Lam Research Corporation
LAM RESEARCH CORP (Form: DEF 14A, Received: 09/28/2017 16:18:18)
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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

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LAM RESEARCH CORPORATION

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LOGO

September 28, 2017

Dear Lam Research Stockholders,

We cordially invite you to attend, in person or by proxy, the Lam Research Corporation 2017 Annual Meeting of Stockholders. The annual meeting will be held on Wednesday, November 8, 2017, 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 ten 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 cast an advisory vote to approve our named executive officer compensation, or “Say on Pay”; to cast an advisory vote to approve the frequency of holding future stockholder advisory votes on our named executive officer compensation, or “Say on Frequency”; to ratify the appointment of the independent registered public accounting firm for fiscal year 2018; and to consider, if properly presented at the annual meeting, a stockholder proposal described in the accompanying proxy statement. The board of directors recommends that you vote in favor of each director nominee, Say on Pay, annual Say on Frequency, and the ratification of the appointment of the independent registered public accounting firm; and that you vote against the stockholder proposal, if properly presented at the annual meeting. 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, telephone, 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

 

 


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Notice of 2017 Annual Meeting

of Stockholders

 

 

LOGO

4650 Cushing Parkway

Fremont, California 94538

Telephone: 510-572-0200

 

Date and Time    Wednesday, November 8, 2017
   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 ten directors to serve until the next annual meeting of stockholders, and until their respective successors are elected and qualified
  2. Advisory vote to approve our named executive officer compensation, or “Say on Pay”
  3. Advisory vote to approve the frequency of holding future stockholder advisory votes on our named executive officer compensation, or “Say on Frequency”
  4. Ratification of the appointment of independent registered public accounting firm for fiscal year 2018
  5. Stockholder proposal, if properly presented at the annual meeting
  6. 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 11, 2017, 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, telephone, or mail. The proxy statement and the accompanying proxy card provide detailed voting instructions.

Internet Availability of Proxy Materials

Our Notice of 2017 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 28, 2017.

 

 


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LAM RESEARCH CORPORATION

Proxy Statement for 2017 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

    9  

Leadership Structure of the Board

    9  

Other Governance Practices

    9  

Meeting Attendance

    10  

Board Committees

    10  

Board’s Role and Engagement

    11  

Director Compensation

    12  
Compensation Matters     15  

Executive Compensation and Other Information

    15  

Compensation Discussion and Analysis

    15  

I.    Overview of Executive Compensation

    15  

II.   Executive Compensation Governance and Procedures

    19  

III.   Primary Components of Named Executive Officer Compensation; Calendar Year 2016 Compensation Payouts; Calendar Year 2017 Compensation Targets and Metrics

    21  

IV. Tax and Accounting Considerations

    28  

Compensation Committee Report

    29  

Compensation Committee Interlocks and Insider Participation

    29  

Executive Compensation Tables

    30  

Securities Authorized for Issuance under Equity Compensation Plans

    39  
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 Ernst & Young LLP

    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 Directors

    43  

2017 Nominees for Director

    44  

Proposal No.  2: Advisory Vote to Approve Our Named Executive Officer Compensation, or “Say on Pay”

    52  

Proposal No.  3: Advisory Vote to Approve the Frequency of Holding Future Stockholder Advisory Votes on Our Named Executive Officer Compensation, or “Say on Frequency”

    53  

Proposal No.  4: Ratification of the Appointment of the Independent Registered Public Accounting Firm for Fiscal Year 2018

    53  

Proposal No.  5: Stockholder Proposal, If Properly Presented at the Annual Meeting, Regarding Annual Disclosure of EEO-1 Data

    54  

Other Voting Matters

    56  
Voting and Meeting Information     57  

Information Concerning Solicitation and Voting

    57  

Other Meeting Information

    58  


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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. We also use the term “Board” to refer to the Company’s Board of Directors.

Figure 1. Proposals and Voting Recommendations

 

Voting Matters  

Board Vote

Recommendation

 
Proposal 1 – Election of Ten Nominees Named Herein as Directors     FOR each nominee  
Proposal 2 – Advisory Vote to Approve Our Named Executive Officer Compensation, or “Say on Pay”     FOR  
Proposal 3 – Advisory Vote to Approve the Frequency of Holding Future Advisory Votes on Our Named Executive Officer Compensation, or “Say on Frequency”     ONE YEAR  
Proposal 4 – Ratification of the Appointment of the Independent Registered Public Accounting Firm for Fiscal Year 2018     FOR  
Proposal 5 – Stockholder Proposal, If Properly Presented at the Annual Meeting, Regarding Annual Disclosure of EEO-1 Data     AGAINST  

Figure 2. Summary Information Regarding Director Nominees

You are being asked to vote on the election of the ten director nominees listed in the table below. The following table provides summary information about each director nominee as of September 11, 2017, and their biographical information is contained in the “ Voting Proposals – Proposal No. 1: Election of Directors – 2017 Nominees for Director ” section below.

 

     Director    Committee
Membership
   Other Current Public
Boards
Name   Age    Since   Independent (1)    AC    CC    NGC   
Martin B. Anstice   50    2012   No    *               
Eric K. Brandt   55    2010   Yes    C/FE             

Altaba (formerly Yahoo!),

Dentsply Sirona

Michael R. Cannon   64    2011   Yes    M/FE         M   

Seagate Technology,

Dialog Semiconductor

Youssef A. El-Mansy   72    2012   Yes         M          
Christine A. Heckart   51    2011   Yes    M               
Young Bum (YB) Koh   59    2017   Yes                    
Catherine P. Lego   60    2006   Yes    *    C    M   

Cypress Semiconductor,

IPG Photonics

Stephen G. Newberry   63    2005   No    *              Splunk
Abhijit Y. Talwalkar   53    2011  

Yes

(Lead Independent Director)

   *    M    C   

Advanced Micro Devices,

TE Connectivity,

iRhythm Technologies

Lih Shyng (Rick L.) Tsai   66    2016   Yes                  

MediaTek,

USI Corporation

 

(1)      Independence determined  based on Nasdaq rules.

  

C – Chairperson

AC – Audit committee   

M – Member

CC – Compensation committee   

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

NGC – Nominating and governance committee   

* – Qualifies as an audit committee financial expert (as determined based on SEC rules)

 

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Figure 3. Corporate Governance Highlights

 

Board and Other Governance Information   As of September 11, 2017  
Size of Board as Nominated     10  
Average Age of Director Nominees     59.3  
Average Tenure of Director Nominees     6.27  
Number of Independent Nominated Directors     8  
Number of Nominated Directors Who Attended ³ 75% of Meetings     9 (1)  
Number of Nominated Directors on More Than Four Public Company Boards     0  
Number of Nominated Non-Employee Directors Who Are Sitting Executives on More Than Three Public Company Boards     0  
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  
Annual 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  
Significant Board Engagement     Yes  
Board Orientation/Education Program     Yes  
Code of Ethics Applicable to Directors     Yes  
Stockholder Proxy Access     Yes  
Stockholder Ability to Act by Written Consent     Yes  
Poison Pill     No  
Publication of Corporate Social Responsibility Report on Our Website     Yes  

 

(1)   For additional information regarding meeting attendance, see “ Governance Matters – Corporate Governance – Meeting Attendance .”

 

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Figure 4. Executive Compensation Highlights

 

What We Do
Pay for Performance (Pages 15-18, 21-27) – Our executive compensation program is designed to pay for performance with 100% of the annual incentive program tied to company financial, strategic, and operational performance metrics; 50% of the long-term incentive program tied to relative 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 2017 Long-Term Incentive Program (Pages 24-27) – Our current long-term incentive program is designed to pay for performance over a period of three years.
Absolute and Relative Performance Metrics (Pages 21-27) – 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 long-term incentives.
Different Performance Metrics for Annual and Long-Term Incentive Programs (Pages 21-27) – Our annual and long-term incentive programs use different performance metrics.
Capped Amounts (Pages 21-27) – Amounts that can be earned under the annual and long-term incentive programs are capped.
Compensation Recovery/Clawback Policy (Page 18) – We have a policy pursuant to 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.
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 18) – We have stock ownership guidelines for each of our executive vice presidents and certain other senior executives; each of our named executive officers as set forth in Figure 10 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 19) – 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 on an annual basis and stockholder advisory firms on an as needed basis 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 28-31, 34-36) – 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 27, 34-36) – 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.

 

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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: (1) 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 11, 2017, more than 5% of Lam’s common stock on the date set forth below; (2) each current director of the Company; (3) each NEO identified below in the “ Compensation Matters – Executive Compensation and Other Information – Compensation Discussion and Analysis ” section; and (4) all current directors 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 11, 2017, which is the Record Date for the 2017 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 162,496,503 as the number of shares of Lam common stock outstanding on September 11, 2017.

 

 

Figure 5. Beneficial Ownership Table

 

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

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

    16,162,079 (2)        9.9

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

    12,619,092 (3)        7.8

FMR LLC
245 Summer Street
Boston, MA 02210

    11,171,305 (4)        6.9

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

    9,652,830 (5)        5.9
Directors                 

Martin B. Anstice (also a Named Executive Officer)

    145,155        *  

Eric K. Brandt

    28,480        *  

Michael R. Cannon

    22,780        *  

Youssef A. El-Mansy

    22,050        *  

Christine A. Heckart

    15,280        *  

Young Bum (YB) Koh

    1,000        *  

Catherine P. Lego

    48,288        *  

Stephen G. Newberry

    11,930        *  

Abhijit Y. Talwalkar

    23,380        *  

Lih Shyng (Rick L.) Tsai

    2,560        *  
Named Executive Officers (“NEOs”)                 

Timothy M. Archer

    96,037          *  

Douglas R. Bettinger

    52,894        *  

Richard A. Gottscho

    20,956          *  

Sarah A. O’Dowd

    72,192        *  
All current directors and executive officers as a group (18 people)     659,814          *  

 

* Less than 1%

 

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(1)   Includes shares subject to outstanding stock options that are now exercisable or will become exercisable within 60 days after September 11, 2017, as well as restricted stock units, or “RSUs,” that will vest within that time period, as follows:

 

     Shares  
Martin B. Anstice     82,397  
Eric K. Brandt     2,050  
Michael R. Cannon     2,050  
Youssef A. El-Mansy     2,050  
Christine A. Heckart     2,050  
Young Bum (YB) Koh     1,000  
Catherine P. Lego     2,050  
Stephen G. Newberry     2,050  
Abhijit Y. Talwalkar     2,050  
Lih Shyng (Rick L.) Tsai     2,050  
Timothy M. Archer     46,334  
Douglas R. Bettinger     31,059  
Richard A. Gottscho     —    
Sarah A. O’Dowd     40,712  
All current directors and executive officers as a group (18 people)     217,952  

The terms of any outstanding stock options that are now exercisable are reflected in “ Figure 31. FYE2017 Outstanding Equity Awards.

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, 2017, subject to continued service on the board as of that date, with immediate delivery of the shares upon vesting. For 2017, Drs. El-Mansy and Tsai; Messrs. Brandt, Cannon, Newberry and Talwalkar; and Mses. Heckart and Lego each received grants of 2,050 RSUs. These RSUs are included in the tables above. As of November 11, 2016, Dr. Koh had not yet been appointed to the board of the Company. In accordance with the Company’s non-employee director compensation program, Dr. Koh received a pro-rated equity award of 1,000 RSUs (or 75% of the $200,000 targeted grant date value, with the number of RSUs determined in the same manner as an annual equity award) on May 12, 2017, the first Friday following his first attended board meeting.

 

(2)   All information regarding The Vanguard Group, Inc., or “Vanguard,” is based solely on information disclosed in amendment number five to Schedule 13G filed by Vanguard with the SEC on July 10, 2017. According to the Schedule 13G filing, of the 16,162,079 shares of Lam common stock reported as beneficially owned by Vanguard as of June 30, 2017, Vanguard had sole voting power with respect to 245,279 shares, had shared voting power with respect to 32,331 shares, had sole dispositive power with respect to 15,887,595 shares and shared dispositive power with respect to 274,484 shares of Lam common stock reported as beneficially owned by Vanguard as of that date. The 16,162,079 shares of Lam common stock reported as beneficially owned by Vanguard include 198,150 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 122,780 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.

 

(3)   All information regarding BlackRock Inc., or “BlackRock,” is based solely on information disclosed in amendment number nine to Schedule 13G filed by BlackRock with the SEC on January 25, 2017 on behalf of BlackRock and its subsidiaries: 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 12,619,092 shares of Lam common stock reported as beneficially owned by BlackRock as of December 31, 2016, BlackRock had sole voting power with respect to 11,047,990 shares, did not have shared voting power with respect to any shares, had sole dispositive power with respect to 12,619,092 shares and did not have shared dispositive power with respect to any shares of Lam common stock reported as beneficially owned by BlackRock as of that date.

 

(4)   All information regarding FMR, LLC, or “FMR,” is based solely on information disclosed in a Schedule 13G filed by FMR with the SEC on February 14, 2017 on behalf of FMR and the following subsidiaries: Crosby Advisors LLC; FIAM LLC; Fidelity Institutional Asset Management Trust Company; Fidelity Management & Research (Hong Kong) Limited; Fidelity Management Trust Company; Fidelity Selectco, LLC; FMR Co., Inc.; and Strategic Advisers, Inc. According to the Schedule 13G filing, of the 11,171,305 shares of Lam common stock reported as beneficially owned by FMR as of December 31, 2016, FMR had sole voting power with respect to 1,068,792 shares, did not have shared voting power with respect to any shares, had sole dispositive power with respect to 11,171,305 shares and did not have shared dispositive power with respect to any shares of Lam common stock reported as beneficially owned by FMR as of that date.

 

(5)  

All information regarding Ameriprise Financial, Inc., or “Ameriprise,” is based solely on information disclosed in amendment number four to Schedule 13G filed by Ameriprise with the SEC on February 10, 2017. According to the Schedule 13G filing, of the 9,652,830 shares of Lam common stock reported as beneficially owned by Ameriprise as of December 31, 2016, Ameriprise did not have sole voting power with respect to any shares, had shared voting power with respect to 9,557,231 shares, did not have sole dispositive power with respect to any shares and

 

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  shared dispositive power with respect to 9,652,830 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.

 

 

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 2017.

 

 

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Governance Matters

 

 

Corporate Governance

 

Our Board 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 some of our top stockholders; 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 section of our website 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 see “ Board Committees ” below for additional information regarding these 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 section of our website 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 section 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

 

 

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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 specific skills, background, and experiences that are evaluated in connection with board service include (but are not limited to or required):

 

    Industry knowledge : knowledge of and experience with our industry and markets, including an understanding of our customers’ markets and needs;
    Technology knowledge : knowledge and understanding of semiconductor and semiconductor wafer front end technologies;
    Marketing experience : extensive knowledge and experience in business-to-business marketing and sales, and/or business development, preferably in a capital equipment industry;
    Business and operations leadership experience : experience as a current or former CEO, president and/or COO;
    Finance experience : profit and loss (“P&L”) and financing experience as an executive responsible for financial results of a breadth and level of complexity comparable to the Company;
    International business experience : experience as a current or former business executive resident outside the United States and responsible for at least one business unit outside the United States;
    Mergers and acquisitions experience (“M&A”) : M&A and integration experience (including buy- and sell-side and hostile M&A experience) as a public company director or officer;
    Board/governance experience : experience with corporate governance requirements and practices
    Public relations/investor relations/public policy experience
    Cybersecurity expertise: understanding of and experience in overseeing corporate cybersecurity programs and having a history of participation in relevant cyber education

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.

For many years, the composition of the Board has reflected the Board’s commitment to diversity. For example, the Board has had at least two female directors since 2006, and over the last 10 years has expanded the experiences and areas of substantive expertise of the directors, as illustrated by the information provided in their biographies under “ Voting Proposals – Proposal No. 1: Election of Directors – 2017 Nominees for Director ” below. Most recently, the Board has increased its geographic diversity with the appointment of two directors whose careers include significant leadership

experience with major non-U.S. customers and who reside in Asia.

Regarding tenure, 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. In line with the Board’s pursuit of board refreshment and balanced tenure, including consideration of any resignations, the Board appointed two new directors within the last fiscal year, and has appointed 12 new directors in the last 10 years.

Prior to recommending the nomination of an incumbent non-employee director for reelection, the committee reviews the experiences, skills, and qualifications of the director to assess the continuing relevance of his or her experiences, skills, and qualifications to those considered necessary or desirable for the Board at that time.

To be nominated, a new or incumbent candidate must provide an irrevocable conditional resignation that will be effective upon (1) the director’s failure to receive the required majority vote at an annual meeting at which the nominee faces re-election and (2) 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. 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 Directors – 2017 Nominees for Director ” below for additional information regarding the 2017 candidates for election to the Board.

Certain provisions of our bylaws apply to the nomination or recommendation of candidates by a stockholder. For example, in February 2017, the Board amended and restated our bylaws to provide that under certain circumstances, a stockholder, or group of up to 20 stockholders, who have maintained continuous ownership of at least three percent (3%) of our common stock for at least three years may nominate and include a specified number of director nominees in our annual meeting proxy statement that cannot exceed the greater of two or 20% of the aggregate number of directors then serving on the Board (rounded down). Information regarding the nomination procedure is provided in the “ Voting and Meeting Information – Other Meeting Information – Stockholder-Initiated Proposals and Nominations for 2018 Annual Meeting ” section below.

 

 

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Director Independence Policies

Board independence requirements. Our corporate governance guidelines require that 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 committees.

Lead independent director. Our corporate governance guidelines authorize the Board to designate a lead independent director from among the independent members. Mr. Talwalkar was appointed the lead independent director, effective August 27, 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 standing Board committee 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.

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 presentations from time to time.

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 (1) preparing the agenda for the Board meetings with input from the CEO, the Board, and the committee chairs; (2) upon invitation, attending meetings of any of the Board committees on which he is not a member; (3) conveying to the CEO, together with the chair of the compensation committee, the results of the CEO’s performance evaluation; (4) 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; (5) performing such other duties as the Board may reasonably request from time to time; and (6) 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: (1) coordinating the activities of the independent directors; (2) consulting with the chairman regarding matters such as (a) schedules of and agendas for Board meetings, (b) the quality, quantity, and timeliness of the flow of information from management, and (c) the retention of consultants who report directly to the Board; and (3) 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. Every year, the Board conducts a self-evaluation of the Board, its committees, and the individual directors, overseen by the nominating and governance committee and generally led by the lead independent director and the chairman of the Board. From time to time, the evaluation is facilitated by an independent third-party consultant. The evaluation solicits the opinions of the directors regarding the effectiveness of the Board, committees, and individual directors in fulfilling its/their

 

 

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obligations. Feedback on Board and committee effectiveness is provided to the full Board for discussion, and feedback regarding individual director performance is provided to each individual director. The Board and committees identify and hold themselves accountable for any action items stemming from the assessment. The results of the evaluations are also considered as part of the director nomination process.

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.

Limitations on other board and committee memberships. Board members may not serve on more than four public company boards (including service on the Company’s Board). Non-employee directors who are sitting executives may not serve on more than three public company boards (including the Company’s Board). The nominating and governance committee will review the appropriateness of continued Board membership if a non-employee director who is a sitting executive serves on more than two such boards, and the director is expected to follow the recommendation of the nominating and governance committee. In addition, non-employee directors may not serve on more than three audit committees of public company boards (including the Company’s audit committee).

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 2017 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, 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 telephone (855-208-8578) or internet (through the Company’s third-party provider website at www.lamhelpline.ethicspoint.com) . The audit committee has established procedures to ensure that employee complaints or 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

Our Board held a total of six meetings during fiscal year 2017. The number of committee meetings held is shown in Figure 6. 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 tenure in fiscal year 2017, with the exception of Mr. Cannon due to medical reasons. We expect his attendance going forward to be consistent with prior years.

We expect our directors to attend the annual meeting of stockholders each year unless unusual circumstances make attendance impractical. All but one of the individuals who were directors as of the 2016 annual meeting of stockholders attended that meeting.

Board Committees

The Board 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        
Catherine P. Lego       Chair   x
Abhijit Y. Talwalkar       x   Chair
Total Number of Meetings Held in FY2017   9   6   4
 

 

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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 section of our website 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 Messrs. Brandt and Cannon (both members of the committee) are each, and Messrs. Anstice, Newberry, and Talwalkar and Ms. Lego (members of the Board) each qualify as, 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 section of our website 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 section of our website 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 – Other Meeting Information – Stockholder-Initiated Proposals and Nominations for 2018 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 and Engagement

General. The Board directs and oversees the management of the business and affairs of the Company. In this oversight role, the Board serves as the ultimate decision-making body of the Company, except for those matters reserved for the stockholders.

The Board and its committees have the primary responsibilities of:

 

    discussing, reviewing, monitoring and approving the Company’s business strategies, capital allocation plans/priorities, annual operating plan, and major corporate actions as set forth below;
  °     A strategic plan is presented to the Board for discussion on an annual basis, and updates are presented at each quarterly Board meeting.
  °     An operating plan is presented to the Board for discussion on an annual basis, and updates are presented at each quarterly Board meeting.
  °     Capital allocation plans and priorities are discussed on a quarterly basis.
  °     Major corporate actions are presented and discussed as part of strategic plan updates and as special agenda topics, as appropriate.
    appointing, evaluating the performance of, and approving the compensation of the CEO;
    reviewing with the CEO the performance of the Company’s executive officers and approving their compensation;
    reviewing and approving CEO and top leadership succession planning;
    advising and mentoring the Company’s senior management;
    overseeing the Company’s internal controls over financial reporting and disclosure controls and procedures;
    overseeing the Company’s ethics and compliance programs, including the Company’s code of ethics; and
 

 

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    overseeing the Company’s enterprise risk management processes and programs, described in further detail below.

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 committees of the Board. 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 committees of the Board as set forth below.

    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, our internal audit function, and our related party transactions.
    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 25, 2017, together with the annual cash compensation program components in effect for calendar years 2016 and 2017, is shown in the table below.

Figure 7. Director Annual Retainers

 

Annual Retainers   Calendar
Year 2017
($)
    Calendar
Year 2016
($)
    Fiscal
Year 2017
($)
 
Non-employee Director     65,000       65,000       65,000  
Lead Independent Director     22,500       22,500       22,500  
Chairman     160,000       280,000       220,000  
Audit Committee – Chair     30,000       30,000       30,000  
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       15,000       15,000  
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 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 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: (1) if a non-employee director dies or becomes subject to a “disability” (as determined pursuant to the 2015 Plan), (2) upon the occurrence of a “Corporate Transaction” (as defined in the 2015 Plan), or (3) 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

 

 

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commence service after the annual award has been granted receive on the first Friday following the first regularly scheduled, quarterly Board meeting attended a pro-rated grant based on the number of regularly scheduled, quarterly Board meetings remaining in the year as of the effective date of the director’s appointment. The pro-rated grants are subject to the same vesting schedule, terms and conditions as the annual equity awards, except that if the award is granted on the first Friday following the regularly scheduled quarterly November Board meeting, the grant vests immediately.

On November 11, 2016, Dr. Tsai, who was appointed to the Board effective September 13, 2016, received a pro-rated grant of 510 RSUs for service during calendar year 2016 that vested immediately.

On November 11, 2016, each director other than Mr. Anstice and Dr. Koh, who was appointed a director on May 10, 2017, received a grant of 2,050 RSUs for service during calendar year 2017.

On May 12, 2017, Dr. Koh, who was appointed to the Board effective May 10, 2017, received a pro-rated grant of 1,000 RSUs for service during calendar year 2017.

Unless there is an acceleration event, these RSUs granted to each current director for service during calendar year 2017 will vest in full on October 31, 2017, subject to the director’s continued service on the Board.

Chairman compensation. Mr. Newberry, who served as vice-chairman from December 7, 2010 to 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, 2017, and expiring on December 31, 2017, 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 $160,000 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 2017 for persons serving as directors during fiscal 2017 other than Mr. Anstice:

Figure 8. FY2017 Director Compensation

 

Director Compensation for Fiscal Year 2017  
    Fees
Earned
or Paid
in Cash
($)
   

Stock

Awards

($)  (1)

   

All Other
Compen-

sation

($)  (2)

   

Total

($)

 
Stephen G. Newberry     225,000 (6)       197,415 (3)       26,275       448,690  
Eric K. Brandt     95,000 (7)       197,415 (3)       —         292,415  
Michael R. Cannon     82,500 (8)       197,415 (3)       —         279,915  
Youssef A. El-Mansy     75,000 (9)       197,415 (3)       26,275       298,690  
Christine A. Heckart     77,500 (10)       197,415 (3)       —         274,915  
Young Bum (YB) Koh     48,750 (11)       148,690 (4)       —         197,440  
Catherine P. Lego     90,000 (12)       197,415 (3)       25,012       312,427  
Krishna C. Saraswat (13)     —         —         —         —    
Abhijit Y. Talwalkar     112,500 (14)       197,415 (3)       —         309,915  
Lih Shyng (Rick L.) Tsai     81,250 (15)       247,135 (3),(5)       —         328,385  

 

(1)   The amounts shown in this column represent the grant date fair value of unvested RSU awards granted during fiscal year 2017 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 2017 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 25, 2017.

 

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

 

(3)   On November 11, 2016, each non-employee director who was on the board received an annual grant of 2,050 RSUs based on the $97.49 closing price of Lam’s common stock and the target value of $200,000, rounded down to the nearest 10 shares.

 

(4)   On May 12, 2017, Dr. Koh received a prorated annual grant of 1,000 RSUs based on the $149.58 closing price of Lam’s common stock and the target value of $150,000, rounded down to the nearest 10 shares.

 

(5)   On November 11, 2016, Dr. Tsai received a prorated annual grant of 510 RSUs based on the $97.49 closing price of Lam’s common stock and the target value of $50,000, rounded down to the nearest 10 shares.

 

(6)   Mr. Newberry received $225,000, representing his $160,000 chairman retainer and $65,000 annual retainer as a director.

 

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

 

(8)   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.

 

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

 

(10)   Ms. Heckart received $77,500, representing her $65,000 annual retainer and $12,500 as a member of the audit committee.
 

 

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(11)   Dr. Koh received $48,750 representing his partial year annual retainer as a director.

 

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

 

(13)   Dr. Saraswat resigned from his board membership effective November 7, 2016. All payments to Dr. Saraswat for the relevant fiscal year were paid in the prior fiscal year period.

 

(14)   Mr. Talwalkar received $112,500, representing his $65,000 annual retainer, $22,500 as lead independent director, $10,000 as a member of the compensation committee, and $15,000 as the chair of the nominating and governance committee.

 

(15)   Dr. Tsai received $81,250 representing his $65,000 annual retainer, and $16,250 representing his partial year annual retainer for calendar year 2016.

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 25, 2017, 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. FY2017 Accumulated Post-Retirement Benefit Obligations

 

Director Compensation for Fiscal Year 2017  
Name  

Accumulated
Post-Retirement
Benefit Obligation,
as of June  25, 2017

($)

 
Stephen G. Newberry     918,000  
Eric K. Brandt     —    
Michael R. Cannon     —    
Youssef A. El-Mansy     627,000  
Christine A. Heckart     —    
Young Bum (YB) Koh        
Catherine P. Lego     526,000  
Krishna C. Saraswat     —    
Abhijit Y. Talwalkar     —    
Lih Shyng (Rick L.) Tsai     —    
 

 

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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 2016 Compensation Payouts; Calendar Year 2017 Compensation Targets and Metrics
IV.   Tax and Accounting Considerations

Our CD&A discusses compensation earned by our fiscal year 2017 “Named Executive Officers,” or “NEOs,” who are as follows:

Figure 10. FY2017 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, Corporate Chief Technology Officer
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. FY2012-FY2017 CEO Pay for Performance

 

LOGO

 

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(1) “CEO Total Compensation” consists of base salary, annual incentive payments, accrued values of the cash payments under the long-term incentive program when applicable 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 years 2012 and 2013 reflects awards covering a two-year performance period as compared to the three-year period in all subsequent fiscal years. In 2014, the committee granted one-time calendar year 2014 Gap Year Awards as defined below of Market-Based Performance Restricted Stock Unit, or “Market-Based PRSU,” stock options and RSUs on the terms set forth in Figure 16 of the 2014 proxy statement. The one-time 2014 Gap Year Award, with a value of $3,074,271 is reflected in the “Executive Compensation Tables – Summary Compensation Table ” for fiscal year 2014 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. In 2014, our LTIP was redesigned by: (i) establishing a program entirely composed of equity, (ii) introducing a new LTIP vehicle, a 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. 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 was to normalize the received compensation in any year, assuming the same year after year performance and target opportunities, the impact on the Company from such normalization was a higher grant-based compensation expense in fiscal year 2014.

To understand our executive compensation program fully, we believe 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 customer base includes leading semiconductor memory, foundry, and integrated device manufacturers that make products such as non-volatile memory (NVM), DRAM memory, and logic devices. We aim to increase our strategic relevance with our customers by contributing more to their continued success. Our core technical competency is integrating hardware, process,

materials, software, and process control enabling results on the wafer.

Our products and services are designed to help our customers build smaller, faster, and better performing devices that are used in a variety of electronic products, including mobile phones, personal computers, servers, wearables, automotive devices, storage devices, and networking equipment.

Semiconductor manufacturing, our customers’ business, involves the complete fabrication of multiple dies or integrated circuits on a wafer. This involves the repetition of a set of core processes and can require hundreds of individual steps. Fabricating these devices requires highly sophisticated process technologies to integrate an increasing array of new materials with precise control at the atomic scale. Along with meeting technical requirements, wafer processing equipment must deliver high productivity and be cost-effective.

Demand from the Cloud, Internet of Things (IoT), and other markets is driving the need for increasingly powerful and cost-efficient semiconductors. At the same time, there are growing technical challenges with traditional two-dimensional scaling. These trends are driving significant inflections in semiconductor manufacturing, such as the increasing importance of vertical scaling strategies like 3D architectures as well as multiple patterning to enable shrinks.

We believe we are in a strong position with our leadership and competency in deposition, etch, and single-wafer clean to facilitate some of the most significant innovations in semiconductor device manufacturing. Several factors create opportunity for sustainable differentiation for us: our focus on research and development, with a breadth of programs across sustaining engineering, product and process development, and concept and feasibility; our ability to effectively leverage cycles of learning from our broad installed base; and our collaborative focus with ecosystem partners.

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.

 

 

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Figure 12. Executive Compensation Calendar-Year Orientation

 

LOGO

In calendar year 2016, demand for semiconductor equipment increased relative to calendar year 2015 as technology inflections led to higher investments. Against this backdrop, Lam delivered record financial performance.

Highlights for calendar year 2016:

 

    achieved record revenues of approximately $6.4 billion for the calendar year, representing an 8% increase over calendar year 2015;
    generated operating cash flow of approximately $1.5 billion, which represents approximately 23% of revenues; and
    generated sufficient cash flow to support payment of approximately $191 million in dividends to stockholders, a 25% increase compared to calendar year 2015.

In the first half of calendar year 2017, 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 $4.5 billion, and cash flows from operations of $1.2 billion earned from the March and June 2017 quarters combined.

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 annual 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 annual 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.

For senior vice presidents and above, we also have stock ownership guidelines that foster a long-term orientation. See next paragraph for additional information.

 

 

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

 

LOGO

 

(1)   Data for 2017, 2016 and 2015 charts is for the then-applicable NEOs (i.e., fiscal year 2015 NEOs are represented in the 2015 chart, etc.).

 

(2)   The Company’s LTIP design provides that 50% of the target award opportunity is awarded in Market-based PRSUs 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. In 2017 and 2015, the percentage of the target award opportunity awarded in stock options and service-based RSUs was 10% and 40%, respectively. In 2016, the corresponding percentages awarded in stock options and service-based RSUs were 20% and 30%. See “ III. Primary Components of Named Executive Officer Compensation; Calendar Year 2016 Compensation Payouts; Calendar Year 2017 Compensation Targets and Metrics   Long-Term Incentive Program – Design” for further information regarding the impact of such a target pay mix.

 

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

 

Our stock ownership guidelines for our NEOs and certain other senior executives 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 2017, all 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, within 36 months of the issuance of the original financial statements, the excess amount of cash incentive-based compensation issued starting in calendar year 2015 to officers covered by section 16 of the Exchange Act when a material restatement of financial results

is required. 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.

Executive Compensation Highlights

 

 

Highlights of our executive compensation program are listed in Figure  4. Executive Compensation Highlights .

 

 

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II. EXECUTIVE COMPENSATION GOVERNANCE AND PROCEDURES

 

Role of the Compensation Committee

 

 

Our Board 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 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 to perform a periodic performance evaluation of the CEO; recommending to the independent members of the Board (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.

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 its consideration of performance 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

 

(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 after considering the recommendation of the committee and, in the case of all other NEOs, an action or decision by the compensation committee.
 

 

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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. 2017 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 20, 2016)     5,821     0.33 to
3.0 times Lam
    4,492  
Market Capitalization (30-day average as of June 20, 2016)     12,722     0.33 to
3.0 times Lam
    12,203  

Based on these criteria, the Peer Group and targets may be modified from time to time. Our Peer Group was reviewed in August 2016 for calendar year 2017 compensation decisions and based on the criteria identified above, two companies were added to the peer group (Micron Technology and

Skyworks Solutions) and three companies (Avago Technologies, Freescale Semiconductor, and Marvel Technology Group Ltd.) were removed. Our Peer Group consists of the companies listed as follows.

Figure 16. CY2017 Peer Group Companies

 

Advanced Micro Devices, Inc.   Micron Technology
Agilent Technologies, Inc.   Maxim Integrated Products, Inc.
Analog Devices, Inc.   NetApp, Inc.
Applied Materials, Inc.   NVIDIA Corporation
Broadcom Limited   ON Semiconductor Corporation
Corning Incorporated   SanDisk Corporation
Juniper Networks, Inc.   Skyworks Solutions
KLA-Tencor Corporation   Xilinx, 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 the Radford Technology Survey as a reference to help 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, experiences, 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 who are new to their roles, compensation arrangements may be designed to deliver below market compensation for a period of time. 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 2017 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.

 

 

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2016 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 2016, our stockholders approved our 2016

advisory vote on executive compensation, with 98.32% of the votes cast in favor of the advisory proposal. We believe that our most recent Say on Pay vote signifies our stockholders’ support of our executive compensation program and practices. We did not make any material changes to our programs and practices in fiscal year 2017.

 

 

III. PRIMARY COMPONENTS OF NAMED EXECUTIVE OFFICER COMPENSATION; CALENDAR YEAR 2016 COMPENSATION PAYOUTS; CALENDAR YEAR 2017 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 2016 and the forward-looking actions taken with respect to our NEOs in calendar year 2017.

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.

For calendar years 2017 and 2016, base salaries for NEOs were determined by the committee in February of each year and became effective on March 1 or the first day of the pay period that included March 1 (if earlier), based on the factors described above. The following base salary adjustments for 2017 were made to remain competitive against our Peer Group and reflect performance as follows: Mr. Archer’s base salary was increased by 5%, Mr. Anstice’s was increased by 3.1%, Mr. Bettinger’s and Ms. O’Dowd’s were increased by 3%, and Dr. Gottscho’s was increased by 2%. The base salaries of the NEOs for calendar years 2017 and 2016 are as follows:

Figure 17. NEO Annual Base Salaries

 

Named Executive Officer   Annual Base
Salary
2017  (1)
($)
   

Annual Base
Salary
2016  (2)

($)

 
Martin B. Anstice     990,000       960,000  
Timothy M. Archer     668,367       636,540  
Douglas R. Bettinger     584,010       567,000  
Richard A. Gottscho     567,324       556,200  
Sarah A. O’Dowd     462,341       448,875  

 

(1)   Effective February 27, 2017

 

(2)   Effective February 29, 2016

Annual Incentive Program

 

 

Design

Our annual incentive program is designed to provide annual, performance-based compensation that: (1) is based on the achievement of pre-set annual financial, strategic, and operational objectives aligned with outstanding performance, and (2) 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 2016 and 2017 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 2016, for calendar year 2016, 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,
 

 

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    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 stretch goals 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.

The metrics and goals for the Corporate and Individual Performance Factors are set annually. Goals are set depending on the business environment, ensuring 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.

 

 

(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 2017 and 2016: restructuring charges; acquisition-related costs, including net acquisition funding interest expense; 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; costs associated with campus consolidation; litigation settlement; costs associated with business process reengineering; and gain on sale of assets, net of associated exit costs.
 

 

Figure 18. Annual Incentive Program Payouts

 

Calendar
Year
   Average NEO’s
Annual Incentive
Payout as % of Target
Award  Opportunity
     Business Environment
2016      166      Strong operating performance and continued expansion of served available markets, supported by stable economic conditions. Healthy demand for semiconductor equipment driven by capacity and technology investments.
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 supported by stable economic conditions and healthy demand for semiconductor equipment; Company growth in various growing industry technology inflections

 

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Calendar year 2016 annual incentive program parameters and payout decisions

In February 2016, the committee set the calendar year 2016 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 2017, the committee considered the actual results under these factors and made payout decisions for the calendar year 2016 program, all as described below.

2016 Annual Incentive Program Target Award Opportunities. The annual incentive program target award opportunities for calendar year 2016 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 .”

2016 Annual Incentive Program Corporate Performance Factor. In February 2016, the committee set non-GAAP operating income as a percentage of revenue as the metric for the calendar year 2016 Corporate Performance Factor, and set:

 

    a goal of 20% 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 0.20 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 22.9% for calendar year 2016. This performance resulted in a total Corporate Performance Factor for calendar year 2016 of 1.29.

2016 Annual Incentive Program Organization/Individual Performance Factor. For 2016, 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 2016 was based on the average of the Individual Performance Factors of all 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 2016 were considered.

 

    Mr. Archer’s Individual Performance Factor for calendar year 2016 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 2016 was based on the accomplishment of strategic, operational, and organizational development goals for finance, global information systems, and investor relations.
    Dr. Gottscho’s Individual Performance Factor for calendar year 2016 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 2016 was based on the accomplishment of strategic, operational, and organizational development goals for the legal department.

In consideration of the CEO’s assessment of each individual’s achievements and the teamwork demonstrated to deliver the overall strong company performance in 2016, the committee exercised discretion such that each NEO received an Individual Performance Factor of 1.29 (equal to the Corporate Performance Factor) for the 2016 calendar year.

2016 Annual Incentive Program Payout Decisions. In February 2017, 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 2016 annual incentive program for each NEO, which were substantially less than the maximum payout available under the Funding Factor:

 

 

Figure 19. CY2016 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        1,440,000        3,240,000        2,396,304  
Timothy M. Archer      110        700,194        1,575,437        1,165,193  
Douglas R. Bettinger      90        510,300        1,148,175        849,190  
Richard A. Gottscho      90        500,580        1,126,305        833,015  
Sarah A. O’Dowd      80        359,100        807,975        597,578  

 

(1)   Calculated by multiplying each NEO’s annual base salary for the calendar year 2016 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 “ 2016 Annual Incentive Program Corporate Performance Factor ” above and the specific goals set forth in the second paragraph under “ Annual incentive program components ” above).

 

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Calendar year 2017 annual incentive program parameters

In February 2017, 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. CY2017 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 the Corporate Performance Factor as non-GAAP operating income as a percentage of revenue, and set the annual goals for the Funding Factor and 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.

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 efficient form of equity 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.

 

 

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Equity Vehicles

The equity vehicles used in our 2017/2019 long-term incentive program are as follows:

Figure 21. 2017/2019 LTIP Program Equity Vehicles

 

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

•  Awards cliff vest three years from the March 1, 2017 grant date, or “Grant Date,” subject to satisfaction of a minimum 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, 2017 through January 31, 2020).

 

•  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, $115.81, 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      10     

•  Awards vest one-third on the first, second, and third anniversaries of the March 1, 2017 grant date, or “Grant Date,” subject to continued employment.

 

•  The number of stock options granted is determined by dividing 10% of the target opportunity by the 30-day average of the closing price of our common stock prior to the Grant Date, $115.81, rounded down to the nearest share and multiplying the result by four. The ratio of four 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      40     

•  Awards vest one-third on the first, second, and third anniversaries of the March 1, 2017 grant date, or “Grant Date,” subject to continued employment.

 

•  The number of RSUs granted is determined by dividing 40% of the target opportunity by the 30-day average of the closing price of our common stock prior to the Grant Date, $115.81, rounded down to the nearest share.

 

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

 

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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 2017 are as follows:

Figure 23. LTIP Target Award Opportunities

 

Named Executive Officer   Long-
Term
Incentive
Program
    

Target Award
Opportunity

($)

 
Martin B. Anstice     2017/2019 (1)        8,000,000  
    2016/2018 (2)        7,500,000  
    2015/2017 (3)        6,750,000  
    2014/2016 (4)        6,500,000  
Timothy M. Archer     2017/2019 (1)        4,500,000  
    2016/2018 (2)        4,000,000  
    2015/2017 (3)        3,500,000  
    2014/2016 (4)        3,000,000  
Douglas R. Bettinger     2017/2019 (1)        2,750,000  
    2016/2018 (2)        2,750,000  
    2015/2017 (3)        2,500,000  
    2014/2016 (4)        2,500,000  
Richard A. Gottscho     2017/2019 (1)        3,250,000  
    2016/2018 (2)        3,250,000  
    2015/2017 (3)        3,000,000  
    2014/2016 (4)        2,500,000  
Sarah A. O’Dowd     2017/2019 (1)        1,400,000  
    2016/2018 (2)        1,400,000  
    2015/2017 (3)        1,300,000  
    2014/2016 (4)        1,300,000  
(1)   The three-year performance period for the 2017/2019 LTIP began on February 1, 2017 and ends on January 31, 2020.

 

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

 

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

 

(4) The three-year performance period for the 2014/2016 LTIP began on February 18, 2014 and ended 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 2014/2016 LTIP Award Parameters and Payouts

On February 18, 2014, the committee granted to each NEO as part of the calendar year 2014/2016 long-term incentive program, or “2014/2016 LTIP Awards,” Market-based PRSUs, and service-based RSUs and stock options with a total target award opportunity shown below. The service-based RSUs and stock options vested over three years, one-third on each anniversary of the grant date. The Market-based PRSU’s cliff vested three years from the grant date.

Figure 24. 2014/2016 LTIP Awards

 

Named Executive Officer   Target
Award
Opportunity
($)
    Market-
Based
PRSUs
Award  (1)
(#)
    Stock
Options
Award
(#)
    Service-
Based
RSUs
Award
(#)
 
Martin B. Anstice     6,500,000       62,789       37,671       50,231  
Timothy M. Archer     3,000,000       28,979       17,385       23,183  
Douglas R. Bettinger     2,500,000       24,149       14,487       19,319  
Richard A. Gottscho     2,500,000       24,149       14,487       19,319  
Sarah A. O’Dowd     1,300,000       12,557       7,533       10,046  

 

(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.

In February 2017, the committee determined the payouts for the calendar year 2014/2016 LTIP Awards of Market-based PRSUs. 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.

Based on the above formula and Market-based PRSU Vesting Summary set forth in Figures 21-22, the Company’s stock price performance over the three-year performance period was equal to 110.32% and performance of the SOX index (based on market price) over the same three-year performance period was equal to 76.27%. While Lam’s stock price outperformed the SOX index by 34.05%, which would have resulted in a performance payout of 168% to target under our Market-based PRSU program, the actual number of shares paid represented by the Market-based PRSUs was limited to the maximum payout of 150% of the target number of Market-based PRSUs granted to each NEO. Based on such

 

 

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results, the committee made the following payouts to each NEO for the 2014/2016 LTIP Award of Market-based PRSUs.

Figure 25. 2014/2016 LTIP Market-based PRSU Award Payouts

 

Named Executive Officer   Target
Market-
Based
PRSUs
(#)
   

Payout (equal
to Maximum
Payout) of
Market-Based
PRSUs 150%
of Target Award
Opportunity)

(#)

 
Martin B. Anstice     62,789       94,183  
Timothy M. Archer     28,979       43,468  
Douglas R. Bettinger     24,149       36,223  
Richard A. Gottscho     24,149       36,223  
Sarah A. O’Dowd     12,557       18,835  

Calendar Year 2017 LTIP Awards

Calendar year 2017 decisions for the 2017/2019 long-term incentive program. On March 1, 2017, the committee made a grant under the 2017/2019 long-term incentive program, of Market-based PRSUs, stock options, and service-based RSUs on the terms set forth in Figure 21 with a combined value equal to the NEO’s total target award opportunity, as shown in the following table.

Figure 26. 2017/2019 LTIP Awards

 

Named Executive Officer   Target
Award
Opportunity
Award ($)
    Market-
Based
PRSUs  (1)
(#)
    Stock
Options
Award
(#)
    Service-
Based
RSUs
Award
(#)
 
Martin B. Anstice     8,000,000       34,539       27,628       27,631  
Timothy M. Archer     4,500,000       19,428       15,540       15,542  
Douglas R. Bettinger     2,750,000       11,872       9,496       9,498  
Richard A. Gottscho     3,250,000       14,031       11,224       11,225  
Sarah A. O’Dowd     1,400,000       6,044       4,832       4,835  

 

(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. Effective January 2015, the Company entered into new three-year term 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 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.

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:

 

 

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Lam Research Corporation 2017 Proxy Statement   27


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Figure 27. NEO Post-Retirement Benefit Obligations

 

Named Executive Officer   As of
June 25, 2017
($)
 
Martin B. Anstice     681,000  
Timothy M. Archer     737,000  
Douglas R. Bettinger  (1)      
Richard A. Gottscho     697,000  
Sarah A. O’Dowd     558,000  

 

(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 annual stockholder meeting in 2015.

 

    in fiscal year 2016, we initially adopted the Lam 2015 Stock Incentive Plan, or “SIP” and obtained stockholder approval for the SIP at our annual stockholder meeting in 2015.

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.

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 2017, 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

 

 

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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 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 2017 between any member of our compensation committee and any member of any other company’s board of directors or compensation committee.

 

 

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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

    2017       969,808       —         7,023,914       758,314       2,396,304 (6)       10,541       11,158,881  
    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  

Timothy M. Archer

Executive Vice President and
Chief Operating Officer

    2017       646,945       —         3,950,881       426,531       1,165,193 (6)       11,301       6,200,851  
    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 (9)       10,543       6,051,572  

Douglas R. Bettinger

Executive Vice President and
Chief Financial Officer

    2017       572,561       —         2,414,365       260,640       849,190 (6)       7,983       4,104,739  
    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 (10)       8,017       4,360,340  

Richard A. Gottscho

Executive Vice President,
Global Products

    2017       559,837       6,171 (5)       2,853,402       362,059       833,015 (6)       9,307       4,623,791  
    2016       545,296       9,600 (5)       2,675,862       606,262       771,574 (7)       9,082       4,617,676  
    2015       528,692       5,867 (5)       2,599,550       312,531       1,482,521 (11)       9,398       4,938,559  

Sarah A. O’Dowd

Senior Vice President, Chief
Legal Officer, and Secretary

    2017       453,277       —         1,229,100       155,869       597,578 (6)       8,082       2,443,906  
    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 (12)       7,551       2,643,822  

 

(1)   The amounts shown in this column represent the value of service-based and market-based performace RSU awards, under the LTIP, 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 2017 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 25, 2017. For additional details regarding the grants see “FY2017 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, 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 stock options in fiscal year 2017 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 25, 2017. For additional details regarding the grants see “FY2017 Grants of Plan-Based Awards” table below.

 

(3)   Includes the long-term cash awards, which ceased being granted in calendar year 2015 (as discussed in further detail in the “///. Primary Components of Named Executive Officer Compensation; Calendar Year 2014 Compensation Payouts; Calendar Year 2015 Compensation Targets and Metrics – Historic LTIP Design ” section of the 2015 proxy statement), under the previously designed long-term incentive programs for our performance during the relevant periods.

 

(4)   Please refer to “FY2017 All Other Compensation Table which immediately follows this table, for additional information.

 

(5)   Represents patent awards.

 

(6)   Represents the amount earned by and subsequently paid under the calendar year 2016 Annual Incentive Program, or “AIP.”

 

(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 $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.

 

(10)   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 program.

 

(11)   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.

 

(12)   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.

 

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Figure 29. FY2017 All Other Compensation Table

 

All Other Compensation Table for Fiscal Year 2017  
    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     8,041       —         —         2,500       10,541  
Timothy M. Archer     8,801       —         —         2,500       11,301  
Douglas R. Bettinger     7,983       —         —         —         7,983  
Richard A. Gottscho     8,133       1,174       —         —         9,307  
Sarah A. O’Dowd     5,407       —         175       2,500       8,082  

 

(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.

Figure 30. FY2017 Grants of Plan-Based Awards

 

Grants of Plan-Based Awards for Fiscal Year 2017  
                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)
 
  Annual Incentive Program   N/A   2/8/17     1,485,000       3,341,250       —         —         —         —         —         —    
  LTIP-Equity                                                                        
Martin B. Anstice  

Market-based PRSUs

  3/1/17   2/8/17                     34,539 (4)       51,808 (4)       —         —         —         3,859,733  
 

Service-based RSUs

  3/1/17   2/8/17                     —         —         27,631 (5)       —         —         3,164,181  
   

Stock Options

  3/1/17   2/8/17                     —         —         —         27,628 (6)       119.67       758,314  
  Annual Incentive Program   N/A   2/7/17     735,204       1,654,208       —         —         —         —         —         —    
  LTIP-Equity                                                                        
Timothy M. Archer  

Market-based PRSUs

  3/1/17   2/7/17                     19,428 (4)       29,142 (4)       —         —         —         2,171,079  
 

Service-based RSUs

  3/1/17   2/7/17                     —         —         15,542 (5)       —         —         1,779,802  
   

Stock Options

  3/1/17   2/7/17                     —         —         —         15,540 (6)       119,67       426,531  
  Annual Incentive Program   N/A   2/7/17     525,609       1,182,620       —         —         —         —         —         —    
  LTIP-Equity                                                                        
Douglas R. Bettinger  

Market-based PRSUs

  3/1/17   2/7/17                     11,872 (4)       17,808 (4)       —         —         —         1,326,696  
 

Service-based RSUs

  3/1/17   2/7/17                     —         —         9,498 (5)       —         —         1,087,669  
   

Stock Options

  3/1/17   2/7/17                     —         —         —         9,496 (6)       119.67       260,640  
  Annual Incentive Program   N/A   2/7/17     510,592       1,148,831       —         —         —         —         —         —    
  LTIP-Equity                                                                        
Richard A. Gottscho  

Market-based PRSUs

  3/1/17   2/7/17                     14,031 (4)       21,046 (4)       —         —         —         1,567,964  
 

Service-based RSUs

  3/1/17   2/7/17                     —         —         11,225 (5)       —         —         1,285,438  
   

Stock Options

  3/1/17   2/7/17                     —         —         —         11,224 (6)       119.67       362,059  
  Annual Incentive Program   N/A   2/7/17     369,873       832,214       —         —         —         —         —         —    
  LTIP-Equity                                                                        
Sarah A. O’Dowd  

Market-based PRSUs

  3/1/17   2/7/17                     6,044 (4)       9,066 (4)       —         —         —         675,417  
 

Service-based RSUs

  3/1/17   2/7/17                     —         —         4,835 (5)       —         —         553,683  
   

Stock Options

  3/1/17   2/7/17                     —         —         —         4,832 (6)       119.67       155,869  

 

(1)   The AIP target and maximum estimated future payouts reflected in this table were calculated using the base salary approved in February 2017, effective as of February 27, 2017. Awards payouts range from 0% to 225% of target.

 

(2)   The amounts reported represent the target and maximum number of Market-based PRSUs that may vest on the terms described in “ Executive Compensation and Other Information Compensation Discussion and Analysis” above. The number of shares that may be earned is equal to 0% to 150% of target.

 

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Lam Research Corporation 2017 Proxy Statement   31


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(3)   The amounts reported represent the fair value of Market-based PRSU, service-based RSU and stock option awards granted during fiscal year 2017 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 awards granted during fiscal year 2017 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 25, 2017.

 

(4)   The Market-based PRSUs vest on March 1, 2020, 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 2018, 2019 and 2020, subject to continued employment.

 

(6)   One-third of the stock options will become exercisable on March 1 of each of 2018, 2019 and 2020, subject to continued employment.

Figure 31. FYE2017 Outstanding Equity Awards

 

Outstanding Equity Awards at 2017 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             27,628 (2)       119.67       3/1/24                                  
                                    27,631 (3)       4,193,833                  
                                                    34,539 (4)       5,242,329  
    21,701 (5)       43,402 (5)       75.57       3/1/23                                  
                                    21,702 (6)       3,293,930                  
                                                    54,253 (7)       8,234,520  
    16,748 (8)       8,374 (8)       80.60       2/11/22                                  
                                    11,166 (9)       1,694,775                  
                                                    41,873 (10)       6,355,484  
    25,114 (11)               51.76       2/18/21                                  
    18,834 (12)               51.76       2/18/21                                  
Timothy M. Archer             15,540 (2)       119.67       3/1/24                                  
                                    15,542 (3)       2,358,965                  
                                                    19,428 (4)       2,948,782  
    11,574 (5)       23,148 (5)       75.57       3/1/23                                  
                                    11,574 (6)       1,756,702                  
                                                    28,935 (7)       4,391,754  
    8,684 (8)       4,342 (8)       80.60       2/11/22                                  
                                    5,790 (9)       878,806                  
                                                    21,712 (10)       3,295,447  
    17,385 (11)               51.76       2/18/21                                  
    8,691 (12)               51.76       2/18/21                                  
Douglas R. Bettinger             9,496 (2)       119.67       3/1/24                                  
                                    9,498 (3)       1,441,606                  
                                                    11,872 (4)       1,801,932  
    7,957 (5)       15,914 (5)       75.57       3/1/23                                  
                                    7,957 (6)       1,207,713                  
                                                    19,892 (7)       3,019,208  
    6,202 (8)       3,101 (8)       80.60       2/11/22                                  
                                    4,136 (9)       627,762                  
                                                    15,508 (10)       2,353,804  
    9,658 (11)               51.76       2/18/21                                  
      7,242 (12)               51.76       2/18/21                                  

 

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Outstanding Equity Awards at 2017 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)

 
Richard A. Gottscho             11,224 (2)       119.67       3/1/24                                  
                                    11,225 (3)       1,703,731                  
                                                    14,031 (4)       2,129,625  
            18,806 (5)       75.57       3/1/23                                  
                                    9,404 (6)       1,427,339                  
                                                    23,509 (7)       3,568,196  
            3,722 (8)       80.60       2/11/22                                  
                                    4,963 (9)       753,284                  
                                                    18,610 (10)       2,824,626  
Sarah A. O’Dowd             4,832 (2)       119.67       3/1/24                                  
                                    4,835 (3)       733,856                  
                                                    6,044 (4)       917,358  
    4,050 (5)       8,100 (5)       75.57       3/1/23                                  
                                    4,051 (6)       614,861                  
                                                    10,127 (7)       1,537,076  
    3,224 (8)       1,612 (8)       80.60       2/11/22                                  
                                    2,151 (9)       326,479                  
                                                    8,064 (10)       1,223,954  
    7,533 (11)               51.76       2/18/21                                  
    3,765 (12)               51.76       2/18/21                                  
      22,140 (13)               42.61       2/8/20                                  

 

(1)   Calculated by multiplying the number of unvested shares by $151.78 the closing price per share of our common stock on June 23, 2017.

 

(2)   The stock options were granted on March 1, 2017. One-third of the stock options will become exercisable on March 1 of each 2018, 2019 and 2020, subject to continued employment.

 

(3)   The RSUs were granted on March 1, 2017. One-third of the RSUs will vest on March 1 of each of 2018, 2019 and 2020, subject to continued employment.

 

(4)   The Market-based PRSUs were granted on March 1, 2017. The Market-based PRSUs will vest on March 1, 2020, subject to continued employment. 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.

 

(5)   The stock options were granted on March 1, 2016. As of the 2017 fiscal year end, one-third of the stock options had become exercisable. One-third of the stock options will become exercisable on March 1 of each 2018 and 2019, subject to continued employment.

 

(6)   The RSUs were granted on March 1, 2016. As of the 2017 fiscal year end, one-third of the RSUs vested. One-third of the RSUs will vest on March 1 of each 2018 and 2019, subject to continued employment.

 

(7)   The Market-based PRSUs were granted on March 1, 2016. The Market-based PRSUs will vest on March 1, 2019, subject to continued employment. 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.

 

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

 

(9)   The RSUs were granted on February 11, 2015. As of the 2017 fiscal year end, two-thirds of the RSUs vested. One-third of the RSUs will vest on February 11, 2018, subject to continued employment.

 

(10)   The Market-based PRSUs were granted on February 11, 2015. The Market-based PRSUs will vest on February 11, 2018, subject to continued employment. 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.

 

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(11)   Stock options were granted on February 18, 2014. As of the 2017 fiscal year-end, the stock options had become exercisable.

 

(12)   Stock options were granted as part of the Gap Year Award on February 18, 2014. As of the 2017 fiscal year end, the stock options had become exercisable.

 

(13)   Stock options were granted on February 8, 2013. As of the 2017 fiscal year-end, the stock options had become exercisable.

Figure 32. FY2017 Option Exercises and Stock Vested

 

Option Exercises and Stock Vested for Fiscal Year 2017 (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     —         —         132,943       15,339,076  
Timothy M. Archer     93,303       7,267,322       62,773       7,246,533  
Douglas R. Bettinger     —         —         50,776       5,857,645  
Richard A. Gottscho     75,098       4,297,581       52,327       6,040,206  
Sarah A. O’Dowd     —         —         26,359       3,040,652  

 

(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 2017, which ended on June 25, 2017.

Figure 33. FY2017 Non-Qualified Deferred Compensation

 

Non-Qualified Deferred Compensation for Fiscal Year 2017  
Name   Executive
Contributions
in FY 2017
($) (1)
    Registrant
Contributions
in FY 2017
($) (2)
    Aggregate
Earnings in
FY 2017
($) (3)
    Aggregate
Balance at
FYE 2017
($) (4)
 
Martin B. Anstice     446,676       2,500       648,568       5,710,357  
Timothy M. Archer     452,881       2,500       434,527       4,853,074  
Douglas R. Bettinger     14,437       —         339,673       1,785,235  
Richard A. Gottscho     —         —         108,624       2,041,887  
Sarah A. O’Dowd     843,918       2,500       830,603       8,438,827  

 

(1)   The entire amount of each executive’s contributions in fiscal year 2017 is reported in each respective NEO’s compensation in our fiscal year 2017 “ 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 2016, to a maximum benefit of $2,500. These amounts are included in the “ Summary Compensation Table ” and “ All Other Compensation Table For Fiscal Year 2017 .”

 

(3) The NEOs did not receive above-market or preferential earnings in fiscal year 2017.

 

(4)   The fiscal year-end balance includes $4,612,613 for Mr. Anstice, $3,963,166 for Mr. Archer, $1,431,125 for Mr. Bettinger, $1,933,263 for Dr. Gottscho, and $6,761,806 for Ms. O’Dowd that were previously reported in the “ Non-Qualified Deferred Compensation for Fiscal Year 2016 ” table in our 2016 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.

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.

 

 

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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 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 program 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 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.

 

 

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The severance terms of Mr. Archer’s agreement are generally similar to those of Mr. Anstice’s agreement, provided that (1) 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 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 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 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 agreement contains 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: (1) a merger or consolidation in which the Company is not the surviving entity, (2) a sale of substantially all of the Company’s assets, including a liquidation or dissolution of the Company, or (3) 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 2017. These amounts are calculated assuming that the employment termination or change in control occurs on the last day of fiscal year 2017, June 25, 2017. The closing price per share of our common stock on June 23, 2017, which was the last trading day of fiscal year 2017, was $151.78. 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 2017.

 

 

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Figures 34 – 38.

Potential Payments to NEOs upon Termination or Change in Control as of FYE2017

 

Potential Payments to Mr. Anstice upon Termination or Change in Control as of June 25, 2017  
          Involuntary Termination  
   

Voluntary

Termination

($)

    Disability
or Death
($)
   

For

Cause

[$)

   

Not for

Cause

($)

    Change in
Control
($)
 

Compensation

                                       
Severance     —         —         —         1,485,000       1,980,000  
Short-term Incentive (5-year average)     —         —         —         1,647,767       3,295,533  
Short-term Incentive (pro rata)     —         618,750       —         618,750       686,569  
Long-term Incentives:                                        

Stock Options (Unvested and Accelerated)

    —         1,469,171       —         612,145       4,790,863  

Service-Based Restricted Stock Units (Unvested and Accelerated)

    —         3,485,324       —         976,666       9,182,538  

Performance-Based Restricted Stock Units (Unvested and Accelerated)

    —         17,589,862       —         14,377,029       24,601,953  

Benefits and Perquisites

                                       
Health Benefit Continuation/COBRA Benefit     —         21,543       —         21,543       21,543  

Total

    —         23,184,650       —         19,738,900       44,558,999  

 

Potential Payments to Mr. Archer upon Termination or Change in Control as of June 25, 2017  
          Involuntary Termination  
   

Voluntary

Termination

($)

    Disability
or Death
($)
   

For

Cause

($)

   

Not for

Cause

($)

    Change in
Control
($)
 

Compensation

                                       
Severance     —                 —         668,367       1,002,551  
Short-term Incentive (5-year average)     —                 —         434,643       1,303,929  
Short-term Incentive (pro rata)     —         306,335       —         306,335       362,203  
Long-term Incentives:                                        

Stock Options (Unvested and Accelerated)

    —         793,543       —         323,535       2,572,162  

Service-Based Restricted Stock Units (Unvested and Accelerated)

    —         1,911,593       —         512,523       4,994,473  

Performance-Based Restricted Stock Units (Unvested and Accelerated)

    —         9,379,428       —         7,584,386       13,151,331  

Benefits and Perquisites

                                       
Health Benefit Continuation/COBRA Benefit     —         32,314       —         32,314       32,314  

Total

    —         12,423,213       —         9,862,103       23,418,963  

 

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Potential Payments to Mr. Bettinger upon Termination or Change in Control as of June 25, 2017  
          Involuntary Termination  
   

Voluntary

Termination

($)

    Disability
or Death
($)
   

For

Cause

($)

   

Not for

Cause

($)

    Change in
Control
($)
 

Compensation

                                       
Severance     —                 —         584,010       876,015  
Short-term Incentive (5-year average)     —                 —         324,562       973,685  
Short-term Incentive (pro rata)     —         219,004       —         219,004       270,468  
Long-term Incentives:                                        

Stock Options (Unvested and Accelerated)

    —         529,236       —         225,177       1,738,452  

Service-Based Restricted Stock Units (Unvested and Accelerated)

    —         1,231,986       —         360,218       3,277,082  

Performance-Based Restricted Stock Units (Unvested and Accelerated)

    —         6,390,384       —         5,276,486       8,925,962  

Benefits and Perquisites

                                       
Health Benefit Continuation/COBRA Benefit     —         23,071       —         23,071       23,071  

Total

    —         8,393,681       —         7,012,528       16,084,735  

 

Potential Payments to Dr. Gottscho upon Termination or Change in Control as of June 25, 2017  
          Involuntary Termination  
   

Voluntary

Termination

($)

    Disability
or Death
($)
   

For

Cause

($)

   

Not for

Cause

($)

    Change in
Control
($)
 

Compensation

                                       
Severance     —         —         —         567,324       850,986  
Short-term Incentive (5-year average)     —         —         —         304,451       913,352  
Short-term Incentive (pro rata)     —         212,747       —         212,747       253,709  
Long-term Incentives:                                        

Stock Options (Unvested and Accelerated)

    —         626,813       —         267,461       2,058,540