DEF 14A 1 a-def14a_20180321.htm DEF 14A a-def14a_20180321.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

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5301 Stevens Creek Boulevard
Santa Clara, California 95051
(408) 553-2424

Notice of Annual Meeting of Stockholders

 

TIME

:

8:00 a.m., Pacific Time, on Wednesday, March 21, 2018

 

 

 

PLACE

:

Corporate Headquarters

 

 

5301 Stevens Creek Boulevard, Building No. 5

 

 

Santa Clara, California 95051 USA

 

 

 

AGENDA

:

1.   To elect three directors to a three-year term. At the annual meeting, the Board of Directors intends to present the following nominees for election as directors:

 

 

 

 

 

  Koh Boon Hwee

  Michael R. McMullen; and

  Daniel K. Podolsky, M.D.

 

 

 

 

 

2.   To approve the amendment and restatement of our 2009 Stock Plan.

 

 

 

 

 

3.   To approve, on a non-binding advisory basis, the compensation of our named executive officers.

 

 

 

 

 

4.   To ratify the Audit and Finance Committee’s appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm.

 

 

 

5.   To consider such other business as may properly come before the annual meeting.

 

RECORD DATE

:

You are entitled to vote at the annual meeting and at any adjournments, postponements or continuations thereof if you were a stockholder at the close of business on Tuesday, January 23, 2018.

 

 

 

VOTING

:

For instructions on voting, please refer to the instructions on the Notice of Internet Availability of Proxy Materials you received in the mail or, if you received a hard copy of the Proxy Statement, on your enclosed proxy card.

 

 

 

ADMISSION

:

To be admitted to the annual meeting, you must present proof of ownership of our stock as of the record date. This can be a brokerage statement or letter from a bank or broker indicating ownership on January 23, 2018, the Notice of Internet Availability of Proxy Materials, a proxy card, or legal proxy or voting instruction card provided by your broker, bank or nominee. You may also be asked to present a form of photo identification such as a driver’s license or passport. The annual meeting will begin promptly at 8:00 a.m.

 

 

 

WEBCAST

:

If you are unable to attend the annual meeting in person, you may listen through the Internet or by telephone. To listen to the live webcast, log on at www.investor.agilent.com and select the link for the webcast. To listen by telephone, please call (877) 312-5529 (international callers should dial (253) 237-1147).  The meeting identification number is 9585968. The webcast will begin at 8:00 a.m. and will remain on the company’s website for one year. You cannot record your vote or ask questions on this website or at this phone number.

 

 

By Order of the Board of Directors

 

 

MICHAEL TANG

 

Senior Vice President, General Counsel and Secretary

 

 

 

This Proxy Statement and the accompanying proxy card are being sent or made available
on or about February 7, 2018.

 


SUMMARY INFORMATION

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement contains forward-looking statements as defined in the Securities Exchange Act of 1934 and is subject to the safe harbors created therein. The forward-looking statements contained herein are generally identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on the beliefs and assumptions of our management and on currently available information. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in our annual report on Form 10-K for the fiscal year ended October 31, 2017.  We undertake no responsibility to publicly update or revise any forward-looking statement.

PROXY SUMMARY

The following is a summary which highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information you should consider, and you are urged to read the entire Proxy Statement carefully before voting.

Voting Matters and Vote Recommendations

We currently expect to consider four items of business at the 2018 annual meeting. The following table lists those items of business and our Board’s vote recommendation.

 

 

PROPOSAL

BOARD RECOMMENDATION

REASONS FOR RECOMMENDATION

MORE INFORMATION

(1)

Election of three directors to a three-year term

FOR

The Board and the Nominating/Corporate Governance Committee believe our nominees possess the skills, experience and qualifications to effectively monitor performance, provide oversight and support management’s execution of our long-term strategy.

5

 

(2)

Approval of the Amendment and Restatement of 2009 Stock Plan

FOR

The Board strongly believes that its equity compensation programs and emphasis on employee stock ownership have been integral to the Company’s success and that a continuation of those programs is necessary for the Company to achieve superior performance in the future.

18

(3)

Advisory vote to approve the compensation of our named executive officers

FOR

Our executive compensation program incorporates a number of compensation governance best practices and reflects our commitment to pay for performance.

55

(4)

Ratification of the independent registered public accounting firm

FOR

Based on its assessment, the Board and the Audit and Finance Committee believe that the appointment of PricewaterhouseCoopers LLP is in the best interests of the company and our stockholders.

56

 

2


SUMMARY INFORMATION

 

Director Nominees

Our Board is currently divided into three classes serving staggered three-year terms.  Robert J. Herbold’s current term expires at the annual meeting and he will not stand for re-election as he has reached the mandatory retirement age as set forth in our Corporate Governance Standards.   The following table provides summary information about each of the three director nominees who are being voted on at the annual meeting.   

 

 

 

DIRECTOR

SINCE

 

COMMITTEE

MEMBERSHIPS

NAME

AGE

OCCUPATION

Koh Boon Hwee

67

2003

Managing Partner

  Executive (Chair)

 

 

 

Credence Capital Fund II (Cayman) Ltd.

  Nominating/Corporate Governance (Chair)

 

 

 

 

 

Michael R. McMullen

56

2015

President and Chief Executive Officer

  Executive

 

 

 

Agilent Technologies, Inc.

 

 

 

 

 

 

Daniel K. Podolsky, M.D.

64

2015

President

  Audit and Finance

 

 

 

University of Texas Southwestern

  Nominating/Corporate Governance

 

 

 

Medical Center

 

Corporate Governance Highlights

The Board is committed to sound and effective governance practices that promote long-term stockholder value and strengthen Board and management accountability to our stockholders, customers and other stakeholders. The following table highlights many of our key governance practices.  Specific details on our governance practices can be found starting on page 12.

 

 

Ten of our 11 directors are independent

 

 

Annual board self-assessment process, including peer evaluations

 

Independent standing board committees

 

 

Majority voting and director resignation policy in uncontested director elections

 

Strong independent lead director

 

 

Continued assessment of highly qualified, diverse and independent candidates for nomination to the board

 

Regular meetings of our independent directors without management present

 

 

Strong focus on pay-for-performance

 

Diverse board with an effective mix of skills, experience and perspectives

 

 

Proactive stockholder engagement

 

Four new independent directors added during the past four years

 

 

Policies prohibiting hedging, short selling and pledging of our common stock

 

Varied lengths of Board tenure with an average tenure of 7 years for directors whose terms continue after this annual meeting

 

 

Stock ownership guidelines for executive officers and directors

 

 

 

3


TABLE OF CONTENTS

 

2018 ANNUAL MEETING OF STOCKHOLDERS

NOTICE OF ANNUAL MEETING AND PROXY STATEMENT

TABLE OF CONTENTS

 

 

Page

PROPOSAL 1 – ELECTION OF DIRECTORS

5

Director Nominees for Election to New Three-Year Terms That Will Expire in 2021

5

Directors Whose Terms Will Expire in 2019

7

Directors Whose Terms Will Expire in 2020

8

COMPENSATION OF NON-EMPLOYEE DIRECTORS

10

Summary of Non-Employee Director Annual Compensation for the 2017 Plan Year

10

Non-Employee Director Compensation for Fiscal Year 2017

11

Non-Employee Director Reimbursement

11

Non-Employee Director Stock Ownership Guidelines

11

CORPORATE GOVERNANCE

12

Board Leadership Structure

12

Board’s Role in Risk Oversight

12

Majority Voting for Directors

12

Board Communications

13

Director Stockholder Meeting Attendance

13

Director Independence

13

Compensation Committee Member Independence

13

Director Nomination Criteria: Qualifications and Experience

14

Compensation Committee Interlocks and Insider Participation

14

Committees of the Board of Directors

15

Related Person Transactions Policy and Procedures

16

Transactions with Related Persons

16

PROPOSAL 2 – APPROVAL OF THE AMENDMENT AND RESTATEMENT OF 2009 STOCK PLAN

18

COMPENSATION DISCUSSION AND ANALYSIS

28

Executive Summary

29

Determining Executive Pay

31

Fiscal Year 2017 Compensation

34

Additional Information

40

COMPENSATION COMMITTEE REPORT

44

EXECUTIVE COMPENSATION

45

Summary Compensation Table

45

Grants of Plan-Based Awards

46

Outstanding Equity Awards at Fiscal Year-End

47

Option Exercises and Stock Vested

48

Pension Benefits

49

Non-Qualified Deferred Compensation

51

Termination and Change of Control Arrangements

52

PROPOSAL 3 – ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

55

PROPOSAL 4 – RATIFICATION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

56

AUDIT MATTERS

57

Fees Paid to PricewaterhouseCoopers LLP

57

Policy on Preapproval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

57

AUDIT AND FINANCE COMMITTEE REPORT

58

BENEFICIAL OWNERSHIP

59

Stock Ownership of Certain Beneficial Owners

59

Stock Ownership of Directors and Officers

60

Section 16(a) Beneficial Ownership Reporting Compliance

60

GENERAL INFORMATION

61

APPENDIX A

A-1

APPENDIX B

B-1

 

 

 

 

4


PROPOSAL 1 - ELECTION OF DIRECTORS

 

PROPOSAL 1 – ELECTION OF DIRECTORS

Our Board is divided into three classes serving staggered three-year terms. Directors for each class are elected at the annual meeting of stockholders held in the year in which the term for their class expires.  Our Bylaws, as amended, allow the Board to fix the number of directors by resolution. Our Board currently consists of eleven directors divided into three classes.  The terms of four directors will expire at this annual meeting.  However, Robert J. Herbold will not stand for re-election at the annual meeting as he has reached the mandatory retirement age as set forth in our Corporate Governance Standards.   In addition, James G. Cullen has also reached the mandatory retirement age as set forth in our Corporate Governance Standards and will retire immediately before the annual meeting.  

On January 17, 2018, the Board, upon the recommendation of its Nominating/Corporate Governance Committee, increased the size of the Board from 11 to 12 members and appointed Dow R. Wilson to fill the vacancy so created, both effective March 20, 2018. Mr. Wilson was appointed to serve as a Class II director and will stand for re-election at the 2020 Annual Meeting of Stockholders. Mr. Wilson will serve on the Audit and Finance Committee and Nominating/Corporate Governance Committee of our Board.

Mr. Wilson, age 58, has served as president, chief executive officer and a member of the Board of Directors of Varian Medical Systems, Inc. (“Varian Medical”) since September 2012.  Prior to that, Mr. Wilson served in various capacities with Varian, including executive vice president and chief operating officer from October 2011 to September 2012 and vice president Varian Medical and president of Varian Medical Oncology Systems business from January 2005 to September 2011.  Prior to joining Varian Medical in 2005, Mr. Wilson held various senior management positions with GE Healthcare, a diversified industrial company.  Mr. Wilson serves on the board of directors of Varex Imaging Corporation, a manufacturer of X-ray imaging components.

As a result of the retirements of Messrs. Cullen and Herbold and the appointment of Mr. Wilson, the Board intends to reduce the authorized number of directors to ten, effective immediately upon the adjournment of the Annual Meeting.  The current composition of the Board and the term expiration dates for each director is as follows:

 

 

 

 

 

Class

 

Directors

Term Expires

III

 

Robert J. Herbold, Koh Boon Hwee, Michael R. McMullen and Daniel K. Podolsky, M.D.

2018

I

 

Hans E. Bishop, Paul N. Clark, James G. Cullen and Tadataka Yamada, M.D.

2019

II

 

Heidi Kunz, Sue H. Rataj and George A. Scangos, PhD

2020

Director Nominees for Election to New Three-Year Terms That Will Expire in 2021

 

Directors elected at the 2018 annual meeting will hold office for a three-year term expiring at the annual meeting in 2021 (or until their respective successors are elected and qualified, or until their earlier death, resignation or removal). All nominees are currently serving as our directors. To the best knowledge of the Board, all of the nominees are able and willing to serve.  Each nominee has consented to be named in this proxy statement and to serve if elected.  Information regarding each nominee is provided below as of December 31, 2017. There are no family relationships among our executive officers and directors.

 

KOH BOON HWEE

 

 

 

Age: 67
Director Since: May 2003

 

Board Committees:

Other Public Directorships:

   

   

Executive (Chair)

Nominating/Corporate Governance (Chair)

 

 

 

AAC Technologies Holdings, Inc. Sunningdale Tech, Ltd.

Yeo Hiap Seng Ltd.

Far East Orchard Ltd.

 

 

 

 

Former Public Directorships Held During the Past Five Years:

 

 

   

 

Yeo Hiap Seng (Malaysia) Bhd.

 

Mr. Koh has served as non-Executive Chairman of our Board since March 2017.  Mr. Koh is the managing partner of Credence Capital Fund II (Cayman) Ltd., a private equity fund. Mr. Koh has served as the non-Executive Chairman of Sunningdale Tech Ltd. since January 2009 and previously served as its Executive Chairman and Chief Executive Officer from July 2005 to January 2009. He has served as the non-Executive Chairman of Yeo Hiap Seng Ltd. since April 2010, the non-Executive Chairman of Rippledot Capital

5


PROPOSAL 1 - ELECTION OF DIRECTORS

 

Advisers Pte. Ltd. since February 2011 and the non-Executive Chairman of Far East Orchard Ltd. since April 2013. He served as Executive Director of MediaRing Limited from February 2002 to August 2009; Chairman of DBS Bank Ltd. from January 2006 to April 2010; Chairman of Singapore Airlines from July 2001 to December 2005 and Chairman of Singapore Telecom from April 1992 to August 2001. Mr. Koh spent fourteen years with Hewlett-Packard Company in its Asia Pacific region.

Qualifications

Mr. Koh possesses a strong mix of leadership and operational experience from his various senior positions with Sunningdale Tech, AAC Technologies, MediaRing Limited, DBS Bank, Singapore Airlines and Singapore Telecom. In addition, Mr. Koh has deep experience in the Asia Pacific region and brings that knowledge and perspective to the Board. Mr. Koh has extensive experience with our company and its predecessor, Hewlett-Packard, having served on our board for over 10 years and having spent 14 years with Hewlett-Packard.

 

MICHAEL R. MCMULLEN

 

 

 

 

Age: 56
Director Since: March 2015

 

Board Committees:

 

Other Public Directorships:

   

   

Executive

      

 

None

 

 

 

 

Former Public Directorships Held During the Past Five Years:

 

 

 

None

 

 

Mr. McMullen has served as our Chief Executive Officer since March 2015 and as President since September 2014. From September 2014 to March 2015 he also served as our Chief Operating Officer. From September 2009 to September 2014 he served as Senior Vice President, Agilent and President, Chemical Analysis Group. From January 2002 to September 2009, he served as our Vice President and General Manager of the Chemical Analysis Solutions Unit of the Life Sciences and Chemical Analysis Group. Prior to assuming this position, from March 1999 to December 2001, Mr. McMullen served as Country Manager for our China, Japan and Korea Life Sciences and Chemical Analysis Group. Prior to this position, Mr. McMullen served as the Controller for the Hewlett-Packard Company and Yokogawa Electric Joint Venture from July 1996 to March 1999.

Qualifications

Mr. McMullen has broad and deep experience with the company and its businesses having been an employee of the company and its predecessor, Hewlett-Packard, for over 20 years. During the course of his career, he has developed considerable expertise in, and in-depth knowledge of, our businesses from the perspective of an individual contributor and at numerous levels of management. This perspective gives valuable insight to our board.

 

DANIEL K. PODOLSKY, M.D.

Age: 64
Director Since: July 2015

 

Board Committees:

Other Public Directorships:

   

   

Audit and Finance

Nominating/Corporate Governance

 

   

 

 

None

 

 

 

 

 

 

Former Public Directorships Held During the Past Five Years:

 

 

   

 

GlaxoSmithKline PLC

 

Dr. Podolsky has served as President of the University of Texas Southwestern Medical Center, a leading academic medical center, patient care provider and research institution, since September 2008. Previously Dr. Podolsky also served concurrently as Mallinckrodt Professor of Medicine at Harvard Medical School and the Chief of Gastroenterology at Massachusetts General Hospital. From 2005 to 2008, Dr. Podolsky served as Chief Academic Officer and Faculty Dean, Academic Programs of Partners Healthcare System, Inc., a non-profit health care system committed to patient care, research, teaching and service. Dr. Podolsky holds the Philip O’Bryan Montgomery, Jr., M.D. Distinguished Presidential Chair in Academic Administration, and the Doris and Bryan Wildenthal Distinguished Chair in Medical Science. He is a member of the National Academy of Medicine of the US National Academy of Sciences, member of the Board of the Southwestern Medical Foundation and is a member of the Scientific Advisory Board of Antibe Therapeutics, Inc., a company focused on the treatment of diseases characterized by inflammation, pain and/or vascular dysfunction. Dr. Podolsky is also a member of the National Academies of Sciences Board on Army Science and Technology.

6


PROPOSAL 1 - ELECTION OF DIRECTORS

 

Qualifications

Dr. Podolsky’s current responsibilities in leading a large academic medical center give him relevant insight into healthcare delivery and bring scientific expertise to the Board.

Vote Required

Under our majority voting standard, in uncontested elections of directors, such as this election, each director must be elected by the affirmative vote of a majority of the votes cast by the shares present in person or represented by proxy and entitled to vote. A “majority of the votes cast” means that the number of votes cast “FOR” a director must exceed 50% of the votes cast with respect to that director. Abstentions and broker non-votes will not count as a vote “FOR” or “AGAINST” a nominee’s election and thus will have no effect in determining whether a director nominee has received a majority of the votes cast.

The Board of Directors recommends a vote FOR the election to the Board of each of the
foregoing nominees.

 

The directors whose terms are not expiring this year and who will continue to serve as a director are listed below. They will continue to serve as directors for the remainder of their terms or such other date, in accordance with our Bylaws. Information regarding each of such directors is provided below as of December 31, 2017.

Directors Whose Terms Expire in 2019

 

HANS E. BISHOP

Age: 53
Director Since: July 2017

 

Board Committees:

Other Public Directorships:

   

   

Compensation

Nominating/Corporate Governance

 

   

 

Juno Therapeutics, Inc.

 

 

 

 

 

 

 

Former Public Directorships Held During the Past Five Years:

 

 

Avanir Pharmaceuticals, Inc.

 

Mr. Bishop has served as president, chief executive officer and a member of the Board of Directors of Juno Therapeutics, Inc. since September 2013.  From February 2012 until October 2012, Mr. Bishop was the chief operating officer of Photothera Inc., a late-stage medical device company owned by Warburg Pincus, and he continued working with Warburg Pincus as an Executive in Residence until October 2013. Prior to joining Photothera Inc., Mr. Bishop served as executive vice president and chief operating officer at Dendreon Corporation, a publicly-traded biopharmaceutical company, from January 2010 to September 2011. Mr. Bishop has also served as the president of the specialty medicine business at Bayer Healthcare Pharmaceuticals Inc. from December 2006 to January 2010, where he was responsible for a diverse portfolio of neurology, oncology and hematology products.

Qualifications

 

Mr. Bishop brings a valuable set of skills to our Board through his broad experience as an operating officer within the pharmaceutical industry and executive experience in the biotechnology industry.

 

PAUL N. CLARK

Age: 70
Director Since: May 2006

 

Board Committees:

Other Public Directorships:

   

   

Audit and Finance (Chair)

Nominating/Corporate Governance

 

 

 

Keysight Technologies, Inc.

 

 

 

 

 

 

Former Public Directorships Held During the Past Five Years:

 

 

   

 

Amylin Pharmaceuticals, Inc.

Biolase, Inc.

 

Mr. Clark was a Strategic Advisory Board member of Genstar Capital, LLC from August 2007 to December 2016 and was an Operating Partner from August 2007 to January 2013.  Genstar Capital LLC is a middle market private equity firm that focuses on investments in selected segments of life sciences and healthcare services, industrial technology, business services and software.

7


PROPOSAL 1 - ELECTION OF DIRECTORS

 

Prior to that, Mr. Clark was the Chief Executive Officer and President of ICOS Corporation, a biotherapeutics company, from June 1999 to January 2007, and the Chairman of the Board of Directors of ICOS from February 2000 to January 2007. From 1984 to December 1998, Mr. Clark worked in various capacities for Abbott Laboratories, a health care products manufacturer, retiring from Abbott Laboratories as Executive Vice President and a board member. His previous experience included senior positions with Marion Laboratories, a pharmaceutical company, and Sandoz Pharmaceuticals (now Novartis Corporation), a pharmaceutical company.

Qualifications

 

Mr. Clark has significant experience in the pharmaceutical and biotechnology industries, including his experience serving in senior management positions with ICOS Corporation, Abbott Laboratories, Marion Laboratories and Sandoz Pharmaceuticals.  In addition, Mr. Clark brings considerable public company director experience as well as his extensive experience within our industry and expertise in business finance.  Mr. Clark is the chairperson of our Audit and Finance Committee and is qualified as a financial expert under SEC guidelines.

 

TADATAKA YAMADA, M.D.

 

Age: 72
Director Since: January 2011

 

Board Committees:

Other Public Directorships:

   

   

Compensation (Chair)

Nominating/Corporate Governance

 

   

 

 

CSL Limited

 

 

 

 

 

 

Former Public Directorships Held During the Past Five Years:

 

 

Takeda Pharmaceutical Co. Ltd.

 

Dr. Yamada is currently a Venture Partner on the Life Sciences team of Frazier Healthcare Partners, a healthcare-focused investment firm. From June 2011 to June 2015, Dr. Yamada served as the Chief Medical and Scientific Officer of Takeda Pharmaceuticals International, Inc., a research-based global pharmaceutical company. Dr. Yamada previously served as President of the Global Health Program of the Bill & Melinda Gates Foundation from June 2006 to June 2011. From 2000 to 2006, Dr. Yamada was Chairman of Research and Development for GlaxoSmithKline Inc. and prior to that, he held research and development positions at SmithKline Beecham. Prior to joining SmithKline Beecham, Dr. Yamada was Chairman of the Department of Internal Medicine at the University of Michigan Medical School and Physician-in-Chief of the University of Michigan Medical Center.

Qualifications

Dr. Yamada brings a unique perspective to our Board with his experience as the former President of the Global Health Program of the Bill & Melinda Gates Foundation as well as his significant research and development experience. Dr. Yamada’s extensive pharmaceutical industry knowledge gives him a unique insight into a number of issues we face.

Directors Whose Terms Expire in 2020

HEIDI KUNZ

Age: 63
Director Since: February 2000

 

Board Committees:

 

Other Public Directorships:

   

   

Compensation

Nominating/Corporate Governance

   

   

 

Financial Engines, Inc.

Halyard Health, Inc.

 

 

 

Former Public Directorships Held During the Past Five Years:

 

 

 

None

 

Ms. Kunz served as Executive Vice President and Chief Financial Officer of Blue Shield of California from 2003 through 2012 and as Executive Vice President and the Chief Financial Officer of Gap, Inc. from 1999 to 2003. Prior thereto, Ms. Kunz served as the Chief Financial Officer of ITT Industries, Inc. from 1995 to 1999. From 1979 to 1995, she held senior financial management positions at General Motors Corporation, including Vice President and Treasurer.

8


PROPOSAL 1 - ELECTION OF DIRECTORS

 

Qualifications

Ms. Kunz possesses significant experience in management and financial matters, having served as the Chief Financial Officer of both public and private companies. Ms. Kunz previously served as the chairperson of our Audit and Finance Committee and was qualified as a financial expert under SEC guidelines. In addition, Ms. Kunz has considerable experience and expertise with our company having been a member of our Board for over 10 years.  

 

SUE H. RATAJ

Age: 60
Director Since: September 2015

 

Board Committees:

 

Other Public Directorships:

   

   

Audit and Finance

Nominating/Corporate Governance

   

 

 

Cabot Corporation

 

 

 

 

Former Public Directorships Held During the Past Five Years:

 

 

   

Bayer A.G.

 

Ms. Rataj was Chief Executive, Petrochemicals for BP, a global energy company, until she retired in April 2011. In this role, she held responsibility for all of BP’s global petrochemical operations. Prior thereto, Ms. Rataj held a variety of senior management positions with BP, most recently serving as Group Vice President, Health, Safety, Operations and Technology for the Refining and Marketing Segment.

 

Qualifications

Ms. Rataj possesses significant leadership experience and business expertise from her executive positions with BP. Ms. Rataj has lived and worked extensively in the Asia Pacific and European regions and brings a global perspective to our Board. In addition, Ms. Rataj brings public company director experience and knowledge of public company management and governance practices.

 

GEORGE A. SCANGOS, PhD

Age: 69
Director Since: September 2014

 

Board Committees:

 

Other Public Directorships:

   

   

Compensation

Nominating/Corporate Governance

   

   

 

Exelixis, Inc.

 

 

 

 

Former Public Directorships Held During the Past Five Years:

 

 

Biogen Inc.

 

 

 

 

Dr. Scangos has served as Chief Executive Officer and a director of Vir Biotechnology, Inc. since January 2017.  From July 2010 to January 2017, Dr. Scangos served as the Chief Executive Officer and a director of Biogen Inc., a biopharmaceutical company. From 1996 to July 2010, Dr. Scangos served as the President and Chief Executive Officer of Exelixis, Inc., a drug discovery and development company. From 1993 to 1996, Dr. Scangos served as President of Bayer Biotechnology, where he was responsible for research, business development, process development, manufacturing, engineering and quality assurance of Bayer’s biological products. Before joining Bayer in 1987, Dr. Scangos was a Professor of Biology at Johns Hopkins University for six years.  Dr. Scangos served as the Chair of the California Healthcare Institute in 2010 and was a member of the Board of the Global Alliance for TB Drug Development from 2006 until 2010. He is also a member of the National Board of Visitors of the University of California, Davis School of Medicine and is currently an Adjunct Professor of Biology at Johns Hopkins University.

Qualifications

Dr. Scangos has extensive training as a scientist, significant knowledge and experience with respect to the biotechnology, healthcare and pharmaceutical industries, and a comprehensive leadership background resulting from service on various boards of directors and as an executive in the pharmaceutical industry.

 

 

 

9


COMPENSATION OF NON-EMPLOYEE DIRECTORS

 

COMPENSATION OF NON-EMPLOYEE DIRECTORS

Directors who are employed by us do not receive any compensation for their Board services. As a result, Mr. McMullen, our Chief Executive Officer, received no additional compensation for his services as a director. The general policy of the Board is that compensation for non-employee directors should be a mix of cash and equity-based compensation that is competitive with the compensation paid to non-employee directors within our peer group. The non-employee director’s compensation plan year begins on March 1 of each year (the “Plan Year”).

The table below sets forth the annual retainer, equity grants and committee premiums for the non-employee directors and the Non-Executive Chairman for the 2017 Plan Year:

Summary of Non-Employee Director Annual Compensation for the 2017 Plan Year

 

The following table sets forth the compensation that we provide to non-employee directors.  Each non-employee director may elect to defer all or part of the cash compensation to the 2005 Deferred Compensation Plan for Non-Employee Directors (“Director Deferral Plan”). Any deferred cash compensation is converted into shares of our common stock.

 

Board Compensation Elements

 

 

 

Member (1)

 

Chair (2)

 

Board Cash Retainer

 

$100,000

 

$155,000

 

Audit and Finance Committee Retainer

 

$10,000

 

$25,000

 

Compensation Committee Retainer

 

None

 

$20,000

 

Nominating/Corporate Governance Committee Retainer

 

None

 

$15,000

 

Annual Stock Grant (3)

 

$200,000 value

 

 

 

 

 

 

____________________________

(1)

Non-employee directors who serve as a member of the Audit and Finance Committee (excluding the Audit and Finance Committee Chair) receive an additional $10,000 retainer which is payable in cash at the beginning of each Plan Year.

(2)

Non-employee directors (excluding the Non-Executive Chairman) who serve as the chairperson of the Board or a Board committee receive an additional retainer which is payable in cash at the beginning of each Plan Year.  

(3)

The stock will be granted on the later of (i) March 1 or (ii) the first trading day after each Annual Meeting of Stockholders. The number of shares underlying the stock grant is determined by dividing $200,000 by the average fair market value of our common stock over 20 consecutive trading days up to and including the day prior to the grant date. The stock grant vests immediately upon grant and may be deferred pursuant to the Director Deferral Plan.  

A non-employee director who joins the Board of Directors after the start of the Plan Year will have his or her cash retainer, equity grant and committee premium pro-rated based upon the remaining days in the Plan Year that the director will serve.

In September 2017, the Compensation Committee and the Board, based on the recommendation of the Compensation Committee’s independent compensation consultant, Semler Brossy Consulting Group LLC (“Semler Brossy”), concluded that the current non-employee director compensation is competitive with Agilent’s peer group and would remain unchanged for the 2018 Plan Year.  

 

10


COMPENSATION OF NON-EMPLOYEE DIRECTORS

 

Non-Employee Director Compensation for Fiscal Year 2017

The table below sets forth information regarding the compensation earned by each of our non-employee directors during the fiscal year ended October 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

Cash

Non-Executive

Committee

Audit Committee

Stock

 

 

 

 

Retainer (1)

Chair Retainer (1)

Chair Retainer (1)

Member Retainer (1)

Awards (2)(3)

Total

 

 

Name

($)

($)

($)

($)

($)

($)

 

 

Hans E. Bishop (4)

65,934

 

-

-

134,600

200,534

 

 

Paul N. Clark

96,667

 

25,000

-

205,091

326,758

 

 

James G. Cullen (5)

96,667

51,668

-

-

205,091

353,426

 

 

Robert J. Herbold

96,667

 

-

10,000

205,091

311,758

 

 

Koh Boon Hwee (6)

96,667

103,334

-

-

205,091

405,092

 

 

Heidi Kunz

96,667

 

-

-

205,091

301,758

 

 

Daniel K. Podolsky, M.D.

96,667

 

-

10,000

205,091

311,758

 

 

Sue H. Rataj

96,667

 

-

10,000

205,091

311,758

 

 

George A. Scangos, PhD

96,667

 

-

-

205,091

301,758

 

 

Tadataka Yamada, M.D.

96,667

 

20,000

-

205,091

321,758

 

___________________

(1)

Reflects all cash compensation earned during fiscal year 2017, including amounts deferred pursuant to the Director Deferral Plan. Dr. Podolsky and Dr. Yamada elected to defer 50% and 100%, respectively, of all cash fees earned in fiscal year 2017 to the Director Deferral Plan.  The number of shares of our common stock received in lieu of cash pursuant to the Director Deferral Plan is determined by dividing the dollar value of the deferred cash amount by the twenty (20) day average fair market value for the applicable deferral date.

(2)

Reflects the aggregate grant date fair value for stock awards granted in fiscal year 2017 calculated in accordance with FASB ASC Topic 718. For more information regarding our application of FASB ASC Topic 718, including the assumptions used in the calculations of these amounts, please refer to Note 4 of Notes to Consolidated Financial Statements contained in our 2017 Annual Report on Form 10-K.  The dollar values of the stock awards represent stock grants of 3,866 shares for each non-employee director, excluding Mr. Bishop, who received a pro-rated stock grant of 2,199 shares.  

(3)

Stock awards granted to non-employee directors vest immediately upon grant.  Therefore, there were no stock awards outstanding at fiscal year-end.  Directors Herbold, Koh and Kunz each had an aggregate of 15,482 option awards outstanding at fiscal year-end.  

(4)

Mr. Bishop joined the board on July 18, 2017 and his cash retainer and equity grant were pro-rated.  

(5)

Mr. Cullen served as the Non-Executive Chairman of the Board from March 1, 2005 to March 15, 2017.

(6)

Mr. Koh has served as the Non-Executive Chairman of the Board since March 15, 2017.

Non-Employee Director Reimbursement

Non-employee directors are reimbursed for travel and other out-of-pocket expenses incurred in connection with their service on our Board.

Non-Employee Director Stock Ownership Guidelines

Non-employee directors are required to own shares of our common stock having a value of at least six times an amount equal to the annual cash retainer. The shares counted toward the ownership guidelines include shares owned outright and the shares of our common stock in the non-employee director’s deferred compensation account. For recently appointed non-employee directors, these ownership levels must be attained within five years from the date of their initial election or appointment to the board of directors. All of our incumbent non-employee directors have either achieved the recommended ownership level or are expected to achieve the recommended ownership level within five years of their initial election or appointment to our Board.

 

 

11


CORPORATE GOVERNANCE

 

CORPORATE GOVERNANCE

We have had formal corporate governance standards in place since our inception in 1999. We have reviewed internally and with the Board the provisions of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), the rules of the SEC and the NYSE’s corporate governance listing standards regarding corporate governance policies and processes and are in compliance with the rules and listing standards.

We have adopted charters for our Audit and Finance Committee, Compensation Committee, Executive Committee and Nominating/Corporate Governance Committee consistent with the applicable rules and standards. Our committee charters, Amended and Restated Corporate Governance Standards and Standards of Business Conduct are located in the Investor Relations section of our website and can be accessed by clicking on “Governance Policies” in the “Corporate Governance” section of our web page at www.investor.agilent.com.

Board Leadership Structure

We currently separate the positions of chief executive officer and chairman of the Board.  Mr. Cullen served as our chairman of the Board from March 2005 to March 2017.  Mr. Koh was appointed chairman of the Board in March 2017.  The responsibilities of the chairman of the Board include: setting the agenda for each Board meeting, in consultation with the chief executive officer; chairing the meetings of independent directors; and facilitating and conducting, with the Nominating/Corporate Governance Committee, the annual self-assessments by the Board and each standing committee of the Board, including periodic performance reviews of individual directors. Separating the positions of chief executive officer and chairman of the Board allows our chief executive officer to focus on our day-to-day business, while allowing the chairman of the Board to lead the Board in its fundamental role of providing advice to and independent oversight of management. The Board believes that having an independent director serve as chairman of the Board is the appropriate leadership structure for the company at this time.

However, our Corporate Governance Standards permit the roles of the chairperson of the Board and the chief executive officer to be filled by the same or different individuals. This provides the Board with flexibility to determine whether the two roles should be combined in the future based on our needs and the Board’s assessment of our leadership from time to time. Our Corporate Governance Standards provide that, in the event that the chairperson of the Board is also the chief executive officer, the Board may consider the election of an independent Board member as a lead independent director.

In 2014, we amended the Corporate Governance Standards to raise the mandatory retirement age for directors from 72 to 75.  The Board made the change in recognition of the contribution that experienced directors, with knowledge of the company, bring to effective board oversight.

Board’s Role in Risk Oversight

The Board executes its risk management responsibility directly and through its committees.  The full Board is kept abreast of risk oversight and other activities of its committees through reports of the committee chairpersons to the full Board during Board meetings.  The Audit and Finance Committee has primary responsibility for overseeing our enterprise risk management process. The Audit and Finance Committee receives updates and discusses individual and overall risk areas during its meetings, including our financial risk assessments, risk management policies and major financial risk exposures and the steps management has taken to monitor and control such exposures.

The Compensation Committee oversees risks associated with our compensation policies and practices with respect to both executive compensation and compensation generally.  The Compensation Committee receives reports and discusses whether our compensation policies and practices create risks that are reasonably likely to have a material adverse effect on the company.

Majority Voting for Directors

Our Bylaws provide for majority voting of directors regarding director elections. In an uncontested election, any nominee for director shall be elected by the vote of a majority of the votes cast with respect to the director. A “majority of the votes cast” means that the number of shares voted “FOR” a director must exceed 50% of the votes cast with respect to that director. The “votes cast” shall include votes to withhold authority and exclude votes to “ABSTAIN” with respect to that director’s election. If a director is not elected due to a failure to receive a majority of the votes cast and his or her successor is not otherwise elected and qualified, the director shall promptly tender his or her resignation following certification of the stockholder vote.

12


CORPORATE GOVERNANCE

 

The Nominating/Corporate Governance Committee will consider the resignation offer and recommend to the Board whether to accept or reject it, or whether other action should be taken. The Board will act on the Nominating/Corporate Governance Committee’s recommendation within 90 days following certification of the stockholder vote. Thereafter, the Board will promptly disclose their decision and the rationale behind it in a press release to be disseminated in the same manner as company press releases typically are distributed.  Any director who tenders his or her resignation pursuant to this provision shall not participate in the Nominating/Corporate Governance Committee recommendation or Board action regarding whether to accept the resignation offer.

Board Communications

Stockholders and other interested parties may communicate with the Board and our Non-Executive Chairperson of the Board of Directors by filling out the form at “Contact Chairman” under “Corporate Governance” at www.investor.agilent.com or by writing to Koh Boon Hwee, c/o Agilent Technologies, Inc., General Counsel, 5301 Stevens Creek Blvd., MS 1A-11, Santa Clara, California 95051. The General Counsel will perform a legal review in the normal discharge of duties to ensure that communications forwarded to the Non-Executive Chairperson preserve the integrity of the process. For example, items that are unrelated to the duties and responsibilities of the Board such as spam, junk mail and mass mailings, product complaints, personal employee complaints, product inquiries, new product suggestions, resumes and other forms of job inquiries, surveys, business solicitations or advertisements (the “Unrelated Items”) will not be forwarded to the Non-Executive Chairperson. In addition, material that is unduly hostile, threatening, illegal or similarly unsuitable will not be forwarded to the Non-Executive Chairperson.

Any communication that is relevant to the conduct of our business and is not forwarded will be retained for one year (other than Unrelated Items) and made available to the Non-Executive Chairperson and any other independent director on request. The independent directors grant the General Counsel discretion to decide what correspondence shall be shared with our management and specifically instruct that any personal employee complaints be forwarded to our Human Resources Department.

Director Stockholder Meeting Attendance

We encourage, but do not require, our Board members to attend the annual meeting of stockholders. Last year, all of our directors who were serving at such time, attended the annual meeting of stockholders.

Director Independence

We have adopted standards for director independence in compliance with the NYSE corporate governance listing standards.  These independence standards are set forth in our Corporate Governance Standards.  The Board has affirmatively determined that all of our directors meet these independence standards with the exception of Michael R. McMullen because of his role as our President and Chief Executive Officer.

Our non-employee directors meet at regularly scheduled executive sessions without management.  The Non-Executive Chairman of the Board presides at executive sessions of the non-management directors.

Compensation Committee Member Independence

We have adopted standards for compensation committee member independence in compliance with the NYSE corporate governance listing standards. In affirmatively determining the independence of any director who will serve on the compensation committee, the board of directors considers all factors specifically relevant to determining whether such director has a relationship to the company or any of its subsidiaries which is material to such director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to:

 

the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by the company to such director; and

 

 

whether such director is affiliated with the company, or an affiliate of a subsidiary of the company.

 

13


CORPORATE GOVERNANCE

 

Director Nomination Criteria: Qualifications and Experience

The Nominating/Corporate Governance Committee will consider director candidates for nomination by stockholders, provided that the recommendations are made in accordance with the procedures described in the section entitled “General Information about the Meeting” located at the end of this proxy statement.  Candidates recommended for nomination by stockholders that comply with these procedures will receive the same consideration as other candidates recommended by the Nominating/Corporate Governance Committee.

We typically hire a third-party search firm to help identify and facilitate the screening and interview process of candidates for director.  To be considered by the Nominating/Corporate Governance Committee, a director candidate must have:

 

a reputation for personal and professional integrity and ethics;

 

executive or similar policy-making experience in relevant business or technology areas or national prominence in an academic, government or other relevant field;

 

breadth of experience;

 

soundness of judgment;

 

the ability to make independent, analytical inquiries;

 

the willingness and ability to devote the time required to perform Board activities adequately;

 

the ability to represent the total corporate interests of the company; and

 

the ability to represent the long-term interests of stockholders as a whole.

In addition to these minimum requirements, the Nominating/Corporate Governance Committee will also consider whether the candidate’s skills are complementary to the existing Board members’ skills; the diversity of the Board in factors such as age, experience in technology, manufacturing, finance and marketing, international experience and culture; and the Board’s needs for specific operational, management or other expertise. The Nominating/Corporate Governance Committee from time to time reviews the appropriate skills and characteristics required of board members, including factors that it seeks in board members such as diversity of business experience, viewpoints and, personal background, and diversity of skills in technology, finance, marketing, international business, financial reporting and other areas that are expected to contribute to an effective Board of Directors. In evaluating potential candidates for the Board of Directors, the Nominating/Corporate Governance Committee considers these factors in the light of the specific needs of the Board of Directors at that time.  The search firm screens the candidates, does reference checks, prepares a biography of each candidate for the Nominating/Corporate Governance Committee to review and helps set up interviews.  The Nominating/Corporate Governance Committee and our Chief Executive Officer interview candidates that meet the criteria, and the Nominating/Corporate Governance Committee selects candidates that best suit the Board’s needs.  We do not use a third-party to evaluate current Board members.

 

Compensation Committee Interlocks and Insider Participation

The current members of the Compensation Committee are Hans E. Bishop, James G. Cullen, Heidi Kunz, George A. Scangos, PhD and Tadataka Yamada, M.D. During the most recent fiscal year, none of our executive officers served on the compensation committee (or equivalent), or the board of directors, of another entity whose executive officer(s) served on our Compensation Committee.

The members of the Compensation Committee are considered independent under the company’s Board of Directors and Compensation Committee Independence Standards as set forth in the company’s Amended and Restated Corporate Governance Guidelines.

 

 

14


CORPORATE GOVERNANCE

 

Committees of the Board of Directors

Our Board met six times in fiscal 2017.  Each director attended at least 75% of the aggregate number of Board and applicable committee meetings held when the director was serving on the Board.  Set forth below are the four standing committees of the Board, their primary duties, their current members and the number of meetings held during fiscal 2017.

 

Audit and Finance Committee

Members

Meetings

Responsible for the oversight of:

Paul N. Clark† (Chair)

Robert J. Herbold

Daniel K. Podolsky, M.D.

Sue H. Rataj

11

 

o

the quality and integrity of our consolidated financial statements;

 

o

compliance with legal and regulatory requirements, including our Standards of Business Conduct;

 

o

qualifications and independence of our independent auditor;

 

o

performance of our internal audit function and independent registered public accounting firm; and

 

o

other significant financial matters, including borrowings, currency exposures, dividends, share issuance and repurchase and the financial aspects of our benefit plans.

Has the sole authority to appoint, compensate, oversee and replace the independent registered public accounting firm, reviews its internal quality-control procedures, assesses its independence and reviews all relationships between the independent auditor and the company;

Approves the scope of the annual internal and external audit;

Pre-approves all audit and non-audit services and the related fees;

Reviews our consolidated financial statements and disclosures in our reports on Form 10-K and Form 10-Q;

Monitors the system of internal controls over financial reporting and reviews the integrity of the company’s financial reporting process;

Reviews funding and investment policies and their implementation and the investment performance of our benefit plans;

Establishes and oversees procedures for (a) complaints received by the company regarding accounting, internal accounting controls or auditing matters, and (b) the confidential anonymous submission by employees of the company of concerns regarding questionable accounting or auditing matters; and

Reviews disclosures from our independent registered public accounting firm required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independence of accountant’s communications with the audit committee.

Compensation Committee

Members

Meetings

Approves the corporate goals and objectives related to the compensation of the chief executive officer and other executives, evaluates their performance and approves their annual compensation packages;

Tadataka Yamada, M.D. (Chair)

Hans E. Bishop

James G. Cullen

Heidi Kunz

George A. Scangos, PhD

 

4

Monitors and approves our benefit plan offerings;

Reviews and approves the Compensation Discussion and Analysis;

Oversees the administration of our incentive compensation, variable pay and stock programs;

Assesses the impact of our compensation programs and arrangements on company risk;

Recommends to the Board the annual retainer fee as well as other compensation for non-employee directors; and

Has sole authority to retain and terminate executive compensation consultants.

Nominating/Corporate Governance Committee

Members

Meetings

Recommends the size and composition of the Board, committee structures and membership;

Koh Boon Hwee (Chair)

Hans E. Bishop

Paul N Clark

James G. Cullen

Robert J. Herbold

Heidi Kunz

Daniel K. Podolsky, M.D.

Sue H. Rataj

George A. Scangos, PhD

Tadataka Yamada, M.D.

5

Establishes criteria for the selection of new directors and proposes a slate of directors for election at each annual meeting;

Reviews special concerns which require the attention of non-employee directors;

Oversees the evaluation of Board members and make recommendations to improve the Board’s effectiveness; and

Develops and reviews corporate governance principles.

Executive Committee

Members

Meetings

Meets or takes written action between meetings of the Board; and

Koh Boon Hwee (Chair)

Michael R. McMullen

0

Has full authority to act on behalf of the Board to the extent permitted by law with certain exceptions.

 

† Financial Expert

15


CORPORATE GOVERNANCE

 

Related Person Transactions Policy and Procedures

Our Standards of Business Conduct and Director Code of Ethics require that all employees and directors avoid conflicts of interests that interfere with the performance of their duties or the best interests of the company. In addition, we have adopted a written Related Person Transactions Policy and Procedures (the “Related Person Transactions Policy”) that prohibits any of our executive officers, directors or any of their immediate family members from entering into a transaction with the company, except in accordance with the policy. For purposes of the policy, a “related person transaction” includes any transaction involving the company and any related person that would be required to be disclosed pursuant to Item 404(a) of the Securities and Exchange Commission’s Regulation S-K.

Under our Related Person Transactions Policy, the General Counsel must advise the Nominating/Corporate Governance Committee of any related person transaction of which he becomes aware. The Nominating/Corporate Governance Committee must then either approve or reject the transaction in accordance with the terms of the policy. In the course of making this determination, the Nominating/Corporate Governance Committee shall consider all relevant information available to it and, as appropriate, must take into consideration the following:

 

the size of the transaction and the amount payable to the related person;

 

the nature of the interest of the related person in the transaction;

 

whether the transaction may involve a conflict of interest; and

 

whether the transaction involved the provision of goods or services to the company that are available from unaffiliated third parties and, if so, whether the transaction is on terms and made under circumstances that are at least as favorable to the company as would be available in comparable transactions with or involving unaffiliated third parties.

Under the Related Person Transactions Policy, company management screens for any potential related person transactions, primarily through the annual circulation of a Director and Officer Questionnaire (“D&O Questionnaire”) to each member of the Board of Directors and each officer of the company that is a reporting person under Section 16 of the Securities Exchange Act of 1934. The D&O Questionnaire contains questions intended to identify related persons and transactions between the company and related persons. If a related person transaction is identified, such transaction is brought to the attention of the Nominating/Corporate Governance Committee for its approval, ratification, revision, or rejection in consideration of all of the relevant facts and circumstances.

The Nominating/Corporate Governance Committee must approve or ratify each related person transaction in accordance with the policy. Absent this approval or ratification, no such transaction may be entered into by the company with any related person.  The Related Person Transactions Policy provides for standing pre-approval of the following transactions with related persons:

 

(a)

Any transaction with another company at which a related person’s only relationship is as an employee (other than an executive officer or an equivalent), director or beneficial owner of less than 10% of that company’s shares, if the aggregate amount involved does not exceed the greater of (i) $1,000,000, or (ii) 2 percent of that company’s total annual revenues.

 

(b)

Any charitable contribution, grant or endowment by the company to a charitable organization, foundation or university at which a related person’s only relationship is as an employee (other than an executive officer or an equivalent), a director or a trustee, if the aggregate amount involved does not exceed the lesser of $500,000, or 2 percent of the charitable organization’s total annual receipts.

We will disclose the terms of related person transactions in our filings with the SEC to the extent required.

Transactions with Related Persons

We purchase services, supplies, and equipment in the normal course of business from many suppliers and sell or lease products and services to many customers. In some instances, these transactions occur with companies with which members of our management or Board have relationships as directors or executive officers. For transactions entered into during fiscal year 2017, no related person had or will have a direct or indirect material interest.   None of the fiscal year 2017 transactions exceeded or fell outside of the pre-approved thresholds set forth in our Related Person Transactions Policy except for transactions with Biogen Inc. (“Biogen”), the University of Texas Southwestern Medical Center (“UTSW”) and Juno Therapeutics, Inc. (“Juno”).  


16


CORPORATE GOVERNANCE

 

George A. Scangos, PhD served as the Chief Executive Officer of Biogen until January 2017, Daniel K. Podolsky, M.D., is the President of UTSW and Hans E. Bishop, who joined our Board in July 2017, is the Chief Executive Officer of Juno.  The members of the Nominating/Corporate Governance Committee, excluding Dr. Scangos, Dr. Podolsky and Mr. Bishop, for their respective transactions only, reviewed, approved and ratified the transactions with Biogen, UTSW and Juno in accordance with the policy.

Below is a summary of the aggregate transactions between Agilent and each of Biogen, UTSW and Juno that occurred in fiscal 2017 or during the time such Agilent director served as an officer of Biogen, UTSW or Juno.

 

Biogen Inc. (“Biogen”). Mr. George A. Scangos, PhD served as the Chief Executive Officer and a director of Biogen until January 2017. Biogen, or its affiliates, purchased an aggregate of approximately $313,000 of products and/or services from us between November 2016 and January 2017.

 

University of Texas Southwestern Medical Center (“UTSW”). Daniel K. Podolsky, PhD is the President of UTSW. UTSW, or its affiliates, purchased an aggregate of approximately $600,000 of products and/or services from us during fiscal 2017.

 

Juno Therapeutics, Inc. (“Juno”).  Hans E. Bishop is the Chief Executive Officer of Juno.   Juno, or its affiliates, purchased an aggregate of approximately $294,000 of products and/or services from us between July 2017 (when Mr. Bishop joined our Board) and October 2017.

 

 

17


PROPOSAL 2 – APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 2009 STOCK PLAN

 

 PROPOSAL NO. 2 - APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE  2009 STOCK PLAN

 

On November 15, 2017, the Board of Directors approved the 2018 Stock Plan (the “2018 Plan”), which is an amendment and restatement of the Agilent Technologies, Inc. 2009 Stock Plan (the “2009 Plan”), subject to your approval at the annual meeting. The 2009 Plan replaced the Agilent Technologies, Inc. Amended and Restated 1999 Stock Plan (the “1999 Plan”) and the 1999 Non-Employee Director Stock Plan (the “Director Plan” and collectively with the 1999 Plan, the “1999 Plans”) and is our primary plan for providing stock‑based incentive compensation to our eligible employees and non-employee directors. The 2009 Plan reserved for issuance 25,000,000 shares, plus any shares subject to awards previously granted under the 1999 Plan for which such awards are forfeited, expired or become unexercisable without having been exercised in full.  

The 2009 Stock Plan was adopted by the Board on November 19, 2008 and was subsequently approved by stockholders at our annual meeting held on March 11, 2009.  The 2009 Plan is scheduled to expire on March 11, 2019 which is before our regularly scheduled 2019 annual meeting of stockholders.  If the 2018 Plan is not approved by the stockholders, no new awards may be granted under the 2009 Plan after March 11, 2019 and our ability to provide future awards to attract, provide incentives to and retain key personnel and non-employee directors would be limited significantly.

As described in more detail below, approval of the 2018 Stock Plan will accomplish the following:

 

Rename the 2009 Stock Plan to the 2018 Stock Plan;

 

Extend the term of the 2009 Plan to March 21, 2028;

 

Maintain the 2009 Plan’s strong governance features;

 

Continue the grant of awards that are intended to qualify as tax-deductible under Section 162(m) (“Section 162(m)”) of the Internal Revenue Code (the “Code”); and

 

Reestablish certain award limitations for non-employee directors and performance-based compensation under Section 162(m).

Stockholders are asked to approve the 2018 Plan to qualify stock options as incentive stock options for purposes of Section 422 of the Code, to qualify certain compensation under the Plan as performance‑based compensation for purposes of Section 162(m), and to satisfy New York Stock Exchange (“NYSE”) guidelines relating to equity compensation.

Below is a summary of the material features of the 2018 Plan and its operation. This summary does not purport to be a complete description of all of the provisions of the 2018 Plan. It is qualified in its entirety by reference to the full text of the 2018 Plan.  A copy of the 2018 Plan is attached as Appendix B to this Proxy Statement.

Purpose of the 2018 Plan

The purpose of the 2018 Plan is to encourage ownership in the Company by its employees, directors and consultants whose long-term employment by or involvement with the Company is considered essential to the Company’s continued progress and, thereby, aligning the interests of the award recipients and stockholders and permitting the award recipients to share in the Company’s success. The 2018 Plan provides an essential component of the total compensation package offered to the Company’s key employees. It reflects the importance placed by the Company on motivating employees to achieve superior results over the long term and paying employees based on that kind of achievement. The Company strongly believes that its equity compensation programs and emphasis on employee stock ownership have been integral to the Company’s success and that a continuation of those programs is necessary for the Company to achieve superior performance in the future.

Certain awards under the 2018 Plan are intended to qualify as performance‑based compensation under the Code, provided that such grants are made in the form of option grants, stock appreciation rights (“SARs”), or are performance shares or performance units based on one or more of the performance measures specified below. However, in the event that the Administrator (as defined

18


PROPOSAL 2 – APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 2009 STOCK PLAN

 

below in “Administration of the 2018 Plan”) of the 2018 Plan determines that it is advisable to grant awards that use measures other than those specified below, any such awards will not qualify for the performance‑based exception under Section 162(m).

Key Features of the 2018 Plan

The 2018 Plan contains features that the Board believes are consistent with the interests of stockholders and sound governance principles. These features include the following:

 

Flexibility and Performance Ties.  The variety of equity and cash awards permitted under the 2018 Plan affords flexibility with respect to the design of long-term incentives that are responsive to evolving regulatory changes and compensation best practices and incorporate tailored, performance‑based measures.

 

No Discount Options.  Stock options or SARs may not be granted or awarded with a then-established exercise price of less than the fair market value (“FMV”) of Agilent’s common stock on the date of grant or award. FMV is the quoted closing sales price on the stock exchange or a national market system with the highest trading volume.

 

No Repricing.  The repricing of stock options and stock appreciation rights is prohibited without stockholder approval. This prohibition applies both to repricings that involve lowering the exercise price of a stock option or SAR as well as repricings that are accomplished by canceling an existing award and replacing it with a lower‑priced award.

 

Fungible Share Pool.  The 2018 Plan design recognizes the greater intrinsic value of a full share award including restricted stock, restricted stock units, performance shares and performance stock units. Accordingly, the 2018 Plan’s share reserve is reduced by 2 shares for every 1 full value share awarded. Stock option and SAR awards reduce the reserve on a 1-to-1 basis.

 

Clawback Feature.  The 2018 Plan allows the Company to cancel or freeze unvested awards, or require the return of amounts received pursuant to plan awards, if the award recipient has engaged in behavior that is detrimental to the business or reputation of the Company.

 

No Liberal Share Accounting.  Shares withheld for tax payments or to pay the exercise price, shares repurchased on the open market with the proceeds of an option exercise price, or shares not issued or delivered as a result of the net settlement of an outstanding award, will not be added back into the 2018 Plan reserve.

 

Compensation Committee Oversight.  The 2018 Plan will be administered by Agilent’s Compensation Committee as the Administrator, which is comprised solely of non-employee, independent directors.

 

No Annual “Evergreen” Provision.  The 2018 Plan provides for a specific number of shares of Agilent common stock available for awards and does not contain an annual or automatic increase in the number of available shares.

 

Performance‑Based Compensation.  The 2018 Plan is structured to permit awards that satisfy the performance‑based compensation requirements of Section 162(m) so as to enhance deductibility of compensation provided under the 2018 Plan.

 

Limitation on Share-based Awards to Non-Employee Directors.  The 2018 Plan provides that the maximum total grant date fair value of share-based awards granted to non-employee director in any single calendar year may not exceed $750,000.

Administration of the 2018 Plan

The 2018 Plan may be administered by the Board or any of its committees (“Administrator”) and, it is currently the intent of the Board that the 2018 Plan be administered by the Compensation Committee, which committee satisfies the requirements of Section 162(m) regarding a committee of two or more “outside directors”, as well as a committee of “non-employee directors” for purposes of Rule 16b-3. The Administrator has the power in its discretion to grant awards under the 2018 Plan, to determine the terms of such awards, to interpret the provisions of the 2018 Plan and to take action as it deems necessary or advisable for the administration of the 2018 Plan. In accordance with the terms of the 2018 Plan, the 2018 Plan may be administered by different committees with respect to different groups of participants in the 2018 Plan.

19


PROPOSAL 2 – APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 2009 STOCK PLAN

 

Number of Authorized Shares

The total number of shares authorized and available for issuance under the 2018 Plan is 25,000,000, plus any shares subject to awards previously granted under the 1999 Plan for which such awards are forfeited, expired or become unexercisable without having been exercised in full. It is anticipated that this share reserve will be sufficient to cover all Company stock awards through fiscal 2028. Shares granted as options or SARs will be counted against this limit as one share for every one share granted. Shares granted as awards other than options or SARs will be counted against this limit as two shares for every one share granted. The maximum number of options or SARs under the 2018 Plan that may be granted in any one fiscal year to an individual participant may not exceed 1,500,000 shares. Notwithstanding the foregoing, in connection with a participant’s initial service, such participant may be granted awards for up to an additional 1,000,000 shares that will not count against this limit. Shares issued under the 2018 Plan may be currently authorized but unissued shares, or shares currently held or subsequently acquired by the Company as treasury shares, including shares purchased in the open market or in private transactions. On January 23, 2018, the per share closing price of Agilent’s common stock as reported on the NYSE was $73.44.

In the event of certain changes in the capitalization of the Company the Administrator will adjust the number and class of shares available for issuance under the 2018 Plan and to prevent dilution or enlargement of rights. Except as described below, shares subject to an award under the 2018 Plan or under the 1999 Plan that are terminated, expire unexercised, or are forfeited, or repurchased by the Company at their original purchase price shall be available for subsequent awards under the 2018 Plan. Any shares that again become available for issuance under the 2018 Plan will be added back on a one to one basis for shares subject to options or SARs (as defined below in “—Types of Awards under the 2018 Plan”), or on a two to one basis for awards other than options or SARs.

Awards granted in assumption of, or in substitution for, awards previously granted by a company acquired by, or merged into, the Company or a subsidiary (“Substitute Awards”) will not reduce the shares authorized for issuance under the 2018 Plan or authorized for grant to a participant in any calendar year. Further, shares available for grant under stock plans assumed by the Company in an acquisition may be added to the available share reserve under the 2018 Plan.

Payments of the exercise price or applicable taxes made by delivery of shares to, or withholding of shares by, the Company in satisfaction of a participant’s obligations, or shares repurchased on the open market with the proceeds of an option exercise price, will not result in additional shares becoming available for subsequent awards under the 2018 Plan.

Eligibility and Participation

Eligibility to participate in the 2018 Plan is limited to employees (including officers), directors and consultants of Agilent, its affiliates or subsidiaries, as determined by the Administrator. Participation in the 2018 Plan is at the discretion of the Administrator.  As of January 23, 2018, there were approximately 13,500 employees, ten nonemployee directors and approximately 50 consultants eligible to receive awards under the 2018 Plan.  We currently do not make awards to consultants.

Types of Awards under the 2018 Plan

The 2018 Plan authorizes the Administrator to grant awards, individually or collectively, to participants in any of the following forms, subject to such terms, conditions, and provisions as the Administrator may determine to be necessary or desirable:

 

incentive stock options (“ISOs”);

 

nonstatutory stock options (“NSOs”);

 

stock appreciation rights;

 

restricted stock;

 

restricted stock units (“RSUs”);

 

performance shares and performance units with performance‑based conditions to vesting or exercisability; and

 

cash awards.

20


PROPOSAL 2 – APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 2009 STOCK PLAN

 

Options and SARs

Stock options entitle the option holder to purchase shares at a price established by the Administrator. Options may be either ISOs or NSOs, provided that only employees may be granted ISOs. SARs entitle the SAR holder to receive cash equal to the positive difference (if any) between the fair market value of shares on the trading date and the exercise price. The Company currently awards only NSOs to its executives, employees and nonemployee directors. In fiscal year 2018, approximately 76 employees were classified as executives and there were ten nonemployee directors. The Company does not currently have a practice of awarding ISOs or SARs.

Exercise Price

The Administrator will determine the exercise price of an option and a SAR at the date of grant, which price, except in the case of Substitute Awards, may not be less than 100% of the fair market value of the underlying shares on the date of grant. The 2018 Plan prohibits any repricing, replacement, regrant or modification of stock options or SARs that would reduce the exercise price of the stock options or SARs without stockholder approval, other than in connection with a change in the Company’s capitalization or Substitute Awards.

Vesting/Expiration of Options

The Administrator may determine the terms under which options and SARs will vest and become exercisable. The Company’s current practice is to vest options at 25% per year over 4 years, with a 10-year option term, except where different vesting or option terms are required or are advisable under local law.

Special Limitations on ISOs

If options were to be granted as ISOs, these options would be subject to certain additional restrictions imposed on ISOs by the Code including, but not limited to, restrictions on the post-termination exercise period of such options, the status of the individual receiving the grant and the number of options that could become exercisable for the first time by a participant in a given calendar year.  Furthermore, if shares acquired upon exercise of an ISO are disposed of by a participant prior to the expiration of two years from the date of grant or one year from the date of exercise, or otherwise in a “disqualifying disposition” under the Code, the participant would have federal income tax consequences as described under “—U.S. Federal Income Tax Consequences”.

Exercise of Options

An option holder may exercise his or her option by giving written notice to the Company or a duly authorized agent of the Company stating the number of shares for which the option is being exercised and tendering payment for such shares. The Administrator may, in its discretion, accept cash, check or wire transfer, previously acquired shares (valued at their fair market value on the date of exercise) and consideration under a cashless exercise program, or a combination thereof as payment.

Surrender or Exchange of SARs

Upon surrender of a SAR, a participant will be entitled to receive cash, shares or a combination thereof, as specified in the award agreement, having an aggregate fair market value equal to the excess of (i) the fair market value of one share as of the date on which the non-tandem SAR is exercised over (ii) the base price of the shares covered by the non-tandem SAR, multiplied by the number of shares covered by the SAR, or the portion thereof being exercised.

Termination of Options and SARs

In the event that a participant’s service with the Company or its subsidiaries terminates prior to the expiration of an option or SAR, the participant’s right to exercise vested options or SARS shall be governed by the terms of the applicable award agreement approved by the Administrator at the time of grant.

21


PROPOSAL 2 – APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 2009 STOCK PLAN

 

Stock Awards and Performance Shares

Stock awards, including restricted stock, RSUs, performance shares and performance units, may be issued either alone, in addition to, or in tandem with other awards granted under the 2018 Plan. Stock awards may be denominated in shares or units payable in shares (e.g. RSUs), and may be settled in cash, shares, or a combination of cash and shares. Restricted stock granted to participants may not be sold, transferred, pledged or otherwise encumbered or disposed of during the restricted period established by the Administrator. The Administrator may also impose additional restrictions on a participant’s right to dispose of or to encumber restricted stock, including the satisfaction of performance objectives.

The Company currently grants RSUs to certain employees who are not executives of the Company. Grants are typically made once a year and vest 25% per year over 4 years unless different vesting is required or advisable under local law. The Company currently grants performance‑based RSUs annually to its executives pursuant to the Long Term Performance Program (“LTP” or the “LTP Program”). LTP awards are generally designed to meet the criteria of a performance award with the performance metrics and peer group comparison set at the beginning of the performance period and are not thereafter modified. LTP awards are paid out based upon a 3-year performance period and only if the established performance criteria have been met, as determined by the Administrator. The Company also makes New Executive Stock Awards to newly hired or promoted executives, which are RSUs that mirror the LTP performance criteria for a 3-year performance period that is already in progress when an executive is first hired or is first promoted to an executive position.

In addition, the Company grants RSUs to nonemployee directors (referred to in the 2018 Plan as “Deferred Shares”) which are subject to payment and deferral rules intended to comply with Section 409A of the Code.

Termination of Stock Awards

In the event that a participant’s service with the Company or its subsidiaries terminates prior to the vesting of a stock award, that award will be forfeited unless the terms of the award, as approved by the Administrator at the time of grant, provide for accelerated vesting.

Cash Incentive Awards

The Administrator may grant “cash incentive awards” under the 2018 Plan, which is the grant of a right to receive a payment of cash (or in the discretion of the Administrator, shares of common stock having value equivalent to the cash otherwise payable) that are contingent on achievement of performance objectives over a specified period established by the Administrator. The grant of cash incentive awards may also be subject to such other conditions, restrictions and contingencies, as determined by the Administrator, including provisions relating to deferred payment.

Qualifying Performance‑Based Compensation

The Administrator may specify that the grant, retention, vesting, or issuance of any award (whether in the form of a stock option, SAR, restricted stock, RSU or a performance award) or the amount to be paid out under any award, be subject to or based on performance objectives or other standards of financial performance and/or personal performance evaluations, whether or not established and administered in accordance with the requirements of Section 162(m) for awards intended to qualify as “performance‑based compensation” thereunder. The number of shares issued or the amount paid under an award may, to the extent specified in the award agreement, be reduced by the Administrator on the basis of such further considerations as the Administrator in its sole discretion shall determine.

Establishment of Performance Goals

At the beginning of each performance period the Administrator will establish performance goals applicable to the performance awards. To the extent that performance conditions under the 2018 Plan are applied to awards intended to qualify as performance‑based compensation under Section 162(m), such performance goals will be objectively measurable and will be based upon the achievement of a specified percentage or level in one or more criteria of the following criteria and any objectively verifiable adjustment(s) thereto permitted and pre-established by the Administrator in accordance with Section 162(m), as determined by the Administrator in its sole discretion: (i) revenue; (ii) margin; (iii) income; (iv) earnings or income measures (including earnings before interest, taxes and depreciation and amortization); (v) pre-tax profit; (vi) expenses; (vii) share price

22


PROPOSAL 2 – APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 2009 STOCK PLAN

 

performance; (viii) earnings per share; (ix) return measures (including return on assets, capital, invested capital, equity, sales or revenue); (x) economic value added; (xi) market share; (xii) safety; (xiii) total stockholder return; (xiv) cash flow (including free cash flow); (xv) size-adjusted growth in earnings; (xvi) net order dollars; (xvii) contract bookings; (xviii) contract awards; (xix) book to bill; (xx) backlog; (xxi) customer metrics (including service, satisfaction, retention or profitability); (xxii) productivity; (xxiii) expense targets; (xxiv) market share; (xxv) cost control measures; (xxvi) balance sheet metrics; (xxvii) strategic initiatives; (xxviii) implementation, completion or attainment of measurable objectives with respect to recruitment or retention of personnel or employee satisfaction; (xxix) successful completion of, or achievement of milestones or objectives related to financing or capital raising transactions, strategic acquisitions or divestitures, joint ventures, partnerships, collaborations or other transactions; (xxx) debt levels or debt ratios; (xxxi) operating efficiency; (xxxii) working capital targets, including days working capital; (xxxiii) quantifiable, objective measures of individual performance relevant to the particular individual’s job responsibilities; (xxxiv) any combination or the foregoing business criteria; and (xxxv) such other criteria as determined by the Committee.  

Any criteria that are financial metrics may be determined in accordance with United States Generally Accepted Accounting Principles (“GAAP”) or may be adjusted when established (or to the extent permitted under Section 162(m), at any time thereafter) to include or exclude any items otherwise includable or excludable under GAAP.  The performance goals may be based on one or more business criteria, one or more business units, divisions, subsidiaries or business segments of the Company and/or one or more product lines or products of the company, or the Company as a whole, and if so desired by the Administrator, on an absolute or relative basis. Performance awards granted under the 2018 Plan may contain such additional terms and conditions, not inconsistent with the terms of the 2018 Plan, as the Administrator may determine, provided that, if the performance awards are intended to qualify as performance‑based compensation under Section 162(m), such additional terms and conditions are also not inconsistent with Section 162(m).

Limited Transferability of Awards

The Administrator retains the authority and discretion to permit an award (other than an ISO) to be transferable as long as such transfers are made by a participant to the participant’s immediate family or trusts established solely for the benefit of one or more members of the participant’s immediate family. Awards may otherwise not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by the beneficiary designation, will or by the laws of descent or distribution and may be exercised, during the lifetime of the participant, only by the participant.

Tax Withholding

The Administrator may require payment, or withhold payments made by the 2018 Plan, to satisfy applicable withholding tax requirements.

Change in Control

Unless otherwise determined by the Administrator and set forth in the applicable award agreement, in the event of certain transactions described in the 2018 Plan constituting a change in control or the sale of substantially all of the assets of the Company for which a participant is performing services, all awards will fully vest immediately prior to the closing of the transaction. The foregoing shall not apply where such awards are assumed, converted or replaced in full by the successor corporation or a parent or subsidiary of the successor; provided, however, that in the event of a change of control in which one or more of the successor or a parent or subsidiary of the successor has issued publicly traded equity securities, the assumption, conversion, replacement or continuation shall be made by an entity with publicly traded securities and shall provide that the holders of such assumed, converted, replaced or continued stock options and SARs shall be able to acquire such publicly traded securities.

In the event of the dissolution or liquidation of the Company, the Administrator in its sole discretion may provide for an option or SAR to be fully vested and exercisable until ten days prior to such transaction, or such shorter reasonable period of time as the Administrator may establish in its discretion. In addition, the Administrator may provide that any restrictions on any award shall lapse prior to the transaction, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an award will terminate immediately prior to the consummation of such proposed transaction.

23


PROPOSAL 2 – APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 2009 STOCK PLAN

 

Termination and Amendment of the 2018 Plan

The Board may amend, suspend or terminate the 2018 Plan or the Administrator’s authority to grant awards under the 2018 Plan without the consent of stockholders or participants; provided, however, that any amendment to the 2018 Plan will be submitted to the Company’s stockholders for approval if such stockholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the shares may then be listed or quoted and the Board may otherwise, in its sole discretion, determine to submit other amendments to the 2018 Plan to stockholders for approval. Except in the event of certain changes in the capitalization of the Company, the total number of shares authorized and available for issuance under the 2018 Plan may not be increased by the Company without stockholder approval. Any such amendment, suspension, or termination may not materially and adversely affect the rights of a participant under any award previously granted without such participant’s consent.

It is the intention of the Company that, to the extent that any provisions of the 2018 Plan or any awards granted under the 2018 Plan are subject to Section 409A of the Code (relating to nonqualified deferred compensation), the 2018 Plan and the awards comply with requirements of Section 409A of the Code. Further, it is the intention of the Company that the 2018 Plan and awards granted under it that are subject to Section 409A of the Code will be interpreted and administered in good faith in accordance with such requirements and that the Administrator will have the authority to amend any outstanding awards to conform to the requirements of Section 409A.

Term of 2018 Plan

Unless earlier terminated by the Board, the 2018 Plan will terminate ten years after its approval by the stockholders of the Company.

U.S. Federal Income Tax Consequences

Stock options.  There will be no federal income tax consequences to a participant or the Company upon the grant of either an ISO or an NSO under the 2018 Plan. Upon exercise of an NSO, the option holder generally will recognize ordinary income in an amount equal to: (i) the fair market value, on the date of exercise, of the acquired shares, less (ii) the exercise price of the NSO. Provided the Company satisfies applicable reporting requirements, it will be entitled to a tax deduction in the same amount.

Upon the exercise of an ISO, an option holder generally recognizes no immediate ordinary taxable income. Provided that certain holding periods are met, income recognition is deferred until the option holder sells the shares. If the ISO is exercised no later than three months after the termination of the option holder’s employment, and the option holder does not dispose of the shares so acquired within two years from the date the ISO was granted and within one year after the exercise of the ISO, the gain on the sale will be treated as long-term capital gain. Certain of these employment requirements are liberalized in the event of an option holder’s death or disability while employed by the Company.

Generally, the Company will not be entitled to any tax deduction for the grant or exercise of an ISO. If, however, the shares are not held for the full term of the holding period outlined above, the gain on the sale of such shares, being the lesser of: (i) the fair market value of the shares on the date of exercise minus the exercise price, or (ii) the amount realized on disposition minus the exercise price, will be taxed to the participant as ordinary income, and provided the Company satisfies applicable reporting requirements, the Company will be entitled to a deduction in the same amount. The excess of the fair market value of the shares acquired upon exercise of an ISO over the exercise price therefor constitutes a tax preference item for purposes of computing the “alternative minimum tax” under the Code.

SARs.  There will be no federal income tax consequences to either a participant or the Company upon the grant of a SAR. However, the participant generally will recognize ordinary income upon the exercise of a SAR in an amount equal to the aggregate amount of cash and the fair market value of the shares received upon exercise. Provided the Company satisfies applicable reporting requirements, the Company will be entitled to a deduction equal to the amount included in the participant’s income.

24


PROPOSAL 2 – APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 2009 STOCK PLAN

 

RSUs & Restricted Stock.  Except as otherwise provided below, there will be no federal income tax consequences to either a participant or the Company upon the grant of restricted stock or an RSU. When an RSU is settled, the participant will recognize ordinary income in an amount equal to the fair market value of the shares received or, if the RSU is paid in cash, the amount payable. With respect to restricted stock, the participant will recognize ordinary income in an amount equal to the excess, if any that the participant paid for the shares over the fair market value of the shares on the earlier of (i) the date of vesting; and (ii) the date the shares become transferable. Subject to Section 162(m), and provided the Company satisfies applicable reporting requirements, the Company will be entitled to a corresponding deduction. Notwithstanding the above, a recipient of a restricted stock grant may make an election under Section 83(b) of the Code, within thirty days after the date of the grant, to recognize ordinary income as of the date of grant and the Company will be entitled to a corresponding deduction at that time.

Performance Awards.  There will be no federal income tax consequences to a participant or the Company upon the grant of qualifying performance‑based compensation awards. Participants will generally recognize taxable income upon the payment of an award, and subject to Section 162(m), the Company generally will be entitled to a deduction equal to the amount includible in the participant’s income.

Golden Parachute Payments.  Awards that are granted, accelerated or enhanced upon the occurrence of, or in anticipation of, a change in control may give rise, in whole or in part, to “excess parachute payments” under Section 280G and Section 4999 of the Code. Under these provisions, the participant would be subject to a 20% excise tax on, and the Company would be denied a deduction with respect to, any “excess parachute payments.”

Section 162(m) of the Code.  Section 162(m) generally provides that publicly held companies may not deduct compensation paid to certain of its top executive officers to the extent such compensation exceeds $1 million per officer in any year. However, pursuant to regulations issued by the Treasury Department that currently apply to the Company, certain limited exceptions to Section 162(m) apply with respect to “performance‑based compensation,” that complies with conditions imposed by Section 162(m) rules and the material terms of such compensation are disclosed to and approved by stockholders. Stock options, SARs and performance awards granted under the 2018 Plan and described above are intended to constitute qualified performance‑based compensation eligible for such exceptions. The Administrator will, in general, seek to qualify compensation paid to the Company’s executive officers for deductibility under Section 162(m), although the Administrator believes it is appropriate to retain the flexibility to authorize payments of compensation that may not qualify for deductibility if, in the Administrator’s judgment, it is in the Company’s best interest to do so.  Under the Tax Cuts and Jobs Act of 2017, effective for our taxable year beginning November 1, 2018, the exception for performance-based compensation will no longer be available, subject to transition relief for certain grandfathered arrangements in effect as of November 2, 2017.

New Plan Benefits

A new plan benefits table for the 2018 Plan and the benefits or amounts that would have been received by or allocated to participants for the last completed fiscal year under the 2018 Plan if the 2018 Plan was then in effect, as described in the federal proxy rules, are not provided because all awards made under the 2018 Plan will be made at the Committee’s discretion, subject to the terms of the 2018 Plan. Therefore, the benefits and amounts that will be received or allocated under the 2018 Plan are not determinable at this time. The equity grant program for our non-employee directors is described under the Director Compensation section in this proxy statement.

25


PROPOSAL 2 – APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 2009 STOCK PLAN

 

Equity Compensation Plan Information

The following table summarizes information about our equity compensation plans as of October 31, 2017. All outstanding awards relate to our common stock.

 

Plan Category

Number of Securities

to be Issued upon

Exercise of

Outstanding Options,

Warrants and Rights

 

Weighted-average

Exercise Price of

Outstanding

Options, Warrants and

Rights

 

Number of Securities

Remaining Available for

Future Issuance under

Equity Compensation Plans

(Excluding Securities

Reflected in Column (a))

 

(a)

 

(b)

 

(c)

Equity compensation plans approved by security holders (1)(2)(3)

6,063,545

 

$

34

 

35,697,020

Equity compensation plans not approved by security holders

 

 

Total

6,063,545

 

$

34

 

35,697,020

_______________________

(1)

The number of securities remaining available for future issuance in column (c) includes 27,556,310 shares of common stock authorized and available for issuance under the Agilent Technologies, Inc. Employee Stock Purchase Plan ("423(b) Plan"). The number of shares authorized for issuance under the 423(b) Plan is subject to an automatic annual increase of the lesser of one percent of the outstanding common stock of Agilent or an amount determined by the Compensation Committee of our Board of Directors. Under the terms of the 423(b) Plan, in no event shall the aggregate number of shares issued under the Plan exceed 75 million shares.

 

(2)

We issue securities under our equity compensation plans in forms other than options, warrants or rights. On November 19, 2008 and March 11, 2009, the Board and the stockholders, respectively, approved the Agilent Technologies, Inc. 2009 Stock Plan ("2009 Plan") to replace the company's 1999 Plan and 1999 Non-Employee Director Stock Plan for awards of stock-based incentive compensation to our employees (including officers), directors and consultants. The 2009 Plan provides for the grant of awards in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and performance units with performance-based conditions to vesting or exercisability, and cash awards. The 2009 Plan has a term of ten years.

 

(3)

We issue securities under our equity compensation plans in forms which do not require a payment by the recipient to us at the time of exercise or vesting, including restricted stock, restricted stock units and performance units. Accordingly, the weighted-average exercise price in column (b) does not take these awards into account.

 

Agilent’s Board recommends a vote FOR the approval of the

adoption of the Agilent Technologies, Inc. 2018 Stock Plan

 

 

 

26


COMPENSATION DISCUSSION AND ANALYSIS

 

Dear Stockholder,

We are very pleased with our fiscal year 2017 results.  Our adjusted operating margins were 22.0%, meeting our CEO’s commitment to shareholders for 2017, and earnings per share increased by 19.2% over fiscal year 2016. The company continues to create stockholder value through dividends, stock buy-backs and smart acquisitions that bolster our market position. The leadership team that our CEO Mike McMullen appointed in fiscal year 2015 has built tremendous momentum throughout the years, expanding our product portfolio, extending into adjacent markets, and improving the customer experience by streamlining processes, modernizing systems and making the company more efficient and customer friendly.

We believe our current executive compensation program is effectively focusing our executive team on the most critical short- and long-term strategic priorities.   Our recent results are evidence that the program is working.  Our executive team is delivering superior results and the company is on a strong growth trajectory that translates into increased stockholder value.  We have continued our ongoing dialog with our stockholders which we believe is valuable.  Our stockholders support our current executive compensation program and see no need for major modifications.  We strongly agree with this sentiment and thus have made no significant changes to our executive compensation program for fiscal year 2018.  After several years of major changes, we believe our current formula is working well.  

In the Compensation Discussion and Analysis that follows, we discuss our fiscal year 2017 CEO and Officer compensation in more detail and share additional information about the program refinements we implemented for fiscal year 2017.  You will see that our commitment to both pay for performance and clear, transparent disclosure is strong.  We encourage you to review this analysis carefully and hope you agree that our executive compensation program is achieving our objectives of supporting the company’s growth strategy and creating long-term stockholder value.

 

Compensation Committee

Tadataka Yamada, M.D., Chairperson

Hans E. Bishop
James G. Cullen
Heidi Kunz

George A. Scangos, PhD


27


COMPENSATION DISCUSSION AND ANALYSIS

 

COMPENSATION DISCUSSION AND ANALYSIS

This section of the proxy statement describes the compensation arrangements for our Named Executive Officers (NEOs) for fiscal year 2017, which were exclusively determined by our independent Compensation Committee and which are further detailed in the 2017 Summary Compensation Table and other compensation tables contained in this proxy statement. This Compensation Discussion and Analysis (CD&A) also includes additional information on how the Compensation Committee arrived at their fiscal year 2017 compensation decisions for the NEOs and an overview of our executive compensation philosophy and our executive compensation program.

 

Our NEOs for fiscal year 2017 are as follows:

 

 

Michael R. McMullen, President and Chief Executive Officer (CEO)

 

Didier Hirsch, Senior Vice President, Chief Financial Officer (CFO)

 

Mark Doak, Senior Vice President, President Cross-Lab Group (ACG)

 

Patrick Kaltenbach, Senior Vice President, President Life Sciences and Applied Markets Group (LSAG)

 

Jacob Thaysen, Senior Vice President, President Diagnostics and Genomics Group (DGG)

 

In this CD&A, we provide the following:

 

Executive Summary

 

Determining Executive Pay

 

Fiscal Year 2017 Compensation

 

Additional Information

 


28


COMPENSATION DISCUSSION AND ANALYSIS

 

Executive Summary

Fiscal Year 2017 at a glance:

Performance and Compensation Highlights

CEO and NEO Compensation

   Exceeded the financial plan outlined to investors, including strong growth, expanded margins, balanced use of capital and stockholder value creation

   Strong stock performance, with year-over-year returns that beat the S&P 500 by 144%

   Strong alignment between current executive compensation program and increased stockholder value creation

 

 

 

 

 

 

 

Total Target Compensation

Performance-based Compensation

 

 

Mr. McMullen

$9,530,000

88%

 

 

Other NEOs (average)

$2,856,000

81%

 

 

 

 

 

 

Executive Compensation Program Changes for FY17

Pay for Performance

   Earnings Per Share replaced Operating Margin as the financial metric for long-term incentive awards

   Operating Margin replaced ROIC as financial metric in the short-term incentive plan

   CEO and CFO short-term incentives were based 100% on financial results rather than a mix of 75% financial results and 25% key business initiatives

In line with strong company performance that surpassed our plan, the Short-Term Incentive program (financial targets) paid out at 111% of target.

25% of the short-term incentive payout for Agilent’s three business presidents is determined based on select key business initiatives (KBIs) approved by the Compensation Committee.  These KBIs paid out at 71% on average in fiscal year 2017.  Our CEO and CFO were not assigned any KBIs this year and their entire short-term incentive was based on financial targets.

Our Long-Term Performance Plan for the period ended October 31, 2017 paid out at 200% as our three-year relative TSR was at the 78th percentile of our S&P 500 Health Care, Industrials and Materials Indexes peer group.

Stockholder Engagement

While we were pleased with the 96% support for our 2017 Say-on-Pay proposal, we believe ongoing dialog with stockholders regarding our executive pay program is crucial.  

In 2017, we contacted our largest stockholders to solicit their input on our current program and discuss any concerns they may have.  These stockholders reaffirmed their support for our program design and proposal to continue the current program into fiscal year 2018.

Financial Performance Highlights

Year-over-year financial results improved as compared to fiscal year 2016 results:

 

Measure

Fiscal 2016

Fiscal 2017

YOY %

 

 

S&P 500 TSR*

4,045.89

5,002.03

23.6%

 

 

Agilent TSR*

$43.15

$68.03

57.7%

 

 

Revenue (Actual)

$4.2B

$4.5B

6.4%

 

 

Operating Margin (non-GAAP)**

20.4%

21.8%

6.8%

 

 

Diluted EPS

$1.40

$2.10

50.0%

 

 

Diluted EPS (non-GAAP)**

$1.98

$2.36

19.2%

 

*Stock prices shown for fiscal years 2016 and 2017 are as of 10/31/2016 and 10/31/2017 respectively and include reinvested dividends.

**Non-GAAP operating margin and non-GAAP diluted EPS are further defined and reconciled to the most directly comparable GAAP financial measures in Appendix A to this proxy statement.

29


COMPENSATION DISCUSSION AND ANALYSIS

 

Correlation of CEO Compensation to Company Performance

 

The chart below demonstrates how the historical compensation of our CEO compares to our three-year indexed TSR.  The TSR shown below assumes reinvestment of the Keysight spin-off dividend on November 3rd, 2014, the ex-dividend date, not the end of the month or the quarter, as some reporting agencies may use.

 

Aligning CEO and NEO Pay with Performance

For fiscal year 2017, approximately 88% of Mr. McMullen’s and 81% of our other NEOs’ total direct compensation consisted of short-term and long-term incentives and was “at-risk”— which means that this component can vary year to year depending on the performance of the company and our stock price performance.  

 

CEO

NEO

30


COMPENSATION DISCUSSION AND ANALYSIS

 

Stockholder Outreach

We received a 96% stockholder support on our 2017 Say-on-Pay proposal, along with support from the major stockholder advisory firms. While pleased with these results, our Compensation Committee and members of management believe ongoing dialog with stockholders regarding executive compensation is crucial. In 2017, we communicated with many of our largest stockholders to recap the changes made for fiscal year 2017 and discuss our strategy for fiscal year 2018. Stockholders affirmed our executive compensation program and supported our plan to maintain the current design for fiscal year 2018.

 

Fiscal Year 2017 Program Changes

For fiscal year 2017, we made two changes to our program that further strengthens the link between executive compensation and company growth.  First, we replaced ROIC with operating margin in the short-term incentive plan to keep executives focused on improving operating efficiency and converting our strong revenue growth into higher profits.  Second, we replaced operating margin with EPS in the long-term incentive plan to directly link executive rewards with stockholder value creation and superior long-term earnings growth.  

 

Determining Executive Pay

Our executive pay decisions are grounded in a core philosophy that applies to all elements of compensation. Our compensation philosophy is intended to:

 

Align executive interests with stockholders;

 

Support our short- and long-term business strategy;

 

Deliver competitive total direct compensation targeted, in aggregate, around the 50th percentile of our peers to attract, retain and motivate the best employees; and

 

Provide pay for performance.

 

The following principal elements of compensation are provided under our executive compensation program:

 

Elements of Pay

Base Pay

✓ Baseline for competitive total compensation.

✓ Normally 20% or less of total direct compensation for NEOs.

Short-Term Incentives

✓ Focuses executives on critical operating and strategic goals best measured annually.

✓ Provides downside risk for underperformance and upside reward for success.

✓ Leverages financial measures such as revenue and operating margin, supplemented with select strategic initiatives.

Long-Term Incentives

✓ Performance pay representing the majority of NEO target compensation.

✓ Motivates and rewards multi-year stockholder value creation.

✓ Facilitates executive stock ownership.

✓ Enables retention.

✓ Delivered through performance shares and RSUs, both with a mandatory one-year post-vest holding period.

✓ Performance measures include long-term financial objectives and the relative performance of our stock.

 

Our actual total compensation for each NEO varies based on (i) company performance measured against external metrics that correlate to long-term stockholder value, (ii) performance of the business organizations against specific targets, and (iii) individual performance. These three factors are considered in positioning salaries, determining earned short-term incentives and determining long-term incentive grant values.

31


COMPENSATION DISCUSSION AND ANALYSIS

 

Pay Practices

Our executive compensation program is supported by a set of strong governance provisions and pay practices.

 

Philosophy / Practice

Result

We structure compensation to create strong alignment with stockholder interests

    Majority of pay is delivered via performance-based vehicles such as long-term performance shares and annual cash incentives.

✓    Robust stock ownership guidelines.

✓    Mandatory one-year post-vest holding period on annual LTI awards.

We design our programs to avoid excessive risk taking (1)

✓    Strong recoupment and anti-hedging policies in place.

✓    Annual compensation risk assessment.

✓    Balanced internal and external goals.

We follow best practices in executive compensation design

✓    Limited perquisites.

✓    Double trigger on change in control benefit provisions and no new tax gross-up agreements.

✓    No dividends / dividend-equivalents on unearned performance awards and unvested stock awards.

✓    No acceleration of vesting of equity awards or LTPP shares upon retirement.

✓    Independent Compensation Committee consultant.

 

(1)  See Compensation Risk Controls in Additional Information

Independent Compensation Committee and Consultant

The Compensation Committee is composed solely of independent members of the Board and operates under a Board-approved charter which outlines the Committee’s major duties and responsibilities. This charter is available on our Investor Relations website.

In May 2017, the Compensation Committee hired Semler Brossy as its new independent compensation consultant, replacing F.W. Cook.  Our independent compensation consultant does not perform any other work for us, does not trade our stock, has independence policies that are reviewed annually by their Board of Directors, and will proactively notify the Compensation Committee chair of any potential or perceived conflicts of interest. The Compensation Committee found no conflict of interest with either independent compensation consultant during fiscal year 2017.

For fiscal year 2017, our independent compensation consultants advised the Compensation Committee on several compensation matters, including but not limited to:

 

Criteria used to identify peer companies for executive compensation and performance metrics;

 

Evaluation of our total direct compensation levels and mix for the NEOs and four other senior officers;

 

Mix of long-term incentives, grant types and allocation of equity awards;

 

Review of the short- and long-term incentive programs for fiscal year 2018;

 

Review of various other proposals presented to the Compensation Committee by management; and

 

Support for stockholder outreach campaign.

32


COMPENSATION DISCUSSION AND ANALYSIS

 

Process for Determining Compensation

To determine total target compensation for the upcoming fiscal year, the Compensation Committee considered:

 

the performance of each individual executive for the last fiscal year;

 

the most recent peer group data from our independent compensation consultant;

 

our short-and long-term business and strategic goals; and

 

detailed tally sheets for the CEO and each NEO.

Our independent compensation consultant presents and analyzes market data for benchmarking each individual position and provides insight on market practices for the Compensation Committee’s actions, but it does not make any specific compensation recommendations on the individual NEOs. The Compensation Committee determines the form and amount of compensation for all executive officers after considering the market data and company, business unit and individual performance.

Peer Group for Executive Compensation

Each year, the Compensation Committee meets with our independent compensation consultant to review and approve the peer group companies that satisfy our selection criteria. For fiscal year 2017, our compensation peer group consisted of the 30 companies listed below from the S&P 500 Health Care Index with revenues between 0.25x and 2.5x times our projected revenue, supplemented with two of our most direct competitors (Thermo Fisher and Danaher). The range of annual revenues for peer group members was determined so that our annual revenue would be around the median of the peer group. We used data from this peer group to set each NEO’s compensation for fiscal year 2017, with aggregate compensation targeted at around the peer group median.  

 

Alexion Pharma

Cerner

Lab Corp of America

Stryker

Baxalta

Danaher

Mallinckrodt

Thermo Fisher

Baxter Intl

DENTSPLY Sirona

Mylan NV

Varian Medical Systems

Becton, Dickinson

Edwards Lifesciences

Perkin Elmer

Waters

Biogen

Endo

Perrigo

Zimmer

Boston Scientific

Hologic

Quest Diagnostics

Zoetis

C. R. Bard

Illumina

Regeneron Pharma

 

Celgene

Intuitive Surgical

St. Jude Medical

 

Peer Group for the Long-Term Performance Program

The Compensation Committee believes that an expanded peer group is more appropriate for determining relative TSR under the company’s LTPP, as an expanded peer group provides a broader index for comparison. Therefore, the Compensation Committee uses the approximately 85 companies in the Health Care and Materials Indexes of the S&P 500 for determining TSR under the LTPP. Only companies that are included in one of these indexes at the beginning of the performance period and which have three years of stock price performance at the end of the performance period are included in the final calculation of results. Any change in the expanded peer group is solely due to Standard & Poor’s criteria for inclusion in the indexes.

Role of Management

The CEO and the Senior Vice President, Human Resources consider the responsibilities, performance and capabilities of each of our named executive officers, other than the CEO, and the compensation package they believe will attract, retain and motivate. The Senior Vice President, Human Resources does not provide input on setting his own compensation. A comprehensive analysis is conducted using a combination of the market data based on our compensation peer group and proxy data, performance against targets, and overall performance assessment. This data is used to determine if an increase in compensation is warranted and the amount and type of any increase for each of the total compensation components for the then-current fiscal year. After consulting with the Senior Vice President, Human Resources, the CEO makes compensation recommendations, other than for his own compensation, to the Compensation Committee at its first meeting of the fiscal year.

33


COMPENSATION DISCUSSION AND ANALYSIS

 

CEO Compensation

The Compensation Committee establishes the CEO’s compensation based on a thorough review of the CEO’s performance that includes:

 

An objective assessment against predetermined metrics set by the Compensation Committee;

 

Tally sheets;

 

Market data from our independent compensation consultant;

 

A self-evaluation by the CEO that the Compensation Committee discusses with the independent directors; and

 

A qualitative evaluation of the CEO’s performance that is developed by the independent directors, including each member of the Compensation Committee, in executive session.

The Compensation Committee reviews the CEO’s total direct compensation package annually and presents its recommendation to the other independent directors for review and comment before making the final determinations on compensation for the CEO.

Fiscal Year 2017 Compensation

Base Salary

Our salaries reflect the responsibilities of each NEO and the competitive market for comparable professionals in our industry and are set to create an incentive for executives to remain with us. Base salaries and benefits packages are the fixed components of our NEOs’ compensation and do not vary with company performance. Each NEOs’ base salary is set by considering benchmark market data as well as the performance of such NEO. For fiscal year 2017, our NEO base salaries ranged between the 25th and 75th percentile of our compensation peer group.  

 

Name

FY16 Salary

FY17 Salary

Increase

 

Michael R. McMullen

$1,050,000

$1,100,000

5%

 

Didier Hirsch

$600,000

$630,000

5%

 

Mark Doak

$475,000

$525,000

11%

 

Patrick Kaltenbach

$500,000

$535,000

7%

 

Jacob Thaysen

$440,000

$500,000

14%

 

Short-Term Cash Incentives

The Performance-Based Compensation Plan reflects our pay-for-performance philosophy and directly ties short-term incentives to short-term business performance. These awards are linked to specific annual financial goals and key business initiatives for the overall company and the three business groups (LSAG, ACG and DGG). Annual cash incentives are paid to reward achievement of critical shorter-term operating, financial and strategic measures and goals that are expected to contribute to stockholder value creation over time. Financial goals are pre-established by the Compensation Committee at the beginning of the period, based on recommendations from management. The financial goals are based on our fiscal year 2017 financial plan established by the Board of Directors and cannot be changed after they have been approved by the Compensation Committee. The Compensation Committee certifies the calculations of performance against the goals for each period and payouts, if any, are made in cash.

For fiscal year 2017, the awards under the Performance-Based Compensation Plan were determined by multiplying the individual’s base salary for the performance period by the individual’s target award percentage and the performance results, as follows:

 

  Financial Goals

Annual Salary

X

Individual Target Bonus % (varies by individual)

X

Financial Portion of Target Bonus
(75% to 100%)

X

Attainment %
(based on actual performance)

  Key Business
    Initiatives

Annual Salary

X

Individual Target Bonus % (varies by individual)

X

Strategic Portion of Target Bonus
(0% to 25%)

X

Attainment %
(based on actual performance)

34


COMPENSATION DISCUSSION AND ANALYSIS

 

Target Award Percentages and FY17 Actual Payouts

Our Compensation Committee set the fiscal year 2017 short-term incentive target amounts based on a percent of base salary pre-established for each NEO considering the relative responsibility of each NEO.  For fiscal year 2017, short-term incentive target bonuses were set at 130% of base salary for the CEO and 80% of base salary for the other NEOs.

The payouts under the Performance-Based Compensation Plan for fiscal year 2017 are provided in the chart below and in the “Non-Equity Incentive Plan Compensation” column in the “Summary Compensation Table.” The overall payout percent compared to target is shown above the actual columns.

 

Financial Goals and Fiscal Year 2017 Operational Results

The Performance-Based Compensation Plan financial goals were based on (1) our operating margin percentage and our revenue and (2) the adjusted operating margin percentage and revenue goals for each of the business units.  The Compensation Committee chose those metrics because:

 

operating margin keeps focus on expense discipline and meeting efficiency measures; and

 

revenue places focus on delivering strong top-line growth results.

The financial targets that must be met to receive the target payout are based on our business plan.

35


COMPENSATION DISCUSSION AND ANALYSIS

 

To determine earned awards, we use payout matrices that link the metrics and reflect threshold-to-maximum opportunities based on various achievement levels of the metrics. No awards are paid unless the operating margin percentage threshold is achieved and the maximum award under the plan is capped at 200% of the target award. The target metrics set for our short-term incentives and their corresponding results were as follows:

 

 

 

 

Operating Margin %

 

Revenue $

 

 

 

 

 

 

 

 

 

 

Threshold

 

Target

 

Max

Results

Goal

Attainment

 

Target

(Mil)

 

Max

(Mil)

 

Results

(Mil)

Goal

Attainment

Payout Percentage

(Per Matrix)

 

Agilent

 

18.0%

 

22.0%

 

24.2%

22.3%

102%

 

$4,364

 

$4,582

 

$4,453

102%

111%

 

LSAG

 

18.0%

 

22.0%

 

24.2%

22.5%

103%

 

$2,106

 

$2,211

 

$2,165

103%

120%

 

ACG

 

18.1%

 

22.1%

 

24.3%

22.3%

101%

 

$1,497

 

$1,572

 

$1,527

102%

107%

 

DGG

 

16.4%

 

20.0%

 

22.0%

20.2%

101%

 

$760

 

$798

 

$761

100%

105%

 

Payout Matrices to Measure Financial Metrics

We use payout matrices to determine payout percentages for our fiscal year 2017 short-term incentive program. The payout matrices are designed to reward profitable growth by increasing payout percentages commensurate with increased operating margin and / or revenue achievement as illustrated in the table below.

 

 

 

 

 

FY17 - Revenue Achievement (% of plan)

 

 

 

 

 

0 - 90%

 

96.0%

 

100.0%

 

103.0%

 

105.0%

 

 

110%

 

120.00%

 

138.00%

 

150.00%

 

180.00%

 

200.00%

 

FY17 - OM

105%

 

105.00%

 

117.00%

 

125.00%

 

140.00%

 

150.00%

 

Achievement

100%

 

90.00%

 

96.00%

 

100.00%

 

100.00%

 

100.00%

 

(% of plan)

90%

 

45.56%

 

49.89%

 

52.78%

 

54.44%

 

55.56%

 

 

82%

 

10.00%

 

13.00%

 

15.00%

 

18.00%

 

20.00%

 

 

Note:  This specific payout matrix was used to determine the company level payout percentage. The payout percentage is determined by finding the intersection between goal attainments as a percentage of plan for each financial metric. Payout percentages are assigned to each intersection of revenue and operating margin percentage throughout the payout matrix. Payouts between the numbers represented in the table above are calculated on a linear payout matrix and the threshold amount for operating margin percentage must be met in order for a payout to be made. Payout matrices vary by business group.  

 

Key Business Initiatives – Targets and Results

For fiscal year 2017, under the Performance-Based Compensation Plan, we continued to utilize annual key business initiatives to align NEOs’ objectives with strategic company priorities. These key business initiatives are established at the same time as the financial goals and account for 25% of the total target bonus for each NEO who was assigned to key business initiatives. The maximum payout per NEO for satisfaction of the strategic component is the lesser of (i) up to 200% of key business initiative performance results or (ii) 0.75% of non-GAAP pre-tax earnings for the Company, and the Compensation Committee may exercise negative discretion in determining the final payout.

36


COMPENSATION DISCUSSION AND ANALYSIS

 

The key business initiatives were selected to focus NEOs on strategic priorities such as revenue growth in specific markets and products, customer satisfaction scores and regulatory compliance. The following table sets forth (i) each key business initiative and its threshold, target and maximum achievement levels, (ii) the NEOs assigned to each key business initiative, and (iii) the final attainment and payout percentage for each objective. If an NEO is assigned to more than one objective, the weighting is equally distributed.  For fiscal year 2017, Mr. McMullen and Mr. Hirsch were not assigned to any key business initiatives.  For competitive purposes, specific threshold, target and maximum amounts are not shown in the descriptions that follow.

 

Officer

Assigned

 

FY17 Key Business Initiative

Description

Threshold

(50%)

Target

(100%)

Maximum

(200%)

Payout

Percentage

Mr. Doak

 

Enable touchless transactional business revenue growth

67% of plan

Achieve Plan

133% of plan

162%

Mr. Doak

 

Project Iris revenue growth and profitability

77% of plan

Achieve Plan

121% of plan

63%

Messrs. Doak and Kaltenbach

 

China revenue growth

57% of plan

Achieve Plan

143% of plan

93%

Mr. Kaltenbach

 

Grow LC/MS revenue and market share

67% of plan

Achieve Plan

133% of plan

85%

Mr. Kaltenbach

 

Project Secretariat revenue growth

50% of plan

Achieve Plan

150% of plan

64%

Mr. Thaysen

 

China revenue growth

60% of plan

Achieve Plan

140% of plan

0%

Mr. Thaysen

 

China product registration

42% of plan

Achieve Plan

142% of plan

50%

Mr. Thaysen

 

Workflow enablement initiative

33% of plan

Achieve Plan

167% of plan

50%

 

Actual payout tables for key business initiatives use a straight-line payout slope (and/or key milestones) from threshold to target and from target to maximum. Final payouts for each key business initiative are recommended by the CEO and approved by the Compensation Committee.

 

Long-Term Incentives – Performance Stock Units and Restricted Stock Units

Performance Stock Units Earned in Fiscal Year 2017

The performance stock units granted in fiscal year 2015 were measured based on relative TSR versus all companies in the S&P 500 Health Care, Industrials and Materials Indexes for fiscal years 2015 through 2017. The company did not establish an absolute TSR target as we believe performance is best measured on a relative basis against our selected peer group with the payout percentages as follows:

 

 

 

 

 

 

 

 

 

Peer Group TSR

 

Payout Percentage

 

 

 

 

 

 

 

75th Percentile

 

76.2%

 

200%

 

Median

 

40.1%

 

100%

 

25th Percentile

 

15.8%

 

25%

 

Agilent

 

79.3%

 

200%

 

In November 2017, the Compensation Committee certified the relative TSR results and approved the payout at 200% for the FY15-FY17 performance period that ended on October 31, 2017 as set forth below.  Our strong stock price performance exceeded the 75th percentile of the stock price performance of our peer group for the Long-Term Performance Program resulting in a 200% payout percentage.

 

 

 

Target

Awards

(Shares)

 

Payout at

200% (Shares)

 

Value

of Payout at

200% ($)

Michael R. McMullen

 

50,801

 

101,602

 

$6,854,071

Didier Hirsch

 

21,337

 

42,674

 

$2,878,788

Mark Doak

 

11,176

 

22,352

 

$1,507,866

Patrick Kaltenbach

 

10,160

 

20,320

 

$1,370,787

Jacob Thaysen

 

5,080

 

10,160

 

$685,394

37


COMPENSATION DISCUSSION AND ANALYSIS

 

Our TSR performance relative to peers and the payout percentages for the LTPP for the past five performance periods are set forth below:

Relative TSR Performance Stock Units – FY16 to FY18 Performance Period

 

Fifty percent of the performance stock units granted in fiscal year 2016 for the FY16 to FY18 performance period had financial goals based on relative TSR versus all companies in the S&P 500 Health Care and Materials Indexes for fiscal year 2016 through fiscal year 2018.  Relative TSR performance stock units are completely “at-risk” compensation because our performance must be at or above the 25th percentile in order for the individuals to receive a payout.  The final and only payout will be at the end of fiscal year 2018 based on the relative TSR for the three-year performance period.

Operating Margin Performance Stock Units – FY16 to FY18 Performance Period

Fifty percent of the performance stock units granted in fiscal year 2016 for the FY16 to FY18 performance period had financial goals based on adjusted operating margin.  The number of shares earned under these performance stock units will be determined by calculating the operating margin percentage attained at the end of each of the three fiscal years in the performance period compared to the targets (which were set at the beginning of the three-year performance period). We use non-GAAP operating margin adjusted to exclude material M&A during the performance period, subject to Compensation Committee approval. The final and only payout at the end of fiscal year 2018 will be an average of the payout percentage for each fiscal year. The threshold, target and maximum numbers are set forth in the table below:

 

Long-Term Performance Shares Operating Margin Percentage

Fiscal Year

 

Threshold
(25%)

 

Target
(100%)

 

Maximum
(200%)

 

Actual

OM%

 

Attainment Percentage

FY16

 

19.50%

 

20.50%

 

21.50%

 

20.9%

 

140%

FY17

 

20.50%

 

21.50%

 

22.50%

 

22.6%

 

200%

FY18

 

21.00%

 

22.00%

 

23.00%

 

TBD

 

TBD

Payout

 

 

 

 

 

 

 

 

 

TBD

 

38


COMPENSATION DISCUSSION AND ANALYSIS

 

Long-Term Incentives Granted in Fiscal Year 2017

The Compensation Committee places emphasis on performance as 60% of the annual NEO grants consist of performance awards. Restricted stock units make up the other 40% of the target LTI value. The target value of the long-term incentives for each NEO ranged between the 25th and 75th percentile of our compensation peer group. Stock grant values were delivered as follows:

 

Equity Vehicle

Weighting

Metric

Vesting

Holding Period

Methodology for Determining

Target Award

Payout Range

 

Performance

Stock Units

 

 

30%

 

 

Relative Total

Shareholder

Return

 

 

100% after 3rd

year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance

Stock Units

 

 

30%

 

 

Earnings Per Share

 

 

100% after 3rd

year

 

 

One-year post-vest

holding period

 

 

Divide the target award amount

by the product of the 20-day

average stock price, preceding

the grant date, multiplied by the

applicable accounting valuation

 

 

Lesser of 2X share target or 3X dollar target value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted

Stock Units

 

 

40%

 

 

None

 

 

25% each

year over 4

years

 

 

 

 

 

 

 

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The target value of the long-term incentive awards is determined at the beginning of the then-current fiscal year for each NEO. The target value reflects the Compensation Committee’s judgment on the relative role of each NEO’s position within the company, as well as the performance of each NEO and benchmark data from our compensation peer group.

 

 

 

Type of Award / Value / # of Shares

 

 

 

 

 

 

Performance Stock Units - TSR

 

Performance Stock Units - EPS

Restricted Stock Units

 

Total Target Value of Long

Term-Incentive Awards

Name

 

($)

 

(#)

 

($)

 

(#)

($)

 

(#)

 

($)

Michael R. McMullen

 

2,100,000

 

40,299

 

2,100,000

 

52,199

2,800,000

 

69,599

 

7,000,000

Didier Hirsch

 

780,000

 

14,968

 

780,000

 

19,388

1,040,000

 

25,851

 

2,600,000

Mark Doak

 

553,500

 

10,621

 

553,500

 

13,758

738,000

 

18,344

 

1,845,000

Patrick Kaltenbach

 

521,100

 

10,000

 

521,100

 

12,953

694,800

 

17,270

 

1,737,000

Jacob Thaysen

 

390,000

 

7,484

 

390,000

 

9,694

520,000

 

12,925

 

1,300,000

 

Performance Conditions for Performance Stock Units Granted in Fiscal Year 2017

The Compensation Committee has established rolling three-year performance periods for determining earned performance stock awards. The financial goals for the performance stock units for fiscal year 2017 are based on relative TSR and earnings per share. Relative TSR aligns with stockholder interests as higher TSR results in higher potential returns for stockholders as well as ensuring a correlation between performance and payouts. Earnings per share ensures our executives are focused on long-term superior earnings growth. As noted above, our fiscal year 2017 short-term incentive program focuses on adjusted operating margin and revenue, which drive internal business strategies that in turn impact our TSR.  

39


COMPENSATION DISCUSSION AND ANALYSIS

 

Relative TSR Performance Stock Units

The performance stock units granted in fiscal year 2017 with relative TSR as a metric will be measured and paid out based on relative TSR versus all companies in our LTPP peer group, the Health Care and Materials Indexes of the S&P 500 for fiscal year 2017 through fiscal year 2019. The LTPP peer group companies are established at the beginning of the performance period and need to have three full years of stock price data to be used in the final relative TSR calculation. The company does not establish an absolute TSR target as we believe performance is best measured on a relative basis against our selected LTPP peer group. The payout schedule determined by the Compensation Committee in fiscal year 2017 was as follows:

 

 

 

Payout as a

 

 

Percentage of

Relative TSR Performance

 

Target

Below 25th Percentile Rank (threshold)

 

0%

 

25th Percentile Rank

 

25%

 

50th Percentile Rank (target)

 

100%

 

75th Percentile Rank and Above

 

200%

 

 

Relative TSR performance stock units are completely “at-risk” compensation because our performance must be at or above the 25th percentile for the individuals to receive a payout.

For purposes of determining the relative TSR awards, relative TSR reflects (i) the aggregate change in the 20-day average closing price of our stock versus each of the companies in our LTPP peer group, each as measured at the beginning and end of the three-year performance period plus (ii) the value (if any) returned to stockholders in the form of dividends or similar distributions, assumed to be reinvested on distribution date on a pre-tax basis.

Earnings Per Share Performance Stock Units – FY17 to FY19 Performance Period

The earnings per share performance awards will be determined by calculating the earnings per share attained at the end of each of the three fiscal years in the performance period compared to the targets (which are set at the beginning of each fiscal year during the three-year performance period). The FY17 EPS target was set at the mid-point of external guidance issued at the beginning of the fiscal year.  We use non-GAAP adjusted diluted earnings per share and all targets are subject to Compensation Committee approval. The final and only payout will be at the end of fiscal year 2019 based on an average of the payout percentage for each fiscal year. The threshold, target and maximum levels are set forth in the table below:

 

 

Long-Term Performance Shares Earnings Per Share

 

Fiscal Year

 

Threshold

(25%)

 

Target

(100%)

 

Maximum

(200%)

 

Actual

EPS (non-GAAP)

 

Attainment Percentage

 

FY17

 

$1.98

 

$2.13

 

$2.28

 

$2.36

 

200%

 

FY18

 

TBA

 

TBA

 

TBA

 

TBA

 

TBA

 

FY19

 

TBA

 

TBA

 

TBA

 

TBA

 

TBA

 

Payout

 

 

 

 

 

 

 

 

 

TBA

Additional Information

Equity Grant Practices

The Compensation Committee generally makes grants of stock awards to our NEOs at the first Compensation Committee meeting of our fiscal year. Awards are neither timed to relate to the price of our stock nor to correspond with the release of material non-public information, although grants are generally made when our trading window is open. Grants to current employees are generally effective on the date of the Compensation Committee meeting approving such grants. Grants to new employees, including potential NEOs, are typically made at the next regularly scheduled Compensation Committee meeting following the employee’s start date. The standard vesting schedule for our equity grants is 100% after the third year for performance stock units and 25% per year over four years for restricted stock units. Starting in fiscal year 2016, awards granted to executive level employees and above are also subject to a one-year post-vest holding period.

40


COMPENSATION DISCUSSION AND ANALYSIS

 

When an employee retires after age 55 with 15 years of service, his or her stock options and stock awards continue to vest per their original vesting schedule rather than accelerate at termination and such employee is eligible to receive the full amount paid out under his or her performance stock units at the end of the applicable performance period, assuming such retirement occurs after the 12-month anniversary of the date of grant of the performance stock units.    If such retirement occurs during the first 12 months of the date of grant of the performance stock units, the employee would be eligible to receive a pro rata portion of the amount paid out under his or her performance stock units at the end of the applicable performance period.  We believe continued vesting into retirement better aligns NEO interests with stockholders beyond the date they retire from the company.  As of October 31, 2017, Messrs. McMullen, Hirsch and Doak met the eligibility requirements for continued vesting upon retirement.  Stock options and stock awards vest on a “double-trigger” basis in connection with a change in control as described below.  Finally, if an employee dies or becomes fully disabled, his or her unvested stock options or stock awards fully vest.  

Compensation Risk Controls

Semler Brossy, our independent compensation consultant, collaborates with management to conduct an annual review of our compensation-related risks. The risk assessment conducted during fiscal year 2017 did not identify any significant compensation-related risks and concluded that our compensation program is well designed to encourage behaviors aligned with the long-term interests of stockholders. Semler Brossy also found an appropriate balance in fixed versus variable pay, cash and equity, corporate, business unit, and individual goals, financial and non-financial performance measures, and formulas and discretion. Finally, it was determined that there are appropriate policies and controls in place to mitigate compensation-related risk, including the following:

Recoupment Policy

We maintain an Executive Compensation Recoupment Policy that applies to all our executive officers covered by Section 16 of the Securities Exchange Act. Under this Policy, in the event of (1) a material restatement of financial results (wherein results were incorrect at the time published due to mistake, fraud or other misconduct) or (2) fraud or misconduct by an executive officer, the Compensation Committee will, in the case of a restatement, review all short and long-term incentive compensation awards that were paid or awarded to executive officers for performance periods beginning after July 14, 2009 that occurred, in whole or in part, during the restatement period. In the case of fraud or misconduct, the Compensation Committee will consider actions to remedy the misconduct, prevent its recurrence, and impose discipline on the wrongdoers, in each case, as the Compensation Committee deems appropriate.

These actions may include, without limitation:

    requiring reimbursement of compensation;

    the cancellation of outstanding restricted stock or deferred stock awards, stock options, and other equity incentive awards;

    limiting future awards or compensation; and

    requiring the disgorgement of profits realized from the sale of our stock to the extent such profit resulted from fraud or misconduct.

Insider Trading Policy

Our insider trading policy expressly prohibits:

    ownership of financial instruments or participation in investment strategies that hedge the economic risk of owning our stock;

    officers and directors from pledging our securities as collateral for loans; and

    officers, directors and employees from purchasing or selling our securities while in possession of material, non-public information, or otherwise using such information for their personal benefit.

Our executives and directors are permitted to enter into trading plans that are intended to comply with the requirements of Rule 10b5-1 of the Securities Exchange Act so that they can prudently diversify their asset portfolios and exercise their stock options before expiration.

41


COMPENSATION DISCUSSION AND ANALYSIS

 

Stock Ownership Guidelines

Our stock ownership guidelines are designed to encourage our NEOs and other executive officers to achieve and maintain a significant equity stake in our company and more closely align their interests with those of our stockholders. The guidelines provide that the CEO and CFO and other executive officers should accumulate and hold, within five years from election to his or her position, an investment level in our stock equal to the lesser of a multiple of his or her annual base salary or accumulate a direct ownership of our stock as set forth below:

 

 

 

Investment Level =

 

Direct Ownership of

 

 

Multiple of Annual

 

Agilent Stock

 

Executive

Base Salary

 

(# of Shares)

 

CEO

6X