Lam Research Corporation
LAM RESEARCH CORP (Form: DEF 14A, Received: 09/29/2016 16:08:55)
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

Filed by the Registrant  þ

Filed by a Party other than the Registrant  ¨

Check the appropriate box:

 

¨   Preliminary Proxy Statement
¨   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ   Definitive Proxy Statement
¨   Definitive Additional Materials
¨   Soliciting Material Pursuant to §240.14a-12

LAM RESEARCH CORPORATION

(Name of Registrant as Specified In Its Charter)

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

Payment of Filing Fee (Check the appropriate box):

þ    No fee required.
¨    Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
   (1)   

Title of each class of securities to which transaction applies:

 

     

   (2)   

Aggregate number of securities to which transaction applies:

 

     

   (3)   

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

     

   (4)   

Proposed maximum aggregate value of transaction:

 

     

   (5)   

Total fee paid:

 

     

¨    Fee paid previously with preliminary materials.
¨    Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
   (1)   

Amount Previously Paid:

 

     

   (2)   

Form, Schedule or Registration Statement No.:

 

     

   (3)   

Filing Party:

 

     

   (4)   

Date Filed:

 

     


Table of Contents
    

 

 

LOGO

September 29, 2016

Dear Lam Research Stockholders,

We cordially invite you to attend, in person or by proxy, the Lam Research Corporation 2016 Annual Meeting of Stockholders. The annual meeting will be held on Wednesday, November 9, 2016, at 9:30 a.m. Pacific Standard Time in the Building CA1 Auditorium at the principal executive offices of Lam Research Corporation, which is located at 4650 Cushing Parkway, Fremont, California 94538.

At this year’s annual meeting, stockholders will be asked to elect the nine nominees named in the attached proxy statement as directors to serve until the next annual meeting of stockholders, and until their respective successors are elected and qualified; to elect the two additional nominees named in the attached proxy statement in connection with the acquisition of KLA-Tencor Corporation as directors, subject to and contingent upon the acquisition being consummated prior to the 2016 annual meeting of stockholders, to serve until the next annual meeting of stockholders, and until their respective successors are elected and qualified; to cast an advisory vote to approve the compensation of our named executive officers, or “Say on Pay”; and to ratify the appointment of the independent registered public accounting firm for fiscal year 2017. The Board of Directors recommends that you vote in favor of all four proposals. Management will not provide a business update during this meeting; please refer to our latest quarterly earnings report for our current outlook.

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

Sincerely yours,

Lam Research Corporation

 

LOGO

Stephen G. Newberry

Chairman of the Board

 

 


Table of Contents
    

 

Notice of 2016 Annual Meeting

of Stockholders

 

 

LOGO

4650 Cushing Parkway

Fremont, California 94538

Telephone: 510-572-0200

 

Date and Time    Wednesday, November 9, 2016
   9:30 a.m. Pacific Standard Time
Place    Lam Research Corporation
   Building CA1 Auditorium
   4650 Cushing Parkway
   Fremont, California 94538

Items of Business

 

  1. Election of nine directors to serve until the next annual meeting of stockholders, and until their respective successors are elected and qualified
  2. Election of two additional directors in connection with the acquisition of KLA-Tencor Corporation (“KLA-Tencor”), subject to and contingent upon the acquisition being consummated prior to the 2016 annual meeting of stockholders, to serve until the next annual meeting of stockholders, and until their respective successors are elected and qualified
  3. Advisory vote to approve the compensation of our named executive officers, or “Say on Pay”
  4. Ratification of the appointment of independent registered public accounting firm for fiscal year 2017
  5. Transact such other business that may properly come before the annual meeting (including any adjournment or postponement thereof)

Record Date

Only stockholders of record at the close of business on September 13, 2016, the “Record Date,” are entitled to notice of and to vote at the annual meeting.

Voting

Please vote as soon as possible, even if you plan to attend the annual meeting in person. You have three options for submitting your vote before the annual meeting: by the internet, phone or mail. The proxy statement and the accompanying proxy card provide detailed voting instructions.

Internet Availability of Proxy Materials

Our Notice of 2016 Annual Meeting of Stockholders, Proxy Statement and Annual Report to Stockholders are available on the Lam Research website at http://investor.lamresearch.com and at www.proxyvote.com .

By Order of the Board of Directors

 

LOGO

Sarah A. O’Dowd

Secretary

This proxy statement is first being made available and/or mailed to our stockholders on or about September 29, 2016.

 

 


Table of Contents

LAM RESEARCH CORPORATION

Proxy Statement for 2016 Annual Meeting of Stockholders

TABLE OF CONTENTS

 

Proxy Statement Summary     1   

Figure 1. Proposals and Voting Recommendations

    1   

Figure 2. Summary Information Regarding Director Nominees

    1   

Figure 3. Corporate Governance Highlights

    2   

Figure 4. Executive Compensation Highlights

    3   
Stock Ownership     4   

Security Ownership of Certain Beneficial Owners and Management

    4   

Section 16(a) Beneficial Ownership Reporting Compliance

    6   
Governance Matters     7   

Corporate Governance

    7   

Corporate Governance Policies

    7   

Board Nomination Policies and Procedures

    7   

Director Independence Policies

    8   

Leadership Structure of the Board

    9   

Other Governance Practices

    9   

Meeting Attendance

    10   

Board Committees

    10   

Board’s Role in Risk Oversight

    11   

Director Compensation

    11   
Compensation Matters     14   

Executive Compensation and Other Information

    14   

Compensation Discussion and Analysis

    14   

I.    Overview of Executive Compensation

    14   

II.   Executive Compensation Governance and Procedures

    17   

III.   Primary Components of Named Executive Officer Compensation; Calendar Year 2015 Compensation Payouts; Calendar Year 2016 Compensation Targets and Metrics

    19   

IV. Tax and Accounting Considerations

    27   

Compensation Committee Report

    28   

Compensation Committee Interlocks and Insider Participation

    28   

Executive Compensation Tables

    29   

Securities Authorized for Issuance under Equity Compensation Plans

    38   
Audit Matters     40   

Audit Committee Report

    40   

Relationship with Independent Registered Public Accounting Firm

    40   

Annual Evaluation and Selection of Independent Registered Public Accounting Firm

    40   

Fees Billed by EY

    41   

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

    42   

Certain Relationships and Related Party Transactions

    42   
Voting Proposals     43   

Proposal No. 1: Election of Existing Directors

    43   

2016 Nominees for Director

    44   

Proposal No. 2: Election of Additional Directors

    51   

2016 Nominees for Director

    52   

Proposal No. 3: Advisory Vote to Approve the Compensation of Our Named Executive Officers, or “Say on Pay”

    54   

Proposal No. 4: Ratification of the Appointment of the Independent Registered Public Accounting Firm for Fiscal Year 2017

    54   

Other Voting Matters

    55   
Voting and Meeting Information     56   

Information Concerning Solicitation and Voting

    56   

Other Meeting Information

    57   


Table of Contents
    

 

Proxy Statement Summary

 

 

To assist you in reviewing the proposals to be acted upon at the annual meeting we call your attention to the following information about the proposals and voting recommendations, the Company’s director nominees and highlights of the Company’s corporate governance, and executive compensation. The following description is only a summary. For more complete information about these topics please review the complete proxy statement.

We use the terms “Lam Research,” “Lam,” the “Company,” “we,” “our,” and “us” in this proxy statement to refer to Lam Research Corporation, a Delaware corporation.

Figure 1. Proposals and Voting Recommendations

 

Voting Matters  

Board Vote

Recommendation

 
Proposal 1 – Election of Nine Nominees Named Herein as Directors     FOR each nominee   
Proposal 2 – Election of Two Additional Nominees Named Herein, Subject to and Contingent Upon the Acquisition of KLA-Tencor Corporation (“KLA-Tencor”) Being Consummated Prior to the 2016 Annual Meeting of Stockholders, as Directors     FOR each nominee   
Proposal 3 – Advisory Vote to Approve the Compensation of Our Named Executive Officers, or “Say on Pay”     FOR   
Proposal 4 – Ratification of the Appointment of the Independent Registered Public Accounting Firm for Fiscal Year 2017     FOR   

Figure 2. Summary Information Regarding Director Nominees

You are being asked to vote on the election of the nine director nominees listed in the table below under the heading “Existing Director Nominees” and, subject to and contingent upon the acquisition of KLA-Tencor being consummated prior to this year’s annual meeting of stockholders, the two additional director nominees listed under the subsequent heading “Additional Director Nominees.” The following table provides summary information about each director nominee as of September 13, 2016, and their biographical information is contained in the “ Voting Proposals – Proposal No. 1: Election of Existing Directors – 2016 Nominees for Director ” and “ Voting Proposals – Proposal No. 2: Election of Additional Directors – 2016 Nominees for Director ” sections below.

 

     Director    Committee
Membership
   Other Current Public
Boards
Name   Age    Since   Independent  (1)    AC    CC    NGC   
Existing Director Nominees                                 
Martin B. Anstice   49    2012   No                    
Eric K. Brandt   54    2010   Yes    C/FE             

Yahoo!,

Dentsply Sirona

Michael R. Cannon   63    2011   Yes    M         M   

Seagate Technology,

Dialog Semiconductor

Youssef A. El-Mansy   71    2012   Yes         M          
Christine A. Heckart   50    2011   Yes    M               
Catherine P. Lego   59    2006   Yes         C    M   

Fairchild Semiconductor,

IPG Photonics

Stephen G. Newberry   62    2005   No                   Splunk
Abhijit Y. Talwalkar   52    2011  

Yes

(Lead Independent Director)

        M    C     
Lih Shyng (Rick L.) Tsai   65    2016   Yes                  

NXP Semiconductors,

Chunghwa Telecom

Additional Director Nominees (2)                                 
John T. Dickson   70    (2)   Yes                   QLogic
Gary B. Moore   67    (2)   Yes                   Finjan Holdings

 

(1)       Independence determined based on Nasdaq rules.

  

(2)      Currently members of KLA-Tencor board of directors

AC  – Audit committee   

C – Chairperson

CC  – Compensation committee   

M – Member

NGC  – Nominating and governance committee   

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

 

Continues on next page   u

 

Lam Research Corporation 2016 Proxy Statement   1


Table of Contents

Figure 3. Corporate Governance Highlights

 

Board and Other Governance Information (1)   As of September 13, 2016  
Size of Board as Nominated     9 (2)  
Average Age of Director Nominees     58.3 (3)  
Average Tenure of Director Nominees     5.96 (4)  
Number of Independent Nominated Directors     7 (5)  
Number of Nominated Directors Who Attended <75% of Meetings     0   
Number of Nominated Directors on More Than Four Public Company Boards     0 (6)  
Directors Subject to Stock Ownership Guidelines     Yes   
Annual Election of Directors     Yes   
Voting Standard     Majority   
Plurality Voting Carveout for Contested Elections     Yes   
Separate Chairman and Chief Executive Officer (“CEO”)     Yes   
Lead Independent Director     Yes   
Independent Directors Meet Without Management Present     Yes   
Board (Including Individual Director) and Committee Self-Evaluations     Yes   
Annual Independent Director Evaluation of CEO     Yes   
Risk Oversight by Full Board and Committees     Yes   
Commitment to Board Refreshment and Diversity     Yes   
Robust Director Nomination Process     Yes   
Board Orientation/Education Program     Yes   
Code of Ethics Applicable to Directors     Yes   
Stockholder Ability to Act by Written Consent     Yes   
Poison Pill     No   
Publication of Corporate Social Responsibility Report on Our Website     Yes   

 

(1)   The table reflects board information relating to the nine director nominees in proposal number one. Corresponding information adjusted for the two additional director nominees from the KLA-Tencor board in proposal number two is reflected in any related footnotes.

 

(2)   The size of the board as nominated is 11 if adjusted for the two additional nominees from the KLA-Tencor board in proposal number two. See “ Voting Proposals – Proposal No. 1: Election of Existing Directors –Board Size ” for additional information regarding the board size.

 

(3)   The average age of the director nominees is 60.2 if adjusted for the two additional nominees from the KLA-Tencor board in proposal number two.

 

(4)   The average tenure of the director nominees is 4.87 if adjusted for the two additional nominees from the KLA-Tencor board in proposal number two.

 

(5)   The number of independent nominated directors is nine if adjusted for the two additional nominees from the KLA-Tencor board in proposal number two.

 

(6) The number of nominated directors on more than four public company boards is still zero if adjusted for the two additional nominees from the KLA-Tencor board in proposal number two.

 

2


Table of Contents

Figure 4. Executive Compensation Highlights

 

What We Do
Pay for Performance (Pages 14-16, 20-22, 23-25) – Our executive compensation program is designed to pay for performance with 100% of the short-term incentive program tied to company financial, strategic and operational performance metrics, 50% of the long-term incentive program tied to total shareholder return, or “TSR,” performance, and 50% of the long-term incentive program awarded in stock options and service-based restricted stock units, or “RSUs.”
Three-Year Performance Period for Our 2016 Long-Term Incentive Program (Pages 23-25) – Our current long-term incentive program is designed to pay for performance over a period of three years.
Absolute and Relative Performance Metrics (Pages 20-22, 23-25) – Our annual and long-term incentive programs for executive officers include the use of absolute and relative performance factors.
Balance of Annual and Long-Term Incentives – Our incentive programs provide a balance of annual and longer-term incentives.
Different Performance Metrics for Annual and Long-Term Incentive Programs (Pages 20-22, 23-25) – Our annual and long-term incentive programs use different performance metrics.
Capped Amounts (Pages 20, 24-25) – Amounts that can be earned under the annual and long-term incentive programs are capped.
Compensation Recovery/Clawback Policy (Page 17) – We have a policy in which we can recover the excess amount of cash incentive-based compensation granted and paid to our officers who are covered by section 16 of the Exchange Act.
Prohibit Option Repricing – Our stock incentive plans prohibit option repricing without stockholder approval (excluding adjustments due to specified corporate transactions and changes in capitalization).
Hedging and Pledging Policy (Page 7) – We have a policy applicable to our executive officers and directors that prohibits pledging and hedging.
Stock Ownership Guidelines (Page 17) – We have stock ownership guidelines for each of our executive officers and certain other senior executives; each of our NEOs has met his or her individual ownership level under the current program or has a period of time remaining under the guidelines to do so.
Independent Compensation Advisor (Page 18) – The compensation committee benefits from its utilization of an independent compensation advisor retained directly by the committee that provides no other services to the Company.
Stockholder Engagement – We engage with stockholders and stockholder advisory firms to obtain feedback concerning our compensation program.
What We Don’t Do
Tax “Gross-Ups” for Perquisites, for Other Benefits or upon a Change in Control (Pages 27-30, 35-36) – Our executive officers do not receive tax “gross-ups” for perquisites, for other benefits or upon a change in control. (1)
Single-Trigger Change in Control Provisions (Pages 26, 35-36) – None of our executive officers has single-trigger change in control agreements.

 

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

 

Continues on next page   u

 

Lam Research Corporation 2016 Proxy Statement   3


Table of Contents
    

 

Stock Ownership

 

 

Security Ownership of Certain Beneficial Owners and Management

 

The table below sets forth the beneficial ownership of shares of Lam common stock by: (i) each person or entity who we believe based on our review of filings made with the United States Securities and Exchange Commission, or the “SEC,” beneficially owned as of September 13, 2016, more than 5% of Lam’s common stock on the date set forth below; (ii) each current director of the Company; (iii) each director nominee identified in proposal number two, (iv) each NEO identified below in the “ Compensation Matters – Executive Compensation and Other Information – Compensation Discussion and Analysis ” section; and (v) all current directors, additional nominees identified in proposal number two and

current executive officers as a group. With the exception of 5% owners, and unless otherwise noted, the information below reflects holdings as of September 13, 2016, which is the Record Date for the 2016 annual meeting and the most recent practicable date for determining ownership. For 5% owners, holdings are as of the dates of their most recent ownership reports filed with the SEC, which are the most practicable dates for determining their holdings. The percentage of the class owned is calculated using 161,264,422 as the number of shares of Lam common stock outstanding on September 13, 2016.

 

 

Figure 5. Beneficial Ownership Table

 

Name of Person or Identity of Group   Shares
Beneficially
Owned
(#) (1)
     Percentage
of Class
 
5% Stockholders                 

JPMorgan Chase & Co.
270 Park Avenue
New York, NY 10017

    15,777,361 (2)        9.8

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

    13,678,637 (3)        8.5

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

    10,331,709 (4)        6.4

Ameriprise Financial, Inc.
145 Ameriprise Financial Center
Minneapolis, MN 55474

    8,023,367 (5)        5.0
Directors                 

Martin B. Anstice (also a Named Executive Officer)

    134,363         *   

Eric K. Brandt

    24,430         *   

Michael R. Cannon

    20,730         *   

Youssef A. El-Mansy

    22,333         *   

Christine A. Heckart

    15,230         *   

Catherine P. Lego

    46,238         *   

Stephen G. Newberry

    32,840         *   

Krishna C. Saraswat

    23,896         *   

Abhijit Y. Talwalkar

    21,330         *   

Lih Shyng (Rick L.) Tsai

    —           *   
Additional Director Nominees                 

John T. Dickson

    —           *   

Gary B. Moore

    —           *   
Named Executive Officers (“NEOs”)                 

Timothy M. Archer

    183,185 (6)        *   

Douglas R. Bettinger

    46,716         *   

Richard A. Gottscho

    104,120         *   

Sarah A. O’Dowd

    69,808         *   
All current directors, additional director nominees and executive officers as a group (16 people)     745,219 (6)        *   

 

4


Table of Contents
* Less than 1%    

 

(1) Includes shares subject to outstanding stock options that are now exercisable or will become exercisable within 60 days after September 13, 2016, as well as restricted stock units, or “RSUs,” that will vest within that time period, as follows:

 

     Shares  
Martin B. Anstice     39,765   
Eric K. Brandt     2,600   
Michael R. Cannon     2,600   
John T. Dickson     —     
Youssef A. El-Mansy     2,600   
Christine A. Heckart     2,600   
Catherine P. Lego     2,600   
Gary B. Moore     —     
Stephen G. Newberry     2,600   
Krishna C. Saraswat     2,600   
Abhijit Y. Talwalkar     2,600   
Lih Shyng (Rick L.) Tsai     —     
Timothy M. Archer     117,926   
Douglas R. Bettinger     15,172   
Richard A. Gottscho     57,144   
Sarah A. O’Dowd     32,539   
All current directors, additional director nominees and executive officers as a group (16 people)     283,346   

The terms of any outstanding stock options that are now exercisable are reflected in “ Figure 31. FYE2016 Outstanding Equity Awards ” below.

As discussed in “ Governance Matters – Director Compensation ” below, the non-employee directors receive an annual equity grant as part of their compensation. These grants generally vest on October 31, 2016, subject to continued service on the board as of that date, with immediate delivery of the shares upon vesting. For 2015, Drs. El-Mansy and Saraswat; Messrs. Brandt, Cannon, Newberry and Talwalkar; and Mses. Heckart and Lego each received grants of 2,600 RSUs. These RSUs are included in the tables above. As of September 13, 2016, Dr. Tsai had not yet been granted an annual equity award and Messrs. Dickson and Moore had not yet been appointed to the board of the Company. In accordance with the Company’s non-employee director compensation program, Dr. Tsai will receive a pro-rated equity award (25% of the $200,000 targeted grant date value, with the number of RSUs determined in the same manner as an annual equity award) on the first Friday following his first attended board meeting (or, if the designated date falls within a blackout window under applicable Company policies, on the first following business day such grant is permissible under those policies).

 

(2) All information regarding JPMorgan Chase & Co., or “JPMorgan Chase,” is based solely on information disclosed in amendment number eight to Schedule 13G filed by JPMorgan Chase with the SEC on September 8, 2016 as a parent holding company on behalf of JPMorgan Chase and its wholly-owned subsidiaries: JPMorgan Chase Bank, National Association; J.P. Morgan Investment Management Inc.; J.P. Morgan Trust Company of Delaware; J.P. Morgan Securities LLC; J.P. Morgan International Bank Limited; J.P. Morgan (Suisse) SA; JPMorgan Asset Management (Canada) Inc.; JF Asset Management Limited; and JPMorgan Asset Management (UK) Limited. According to the Schedule 13G/A filing, of the 15,777,361 shares (including 503,855 shares it has a right to acquire) of Lam common stock reported as beneficially owned by JPMorgan Chase as of August 31, 2016, JPMorgan Chase had sole voting power with respect to 13,067,274 shares, had shared voting power with respect to 275,284 shares, had sole dispositive power with respect to 15,604,822 shares and shared dispositive power with respect to 171,638 shares of Lam common stock reported as beneficially owned by JPMorgan Chase as of that date.

 

(3) All information regarding The Vanguard Group, Inc., or “Vanguard,” is based solely on information disclosed in amendment number three to Schedule 13G filed by Vanguard with the SEC on February 10, 2016. According to the Schedule 13G filing, of the 13,678,637 shares of Lam common stock reported as beneficially owned by Vanguard as of December 31, 2015, Vanguard had sole voting power with respect to 291,853 shares, had shared voting power with respect to any other 15,900 shares, had sole dispositive power with respect to 13,365,084 shares and shared dispositive power with respect to 313,553 shares of Lam common stock reported as beneficially owned by Vanguard as of that date. The 13,678,637 shares of Lam common stock reported as beneficially owned by Vanguard include 247,553 shares beneficially owned by Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of Vanguard, as a result of it serving as investment manager of collective trust accounts, and 110,300 shares beneficially owned by Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of Vanguard, as a result of it serving as investment manager of Australian investment offerings.

 

(4)

All information regarding BlackRock Inc., or “BlackRock,” is based solely on information disclosed in amendment number eight to Schedule 13G filed by BlackRock with the SEC on February 10, 2016 on behalf of BlackRock and its subsidiaries: BlackRock (Channel Islands) Ltd; BlackRock (Luxembourg) S.A.; BlackRock (Netherlands) B.V.; BlackRock (Singapore) Limited; BlackRock Advisors (UK) Limited; BlackRock Advisors, LLC; BlackRock Asset Management Canada Limited; BlackRock Asset Management Deutschland AG; BlackRock Asset Management Ireland Limited; BlackRock Asset Management North Asia Limited; BlackRock Asset Management Schweiz AG; BlackRock Capital Management; BlackRock Financial Management, Inc.; BlackRock Fund Advisors; BlackRock Fund Managers Ltd; BlackRock Institutional Trust Company, N.A.; BlackRock International Limited; BlackRock Investment Management (Australia) Limited; BlackRock Investment Management (UK) Ltd; BlackRock Investment Management, LLC; BlackRock Japan Co Ltd; and BlackRock Life Limited. According to the Schedule 13G filing, of the 10,331,709 shares of Lam common stock reported as beneficially owned by BlackRock as of December 31, 2015, BlackRock had sole voting power with

 

Continues on next page   u

 

Lam Research Corporation 2016 Proxy Statement   5


Table of Contents
  respect to 8,837,695 shares, did not have shared voting power with respect to any other shares, had sole dispositive power with respect to 10,331,709 shares and did not have shared dispositive power with respect to any other shares of Lam common stock reported as beneficially owned by BlackRock as of that date.

 

(5) All information regarding Ameriprise Financial, Inc., or “Ameriprise,” is based solely on information disclosed in amendment number three to Schedule 13G filed by Ameriprise with the SEC on February 12, 2016. According to the Schedule 13G filing, of the 8,023,367 shares of Lam common stock reported as beneficially owned by Ameriprise as of December 31, 2015, Ameriprise did not have sole voting power with respect to any shares, and had shared voting power with respect to 7,995,033 shares, did not have sole dispositive power with respect to any other shares and shared dispositive power with respect to 8,023,367 shares of Lam common stock reported as beneficially owned by Ameriprise as of that date. According to the Schedule 13G filing, Ameriprise, as the parent company of Columbia Management Investment Advisers, LLC, or “Columbia,” may be deemed to have, but disclaims, beneficial ownership of the shares reported by Columbia in the Schedule 13G filing.

 

(6) Includes 4,353 shares of common stock held indirectly in a 401(k) plan and 514 shares of common stock held by Mr. Archer’s spouse in her 401(k) plan over which he may be deemed to have beneficial ownership.

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our executive officers, directors, and people who own more than 10% of a registered class of our equity securities to file an initial report of ownership (on a Form 3) and reports on subsequent changes in ownership (on Forms 4 or 5) with the SEC by specified due dates. Our executive officers, directors, and greater-than-10% stockholders are also required by SEC rules

to furnish us with copies of all section 16(a) forms they file. We are required to disclose in this proxy statement any failure to file any of these reports on a timely basis. Based solely on our review of the copies of the forms that we received from the filers, and on written representations from certain reporting persons, we believe that all of these requirements were satisfied during fiscal year 2016.

 

 

6


Table of Contents
    

 

Governance Matters

 

 

Corporate Governance

 

Our board of directors and members of management are committed to responsible corporate governance to manage the Company for the long-term benefit of its stockholders. To that end, the board and management periodically review and update, as appropriate, the Company’s corporate governance policies and practices. As part of that process, the board and management consider the requirements of federal and state law, including rules and regulations of the SEC; the listing standards for the Nasdaq Global Select Market, or “Nasdaq;” published guidelines and recommendations of proxy advisory firms; published guidelines of other selected public companies; and any feedback we receive from our stockholders. A list of key corporate governance practices is provided in the “ Proxy Statement Summary ” above.

Corporate Governance Policies

We have instituted a variety of policies and procedures to foster and maintain responsible corporate governance, including the following:

Board committee charters. Each of the board’s audit, compensation and nominating and governance committees has a written charter adopted by the board that establishes practices and procedures for the committee in accordance with applicable corporate governance rules and regulations. Each committee reviews its charter annually and recommends changes to the board, as appropriate. Each committee charter is available on the investors’ page of our web site at http://investor.lamresearch.com/corporate-governance.cfm . The content on any website referred to in this proxy statement is not a part of or incorporated by reference in this proxy statement unless expressly noted. Also refer to “ Board Committees ” below, for additional information regarding these board committees.

Corporate governance guidelines. We adhere to written corporate governance guidelines, adopted by the board and reviewed annually by the nominating and governance committee and the board. Selected provisions of the guidelines are discussed below, including in the “ Board Nomination Policies and Procedures, ” “ Director Independence Policies ” and “ Other Governance Practices ” sections below. The corporate governance guidelines are available on the investors’ page of our web site at http://investor.lamresearch.com/corporate-governance.cfm .

Corporate code of ethics. We maintain a code of ethics that applies to all employees, officers, and members of the board. The code of ethics establishes standards reasonably

necessary to promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, and full, fair, accurate, timely, and understandable disclosure in the periodic reports we file with the SEC and in other public communications. We will promptly disclose to the public any amendments to, or waivers from, any provision of the code of ethics to the extent required by applicable laws. We intend to make this public disclosure by posting the relevant material on our website, to the extent permitted by applicable laws. A copy of the code of ethics is available on the investors’ page of our website at http://investor.lamresearch.com/corporate-governance.cfm .

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

Insider trading policy. Our insider trading policy restricts the trading of Company stock by our directors, officers, and employees, and includes provisions addressing insider blackout periods and prohibiting hedges and pledges of Company stock.

Board Nomination Policies and Procedures

Board membership criteria. Under our corporate governance guidelines, the nominating and governance committee is responsible for assessing the appropriate balance of experience, skills and characteristics required for the board and for recommending director nominees to the independent directors.

The guidelines direct the committee to consider all factors it considers appropriate. The committee need not consider all of the same factors for every candidate. Factors to be considered may include, but are not limited to: experience; business acumen; wisdom; integrity; judgment; the ability to make independent analytical inquiries; the ability to understand the Company’s business environment; the candidate’s willingness and ability to devote adequate time to board duties; specific skills, background or experience considered necessary or desirable for board or committee service; specific experiences with other businesses or

 

 

Continues on next page   u

 

Lam Research Corporation 2016 Proxy Statement   7


Table of Contents
          

 

organizations that may be relevant to the Company or its industry; diversity with respect to any attribute(s) the board considers appropriate, including geographic, gender, age and ethnic diversity; and the interplay of a candidate’s experiences and skills with those of other board members.

The board and the nominating and governance committee regard board refreshment as important, and strive to maintain an appropriate balance of tenure, turnover, diversity and skills on the board. The board believes that new perspectives and ideas are important to a forward-looking and strategic board as is the ability to benefit from the valuable experience and familiarity of longer-serving directors.

Prior to recommending that an incumbent non-employee director be nominated for reelection to the board, the committee reviews the experiences, skills and qualifications of the directors to assess the continuing relevance of the directors’ experiences, skills and qualifications to those considered necessary or desirable for the board at that time. Board members may not serve on more than four boards of public companies (including service on the Company’s board).

To be nominated, a new or incumbent candidate must provide an irrevocable conditional resignation that will be effective upon (i) the director’s failure to receive the required majority vote at an annual meeting at which the nominee faces re-election and (ii) the board’s acceptance of such resignation. In addition, no director, after having attained the age of 75 years, may be nominated for re-election or reappointment to the board.

Nomination procedure. The nominating and governance committee identifies, screens, evaluates and recommends qualified candidates for appointment or election to the board based on the board’s needs and desires at that time as developed through their self-evaluation process. The committee considers recommendations from a variety of sources, including search firms, board members, executive officers and stockholders. Nominations for election by the stockholders are made by the independent members of the board. See “ Voting Proposals – Proposal No. 1: Election of Existing Directors – 2016 Nominees for Director ” and “ Voting Proposals – Proposal No. 2: Election of Additional Directors – 2016 Nominees for Director ” below for additional information regarding the 2016 candidates for election to the board.

Certain provisions of our bylaws apply to the nomination or recommendation of candidates by a stockholder. Information regarding the nomination procedure is provided in the “ Voting and Meeting Information – Other Meeting Information – Stockholder-Initiated Proposals and Nominations for 2017 Annual Meeting ” section below.

Director Independence Policies

Board independence requirements. Our corporate governance guidelines require that at least a majority of the board members be independent. No director will qualify as “independent” unless the board affirmatively determines that the director qualifies as independent under the Nasdaq rules and has no relationship that would interfere with the exercise of independent judgment as a director. In addition, no non-employee director may serve as a consultant or service provider to the Company without the approval of a majority of the independent directors (and any such director’s independence must be reassessed by the full board following such approval).

Board member independence. The board has determined that all current directors, other than Messrs. Anstice and Newberry, are independent in accordance with Nasdaq criteria for director independence.

Board committee independence. All members of the board’s audit, compensation, and nominating and governance committees must be non-employee or outside directors and independent in accordance with applicable Nasdaq criteria as well as, in the case of the compensation committee, applicable rules under section 162(m) of the Internal Revenue Code of 1986, as amended, or the “Code,” and Rule 16b-3 of the Securities Exchange Act of 1934, as amended, or the “Exchange Act.” See “ Board Committees ” below for additional information regarding these board committees.

Lead independent director. Our corporate governance guidelines authorize the board to designate a lead independent director from among the independent board members. Mr. Talwalkar was appointed the lead independent director, effective August 27, 2015, succeeding Grant Inman, who retired in 2015. See “ Leadership Structure of the Board ” below for information regarding the responsibilities of the lead independent director.

Executive sessions of independent directors. The board and its audit, compensation, and nominating and governance committees hold meetings of the independent directors and committee members, without management present, as part of each regularly scheduled meeting and at any other time at the discretion of the board or committee, as applicable.

Board access to independent advisors. The board as a whole, and each of the board standing committees separately, has the complete authority to retain, at the Company’s expense, and terminate, in their discretion, any independent consultants, counselors, or advisors as they deem necessary or appropriate to fulfill their responsibilities.

 

 

8


Table of Contents
     

 

Board education program. Our corporate governance guidelines provide that directors are expected to participate in educational events sufficient to maintain their understanding of their duties as directors and to enhance their ability to fulfill their responsibilities. In addition to any external educational opportunities that the directors find useful, the Company and the board leadership are expected to facilitate such participation by arranging for appropriate educational content to be incorporated into regular board and committee meetings as well as on a quarterly basis presented by board and/or committee advisors and counsel independent of any content at regular board and committee meetings.

Leadership Structure of the Board

The current leadership structure of the board consists of a chairman and a lead independent director. The chairman, Mr. Newberry, served as chief executive officer of the Company from June 2005 to January 2012. The board believes that this is the appropriate board leadership structure at this time. Lam and its stockholders benefit from having Mr. Newberry as its chairman, as he brings to bear his experience as CEO as well as his other qualifications in carrying out his responsibilities as chairman, which include (i) preparing the agenda for the board meetings with input from the CEO, the board and the committee chairs; (ii) upon invitation, attending meetings of any of the board committees on which he is not a member; (iii) conveying to the CEO, together with the chair of the compensation committee, the results of the CEO’s performance evaluation; (iv) reviewing proposals submitted by stockholders for action at meetings of stockholders and, depending on the subject matter, determining the appropriate body, among the board or any of the board committees, to evaluate each proposal and making recommendations to the board regarding action to be taken in response to such proposal; (v) performing such duties as the board may reasonably assign at the request of the CEO; (vi) performing such other duties as the board may reasonably request from time to time; and (vii) providing reports to the board on the chairman’s activities under his agreement. The Company and its stockholders also benefit from having a lead independent director to provide independent board leadership. The lead independent director is responsible for coordinating the activities of the independent directors; consulting with the chairman regarding matters such as schedules of and agendas for board meetings; the quality, quantity and timeliness of the flow of information from management; the retention of consultants who report directly to the board; and developing the agenda for and moderating executive sessions of the board’s independent directors.

Other Governance Practices

In addition to the principal policies and procedures described above, we have established a variety of other practices to enhance our corporate governance, including the following:

Board and committee assessments. At least once every two years, the board conducts a self-evaluation of the board, its committees, and the individual directors, overseen by the nominating and governance committee.

Director resignation or notification of change in executive officer status. Under our corporate governance guidelines, any director who is also an executive officer of the Company must offer to submit his or her resignation as a director to the board if the director ceases to be an executive officer of the Company. The board may accept or decline the offer, in its discretion. The corporate governance guidelines also require a non-employee director to notify the nominating and governance committee if the director changes or retires from his or her executive position at another company. The nominating and governance committee reviews the appropriateness of the director’s continuing board membership under the circumstances, and the director is expected to act in accordance with the nominating and governance committee’s recommendations.

Director and executive stock ownership. Under the corporate governance guidelines, each director is expected to own at least the lesser of five times the value of the annual cash retainer (not including any committee chair or other supplemental retainers for directors) or 5,000 shares of Lam common stock, by the fifth anniversary of his or her initial election to the board. Guidelines for stock ownership by designated members of the executive management team are described below under “ Compensation Matters – Executive Compensation and Other Information – Compensation Discussion and Analysis .” All of our directors and designated members of our executive management team were in compliance with the Company’s applicable stock ownership guidelines at the end of fiscal year 2016 or have a period of time remaining under the program to do so.

Communications with board members. Any stockholder who wishes to communicate directly with the board of directors, with any board committee or with any individual director regarding the Company may write to the board, the committee or the director c/o Secretary, Lam Research Corporation, 4650 Cushing Parkway, Fremont, California 94538. The secretary will forward all such communications to the appropriate director(s).

Any stockholder, employee, or other person may communicate any complaint regarding any accounting, internal accounting control, or audit matter to the attention of the board’s audit committee by sending written correspondence by mail (to Lam Research Corporation, Attention: Board Audit Committee, P.O. Box 5010, Fremont, California 94537-5010) or by phone (855-208-8578) or internet (through the Company’s third party provider web site at www.lamhelpline.ethicspoint.com) . The audit committee has established procedures to ensure that employee complaints or

 

 

Continues on next page   u

 

Lam Research Corporation 2015 Proxy Statement   9


Table of Contents
          

 

concerns regarding audit or accounting matters will be received and treated anonymously (if the complaint or concern is submitted anonymously and permitted under applicable law).

Meeting Attendance

All of the directors attended at least 75% of the aggregate number of board meetings and meetings of board committees on which they served during their board tenure in fiscal year 2016. Our board of directors held a total of 13 meetings during fiscal year 2016.

We expect our directors to attend the annual meeting of stockholders each year. All individuals who were directors as of the 2015 annual meeting of stockholders attended the 2015 annual meeting of stockholders.

Board Committees

The board of directors has three standing committees: an audit committee, a compensation committee, and a nominating and governance committee. The purpose, membership and charter of each are described below.

Figure 6. Committee Membership

 

Current Committee Memberships
Name   Audit   Compensation   Nominating
and
Governance
Eric K. Brandt   Chair        
Michael R. Cannon   x       x
Youssef A. El-Mansy       x    
Christine A. Heckart         x  (1)        
Catherine P. Lego       Chair  (2)   x
Abhijit Y. Talwalkar             x  (3)   Chair  (4)
Total Number of Meetings Held in FY2016   8   5   6

 

(1)   Ms. Heckart was appointed as a member of the audit committee effective August 27, 2015. Until that time, she served as a member of the compensation committee.

 

(2)   Ms. Lego was appointed as chair of the compensation committee effective August 27, 2015. Until that time, she served as a member of the audit committee.

 

(3)   Mr. Talwalkar served as chair of the compensation committee through August 26, 2015, remaining thereafter as a member of the committee.

 

(4)   Mr. Talwalkar was appointed as a member of the nominating and governance committee effective May 14, 2015 and as chair of the nominating and governance committee effective August 27, 2015.

Audit committee. The purpose of the audit committee is to oversee the Company’s accounting and financial reporting processes and the audits of our financial statements, including the system of internal controls. As part of its responsibilities, the audit committee reviews and oversees the potential conflict of interest situations, transactions required to be

disclosed pursuant to Item 404 of Regulation S-K of the SEC and any other transaction involving an executive or board member. A copy of the audit committee charter is available on the investors’ page of our web site at http://investor.lamresearch.com/corporate-governance.cfm .

The board concluded that all audit committee members are non-employee directors who are independent in accordance with the Nasdaq listing standards and SEC rules for audit committee member independence and that each audit committee member is able to read and understand fundamental financial statements as required by the Nasdaq listing standards. The board also determined that Mr. Brandt, the chair of the committee, is an “audit committee financial expert” as defined in the SEC rules.

Compensation committee. The purpose of the compensation committee is to discharge certain responsibilities of the board relating to executive compensation; to oversee incentive, equity-based plans and other compensatory plans in which the Company’s executive officers and/or directors participate; and to produce an annual report on executive compensation for inclusion as required in the Company’s annual proxy statement. The compensation committee is authorized to perform the responsibilities of the committee referenced above and described in the charter. A copy of the compensation committee charter is available on the investors’ page of our web site at http://investor.lamresearch.com/corporate-governance.cfm .

The board concluded that all members of the compensation committee are non-employee directors who are independent in accordance with Rule 16b-3 of the Exchange Act and the Nasdaq criteria for director and compensation committee member independence and who are outside directors for purposes of section 162(m) of the Code.

Nominating and governance committee. The purpose of the nominating and governance committee is to identify individuals qualified to serve as members of the board of the Company, to recommend nominees for election as directors of the Company, to oversee self-evaluations of the board’s performance, to develop and recommend corporate governance guidelines to the board, and to provide oversight with respect to corporate governance. A copy of the nominating and governance committee charter is available on the investors’ page of our web site at http://investor.lamresearch.com/corporate-governance.cfm .

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

The nominating and governance committee will consider for nomination persons properly nominated by stockholders in accordance with the Company’s bylaws and other procedures described below under “ Voting and Meeting Information –

 

 

10


Table of Contents
     

 

Other Meeting Information – Stockholder-Initiated Proposals and Nominations for 2017 Annual Meeting. ” Subject to then-applicable law, stockholder nominations for director will be evaluated by the Company’s nominating and governance committee in accordance with the same criteria as is applied to candidates identified by the nominating and governance committee or other sources.

Board’s Role in Risk Oversight

The board is actively engaged in risk oversight. Management regularly reports to the board on its risk assessments and risk mitigation strategies for the major risks of our business. Generally, the board exercises its oversight responsibility directly; however, in specific cases, such responsibility has been delegated to board committees. Committees that have

been charged with risk oversight regularly report to the board on those risk matters within their areas of responsibility. Risk oversight responsibility has been delegated to board committees as follows:

 

    Our audit committee oversees risks related to the Company’s accounting and financial reporting, internal controls, and the auditing of our annual financial statements. The audit committee also oversees risks related to our independent registered public accounting firm and our internal audit function.
    Our compensation committee oversees risks related to the Company’s equity, and executive compensation programs and plans.
    Our nominating and governance committee oversees risks related to director independence, board and board committee composition and CEO succession planning.
 

 

 

Director Compensation

 

Our director compensation is designed to attract and retain high caliber directors and to align director interests with those of stockholders. Director compensation is reviewed and determined annually by the board (in the case of Messrs. Newberry and Anstice, by the independent members of the board), upon recommendation from the compensation committee. Non-employee director compensation (including the compensation of Mr. Newberry, who is currently our non-employee chairman) is described below. Mr. Anstice, whose compensation as CEO is described below under “ Compensation Matters – Executive Compensation and Other Information – Compensation Discussion and Analysis, ” does not receive additional compensation for his service on the board.

Non-employee director compensation.  Non-employee directors receive annual cash retainers and equity awards. The chairman of the board, committee chairs, the lead independent director and committee members receive additional cash retainers. Non-employee directors who join the board or a committee midyear receive pro-rated cash retainers and equity awards, as applicable. Our non-employee director compensation program is based on service during the calendar year; however, SEC rules require us to report compensation in this proxy statement on a fiscal-year basis. Cash compensation paid to non-employee directors for the fiscal year ended June 26, 2016 is shown in the table below, together with the annual cash compensation program components in effect for calendar years 2015 and 2016.

Figure 7. Director Annual Retainers

 

Annual Retainers   Calendar
Year 2016
($)
    Calendar
Year 2015
($)
    Fiscal
Year 2016
($)
 
Non-employee Director     65,000        60,000        62,500   
Lead Independent Director     22,500        20,000        21,250   
Chairman     280,000        280,000        280,000   
Audit Committee – Chair     30,000        25,000        27,500   
Audit Committee – Member     12,500        12,500        12,500   
Compensation Committee – Chair     20,000        20,000        20,000   
Compensation Committee – Member     10,000        10,000        10,000   
Nominating and Governance Committee – Chair     15,000        10,000        12,500   
Nominating and Governance Committee – Member     5,000        5,000        5,000   

Each non-employee director also receives an annual equity grant on the first Friday following the annual meeting (or, if the designated date falls within a blackout window under applicable Company policies, on the first following business day such grant is permissible under those policies) with a targeted grant date value equal to $200,000 (the number of RSUs subject to the award is determined by dividing $200,000 by the closing price of a share of Company common stock as of the date of grant, rounded down to the nearest 10 shares). These grants generally vest on October 31 in the

 

 

Continues on next page   u

 

Lam Research Corporation 2015 Proxy Statement   11


Table of Contents
          

 

year following the grant and are subject to the terms and conditions of the Company’s 2015 Stock Incentive Plan, as amended, or the “2015 Plan,” and the applicable award agreements. These grants immediately vest in full: (i) if a non-employee director dies or becomes subject to a “disability” (as determined pursuant to the 2015 Plan), (ii) upon the occurrence of a “Corporate Transaction” (as defined in the 2015 Plan), or (iii) on the date of the annual meeting if the annual meeting during the year in which the award was expected to vest occurs prior to the vest date and the non-employee director is not re-elected or retires or resigns effective immediately prior to the annual meeting. Non-employee directors who commence service after the annual award has been granted receive a pro-rated grant based on the number of regular board meetings remaining in the year as of the date of the director’s election.

On November 6, 2015, each director other than Mr. Anstice, and Dr. Tsai who was not a director during fiscal year 2016, received a grant of 2,600 RSUs for services during calendar year 2016. Unless there is an acceleration event, these RSUs will vest in full on October 31, 2016, subject to the director’s continued service on the board.

Chairman compensation. Mr. Newberry, who served as vice-chairman from December 7, 2010 until November 1, 2012 and since such date has served as chairman, has a chairman’s agreement documenting his responsibilities, described above under “ Governance Matters – Corporate Governance – Leadership Structure of the Board,” and compensation. Mr. Newberry entered into a chairman’s agreement with the Company commencing on January 1, 2016 and expiring on December 31, 2016, subject to the right of earlier termination in certain circumstances and a one year extension upon mutual written agreement of the parties. The agreement provides that Mr. Newberry will serve as chairman (and not as an employee or officer) and in addition to his regular compensation as a non-employee director, he receives an additional cash retainer of $280,000 on the same date.

Mr. Newberry was eligible to participate through 2014 in the Company’s Elective Deferred Compensation Plan that is generally applicable to executives of the Company, subject to the general terms and conditions of such plan. He continues to maintain a balance in the plan until he no longer performs service for the Company as a director but is no longer eligible to defer any compensation into the plan.

The following table shows compensation for fiscal year 2016 for persons serving as directors during fiscal 2016 other than Mr. Anstice:

Figure 8. FY2016 Director Compensation

 

Director Compensation for Fiscal Year 2016  
    Fees
Earned
or Paid
in Cash
($)
    Stock
Awards
($)  (1)(2)
   

All Other
Compen-

sation
($)  (3)

   

Total

($)

 
Stephen G. Newberry     345,000 (4)       196,846        23,962        565,808   
Eric K. Brandt     95,000 (5)       196,846        —          291,846   
Michael R. Cannon     82,500 (6)       196,846        —          279,346   
Youssef A. El-Mansy     75,000 (7)       196,846        23,962        295,808   
Christine A. Heckart     78,625 (8)       196,846        —          275,471   
Grant M. Inman     —   (9)       —          23,962        23,962   
Catherine P. Lego     90,875 (10)       196,846        22,748        310,469   
Krishna C. Saraswat     65,000 (11)       196,846        —          261,846   
William R. Spivey     —   (12)       —          23,962        23,962   
Abhijit Y. Talwalkar     120,500 (13)       196,846        —          317,346   

 

(1)   The amounts shown in this column represent the grant date fair value of unvested RSU awards granted during fiscal year 2016 in accordance with Financial Accounting Standards Board Accounting Standards Codification 718, Compensation – Stock Compensation, or “ASC 718.” However, pursuant to SEC rules, these values are not reduced by an estimate for the probability of forfeiture. The assumptions used to calculate the fair value of the RSUs in fiscal year 2016 are set forth in Note 4 to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the fiscal year ended June 26, 2016.

 

(2)   On November 6, 2015, each non-employee director who was on the board received an annual grant of 2,600 RSUs based on the $76.90 closing price of Lam’s common stock and the target value of $200,000, rounded down to the nearest 10 shares.

 

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

 

(4)   Mr. Newberry received $345,000, representing his $280,000 chairman retainer and $65,000 annual retainer as a director.

 

(5)   Mr. Brandt received $95,000, representing his $65,000 annual retainer and $30,000 as the chair of the audit committee.

 

(6)   Mr. Cannon received $82,500, representing his $65,000 annual retainer, $12,500 as a member of the audit committee, and $5,000 as a member of the nominating and governance committee.

 

(7)   Dr. El-Mansy received $75,000, representing his $65,000 annual retainer and $10,000 as a member of the compensation committee.
 

 

12


Table of Contents
(8)   Ms. Heckart received $78,625, representing her $65,000 annual retainer, $12,500 as a member of the audit committee, and $1,125 as a partial year member of the compensation committee.

 

(9)   Mr. Inman retired in November 2015. All payments to Mr. Inman for the relevant fiscal year were paid in the prior fiscal year period.

 

(10)   Ms. Lego received $90,875, representing her $65,000 annual retainer, $20,000 as a the chair of the compensation committee, $5,000 as a member of the nominating and governance committee, and $875 as a partial year member of the audit committee.

 

(11)   Dr. Saraswat received $65,000, representing his $65,000 annual retainer.

 

(12)   Dr. Spivey retired in November 2015. All payments to Dr. Spivey for the relevant fiscal year were paid in the prior fiscal year period.

 

(13)   Mr. Talwalkar received $120,500, representing his $65,000 annual retainer, $22,500 as lead independent director, $10,000 as a member of the compensation committee, $15,000 as the chair of the nominating and governance committee, and $8,000 as a partial year chair of the compensation committee.

Other benefits. Any members of the board enrolled in the Company’s health plans on or prior to December 31, 2012 can continue to participate after retirement from the board in the Company’s Retiree Health Plans. The board eliminated this benefit for any person who became a director after December 31, 2012. The most recent valuation of the Company’s accumulated post-retirement benefit obligation under Accounting Standards Codification 715, Compensation-

Retirement Benefits , or “ASC 715,” as of June 26, 2016, for eligible former directors and the current directors who may become eligible is shown below. Factors affecting the amount of post-retirement benefit obligation include age at enrollment, age at retirement, coverage tier (e.g., single, plus spouse, plus family), interest rate, and length of service.

Figure 9. FY2016 Accumulated Post-Retirement Benefit Obligations

 

Director Compensation for Fiscal Year 2016  
Name   Accumulated
Post-Retirement
Benefit Obligation,
as of June 26,  2016
($)
 
Stephen G. Newberry     869,000   
Eric K. Brandt     —     
Michael R. Cannon     —     
Youssef A. El-Mansy     574,000   
Christine A. Heckart     —     
Grant M. Inman     438,000   
Catherine P. Lego     496,000   
Krishna C. Saraswat     —     
William R. Spivey     807,000   
Abhijit Y. Talwalkar     —     
 

 

Continues on next page   u

 

Lam Research Corporation 2016 Proxy Statement   13


Table of Contents
    

 

Compensation Matters

 

 

Executive Compensation and Other Information

Compensation Discussion and Analysis

This Compensation Discussion and Analysis, or “CD&A,” describes our executive compensation program. It is organized into the following four sections:

 

I.   Overview of Executive Compensation (Including Our Philosophy and Program Design)
II.   Executive Compensation Governance and Procedures
III.   Primary Components of Named Executive Officer Compensation; Calendar Year 2015 Compensation Payouts; Calendar Year 2016 Compensation Targets and Metrics
IV.   Tax and Accounting Considerations

Our CD&A discusses compensation earned by our fiscal year 2016 “Named Executive Officers,” or “NEOs,” who are as follows:

Figure 10. FY2016 NEOs

 

Named Executive Officer    Position(s)
Martin B. Anstice    President and Chief Executive Officer
Timothy M. Archer    Executive Vice President and Chief Operating Officer
Douglas R. Bettinger    Executive Vice President and Chief Financial Officer
Richard A. Gottscho    Executive Vice President, Global Products
Sarah A. O’Dowd    Senior Vice President, Chief Legal Officer and Secretary

I. OVERVIEW OF EXECUTIVE COMPENSATION

To align with stockholders’ interests, our executive compensation program is designed to foster a pay-for-performance culture and achieve the executive compensation objectives set forth in “ Executive Compensation Philosophy and Program Design – Executive Compensation Philosophy ” below. We have structured our compensation program and payouts to reflect these goals. Our CEO’s compensation in relation to our revenue and net income is shown below.

Figure 11. FY2011-FY2016 CEO Pay for Performance

 

 

LOGO

 

14


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

 

(2) The CEO Total Compensation for fiscal year 2012 reflects Mr. Anstice’s succession of Mr. Newberry as our President and CEO as of January 1, 2012.

 

(3) The CEO Total Compensation for fiscal years 2016, 2015 and 2014 reflects awards covering a three-year performance period as compared to the two-year period in all other prior fiscal years. The one-time 2014 Gap Year Award, with a value of $3,074,271 is reflected in the “ Executive Compensation Tables – Summary Compensation Table ” below, is not included in fiscal year 2014 CEO Total Compensation in order to allow readers to more easily compare compensation in prior and subsequent periods and better reflect the compensation payable in any fiscal year following the transition. See “ III. Primary Components of Named Executive Officer Compensation; Calendar Year 2015 Compensation Payouts; Calendar Year 2016 Compensation Targets and Metrics – Long-Term Incentive Program – Design ” for additional information regarding the impact of the Gap Year Award.

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

 

    Our business, our industry environment and our financial performance; and
    Our executive compensation philosophy and program design.

Our Business, Our Industry Environment and Our Financial Performance

 

 

Lam Research has been an innovative supplier of wafer fabrication equipment and services to the semiconductor industry for more than 35 years. Our customers include semiconductor manufacturers that make memory, microprocessors, and other logic integrated circuits for a wide range of electronics; including cell phones, computers, tablets, storage devices, and networking equipment.

Our market-leading products are designed to help our customers build the smaller, faster and more powerful devices that are necessary to power the capabilities required by end users. The process of integrated circuits fabrication consists of a complex series of process and preparation steps, and our product offerings in deposition, etch and clean address a number of the most critical steps in the fabrication process. We leverage our expertise in semiconductor processing to develop technology and/or productivity solutions that typically benefit our customers through lower defect rates, enhanced yields, faster processing time, and reduced cost as well as by facilitating their ability to meet more stringent performance and design standards.

Although we have a June fiscal year end, our executive compensation program is generally designed and oriented on a calendar-year basis to correspond with our calendar-year-based business planning. This CD&A generally reflects a calendar-year orientation rather than a fiscal year orientation, as shown below. The Executive Compensation Tables at the end of this CD&A are based on our fiscal year, as required by SEC regulations.

Figure 12. Executive Compensation Calendar-Year Orientation

 

LOGO

In calendar year 2015, demand for semiconductor equipment increased relative to calendar year 2014, as technology inflections led to higher investments. Against this backdrop, Lam delivered record financial performance.

Highlights for calendar year 2015:

 

    Achieved record revenues of approximately $5.9 billion for the calendar year, representing a 21% increase over calendar year 2014;
    Generated operating cash flow of approximately $1.2 billion, which represents approximately 21% of revenues;
    Repurchased approximately 3.4 million shares of common stock, returning approximately $259 million to stockholders; and
    Paid approximately $153 million in dividends to stockholders.

In October 2015, we announced an agreement to combine with KLA-Tencor Corporation (“KLA-Tencor”), bringing together Lam’s capabilities in deposition, etch and clean with KLA-Tencor’s portfolio of inspection and metrology solutions.

In the first half of calendar year 2016, investments for wafer fabrication equipment spending have remained solid as customers transition to next generation technology nodes, which are increasingly complex and more costly to produce.

Lam has continued to generate solid operating income and cash generation with revenues of $2.9 billion and cash flows from operations of $607 million earned from the March and June 2016 quarters combined.

 

 

Continues on next page   u

 

Lam Research Corporation 2016 Proxy Statement   15


Table of Contents

Executive Compensation Philosophy and Program Design

 

 

Executive Compensation Philosophy

The philosophy of our compensation committee that guided this year’s awards and payout decisions is that our executive compensation program should:

 

    provide competitive compensation to attract and retain top talent;
    provide total compensation packages that are fair to employees and reward corporate, organizational and individual performance;
    align pay with business objectives while driving exceptional performance;
    optimize value to employees while maintaining cost-effectiveness to the Company;
    create stockholder value over the long term;
    align annual program to short-term performance and long-term program to longer-term performance;
    recognize that a long-term, high-quality management team is a competitive differentiator for Lam, enhancing customer trust/market share and, therefore, stockholder value; and
    provide rewards when results have been demonstrated.

Our compensation committee’s executive compensation objectives are to motivate:

 

    performance that creates long-term stockholder value;
    outstanding performance at the corporate, organization and individual levels; and
    retention of a long-term, high-quality management team.

Program Design

Our program design uses a mix of short- and long-term components, and a mix of cash and equity components. Our executive compensation program includes base salary, an annual incentive program, or “AIP,” and a long-term incentive program, or “LTIP,” as well as stock ownership guidelines and a compensation recovery policy. As illustrated below, our program design is weighted towards performance and stockholder value. The performance-based program components include AIP cash payouts and market-based equity and stock option awards under the LTIP.

 

Figure 13. NEO Compensation Target Pay Mix Averages (1)

 

LOGO

 

(1)   Data for 2016, 2015 and 2014 charts is for the then-applicable NEOs (i.e., fiscal year 2014 NEOs are represented in the 2014 chart, etc.).

 

(2) In 2016, as part of the Company’s LTIP design (in which 50% of the target award opportunity was awarded in Market-based Performance Restricted Stock Units and the remaining 50% in a combination of stock options and service-based RSUs with at least 10% of the award in each of these two vehicles) the percentage of the target award opportunity awarded in stock options and service-based RSUs was 20% and 30%, respectively. In 2015 and 2014, the corresponding percentages awarded in stock options and service-based RSUs were 10% and 40%, respectively. See “ III. Primary Components of Named Executive Officer Compensation; Calendar Year 2015 Compensation Payouts; Calendar Year 2016 Compensation Targets and Metrics – Long-Term Incentive Program-Design” for further information regarding the impact of such a target pay mix.

 

(3) In 2014, the Company issued one-time Gap Year Awards to bridge the transition from a two- to three-year LTIP design. The one-time 2014 Gap Year LTIP equity awards are not included in 2014 target pay in order to allow readers to more easily compare pay mixes relative to future and prior periods. See “ III. Primary Components of Named Executive Officer Compensation; Calendar Year 2015 Compensation Payouts; Calendar Year 2016 Compensation Targets and Metrics – Long-Term Incentive Program-Design ” regarding the impact of the Gap Year Award.

 

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

 

16


Table of Contents

 

Our stock ownership guidelines for our NEOs are shown below. The requirements are specified in the alternative of shares or dollars to allow for stock price volatility. Ownership levels as shown below must be achieved within five years of appointment to one of the below positions. Increased requirements due to promotions or an increase in the

ownership guideline must be achieved within five years of promotion or a change in the guidelines. At the end of fiscal year 2016, all of the NEOs were in compliance with our stock ownership guidelines or have a period of time remaining under the guidelines to meet the required ownership level.

 

 

Figure 14. Executive Stock Ownership Guidelines

 

Position    Guidelines (lesser of)
Chief Executive Officer    5x base salary or 65,000 shares
Executive Vice Presidents    2x base salary or 20,000 shares
Senior Vice Presidents    1x base salary or 10,000 shares

 

Compensation Recovery, or “Clawback” Policy

 

 

Our executive officers covered by section 16 of the Exchange Act are subject to the Company’s compensation recovery, or “clawback,” policy. The clawback policy was adopted in August 2014 and will enable us to recover the excess amount of cash incentive-based compensation issued starting in calendar year 2015 to covered individuals when a material restatement of financial results is required within 36 months of the issuance of the original financial statements. A covered individual’s fraud must have materially contributed to the need to issue restated financial statements in order for the clawback

policy to apply to that individual. The recovery of compensation is not the exclusive remedy available in the event that the clawback policy is triggered.

Highlights of Preferred Compensation-Related Policies, Practices and Provisions

 

 

We maintain preferred policies, practices and provisions related to or in our compensation program, which include the material ones highlighted in “ Proxy Statement Summary – Figure   4. Executive Compensation Highlights .”

 

 

II. EXECUTIVE COMPENSATION GOVERNANCE AND PROCEDURES

 

Role of the Compensation Committee

 

 

Our board of directors has delegated certain responsibilities to the compensation committee, or the “committee,” through a formal charter. The committee (1) oversees the compensation programs in which our chief executive officer and his direct executive and senior vice president reports participate. The independent members of our board of directors approve the compensation packages and payouts for our CEO. The CEO is not present for any decisions regarding his compensation packages and payouts.

Committee responsibilities include, but are not limited to: reviewing and approving the Company’s executive compensation philosophy, objectives and strategies; reviewing and approving the appropriate peer group companies for purposes of evaluating the Company’s compensation competitiveness; causing the board of directors to perform a periodic performance evaluation of the CEO; recommending to the independent members of the board of directors (as determined under both Nasdaq’s listing standards and section 162(m) of the Code) corporate goals and objectives under the

Company’s compensation plans, compensation packages (e.g., annual base salary level, annual cash incentive award, long-term incentive award and any employment agreement, severance arrangement, change-in-control arrangement, equity grant, or special or supplemental benefits, and any material amendment to any of the foregoing) as applicable to the CEO and compensation payouts for the CEO; annually reviewing with the CEO the performance of the Company’s other executive officers in light of the Company’s executive compensation goals and objectives and approving the compensation packages and compensation payouts for such individuals; reviewing and recommending for appropriate board action all cash, equity-based and other compensation packages and compensation payouts applicable to the chairman and other members of the board; and reviewing, and approving where appropriate, equity- based compensation plans.

 

(1)   For purposes of this CD&A, a reference to a compensation action or decision by the committee with respect to our chairman and our president and chief executive officer, means an action or decision by the independent members of our board of directors upon the recommendation of the committee and, in the case of all other NEOs, an action or decision by the compensation committee.
 

 

Continues on next page   u

 

Lam Research Corporation 2016 Proxy Statement   17


Table of Contents

The committee is authorized to delegate such of its authority and responsibilities as the committee deems proper and consistent with legal requirements to members of the committee, any other committee of the board and one or more officers of the Company in accordance with the provisions of the Delaware General Corporation Law. For additional information on the committee’s responsibilities and authorities, see “ Governance Matters – Corporate Governance – Board Committees – Compensation Committee ” above.

In order to carry out these responsibilities, the committee receives and reviews information, analysis and proposals prepared by our management and by the committee’s compensation consultant (see “ Role of Committee Advisors ” below).

Role of Committee Advisors

 

 

The committee is authorized to engage its own independent advisors to assist in carrying out its responsibilities. The committee has engaged the services of Compensia, Inc., or “Compensia,” a national compensation consulting firm, as the committee’s compensation consultant. Compensia provides the committee with independent and objective guidance regarding the amount and types of compensation for our chairman, non-employee directors, and executive officers and how these amounts and types of compensation compare to other companies’ compensation practices, as well as guidance on market trends, evolving regulatory requirements, compensation of our independent directors, peer group composition and other matters as requested by the committee.

Representatives of Compensia regularly attend committee meetings (including executive sessions without management present), communicate with the committee chair outside of meetings, and assist the committee with the preparation of metrics and goals. Compensia reports to the committee, not to management. At the committee’s request, Compensia meets with members of management to gather and discuss information that is relevant to advising the committee. The committee may replace Compensia or hire additional advisors at any time. Compensia has not provided any other services to the committee or to our management and has received no compensation from us other than with respect to the services described above. The committee assessed the independence of Compensia pursuant to SEC rules and Nasdaq listing standards, including the following factors: (1) the absence of other services provided by it to the Company; (2) the fees paid to it by the Company as a percentage of its total revenue; (3) its policies and procedures to prevent conflicts of interest; (4) the absence of any business or personal relationships with committee members; (5) the fact that it does not own any Lam common stock; and (6) the absence of any business or personal relationships with our executive officers. The committee assessed this information and concluded that the work of Compensia had not raised any conflict of interest.

Role of Management

 

 

Our CEO, with support from our human resources and finance organizations, develops recommendations for the compensation of our other executive officers. Typically, these recommendations cover base salaries, annual incentive program target award opportunities, long-term incentive program target award opportunities and the criteria upon which these award opportunities may be earned, as well as actual payout amounts under the annual and long-term incentive programs.

The committee considers the CEO’s recommendations within the context of competitive compensation data, the Company’s compensation philosophy and objectives, current business conditions, the advice of Compensia, and any other factors it considers relevant. At the request of the committee, our chairman also provides input to the committee.

Our CEO attends committee meetings at the request of the committee, but leaves the meeting for any deliberations related to and decisions regarding his own compensation, when the committee meets in executive session, and at any other time requested by the committee.

Peer Group Practices and Survey Data

 

 

In establishing the total compensation levels of our executive officers as well as the mix and weighting of individual compensation elements, the committee monitors compensation data from a group of comparably sized companies in the technology industry, or the “Peer Group,” which may differ from peer groups used by stockholder advisory firms. The committee selects the companies constituting our Peer Group based on their comparability to our lines of business and industry, annual revenue, and market capitalization, and our belief that we are likely to compete with them for executive talent. Our Peer

Group is focused on U.S. based, public semiconductor, semiconductor equipment and materials companies, and similarly sized high-technology equipment and hardware companies with a global presence and a significant investment in research and development. The table below summarizes how the Peer Group companies compare to the Company:

Figure 15. 2016 Peer Group Revenue and Market Capitalization

 

Metric   Lam
Research
($M)
    Target for
Peer Group
  Peer
Group
Median
($M)
 
Revenue (last completed four quarters as of June 3, 2015)     5,027      0.5 to
2 times Lam
    4,730   
Market Capitalization (30-day average as of June 3, 2015)     12,492      0.33 to

times Lam

    11,682   

Based on these criteria, the Peer Group and targets may be modified from time to time. Our Peer Group was reviewed in August 2015 for calendar year 2016 compensation decisions and based on the criteria identified above, the Peer Group was retained without any changes. Our Peer Group consists of the companies listed below.

 

 

18


Table of Contents

Figure 16. CY2016 Peer Group Companies

 

Advanced Micro Devices, Inc.   KLA-Tencor Corporation
Agilent Technologies, Inc.   Marvell Technology Group Ltd
Analog Devices, Inc.   Maxim Integrated Products, Inc.
Applied Materials, Inc.   NetApp, Inc.
Avago Technologies   NVIDIA Corporation
Broadcom Corporation   ON Semiconductor Corporation
Corning Incorporated   SanDisk Corporation
Freescale Semiconductor   Xilinx, Inc.
Juniper Networks, Inc.    

We derive revenue, market capitalization and NEO compensation data from public filings made by our Peer Group companies with the SEC and other publicly available sources. Radford Technology Survey data may be used to supplement compensation data from public filings as needed. The committee reviews compensation practices and selected data on base salary, bonus targets, total cash compensation, equity awards, and total compensation drawn from the Peer Group companies and/or Radford Technology Survey primarily as a reference to ensure compensation packages are consistent with market norms.

Base pay levels for each executive officer are generally set with reference to market competitive levels and in reflection of each officer’s skills, experience and performance. Variable pay target award opportunities and total direct compensation for each executive officer are generally designed to deliver market competitive compensation for the achievement of stretch goals with downside risk for underperforming and upside reward for success. For those executive officers new to their roles, compensation arrangements may be designed to

deliver below market compensation. However, the committee does not “target” pay at any specific percentile. Rather, individual pay positioning depends on a variety of factors, such as prior job performance, job scope and responsibilities, skill set, prior experience, time in position, internal comparisons of pay levels for similar skill levels or positions, our goals to attract and retain executive talent, Company performance and general market conditions.

Assessment of Compensation Risk

 

 

Management, with the assistance of Compensia, the committee’s independent compensation consultant, conducted a compensation risk assessment in 2016 and concluded that the Company’s current employee compensation programs are not reasonably likely to have a material adverse effect on the Company’s business.

2015 Say on Pay Voting Results; Company Response

 

 

We evaluate our executive compensation program annually. Among other things, we consider the outcome of our most recent Say on Pay vote and input we receive from our stockholders. In 2015, our stockholders approved our 2015 advisory vote on executive compensation, with 96.6% of the votes cast in favor of the advisory proposal. We believe that our most recent Say on Pay vote signifies our stockholders’ approval of the changes we made in 2014 to strengthen our pay for performance alignment. We did not make any material changes to our programs and practices in fiscal year 2016. Additionally, we continue to further enhance our disclosure regarding our compensation program and practices.

 

 

III. PRIMARY COMPONENTS OF NAMED EXECUTIVE OFFICER COMPENSATION; CALENDAR YEAR 2015 COMPENSATION PAYOUTS; CALENDAR YEAR 2016 COMPENSATION TARGETS AND METRICS

 

This section describes the components of our executive compensation program. It also describes, for each component, the payouts to our NEOs for calendar year 2015 and the forward-looking actions taken with respect to our NEOs in calendar year 2016.

Base Salary

 

 

We believe the purpose of base salary is to provide competitive compensation to attract and retain top talent and

to provide compensation to employees, including our NEOs, with a fixed and fair amount of compensation for the jobs they perform. Accordingly, we seek to ensure that our base salary levels are competitive in reference to Peer Group practice and market survey data. Adjustments to base salary are generally considered by the committee each year in February.

 

 

Continues on next page   u

 

Lam Research Corporation 2016 Proxy Statement   19


Table of Contents

For calendar years 2016 and 2015, base salaries for NEOs were determined by the committee in February of each year and became effective on March 1 and March 31, respectively, based on the factors described above. In order to remain competitive against our Peer Group, the base salaries for 2016 for Mr. Archer and Dr. Gottscho were increased by 3%, for Mr. Anstice was increased by 3.6%, and for Mr. Bettinger and Ms. O’Dowd were increased by 5%. The base salaries of the NEOs for calendar years 2016 and 2015 are as follows:

Figure 17. NEO Annual Base Salaries

 

Named Executive Officer   Annual Base
Salary as of
March 1, 2016
($)
    Annual Base
Salary as of
March 31, 2015
($)
 
Martin B. Anstice     960,000        927,000   
Timothy M. Archer     636,540        618,000   
Douglas R. Bettinger     567,000        540,000   
Richard A. Gottscho     556,200        540,000   
Sarah A. O’Dowd     448,875        427,500   

Annual Incentive Program

 

 

Design

Our annual incentive program is designed to provide short-term, performance-based compensation that: (i) is based on the achievement of pre-set annual financial, strategic and operational objectives aligned with outstanding performance throughout fluctuating business cycles, and (ii) will allow us to attract and retain top talent, while maintaining cost-effectiveness to the Company. The committee establishes individual target award opportunities for each NEO as a percentage of base salary. Specific target award opportunities are determined based on job scope and responsibilities, as well as an assessment of Peer Group data. Awards have a maximum payment amount defined as a multiple of the target award opportunity. The maximum award for 2015 and 2016 was set at 2.25 times target, consistent with prior years.

Annual incentive program components

Annual incentive program components, each of which plays a role in determining actual payments made, include:

 

    a Funding Factor,
    a Corporate Performance Factor, and
    various Individual Performance Factors.

The Funding Factor is set by the committee to create a maximum payout amount from which annual incentive program payouts may be made. The committee may exercise negative (but not positive) discretion against the Funding Factor result, and generally the entire funded amount is not paid out. Achievement of a minimum level of performance against the Funding Factor goals is required to fund any program payments. In February 2015, for calendar year 2015,

the committee set non-GAAP operating income as a percentage of revenue as the metric for the Funding Factor, with the following goals:

 

    a minimum achievement of 5% non-GAAP operating income as a percentage of revenue was required to fund any program payments, and
    achievement of non-GAAP operating income (as a percentage of revenue) greater than or equal to 20% resulting in the maximum payout potential of 225% of target,
    with actual funding levels interpolated between those points.

The committee selected non-GAAP operating income as a percentage of revenue because it believes that operating income as a percentage of revenue is the performance metric that best reflects core operating results. (2) Non-GAAP operating income is considered useful to investors for analyzing business trends and comparing performance to prior periods. By excluding certain costs and expenses that are not indicative of core results, non-GAAP results are more useful for analyzing business trends over multiple periods.

As a guide for using negative discretion against the Funding Factor results and for making payout decisions, the committee primarily tracks the results of the following two components that are weighted equally in making payout decisions, and against which discretion may be applied in a positive or negative direction, provided the Funding Factor result is not exceeded:

 

    the Corporate Performance Factor, which is based on a corporate-wide metric and goals that are designed to be a stretch that apply to all NEOs; and
    the Individual Performance Factors, which are designed to be stretch goals and are based on organization-specific metrics and individual performance that apply to each individual NEO. In addition, in assessing individual performance, the CEO considers the performance of the whole executive team.

The specific metrics and goals, and their relative weightings, for the Corporate Performance Factor are determined by the committee based upon the recommendation of our CEO, and the Individual Performance Factors are determined by our CEO, or in the case of the CEO, by the committee.

 

 

(2)   Non-GAAP results are designed to provide information about performance without the impact of certain non-recurring and other non-operating line items. Non-GAAP operating income is derived from GAAP results, with charges and credits in the following line items excluded from GAAP results for applicable quarters during fiscal years 2016 and 2015: restructuring charges; acquisition-related costs; costs associated with rationalization of certain product configurations; amortization related to intangible assets acquired in the Novellus Systems, Inc. transaction; acquisition-related inventory fair value impact; impairment of a long-lived asset; impairment of goodwill; costs associated with campus consolidation; and gain on sale of assets, net of associated exit costs.
 

 

20


Table of Contents

The metrics and goals for the Corporate and Individual Performance Factors are set annually. Goals are set depending on the business environment, to ensure that they are stretch goals regardless of changes in the business environment. Accordingly, as business conditions improve, goals are set to require better performance, and as business conditions deteriorate, goals are set to require stretch performance under more difficult conditions.

We believe that, over time, outstanding business results create stockholder value. Consistent with this belief, multiple

performance-based metrics (non-GAAP operating income, product market share, and strategic operational and organizational metrics) are established for our NEOs as part of the Corporate and Individual Performance Factors.

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

 

 

Figure 18. Annual Incentive Program Payouts

 

Calendar
Year
   Average NEO’s
Annual Incentive
Payout as % of Target
Award  Opportunity
     Business Environment
2015      159       Strong operating performance and expansion of served available markets, supported by stable economic conditions. Robust demand for semiconductor equipment driven by both capacity and technology investments.
2014      127       Strong operating performance and supported by stable economic conditions and healthy demand for semiconductor equipment; Company growth in various growing industry technology inflections
2013      105       Healthy demand for semiconductor equipment with stable economic conditions and favorable supply demand conditions; delivered on annualized cost savings targets defined in integration plans

 

Calendar year 2015 annual incentive program parameters and payout decisions

In February 2015, the committee set the calendar year 2015 target award opportunity and established the metrics and goals for the Funding Factor, the metrics and annual goals for the Corporate Performance Factor, and the metrics and goals for the Individual Performance Factors for each NEO were established. In February 2016, the committee considered the actual results under these factors and made payout decisions for the calendar year 2015 program, all as described below.

2015 Annual Incentive Program Target Award Opportunities. The annual incentive program target award opportunities for calendar year 2015 for each NEO were as set forth in Figure 19 below in accordance with the principles set forth above under “ Executive Compensation Governance and Procedures – Peer Group Practices and Survey Data .”

2015 Annual Incentive Program Corporate Performance Factor. In February 2015, the committee set non-GAAP operating income as a percentage of revenue as the metric for the calendar year 2015 Corporate Performance Factor, and set:

 

    a goal of 19% of revenue for the year, which was designed to be a stretch goal, and which would result in a Corporate Performance Factor of 1.00;
    a minimum Corporate Performance Factor of 0.10 for any payout; and
    a maximum Corporate Performance Factor of 1.50 for the maximum payout.

These goals were designed to be stretch goals. Actual non-GAAP operating income as a percentage of revenue was 21.6% for calendar year 2015. This performance resulted in a total Corporate Performance Factor for calendar year 2015 of 1.26.

2015 Annual Incentive Program Organization/Individual Performance Factor. For 2015, the organization-specific performance metrics and goals for each NEO’s Individual Performance Factor were set on an annual basis, and were designed to be stretch goals. The Individual Performance Factor for Mr. Anstice for calendar year 2015 was based on the average of the Individual Performance Factors of all of the executive and senior vice presidents reporting to him. For all other NEOs, their respective Individual Performance Factors were based on market share and/or strategic, operational and organizational performance goals specific to the organizations they managed, as described in more detail below.

The accomplishments of actual individual performance against the established goals described below during 2015 were considered.

 

    Mr. Archer’s Individual Performance Factor for calendar year 2015 was based on the accomplishment of market share, and strategic, operational and organizational development goals for the global sales organization, the customer support business group and global operations.
    Mr. Bettinger’s Individual Performance Factor for calendar year 2015 was based on the accomplishment of strategic, operational and organizational development goals for finance, global information systems and investor relations.
 

 

Continues on next page   u

 

Lam Research Corporation 2016 Proxy Statement   21


Table of Contents
    Dr. Gottscho’s Individual Performance Factor for calendar year 2015 was based on the accomplishment of market share, and strategic, operational and organizational development goals for the product groups – deposition, etch, and clean.
    Ms. O’Dowd’s Individual Performance Factor for calendar year 2015 was based on the accomplishment of strategic, operational and organizational development goals for the legal department.

In consideration of the above accomplishments, as well as the teamwork demonstrated to deliver the overall strong company

performance in 2015, the committee exercised discretion such that each NEO received an Individual Performance Factor of 1.26 (equal to the Corporate Performance Factor) for the 2015 calendar year.

2015 Annual Incentive Program Payout Decisions. In February 2016, in light of the Funding Factor results and based on the above results and decisions, the committee approved the following payouts for the calendar year 2015 annual incentive program for each NEO, which were substantially less than the maximum payout available under the Funding Factor:

 

 

Figure 19. CY2015 Annual Incentive Program Payouts

 

Named Executive Officer    Target Award
Opportunity
(% of Base Salary)
     Target Award
Opportunity
($)  (1)
     Maximum Payout under
Funding Factor (225.0% of
Target Award Opportunity)
($) (2)
     Actual
Payouts
($)
 
Martin B. Anstice      150         1,390,500         3,128,625         2,207,558   
Timothy M. Archer      110         679,800         1,529,550         1,079,250   
Douglas R. Bettinger      90         486,000         1,093,500         771,574   
Richard A. Gottscho      90         486,000         1,093,500         771,574   
Sarah A. O’Dowd      80         342,000         769,500         542,959   

 

(1)   Calculated by multiplying each NEO’s annual base salary for the calendar year 2015 by his or her respective target award opportunity percentage.

 

(2) The Funding Factor resulted in a potential payout of up to 225.0% of target award opportunity for the calendar year (based on the actual non-GAAP operating income percentage results detailed under “ 2015 Annual Incentive Program Corporate Performance Factor ” above and the specific goals set forth in the second paragraph under “ Annual incentive program components ” above).

 

22


Table of Contents

Calendar year 2016 annual incentive program parameters

In February 2016, the committee set the target award opportunity for each NEO as a percentage of base salary, and consistent with prior years set a cap on payments equal to 2.25 times the target award opportunity. The target award opportunity for each NEO is shown below.

Figure 20. CY2016 Annual Incentive Program Target Award Opportunities

 

Named Executive Officer   Target Award
Opportunity
(% of Base Salary)
 
Martin B. Anstice     150   
Timothy M. Archer     110   
Douglas R. Bettinger     90   
Richard A. Gottscho     90   
Sarah A. O’Dowd     80   

The committee also approved the annual metric for the Funding Factor and for the Corporate Performance Factor as non-GAAP operating income as a percentage of revenue, and set the annual goals for the Funding Factor and also the Corporate Performance Factor. Consistent with the program design, the Corporate Performance Factor goal is more difficult to achieve than the Funding Factor goal. Individual Performance Factor metrics and goals were also established for each NEO. These include strategic and operational performance goals specific to individuals and their business organization. As a result, each NEO has multiple performance metrics and goals under this program. All Corporate and Individual Performance Factor goals were designed to be stretch goals.

Long-Term Incentive Program

 

 

Design

Our long-term incentive program, or “LTIP,” is designed to attract and retain top talent, provide competitive levels of compensation, align pay with achievement of business objectives and with stock performance over a multi-year period, reward our NEOs for outstanding Company performance and create stockholder value over the long term. Our LTIP was redesigned in February 2014 to further those objectives by: (i) establishing a program entirely composed of equity, (ii) introducing a new LTIP vehicle, a Market-Based Performance Restricted Stock Unit, or “Market-Based PRSU,” designed to reward eligible participants based on our stock price performance relative to the Philadelphia Semiconductor Sector Index (SOX), or “SOX index,” (iii)

differentiating the metric in our LTIP from the absolute operational performance metrics used for the annual incentive program, and (iv) extending the performance period for the LTIP from two to three years.

As a result, the LTIP now operates on overlapping three-year cycles, whereas prior to 2014, it operated on overlapping two-year cycles. In 2014, this change would have left participants with a gap in long-term incentive vesting opportunity in 2016. To ensure that participants received a long-term award that vested in 2016, the committee also awarded in 2014 a one-time gap year award with a two-year performance period, or the “Gap Year Award.” The target amount awarded under the Gap Year Award was equal to 50% of the target award opportunity under the regular three-year LTIP award. While the impact on the employee from the extended performance period and the Gap Year Award, assuming performance and target opportunities are the same year after year, was to normalize the received compensation in any year, the impact on the Company from such normalization (visible in “ Figure 28. Summary Compensation Table ” and “ Figure 31. FYE2016 Outstanding Equity Awards ” below), was a higher grant-based compensation expense in fiscal year 2014. This is in addition to the impact on the total compensation figures in the Company’s “ Summary Compensation Table ” in fiscal years 2014 and 2015 from the long-term cash awards, which ceased being awarded in fiscal year 2013 but were not paid out until fiscal year 2015, under the previously designed programs for our performance during the relevant periods.

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

 

 

Continues on next page   u

 

Lam Research Corporation 2016 Proxy Statement   23


Table of Contents

Equity Vehicles

The equity vehicles used in our 2016/2018 long-term incentive program are as follows:

Figure 21. 2016/2018 LTIP Program Equity Vehicles

 

Equity
Vehicles
   % of Target
Award
Opportunity
     Terms
Market-Based PRSUs      50      

  Awards cliff vest three years from the March 1, 2016 grant date, or “Grant Date,” subject to satisfaction of minimal performance requirement and continued employment. Cliff, rather than annual, vesting provides for both retention and for aligning NEOs with longer-term stockholder interests.

 

  The performance period for Market-Based PRSUs is three years from the first business day in February (February 1, 2016 through January 31, 2019).

 

  The number of shares represented by the Market-Based PRSUs that can be earned over the performance period is based on our stock price performance compared to the market price performance of the Philadelphia Semiconductor Sector Index (SOX), subject to the below-referenced ceiling. The stock price performance or market price performance is measured using the closing price for the 50 trading days prior to the dates the performance period begins and ends. The target number of shares represented by the Market-Based PRSUs is increased by 2% of target for each 1% that Lam’s stock price performance exceeds the market price performance of the SOX index; similarly, the target number of shares represented by the Market-Based PRSUs is decreased by 2% of target for each 1% that Lam’s stock price performance trails the market price performance of the SOX index. The result of the vesting formula is rounded down to the nearest whole number. A table reflecting the potential payouts depending on various comparative results is shown in Figure 22 below.

 

  The final award cannot exceed 150% of target (requiring a positive percentage change in the Company’s stock price performance compared to that of the market price performance of the SOX index equal to or greater than 25 percentage points) and can be as little as 0% of target (requiring a percentage change in the Company’s stock price performance compared to that of the market price performance of the SOX index equal to or lesser than negative 50 percentage points).

 

  The number of Market-Based PRSUs granted was determined by dividing 50% of the target opportunity by the 30-day average of the closing price of our common stock prior to the Grant Date, $69.12, rounded down to the nearest share.

 

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

Stock Options      20      

  Awards vest one-third on the first, second and third anniversaries of the March 1, 2016 grant date, or “Grant Date,” subject to continued employment.

 

  The number of stock options granted is determined by dividing 20% of the target opportunity by the 30-day average of the closing price of our common stock prior to the Grant Date, $69.12, rounded down to the nearest share and multiplying the result by three. The ratio of three options for every RSU is based on a Black Scholes fair value accounting analysis.

 

  Awards are exercisable upon vesting.

 

  Expiration is on the seventh anniversary of the Grant Date.

RSUs      30      

  Awards vest one-third on the first, second and third anniversaries of the March 1, 2016 grant date, or “Grant Date,” subject to continued employment.

 

  The number of RSUs granted is determined by dividing 30% of the target opportunity by the 30-day average of the closing price of our common stock prior to the Grant Date, $69.12, rounded down to the nearest share.

 

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

 

24


Table of Contents

Figure 22. Market-Based PRSU Vesting Summary

 

% Change in Lam’s Stock Price
Performance Compared to % Change in
SOX Index Market Price Performance
  Market-Based PRSUs
That Can Be Earned
(% of Target)  (1)
 
+ 25% or more     150   
10%     120   
0% (equal to index)     100   
-10%     80   
-25%     50   
- 50% or less     0   

 

(1)   As set forth in the third bullet of the first row of Figure 21, the results of the vesting formula (reflecting the number of Market-Based PRSUs that can be earned) are linearly interpolated between the stated percentages using the described formula.

Target Award Opportunity

Under the long-term incentive program, the committee sets a target award opportunity for each participant based on the NEO’s position and responsibilities and an assessment of competitive compensation data. The target award opportunities for each participant are expressed in a U.S. dollar value. The target amounts for each NEO under the program cycles affecting fiscal year 2016 are as follows:

Figure 23. LTIP Target Award Opportunities

 

Named Executive Officer   Long-
Term
Incentive
Program
     Target Award
Opportunity
($)
 
    2016/2018 (1)        7,500,000   
Martin B. Anstice     2015/2017 (2)        6,750,000   
      2014/2016 (3)        6,500,000   
    2016/2018 (1)        4,000,000   
Timothy M. Archer     2015/2017 (2)        3,500,000   
      2014/2016 (3)        3,000,000   
    2016/2018 (1)        2,750,000   
Douglas R. Bettinger     2015/2017 (2)        2,500,000   
      2014/2016 (3)        2,500,000   
    2016/2018 (1)        3,250,000   
Richard A. Gottscho     2015/2017 (2)        3,000,000   
      2014/2016 (3)        2,500,000   
    2016/2018 (1)        1,400,000   
Sarah A. O’Dowd     2015/2017 (2)        1,300,000   
      2014/2016 (3)        1,300,000   

 

(1)   The three-year performance period for the 2016/2018 LTIP began on February 1, 2016 and ends on January 31, 2019.

 

(2)   The three-year performance period for the 2015/2017 LTIP began on February 2, 2015 and ends on February 1, 2018.

 

(3)   The three-year performance period for the 2014/2016 LTIP began on February 18, 2014 and ends on February 17, 2017. The 2014
  Gap Year Award (with a performance period that began on February 18, 2014 and that ended on February 17, 2016, and target award opportunities for each participant of 50% of his or her 2014/2016 LTIP target award opportunity) is not included.

Calendar Year 2014 Gap Year Award Parameters and Payouts

On February 18, 2014, the committee granted to each NEO as part of the one-time calendar year 2014 Gap Year Awards, or “Gap Year Awards,” Market-Based PRSUs, and service-based RSUs and stock options with a combined value equal to 50% of the NEO’s total target award opportunity under the calendar year 2014/2016 long-term incentive program, as shown below. Each of these awards cliff vested two years from the grant date. These awards were made as part of the transition from two-year vesting to three-year vesting and to normalize the received compensation in any year.

Figure 24. Gap Year Awards

 

Named Executive Officer   Target
Award
Opportunity
($)
    Market-
Based
PRSUs
Award  (1)
(#)
   

Service-
Based

RSUs

Award
(#)

   

Stock

Options

Award
(#)

 
Martin B. Anstice     3,250,000        31,394        25,115        18,834   
Timothy M. Archer     1,500,000        14,489        11,591        8,691   
Douglas R. Bettinger     1,250,000        12,074        9,659        7,242   
Richard A. Gottscho     1,250,000        12,074        9,659        7,242   
Sarah A. O’Dowd     650,000        6,278        5,023        3,765   

 

(1)   The number of Market-Based PRSUs awarded is reflected at target. The final number of shares that may have been earned is 0% to 150% of target as shown in Figure 25 below.

In February 2016, the committee determined the payouts for the calendar year 2014 Gap Year Awards of Market-Based PRSUs awarded to the NEOs on February 18, 2014. The number of shares represented by the Market-Based PRSUs earned over the performance period was based on our stock price performance compared to the market price performance of the SOX index, subject to the below-referenced ceiling. In each case, the stock / index price performance was measured using the closing price for the 50-trading days prior to the dates the performance period began and ended. The target number of shares represented by the Market-Based PRSUs increased by 2% of target for each 1% that Lam’s stock price performance exceeded the market price performance of the SOX index; similarly, the target number of shares represented by the Market-Based PRSUs decreased by 2% of target for each 1% that Lam’s stock price performance trailed the market price performance of the SOX index. The result of the vesting formula was rounded down to the nearest whole number. There was a ceiling but no floor to the number of shares that may have been earned under the Market-Based PRSUs: the payment amount could not exceed 150% of target (which would have required a percentage change in the Company’s stock price performance compared to that of the

 

 

Continues on next page   u

 

Lam Research Corporation 2016 Proxy Statement   25


Table of Contents

market price performance of the SOX index equal to or greater than positive 25 percentage points) and could have been 0% of target (requiring a percentage change in the Company’s stock price performance compared to that of the market price performance of the SOX index equal to or lesser than negative 50 percentage points).

Based on the above formula, the Company’s stock price performance over the two-year performance period was equal to 39.18% and the market price performance of the SOX index over the same two-year performance period was equal to 18.15%. Given that Lam’s stock price outperformed the market price of the SOX index by 21.03%, the number of shares represented by the Market-Based PRSUs was equal to 142.06% (100% plus twice the 21.03% of outperformance) of the target number of Market-Based PRSUs granted to each NEO. Based on such results, the committee made the following payouts to each NEO for the Gap Year Award of Market-Based PRSUs.

Figure 25. Gap Year Market-Based PRSU Award Payouts

 

Named Executive
Officer
 

Target
Market-

Based
PRSUs  (1)
(#)

   

Maximum
Payout of
Market-

Based
PRSUs

(150% of
Target Award
Opportunity)
(#)

    Actual
Payout of
Market-
Based
PRSUs
(142.06% of
Target Award
Opportunity)
(#)
 
Martin B. Anstice     31,394        47,091        44,598   
Timothy M. Archer     14,489        21,734        20,583   
Douglas R. Bettinger     12,074        18,111        17,152   
Richard A. Gottscho     12,074        18,111        17,152   
Sarah A. O’Dowd     6,278        9,417        8,918   

 

(1)   The number of Market-Based PRSUs awarded is reflected at target. The final number of shares that may have been earned is equal to 0% to 150% of target.

Calendar Year 2016 LTIP Awards

Calendar year 2016 decisions for the 2016/2018 long-term incentive program. On March 1, 2016, the committee made a grant under the 2016/2018 long-term incentive program, of Market-Based PRSUs, stock options and service-based RSUs on the terms set forth in Figure 21 above with a combined value equal to the NEO’s total target award opportunity, as shown in the following table.

Figure 26. 2016/2018 LTIP Awards

 

Named Executive Officer   Target
Award
Opportunity
($)
    Market-
Based
PRSUs
Award  (1)
(#)
    Stock
Options
Award
(#)
    Service-
Based
RSUs
Award
(#)
 
Martin B. Anstice     7,500,000        54,253        65,103        32,552   
Timothy M. Archer     4,000,000        28,935        34,722        17,361   
Douglas R. Bettinger     2,750,000        19,892        23,871        11,935   
Richard A. Gottscho     3,250,000        23,509        28,209        14,105   
Sarah A. O’Dowd     1,400,000        10,127        12,150        6,076   

 

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

Employment / Change in Control Arrangements

 

 

The Company enters into employment / change in control agreements to help attract and retain our NEOs and believes that these agreements facilitate a smooth transaction and transition planning in connection with change in control events. Because Mr. Anstice’s prior agreement terminated in December 2014 and the committee wanted to align the terms and dates of all executive agreements, effective January 2015, the Company entered into new employment agreements with Messrs. Anstice, Archer and Bettinger and Dr. Gottscho, and a new change in control agreement with Ms. O’Dowd. The employment agreements generally provide for designated payments in the event of an involuntary termination of employment, death or disability, as such terms are defined in the applicable agreements. The employment agreements, and also the change in control agreements, generally provide for designated payments in the case of a change in control when coupled with an involuntary termination (i.e., a double trigger is required before payment is made due to a change in control), as such terms are defined in the applicable agreements.

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

Other Benefits Not Available to All Employees

 

 

Elective Deferred Compensation Plan

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

 

 

26


Table of Contents

Supplemental Health and Welfare

We provide certain health and welfare benefits not generally available to other employees, including the payment of premiums for supplemental long-term disability insurance and Company-provided coverage in the amount of $1 million for both life and accidental death and dismemberment insurance for all NEOs. Until January 1, 2013, the Company also provided an executive medical, dental, and vision reimbursement program that reimbursed NEOs’ cost of medical, dental, and vision expenses in excess of the regular employee plans through the end of 2012.

We also provide post-retirement medical and dental insurance coverage for eligible former executive officers under our Retiree Health Plans, subject to certain eligibility requirements. The program was closed to executive officers who joined the Company or became executive officers through promotion effective on or after January 1, 2013. We have an independent actuarial valuation of post-retirement benefits for eligible NEOs conducted annually in accordance with

generally accepted accounting principles. The most recent valuation was conducted in June 2016 and reflected the following retirement benefit obligation for the NEOs:

Figure 27. NEO Post-Retirement Benefit Obligations

 

Named Executive Officer   As of
June 26, 2016
($)
 
Martin B. Anstice     542,000   
Timothy M. Archer     598,000   
Douglas R. Bettinger (1)     —     
Richard A. Gottscho     627,000   
Sarah A. O’Dowd     510,000   

 

(1)   Mr. Bettinger was not eligible to participate because he was not an employee of the Company prior to the termination of the program.
 

 

IV. TAX AND ACCOUNTING CONSIDERATIONS

 

Deductibility of Executive Compensation

 

 

Section 162(m) of the Internal Revenue Code of 1986, as amended, or the “Code,” imposes limitations on the deductibility for federal income tax purposes of compensation in excess of $1 million paid to our chief executive officer, and any of our three other most highly compensated executive officers (other than our chief financial officer) in a single tax year. Generally, compensation in excess of $1 million may only be deducted if it is qualified as “performance-based compensation” within the meaning of the Code.

The committee monitors the application of section 162(m) and the associated Treasury regulations and considers the advisability of qualifying our executive compensation for deductibility of such compensation. The committee’s policy is to qualify our executive compensation for deductibility under applicable tax laws to the extent practicable and where the committee believes it is in the best interests of the Company and the Company’s stockholders.

When we design our executive compensation programs, we take into account whether a particular form of compensation will qualify as “performance-based” for purposes of section 162(m).

To facilitate the deductibility of compensation payments under section 162(m):

 

    in fiscal year 2004, we initially adopted the Executive Incentive Plan, or “EIP,” and obtained stockholder approval for the EIP at that time. We most recently received stockholder approval for the EIP at our last annual meeting.
    in fiscal year 2016, we initially adopted the Lam 2015 Stock Incentive Plan, or “SIP” and obtained stockholder approval for the SIP at our last annual meeting.

The annual program awards to our NEOs are generally administrated under the AIP and intended to qualify for deductibility under section 162(m) to the extent practicable.

Consistent with the EIP or SIP and the regulations under section 162(m), compensation income realized upon the exercise of stock options generally will be deductible because the awards are granted by a committee whose members are outside directors and the other conditions of the 162(m) are satisfied. However, compensation associated with RSUs may not be deductible unless vesting is based on specific performance goals (such as with the Market-Based PRSUs) and the other conditions of the EIP or SIP (as applicable) are satisfied. Therefore, compensation income realized upon the vesting of service-based RSUs or upon the vesting of equity awards not meeting the conditions required by the EIP or SIP are not deductible to the Company to the extent that the 162(m) compensation threshold is exceeded.

Taxation of “Parachute” Payments

 

 

Sections 280G and 4999 of the Code provide that “disqualified individuals” within the meaning of the Code (which generally includes certain officers, directors and employees of the Company) may be subject to additional tax if they receive payments or benefits in connection with a change in control of the Company that exceed certain prescribed limits. The Company or its successor may also forfeit a deduction on the amounts subject to this additional tax.

 

 

Continues on next page   u

 

Lam Research Corporation 2016 Proxy Statement   27


Table of Contents

We did not provide any of our executive officers, any director, or any other service provider with a “gross-up” or other reimbursement payment for any tax liability that the individual might owe as a result of the application of sections 280G or 4999 during fiscal year 2016, and we have not agreed and are not otherwise obligated to provide any individual with such a “gross-up” or other reimbursement as a result of the application of sections 280G and 4999.

Internal Revenue Code Section 409A

 

 

Section 409A of the Code imposes significant additional taxes on an executive officer, director, or service provider that receives non-compliant “deferred compensation” that is within the scope of section 409A. Among other things, section 409A potentially applies to the cash awards under the LTIP, the Elective Deferred Compensation Plan, certain equity awards, and severance arrangements.

To assist our employees in avoiding additional taxes under section 409A, we have structured the LTIP, the Elective Deferred Compensation Plan, and our equity awards in a manner intended to qualify them for exclusion from, or compliance with, section 409A.

Accounting for Stock-Based Compensation

 

 

We follow Financial Accounting Standards Board Accounting Standards Codification Topic 718, or “ASC 718,” for accounting for our stock options and other stock-based awards. ASC 718 requires companies to calculate the grant date “fair value” of their stock option grants and other equity awards using a variety of assumptions. This calculation is performed for accounting purposes. ASC 718 also requires companies to recognize the compensation cost of stock option

grants and other stock-based awards in their income statements over the period that an employee is required to render service in exchange for the option or other equity award.

Compensation Committee Report

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

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

MEMBERS OF THE COMPENSATION COMMITTEE

Youssef A. El-Mansy

Catherine P. Lego (Chair)

Abhijit Y. Talwalkar

Compensation Committee Interlocks and Insider Participation

None of the compensation committee members has ever been an officer or employee of Lam Research. No interlocking relationship exists as of the date of this proxy statement or existed during fiscal year 2016 between any member of our compensation committee and any member of any other company’s board of directors or compensation committee.

 

 

28


Table of Contents

Executive Compensation Tables

The following tables (Figures 28-33) show compensation information for our named executive officers:

Figure 28. Summary Compensation Table

 

Summary Compensation Table  
Name and Principal Position   Fiscal
Year
    Salary
($)
    Bonus
($)
    Stock
Awards
($) (1)
    Options
Awards
($) (2)
    Non-Equity
Incentive Plan
Compensation
($) (3)
    All Other
Compensation
($) (4)
    Total
($)
 

Martin B. Anstice

President and

Chief Executive Officer

    2016        937,789        —          6,175,315        1,224,848        2,207,558 (7)       10,521        10,556,031   
    2015        906,646        —          5,849,027        558,635        3,839,904 (8)       10,527        11,164,739   
    2014        803,846        —          8,298,569        897,137        4,978,689 (9)       30,977        15,009,218   

Timothy M. Archer

Executive Vice President and
Chief Operating Officer

    2016        624,061        —          3,293,501        653,260        1,079,250 (7)       10,689        5,660,761   
    2015        604,431        —          3,032,808        289,658        2,114,132 (10)       10,543        6,051,572   
    2014        580,769        1,000,000 (5)       3,830,003        414,012        3,034,681 (11)       30,521        8,889,985   

Douglas R. Bettinger

Executive Vice President and
Chief Financial Officer

    2016        548,827        —          2,264,175        449,109        771,574 (7)       8,080        4,041,765   
    2015        528,692        —          2,166,214        206,870        1,450,547 (12)       8,017        4,360,340   
    2014        494,231        —          3,191,636        344,994        1,484,487 (13)       22,961        5,538,309   

Richard A. Gottscho

Executive Vice President,
Global Products

    2016        545,296        9,600 (6)       2,675,862        606,262        771,574 (7)       9,082        4,617,676   
    2015        528,692        5,867 (6)       2,599,550        312,531        1,482,521 (14)       9,398        4,938,559   
    2014        475,000        —          3,191,636        441,128        2,109,623 (15)       23,059        6,240,446   
Sarah A. O’Dowd
Senior Vice President, Chief
Legal Officer and Secretary
    2016        434,488        —          1,152,683        261,125        542,959 (7)       7,259        2,398,514   
    2015        418,077        —          1,126,410        135,357        956,427 (16)       7,551        2,643,822   
    2014        408,077        —          1,659,629        229,365        1,371,075 (17)       26,364        3,694,509   

 

(1)   The amounts shown in this column represent the value of service-based and market-based performace RSU awards, under the LTIP (for fiscal year 2014, this includes the calendar year 2014/2016 LTIP award and the Gap Year Award (a one-time award discussed in further detail in the “ Long-Term Incentive Program – Design ” section above)), granted in accordance with ASC 718. However, pursuant to SEC rules, these values are not reduced by an estimate for the probability of forfeiture. The assumptions used to calculate the fair value of the RSUs in fiscal year 2016 are set forth in Note 4 to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the fiscal year ended June 26, 2016. For additional details regarding the grants see “FY2016 Grants of Plan-Based Awards ” table below.

 

(2)   The amounts shown in this column represent the value of the stock option awards granted, under the LTIP (for fiscal year 2014, this includes the calendar year 2014/2016 LTIP award and the Gap Year Award (a one-time award discussed in further detail in the “ Long-Term Incentive Program – Design ” section above)), in accordance with ASC 718. However, pursuant to SEC rules, these values are not reduced by an estimate for the probability of forfeiture. The assumption used to calculate the fair value of stock options in fiscal year 2016 are set forth in Note 4 to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the fiscal year ended June 26, 2016. For additional details regarding the grants see “FY2016 Grants of Plan-Based Awards ” table below.

 

(3)   Includes the long-term cash awards, which ceased in calendar year 2015 (as discussed in further detail in the “ Long-Term Incentive Program – Design ” section above), under the previously designed long-term incentive programs for our performance during the relevant periods.

 

(4)   Please refer to “FY2016 All Other Compensation Table ” which immediately follows this table, for additional information.

 

(5)   Represents a retention bonus pursuant to the terms of his employment agreement (effective June 4, 2012), or “ Archer Employment Agreement ,” entered into in connection with the acquisition of Novellus Systems, Inc.

 

(6)   Represents patent awards.

 

(7)   Represents the amount earned by and subsequently paid under the calendar year 2015 Annual Incentive Program, or “AIP.”

 

(8)   Represents $1,708,290 earned by and subsequently paid to Mr. Anstice under the calendar year 2014 Annual Incentive Program, or “AIP,” and $2,131,614 accrued on his behalf for the performance during fiscal year 2015 under the calendar year 2013/2014 Long-Term Incentive Program, or “LTIP-Cash.” Mr. Anstice has received the amounts accrued under the calendar year 2013/2014 LTIP-Cash.

 

(9)   Represents $1,155,041 earned by and subsequently paid to Mr. Anstice under the calendar year 2013 AIP, $857,186 accrued on his behalf for the performance during fiscal year 2014 under the calendar year 2012/2013 Long-Term Incentive Program, or “LTIP-Cash,” and $2,966,462 accrued on his behalf for the performance during fiscal year 2014 under the calendar year 2013/2014 LTIP-Cash. Mr. Anstice has received the amount accrued under the calendar year 2012/2013 LTIP-Cash and 2013/2014 LTIP-Cash.

 

(10)   Represents $835,164 earned by and subsequently paid to Mr. Archer under the calendar year 2014 AIP and $1,278,968 accrued on his behalf for the performance during fiscal year 2015 under the calendar year 2013/2014 Long-Term Incentive Program, or “LTIP-Cash.” Mr. Archer has received the amount accrued under the calendar year 2013/2014 LTIP-Cash.

 

(11)   Represents $642,528 earned by and subsequently paid to Mr. Archer under the calendar year 2013 AIP, $612,276 accrued on his behalf for the performance during fiscal year 2014 under the calendar year 2012/2013 Long-Term Incentive Program, or “LTIP-Cash,” and $1,779,877 accrued on his behalf for the performance during fiscal year 2014 under the calendar year 2013/2014 LTIP-Cash. Mr. Archer has received the amount accrued under the calendar year 2012/2013 LTIP-Cash and 2013/2014 LTIP-Cash.

 

Continues on next page   u

 

Lam Research Corporation 2016 Proxy Statement   29


Table of Contents
(12)   Represents $597,902 earned by and subsequently paid to Mr. Bettinger under the calendar year 2014 AIP and $852,645 accrued on his behalf for the performance during fiscal year 2015 under the calendar year 2013/2014 Long-Term Incentive Program, or “LTIP-Cash.” Mr. Bettinger has received the amount accrued under the calendar year 2013/2014 LTIP-Cash.

 

(13)   Represents $297,902 earned by and subsequently paid to Mr. Bettinger under the calendar year 2013 AIP, and $1,186,585 accrued on his behalf for the performance during fiscal year 2014 under the calendar year 2013/2014 Long-Term Incentive Program, or “LTIP-Cash.” Mr. Bettinger has received the amounts accrued under the calendar year 2013/2014 LTIP-Cash.

 

(14)   Represents $597,902 earned by and subsequently paid to Dr. Gottscho under the calendar year 2014 AIP and $884,619 accrued on his behalf for the performance during fiscal year 2015 under the calendar year 2013/2014 Long-Term Incentive Program, or “LTIP-Cash.” Dr. Gottscho has received the amount accrued under the calendar year 2013/2014 LTIP-Cash.

 

(15)   Represents $486,685 earned by and subsequently paid to Dr. Gottscho under the calendar year 2013 AIP, $391,857 accrued on his behalf for the performance during fiscal year 2014 under the calendar year 2012/2013 Long-Term Incentive Program, or “LTIP-Cash,” and $1,231,082 accrued on his behalf for the performance during fiscal year 2014 under the calendar year 2013/2014 LTIP-Cash. Dr. Gottscho has received the amount accrued under the calendar year 2012/2013 LTIP-Cash and 2013/2014 LTIP-Cash.

 

(16)   Represents $420,113 earned by and subsequently paid to Ms. O’Dowd under the calendar year 2014 AIP and $536,314 accrued on her behalf for the performance during fiscal year 2015 under the calendar year 2013/2014 Long-Term Incentive Program, or “LTIP-Cash.” Ms. O’Dowd has received the amount accrued under the calendar year 2013/2014 LTIP-Cash.

 

(17)   Represents $318,575 earned by and subsequently paid to Ms. O’Dowd under the calendar year 2013 AIP, $306,138 accrued on her behalf for the performance during fiscal year 2014 under the calendar year 2012/2013 Long-Term Incentive Program, or “LTIP-Cash,” and $746,362 accrued on her behalf for the performance during fiscal year 2014 under the calendar year 2013/2014 LTIP-Cash. Ms. O’Dowd has received the amount accrued under the calendar year 2012/2013 LTIP-Cash and 2013/2014 LTIP-Cash.

Figure 29. FY2016 All Other Compensation Table

 

All Other Compensation Table for Fiscal Year 2016  
   

Company Matching
Contribution to

the Company’s
Section 401(k) Plan
($)

   

Company
Paid Long-Term
Disability Insurance
Premiums (1)

($)

    Company
Paid Life
Insurance
Premiums  (2)
($)
    Company
Contribution to the
Elective Deferred
Compensation Plan
($)
    Total
($)
 
Martin B. Anstice     8,038        —          —          2,483        10,521   
Timothy M. Archer     8,189        —          —          2,500        10,689   
Douglas R. Bettinger     8,080        —          —          —          8,080   
Richard A. Gottscho     7,908        1,174        —          —          9,082   
Sarah A. O’Dowd     4,572        —          187        2,500        7,259   

 

(1)   Represents the portion of supplemental long-term disability insurance premiums paid by Lam.

 

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

 

30


Table of Contents

Figure 30. FY2016 Grants of Plan-Based Awards

 

Grants of Plan-Based Awards for Fiscal Year 2016  
                Estimated Future
Payouts Under Non-

Equity Incentive
Plan Awards
    Estimated Future
Payouts Under

Equity Incentive
Plan Awards
    All Other
Stock
Awards:
Number
of Shares
of Stock
    All Other
Option
Awards:
Number of
Securities
Underlying
    Exercise
or Base
Price of
Option
    Grant
Date Fair
Value of
Stock
and
Option
 
Name  

Award

Type

  Grant
Date
  Approved
Date
  Target
($) (1)
    Maximum
($) (1)
    Target
(#) (2)
    Maximum
(#) (2)
    or Units
(#)
    Options
(#)
    Awards
($/Sh)
    Awards
($) (3)
 
Martin B. Anstice   Annual Incentive Program   N/A   2/18/16     1,440,000        3,240,000        —          —          —          —          —          —     
  LTIP-Equity                                                                        
 

Market-Based PRSUs

  3/1/16   2/18/16                     54,253 (4)       81,379 (4)       —          —          —          3,829,177   
 

Service-Based RSUs

  3/1/16   2/18/16                     —          —          32,552 (5)       —          —          2,346,138   
 

Stock Options

  3/1/16   2/18/16                     —          —          —          65,103 (6)       75.57        1,224,848   
Timothy M. Archer   Annual Incentive Program   N/A   2/17/16     700,194        1,575,437        —          —          —          —          —          —     
  LTIP-Equity                                                                        
 

Market-Based PRSUs

  3/1/16   2/17/16                     28,935 (4)       43,402 (4)       —          —          —          2,042,232   
 

Service-Based RSUs

  3/1/16   2/17/16                     —          —          17,361 (5)       —          —          1,251,269   
 

Stock Options

  3/1/16   2/17/16                     —          —          —          34,722 (6)       75.57        653,260   
Douglas R. Bettinger   Annual Incentive Program   N/A   2/17/16     510,300        1,148,175        —          —          —          —          —          —     
  LTIP-Equity                                                                        
 

Market-Based PRSUs

  3/1/16   2/17/16                     19,892 (4)       29,838 (4)       —          —          —          1,403,977   
 

Service-Based RSUs

  3/1/16   2/17/16                     —          —          11,935 (5)       —          —          860,198   
 

Stock Options

  3/1/16   2/17/16                     —          —          —          23,871 (6)       75.57        449,109   
Richard A. Gottscho   Annual Incentive Program   N/A   2/17/16     500,580        1,126,305        —          —          —          —          —          —     
  LTIP-Equity                                                                        
 

Market-Based PRSUs

  3/1/16   2/17/16                     23,509 (4)       35,263 (4)       —          —          —          1,659,265   
 

Service-Based RSUs

  3/1/16   2/17/16                     —          —          14,105 (5)       —          —          1,016,597   
 

Stock Options

  3/1/16   2/17/16                     —          —          —          28,209 (6)       75.57        606,262   
Sarah A. O’Dowd   Annual Incentive Program   N/A   2/17/16     359,100        807,975        —          —          —          —          —          —     
  LTIP-Equity                                                                        
 

Market-Based PRSUs

  3/1/16   2/17/16                     10,127 (4)       15,190 (4)       —          —          —          714,764   
 

Service-Based RSUs

  3/1/16   2/17/16                     —          —          6,076 (5)       —          —          437,919   
 

Stock Options

  3/1/16   2/17/16                     —          —          —          12,150 (6)       75.57        261,125   

 

(1)   The AIP target and maximum estimated future payouts reflected in this table were calculated using the base salary approved in February 2016, effective as of March 2016. Award payouts range from 0% to 225% of target.

 

(2)   The amounts reported in the Estimated Future Payouts Under Equity Incentive Plan Awards columns represent the target and maximum number (150% of target) of Market-Based PRSUs that may be paid out to the NEOs on the terms described in “ Executive Compensation and Other Information – Compensation Discussion and Analysis ” above. Award payouts range from 0% to 150% of target.

 

(3)   The amounts shown in this column represent the value of service-based and market-based performance RSU and stock option awards granted during fiscal year 2016 in accordance with ASC 718. However, pursuant to SEC rules, these values are not reduced by an estimate for the probability of forfeiture. The assumptions used to calculate the fair value of the service-based or market-based performance RSU in fiscal year 2016 are set forth in Note 4 to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the fiscal year ended June 26, 2016.

 

(4)   The Market-Based PRSUs vest on March 1, 2019, subject to continued employment. The actual conversion of Market-Based PRSUs into shares of Lam common stock following the conclusion of the three-year performance period will range from 0% to 150% of the target amount, depending upon Lam’s stock price performance compared to the market price performance of the SOX index over the applicable three-year performance period.

 

(5)   One-third of the RSUs will vest on March 1 of each of 2017, 2018 and 2019, subject to continued employment.

 

(6)   One-third of the stock options will become exercisable on March 1 of each of 2017, 2018 and 2019, subject to continued employment.

 

Continues on next page   u

 

Lam Research Corporation 2016 Proxy Statement   31


Table of Contents

Figure 31. FYE2016 Outstanding Equity Awards

 

Outstanding Equity Awards at 2016 Fiscal Year-End  
    Option Awards     Stock Awards  
Name   Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
    Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
    Option
Exercise
Price
($)
    Option
Expiration
Date
    Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
    Market
Value
of Shares or
Units of
Stock
That Have
Not
Vested
($)  (1)
   

Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units

or Other Rights
That Have Not
Vested
(#)

   

Equity

Incentive
Plan Awards:
Market or
Payout Value of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested ($)  (1)

 

Martin B. Anstice

            65,103 (2)       75.57        3/1/23                                   
                                    32,552 (3)       2,678,379                   
                                                    54,253 (4)       4,463,937   
    8,374 (5)       16,748 (5)       80.60        2/11/22                                   
                                    22,332 (6)       1,837,477                   
                                                    41,873 (7)       3,445,310   
    12,557 (8)       12,557 (8)       51.76        2/18/21                                   
                                    16,744 (9)       1,377,696                   
                                                    62,789 (10)       5,166,279   
    18,834 (11)               51.76        2/18/21                                   
Timothy M. Archer             34,722 (2)       75.57        3/1/23                                   
                                    17,361 (3)       1,428,463                   
                                                    28,935 (4)       2,380,772   
    4,342 (5)       8,684 (5)       80.60        2/11/22                                   
                                    11,580 (6)       952,802                   
                                                    21,712 (7)       1,786,463   
    11,590 (8)       5,795 (8)       51.76        2/18/21                                   
                                    7,728 (9)       635,860                   
                                                    28,979 (10)       2,384,392   
    8,691 (11)               51.76        2/18/21                                   
    52,803 (12)               42.61        2/8/20                                   
    40,500 (13)               29.34        12/16/20                                   
Douglas R. Bettinger             23,871 (2)       75.57        3/1/23                                   
                                    11,935 (3)       982,012                   
                                                    19,892 (4)       1,636,714   
    3,101 (5)       6,202 (5)       80.60        2/11/22                                   
                                    8,271 (6)       680,538                   
                                                    15,508 (7)       1,275,998   
    4,829 (8)       4,829 (8)       51.76        2/18/21                                   
                                    6,440 (9)       529,883                   
                                                    24,149 (10)       1,986,980   
    7,242 (11)               51.76        2/18/21                                   
Richard A. Gottscho             28,209 (2)       75.57        3/1/23                                   
                                    14,105 (3)       1,160,559                   
                                                    23,509 (4)       1,934,321   
    3,722 (5)       7,444 (5)       80.60        2/11/22                                   
                                    9,926 (6)       816,711                   
                                                    18,610 (7)       1,531,231   
    9,658 (8)       4,829 (8)       51.76        2/18/21                                   
                                    6,440 (9)       529,883                   
                                                    24,149 (10)       1,986,980   
    7,242 (11)               51.76        2/18/21                                   
      36,522 (12)               42.61        2/8/20                                   

 

32


Table of Contents
Outstanding Equity Awards at 2016 Fiscal Year-End  
    Option Awards     Stock Awards  
Name   Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
    Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
    Option
Exercise
Price
($)
    Option
Expiration
Date
    Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
    Market
Value
of Shares or
Units of
Stock
That Have
Not
Vested
($)  (1)
   

Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units

or Other Rights
That Have Not
Vested
(#)

   

Equity

Incentive
Plan Awards:
Market or
Payout Value of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested ($)  (1)

 
Sarah A. O’Dowd             12,150 (2)       75.57        3/1/23                                   
                                    6,076 (3)       499,933                   
                                                    10,127 (4)       833,250   
    1,612 (5)       3,224 (5)       80.60        2/11/22                                   
                                    4,301 (6)       353,886                   
                                                    8,064 (7)       663,506   
    5,022 (8)       2,511 (8)       51.76        2/18/21                                   
                                    3,349 (9)       275,556                   
                                                    12,557 (10)       1,033,190   
    3,765 (11)               51.76        2/18/21                                   
      22,140 (12)               42.61        2/8/20                                   

 

(1)   Calculated by multiplying the number of unvested shares by $82.28, the closing price per share of our common stock on June 24, 2016.

 

(2)   The stock options were granted on March 1, 2016. One-third of the stock options will become exercisable on March 1 of each 2017, 2018 and 2019, subject to continued employment.

 

(3)   The RSUs were granted on March 1, 2016. One-third of the RSUs will vest on March 1 of each of 2017, 2018 and 2019, subject to continued employment.

 

(4)   The Market-Based PRSUs are shown at their target amount. The actual conversion of the Market-Based PRSUs into shares of Lam common stock following the conclusion of the three-year performance period will range from 0% to 150% of that target amount, depending upon Lam’s stock price performance compared to the market price performance of the SOX index over the applicable three-year performance period. The Market-Based PRSUs were granted on March 1, 2016. The Market-Based PRSUs will vest on March 1, 2019, subject to continued employment.

 

(5)   The stock options were granted on February 11, 2015. As of the 2016 fiscal year end, one-third of the stock options had become exercisable. One-third of the stock options will become exercisable on February 11 of each of 2017 and 2018, subject to continued employment.

 

(6)   The RSUs were granted on February 11, 2015. As of the 2016 fiscal year end, one-third of the RSUs vested. One-third of the RSUs will vest on February 11 of each of 2017 and 2018, subject to continued employment.

 

(7)   The Market-Based PRSUs are shown at their target amount. The actual conversion of the Market-Based PRSUs into shares of Lam common stock following the conclusion of the three-year performance period will range from 0% to 150% of that target amount, depending upon Lam’s stock price performance compared to the market price performance of the SOX index over the applicable three-year performance period. The Market-Based PRSUs were granted on February 11, 2015. The Market-Based PRSUs will vest on February 11, 2018, subject to continued employment.

 

(8)   Stock options were granted on February 18, 2014. As of the 2016 fiscal year end, two-thirds of the stock options had become exercisable. One-third of the stock options will become exercisable on February 18, 2017, subject to continued employment.

 

(9)   RSUs were granted on February 18, 2014. As of the 2016 fiscal year-end, two-thirds of the RSUs had vested. One-third of the RSUs will vest on February 18, 2017, subject to continued employment.

 

(10)   Market-Based PRSUs are shown at their target amount. The actual conversion of the Market-Based PRSUs into shares of Lam common stock following the conclusion of the three-year performance period will range from 0% to 150% of that target amount, depending upon Lam’s stock price performance compared to the market price performance of the SOX index over the applicable three-year performance period. The Market-Based PRSUs were granted on February 18, 2014. The Market-Based PRSUs will vest on February 18, 2017, subject to continued employment.

 

(11)   Stock options were granted as part of the Gap Year Award on February 18, 2014. As of the 2016 fiscal year end, the stock options granted on February 18, 2014 as part of the Gap Year Award had become exercisable.

 

(12)   Stock options were granted on February 8, 2013. As of the 2016 fiscal year-end, the stock options granted on February 8, 2013 had become exercisable.

 

(13)   Stock options were granted on December 16, 2010. As of the 2016 fiscal year-end, the stock options granted on December 16, 2010 had become exercisable.

 

Continues on next page   u

 

Lam Research Corporation 2016 Proxy Statement   33


Table of Contents

Figure 32. FY2016 Option Exercises and Stock Vested

 

Option Exercises and Stock Vested for Fiscal Year 2016 (1)  
    Option Awards     Stock Awards  
Name   Number of
Shares
Acquired on
Exercise
(#)
    Value
Realized on
Exercise
($)
    Number of
Shares
Acquired on
Vesting
(#)
    Value
Realized on
Vesting
($)
 
Martin B. Anstice     —          —          97,623        6,576,160   
Timothy M. Archer     —          —          45,691        3,075,870   
Douglas R. Bettinger     —          —          37,386        2,518,929   
Richard A. Gottscho     —          —          38,213        2,572,030   
Sarah A. O’Dowd     —          —          19,440        1,309,795   

 

(1)   The table shows all stock options exercised and the value realized upon exercise, and all stock awards vested and the value realized upon vesting, by the NEOs during fiscal year 2016, which ended on June 26, 2016.

Figure 33. FY2016 Non-Qualified Deferred Compensation

 

Non-Qualified Deferred Compensation for Fiscal Year 2016  
Name   Executive
Contributions
in FY 2016
($) (1)
    Registrant
Contributions
in FY 2016
($) (2)
    Aggregate
Earnings in
FY 2016
($) (3)
    Aggregate
Balance at
FYE 2016
($) (4)
 
Martin B. Anstice     84,344        2,483        (92,757     4,612,613   
Timothy M. Archer     425,922        2,500        (107,946     3,963,166   
Douglas R. Bettinger     263        —          (113,906     1,431,125   
Richard A. Gottscho     —          —          31,784        1,933,263   
Sarah A. O’Dowd     791,006        2,500        (8,947     6,761,806   

 

(1)   The entire amount of each executive’s contributions in fiscal year 2016 is reported in each respective NEO’s compensation in our fiscal year 2016 “ Summary Compensation Table .”

 

(2)   Represents the amount that Lam credited to the Elective Deferred Compensation Plan, the “EDCP,” which is 3% of Executive Salary Contribution during calendar year 2015, to a maximum benefit of $2,500. These amounts are included in the “ Summary Compensation Table ” and “ All Other Compensation Table For Fiscal Year 2016 .”

 

(3)   The NEOs did not receive above-market or preferential earnings in fiscal year 2016.

 

(4)   The fiscal year-end balance includes $4,618,543 for Mr. Anstice, $3,642,690 for Mr. Archer, $1,544,768 for Mr. Bettinger, $1,901,479 for Dr. Gottscho, and $5,977,247 for Ms. O’Dowd that were previously reported in the “ Non-Qualified Deferred Compensation for Fiscal Year 2015 ” table in our 2015 proxy statement.

 

Potential Payments upon Termination or Change in Control

 

 

The following is a summary of the employment agreements of our named executive officers.

Executive Employment Agreements

Martin B. Anstice.  The Company and Mr. Anstice entered into an employment agreement, or the “agreement,” effective January 1, 2015, for a term ending on December 31, 2017, subject to the right of the Company or Mr. Anstice, under certain circumstances, to terminate the agreement prior to such time. This agreement replaced the prior agreement that ended on December 31, 2014.

Under the terms of the agreement, Mr. Anstice receives a base salary, which is reviewed annually and potentially

adjusted. It was initially set at the beginning of the term of the agreement at $900,000. Mr. Anstice is also entitled to participate in any short-term or long-term variable compensation programs offered by the Company to its executive officers generally, subject to the applicable terms and conditions of those programs and the approval of the independent members of the board, and to participate in the Company’s Elective Deferred Compensation Plan. Mr. Anstice receives other benefits, such as health insurance, paid time off (as his schedule permits), and benefits under other plans and programs generally applicable to executive officers of the Company.

If an Involuntary Termination (as defined in Mr. Anstice’s agreement) of Mr. Anstice’s employment occurs, other than in connection with a Change in Control (as defined in Mr. Anstice’s agreement), Mr. Anstice will be entitled to: (1) a

 

 

34


Table of Contents

lump-sum cash payment equal to 18 months of his then-current base salary, plus an amount equal to the average of the last five annual payments made to Mr. Anstice under the short term variable compensation or any predecessor or successor programs (the “Short Term Program,” and such average, the “Five Year Average Amount”), plus an amount equal to the pro-rata amount he would have earned under the Short Term Program for the calendar year in which his employment is terminated had his employment continued until the end of such calendar year, such pro-rata portion to be calculated based on the performance results achieved under the Short Term program and the number of full months elapsed prior to the termination date; (2) payment of any amounts accrued as of the date of termination under any long-term, cash-based variable-compensation programs of the Company (the “Long Term Cash Programs”); (3) certain medical benefits; (4) a cash payment equal to a product of (x) a pro rata portion (based on time of service as of the date of termination) of the unvested Market-Based PRSU/performance-based RSU awards granted to Mr. Anstice as adjusted for the Company’s performance (calculated as set forth in the award agreements) over the time of service and (y) the closing stock price on the date of termination; and (5) vesting, as of the date of termination, of a pro rata portion of the unvested stock option or RSU awards that are not performance based granted to Mr. Anstice at least 12 months prior to the termination date.

If a Change in Control of the Company (as defined in Mr. Anstice’s agreement) occurs during the period of Mr. Anstice’s employment, and if there is an Involuntary Termination of Mr. Anstice’s employment either in contemplation of or within the 18 months following the Change in Control, Mr. Anstice will be entitled to: a lump-sum cash payment equal to 24 months of Mr. Anstice’s then-current base salary, plus an amount equal to two times the Five Year Average Amount, plus an additional amount equal to a pro rata amount (based on the number of full months worked during the calendar year during which the termination occurs) of the Five Year Average Amount; certain medical benefits; conversion of any Market-Based PRSUs/performance-based RSUs outstanding as of the Change in Control into a cash award payable at time of termination equal to the sum of: (x) a pro rata portion (based on time of service as of the date of termination) of the unvested Market-Based PRSU/performance-based RSU awards granted to Mr. Anstice as adjusted for the Company’s performance (calculated as set forth in the award agreements) over the time of service and (y) the remainder of the pro-rata portion of unvested Market-Based PRSU/performance-based RSU awards at target; vesting, as of the date of termination, of the unvested stock option or RSU awards that are not performance-based granted to Mr. Anstice prior to the Change in Control; and payment of any amounts accrued as of the Change in Control under any then existing Long Term Cash Programs, plus an amount equal to the remaining target amount under any then existing Long Term Cash Programs.

If Mr. Anstice’s employment is terminated due to disability or in the event of his death, Mr. Anstice (or his estate) will be entitled to: (1) the pro rata amount he would have earned under the Short Term Program for the calendar year in which his employment is terminated had his employment continued until the end of such calendar year, such pro rata portion to be calculated based on the performance results achieved under the Short Term Program and the number of full months elapsed prior to the termination date; (2) payment of any amounts accrued as of the date of termination under any then existing Long Term Cash Programs; (3) certain medical benefits; (4) vesting, as of the date of termination, of 50% of the unvested stock option, and RSU awards, which are not performance based, granted to Mr. Anstice prior to the date of termination (or a pro rata amount, based on period of service, if greater than 50%); and (5) vesting, as of the date of termination, of 50% of the Market-Based PRSU/performance-based RSU awards (or a pro rata amount, based on period of service, if greater than 50%) as adjusted for the Company’s performance during the service period (in either case) granted to Mr. Anstice prior to the date of termination.

If Mr. Anstice voluntarily resigns, he will be entitled to no additional benefits (except as he may be eligible for under the Company’s Retiree Health Plans); stock options, RSUs and Market-Based PRSUs/performance-based RSUs will cease to vest on the termination date; and stock options will be cancelled unless they are exercised within 90 days after the termination date. All RSUs and Market-Based PRSUs/performance-based RSUs will be cancelled on the termination date.

Mr. Anstice’s agreement also subjects Mr. Anstice to customary confidentiality and non-competition obligations during the term of the agreement, the application of the Company’s compensation recovery or clawback policy to any compensation, and non-solicitation obligations for a period of six months following the termination of his employment. The agreement also requires Mr. Anstice to execute a release in favor of the Company to receive the payments described above.

Timothy M. Archer.  The Company and Mr. Archer entered into an employment agreement, or the “agreement,” effective January 1, 2015, for a term ending on December 31, 2017, subject to the right of the Company or Mr. Archer, under certain circumstances, to terminate the agreement prior to such time. The agreement replaced the employment agreement between the parties that was effective on June 4, 2012 and amended on January 30, 2014. The terms of Mr. Archer’s agreement are substantively similar to those of Mr. Anstice’s agreement, except that Mr. Archer’s initial base salary at the beginning of the term of the agreement was set at $600,000.

The severance terms of Mr. Archer’s agreement are generally similar to those of Mr. Anstice’s agreement, provided that (1)

 

 

Continues on next page   u

 

Lam Research Corporation 2016 Proxy Statement   35


Table of Contents

Mr. Archer will receive 12-months base salary instead of 18 months in the event of his Involuntary Termination; and (2) instead of a payment of the Five Year Average Amount, he will receive a payment of 50% of the Five Year Average Amount. The Change in Control terms of Mr. Archer’s agreement are generally similar to those of Mr. Anstice’s agreement, provided that Mr. Archer will receive 18-months base salary instead of 24 months in the event of his Involuntary Termination.

Douglas R. Bettinger.  The Company and Mr. Bettinger entered into an employment agreement, or the “agreement,” with a term commencing on January 1, 2015 and ending on December 31, 2017, subject to the right of the Company or Mr. Bettinger, under certain circumstances, to terminate the agreement prior to such time. The agreement replaced the employment agreement between the parties that was effective on March 11, 2013 and amended on January 30, 2014. The terms of Mr. Bettinger’s agreement are substantively similar to those of Mr. Archer’s agreement, with the following material difference: Mr. Bettinger’s initial base salary at the beginning of the term of the agreement was set at $525,000.

The severance terms of Mr. Bettinger’s agreement are generally similar to those of Mr. Archer’s agreement, provided that in computing the Five Year Average Amount any partial year short-term plan payments in any year shall be annualized, and if employed for less than five years, then computed based on such fewer number of years. The Change in Control terms of Mr. Bettinger’s agreement are generally similar to those of Mr. Archer’s agreement.

Richard A. Gottscho . The Company and Dr. Gottscho entered into an employment agreement, or the “agreement,” effective January 1, 2015, for a term ending on December 31, 2017, subject to the right of the Company or Dr. Gottscho, under certain circumstances, to terminate the agreement prior to such time. The agreement replaced the employment agreement between the parties that was effective on July 18, 2012 and amended on January 30, 2014. The terms of Dr. Gottscho’s agreement are substantively similar to those of Mr. Archer’s agreement with the following material difference: under Dr. Gottscho’s agreement, his initial base salary at the beginning of the term of the agreement was set at $525,000. The severance and Change in Control terms of Dr. Gottscho’s agreement are also generally similar to those of Mr. Archer’s agreement.

Other Executive Agreements

The Company entered into a change in control agreement with Ms. O’Dowd effective January 1, 2015, or the “agreement,” for a term ending on December 31, 2017, subject to the right of the Company or Ms. O’Dowd, under certain circumstances, to

terminate the agreement prior to such time. The agreement replaced a change in control agreement between the parties that was effective on July 18, 2012 and amended on January 30, 2014. The agreement provides that if a change in control (as defined in Ms. O’Dowd’s agreement) of the Company occurs during the period of her employment under the agreement, and there is an Involuntary Termination (as defined in her agreement) of her employment, Ms. O’Dowd will be entitled to payments and benefits substantively similar to those contained in the change in control provisions of Mr. Archer’s agreement.

The change in control agreements contain confidentiality, non-competition, and non-solicitation terms that are substantively similar to those of Mr. Anstice’s, Mr. Archer’s, Mr. Bettinger’s and Dr. Gottscho’s agreements, and require Ms. O’Dowd to execute a release in favor of the Company to receive the payments described in the previous paragraph.

Equity Plans

In addition to the above, certain of our stock plans provide for accelerated benefits after certain events. While the applicable triggers under each plan vary, these events generally include: (i) a merger or consolidation in which the Company is not the surviving entity, (ii) a sale of substantially all of the Company’s assets, including a liquidation or dissolution of the Company, or (iii) a change in the ownership of more than 50% of our outstanding securities by tender offer or similar transaction. After a designated event, the vesting of some or all of awards granted under these plans may be immediately accelerated in full, or certain awards may be assumed, substituted, replaced or settled in cash by a surviving corporation or its parent. The specific treatment of awards in a particular transaction will be determined by the board and/or the terms of the applicable transaction documents.

Potential Payments to Named Executive Officers upon Termination or Change in Control

The tables below summarize the potential payments to our NEOs, assuming a change in control of the Company as of the end of fiscal year 2016. These amounts are calculated assuming that the employment termination or change in control occurs on the last day of fiscal year 2016, June 26, 2016. The closing price per share of our common stock on June 24, 2016, which was the last trading day of fiscal year 2016, was $82.28. The short-term incentive program pro-rata amounts are calculated by multiplying the applicable pro-rata percentage by the target. Actual performance will not be known until the end of calendar year 2016. Our board has determined that, if consummated, the KLA-Tencor merger will be considered a change in control under our employment and change in control agreements (discussed above for our NEOs).

 

 

36


Table of Contents

Figures 34 – 38.

Potential Payments to NEOs upon Termination or Change in Control as of FYE2016

 

Potential Payments to Mr. Anstice upon Termination or Change in Control as of June 26, 2016  
          Involuntary Termination  
    Voluntary
Termination
($)
    Disability
or Death
($)
    For
Cause
($)
    Not for
Cause
($)
    Change in
Control
($)
 

Compensation

                                       
Severance     —          —          —          1,440,000        1,920,000   
Short-term Incentive (5-year average)     —          —          —          1,272,731        2,545,462   
Short-term Incentive (pro rata)     —          600,480        —          600,480        530,729   
Long-term Incentives:                                        

Stock Options (Unvested and Accelerated)

    —          353,201        —          132,436        848,217   

Service-Based Restricted Stock Units (Unvested and Accelerated)

    —          2,257,791        —          765,478        5,893,552   

Performance-Based Restricted Stock Units (Unvested and Accelerated)

    —          10,001,015        —          8,221,339        15,037,967   

Benefits and Perquisites

                                       
Health Benefit Continuation/COBRA Benefit     —          21,447        —          21,447        21,447   

Total

    —          13,233,934        —          12,453,911        26,797,374   

 

Potential Payments to Mr. Archer upon Termination or Change in Control as of June 26, 2016  
          Involuntary Termination  
    Voluntary
Termination
($)
    Disability
or Death
($)
    For
Cause
($)
    Not for
Cause
($)
    Change in
Control
($)
 

Compensation

                                       
Severance     —                  —          636,540        954,810   
Short-term Incentive (5-year average)     —                  —          400,156        1,200,469   
Short-term Incentive (pro rata)     —          291,981        —          291,981        333,730   
Long-term Incentives:                                        

Stock Options (Unvested and Accelerated)

    —          179,094        —          61,386        424,437   

Service-Based Restricted Stock Units (Unvested and Accelerated)

    —          1,164,385        —          370,754        3,017,125   

Performance-Based Restricted Stock Units (Unvested and Accelerated)

    —          4,877,944        —          3,930,520        7,458,941   

Benefits and Perquisites

                                       
Health Benefit Continuation/COBRA Benefit     —          32,170        —          32,170        32,170   

Total

    —          6,545,574        —          5,723,507        13,421,682   

 

Potential Payments to Mr. Bettinger upon Termination or Change in Control as of June 26, 2016  
          Involuntary Termination  
    Voluntary
Termination
($)
    Disability
or Death
($)
    For
Cause
($)
    Not for
Cause
($)
    Change in
Control
($)
 

Compensation

                                       
Severance     —                  —          567,000        850,500   
Short-term Incentive (5-year average)     —                  —          284,908        873,652   
Short-term Incentive (pro rata)     —          212,795        —          212,795        242,875   
Long-term Incentives:                                        

Stock Options (Unvested and Accelerated)

    —          131,819        —          50,864        317,975   

Service-Based Restricted Stock Units (Unvested and Accelerated)

    —          837,768        —          290,051        2,192,433   

Performance-Based Restricted Stock Units (Unvested and Accelerated)

    —          3,780,898        —          3,127,940        5,654,060   

Benefits and Perquisites

                                       
Health Benefit Continuation/COBRA Benefit     —          24,212        —          24,212        24,212   

Total

    —          4,987,492        —          4,557,770        10,155,707   

 

Continues on next page   u

 

Lam Research Corporation 2016 Proxy Statement   37


Table of Contents
Potential Payments to Dr. Gottscho upon Termination or Change in Control as of June 26, 2016  
          Involuntary Termination  
    Voluntary
Termination
($)
    Disability
or Death
($)
    For
Cause
($)
    Not for
Cause
($)
    Change in
Control
($)
 

Compensation

                                       
Severance     —          —          —          556,200        834,300   
Short-term Incentive (5-year average)     —          —          —          255,053        765,158   
Short-term Incentive (pro rata)     —          208,742        —          208,742        212,714   
Long-term Incentives:                                        

Stock Options (Unvested and Accelerated)

    —          146,895        —          51,211        349,169   

Service-Based Restricted Stock Units (Unvested and Accelerated)

    —          961,085        —          312,746        2,507,154   

Performance-Based Restricted Stock Units (Unvested and Accelerated)

    —          4,061,115        —          3,288,638        6,208,681   

Benefits and Perquisites

                                       
Health Benefit Continuation/Retiree Health Plans     627,000        627,000        627,000        627,000        627,000   

Total

    627,000        6,004,837        627,000        5,299,590        11,504,176   

 

Potential Payments to Ms. O’Dowd upon Termination or Change in Control as of June 26, 2016  
          Involuntary Termination  
    Voluntary
Termination
($)
    Disability
or Death
($)
    For
Cause
($)
    Not for
Cause
($)
    Change in
Control
($)
 

Compensation

                                       
Severance     —          —          —          —          673,313   
Short-term Incentive (5-year average)     —          —          —          —          560,139   
Short-term Incentive (pro rata)     —          —          —          —          155,719   
Long-term Incentives: