generated aggregate sales orders target was $2.73 billion. Ciena had a strong year of financial performance$3.5 billion in fiscal 2016. Ciena reported an adjusted gross margin percentage of 45.5% in fiscal 2016,2018, and therefore 104%the maximum 200% of the PSUs allocated to that goal were earned. Ciena also generated aggregate sales orders of $2.87 billion$162 million in free cash flow in fiscal 2016,2018, and therefore 127%37% of the PSUs allocated to that goal were earned. Based on the relativeequal weighting of the two goals, approximately 112%119% of the total PSUs were earned as set forth in the table below.
Fiscal 20162018 PSU Awards Earned
Name | PSUs Earned (#) | |
Gary B. Smith | 132,611 | |
James E. Moylan, Jr. | 25,501 | |
| 20,401 | |
| 20,401 | |
David M. Rothenstein | 20,401 |
48 2017 Proxy Statement
One-thirdOne-half of thosethe PSUs earned during fiscal 20162018 vested in December 2016,2018, and the remainderremainingone-half of the PSUs earned will vest in equal installments in December 2017 and December 2018,2019, subject to continued service.
We apply a consistent approach in our equity award practices by granting annual equity awards to our executive officers and directors at or around the same time each year. Annual equity awards to our NEOs are made by the Committee, and the grant date of these awards is the same day that the Committee meets to approve the awards. The Committee generally meets, approves and grants annual equity awards to the executive officers promptly following Ciena’s release of earnings for the fourth quarter and fiscal year. This practice began in fiscal 2007 and continued for annual equity awards in fiscal 2016,2018, with the fourth quarter earnings release on December 10, 20157, 2017 and executive andnon-executive awards granted on December 15, 2015.
2017 Proxy Statement 49
12, 2017.
Other Elements of Executive Compensation Program
U.S. Executive Severance Benefit Plan
We maintain a U.S. Executive Severance Benefit Plan as part of our efforts to continue to attract and retain top executive talent. This plan, which is governed by the Employee Retirement Income Security Act of 1974, as amended, provides certain U.S.-based employees, including the NEOs and employees of the rank of vice president or above, with certain severance payments and benefits in the event of an involuntary separation of service by Ciena without “cause.” For additional information about the severance payments and benefits payable under this plan, as well as the estimated value of these payments and benefits, see “Payments Upon Involuntary Separation of Service for Other than Cause” below.
“Double Trigger” Change in Control Severance Agreements
Each of the NEOs has a change in control severance agreement with Ciena. We have entered into these agreements upon the initial hiring of senior employees, upon promotion of existing employees to senior executive roles, and when the Compensation Committee determines it to be important for the retention of other key employees. As theThese agreements in place were due to expire in accordance with their terms, in November 2016, each of our executive officers, including the NEOs, entered into a new form of change in control severance agreement with Ciena, each of which isare effective through November 30, 2019, unless earlier terminated. We believe that these severance arrangements are important for retention of key employees and necessary to attract qualified executive officers, who may otherwise be deterred from taking a position with us by the possibility of being dismissed following a change ofin control, particularly given the level of acquisition activity in our industry.
Except for the conversion of certain performance-based equity into time-based awards, (i) the CEO receives no benefits under this agreement unless his employment is terminated without cause, or by him for good reason, within 90 days prior to or 18 months following the effective date of a change in control transaction, and (ii) the other NEOs receive no benefits under these
46 2019 Proxy Statement
agreements unless their employment is terminated without cause, or by the executive for good reason, within 90 days prior to or 12 months following the effective date of a change in control transaction. We believe thisso-called “double trigger” structure strikes an appropriate balance between the potential compensation payable to executive officers and the corporate objectives described above. We also believe that were Ciena to engage in discussions or negotiations relating to a corporate transaction that our Board of Directors deems in the interest of stockholders, these agreements would serve as an important tool in ensuring that our executive team remains focused on the consummation of the transaction, without significant distraction or concern relating to personal circumstances such as continued employment. Should any severance payment or benefit be subject to excise tax imposed under federal law, or any related interest or penalties, such severance payments or benefits shall be either (a) paid in full by us, or (b) paid in a lesser amount such that no portion of the payments would be subject to the excise tax, whichever results in receipt by the executive of a greater amount. Under this “best choice” mechanism, above, Ciena would not pay any excise taxes or make anygross-up or similar reimbursement payments related to excise taxes resulting from any severance payment or benefit.
For additional information about the payments and benefits payable under these agreements, as well as the estimated value of these payments and benefits, see “Potential Payments uponUpon Termination or Change in Control” below.
Compensation Recovery (“Clawback”) Policy
We maintain a recoupment or “clawback” policy that applies to equity incentive awards under our 20082017 Plan, annual cash incentive plan awards, and sales incentive compensation. This policy, which is broader than currently required by applicable law, provides for recoupment of certain benefits in the event that Ciena is required to prepare an accounting restatement due to material noncompliance, as a result of misconduct, with any financial reporting requirement under applicable securities laws. Specifically, those executive officers subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002, and any other recipient of covered incentive compensation who knowingly engaged in such misconduct, was grossly negligent in engaging in the misconduct, knowingly failed to prevent the misconduct or was grossly negligent in failing to prevent the misconduct, is required to reimburse Ciena the amount of any payment in settlement of such award earned or accrued during the12-month period following the first public issuance or filing with the SEC (whichever first occurred) of the financial document that contained such material noncompliance.
In fiscal 2018, our Compensation Committee reviewed and updated our Perquisites Policy, reaffirming that our NEOs are eligible for the same benefits as salaried employees and receive only limited perquisites, generally consisting of annual physical examinations as well as tax preparation and financial planning services, both of which are made available to other senior employees.
Required Reimbursement for Personal Use of Corporate Memberships or Tickets
We maintain a policy requiring the NEOs to reimburse certain costs associated with any personal use of items such as corporate tickets to sporting or cultural events and personal use of any corporate membership at a golf or similar club. Specifically, any executive officer who makes personal use of such tickets is required to reimburse Ciena for the face value of the tickets used. Any executive who makes personal use of a club in which Ciena has a corporate membership must reimburse Ciena for the cost of any meals, merchandise, greens fees, lessons and other charges associated with his or her use and, in addition, reimburse Ciena for apro-rata share of the annual membership dues for each day on which he or she makes personal use of the facilities. To date, any personal usage has been extremely limited as corporate memberships are maintained predominately in order to use these facilities for business-related functions. The annual dues for each of the three executive officers named individually on club memberships used by Ciena generally range from $8,000 to $15,000.
50 2017 Proxy Statement
To align the interests of our executive officers and directors with those of our stockholders, and to promote our commitment to sound corporate governance, the Board has established stock ownership guidelines for the NEOs as set forth in “Principles of Corporate Governance, Bylaws and Other Governance Documents” above. During fiscal 2018 the Committee increased substantially the minimum ownership requirements for our executive officers and directors, and added a holding requirement for such individuals until the relevant minimum ownership is achieved.
Effective November 1, 2016, our Board of Directors adoptedWe maintain the Ciena Corporation Deferred Compensation Plan, which allows a select group of management employees in the United States (including our NEOs) to defer up to 75% of base salary and up to 100% of other compensation, including cash incentive bonuses, commissions and restricted stock unitRSU awards. For the first year in which theThe plan is effective, participants may onlyalso allowsnon-employee directors to defer up to 50%100% of base salarytheir annual cash retainer and commissions and 75% of incentive bonuses.annual RSU awards. The Planplan does not provide for any matching or discretionary contributions to participants except for restorative matching payments of foregone matching contributions that a participant would have received under the terms of our 401(k) Plan but for the participant’s deferrals into the plan.
2019 Proxy Statement 47
Prohibition Against Pledging and Hedging Transactions
In accordance with our Insider Trading Policy, and as set forth in “Principles of Corporate Governance, Bylaws and Other Governance Documents” above, our executive officers and directors are prohibited from pledging Ciena securities and engaging in hedging transactions with respect to Ciena securities.
Income Tax Considerations
Section 162(m) of the Internal Revenue Code limits to $1 million the deductions we can take in determining our federal income tax for compensation paid to our CEO, and, pursuant to IRS guidance, the three other most highly compensated executive officers of Ciena. There is an exception to this limitation for compensation that is “performance-based” as defined in the Code and applicable regulations. We have the ability under our 2008 Plan to qualify compensation as performance-based in compliance with the Code. However, because of our large net operating losses, it is unlikely that we will be required to pay federal income taxes for years, and therefore meeting the requirements of Section 162(m) is not as significant a concern as it might otherwise be, and we do not focus on meeting the requirements of Section 162(m) at the expense of the stated goals of our compensation program.
The Compensation Committee has reviewed and discussed the “Compensation Discussion and Analysis” with management, and, based on this review and discussion, has recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this proxy statement and incorporated into Ciena’s Annual Report onForm 10-K for fiscal 2016 by reference to this proxy statement.
Submitted by the members of the Compensation Committee:
Judith M. O’Brien (Chairperson)
Harvey B. Cash
Bruce L. Claflin
Patrick T. Gallagher
The Compensation Committee has reviewed and discussed the “Compensation Discussion and Analysis” with management, and, based on this review and discussion, has recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this proxy statement and incorporated into Ciena’s Annual Report onForm 10-K for fiscal 2018 by reference from this proxy statement. Submitted by the members of the Compensation Committee: Judith M. O’Brien (Chair) Bruce L. Claflin Patrick T. Gallagher Joanne B. Olsen |
201748 2019 Proxy Statement 51
The following tabular information, accompanying narrative disclosure and footnoted detail provide compensation-related information for our NEOs as of the end of fiscal 2016.2018. These executive compensation tables include all compensation awarded to or earned by each NEO for the fiscal years indicated below in which they served as an executive officer. As previously disclosed, Mr. Locoh-Donou resigned as an executive officer and employee of Ciena, effective as of March 23, 2017.
The Summary Compensation Table below presents compensation earned by our Named Executive Officers for each of the last three fiscal years during which they served as executive officers in accordance with SEC rules.
Summary Compensation Table
Name and Principal Position | Year | Salary ($)(1) | Bonus ($) | Stock Awards | Option Awards | Non- Equity Incentive Plan Compensation | All Other Compensation | Total ($) | Year | Salary ($)(1) | Bonus ($)(2) | Stock Awards ($)(3) | Non-Equity Incentive Plan Compensation ($)(4) | All Other Compensation ($)(5) | Total ($) | ||||||||||||||||||||||||||||||||||||||||||||
Gary B. Smith | 2016 | $ | 875,576 | — | $ | 4,246,938 | — | $ 1,068,750 | $ 13,350 | $ | 6,204,614 |
|
2018 |
|
$ |
917,307 |
|
|
— |
|
$ |
6,797,777 |
|
$ |
1,406,250 |
|
$ |
8,250 |
|
$ |
9,129,584 |
| |||||||||||||||||||||||||||
President and CEO | 2015 | $ | 800,576 | — | $ | 5,562,500 | — | $ 1,070,000 | $ 15,547 | $ | 7,448,623 | 2017 | $ | 900,000 | — | $ | 5,592,261 | $ | 1,125,000 | $ | 17,950 | $ | 7,635,211 | ||||||||||||||||||||||||||||||||||||
2014 | $ | 788,076 | — | $ | 4,934,689 | — | $ 749,000 | $ 17,100 | $ | 6,488,865 | 2016 | $ | 875,576 | — | $ | 4,246,938 | $ | 1,068,750 | $ | 13,350 | $ | 6,204,614 | |||||||||||||||||||||||||||||||||||||
James E. Moylan, Jr. | 2016 | $ | 506,826 | — | $ | 1,132,749 | — | $ 423,938 | $ 10,380 | $ | 2,073,893 | 2018 | $ | 535,096 | — | $ | 1,565,279 | $ | 557,813 | $ | 12,597 | $ | 2,670,785 | ||||||||||||||||||||||||||||||||||||
SVP and CFO | 2015 | $ | 450,576 | — | $ | 1,557,470 | — | $ 409,275 | $ 7,950 | $ | 2,425,271 | 2017 | $ | 525,000 | — | $ | 1,491,522 | $ | 446,250 | $ | 12,975 | $ | 2,475,747 | ||||||||||||||||||||||||||||||||||||
2014 | $ | 450,576 | — | $ | 1,233,782 | — | $ 286,493 | $ 7,650 | $ | 1,978,501 | 2016 | $ | 506,826 | — | $ | 1,132,749 | $ | 423,938 | $ | 10,380 | $ | 2,073,893 | |||||||||||||||||||||||||||||||||||||
Stephen B. Alexander | 2016 | $ | 415,531 | — | $ | 809,217 | — | $ 299,250 | $ 13,246 | $ | 1,537,244 | ||||||||||||||||||||||||||||||||||||||||||||||||
SVP and CTO | 2015 | $ | 400,512 | — | $ | 1,001,257 | — | $ 321,000 | $ 7,385 | $ | 1,730,154 | ||||||||||||||||||||||||||||||||||||||||||||||||
2014 | $ | 400,512 | — | $ | 789,480 | — | $ 224,700 | $ 14,781 | $ | 1,429,473 | |||||||||||||||||||||||||||||||||||||||||||||||||
François Locoh-Donou (6) | 2016 | $ | 525,572 | — | $ | 2,709,839 | — | $ 423,938 | $ 12,015 | $ | 3,671,364 | ||||||||||||||||||||||||||||||||||||||||||||||||
SVP and COO | 2015 | $ | 420,538 | — | $ | 1,557,470 | — | $ 381,990 | $ 10,103 | $ | 2,370,101 | ||||||||||||||||||||||||||||||||||||||||||||||||
Rick L. Hamilton | 2018 | $ | 443,462 | $ | 300,000 | $ | 1,252,250 | $ | 412,500 | $ | 15,868 | $ | 2,424,080 | ||||||||||||||||||||||||||||||||||||||||||||||
SVP, Blue Planet Software | 2017 | $ | 420,000 | $ | 615,000 | $ | 1,087,817 | $ | 315,000 | $ | 53,830 | $ | 2,491,647 | ||||||||||||||||||||||||||||||||||||||||||||||
Scott A. McFeely | 2018 | $ | 438,462 | — | $ | 1,252,250 | $ | 412,500 | $ | 13,415 | $ | 2,116,627 | |||||||||||||||||||||||||||||||||||||||||||||||
SVP, Global Products and Services | 2017 | $ | 394,760 | — | $ | 511,230 | $ | 300,000 | $ | 17,298 | $ | 1,223,288 | |||||||||||||||||||||||||||||||||||||||||||||||
2014 | $ | 420,538 | — | $ | 1,233,782 | — | $ 267,393 | $ 6,989 | $ | 1,928,702 | |||||||||||||||||||||||||||||||||||||||||||||||||
David M. Rothenstein | 2016 | $ | 438,060 | — | $ | 809,217 | — | $ 299,250 | $ 9,474 | $ | 1,556,001 | 2018 | $ | 458,654 | — | $ | 1,252,250 | $ | 421,875 | $ | 8,250 | $ | 2,141,029 | ||||||||||||||||||||||||||||||||||||
SVP, General Counsel and Secretary | 2015 | $ | 400,512 | — | $ | 1,334,948 | — | $ 299,600 | $ 7,950 | $ | 2,043,010 | 2017 | $ | 450,000 | — | $ | 1,065,102 | $ | 337,500 | $ | 7,950 | $ | 1,860,552 | ||||||||||||||||||||||||||||||||||||
2014 | $ | 400,512 | — | $ | 789,480 | — | $ 209,720 | $ 7,650 | $ | 1,407,362 | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2016
|
| $
| 438,060
|
|
| —
|
| $
| 809,217
|
| $
| 299,250
|
| $
| 9,474
|
| $
| 1,556,001
|
|
(1) | Ciena has a 52 or53-week fiscal year, which ends on the Saturday nearest to the last day of October in each year. Ciena’s fiscal |
(2) | Reflects a retention payment in fiscal 2018 of $300,000 and two retention payments in fiscal 2017 to Mr. Hamilton of $615,000 in the aggregate, each of which were part of hisnon-executive compensation arrangement upon hire. |
(3) | The amounts set forth in the “Stock Awards” column represent the aggregate grant date fair value of |
(4) | Non-Equity Incentive Plan Compensation reflects amounts earned by each Named Executive Officer under Ciena’s annual cash incentive bonus plan for fiscal |
2019 Proxy Statement 49
(5) | All other compensation includes the following for each Named Executive Officer (as applicable) during fiscal |
a. | For each Named Executive Officer, Section 401(k) plan matching contributions paid by us and generally available to all full-time U.S. employees. |
52 2017 Proxy Statement
b. | For |
c. | For Messrs. |
The following table sets forth information regardingnon-equity incentive awards and equity awards granted to each of the NEOs during fiscal 2016.
Non-Equity Incentive Plan Awards.Non-equity incentive plan awards for fiscal 2016,2018, which are identified as “Incentive Cash” in the “Grant of Plan-Based Awards” table below, represent the estimated range of potential payouts possible under our annual cash incentive bonus plan at the time of award. The actual cash incentive bonus earned by the NEOs during fiscal 20162018 is set forth in the“Non-Equity Incentive Compensation” column of the “Summary Compensation Table” above. The design of the plan for fiscal 2016,2018, including the use of a combination of ten corporate performance goals and our fiscal 20162018 adjusted operating income target and eight corporate performance goals to derive the total bonus payout percentage, is set forth in the table below and more fully described in “Compensation Discussion and Analysis” above. Assuming the satisfaction of the requisite number of corporate performance goals, and based
Financial Objective | × | Corporate Objectives Multiplier | = | Bonus Payout Percentage |
Financial Objective | Corporate Objectives Multiplier | |||||||
Performance Against Target (%)
| Total Target Bonus Earned (%)
| Objectives Achieved (#)
| Multiplier
| |||||
< 70% | 0% | < 4 | 0.0x | |||||
70% | 70% | 4 | 0.8x | |||||
80% | 80% | 5 | 0.9x | |||||
90% | 90% | 6 | 1.0x | |||||
100% | 100% | 7 | 1.1x * | |||||
110% | 120% | 8 | 1.2x * | |||||
120% | 140% | * Only applies if achieve >80% of Financial Objective; otherwise reverts to 1.0x | ||||||
³ 130% | 160% |
Based on the level of achievement of the fiscal 2016 adjusted operating income target,2018 financial objective and corporate objectives, bonuses under the cash incentive bonus plan would have been payable at each of the “threshold,” “target” and “maximum” levels as set forth below, with payments interpolated for results falling between the designated levels:
Fiscal 2016 Cash Incentive Bonus Plan | ||||
Performance Achieved | Target Bonus | |||
Threshold | 10% | 10% | ||
Target | 100% | 100% | ||
Maximum | ³200% | 200% |
Fiscal 2018 Cash Incentive Bonus Plan | ||||||||||
Financial Objective Achieved | Corporate Objectives Achieved | Target Bonus Payable | ||||||||
“Threshold”
|
|
70%
|
|
4
|
|
56%
|
| |||
“Target”
|
|
100%
|
|
6
|
|
100%
|
| |||
“Maximum”
|
|
³130%
|
|
8
|
|
192%
|
|
The “threshold,” “target” and “maximum” values in the table abovebelow are calculated by multiplying each NEO’s base salary for fiscal 20162018 by his respective target bonus opportunity (expressed as a percentage of annual base salary) by the applicable target bonus payable factor above. See “Compensation Discussion and Analysis — Annual Cash Incentive Bonus Plan.”
Equity Awards.Equity awards during fiscal 20162018 consisted of restricted stock unit (“RSU”)RSU, PSU and performance stock unit (“PSU”)MSU awards. Each such stock award represents a contractual right to receive one share of our common stock. RSU awards granted to the NEOs in fiscal 20162018 vest over a four-year term, withone-sixteenth of the grant amount vesting quarterly. Mr. Locoh-Donou received an additional RSU grant on November 1, 2015 in connection with his promotion to Chief Operating Officer. Such award vests over a three-year term, withone-third of the grant amount vesting on December 20, 2017, 2018, and 2019.
50 2019 Proxy Statement
PSU awards granted to the NEOs in fiscal 20162018 were structured such that(i) two-thirds 100% of the total PSU shares granted were subject tounderlying the award would be earned upon the achievement of a fiscal 2016 aggregate adjusted gross margin target and(ii) one-third100% of both the total PSU shares granted were subject to the achievement of a fiscal 2016 aggregate sales orders target eachand the free cash flow target, as more fully described in “Compensation Discussion and Analysis”Analysis — Equity Award Allocation and Structure — PSUs” above. With respectThe PSU awards incorporate upside earning potential to the PSUs allocatedfor extraordinary performance and downside risk for under-performance against each of the two goals. Specifically, the PSU awards are subject to the following minimum performance thresholds and maximum number of additional PSUs that could be earned for achievement against the sales orders and free cash flow targets, as set forth below:
Fiscal 2018 PSU Performance Goals
Aggregate Sales Orders (1/2 of Total PSUs) | Free Cash Flow (1/2 of Total PSUs) | |||||||||||
Aggregate Sales Orders ($B) | Target PSUs Earned (%) | Free Cash Flow ($M) | Target PSUs Earned (%) | |||||||||
< $ 2.79
|
|
0%
|
|
< $ 150
|
|
0%
|
| |||||
“Threshold”
|
$ 2.79
|
|
50%
|
|
$ 150
|
|
25%
|
| ||||
“Target”
|
$ 3.10
|
|
100%
|
|
$ 225
|
|
100%
|
| ||||
“Maximum”
|
$ 3.41
|
|
200%
|
|
> $ 275
|
|
200%
|
|
MSU awards granted to the NEOs in fiscal 2018 were based on Ciena’s TSR — i.e., its stock price appreciation — as compared to the total reported return (the “Return”) of the S&P Networking Index over a three-year measurement period covering Ciena’s fiscal 2018 through fiscal 2020 (the “Measurement Period”). For purposes of determining the TSR for Ciena and the Return for the S&P Networking Index, the beginning and ending values for each measure will be determined on an average basis over a period of 90 calendar days prior to both the beginning and the end of the Measurement Period. The MSU awards incorporate upside earning potential to the MSUs for outperformance against the S&P Networking Index and downside risk for underperformance against the S&P Networking Index. Specifically, the applicable percentage of the target number of MSUs earned will be determined based on the absolute percentage point difference between Ciena’s TSR as compared to the Return for the S&P Networking Index during the Measurement Period, as set forth below:
Fiscal 2018 MSU Performance Goal
Fiscal 2018-2020 Relative TSR (absolute percentage point difference) | Target MSUs Earned (%) | |
(50)%
|
0%
| |
(40)%
|
20%
| |
(30)%
|
40%
| |
(20)%
|
60%
| |
(10)%
|
80%
| |
Equal
|
100%
| |
10%
|
120%
| |
20%
|
140%
| |
30%
|
160%
| |
40%
|
180%
| |
³50%
|
200%
|
The percentage of target MSUs earned is interpolated on a straight-line basis for results falling between the designated levels set forth above. Based on the above table, the maximum amount of MSUs that can be earned is 200% of the target number of shares capableunderlying the MSU award. However, if Ciena’s TSR during the Measurement Period is negative (as a result of beinga decline in our stock price during such period), then the maximum number of shares than can be earned wasis 100% of the target number of shares underlying the MSU award. To the extent earned, the MSUs will vest in full in December 2020 following the end of the Measurement Period, subject to a minimum performance threshold of 90% of target, which would result in 50% of the shares underlying thatindividual executive’s continued service with Ciena through the vesting date. Any portion of the award beingMSUs not earned and a maximum performance cap of 110% of target, which would result in 150%at the end of the shares underlying that portionMeasurement Period will be forfeited.
2019 Proxy Statement 51
The following table sets forth information regardingnon-equity incentive awards and equity awards granted to each of the award being earned. With respect to the PSUs allocated to the adjusted gross margin target, the number of shares capable of being earned was subject to a minimum performance threshold of 42.9% adjusted gross margin, which would result in 25% of the shares underlying that portion of the award being earned, and a maximum performance cap of 47.9% adjusted gross margin, which would result in 200% of the shares underlying that portion of the award being earned. Any shares earnedNEOs during the fiscal 2016 performance period were subject to further vesting requirements, with the shares to be delivered upon vesting in equal installments in December 2016, 2017 and 2018, subject to the NEO’s continued service with Ciena.
2017 Proxy Statement 53
2018. For information regarding the performance criteria applicable to PSUs and MSUs granted in fiscal 2016,2018, see “Compensation Discussion and Analysis” above. For each equity award made to our NEOs during fiscal 2016,2018, the date that the award was approved by our Compensation Committee was the same as the grant date.
Grants of Plan-Based Awards
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Awards: of Shares of Stock or | Full Grant Date Fair |
Estimated Possible Payouts Under |
Estimated Future Payouts Under | All Other Stock Awards: Number of Shares of Stock or Stock Units (#) | Full Grant Date Fair Value (2) ($) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Type of Award | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | Stock Units (#) | Value (2) ($) | Type of Award | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gary B. Smith | PSU | 12/15/2015 | 21,729 | 131,690 | 241,649 | $ | 2,548,202 |
PSU
|
12/12/2017
|
|
13,989
|
|
|
111,908
|
|
|
223,816
|
|
$
|
2,414,975
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||
RSU | 12/15/2015 | 87,790 | $ | 1,698,737 |
RSU
|
12/12/2017
|
|
124,342
|
|
$
|
2,683,300
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Incentive Cash | 12/15/2015 | $ 112,500 | $ | 1,125,000 | $ | 2,250,000 |
MSU
|
12/12/2017
|
|
14,921
|
|
|
74,605
|
|
|
149,210
|
| $ | 1,699,502 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Incentive Cash
|
12/12/2017
|
$
|
630,000
|
|
$
|
1,125,000
|
|
$
|
2,160,000
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
James E. Moylan, Jr. | PSU | 12/15/2015 | 4,830 | 29,270 | 53,706 | $ | 566,375 |
PSU
|
12/12/2017
|
|
2,690
|
|
|
21,521
|
|
|
43,042
|
|
$
|
464,423
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||
RSU | 12/15/2015 | 29,270 | $ | 566,375 |
RSU
|
12/12/2017
|
|
35,868
|
|
$
|
774,031
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Incentive Cash | 12/15/2015 | $ 44,625 | $ | 446,250 | $ | 892,500 |
MSU
|
12/12/2017
|
|
2,869
|
|
|
14,347
|
|
|
28,694
|
|
$
|
326,825
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
Stephen B. Alexander | PSU | 12/15/2015 | 3,450 | 20,910 | 38,366 | $ | 404,609 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Incentive Cash
|
12/12/2017
|
$
|
249,900
|
|
$
|
446,250
|
|
$
|
856,800
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rick L. Hamilton
|
PSU
|
12/12/2017
|
|
2,152
|
|
|
17,217
|
|
|
34,434
|
|
$
|
371,543
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RSU | 12/15/2015 | 20,910 | $ | 404,609 |
RSU
|
12/12/2017
|
|
28,695
|
|
$
|
619,238
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Incentive Cash | 12/15/2015 | $ 31,500 | $ | 315,000 | $ | 630,000 |
MSU
|
12/12/2017
|
|
2,296
|
|
|
11,478
|
|
|
22,956
|
|
$
|
261,469
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
François Locoh-Donou | PSU | 12/15/2015 | 4,830 | 29,270 | 53,706 | $ | 566,375 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Incentive Cash
|
12/12/2017
|
$
|
184,800
|
|
$
|
330,000
|
|
$
|
633,600
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Scott A. McFeely
|
PSU
|
12/12/2017
|
|
2,152
|
|
|
17,217
|
|
|
34,434
|
|
$
|
371,543
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RSU | 11/1/2015 | 65,331 | $ | 1,577,090 |
RSU
|
12/12/2017
|
|
28,695
|
|
$
|
619,238
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RSU | 12/15/2015 | 29,270 | $ | 566,375 |
MSU
|
12/12/2017
|
|
2,296
|
|
|
11,478
|
|
|
22,956
|
| �� |
$
|
261,469
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Incentive Cash | 12/15/2015 | $ 44,625 | $ | 446,250 | $ | 892,500 |
Incentive Cash
|
12/12/2017
|
$
|
184,800
|
|
$
|
330,000
|
|
$
|
633,600
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
David M. Rothenstein | PSU | 12/15/2015 | 3,450 | 20,910 | 38,366 | $ | 404,609 |
PSU
|
12/12/2017
|
|
2,152
|
|
|
17,217
|
|
|
34,434
|
|
$
|
371,543
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||
RSU | 12/15/2015 | 20,910 | $ | 404,609 |
RSU
|
12/12/2017
|
|
28,695
|
|
$
|
619,238
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Incentive Cash | 12/15/2015 | $ 31,500 | $ | 315,000 | $ | 630,000 |
MSU
|
12/12/2017
|
|
2,296
|
|
|
11,478
|
|
|
22,956
|
|
$
|
261,469
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
Incentive Cash
|
12/12/2017
|
$
|
189,000
|
|
$
|
337,500
|
|
$
|
648,000
|
|
(1) | Estimated possible payouts undernon-equity incentive plan awards reflect the |
(2) | Grant Date Fair Value reported in the table above, computed in accordance with FASB ASC Topic 718, will likely vary from the amount actually realized by any NEO based on a number of factors, including the number of shares that are earned and ultimately vest, the timing of vesting, the timing of any sale of shares, and the market price of Ciena common stock at that time. For RSUs, we calculate grant date fair value by multiplying the number of shares granted by the closing market price per share of Ciena common stock on the grant date. For PSUs, we calculate grant date fair value by assuming the satisfaction of any performance-based objectives at the “target” level and multiplying the corresponding number of shares earned based upon such achievement by the closing market price per share of Ciena common stock on the grant date. For MSUs, we calculate grant date fair value using a Monte Carlo simulation valuation model with the following assumptions: (i) Ciena’s stock price at the end of the performance period calculated using an expected volatility of 34.93%, which is a weighted average of implied volatility and historical volatility; (ii) TSR simulated using historical volatility of 38.24% for Ciena and 17.14% for the S&P Networking Index; (iii) correlation coefficients calculated based on the price data used to calculate historical volatilities; (iv) a risk-free interest rate of 1.94%; and (v) a 0% dividend yield. |
54 201752 2019 Proxy Statement
Outstanding Equity Awards at FiscalYear-End
The following table sets forth, on anaward-by-award basis, information related to unexercised options and unvested stock awards held by each Named Executive Officer as of the end of fiscal 2016.2018. The vesting conditions for each award, including the identification of those awards that are subject to performance-based vesting conditions, are set forth in the footnotes below the table. The market value of equity awards that have not vested is calculated by multiplying the number of shares by $19.51,$32.02, the closing market price per share of our common stock on The New York Stock Exchange on the last trading day of fiscal 2016. Each of the stock options in the table below has aten-year term from the grant date and an exercise price equal to the closing price on the grant date.2018.
Outstanding Equity Awards at FiscalYear-End
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||
Name | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards; Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Awards; Value of Units or Units or ($) | |||||||||||||||||||||||||
Gary B. Smith | 12/18/2007 | 69,000 | — | $ | 35.21 | 12/18/2017 | ||||||||||||||||||||||||||||
12/18/2006 | 75,000 | — | $ | 27.88 | 12/18/2016 | |||||||||||||||||||||||||||||
12/15/2015 | 146,953 (1) | $ | 2,867,053 | |||||||||||||||||||||||||||||||
12/15/2015 | 71,330 (2) | $ | 1,391,648 | |||||||||||||||||||||||||||||||
12/17/2014 | 210,934 (4) | $ | 4,115,322 | |||||||||||||||||||||||||||||||
12/17/2014 | 67,330 (5) | $ | 1,313,608 | |||||||||||||||||||||||||||||||
12/17/2013 | 42,240 (7) | $ | 824,102 | |||||||||||||||||||||||||||||||
12/17/2013 | 28,135 (8) | $ | 548,914 | |||||||||||||||||||||||||||||||
12/18/2012 | 7,485 (9) | $ | 146,032 | |||||||||||||||||||||||||||||||
James E. Moylan, Jr. | 12/18/2007 | 35,000 | — | $ | 35.21 | 12/18/2017 | ||||||||||||||||||||||||||||
12/15/2015 | 32,663 (1) | $ | 637,255 | |||||||||||||||||||||||||||||||
12/15/2015 | 23,783 (2) | $ | 464,006 | |||||||||||||||||||||||||||||||
12/17/2014 | 49,216 (4) | $ | 960,204 | |||||||||||||||||||||||||||||||
12/17/2014 | 23,564 (5) | $ | 459,734 | |||||||||||||||||||||||||||||||
12/17/2013 | 8,801 (7) | $ | 171,708 | |||||||||||||||||||||||||||||||
12/17/2013 | 8,792 (8) | $ | 171,532 | |||||||||||||||||||||||||||||||
12/18/2012 | 3,119 (9) | $ | 60,852 | |||||||||||||||||||||||||||||||
Stephen B. Alexander | 12/18/2007 | 47,000 | — | $ | 35.21 | 12/18/2017 | ||||||||||||||||||||||||||||
12/18/2006 | 30,000 | — | $ | 27.88 | 12/18/2016 | |||||||||||||||||||||||||||||
12/15/2015 | 23,333 (1) | $ | 455,227 | |||||||||||||||||||||||||||||||
12/15/2015 | 16,990 (2) | $ | 331,475 | |||||||||||||||||||||||||||||||
12/17/2014 | 31,638 (4) | $ | 617,257 | |||||||||||||||||||||||||||||||
12/17/2014 | 15,149 (5) | $ | 295,557 | |||||||||||||||||||||||||||||||
12/17/2013 | 5,631 (7) | $ | 109,861 | |||||||||||||||||||||||||||||||
12/17/2013 | 5,625 (8) | $ | 109,744 | |||||||||||||||||||||||||||||||
12/18/2012 | 2,079 (9) | $ | 40,561 |
Stock Awards | ||||||||
Name | Grant Date | Number of Shares or Units Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | |||||
Gary B. Smith | 12/12/2017 | 132,611 (1) | $ 4,246,204 | |||||
12/12/2017 | 101,029 (2) | $ 3,234,949 | ||||||
12/12/2017 | 74,605 (3) | $ 2,388,852 | ||||||
12/14/2016 | 84,984 (4) | $ 2,721,188 | ||||||
12/14/2016 | 53,112 (5) | $ 1,700,646 | ||||||
12/15/2015 | 48,984 (6) | $ 1,568,468 | ||||||
12/15/2015 | 27,435 (7) | $ 878,469 | ||||||
12/17/2014 | 7,490 (8) | $ 239,830 | ||||||
James E. Moylan, Jr. | 12/12/2017 | 25,501 (1) | $ 816,542 | |||||
12/12/2017 | 29,143 (2) | $ 933,159 | ||||||
12/12/2017 | 14,347 (3) | $ 459,391 | ||||||
12/14/2016 | 18,886 (4) | $ 604,730 | ||||||
12/14/2016 | 17,708 (5) | $ 567,010 | ||||||
12/15/2015 | 10,887 (6) | $ 348,602 | ||||||
12/15/2015 | 9,148 (7) | $ 292,919 | ||||||
12/17/2014 | 2,620 (8) | $ 83,892 | ||||||
Rick L. Hamilton | 12/12/2017 | 20,401 (1) | $ 653,240 | |||||
12/12/2017 | 23,316 (2) | $ 746,578 | ||||||
12/12/2017 | 11,478 (3) | $ 367,526 | ||||||
12/14/2016 | 7,422 (4) | $ 237,652 | ||||||
12/14/2016 | 6,959 (5) | $ 222,827 | ||||||
11/07/2016 | 13,876 (9) | $ 444,310 | ||||||
Scott A McFeely | 12/12/2017 | 20,401 (1) | $ 653,240 | |||||
12/12/2017 | 23,316 (2) | $ 746,578 | ||||||
12/12/2017 | 11,478 (3) | $ 367,526 | ||||||
12/14/2016 | 6,474 (4) | $ 207,297 | ||||||
12/14/2016 | 6,071 (5) | $ 194,393 | ||||||
12/15/2015 | 3,264 (6) | $ 104,513 | ||||||
12/15/2015 | 2,743 (7) | $ 87,831 | ||||||
11/04/2015 | 3,274 (10) | $ 104,833 | ||||||
12/17/2014 | 905 (8) | $ 28,978 | ||||||
David M. Rothenstein | 12/12/2017 | 20,401 (1) | $ 653,240 | |||||
12/12/2017 | 23,316 (2) | $ 746,578 | ||||||
12/12/2017 | 11,478 (3) | $ 367,526 | ||||||
12/14/2016 | 13,486 (4) | $ 431,822 | ||||||
12/14/2016 | 12,645 (5) | $ 404,893 | ||||||
12/15/2015 | 7,778 (6) | $ 249,052 | ||||||
12/15/2015 | 6,535 (7) | $ 209,251 | ||||||
12/17/2014 | 1,685 (8) | $ 53,954 |
2017 2019 Proxy Statement 5553
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||
Name | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards; Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Awards; Value of Units or Units or ($) | |||||||||||||||||||||||||
François Locoh-Donou (10) | 12/18/2006 | 20,000 | — | $ | 27.88 | 12/18/2016 | ||||||||||||||||||||||||||||
12/15/2015 | 32,663 (1) | $ | 637,255 | |||||||||||||||||||||||||||||||
12/15/2015 | 23,783 (2) | $ | 464,006 | |||||||||||||||||||||||||||||||
11/1/2015 | 65,331 (3) | $ | 1,274,608 | |||||||||||||||||||||||||||||||
12/17/2014 | 49,216 (4) | $ | 960,204 | |||||||||||||||||||||||||||||||
12/17/2014 | 23,564 (5) | $ | 459,734 | |||||||||||||||||||||||||||||||
12/17/2013 | 8,801 (7) | $ | 171,708 | |||||||||||||||||||||||||||||||
12/17/2013 | 8,792 (8) | $ | 171,532 | |||||||||||||||||||||||||||||||
12/18/2012 | 2,599 (9) | $ | 50,706 | |||||||||||||||||||||||||||||||
David M. Rothenstein | 12/15/2015 | 23,333 (1) | $ | 455,227 | ||||||||||||||||||||||||||||||
12/15/2015 | 16,990 (2) | $ | 331,475 | |||||||||||||||||||||||||||||||
12/17/2014 | — | $ | — | 5,983 (6) | $ | 116,728 | ||||||||||||||||||||||||||||
12/17/2014 | 31,638 (4) | $ | 617,257 | |||||||||||||||||||||||||||||||
12/17/2014 | 15,149 (5) | $ | 295,557 | |||||||||||||||||||||||||||||||
12/17/2013 | 5,631 (7) | $ | 109,861 | |||||||||||||||||||||||||||||||
12/17/2013 | 5,625 (8) | $ | 109,744 | |||||||||||||||||||||||||||||||
12/15/2012 | 624 (9) | $ | 12,174 | |||||||||||||||||||||||||||||||
12/18/2012 | 2,287 (9) | $ | 44,619 |
(1) | PSU awards granted on December |
(2) | Remaining unvested RSUs granted on December 12, 2017 shall vest as toone-sixteenth of the grant amount on March 20, June 20, September 20 and December 20 of each year through December 20, 2021. |
(3) | MSU awards granted on December 12, 2017 are subject to achievement of the goals described above in in “Grants of Plan-Based Awards” and “Compensation Discussion and Analysis” above. |
(4) | Remaining amounts earned with respect to PSUs granted on December 14, 2016 vested as toone-half of such amount on December 20, 2018 and shall vest as to the remainingone-half amount on December 20, 2019. |
(5) | Remaining unvested RSUs granted on December 14, 2016 shall vest as toone-sixteenth of the grant amount on March 20, June 20, September 20 and December 20 of each year through December 20, 2020. |
(6) | Remaining amounts earned with respect to PSUs granted on December 15, 2015 vested on December 20, 2018. |
(7) | Remaining unvested RSUs granted on December 15, 2015 shall vest as toone-sixteenth of the grant amount on March 20, June 20, September 20 and December 20, |
Remaining unvested RSUs granted on December 17, 2014 vested on December 20, 2018. |
(9) | Remaining unvested RSUs granted on November 7, 2016 shall vest as toone-sixteenth of the grant amount on March 20, June 20, September 20 and December 20 of each year through December 20, |
Remaining unvested RSUs granted on |
56 2017 Proxy Statement
Option Exercises and Stock Vested
The following table sets forth on an aggregated basis, as to each NEO, information related to stock options exercised and stock awards that vested during fiscal 2016.2018. The value realized upon vesting of stock awards is apre-tax amount determined by multiplying the aggregate number of shares of stock vested for each NEO during fiscal 20162018 by the closing market price per share on the corresponding vesting date for that award. Information as to value realized does not take into account reductions related to withholding and othertax-related items, brokerage commissions or fees, or forfeiture or other disposition of shares to cover these amounts.
Option Exercises and Stock Vested
Option Awards | Stock Awards | Stock Awards | ||||||||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||||||||||||
Gary B. Smith | 4,537 | $ | 35,477 | 302,407 | $ 6,011,390 |
|
301,365
|
|
|
$ 6,948,526
|
| |||||||||||
James E. Moylan, Jr. | — | $ | — | 92,286 | $ 1,835,746 |
|
72,363
|
|
|
$ 1,668,803
|
| |||||||||||
Stephen B. Alexander | — | $ | — | 60,871 | $ 1,210,884 | |||||||||||||||||
François Locoh-Donou | — | $ | — | 106,391 | $ 2,114,554 | |||||||||||||||||
Rick L. Hamilton
|
|
22,973
|
|
|
$ 569,086
|
| ||||||||||||||||
Scott A. McFeely
|
|
24,252
|
|
|
$ 608,202
|
| ||||||||||||||||
David M. Rothenstein | — | $ | — | 71,570 | $ 1,423,480 |
|
60,413
|
|
|
$ 1,409,016
|
|
54 2019 Proxy Statement
Nonqualified Deferred Compensation
The following table shows the executive contributions, earnings and account balances for fiscal 2018 for each NEO participating in the Ciena Corporation Deferred Compensation Plan. This plan allows a select group of senior management employees in the United States (including our NEOs) to defer up to 75% of annual base salary and up to 100% of other compensation, including cash incentive bonuses, commissions and RSU awards. The plan does not provide for any matching or discretionary contributions to participants except for restorative matching payments of foregone matching contributions that a participant would have received under the terms of our 401(k) Plan but for the participant’s deferrals into the plan.
Nonqualified Deferred Compensation
2017 Proxy Statement 57
Name | Executive Contributions in Fiscal 2018 ($) | Registrant Contributions in Fiscal 2018 ($) | Aggregate Earnings in Fiscal 2018 ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at October 31, 2018 ($) | |||||||||||
Gary B. Smith
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
| |||||
James E. Moylan, Jr.
|
|
$ 787,260
|
|
—
|
|
$ 28,123
|
|
—
|
|
$ 1,042,253
|
| |||||
Rick L. Hamilton
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
| |||||
Scott A. McFeely
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
| |||||
David M. Rothenstein
|
|
$ 168,750
|
|
—
|
|
$ (8,717)
|
|
—
|
|
$ 160,033
|
|
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Overview
This section describes and quantifies the estimated compensation payments and benefits that would be paid to our NEOs in each of the following situations:
upon death or disability;
upon an involuntary separation of service for other than cause;
upon a change in control inof Ciena; and
upon a termination of employment following a change in control of Ciena.
We do not maintain employment agreements with our executive officers, including the NEOs. The information below describes those instances in which our NEOs would be entitled to payments following a termination of employment and/or upon a change in control of Ciena. Our NEOs are “at will” employees and, except as otherwise described below, they are only entitled to payment of accrued salary and vacation time, on the same terms as provided to our other employees, upon any resignation, retirement or termination of employment, with or without cause. Except as otherwise noted below, the calculations below do not include any estimated payments for those benefits that we generally make available on the same terms to our full-time,non-executive employees.
The estimated payments below are calculated based on compensation arrangements in effect as of the last day of our fiscal 20162018 and assume that the triggering event occurred on such date. The estimated payment amounts are based on a Ciena common stock price of $19.51,$32.02, which was the closing market price per share of our common stock on The New York Stock Exchange on the last trading day of our fiscal 2016.2018. Our estimates of potential payments are further based on the additional assumptions specifically set forth in the tables below. Although these calculations are intended to provide reasonable estimates of potential compensation benefits payable, the estimated payment amounts may differ from the actual amount that any individual would receive upon termination or the costs to Ciena associated with continuing certain benefits following termination of employment. As indicated above, Mr. Locoh-Donou resigned as an executive officer and employee of Ciena, effective as of March 23, 2017. In connection with his resignation, he will not be eligible for any severance payment or acceleration of equity awards.
Payments Upon Death or Disability
Stock awards including RSUs and PSUs granted under our 2017 Plan and our 2008 Plan provide for the acceleration of vesting of any awards that would otherwise vest in the 12 months following a termination of service resulting from the holder’s death or disability. Acceleration of vesting upon death or disability applies to all awards granted under these plans, including awards to both executive andnon-executive employees, as well as awards to our
2019 Proxy Statement 55
NEOs. Under these plans,In the case of RSUs, acceleration of vesting applies to such number of shares that would otherwise vest in the 12 months following a termination of service resulting from the holder’s death or disability. In the case of PSUs and MSUs, acceleration of vesting applies to such number of shares that have been earned, but not yet vested, under the award. In the case of PSUs or MSUs not yet earned or unearned, such awards are considered to have been forfeited and are not subject to any acceleration of vesting upon death or disability under the award agreement.
For purposes of the foregoing, a disability is defined as inability to perform each of the essential duties of the applicable person’s position by reason of a medically determinable physical or mental impairment which is potentially permanent in character or which can be expected to last for a continuous period of not less than 12 months. For each NEO, the amount in the table below reflects the value of the NEO’s stock awards that are subject to acceleration of vesting upon death or disability multiplied by $19.51$32.02 per share, the closing market price per share of ourCiena common stock on The New York Stock Exchange on the last trading day of our fiscal 2016. In calculating the amounts below, PSUs remaining unearned as of the triggering event are considered to have been earned at target attainment.2018.
Acceleration of Vesting of Stock Awards Upon Termination Due to Death or Disability
Name | Value Realized Upon Acceleration ($) | |||||||||
Gary B. Smith | $ | |||||||||
James E. Moylan, Jr. | $ | |||||||||
| ||||||||||
| $ | |||||||||
Scott A. McFeely | $ 717,232 | |||||||||
David M. Rothenstein | $ |
58 2017 Proxy Statement
Payments Upon Involuntary Separation of Service for Other than Cause
Ciena’s U.S. Executive Severance Benefit Plan (“Severance Plan”) provides certain U.S.-based employees of Ciena Corporation and its affiliates, including our executive officers andnon-executive employees of the rank of vice president or above, with certain severance benefits in the event of an involuntary separation of service by Ciena without “cause” (as such term is defined in the plan and described below). Under the Severance Plan, benefits payable to participants upon an involuntary separation of service without cause consist of the following:
• | Cash Severance Payment.Our CEO will be entitled to severance equal to two times his annual base salary and annual target incentive bonus, while our other executive officers will be entitled to severance equal to their annual base salary and annual target incentive bonus or commission.Non-executives entitled to severance may receive four weeks of base salary for each year of service, with a minimum of 26 weeks and a maximum of 52 weeks. The base salary and, where applicable, bonus payments above would be determined based on the salary rate and incentive compensation program in effect immediately prior to the date of termination. Bonus amounts are to be paid at the “target” level. |
• | Benefits Continuation.For a period of 18 months in the case of our CEO, 12 months for our Senior Vice Presidents, and the severance period calculated above fornon-executive participants, the participant and his or her family will be eligible to continue to participate in our group medical, dental and vision plans. If we cannot continue benefits coverage, we will provide equivalent coverage for the applicable coverage period at our expense. |
• | Outplacement Assistance. For a period of 12 months in the case of our CEO and other executive officers, and six months for all other participants, Ciena will provide executive outplacement assistance, at its expense, through its then-current agency. |
As a condition of receiving benefits under the Severance Plan, each participant agrees to deliver a release of claims, comply with certainnon-competition andnon-solicitation obligations for a 12 month period, and comply with certain continuing obligations with respect to Ciena’s confidential and proprietary information and inventions. Failure to comply with these and other conditions set forth in the Severance Plan requires the repayment of severance benefits in full. In addition, severance payments are subject to recoupment in accordance with applicable law and any future “clawback” policy adopted by Ciena. Should any payment of severance benefits be subject to excise tax imposed under federal law, or any related interest or penalties, severance benefits shall be either (a) paid in full by us, or (b) paid in a lesser amount such that no portion of the payments would be subject to the excise tax, whichever results in receipt by the executive of a greater amount. This “best choice” mechanism above does not require Ciena to pay any excise taxes or to make anygross-up payments related to excise taxes resulting from any payment of severance benefits.
56 2019 Proxy Statement
Under the Severance Plan, a “separation of service” includes a termination of employment by the participant where Ciena and the participant anticipate that the participant will perform no further services for Ciena, or where the level of services to be performed will permanently decrease to no more than 20% of the average level of services performed over the immediately preceding36-month period. In addition, under the Severance Plan, “cause” means the occurrence of any one or more of the following:
the participant’s willful and continued failure substantially to perform his or her duties (other than as a result of disability), provided that in the case of executive officers,the CEO or a senior vice president of Ciena, such failure shall be determined by the BoardGovernance and Nominations Committee following written notice to the participant and an opportunity to be heard;
any willful act or omission by the participant in connection with his or her responsibilities as an employee constituting dishonesty, fraud or other malfeasance, immoral conduct or gross misconduct;
any willful material violation by the participant of Ciena’s Code of Business Conduct and Ethics or a Proprietary Information, Inventions andNon-Solicitation Agreement entered into by Ciena and the participant; or
the participant’s conviction of, or plea of nolo contendere to, a felony or a crime of moral turpitude under the laws of the United States or any state thereof or any other jurisdiction in which Ciena conducts business.
For purposes of the definition of “cause,” no act or failure to act by the participant shall be deemed “willful” unless effected by the participant not in good faith and without a reasonable belief that such act or failure to act was in, or not opposed to, Ciena’s best interests. The Severance Plan provides that the applicable benefits to which a participant is entitled under the Severance Plan will be reduced by amounts paid under other Ciena severance plans, policies, programs or practice.
2017 Proxy Statement 59
For each NEO, the amount in the table below reflects the value of the payments assuming an involuntary separation of service for other than cause effective as of the last day of our fiscal 2016.2018.
Payments Upon Involuntary Separation of Service for Other than Cause
Name | Salary and Bonus Payment ($) | Continuation of Benefits Coverage and | Total ($) | Salary and Bonus Payment ($) | Continuation of Benefits Coverage and Outplacement ($) | Total ($) | |||||||||||||||||||||
Gary B. Smith | $ | 4,050,000 | $ | 33,558 | $ | 4,083,558 |
| $ 4,050,000 |
|
| $ 37,901 |
|
| $ 4,087,901 |
| ||||||||||||
James E. Moylan, Jr. | $ | 971,250 | $ | 20,917 | $ | 992,167 |
| $ 971,250 |
|
| $ 18,128 |
|
| $ 989,378 |
| ||||||||||||
Stephen B. Alexander | $ | 735,000 | $ | 26,312 | $ | 761,312 | |||||||||||||||||||||
François Locoh-Donou | $ | 971,250 | $ | 26,770 | $ | 998,020 | |||||||||||||||||||||
Rick L. Hamilton |
| $ 770,000 |
|
| $ 24,553 |
|
| $ 794,553 |
| ||||||||||||||||||
Scott A. McFeely |
| $ 770,000 |
|
| $ 18,631 |
|
| $ 788,631 |
| ||||||||||||||||||
David M. Rothenstein | $ | 765,000 | $ | 26,312 | $ | 791,312 |
| $ 787,500 |
|
| $ 24,553 |
|
| $ 812,053 |
|
Payments Upon Change in Control
Each of our executive officers, including the NEOs, is party to a change in control severance agreement with Ciena. As the agreements in place were due to expire in accordance with their terms, in November 2016, each of our executive officers, including the NEOs, entered into a new form ofagreement. Our change in control severance agreement, each of which is effectiveagreements continue in effect through November 30, 2019 unless(provided that in the event that Ciena is in active negotiations regarding or has entered into a definitive agreement with respect to a change in control transaction, or has effected such a transaction, the term is subject to an automatic extension until the earlier terminated.of negotiations or the agreement being terminated or 12 months following the effective date of the transaction). As described in “Payments Upon Termination of Employment Following Change in Control” below, the change in control severance agreements provide our executive officers with certain severance benefits in the event that such officer’s employment is terminated by us or any successor entity without “cause,” or by the officer for “good reason,” within 90 days prior to or one year (or in the case of our CEO, eighteen18 months) following a “change in control,” as such terms are defined in the agreements. In addition, the agreements provide that upon a “change in control,” any performance-based equity awards, to the extent unvested, will be converted into awards with time-based vesting conditions. Conversion of performance-based stock awards upon a change in control does not require termination of employment. For these converted awards, the unvested portion will be deemed to have commenced time-based vesting on the grant date, withone-sixteenth of the grant amount vesting every three months thereafter. Because conversion of the awards will cause certain unvested stock awards to vest upon a change in control, we have included in the table below calculations with respect to the corresponding value of the vesting of such affected performance-based awards. For purposes of these calculations, we have used the actual share amount earned, in the case of PSU or MSU awards that have been earned, or, alternatively, the “target” number of shares for such PSU or MSU, in the case of awards that have a current performance period or otherwise remain to be earned, as applicable.
2019 Proxy Statement 57
The following table shows the estimated value of the conversion of performance-based equity awards, and the resulting acceleration of vesting of these awards, for each NEO assuming that there was a change in control of Ciena on the last day of our fiscal 20162018 and that the acquiror assumed or provided substitute awards for our outstanding equity awards (see also the “Acceleration of Vesting of Equity Awards Resulting from Change in Control Where Equity Awards are not Assumed or Replaced by Acquiror” table below). The value of stock awards is determined based on the number of shares subject to acceleration of vesting, multiplied by $19.51$32.02 per share, the closing market price per share of ourCiena common stock on The New York Stock Exchange on the last trading day of our fiscal 2016.2018.
Acceleration of Vesting of Equity Awards Upon Change in Control
Conversion of Performance-Based Stock Awards Upon Change in Control
| ||||||
Name | Shares Subject Conversion (#) | Shares Subject to Accelerated Vesting Upon Conversion (#) | Value Realized Upon Acceleration | |||
Gary B. Smith | 384,864 | 146,016 | $ 2,848,772 | |||
James E. Moylan, Jr. | 87,287 | 33,070 | $ 645,196 | |||
Stephen B. Alexander | 58,179 | 21,634 | $ 422,079 | |||
François Locoh-Donou | 87,287 | 33,070 | $ 645,196 | |||
David M. Rothenstein | 70,145 | 26,869 | $ 524,214 |
60 2017 Proxy Statement
Conversion of Performance-Based Stock Awards Upon Change in Control
| ||||||||
Name | Shares Subject to Conversion (#) | Shares Subject to Accelerated Vesting Upon Conversion (#) | Value Realized Upon Acceleration ($) | |||||
Gary B. Smith | 320,481 |
| 91,841 |
| $ 2,940,749 | |||
James E. Moylan, Jr. | 65,641 |
| 19,783 |
| $ 633,452 | |||
Rick L. Hamilton | 36,117 |
| 6,475 |
| $ 207,330 | |||
Scott A. McFeely | 37,433 |
| 8,304 |
| $ 265,894 | |||
David M. Rothenstein | 49,959 |
| 14,475 |
| $ 463,490 |
Payments Upon Change in Control Where Equity Awards Are Not Assumed or Substituted
Upon a change in control where the acquiror does not assume Ciena’s outstanding unvested awards or replace such awards with substitute awards, our current and legacy equity compensation plans provide for acceleration of vesting or defer the determination regarding acceleration of vesting to the discretion of our Compensation Committee. This mechanism, which is typical in equity plans, is intended to protect the interests of both executive andnon-executive employees. Moreover, we consider the likelihood of such treatment of equity awards by an acquiror in a change in control transaction to be remote. In the table below, however, for illustrative purposes, we have calculated the estimated payments assuming the full acceleration of outstanding awards upon a change in control where the acquiror neither assumes outstanding awards nor provides substitute awards.
For purposes of the calculations in the table below, stock awards subject to accelerated vesting have been valued at $19.51$32.02 per share, the closing market price per share of our common stock on The New York Stock Exchange on the last trading day of our fiscal 2016.2018. Calculations in the table below with respect to PSUs and MSUs that have not yet been earned reflect estimated values based upon the “target” level of achievement during the relevant performance period. All stock options held by the NEOs as of the last trading day of our fiscal 2016 were fully vested, and therefore no additional compensation would be earned in connection with any acceleration of vesting.
Acceleration of Vesting of Equity Awards Upon Change in Control
Where Equity Awards are not Assumed or Replaced by Acquiror
Name | Value Realized Upon Stock Award Acceleration ($) | |||||
Gary B. Smith | $ | |||||
James E. Moylan, Jr. | $ | |||||
Rick L. Hamilton | $ | |||||
Scott A. McFeely | $ | |||||
David M. Rothenstein | $ |
58 2019 Proxy Statement
Payments Upon Termination of Employment Following Change in Control
Under the change in control severance agreements, our executive officers, including the NEOs, are entitled to certain severance benefits in the event that the officer’s employment is terminated by us or any successor entity without “cause,” or, by the officer for “good reason,” within a90-day period prior to, or a12-month period (or in the case of our CEO, eighteen months) following, the effective date of a “change in control” of Ciena. We refer to this double trigger event, which requires both a change in control of Ciena and a subsequent termination of the executive’s employment, as a “covered termination.” Our change in control severance agreements continue in effect through November 30, 2019 (provided that the term is subject to an automatic extension of up to 12 months in the event that Ciena is in active negotiations regarding, or has entered into, a definitive agreement with respect to, a change in control transaction) and for a period of up to 12 months following a change in control that occurs during the term of the agreement.
Payment of any severance benefits pursuant to the change in control severance agreements (to the extent permissible under applicable law) is conditioned upon the officer agreeing to be bound by provisions restricting his or her ability to compete with us, and to solicit our employees or business, for one year after termination (or 18 months for our CEO), as well as the officer’s delivery to us of a general release and waiver of claims. In the event of a breach of these provisions, the officer must reimburse all severance benefits paid. The severance benefits described below are to be paid by us or our successor upon a covered termination.
• | Salary and Bonus Payment.Upon a covered termination, our CEO would be entitled to receive a lump sum payment equal to 2.5 times his annual base salary and annual target incentive bonus. |
• | Continuation of Benefits.Upon a covered termination, each NEO and his or her family would be eligible to continue to participate in our group medical, dental and vision plans until the earlier of the 18 months from the covered termination or the date of such officer’s commencement of alternate employment. If we cannot continue benefits coverage, we are |
2017 Proxy Statement 61
obligated to pay for or provide equivalent coverage at our expense. The agreements continue to require Ciena to maintain director and officer insurance coverage for the NEOs as well as any indemnification agreement we have entered into with them. |
• | Acceleration of Vesting of Equity Awards.Upon a covered termination, all unvested options and stock awards (including RSUs and PSUs, as applicable) held by each NEO would immediately vest and become exercisable. |
• | Reduction of Benefits if Risk of Excise Tax Applicability.Should any payment of severance benefits to our NEOs pursuant to the change in control severance agreements be subject to excise tax imposed under federal law, or any related interest or penalties, the change in control severance agreements provide that the payments would be either (a) paid in full by us, or (b) paid in a lesser amount such that no portion of the payments would be subject to the excise tax, whichever results in receipt of a greater amount by the NEO. This “best choice” mechanism above does not require Ciena to pay any excise taxes, or to make anygross-up payments related to excise taxes, resulting from any payment of severance benefits. Under the change in control severance agreements, responsibility for any excise taxes remains with the employee. |
See “Applicable Definitions” below to better understand the meaning of the terms “change in control,” “cause” and “good reason” under our change in control severance agreements.
The following table shows the estimated value of the aggregate payments that would be paid to each NEO pursuant to the change in control severance agreements upon a covered termination. Accordingly, the total amount below also includes the value realized upon a change in control and reported in the table above in “Payments Upon Change in Control.”
Potential Payments Upon “Covered Termination”
Name | Salary and Bonus Payment ($)(1) | Continuation of Benefits Coverage | Value Realized Acceleration | Total ($) | Salary and Bonus Payment ($)(1) | Continuation of Benefits Coverage ($)(2) | Value Realized Upon Equity Acceleration ($)(3) | Total ($) | |||||||||||||||||||||||||||||
Gary B. Smith | $ | 5,062,500 | $ 25,483 | $ 10,908,899 | $ | 15,996,882 |
| $ 5,062,500 | $ 37,901 | $ 16,315,695 |
| $ 21,416,096 |
|
| |||||||||||||||||||||||
James E. Moylan, Jr. | $ | 1,456,875 | $ 19,263 | $ 2,859,093 | $ | 4,335,231 |
| $ 1,456,875 | $ 24,342 | $ 3,978,805 |
| $ 5,460,022 | |||||||||||||||||||||||||
Stephen B. Alexander | $ | 1,102,500 | $ 27,356 | $ 1,912,409 | $ | 3,042,265 | |||||||||||||||||||||||||||||||
François Locoh-Donou | $ | 1,456,875 | $ 28,043 | $ 4,123,556 | $ | 5,608,473 | |||||||||||||||||||||||||||||||
Rick L. Hamilton |
| $ 1,155,000 | $ 33,980 | $ 2,570,181 |
| $ 3,759,161 | |||||||||||||||||||||||||||||||
Scott A. McFeely |
| $ 1,155,000 | $ 25,096 | $ 2,393,239 |
| $ 3,573,335 | |||||||||||||||||||||||||||||||
David M. Rothenstein | $ | 1,147,500 | $ 27,356 | $ 2,162,098 | $ | 3,336,954 |
| $ 1,181,250 | $ 33,980 | $ 3,014,363 |
| $ 4,229,593 |
(1) | Reflectspre-tax severance payments to each NEO based upon: (a) annual salary in effect as of the end of fiscal |
2019 Proxy Statement 59
(2) | Includes aggregate incremental costs for continuation of medical and dental benefits as used for financial statement reporting purposes, assuming we are able to continue such existing coverage and continuation costs are commensurate with costs incurred for such coverage during fiscal |
(3) | Reflects the conversion of performance-based and market stock unit awards upon change in control and value associated with the resulting acceleration of vesting as described in “Payments Upon Change in Control” above, together with the acceleration of stock awards |
Applicable Definitions.For purposes of determining whether a change in control or covered termination has occurred under the change in control severance agreements, the following terms generally have the following meanings:
“Cause” means:
the officer’s willful and continued failure substantially to perform the duties of his position, as determined by the Board of Directors following written notice to the officer;
any willful act or omission constituting dishonesty, fraud or other malfeasance;
any willful act or omission constituting immoral conduct or gross misconduct;
any willful material violation of our Code of Business Conduct and Ethics or Proprietary Information, Inventions andNon-Solicitation Agreement; or
the officer’s conviction of, or plea of nolo contendere to, a felony or crime of moral turpitude under federal or state law or the laws of any other jurisdiction in which Ciena conducts business.
62 2017 Proxy Statement
“Good reason” means:
removal from, or failure to be reappointed or reelected to, the officer’s principal position held immediately prior to the change in control;
material diminution in the officer’s position, duties or responsibilities, or the assignment of duties that are inconsistent, in any material respect, with those held immediately prior to the change in control;
material reduction in base salary, incentive compensation opportunity or participation in other long-term incentive or benefit plans as in effect immediately before the change in control;
relocation of principal workplace, without the officer’s consent, by more than 50 miles; or
the failure to obtain the assumption of the change in control severance agreement by any successor company;
provided, in each case, that (a) the officer notifies Ciena of the foregoing conditions within 90 days of the initial existence of the condition, (b) Ciena has been given at least 30 days following notice to cure such condition, and (c) the officer actually terminates employment within one year following the initial existence of the condition.
“Change in control” means:
the direct or indirect sale or exchange by our stockholders of all or substantially all of our outstanding stock, or a merger or consolidation, transaction, in each case, where the stockholders before such transaction do not retain at least a majority voting interest in the acquiring corporation after such transaction;
the sale, exchange or transfer of all or substantially all of our assets;
a change in the composition of the Board within atwo-year period, as a result of which less than a majority of the directors are incumbent directors (as defined in the agreement);
our liquidation or dissolution; or
any other event determined to be a change in control by our Board of Directors.
In each case, the determination of whether a “change in control” has occurred shall be made without regard to whether such events were hostile or against the position of the Board or were approved or concurred with by the Board.
60 2019 Proxy Statement
Overview
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of RegulationS-K, we are providing the following information about the relationship of the annual total compensation of our median employee and the annual total compensation of our CEO.
CEO Pay Ratio | ||||
CEO Annual Total Compensation* | $ 9,129,584 | |||
Median Employee Annual Total Compensation | $ 102,540 | |||
CEO to Median Employee Pay Ratio | 89:1 |
* Represents amount of total compensation from Summary Compensation Table
Methodology
Our CEO pay ratio is an estimate calculated in a manner consistent with SEC rules and based upon our reasonable judgment and assumptions. Our methodology and process is explained below:
❖ | Determination of Employee Population.We began with the total population of all global employees of Ciena as of September 1, 2018, including full-time and part-time employees, interns and temporary workers on our payroll, and our Executive Chairman, but excluding our CEO. |
❖ | Identification of Median Employee.We selected the aggregate of (a) annualized base salary as of September 1, 2018, (b) the target cash incentive compensation for employees eligible under our Cash Incentive Bonus Plan or Sales Incentive Compensation Plan, as applicable, and (c) the target delivered value for equity awards granted to employees as part of our annual equity grants in December 2017, as the consistently applied compensation measure to identify our median employee. We estimated total compensation using a method similar to the Summary Compensation Table rules, applying an exchange rate as of September 1, 2018 to convert international currencies into U.S. dollars, and then identified the median employee. We did not make any cost of living adjustments or full time equivalent adjustments.Using this methodology, we determined that the median employee was a full-time employee located in Canada. |
❖ | Calculation of CEO Pay Ratio.We calculated our median employee’s annual total compensation for 2018 according to the SEC’s instructions for preparing the Summary Compensation Table. We applied an exchange rate of 1 CAD to 0.761412 USD as of October 31, 2018, to convert international currencies into U.S. dollars. We then calculated our CEO’s annual total compensation using the same approach to determine the pay ratio shown above. |
The disclosure presented above is a reasonable estimate. Because the SEC rules for identifying the median employee and calculating the pay ratio allow companies to use different methodologies, exemptions, estimates and assumptions, this disclosure may not be comparable to the pay ratio reported by other companies.
2017 2019 Proxy Statement 6361
ANNUAL ADVISORYAnnual Advisory“SAY-ON-PAY”Say-on-Pay” VOTE TO APPROVE OURVote to Approve Our Named Executive Officer Compensation
NAMED EXECUTIVE OFFICER COMPENSATION
We are required by Section 14A of the Exchange Act to conduct anon-binding advisory vote of our stockholders to approve the compensation paid to our NEOs as disclosed in this proxy statement. We encourage stockholders to read the “Compensation Discussion and Analysis” and “Executive Compensation Tables” in this proxy statement for a more detailed discussion of our compensation programs and policies, the compensation governance measures undertaken and implemented by our Board of Directors, and the compensation awarded to our NEOs during fiscal 2016.2018.
We actively review and assess our executive compensation program in light of the dynamic industry in which we operate, the evolving marketplace in which we compete for executive talent, and changes in compensation governance best practices. We are focused on compensating our executive officers fairly and in a manner that promotes our compensation philosophy.
COMPENSATION OBJECTIVES |
❖
❖
❖
❖
❖ |
Our Board of Directors believes that our executive compensation program has been designed and executed to satisfy these objectives, and that our compensation program is worthy of stockholder support.
In considering our executive compensation program for fiscal 2016,2018, we believe it is important to view the Compensation Committee’s decision-making inagainst the context in which such decisions were made,backdrop of both our overall corporate governance and to assess our subsequentfiscal 2018 business and financial performance during fiscal 2016. To better understand the context in which the Compensation Committee made its decisions regarding fiscal 2016 executive compensation, stockholders are encouraged to review the “Compensation Discussion and Analysis” above, and in particular the “Overview” therein. performance.
With respect to our fiscal 2016 performance,corporate governance, we had a record year of business and financial results.
|
The Compensation Committee’s fiscal 2016 compensation decision-making also reflected several core governance principles and practices that we employ to align executive compensation with stockholderthe interests of our stockholders and to avoid certain compensation practices that we do not employ because we believe they would not serve our stockholders’ long-term interests. We continue to evaluate and modify these principles and practices as necessary in order to achieve these objectives. In this regard, we believe that stockholders should consider the “Compensation Discussion and Analysis” above, and in particular the “Executive Compensation Best Practices” therein.
64 2017With respect to our fiscal 2018 performance, as a result of successful execution against our long-term strategy, we had a very strong year of business and financial results. Fiscal 2018 performance and business highlights are described more fully in our Proxy Statement Summary above.
The Board recommends that stockholders vote in favor of the following resolution:
“RESOLVED, that the stockholders approve, on an advisory basis, the compensation of Ciena’s Named Executive Officers, as disclosed in Ciena’s proxy statement for its
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Although this vote is advisory and is not binding on the Compensation Committee or the Board, the Compensation Committee and the Board value the input and views of our stockholders. The Board and the Compensation Committee will review the results of the vote and take them into consideration when considering future executive compensation policies and decisions.
Proposal No. 3 — Recommendation of the Board of Directors
The Board of Directors recommends that you vote “ the advisory approval of our named executive officer compensation
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62 2019 Proxy Statement
POLICY FOR RELATED PERSON TRANSACTIONS
Ciena did not engage in any related person transactions during fiscal 2018 within the meaning of applicable SEC rules. The Board of Directors has adopted a written Policy for Related Person Transactions. The purpose of the policy is to describe the procedures used to identify, review, approve and disclose, if necessary, any related person transaction or series of transactions in which: (i) Ciena was, is or will be a participant; (ii) the amount involved exceeds $120,000; and (iii) a related person had, has or will have a direct or indirect material interest.
For purposes of the policy, a related person is one of the following:
any Ciena director, nominee for director or executive officer (as such terms are used in Section 16 of the Exchange Act and the regulations promulgated thereunder);
any immediate family member of a Ciena director, nominee for director or executive officer;
The Board of Directors recommends that you vote
“EVERY YEAR”
on the frequency of future stockholders’ advisory votes on our named executive officer compensation
66 2017 Proxy Statement
POLICY FOR RELATED PERSON TRANSACTIONS
Ciena did not engage in any related person transactions during fiscal 2016 under applicable SEC rules. The Board of Directors has adopted a written Policy for Related Person Transactions. The purpose of the policy is to describe the procedures used to identify, review, approve and disclose, if necessary, any related person transaction or series of transactions in which: (i) Ciena was, is or will be a participant; (ii) the amount involved exceeds $120,000; and (iii) a related person had, has or will have a direct or indirect material interest.
For purposes of the policy, a related person is one of the following:
any immediate family member of a significant stockholder.
Under the policy, all related person transactions above a de minimis threshold are required to be approved or ratified by the Audit Committee, or another committee consisting solely of independent directors. As a general rule, any director who has a direct or indirect material interest in the related person transaction should not participate in the consideration of whether to approve or ratify the transaction. Prior to entering into a related person transaction, the material facts regarding the transaction, including the interest of the related person, must be presented to the Audit Committee for review. The Committee will consider whether the related person transaction is advisable and whether to approve, ratify or reject the transaction or refer it to the full Board of Directors, in its discretion. If the Committee approves a related person transaction, it will report the action to the full Board of Directors, and Ciena will disclose the terms of related person transactions in its filings with the SEC to the extent required.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of the end of fiscal 2018 with respect to the shares of Ciena common stock that may be issued under Ciena’s existing equity compensation plans. In accordance with SEC rules, the tabular disclosure in column (A) does not reflect the approximately 4.4 million shares underlying stock unit awards issued and outstanding at the end of fiscal 2018.
Plan category
| Number of securities to be issued upon exercise of outstanding options, warrants and rights (A)
| Weighted average exercise price of outstanding options, warrants and rights (B)
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in Column (A) (C)
|
| |||||||||||||
Equity compensation plans approved by stockholders (1)
|
|
275,834
|
|
$
|
33.52
|
|
|
12,134,290
|
(2)
| ||||||||
Equity compensation plans not approved by stockholders
|
|
—
|
|
|
—
|
| |||||||||||
Total
|
|
275,834
|
|
$
|
33.52
|
|
(1) | Consists of awards outstanding under the following equity compensation plans: |
the 2008 Plan;
the Cyan, Inc. 2006 Stock Plan and Cyan, Inc. 2013 Equity Incentive Plan, assumed by Ciena in connection with an acquisition transaction.