DEF 14A 1 formdef14a.htm DEF 14A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No.   )

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KEYSIGHT TECHNOLOGIES, INC.
(Name of Registrant as Specified in Its Charter)
 
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Keysight Technologies, Inc.
1400 Fountaingrove Parkway
Santa Rosa, California 95403
 
Ronald S. Nersesian
President and Chief Executive Officer
 
February 2018

To Our Stockholders:

I am pleased to invite you to attend our Annual Meeting of stockholders of Keysight Technologies, Inc. (“Keysight” or “Company”) to be held on Thursday, March 22, 2018 at 8:00 a.m., Pacific Standard Time, at Keysight’s headquarters located at 1400 Fountaingrove Parkway, Santa Rosa, California 95403 (U.S.A.). Details regarding admission to the Annual Meeting and the business to be conducted are more fully described in the accompanying Notice of Annual Meeting and Proxy Statement.

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.keysight.com and select the link for the webcast. To listen by telephone, please call (844) 579-6824 (international callers should dial +1 (763) 488-9145). The meeting pass code is 7496407. The webcast will begin at 8:00 a.m. and a recording of the webcast will remain on Keysight’s website for one year. You cannot record your vote or ask questions on this website or at this phone number.

We have elected to take advantage of Securities and Exchange Commission rules that allow issuers to furnish proxy materials to their stockholders on the Internet. We believe that the rules will allow us to provide our stockholders with the information they need, while lowering the costs of delivery and reducing the environmental impact of the Annual Meeting.

Your vote is important. Whether or not you plan to attend the Annual Meeting, I hope that you will vote as soon as possible. Please review the instructions on each of your voting options described in the Proxy Statement and the Notice of Internet Availability of Proxy Materials you received in the mail.

Thank you for your ongoing support of, and continued interest in, Keysight.

Sincerely,
 

Admission to the Annual Meeting will be limited to stockholders and their proxies. You are entitled to attend the Annual Meeting only if you are a stockholder of record as of the close of business on January 31, 2018, the record date, or hold a valid proxy for the meeting. In order to be admitted to the Annual Meeting, you must present proof of ownership of Keysight stock as of the record date. This can be a brokerage statement or letter from a bank or broker indicating ownership on January 31, 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. Any holder of a proxy from a stockholder must present the proxy card, properly executed, and a copy of the proof of ownership. Stockholders and proxyholders may also be asked to present a form of photo identification such as a driver’s license or passport. Backpacks, cameras, cell phones with cameras, recording equipment and other electronic recording devices will not be permitted at the Annual Meeting. Keysight reserves the right to inspect any persons or proposals prior to their admission to the Annual Meeting. Failure to follow the meeting rules or permit inspection will be grounds for exclusion from the Annual Meeting.
 

KEYSIGHT TECHNOLOGIES, INC.

1400 Fountaingrove Parkway
Santa Rosa, California 95403
(707) 577-6915
 
Notice of Annual Meeting of Stockholders
 
TIME
 
8:00 a.m., Pacific Standard Time, on Thursday, March 22, 2018
 
PLACE
 
Keysight Technologies, Inc.
   
1400 Fountaingrove Parkway
   
Santa Rosa, California 95403 (U.S.A.)
     
ITEMS OF BUSINESS
 
(1) To elect three directors to a 3-year term. At the Annual Meeting, the Board of Directors (the “Board”) intends to present the following nominees for election as directors:
   
·     Ronald S.  Nersesian
·     Charles J. Dockendorff
·     Robert A. Rango
     
   
(2) To approve the Amendment and Restatement of the 2014 Equity and Incentive Compensation Plan
     
   
(3) To ratify the Audit and Finance Committee’s appointment of PricewaterhouseCoopers LLP as Keysight’s independent registered public accounting firm.
     
   
(4) To approve, on a non-binding advisory basis, the compensation of Keysight’s named executive officers.
     
   
(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 or postponements thereof if you were a stockholder at the close of business on January 31, 2018.
     
ANNUAL MEETING ADMISSION
 
To be admitted to the Annual Meeting, you must present proof of ownership of Keysight stock as of the record date. This can be a brokerage statement or letter from a bank or broker indicating ownership on January 31, 2018, the Notice of Internet Availability of Proxy Materials, a proxy card, or legal proxy or voting 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. Limited seating is available on a first come, first served basis.
     
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.

 
By Order of the Board,
   
 
 
Stephen D. Williams
Senior Vice President, General Counsel and Secretary



PROXY SUMMARY ǀ 2
This Proxy Statement and the accompanying proxy card are being sent or made available
on or about February 9, 2018.
 
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

There are four items of business which Keysight currently expects to be considered at the 2018 Annual Meeting. The following table lists those items of business and the Keysight Board’s vote recommendation.
 
PROPOSAL
BOARD VOTE RECOMMENDATION
Election of Directors
For each director nominee
Amendment and Restatement of the 2014 Equity and Incentive Compensation Plan
For
Ratification of the Independent Registered Public Accounting Firm
For
Advisory Vote to Approve Named Executive Officer Compensation
For
 
Director Nominees

Keysight’s Board of Directors is divided into three classes serving staggered three-year terms. The following table provides summary information about each of the director nominees who are being voted on at the Annual Meeting.
 
  
NAME
    
AGE(1)
   
DIRECTOR
SINCE
    
INDEPENDENT
 
COMMITTEE
MEMBERSHIPS
 
OTHER
PUBLIC
BOARDS
 
AC
 
CC
 
NCG
 
EC
Ronald S. Nersesian
 
58
 
2013
 
No
         
M
 
M
 
·    Trimble, Inc.
Charles J. Dockendorff
 
63
 
2014
 
Yes
 
C
     
M
     
·    Boston Scientific Corporation
·    Haemonetics Corporation
·    Hologic, Inc.
                                 
Robert A. Rango
 
59
 
2015
 
Yes
 
M
     
M
     
·    Integrated Device Technology
·    KLA Tencor Corporation
Key:
AC: Audit and Finance Committee; CC: Compensation Committee; NCG: Nominating and Corporate Governance Committee; EC: Executive Committee; C: Chairperson; M: Member

(1) Age as of December 31, 2017.

Independent Registered Public Accounting Firm

We ask our stockholders to ratify the selection of PricewaterhouseCoopers LLP (“PwC”) as Keysight’s independent registered public accounting firm for fiscal year 2018.

The following table presents fees for professional audit services rendered to Keysight by PwC for the years ended October 31, 2017 and 2016.
 
Fee Category:
 
Fiscal 2017 ($)
   
% of Total (%)
   
Fiscal 2016 ($)
   
% of Total (%)
 
Audit Fees
 
$
5,875,000
     
92.0
   
$
3,757,000
     
79.9
 
Audit-Related Fees
   
411,000
     
6.4
     
337,000
     
7.1
 
Tax Fees:
                               
Tax compliance/preparation
   
96,000
     
1.5
     
71,000
     
1.5
 
Other tax services
   
0
     
0
     
0
     
0
 
Total Tax Fees
   
96,000
     
1.5
     
71,000
     
1.5
 
All Other Fees
   
3,000
     
0.1
     
540,000
     
11.5
 
Total Fees
 
$
6,385,000
     
100.0
   
$
4,705,000
     
100.0
 
 

PROXY SUMMARY ǀ 3
Executive Compensation Matters

The proxy statement contains information about Keysight’s executive compensation programs. In particular, you will find detailed information in the Compensation Discussion and Analysis starting on page 36 and the Executive Compensation tables starting on page 54.

Our executive officers are compensated in a manner consistent with Keysight’s business strategy, competitive practice, sound compensation governance principles, and stockholder interests and concerns. Our compensation policies and decisions are focused on pay-for-performance. We believe that our programs are well aligned with the interests of our stockholders and are instrumental to achieving our business strategy.

We are requesting your non-binding vote to approve the compensation of the Company’s named executive officers as described on pages 36 to 68, including the Summary Compensation Table and subsequent tables on pages 54 to 68 of the proxy statement.
 

TABLE OF CONTENTS ǀ i
PROPOSAL 1 – ELECTION OF DIRECTORS
3
 
Director Nomination Criteria: Qualifications and Experience
3
 
Current Director Terms
3
 
Director Nominees for Election to New Three-Year Terms That Will Expire in 2021
4
 
Continuing Directors Not Being Considered for Election at this Annual Meeting
5
 
Directors Whose Terms Will Expire in 2019
5
 
Directors Whose Terms Will Expire in 2020
6
CORPORATE GOVERNANCE MATTERS
8
 
Corporate Governance Highlights
8
 
Corporate Governance Guidelines
8
 
Communicating with the Board
8
 
Director Qualification Standards
8
 
Board Leadership Structure
9
 
Board’s Role in Risk Oversight
9
 
Majority Voting for Directors
9
 
Policies on Business Ethics
9
 
Director Independence
10
 
Audit and Finance Committee Member Independence
10
 
Compensation Committee Member Independence
10
COMMITTEES OF THE BOARD OF DIRECTORS
12
 
Audit and Finance Committee
12
 
Compensation Committee
13
 
Nominating and Corporate Governance Committee
13
 
Executive Committee
14
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
14
RELATED PERSON TRANSACTIONS POLICY AND PROCEDURES
14
Transactions with Related Persons
15
PROPOSAL 2 — APPROVAL OF THE AMENDED AND RESTATED 2014 EQUITY AND INCENTIVE COMPENSATION PLAN
16
PROPOSAL 3 — RATIFICATION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
27
 
Fees Paid to PricewaterhouseCoopers LLP
27
 
Policy on Audit and Finance Committee Preapproval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm
28
AUDIT AND FINANCE COMMITTEE REPORT
29
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
30
 
Stock Ownership of Certain Beneficial Owners
30
 
Stock Ownership of Directors and Officers
31
 
Section 16(a) Beneficial Ownership Reporting Compliance
31
COMPENSATION OF NON-EMPLOYEE DIRECTORS
32
 
Director Compensation Highlights
32
 
Summary of Non-Employee Director Annual Compensation
32
 
Non-Employee Director Compensation Earned During Fiscal Year 2017
33
 
Non-Employee Director Reimbursement Practice for Fiscal Year 2017
33
 
Non-Employee Director Stock Ownership Guidelines
33
PROPOSAL 4 — NON-BINDING ADVISORY VOTE TO APPROVE THE COMPENSATION OF KEYSIGHT’S NAMED EXECUTIVE OFFICERS
34
 
Vote Required
35
 
-i-
TABLE OF CONTENTS ǀ ii 
COMPENSATION DISCUSSION AND ANALYSIS
36
 
Executive Summary
36
 
Results of 2016 Shareholder Advisory Vote on Executive Compensation
37
 
Named Executive Officers
37
 
Pay for Performance Alignment
37
 
Compensation Policies and Practices
39
 
Process for Determining Compensation
39
 
Keysight’s Peer Groups
40
 
Elements of 2017 Compensation
41
 
Base Salary
41
 
Short‑Term Incentives
42
 
Long-Term Incentives
46
 
Policies for Compensation Risk Mitigation
50
 
Other Compensation Practices and Policies
51
 
Compensation Committee Report
53
EXECUTIVE COMPENSATION
54
 
Fiscal Year 2017 Summary Compensation Table
54
 
Fiscal Year 2017 Grants of Plan‑Based Awards in Last Fiscal Year
56
 
Outstanding Equity Awards at Fiscal Year‑End
57
 
Fiscal Year 2017 Option Exercises and Stock Vested at Fiscal Year‑End Table
59
 
Pension Benefits
59
 
Non‑Qualified Deferred Compensation in Last Fiscal Year
61
 
Termination Arrangements
62
FREQUENTLY ASKED QUESTIONS
69
APPENDIX A
75
DIRECTIONS TO KEYSIGHT TECHNOLOGIES, INC
89
 

ELECTION OF DIRECTORS ǀ 3
PROPOSAL 1 – ELECTION OF DIRECTORS
 
Director Nomination Criteria: Qualifications and Experience

The Nominating and Corporate Governance Committee performs an assessment of the skills and the experience needed to properly oversee the interests of the Company. Generally, the Nominating and Corporate Governance Committee reviews both the short and long term strategies of the Company to determine what current and future skills and experience are required of the Board in exercising its oversight function. The Nominating and Corporate Governance Committee then compares those skills to the skills of the current directors and potential director candidates. The Nominating and Corporate Governance Committee conducts targeted efforts to identify and recruit individuals who have the qualifications identified through this process. The Nominating and Corporate Governance Committee looks for its current and potential directors collectively to have a mix of skills and qualifications, some of which are described below:

·
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 fields;

·
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 Keysight; and

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

In addition to these minimum requirements, the Nominating and Corporate Governance Committee will also consider whether the candidate’s skills are complementary to the existing Board members’ skills; the diversity of the Board with respect to factors such as age, race, gender, 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 and 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. In evaluating potential candidates for the Board, the Nominating and Corporate Governance Committee considers these factors in the light of the specific needs of the Board at that time.
 
Current Director Terms
 
Keysight’s 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. Keysight’s Bylaws, as amended, allow the Board to fix the number of directors by resolution. Our Board currently consists of eight directors divided into three classes. The terms of the three current director nominees will expire at this Annual Meeting. The current composition of the Board and the term expiration dates for each director is as follows:
 
Class
Directors
Term Expires
I
Ronald S. Nersesian, Charles J. Dockendorff and Robert A. Rango
2018
II
James G. Cullen, Jean M. Halloran and Mark Templeton
2019
III
Paul N. Clark and Richard Hamada
2020
 
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 of the nominees are currently directors of Keysight. Information regarding each of the nominees is provided below as of December 31, 2017. There are no family relationships among Keysight’s executive officers and directors.
 

ELECTION OF DIRECTORS ǀ 4
Director Nominees for Election to New Three-Year Terms That Will Expire in 2021

RONALD S. NERSESIAN
   
     
Age: 58
Keysight Committees:
Public Directorships:
Director Since: December 2013
President and CEO
·     Executive Committee
·    Trimble Inc.
   
Former Public Directorships Held During the Past Five Years:
   
None
 
Mr. Nersesian has served as President and Chief Executive Officer of Keysight since December 2013 and, prior to the separation, served as Executive Vice President of Agilent Technologies, Inc. Mr Nersesian additionally served as President of Agilent from November 2012 to September 2013 and as Chief Operating Officer, Agilent from November 2011 to September 2013. From November 2011 to November 2012, Mr. Nersesian served as Agilent’s Executive Vice President and Chief Operating Officer. He served as Senior Vice President, Agilent, and President, Electronic Measurement Group from March 2009 to November 2011, as Agilent’s Vice President and General Manager of the Wireless Business Unit of the Electronics Measurement Group from February 2005 to February 2009, and as Agilent’s Vice President and General Manager of the Design Validation Division from May 2002 to February 2005. Prior to joining Agilent, Mr. Nersesian served in management positions with LeCroy Corporation from 1996 to 2002. From 1984 through 1996, Mr. Nersesian served in various roles with HP, Inc. Mr. Nersesian holds a bachelor’s degree in electrical engineering from Lehigh University and an MBA from New York University, Stern School of Business. Mr. Nersesian brings to the Board strong business operational experience with technology companies and management expertise developed over three decades.

CHARLES J. DOCKENDORFF
   
     
Age: 63
Keysight Committees:
Public Directorships:
Director Since: October 2014
·     Audit and Finance (Chair)
·     Nominating and Corporate Governance
·     Boston Scientific Corporation
·     Haemonetics Corporation
·     Hologic, Inc.
     
   
Former Public Directorships Held During the Past Five Years:
   
None
 
Mr. Dockendorff served as the Executive Vice President and Chief Financial Officer of Covidien plc from 2006 until his retirement in March 2015, and as Vice President and Chief Financial Officer from 1995 to 2006. Mr. Dockendorff joined the Kendall Healthcare Products Company as Controller and was named Vice President and Controller in 1994. He was appointed CFO of Tyco Healthcare in 1995. Prior to joining Kendall/Tyco Healthcare, Mr. Dockendorff was the Chief Financial Officer, Vice President of Finance and Treasurer of Epsco Inc. and Infrared Industries, Inc. In addition, Mr. Dockendorff worked as an accountant for Arthur Young & Company (now Ernst & Young) and the General Motors Corporation. Mr. Dockendorff is a Certified Public Accountant and holds a Bachelor’s degree in Business Administration and Accounting from the University of Massachusetts and a Master of Science degree in Finance from Bentley College. As a result of Mr. Dockendorff’s significant financial experience, Mr. Dockendorff provides the Keysight Board with extensive accounting, tax, treasury, financial planning, and audit knowledge.
 
ROBERT A. RANGO
 
 
     
Age: 59
Keysight Committees:
Public Directorships:
Director Since: November 2015
·     Audit and Finance
·     Nominating and Corporate Governance
·     Integrated Device Technology
·     KLA Tencor Corporation
     
   
Former Public Directorships Held During the Past Five Years:
   
None
 

ELECTION OF DIRECTORS ǀ 5
Mr. Rango has served as the President and Chief Executive Officer of Enevate Corporation since June 2016. Mr. Rango served from 2002 to 2014 as an executive at Broadcom Corporation. From 2010 to 2014, he served as Executive Vice President and General Manager of Broadcom’s Mobile and Wireless Group. During his tenure at Broadcom, Mr. Rango held many senior management positions in the company’s Network Infrastructure Business Unit, Mobile and Wireless Group and Wireless Connectivity Group. Mr. Rango received his Bachelor of Engineering degree in Electrical Engineering from State University of New York and his Master of Engineering in Electrical Engineering from Cornell University. Mr. Rango possesses significant operating and leadership skills, including extensive experience in global semiconductor product marketing, development and sales. His mobile, wireless, semiconductor, optical, software and technology management expertise makes him a valuable member of the Keysight Board.
 
 
Keysight’s Board recommends a vote FOR the election to the Board of each of the foregoing nominees.
 
 
Continuing Directors Not Being Considered for Election at this Annual Meeting

The Keysight directors whose terms are not expiring this year are listed below. They will continue to serve as directors for the remainder of their terms or such other date, in accordance with Keysight’s Bylaws. Information regarding each of such directors is provided below.

Directors Whose Terms Will Expire in 2019
 
JAMES G. CULLEN
   
     
Age: 75
Keysight Committees:
Public Directorships:
Director Since: October 2014
·     Compensation (Chair)
·     Nominating and Corporate Governance
  ·     Agilent Technologies, Inc.
  ·     Avinger, Inc.
     
   
Former Public Directorships Held During the Past Five Years:
·     Johnson & Johnson
·     Neustar, Inc.
·     Prudential Financial, Inc.
 
Mr. Cullen was President and Chief Operating Officer of Bell Atlantic Corporation (now known as Verizon) from 1997 to June 2000 and a member of the office of chairman from 1993 to June 2000. Prior to this appointment, Mr. Cullen was the President and Chief Executive Officer of the Telecom Group of Bell Atlantic from 1995 to 1997. Prior to the creation of Bell Atlantic on January 1, 1984, Mr. Cullen held management positions with New Jersey Bell from 1966 to 1981 and AT&T from 1981 to 1983. Mr. Cullen holds a B.A. in Economics from Rutgers University and an M.S. in Management Science from the Massachusetts Institute of Technology. Mr. Cullen has considerable managerial and operational experience and expertise from his senior leadership position with Bell Atlantic and its predecessors. In addition, Mr. Cullen brings significant public company director experience and perspective on public company management and governance. Mr. Cullen has a strong understanding of Keysight’s business having served on the board of Agilent for over 10 years, including more than five years as the non-executive chairman.

JEAN M. HALLORAN
   
     
Age: 65
Keysight Committees:
Public Directorships:
Director Since: October 2014
·     Compensation
·     Nominating and Corporate Governance
None
     
   
Former Public Directorships Held During the Past Five Years:
   
None

Ms. Halloran served as Senior Vice President of Human Resources for Agilent Technologies from August 1999 through October 2014.  She directed all aspects of Agilent’s talent and rewards management, leadership development and culture. Ms. Halloran has extensive experience in Human Resources, extending back to when she joined Hewlett Packard’s Medical Products Group in 1980.  Within that group, she held various positions in Manufacturing, Quality and Strategic Planning as well as Human Resources.  In 1993, Ms. Halloran headed Human Resources for HP’s Measurement Systems Organization and, in 1997, was appointed Director of Education for the company. Ms. Halloran received her BA from Princeton University and an MBA from Harvard University. Ms. Halloran has served as a director of several schools and non-profit organizations.  Ms. Halloran has in-depth knowledge of Keysight and its businesses, having been a leader at Keysight’s predecessors, Agilent and HP, for over 30 years.  Over the course of her career, she developed considerable expertise in Keysight’s businesses, policies and practices. This perspective provides valuable insight on the Keysight Board.
 

ELECTION OF DIRECTORS ǀ 6
MARK B. TEMPLETON
   
     
Age: 65
Keysight Committees:
Public Directorships:
Director Since: December 2015
·     Compensation
·     Nominating and Corporate Governance
·     Arista Networks, Inc.
·     Equifax, Inc.
     
   
Former Public Directorships Held During the Past Five Years:
   
·     Citrix Systems, Inc.

Mr. Templeton served from June 2001 until his retirement in October 2015 as the President and CEO of Citrix Systems, Inc., a leading global provider of virtualization, mobility management, networking and software as a service solutions. Mr. Templeton received his Bachelor’s degree in Product Design from North Carolina State University and an MBA from the Darden School of Business at the University of Virginia. Mr. Templeton’s operating experience, leadership and perspective in business strategy and operations and his insight in technology opportunities, particularly in the development and global marketing of advanced technology opportunities, makes him a valuable member of the Keysight Board.

Directors Whose Terms Will Expire in 2020
 
PAUL N. CLARK
   
     
Age: 70
Keysight Committees:
Public Directorships:
Director Since: October 2014
Chairman of the Board
·     Audit and Finance
·     Nominating and Corporate Governance (Chair)
·     Executive (Chair)
·     Agilent Technologies, Inc.
 
Former Public Directorships Held During the Past Five Years:
·     Biolase, Inc.
·     Catalent Pharma Solutions, 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. 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. Mr. Clark received a B.A. in finance from the University of Alabama and an M.B.A from Dartmouth College. Mr. Clark has significant experience with Keysight and its businesses, having been a director of Keysight’s predecessor, Agilent, since May 2006. He additionally brings extensive management experience from numerous senior management positions and considerable public company director experience.
 

ELECTION OF DIRECTORS ǀ 7
RICHARD HAMADA
   
     
Age: 59
Keysight Committees:
Public Directorships:
Director Since: October 2014
·     Compensation
·     Nominating and Corporate Governance
None
   
Former Public Directorships Held During the Past Five Years:
   
·     Avnet, Inc.
 
Mr. Hamada served as the Chief Executive Officer of Avnet, Inc. from July 2011 until July 2016 and as a member of the Avnet Board of Directors from February 2011 until July 2016. He first joined Avnet in 1983 and has served in many capacities including President from May 2010 until July 2011 and Chief Operating Officer from July 2006 until July 2011, as President of Avnet's Technology Solutions operating group from July 2003 until July 2006, and as President of its Computer Marketing business unit from January 2002 until July 2003. Mr. Hamada holds a Bachelor of Science degree in Finance from San Diego State University where, in June 2009, he was named as a member of the College of Business Administration Advisory Board. As a result of Mr. Hamada’s broad background in the technology and electronics industries, spanning his career, Mr. Hamada provides the Keysight Board with extensive sales, marketing and management knowledge.
 

CORPORATE GOVERNANCE MATTERS ǀ 8
Corporate Governance Matters

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.
 
Seven of our 8 directors are independent
Annual board self-assessment process
Independent Chairman of the Board
Majority voting and director resignation policy in uncontested director elections
Independent standing board committees
Annual evaluation of the Chief Executive Officer by independent directors
Regular meetings of our independent directors without management present
Strong focus on pay-for-performance
25% of our Board is diverse
Stock ownership guidelines for executive officers and directors
Average Board tenure of 3.5 years
Policies prohibiting hedging, short selling and pledging of our common stock
 
Corporate Governance Guidelines

The Board has adopted a set of Corporate Governance Guidelines to assist it in guiding Keysight’s governance practices. 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 applicable rules and listing standards. These practices are regularly reevaluated by the Nominating and Corporate Governance Committee in light of changing circumstances to continue to serve the best interests of the Company and its stockholders. A copy of our Corporate Governance Guidelines is 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 http://investor.keysight.com.

Communicating with the Board

Stockholders and other interested parties may communicate with the Board and Keysight’s Chairman of the Board by filling out the form at “Contact Chairman” under “Corporate Governance” at http://investor.keysight.com or by writing to Paul N. Clark, c/o Keysight Technologies, Inc., General Counsel, 1400 Fountaingrove Parkway, Santa Rosa, CA 95403. The General Counsel will perform a legal review in the normal discharge of his duties to ensure that communications forwarded to the Chairman of the Board 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 (“Unrelated Items”) will not be forwarded to the Chairman of the Board. In addition, unrelated items include material that is unduly hostile, threatening, illegal or similarly unsuitable, and will not be forwarded to the Chairman of the Board. Any communication that is relevant to the conduct of Keysight’s business and is not forwarded will be retained for one year (other than Unrelated Items) and made available to the Chairman of the Board and any other independent director upon request. The independent directors grant the general counsel discretion to decide which correspondence will be shared with Keysight’s management and specifically instruct that any personal employee complaints be forwarded to Keysight’s Human Resources Department.

Director Qualification Standards

Keysight’s Corporate Governance Guidelines provide that the Nominating and Corporate Governance Committee is responsible for reviewing with Keysight’s Board the appropriate skills and characteristics required of Board members in the context of the makeup of the Board and developing criteria for identifying and evaluating Board candidates.
 
The process that this Committee uses to identify a nominee to serve as a member of the Board depends on the qualities being sought. From time to time, Keysight may engage an executive search firm to assist the Nominating and Corporate Governance Committee in identifying individuals qualified to be Board members. The Nominating and Corporate Governance Committee considers the knowledge, experience, diversity and personal and professional integrity of potential directors, as well as their willingness to devote the time necessary to effectively carry out the duties and responsibilities of Board membership. The Nominating and Corporate Governance Committee may reevaluate the relevant criteria for Board membership from time to time in response to changing business factors or regulatory requirements. The Board is responsible for selecting candidates for election as directors based on the recommendation of the Nominating and Corporate Governance Committee.
 

CORPORATE GOVERNANCE MATTERS ǀ 9
Board Leadership Structure

Keysight separates the positions of Chief Executive Officer and Chairman of the Board. Mr. Clark, one of Keysight’s independent directors, serves as Keysight’s Chairman of the Board. 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 and Corporate Governance Committee, the annual self-assessments by the Board and each standing Committee of the Board, which may periodically include performance reviews of individual directors.

Separating the positions of Chief Executive Officer and Chairman of the Board allows the Chief Executive Officer to focus on Keysight’s 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 Keysight at this time. However, in the future the Board may wish to consider alternative structures, subject to the requirements under Keysight’s amended and restated Bylaws.

Board’s Role in Risk Oversight

The Board executes its risk management responsibility directly and through its Committees. The Audit and Finance Committee has primary responsibility for overseeing Keysight’s enterprise risk management process. The Audit and Finance Committee receives updates and discusses individual and overall risk areas during its meetings, including Keysight’s 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 Keysight’s compensation policies and practices with respect to both executive compensation and compensation generally. The Compensation Committee receives reports and discusses whether Keysight’s compensation policies and practices create risks that are reasonably likely to have a material adverse effect on the Company.

The Board is kept abreast of its Committees’ risk oversight and other activities via reports of the Committee chairpersons to the full Board during Board meetings.

We have adopted charters of our Compensation Committee, Audit and Finance Committee, Nominating and Corporate Governance Committee and Executive Committee consistent with the applicable rules and standards. Our Committee charters are located in the Investor Relations Section of our website and can be accessed by clinking on “Governance policies” in the “Corporate Governance” section of our web page at http://investor.keysight.com.

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 with respect to that director 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.

The Nominating and Corporate Governance Committee will consider the tendered resignation 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 and 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 and Corporate Governance Committee recommendation or Board action regarding whether to accept the resignation offer.

Policies on Business Ethics

Keysight has adopted a Standards of Business Conduct that requires all its business activities to be conducted in compliance with laws, regulations and ethical principles and values. All officers and employees of Keysight is required to read, understand and abide by the requirements of the Standards of Business Conduct. Keysight has also adopted a Director Code of Ethics applicable to Keysight's directors.
 

CORPORATE GOVERNANCE MATTERS ǀ 10
These documents are accessible on the Company’s website at http://investor.keysight.com. Any waiver of these codes for directors or executive officers may be made only by the Audit and Finance Committee. Keysight will disclose any amendment to, or waiver from, a provision of the Standards of Business Conduct for the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, on the Company’s website within four business days following the date of the amendment or waiver. In addition, Keysight will disclose any waiver from these codes for the other executive officers and for directors on the website.

Director Independence

The majority of Keysight’s Board is “independent” as defined by the rules of the NYSE and the Corporate Governance Guidelines adopted by the Board. The criteria adopted by Keysight’s Board to assist it in making determinations regarding the independence of its members are consistent with the NYSE listing standards regarding director independence. To be considered independent, the Board has to determine that a director does not have a material relationship with Keysight or its subsidiaries (either directly or as a partner, stockholder or officer of an organization that has a relationship with Keysight or its subsidiaries). In assessing independence, the Board considers all relevant facts and circumstances. In particular, when assessing the materiality of a director’s relationship with Keysight or its subsidiaries, the Board considers the issue not just from the standpoint of the director, but also from that of the persons or organizations with which the director has an affiliation.

Keysight’s Board assesses on a regular basis, and at least annually, the independence of directors and, based on the recommendation of the Nominating and Corporate Governance Committee, make a determination as to which members are independent.

Audit and Finance Committee Member Independence

Keysight has adopted standards for Audit and Finance Committee member independence in compliance with the Securities and Exchange Commission (the “SEC”) and NYSE corporate governance listing standards. In affirmatively determining the independence of any director who will serve on the Audit and Finance Committee, the Board must consider all factors specifically relevant to determining whether such director has a relationship to Keysight or any of its subsidiaries which is material to such director’s ability to be independent from management in connection with the duties of an Audit and Finance Committee member, including, but not limited to:

·
the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by Keysight to such director;
 
·
whether such director is affiliated with Keysight, a subsidiary of Keysight or an affiliate of a subsidiary of Keysight; and
 
·
whether such director serves on more than three reporting company audit committees.
 
Charles Dockendorff currently serves on the audit committee of four public companies, including Keysight.  The Board has considered whether such simultaneous service would impair his ability to effectively serve as the chairperson of Keysight’s Audit and Finance Committee.  In its analysis, the Board considered the committee’s demanding roles and responsibilities and the time commitment required by such service.  The Board also considered the skills and expertise of Mr. Dockendorff and the various commitments of his time.  After careful consideration, the Board concluded that Mr. Dockendorff’s other audit committee service does not impair his ability to effectively fulfill his responsibilities to Keysight Company at the time and, therefore, the Board has specifically approved his continuation as chairperson of Keysight’s Audit and Finance Committee.
 
The Board has also determined that all of the members of the Audit and Finance Committee are independent.
 
Compensation Committee Member Independence
 
Keysight has adopted standards for Compensation Committee member independence in compliance with the SEC and NYSE corporate governance listing standards. In affirmatively determining the independence of any director who will serve on the Compensation Committee, the Board must consider all factors specifically relevant to determining whether such director has a relationship to Keysight 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 Keysight to such director; and
 

CORPORATE GOVERNANCE MATTERS ǀ 11
 
·
whether such director is affiliated with Keysight, a subsidiary of Keysight or an affiliate of a subsidiary of Keysight.
 
The Board has determined that all of the members of the Compensation Committee are independent.
 

COMMITTEES OF THE BOARD OF DIRECTORS ǀ 12
COMMITTEES OF THE BOARD OF DIRECTORS
 
The Board has four standing Committees and their composition for fiscal year 2017 was as set forth in the table below. The Board held eight meetings during fiscal year 2017. Each director attended at least 75% of the Board meetings held when the director was serving on the Board.

  
Director
  
Board
 
Audit and
Finance
  
Compensation
Nominating and
Corporate
Governance
  
Executive
Paul N. Clark
CHAIR
 
CHAIR
CHAIR
James G. Cullen
 
CHAIR
 
Charles J. Dockendorff
CHAIR
 
 
Jean M. Halloran
       
Richard Hamada
 
 
Ronald S. Nersesian
     
Robert A. Rango
 
 
Mark B. Templeton
 
 

Keysight encourages, but does not require, its Board members to attend the annual stockholders meeting. In 2017, all of Keysight’s then-sitting directors attended the annual stockholders meeting.

Audit and Finance Committee

The Audit and Finance Committee is responsible for the oversight of the quality and integrity of Keysight’s consolidated financial statements, its compliance with legal and regulatory requirements, the qualifications and independence of its independent registered public accounting firm, the performance of its internal audit function and independent registered public accounting firm and other significant financial matters. In discharging its duties, the Audit and Finance Committee is expected to:

·
have the sole authority to appoint, retain, compensate, oversee, evaluate and replace the independent registered public accounting firm;

·
review and approve the scope of the annual internal and external audits;

·
review and pre-approve the engagement of Keysight’s independent registered public accounting firm to perform audit and non-audit services and the related fees;

·
meet independently with Keysight’s internal auditing staff, independent registered public accounting firm and senior management;

·
review the adequacy and effectiveness of the system of internal control over financial reporting and any significant changes in internal control over financial reporting;

·
review Keysight’s consolidated financial statements and disclosures including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s reports on Form 10-K or Form 10-Q;

·
establish and oversee procedures for (a) the receipt, retention and treatment of 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;

·
monitor compliance with Keysight’s Standards of Business Conduct; and

·
review disclosures from Keysight’s 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 and Finance Committee.

During fiscal year 2017, the Audit and Finance Committee held eleven meetings. Each Committee member attended at least 75% of the meetings held while the member served on the Committee. In accordance with section 407 of the Sarbanes-Oxley Act of 2002, the Board has identified Charles J. Dockendorff as the Audit and Finance Committee’s “Financial Expert.”
 

COMMITTEES OF THE BOARD OF DIRECTORS ǀ 13
Compensation Committee

The Compensation Committee is responsible for compensation of Keysight’s CEO and other executive officers as well as Keysight’s compensation plans, policies and programs as they affect the CEO and other executive officers. In addition, the Compensation Committee:

·
determines the compensation and the corporate goals and objectives of the performance of the CEO and other executive officers;

·
reviews and evaluates the performance of the CEO and other executive officers;

·
supervises and oversees the administration of Keysight’s incentive compensation, variable pay and stock programs and arrangements, including the impact of such programs and arrangements on Company risk;

·
establishes comparator peer group and compensation targets based on this peer group for the Company’s named executive officers;

·
review and assess, on an annual basis, the impact of the Company’s compensation programs and arrangements on Company risk; and

·
has sole authority to retain and terminate executive compensation consultants.

For more information on the responsibilities and activities of the Compensation Committee, including the Committee’s processes for determining executive compensation, see “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Executive Compensation,” and the Compensation Committee’s charter.

The Compensation Committee is aided by an independent consultant, currently Frederic W. Cook & Co., Inc. (“F. W. Cook”), who is selected and retained by the Compensation Committee. The role of F. W. Cook is to advise the Committee on marketplace trends in executive compensation, management proposals for compensation programs, and executive officer compensation decisions. F. W. Cook also evaluates compensation for non-employee directors and equity compensation programs generally. The firm consults with the Committee about its recommendations to the Board on chief executive officer compensation. To maintain the independence of the firm’s advice, F. W. Cook does not provide any services for Keysight other than those described above. These standards require that the Committee annually assess the independence of its compensation consultant. In assessing the consultant’s independence, the Compensation Committee considers the nature and amount of work performed for the Compensation Committee during the year, the nature of any unrelated services performed for the Company, and the fees paid for those services in relation to the firm’s total revenues. The consultant annually prepares for the Committee an independence letter providing assurances and confirmation of the consultant’s independent status under the standards. The Committee believes that F. W. Cook has been independent during its service for the Compensation Committee.

During fiscal year 2017, the Compensation Committee held four meetings. Each Committee member attended at least 75% of the meetings held while the member served on the Committee.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee proposes a slate of directors for election by Keysight’s stockholders at each annual meeting and recommends to the Board candidates to fill any vacancies on the Board. It is also responsible for reviewing management succession plans, recommending to the Board the appropriate Board size and Committee structure and developing and reviewing corporate governance principles applicable to Keysight.

The Nominating and Corporate Governance Committee will consider director candidates recommended 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 and Corporate Governance Committee.

Keysight typically hires a third party executive search firm to help identify and facilitate the screening and interview process for director candidates. To be considered by the Nominating and Corporate Governance Committee, a director nominee 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;
 

COMMITTEES OF THE BOARD OF DIRECTORS ǀ 14
·
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 Keysight; and

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

In addition to these minimum requirements, the Nominating and 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, race, gender, 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 and 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. In evaluating potential candidates for the Board, the Nominating and Corporate Governance Committee considers these factors in the light of the specific needs of the Board at that time. The executive search firm screens the candidates, does reference checks, prepares a biography for each candidate for the Nominating and Corporate Governance Committee to review and helps set up interviews. The Nominating and Corporate Governance Committee and Keysight’s Chief Executive Officer interview candidates that meet the criteria, and the Nominating and Corporate Governance Committee selects candidates that best suit the Board’s needs. We do not use a third party to evaluate current Board members.

The Nominating and Corporate Governance Committee also administers Keysight’s Related Person Transactions Policy and Procedures. See “Related Person Transactions Policy and Procedures” for more information.

During fiscal year 2017, the Nominating and Corporate Governance Committee held three meetings. Each member attended at least 75% of the meetings held while the member served on the Committee.

Executive Committee

The Executive Committee meets or takes written action when the Board is not otherwise meeting. The Committee has full authority to act on behalf of the Board, except that it cannot amend Keysight’s Bylaws, recommend any action that requires the approval of the stockholders, fill vacancies on the Board or any Board Committee, fix director compensation, amend or repeal any non-amendable or non-repealable resolution of the Board, declare a distribution to the stockholders except at rates determined by the Board, appoint other Committees or take any action not permitted under Delaware law to be delegated to a committee.

During fiscal year 2017, the Executive Committee did not hold any meetings.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee are set forth in the table on page 12. No Keysight executive officer served on the Compensation Committee (or equivalent), or the Board, of another entity whose executive officer(s) served on Keysight’s Compensation Committee.

Each of the members of the Compensation Committee is considered independent under the Company’s Board and Compensation Committee Independence Standards as set forth in the Company’s Amended and Restated Corporate Governance Guidelines.
 
RELATED PERSON TRANSACTIONS POLICY AND PROCEDURES

The Company’s 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, the Company has adopted a written Related Person Transactions Policy and Procedures (the “Related Person Transactions Policy”) that prohibits any of the Company’s 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 (within the meaning of Item 404(a) of the Securities and Exchange Commission’s Regulation S-K) 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.
 

COMMITTEES OF THE BOARD OF DIRECTORS ǀ 15
Under our Related Person Transactions Policy, the General Counsel must advise the Nominating and Corporate Governance Committee of any related person transaction of which he becomes aware. The Nominating and 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 and 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 Directors and Officers Questionnaire (“D&O Questionnaire”) to each member of the Board 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 and Corporate Governance Committee for its approval, ratification, revision, or rejection in consideration of all of the relevant facts and circumstances.

The Nominating and 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.

In 2014, the Board adopted the Related Person Transactions Policy to provide for standing pre-approval of limited transactions with related persons. Pre-approved transactions include:

·
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% of that company’s total annual revenues.

·
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% of the charitable organization’s total annual receipts.

Keysight will disclose the terms of related person transactions in its 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, none exceeded or fell outside of the pre-approved thresholds set forth in our Related Party Transaction Policy.

During fiscal year 2017, we did not enter into any financial transaction, arrangement or relationship in which a related person had or will have direct or indirect material interest, in an amount exceeding $120,000, except for the following:

·
BlackRock, Inc. holds 7.7% of Keysight’s total outstanding equity pursuant to information contained in a Schedule 13G filed with the SEC on January 25, 2017. During fiscal year 2017, Keysight purchased from BlackRock Advisors (UK) Ltd., a subsidiary of BlackRock, Inc. approximately $280,000 of products and/or services. The transactions with BlackRock Advisors (UK) Ltd. fell within Keysight’s pre-approved transactions.
 

APPROVAL OF THE AMENDED AND RESTATED
2014 EQUITY AND INCENTIVE COMPENSATION PLAN ǀ 16
PROPOSAL 2 —  APPROVAL OF THE AMENDED AND RESTATED 2014 EQUITY AND INCENTIVE COMPENSATION PLAN
 
Stockholders are being asked to approve the amendment and restatement (the “Amendment”) of the 2014 Equity and Incentive Compensation Plan (“2014 Equity Plan”), as adopted by the Board on November 16, 2017, subject to stockholder approval.

Stockholder approval of the Amendment is required to (i) increase the number of shares reserved under the 2014 Equity Plan by 4,800,000 shares, (ii) qualify stock options as incentive stock options for purposes of Section 422 of the Internal Revenue Code (the “Code”), (iii) ratify a Board-approved limit on the total compensation payable to a non-employee director in a Company fiscal year, and (iv) to satisfy New York Stock Exchange (“NYSE”) guidelines relating to equity compensation.

The Board believes that it is in the best interests of the Company and our stockholders to approve the Amendment so that we have sufficient shares available to continue to offer equity awards, which enable us to attract, provide incentives to and retain key personnel and non-employee directors.

If the requisite stockholder approval of the Amendment is not obtained, the Amendment will not take effect and no awards may be granted under the 2014 Equity Plan with respect to the additional shares reserved for issuance under the Amendment. However, we will continue to grant awards under the 2014 Equity Plan’s existing terms and from the shares available for issuance under the 2014 Equity Plan, without regard to the Amendment proposed in this Proposal. We will not grant any awards under the changes proposed in this Amendment unless and until our stockholders approve this Proposal.

Any references to the 2014 Equity Plan below assume the Amendment is approved, unless stated otherwise.

Request for Shares, Dilution and Overhang

Prior to the amendment, 17,000,000 shares were authorized for issuance pursuant to stock awards under the 2014 Equity Plan. As of December 31, 2017, 10,241,040 shares of common stock remain available for future awards under the 2014 Equity Plan. In order to give the Company the flexibility to responsibly address its future equity compensation needs, the Company is requesting that stockholders approve the Amendment, which will authorize an additional 4,800,000 shares for issuance under the 2014 Equity Plan, so that an overall total of 21,800,000 shares will be reserved under the plan (with 15,041,040 available for issuance as December 31, 2017). This amount represents an overhang of approximately 12%, based on outstanding shares of common stock as of December 31, 2017. The Company calculates “overhang” as (a) the total of shares underlying outstanding awards plus shares available for issuance under future equity awards, divided by (b) the total number of shares of common stock outstanding, shares underlying outstanding awards and shares available for issuance under future equity awards.

In determining the number of additional shares to be reserved, the Board and its Compensation Committee reviewed the 2014 Equity Plan and considered among other things, our three-year burn rate and projected future share usage under the 2014 Equity Plan. The projected future usage of shares for long-term incentive awards under the 2014 Equity Plan was reviewed under scenarios based on a variety of assumptions. Depending on assumptions, the shares to be made available under the 2014 Equity Plan are expected to satisfy the Company’s equity compensation needs through at least the 2021 Annual Meeting. However, the share reserve could last for a longer or shorter period of time based on various factors which cannot be predicted at this time, e.g., growth of our employee population, future grant practices, stock price and prevailing market conditions. The Compensation Committee is committed to effectively managing the number of shares reserved for issuance under the 2014 Equity Plan while minimizing stockholder dilution.
 
The table below shows our burn-rate relating to equity grants under the 2014 Equity Plan for the last three fiscal years.
 
Fiscal Year
Options Granted
Full-Value Awards
Granted (1)
Weighted Average #
of Common Shares
Outstanding
Burn Rate (2)
2017
0
1,300,945
~177,000,000
0.73%
2016
0
1,301,000
~170,000,000
0.77%
2015
968,000
1,725,000
~169,000,000
1.59%
 
(1)
Includes restricted stock units (“RSUs”) and PSUs.
 
(2)
Equals Options Granted + Full-Value Awards Granted/Weighted Average # of Common Shares Outstanding
 

APPROVAL OF THE AMENDED AND RESTATED
2014 EQUITY AND INCENTIVE COMPENSATION PLAN ǀ 17
 
Note Regarding Forecasts and Forward-Looking Statements

We do not as a matter of course make public forecasts as to our total shares outstanding and utilization of various equity awards due to the unpredictability of the underlying assumptions and estimates. In particular, the forecasts set forth in this Proposal Two include embedded assumptions which are highly dependent on the public trading price of our common stock and other factors, which we do not control. These forecasts also reflect various assumptions regarding our future operations. The inclusion of the forecasts set forth above should not be regarded as an indication that these forecasts will be predictive of actual future outcomes, and the forecasts should not be relied upon as such.
 
 
The following awards granted under all equity-based compensation plans sponsored by the Company were outstanding as of December 31, 2017, options with respect to 2,314,717 shares of common stock in the aggregate with a weighted average exercise price of $26.8304 and a weighted average remaining term of 5.15 years, and full value awards with respect to 3,823,075.573 shares of common stock (consisting of RSUs and PSUs, with the number of shares subject to PSUs assuming target performance). Rights under our employee stock purchase plan have been excluded from the above share totals. The closing price of our shares as reported on the NYSE on January 31, 2018 was $46.72 per share.

Material Changes to the 2014 Equity Plan

The Amendment would provide for the following material changes to the 2014 Equity Plan, as well as certain other administrative, clarifying, and conforming changes:

·
Increase the number of shares of our common stock reserved for issuance under the 2014 Equity Plan by 4,800,000 shares, such that there would be 21,800,000 shares available for grant under the 2014 Equity Plan.
·
Impose a maximum award amount which may be granted under the 2014 Equity Plan to a non-employee director in a Company fiscal year, which, when taken together with any cash fees earned for services as a non-employee director during the fiscal year, is equal to $750,000.
·
Expand the existing “clawback” provision to permit us to recover from participants awards or payments made under the 2014 Equity Plan under any policy required to be adopted by the Company under applicable laws or stock exchange rules.
·
Permit the extension of the term of a nonstatutory stock option or a SAR as necessary to allow for the exercise of such award following a period during which exercise would have violated applicable law.
 
 
·
Allow withholding of shares to cover taxes calculated at up to the maximum applicable rate in a participant’s jurisdiction (rather than limited to the minimum rate), which reflects new permitted flexibility under an Accounting Standards Update issued by the Financial Accounting Standards Board. Any such shares withheld for taxes will not be recycled into the pool of available shares.
 
Key Terms of the 2014 Equity Plan at a Glance

The following is a summary of the key provisions of the 2014 Equity Plan, as amended and restated and as further described in this Proposal.
 
Plan Term:
 
The 2014 Equity Plan, as amended and restated, was adopted by the Board on November 16, 2017, subject to obtaining stockholder approval, and will continue in effect until November 1, 2024 or until terminated by the Board.
     
Eligible Participants:
 
Employees (including officers) and consultants of the Company and its subsidiaries and affiliates and members of the Company’s Board.
     
Shares Available for Awards:
 
21,800,000 shares of common stock are reserved for issuance under the 2014 Equity Plan, subject to adjustment in the event of certain changes in the capitalization of the Company. The Amendment requests an increase of 4,800,000 shares from the 17,000,000 shares previously approved by stockholders.
 

APPROVAL OF THE AMENDED AND RESTATED
2014 EQUITY AND INCENTIVE COMPENSATION PLAN ǀ 18
Award Types:
 
·          incentive stock options (“ISOs”);
·          nonstatutory stock options (“NSOs”);
·          SARs;
·          restricted stock;
·          restricted stock units (“RSUs”);
·          performance shares and performance units;
·          deferred shares;
·          cash awards;
·          dividend equivalents; and
·          converted awards granted in connection with the Company’s separation from Agilent Technologies, Inc. (“Converted Awards”)
     
Award Term:
 
The term of each award will be stated in the applicable award agreement. Options and SARs have a term of no longer than 10 years, except that to the extent permitted by Section 409A of the Code, such maximum term may be extended as necessary to allow for exercise of the award following a period during which exercise was prohibited by applicable law. ISOs granted to 10% owners have a term of no longer than five years.
     
ISO Limits:
 
All of the 21,800,000 shares reserved for issuance may be issued upon the exercise of ISOs.
     
Dividends:
 
No payment of dividend equivalents on any stock award until vesting of such award, and no payment of dividend equivalents on options or SARs at any time.
     
No Repricing without
Stockholder Approval:
 
Any repricing action that would have the effect of reducing the exercise price of an option or SAR, or any action that would permit the exchange of underwater options or SARs for cash or other stock awards.
     
No Evergreen Provision
 
Any increase in shares requires obtaining stockholder approval.
     
 
 
No Liberal Share Recycling:
 
Shares will not be added back to the number of shares available for issuance when (i) shares covered by an award are tendered or withheld in payment of the exercise price or applicable tax withholdings, (ii) shares are not issued as a result of net settlement of an outstanding SAR, or (iii) shares are repurchased on the open market with the proceeds of the option exercise price. However, shares issued pursuant to a stock award that are repurchased at their original purchase price will be available for future grant.
     
Change of Control:
 
No “single-trigger” vesting acceleration upon a change of control (vesting may occur only if awards are not assumed or replaced). The 2014 Equity Plan does not contain a liberal definition of change of change.
 
2014 Equity Plan Grant Practices

The following is a summary of our 2014 Equity Plan grant practices.
 
CEO Awards:
 
At least half of the CEO’s awards are performance-based.
     
Clawback:
 
Equity awards granted under the 2014 Equity Plan are subject to our Executive Compensation Recoupment Policy, which applies to all executive officers subject to Section 16 of the Securities Exchange Act.
 
Maximum Limit on Director Compensation

The 2014 Equity Plan is also being submitted to our shareholders for approval to place a $750,000 limit on the total amount of equity and cash compensation that may be granted or paid to any our non-employee directors each fiscal year. In setting such a limit, the Board considered the recommendation of the Compensation Committee and F.W. Cook, the Compensation Committee’s independent compensation consultant. In addition, the Board considered the effectiveness and reasonableness of the annual equity and cash compensation that we offer to our non-employee directors along with prevalent practices among our peer group (as described in the “Compensation Discussion & Analysis” below), the current and future responsibilities of our non-employee directors, and whether such a limit provides sufficient flexibility to adjust non-employee director compensation in the future if such changes are necessary to remain competitive with our peers.
 

APPROVAL OF THE AMENDED AND RESTATED
2014 EQUITY AND INCENTIVE COMPENSATION PLAN ǀ 19
Summary of the Plan

The Board adopted the 2014 Equity Plan on July 16, 2014 and amended it on September 29, 2014, and on January 22, 2015, and most recently, on November 16, 2017 subject to the approval of our stockholders.
 
Below is a summary of the material features of the 2014 Equity Plan and its operation, including material changes to be made by the Amendment. This summary does not purport to be a complete description of all of the provisions of the 2014 Equity Plan. It is qualified in its entirety by reference to the full text of the 2014 Equity Plan. A copy of the 2014 Equity Plan is attached as Appendix A to this Proxy Statement.

Purpose of the 2014 Equity Plan

The purpose of the 2014 Equity 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, encourage recipients to act in the stockholder’s interest and share in the Company’s success.

Number of Authorized Shares

The total number of shares authorized and available for issuance under the 2014 Equity Plan is 21,800,000. Shares issued under the 2014 Equity Plan may be currently authorized but unissued, or currently held or subsequently acquired by the Company as treasury shares, including shares purchased in the open market or in private transactions.

Except as described below, shares subject to an award under the 2014 Equity 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 2014 Equity Plan. However, no shares may again be optioned, granted or awarded if such action would cause an ISO to fail to qualify as an incentive stock option under Section 422 of the Code.

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, 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 SAR, will not result in shares again becoming available for issuance as awards under the 2014 Equity Plan.

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 2014 Equity Plan or authorized for grant to a participant in any fiscal 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 2014 Equity Plan for issuance to eligible individuals who were not employed by the Company or any of its subsidiaries or affiliates immediately before the acquisition.

Adjustments upon Changes in Capitalization

In the event of certain changes in the capitalization of the Company, the Board will make proportional and appropriate adjustments to the number, kind and class of shares available for issuance under the 2014 Equity Plan, the individual award limits provided in order to comply with the requirements of Section 162(m) of the Code, if applicable and as set forth below, and the number, class and kind of securities and price per share of securities subject to outstanding awards, so as to prevent dilution or enlargement of rights.

Individual Employee Award Limits

The maximum number of options or SARs under the 2014 Equity Plan that may be granted in any one fiscal year to an individual participant may not exceed 1,875,000 shares. In addition, no participant may be granted stock awards for more than 1,250,000 shares in any fiscal year of the Company. “Stock awards” include deferred shares, restricted stock, RSUs, performance shares and performance units. Notwithstanding the foregoing, in connection with a participant’s initial service, a participant may also be granted options or SARs for up to an additional 1,250,000 shares and may be granted new executive stock awards (performance-based stock awards) for up to an additional 1,250,000 shares. These initial service grants do not count against the annual limits. The foregoing award limits apply to the extent necessary to qualify awards as “performance-based compensation” within the meaning of Section 162(m) of the Code, if applicable.

Incentive Stock Option Limit

The maximum number of shares that may be granted pursuant to ISOs is 21,800,000.
 

APPROVAL OF THE AMENDED AND RESTATED
2014 EQUITY AND INCENTIVE COMPENSATION PLAN ǀ 20
Non-Employee Director Compensation Limit

Notwithstanding any other provision in the Plan or in any Company policy regarding non-employee director compensation, the maximum amount of total compensation payable to a non-employee director for services in a fiscal year of the Company may not exceed $750,000, calculated as the sum of (a) the grant date fair value (determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718) of all awards payable in shares and the maximum amount payable pursuant to cash-based awards that may be granted under the 2014 Equity Plan, plus (b) cash compensation in the form of Board and committee retainers and meeting or similar fees. Compensation counts towards this limit for the fiscal year in which it is granted or earned by a non-employee director, and not later when distributed, in the event it is deferred.

Administration of the 2014 Equity Plan

The 2014 Equity Plan may be administered by the Board or any of its committees (“Administrator”) and, it is currently the intent of the Board that the 2014 Equity Plan be administered by the Compensation Committee. The Administrator has the power in its discretion to grant awards under the 2014 Equity Plan, to determine the terms of such awards, to interpret the provisions of the 2014 Equity Plan and to take action as it deems necessary or advisable for the administration of the 2014 Equity Plan. Also, the Administrator may adopt rules and procedures relating to the operation and administration of the Plan to accommodate the specific requirements of local laws and procedures, including, without limitation, authority to adopt sub-plans to the 2014 Equity Plan as the Administrator deems desirable, to accommodate foreign tax, securities and other laws, regulations and practice. The Administrator may delegate the day-to-day administration of the 2014 Equity Plan to an officer of the Company and his or her delegates.

Eligibility and Participation

Eligibility to participate in the 2014 Equity Plan is limited to employees (including officers) and consultants of Keysight and its affiliates and subsidiaries, and members of its Board. Participation in the 2014 Equity Plan is at the discretion of the Administrator. As of December 31, 2017, approximately 8,300 employees, 10 executive officers, and 7 non-employee directors were eligible to receive awards under the 2014 Equity Plan. As of December 31, 2017, no consultants had received awards under the 2014 Equity Plan.

Types of Awards under the 2014 Equity Plan

The 2014 Equity 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:
 
  ·
ISOs;
·
NSOs;
·
SARs;
·
restricted stock;
·
RSUs;
·
performance shares and performance units with performance-based conditions to vesting or exercisability;
·
deferred shares;
·
cash awards; and
·
dividend equivalents.

Converted Awards are also outstanding under the 2014 Equity 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, or shares with a fair market value, or a combination thereof, equal to the positive difference (if any) between the closing price of shares on the NYSE on the last trading day prior to the exercise date and the exercise price.

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 fair market value of our shares on any relevant date under the 2014 Equity Plan is generally the closing price per share on that date on the NYSE.

The 2014 Equity 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, Substitute Awards or to comply with an exemption under Section 409A of the Code.
 

APPROVAL OF THE AMENDED AND RESTATED
2014 EQUITY AND INCENTIVE COMPENSATION PLAN ǀ 21
Vesting/Expiration of Options

The Administrator may determine the terms under which options and SARs will vest and become exercisable.

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, 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. In addition, to receive the favorable tax treatment afforded ISOs, these options would be required to comply with certain post-termination exercise periods.

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, permit payment in the form of cash, check or wire transfer, previously acquired shares (valued at their fair market value on the date of exercise) or consideration under a cashless exercise program, or may permit a net exercise arrangement pursuant to which the number of shares issuable upon exercise is reduced by the largest whole number of shares having an aggregate fair market value that does not exceed the aggregate exercise price, or a combination thereof, or any other method of payment permitted under applicable law.

Exercise of SARs

Upon exercise 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 closing price of shares on the NYSE on the last trading day prior to the exercise date over (ii) the base price of the shares covered by the SAR, multiplied by the number of shares covered by the SAR, or the portion thereof being exercised. However, the Administrator may place limits on the aggregate amount that may be paid upon exercise of a SAR.

Termination of Options and SARs

In the event that a participant’s service with the Company and its subsidiaries and affiliates terminates prior to the expiration of an option or SAR, the Participant’s right to exercise vested options or SARs will be governed by the terms of the applicable award agreement approved by the Administrator.

Stock Awards and Performance Shares

Stock awards, including deferred shares, 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 2014 Equity 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. Except as otherwise provided by the Administrator and other than as described below under “Dividends and Dividend Equivalents,” a holder of restricted stock or performance stock will become a stockholder and have stockholder rights upon acceptance of the applicable award. A holder of an RSU or performance stock unit will not have stockholder rights until the awards are settled.

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 or continued vesting. To the extent the participant purchased the stock award, the Company has the right to repurchase the unvested award at the original price paid by the participant.

Cash Incentive Awards

The Administrator may grant “cash incentive awards” under the 2014 Equity Plan, which is the grant of a right to receive a payment of cash that may be 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. The maximum amount payable to any participant under a cash award for each fiscal year of the Company is $10,000,000.

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, a performance award or a cash 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. Such performance objectives may be based on criteria including, without limitation, sales revenue; gross margin; operating margin; operating income; pre-tax profit; earnings before any or all of the following items: interest, taxes, depreciation or amortization; net income; expenses; the market price of the shares; earnings per share; return on stockholder equity; return on capital; return on net assets; economic value added; market share; customer service; customer satisfaction; safety; total stockholder return; free cash flow; size-adjusted growth in earnings; implementation, completion or attainment of objectives relating to research, development, integration, regulatory, commercial, or strategic milestones; or any combination of the above criteria. The criteria on which performance objectives are based may be measured in absolute terms or as compared to any incremental increase or as compared to the result of a peer group or securities or stock market index and may be expressed in terms of overall Company performance, the performance of a subsidiary or affiliate, or the performance of a business unit or division of the Company, a subsidiary or affiliate, as determined by the Administrator in its sole discretion.
 

APPROVAL OF THE AMENDED AND RESTATED
2014 EQUITY AND INCENTIVE COMPENSATION PLAN ǀ 22
The 2014 Equity Plan has historically been designed to permit the grant of “performance-based compensation,” which may be deductible notwithstanding Section 162(m)’s general $1 million limit on the deductibility of compensation paid to certain covered executive officers. The exception from Section 162(m)’s deduction limit for performance-based compensation has been repealed, effective for taxable years beginning after December 31, 2017. Therefore, as from such effective time, the terms of the 2014 Equity Plan relating solely to awards intended to qualify as performance-based compensation for Section 162(m) purposes are relevant only with respect to outstanding awards and/or to the extent that transition relief may apply.
 
Dividends and Dividend Equivalents

Holders of stock awards may be entitled to receive cash or stock dividends or cash payments equivalent to dividends (“dividend equivalents”) with respect to the shares subject to the awards, as determined by the Administrator. In all cases dividend equivalents will be subject to the same vesting provisions, including any performance conditions, as the underlying stock awards. In no event will dividend equivalents be settled with respect to any stock award until vesting of such award, and dividends or dividend equivalents will not be paid with respect to options or SARs.

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 a participant to remit, and shall have the right to deduct or withhold an amount sufficient to satisfy any amount required to be withheld in connection with an award. Where shares are withheld to satisfy tax withholding obligations, the number of shares withheld may be determined using rates of up to, but not exceeding, the maximum federal, state, local and/or foreign statutory tax rates applicable in a particular jurisdiction on the date that the amount of tax to be withheld is determined. The Administrator may also provide for the satisfaction of withholding tax obligations by selling shares issued pursuant to an award and withholding from proceeds of the sale, or by such other methods set forth in the award agreement.

Change of Control

In the event of certain transactions described in the 2014 Equity Plan constituting a change of control or the sale of substantially all of the assets of the Company, all awards will fully vest immediately prior to the closing of the transaction. The foregoing will 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 must be made by an entity with publicly traded securities and must provide that the holders of such assumed, converted, replaced or continued stock options and SARs will 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.

Termination and Amendment of the 2014 Equity Plan

The Board may amend, suspend or terminate the 2014 Equity Plan without the consent of stockholders or participants; provided, however, that any amendment to the 2014 Equity 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 2014 Equity 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 2014 Equity 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 unless deemed necessary by the Administrator to comply with applicable laws.
 

APPROVAL OF THE AMENDED AND RESTATED
2014 EQUITY AND INCENTIVE COMPENSATION PLAN ǀ 23
The 2014 Equity Plan is designed to provide for the grant of awards which are intended to comply with, or be exempt from, Section 409A of the Code and shall be construed, administered and interpreted with that intent. In the event that the Administrator determines that any award may be subject to Section 409A of the Code, the Administrator will have the authority to amend, without the consent of the participant, such award to cause it to be exempt from, or implement such award in a manner intended to avoid the imposition on the employee of tax penalties under Section 409A of the Code.

Clawback/Recovery

Awards are subject to recoupment under any “clawback” policy that the Company adopts for the recovery of awards or payments thereunder in the event of fraud or as required by applicable law or the listing standards for any exchange on which the Company’s securities are listed.

Term of the 2014 Equity Plan

Subject to stockholder approval, the 2014 Equity Plan is effective November 1, 2014 and, unless earlier terminated by the Board, the 2014 Equity Plan will have a term of ten years.

U.S. Federal Income Tax Consequences

The following is a general summary under current law of the material U.S. federal income tax consequences to participants granted an award under the 2014 Equity Plan. This summary provides an overview of the U.S. federal income tax principles that apply and is provided only for general information. Some kinds of taxes, such as state, local and non-U.S. income taxes and employment taxes are not discussed. Tax laws are complex and subject to change and may vary depending on individual circumstances and from locality to locality. This summary does not discuss all aspects of federal income taxation that may be relevant in light of a participant’s personal circumstances. This summarized tax information is not tax advice and a participant of an award should rely only on the advice of their legal and tax advisors.

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 2014 Equity 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 option 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 generally 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.

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 the Company satisfying 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.
 

APPROVAL OF THE AMENDED AND RESTATED
2014 EQUITY AND INCENTIVE COMPENSATION PLAN ǀ 24
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 of 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).  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. For taxable years beginning prior to 2018, a limited exception to Section 162(m) has applied with respect to “performance-based compensation” that complies with conditions imposed by Section 162(m) rules, where the material terms of such compensation have been disclosed to and approved by stockholders. Historically, stock options, SARs and certain performance awards granted under the 2014 Equity Plan have been intended to constitute qualified performance-based compensation eligible for such exception. However, as noted above, this exception from Section 162(m)’s deduction limit for performance-based compensation has been repealed, effective for taxable years beginning after December 31, 2017, such that compensation paid after such time to our covered executive officers in excess of $1 million will not be deductible, unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017. Because of the fact-based nature of the performance-based compensation exception under Section 162(m), the limited availability of guidance thereunder, and the uncertain scope of the aforementioned transition relief, Keysight cannot guarantee that any awards under the 2014 Equity Plan will qualify for the exception to Section 162(m).

New Plan Benefits

No awards have been granted, and no shares have been issued, on the basis of the proposed 4,800,000 share increase under the 2014 Equity Plan. However, as discussed in further detail in the section entitled “Compensation of Non-Employee Directors,” each of our current non-employee directors is entitled to receive a grant of fully vested shares every year on the date of the Annual Meeting for the number of shares equal to $180,000 divided by the average fair market value of Keysight’s common stock over 20 consecutive trading days up to and including the day prior to the grant date. Beginning with the 2018 Annual Meeting, such awards will be granted under the 2014 Equity Plan, as amended and restated. The following table summarizes the aggregate value of the shares that our current non-employee directors as a group will receive if they remain a director following the 2018 Annual Meeting and highlights the fact that none of our executive officers (including our named executive officers) or employees will receive any set benefits or awards that are conditioned upon stockholder approval of the 2014 Equity Plan. All other future awards to directors, executive officers, employees and consultants of Keysight under the 2014 Equity Plan are discretionary and cannot be determined at this time.
 
Name and Position
Dollar Value
Number of Shares
Ronald S. Nersesian
President and CEO
Neil Dougherty
Senior Vice President and CFO
Jay Alexander
Senior Vice President and CTO
Michael Gasparian
Former Senior Vice President and President, CSG
Soon Chai Gooi
Senior Vice President and President, EISG
Bethany Mayer
Former Senior Vice President and President, ISG
Current Executive Officers as a Group:
Current Non-Executive Director Group(1)
$1,260,000
Non-Executive Officer Employee Group
 
(1)
Assumes the grant date value of each non-employee director’s award will be $180,000. The number of shares will not be determinable until the grant date. See the section entitled “Compensation of Non-Employee Directors” for more information.
 

APPROVAL OF THE AMENDED AND RESTATED
2014 EQUITY AND INCENTIVE COMPENSATION PLAN ǀ 25
Prior Grants under the 2014 Equity Plan

The following table provides information concerning the number of options and stock awards granted to the following persons and groups since the inception of the 2014 Equity Plan on November 1, 2014 through December 31, 2017, including Converted Awards. No options or awards have been granted under the 2014 Equity Plan to any associate of any of our directors (including nominees) or executive officers. No person received 5% or more of the total options or awards granted under the 2014 Equity Plan since its inception.
 
Name and Position
Options/SARs
Restricted Stock Units(1)
Ronald S. Nersesian(2)
President and CEO
830,577
1,048,281
Neil Dougherty
Senior Vice President and CFO
107,193
178,082
Jay Alexander
Senior Vice President and CTO
72,363
117,570
Michael Gasparian
Former Senior Vice President and President, CSG
71,059
117,922.943
Soon Chai Gooi
Senior Vice President and President, EISG
254,793
235,499
Bethany Mayer
Former Senior Vice President and President, ISG
51,020
Current Executive Officers as a Group:
1,550,291
2,062,425.943
Current Non-Executive Director Group(3)
190,675.919
Non-Executive Officer Employee Group(4)
2,995,247
5,748,484
 
(1)
The total number of shares include shares granted as performance awards and reflects the target number of shares issuable pursuant to such awards. Depending on the Company’s annual achievement of its performance goals, the shares granted as performance awards may or may not be issued in full.

(2)
Ronald S. Nersesian is also a director nominee.

(3)
Includes Charles J. Dockendorff and Robert A. Rango who are director nominees.

(4)
Excludes anyone who is a current executive officer and any person who was an executive officer.
 

APPROVAL OF THE AMENDED AND RESTATED
2014 EQUITY AND INCENTIVE COMPENSATION PLAN ǀ 26
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)
   
5,994,017
   
$
27
     
27,432,458
 
Equity compensation plans not approved by security holders
   
   
$
     
 
Total
   
5,994,017
   
$
27
     
27,432,458
 

(1)
The number of securities remaining available for future issuance in column (c) includes 22,187,218 shares of common stock authorized and available for issuance under the Keysight Technologies, Inc. Employee Stock Purchase Plan ("ESPP"). The number of shares authorized for issuance under the ESPP is subject to an automatic annual increase of the lesser of one percent of the outstanding common stock of Keysight or an amount determined by the Compensation Committee. Under the terms of the ESPP, in no event shall the aggregate number of shares issued under the Plan exceed 75 million shares. The number of securities remaining available for future issuance in column (c) is before the issuance of shares of common stock to participants in consideration of the aggregate participant contribution under 423(b) plan totaling $17 million as of October 31, 2017.
 
(2)
The number of securities remaining available for future issuance in column (c) includes 5,245,240 shares of common stock authorized and available for issuance under the 2014 Equity Plan.
 
(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. The weighted-average exercise price in column (b) also does not include purchase rights outstanding under the ESPP.

For additional information, we encourage you to review the entire text of the 2014 Equity Plan, which is attached as Appendix A to this Proxy Statement.
 
 
Keysight’s Board recommends a vote FOR the approval of the Amended and Restated 2014 Equity and Incentive Compensation Plan.
 
 

RATIFICATION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ǀ 27
PROPOSAL 3 — RATIFICATION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Audit and Finance Committee of the Board has appointed PricewaterhouseCoopers LLP (“PwC”) as Keysight’s independent registered public accounting firm to audit its consolidated financial statements for the 2018 fiscal year. During the 2017 fiscal year, PwC served as Keysight’s independent registered public accounting firm and also provided certain tax and other non-audit services. Although Keysight is not required to seek stockholder approval of this appointment, the Board believes it to be sound corporate governance to do so. If the appointment is not ratified, the Audit and Finance Committee will investigate the reasons for stockholder rejection and will reconsider the appointment.

Representatives of PwC are expected to attend the Annual Meeting where they will be available to respond to questions and, if they desire, to make a statement.

 
Keysight’s Board recommends a vote FOR the ratification of
the Audit and Finance Committee’s appointment of PricewaterhouseCoopers LLP as
Keysight’s Independent Registered Public Accounting Firm.
 
 
Fees Paid to PricewaterhouseCoopers LLP

The following table presents fees for professional audit services rendered to Keysight by PwC for the years ended October 31, 2017 and 2016.
 
Fee Category:
 
Fiscal 2017 ($)
   
% of Total (%)
   
Fiscal 2016 ($)
   
% of Total (%)
 
Audit Fees
 
$
5,875,000
     
92.0
   
$
3,757,000
     
79.9
 
Audit-Related Fees
   
411,000
     
6.4
     
337,000
     
7.1
 
Tax Fees:
                               
Tax compliance/preparation
   
96,000
     
1.5
     
71,000
     
1.5
 
Other tax services
   
0
     
0
     
0
     
0
 
Total Tax Fees
   
96,000
     
1.5
     
71,000
     
1.5
 
All Other Fees
   
3,000
     
0.1
     
540,000
     
11.5
 
Total Fees
 
$
6,385,000
     
100.0
   
$
4,705,000
     
100.0
 
 
Audit Fees: Consists of fees billed for professional services rendered for the integrated audit of Keysight’s consolidated financial statements and its internal control over financial reporting and review of the interim condensed consolidated financial statements included in quarterly reports. Fiscal 2017 and 2016 fees also consist of fees billed for services that are normally provided by PwC in connection with statutory reporting and regulatory filings or engagements, and attest services, except those not required by statute or regulation.
 
Audit-Related Fees: Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of Keysight’s consolidated financial statements and are not reported under “Audit Fees.” These services include accounting consultations in connection with acquisitions and divestitures, attest services that are not required by statute or regulation, and consultations concerning financial accounting.

Tax Fees: Consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and international tax compliance, tax audits and appeals, customs and duties, mergers and acquisitions and international tax planning.

All Other Fees: Consists of fees for all other services other than those reported above. These services include a license for specialized accounting research software. Keysight’s intent is to minimize services in this category.

In making its recommendation to ratify the appointment of PwC as Keysight’s independent registered public accounting firm for the fiscal year ending October 31, 2018, the Audit and Finance Committee has considered whether services other than audit and audit-related services provided by PwC are compatible with maintaining the independence of PwC.
 

RATIFICATION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ǀ 28
Policy on Audit and Finance Committee Preapproval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

The Audit and Finance Committee’s policy is to preapprove all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Preapproval is generally provided for up to one year and any preapproval is detailed as to the particular service or category of services and is subject to a specific budget.
 

AUDIT AND FINANCE COMMITTEE REPORT ǀ 29
AUDIT AND FINANCE COMMITTEE REPORT
 
The Audit and Finance Committee Report does not constitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any other Company filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates the Audit and Finance Committee Report by reference therein.

January 2018

The Audit and Finance Committee of the Board reviewed the quality and integrity of Keysight’s consolidated financial statements contained in the 2017 Annual Report on Form 10-K, its compliance with legal and regulatory requirements, the qualifications and independence of its independent registered public accounting firm, the performance of its internal audit function and independent registered public accounting firm and other significant financial matters. Each of the Audit and Finance Committee members satisfies the definition of independent director and is financially literate as established in the New York Stock Exchange Listing Standards. In accordance with section 407 of the Sarbanes-Oxley Act of 2002, the Board has identified Charles J. Dockendorff as the Audit and Finance Committee’s “Financial Expert.” Keysight operates with a November 1 to October 31 fiscal year. The Audit and Finance Committee met eleven times during the 2017 fiscal year.

The Audit and Finance Committee’s work is guided by a written charter that the Board has approved. The Audit and Finance Committee regularly reviews its charter to ensure that it is meeting all relevant audit committee policy requirements of the U.S. Securities and Exchange Commission, the Public Company Accounting Oversight Board and the New York Stock Exchange. You can access the latest Audit and Finance Committee charter by clicking on “Governance Policies” in the “Corporate Governance” section of the web page at www.investor.keysight.com or by writing to us at Keysight Technologies, Inc., 1400 Fountaingrove Parkway, Santa Rosa, California 95403, Attention: Investor Relations.

The Audit and Finance Committee has reviewed and discussed with management and PricewaterhouseCoopers LLP, Keysight’s independent registered public accounting firm, Keysight’s audited consolidated financial statements and Keysight’s internal control over financial reporting. The Audit and Finance Committee has discussed with PricewaterhouseCoopers LLP, the matters required to be discussed by Statement on Auditing Standards No. 1301 (Communication with Audit Committees) as adopted by the Public Company Accounting Oversight Board in Rule 3200T.

The Audit and Finance Committee has received and reviewed the written disclosures and the letter from PricewaterhouseCoopers LLP required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit and Finance Committee concerning independence, and has discussed with PricewaterhouseCoopers LLP its independence from Keysight. Based on the review and discussions noted above, the Audit and Finance Committee recommended to the Board that Keysight’s audited consolidated financial statements be included in Keysight’s Annual Report on Form 10-K for the fiscal year ended October 31, 2017, and be filed with the U.S. Securities and Exchange Commission.

Submitted by:

Audit and Finance Committee
Charles J. Dockendorff, Chairperson
Paul N. Clark
Robert A. Rango
 

COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ǀ 30
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
Stock Ownership of Certain Beneficial Owners

The following table sets forth information, as of December 31, 2017, concerning each person or group known by Keysight, based on filings pursuant to Section 13(d) or (g) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to own beneficially more than 5% of the outstanding shares of our Common Stock.

Name and Address of Beneficial Owner
 
Amount and Nature
   
Percent of Class
 
T. Rowe Price Associates, Inc.
100 E. Pratt Street
Baltimore, MD 21202
   
20,206,163
(1) 
   
10.9
%
The Vanguard Group - 23-1945930
100 Vanguard Blvd.
Malvern, PA 19355
   
13,240,292
(2) 
   
7.7
%
BlackRock, Inc.
55 East 52nd Street
New York, NY 10022
   
13,170,611
(3) 
   
7.7
%

(1)
Based solely on information contained in a Schedule 13G/A filed with the SEC on July 10, 2017, by T. Rowe Price Associates, Inc. The Schedule 13G indicates that T. Rowe Price Associates, Inc. has sole voting power with respect to 6,707,742 shares and sole dispositive power with respect to 20,206,163 shares.
 
(2)
Based solely on information contained in a Schedule 13G/A filed with the SEC on February 10, 2017 by The Vanguard Group. The Schedule 13G/A indicates that the Vanguard Group has sole voting power with respect to 102,329 shares, sole dispositive power with respect to 13,128,273 shares and shared dispositive power with respect to 112,019 shares.
 
(3)
Based solely on information contained in a Schedule 13G/A filed with the SEC on January 25, 2017, by BlackRock, Inc. The Schedule 13G indicates that BlackRock, Inc. has sole voting power with respect to 12,374,278 shares and sole dispositive power with respect to 13,170,611 shares.
 

COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ǀ 31
Stock Ownership of Directors and Officers

The following table sets forth, as of December 31, 2017, the beneficial ownership of Keysight’s common stock by each director and each of the named executive officers included in the “Summary Compensation Table” on page 54 and the beneficial ownership of Keysight’s common stock by all directors and executive officers as a group.

The number of shares beneficially owned by each entity, person, director or executive officer is determined under the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has the sole or shared voting power or investment power and also any shares that the individual has the right to acquire as of March 1, 2018, 60 days after December 31, 2017, through the exercise of any stock option. Unless otherwise indicated, each person has sole investment and voting power, or shares such powers with his or her spouse, with respect to the shares set forth in the following table. As of December 31, 2017, there were 187,300,528 shares of common stock outstanding.
 
Name of Beneficial Owners
 
Number of Shares
of Common Stock
   
Number of
Share Subject
to Exercisable
Options(1)
   
Deferred Stock(2)
   
Total Shares
Beneficially
Owned
   
Percentage of
Class
 
Ronald S. Nersesian
   
78,564
     
429,216
     
132,007
     
639,787
     
*
 
Jay Alexander
   
26,241
     
51,846
     
3,227
     
81,314
     
*
 
Paul N. Clark
   
328
     
-
     
52,744
     
53,072
     
*
 
James G. Cullen
   
22,322
     
-
     
10,522
     
32,854
     
*
 
Charles J. Dockendorff
   
13,210
     
-
     
38,590
     
51,800
     
*
 
Neil Dougherty
   
39,106
     
83,129
     
35,511
     
157,746
     
*
 
Mike Gasparian
   
42,827
     
5,000
     
-
     
47,827
     
*
 
Soon Chai Gooi
   
164,050
     
153,843
     
-
     
317,893
     
*
 
Bethany Mayer
   
-
     
-
     
-
     
-
     
*
 
Jean M. Halloran
   
35,452
     
-
     
-
     
35,452
     
*
 
Richard Hamada
   
-
     
-
     
32,788
     
32,788
     
*
 
Robert A. Rango
   
-
     
-
     
13,245
     
13,245
     
*
 
Mark B. Templeton
   
-
     
-
     
12,846
     
12,846
     
*
 
All directors and executive officers as a group (17 persons)
   
541,246
     
930,054
     
336,171
     
1,807,471
     
0.97
%
 
*Less than one percent.
 
(1)
“Exercisable Options” means options that may be exercised as of March 1, 2018.
 
(2)
Represents the number of deferred shares or share equivalents held by Fidelity Management Trust Company under the Deferred Compensation Plan or similar arrangement to which voting or investment power exists.
 
Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act, requires Keysight’s directors, executive officers and holders of more than 10% of Keysight common stock to file reports with the SEC regarding their ownership and changes in ownership of Keysight stock. Keysight believes that during the 2016 fiscal year, its executive officers, directors and holders of 10% or more of our common stock complied with all Section 16(a) filing requirements.

In making these statements, Keysight has relied upon examination of copies of Forms 3, 4 and 5 provided to Keysight and the written representations of its directors and officers.
 

COMPENSATION OF NON-EMPLOYEE DIRECTORS ǀ 32
COMPENSATION OF NON-EMPLOYEE DIRECTORS
 
Director Compensation Highlights
 
 
·
Fees for committee service to differentiate individual pay based on workload.
·
Emphasis on equity in the overall compensation mix.
·
Full-value equity grants under a fixed-value annual grant policy with immediate vesting.
·
A robust stock ownership guideline set at five times the annual cash retainer to support stockholder alignment.
·
Flexible deferral provisions to facilitate stock ownership.

Keysight’s director compensation program is designed to attract and retain highly qualified non-employee directors and to address the time, effort, expertise, and accountability required of active board membership. Our Compensation Committee believes that annual compensation for non-employee directors should consist of both cash to compensate members for their services on the Board of Directors and its committees, and equity to align the interest of directors and stockholders. The non-employee director’s compensation plan year begins on March 1 of each year and ends on the end of February of the following calendar year (the “Plan Year”).

Decisions regarding our non-employee director compensation program are approved by the full Board based on recommendations by the Compensation Committee. In making such recommendations, the Compensation Committee takes into consideration the director compensation practices of peer companies and whether such recommendation align with the interested our stockholders. Like compensation for our executive officers, the Compensation Committee reviews the total compensation of our non-employee directors and each element of our director compensation program annually. At the direction of the Compensation Committee, F.W. Cook, the Compensation Committee’s independent consultant, annually analyzes the competitive position of the Company’s director compensation program against the peer group used for executive compensation purposes (see pages 39 and 40 for more information about the peer group).

F.W. Cook’s analysis in September 2016 showed that overall compensation for non-employee directors was slightly above the peer group median. As a result, our Compensation Committee recommended, and our Board of Directors approved, that no changes be made to our director compensation program for fiscal year 2017.

The compensation to our non-employee directors is set forth below:

Summary of Non-Employee Director Annual Compensation
 
   
Cash Retainer (1)
 
Equity Grant (2)
 
Committee Chair
Premium (3)
   
Audit and Finance
Committee Member
Premium (4)
 
Non-Employee Director
 
$90,000
 
$180,000 in value of a stock grant
 
$15,000
   
$10,000
 
Non-Executive Chairman
 
 
$245,000
 
$180,000 in value of a stock grant
 
Not eligible
   
$10,000
 
 
(1)
Each non-employee director may elect to defer all or part of the cash compensation to the Deferred Compensation Plan for Non-Employee Directors. Any deferred cash compensation is converted into shares of Keysight common stock.
 
(2)
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 $180,000 by the average fair market value of Keysight’s 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. Each non-employee director may elect to defer all or part of the equity grant to the Deferred Compensation Plan for Non-Employee Directors.

(3)
Non-employee directors (excluding the Non-Executive Chairman) who serve as the chairperson of a Board Committee receive a “Committee chair premium” of $15,000 in cash, paid at the beginning of each Plan Year.

(4)
Non-employee directors (including the Non-Executive Chairman) who serve as the chairperson or a member of the Audit and Finance Committee receive an additional $10,000 in cash, paid at the beginning of each Plan Year.
 

COMPENSATION OF NON-EMPLOYEE DIRECTORS ǀ 33
Non-Employee Director Compensation Earned During Fiscal Year 2017

The table below sets forth information regarding the regular compensation earned by each of our non-employee directors during the fiscal year ended October 31, 2017:
 
Name
Cash Retainer ($)(1)
Committee Fees ($)
Stock Awards ($)(2)
Total ($)
Paul N. Clark
$245,000
$10,000
$184,170
$439,170.00
James G. Cullen
$90,000
$15,000
$184,170
$298,170.00
Charles J. Dockendorff
$90,000
$25,000
$184,170
$308,170.00
Jean M. Halloran
$90,000
-
$184,170
$274,170.00
Richard Hamada
$90,000
-
$184,170
$274,170.00
Robert A. Rango
$90,000
$10,000
$184,170
$284,170.00
Mark B. Templeton
$90,000
-
$184,170
$274,170.00
 
(1)
Mr. Clark deferred $255,000; Mr. Dockendorff deferred $115,000; and Mr. Hamada deferred $90,000 of his respective cash compensation into the non-employee director deferred compensation plan.

(2)
Reflects the grant date fair value for stock awards granted in fiscal year 2017 calculated in accordance with FASB ASC Topic 718.

Non-Employee Director Reimbursement Practice for Fiscal Year 2017

Non-employee directors are reimbursed for travel and other out-of-pocket expenses in connection with attendance at Board of Directors and committee meetings.

Non-Employee Director Stock Ownership Guidelines

In 2014, the Company adopted the guidelines to require each non-employee director to own Keysight shares having a value of at least five times the director’s annual cash retainer of $90,000, based on the recommendation of the Committee’s independent compensation consultant, F.W. Cook. The shares counted toward the ownership guidelines include shares owned outright and the shares of Keysight stock in the non-employee director’s deferred compensation account. These ownership levels must be attained within five years from the date of their initial election or appointment to the Board. As of October 31, 2017, all of our incumbent non-employee directors have achieved at least the recommended ownership level.
 

NON-BINDING ADVISORY VOTE TO APPROVE THE COMPENSATION
OF KEYSIGHT'S NAMED EXECUTIVE OFFICERS ǀ 34
PROPOSAL 4 — NON-BINDING ADVISORY VOTE TO APPROVE THE COMPENSATION OF KEYSIGHT’S NAMED EXECUTIVE OFFICERS
 
The stockholders of Keysight are entitled to cast an advisory vote at the Annual Meeting to approve the compensation of the Company’s named executive officers, as disclosed in this proxy statement. The stockholder vote is an annual advisory vote only and is not binding on Keysight or its Board. Although the vote is non-binding, the Compensation Committee and the Board value your opinions and will consider the outcome of the vote in establishing Keysight’s compensation philosophy and making future compensation decisions.

As described more fully in the “Compensation Discussion & Analysis” on pages 36 to 53 and in the Summary Compensation Table and subsequent tables on pages 54 to 68, the Company’s named executive officers, as identified on page 37 are compensated in a manner consistent with our business strategy, competitive practice, sound compensation governance principles, and stockholder interests and concerns. We structure our compensation to support our business objectives with appropriate rewards for short-term operating results and long-term stockholder value creation.
 
In fiscal 2017, we continued to make steady progress to position Keysight for future growth. We are executing on our strategy to create value for our customers and shareholders by building on our heritage, partnering with customers early to create new opportunities, and driving growth across multiple avenues of emerging technology trends. Our continued focus and commitment led to strong results for the year.

For fiscal year 2017:

·
Approximately 74% of our CEO’s and about 65% on average of our NEO’s target total direct compensation consisted of long-term incentives and was “at-risk” – which means that the component would vary from year to year depending on Keysight’s stock price and TSR against the S&P 400 and our financial metrics.

·
Our CEO earned 98% of his target bonus based on the following:
 
 
First Half Fiscal Year 2017
Achievement Percent of Target
Second Half Fiscal Year 2017
Achievement Percent of Target
Non-GAAP EPS (weighted 75%)
103%
102%
Non- GAAP Revenue Growth (weighted 25%)
33%
90%

·
With respect to PSUs granted in fiscal 2015, Keysight TSR ranking relative to its peer group for the fiscal 2015-2017 performance period was at the 35th percentile, resulting in a 55% payout.
 
Keysight also maintains several compensation governance programs in place as described on pages 39, and 50 to 51 to manage compensation risk and align Keysight’s executive compensation with long-term stockholder interests. These programs include:
 
·
a compensation recoupment policy;

·
an independent compensation committee and compensation consultant

·
a hedging and insider trading policy;

·
stock ownership guidelines; and

·
an annual risk assessment.

We are requesting your non-binding vote to approve the compensation of the Company’s named executive officers as described on pages 36 to 68, including the Summary Compensation Table and subsequent tables on pages 54 to 68 of the proxy statement.
 

NON-BINDING ADVISORY VOTE TO APPROVE THE COMPENSATION
OF KEYSIGHT'S NAMED EXECUTIVE OFFICERS ǀ 35
Vote Required
 
The affirmative vote of a majority of the shares of Keysight common stock present or represented by proxy and voting at the Annual Meeting, together with the affirmative vote of a majority of the required quorum, is required for approval of this proposal. If you own shares through a bank, broker or other holder of record, you must instruct your bank, broker or other holder of record how to vote in order for them to vote your shares so that your vote can be counted on this proposal.

 
Keysight’s Board recommends a vote FOR the approval of the compensation of
Keysight’s named executive officers for fiscal year 2017.
 
 

COMPENSATION DISCUSSION AND ANALYSIS ǀ 36
COMPENSATION DISCUSSION AND ANALYSIS
 
Executive Summary
 
Keysight Technologies, Inc. is a measurement company providing electronic design and test solutions to communications and electronics industries. We provide services and deliver solutions that allow customers to bring breakthrough electronic products to market faster and at lower cost in more than 100 countries. We create customer satisfaction and earn customer loyalty by providing products and services of the highest quality and greatest value.

In fiscal year 2017, we make steady progress in positioning Keysight for future growth. We are executing on our strategy to create value for our customers and shareholders by building on our heritage, partnering with customers early to create new opportunities, and driving growth across multiple avenues of emerging technology trends. Our continued focus and commitment led to strong results for the year.

Fiscal Year 2017 Business Highlights
 
During fiscal year 2017, we focused our organization on industry segments, assessed our industry and customer opportunities, invested $475 million dollars in R&D, and strengthened our technology portfolio inorganically by acquiring Ixia, a network test and visibility leader. We saw strong order growth in key emerging markets such as 5G, IoT, automotive and energy, and high-speed datacenters. We achieved double-digit order growth for our 5G solutions and our automotive and energy solutions. Our ability to combine Keysight's and Ixia's technologies and bring complete end-to-end solutions to market enabled us to widen the technology gap between Keysight and our competition.

Fiscal 2017 saw order growth in each of our historic segments: 13% for the Electronic Industrial Solutions Group (“EISG”), 4% for the Communications Solutions Group (“CSG”), and 2% for the Services Solutions Group (“SSG”). The Ixia Solutions Group was created as a result of our acquisition of Ixia and did not have year over year results. Engaging with customers earlier in the solutions development cycle has positioned us to meet their needs. As a result, our software orders grew 9% over the prior year, increasing the value we provide to customers.

Non-GAAP revenue (“Non-GAAP Revenue”) growth, non-GAAP operating margin (“Non-GAAP OM”) and non-GAAP earnings per share (“Non-GAAP EPS”) are key financial metrics for sustaining Keysight’s success and are tied directly to our short and long-term incentive awards payouts. In fiscal year 2017, our total order growth of 15% outpaced total Non-GAAP Revenue growth of 11% and we achieved these results while maintaining sound financial and operational discipline. We delivered 19.1% Non-GAAP OM and generated solid cash flow while making investments for the future. Our Non-GAAP EPS for fiscal year 2017 was $2.53, which was in line with our approved incentive plan target.*

We are pleased with our fiscal year 2017 results. Additionally, the strong momentum we have built in the market gives us confidence that we have the right strategy in place and that our transformation for growth is well under-way. At Keysight, we have an incredible bench of talent throughout the organization, a clearly defined vision, and amazing technology. We are leveraging these strengths to create value for our customers and shareholders and design our future as a company.  Keysight is at the heart of innovation processes in many dynamic end-markets.

 
 
*Orders growth, revenue growth, GAAP operating margin and GAAP earnings per share are reported in the Company’s Form 10-K Annual Report for the year ended October 31, 2017. Non-GAAP Revenue growth, Non-GAAP OM and Non-GAAP EPS are reported in the Company’s Form 8-K Current Report filed as of December 6, 2017, which includes additional information regarding how Non-GAAP Revenue growth, Non-GAAP OM and Non-GAAP EPS are calculated and reconciled to GAAP revenue growth, GAAP operating margin and GAAP earnings per share.
 
 
Fiscal Year 2017 Executive Compensation Program Changes

To further align our compensation programs with performance-based compensation rewards, we modified certain elements of our incentive programs for fiscal year 2017. We maintained our short-term incentive financial metrics and chose not to use strategic objectives.  We added internal financial objectives to our long-term incentive program. By doing this, we created more accountability and line of sight to our financial plan which focuses on our internal growth and profitability metrics.
 

COMPENSATION DISCUSSION AND ANALYSIS ǀ 37
The following program changes were made for fiscal year 2017:

·
Short-Term Incentive Program – No strategic objectives and added a second financial metric, revenue growth

·
Long-Term Incentive Program – Non-GAAP OM was included as an internal financial metric that complements the existing external market-conditioned metric, relative total stockholder return (“TSR”)

Results of 2016 Shareholder Advisory Vote on Executive Compensation
 
Our executive compensation program is well aligned with the interests of our stockholders and is instrumental to achieving our business strategy. In setting executive compensation for fiscal year 2017, which was completed in November 2016, the Compensation Committee considered the stockholder support (87% approval of votes cast) that our “Say-on-Pay” proposal received at its March 17, 2016 Annual Meeting of Stockholders. The Compensation Committee believes that the results of this vote confirm the philosophy and objective of linking our executive compensation to our operating objectives and the enhancement of stockholder value.  As a result, the Committee retained its general approach to executive compensation, and continued to apply the same general principles and philosophy as in the prior fiscal year in determining the compensation of our executives.

During the last Annual Stockholders’ Meeting on March 16, 2017, our “Say-on-Pay” proposal received 94% approval of votes cast, which was taken into consideration by the Compensation Committee in determining our executive compensation for fiscal year 2018. The high approval percentage shows that our overall executive programs are appropriate for the company.
 
Named Executive Officers
 
In this Compensation Discussion and Analysis, we discuss our compensation philosophy and executive compensation program, as well as describe and analyze the compensation actions and decisions for our named executive officers for fiscal year 2017 (collectively, the “Named Executive Officers” or “NEOs”). For the fiscal year ended October 31, 2017, our NEOs and their designated titles are as follows:
 
Ronald S. Nersesian
President and Chief Executive Officer
Neil Dougherty
Senior Vice President and Chief Financial Officer
Jay Alexander
Senior Vice President and Chief Technology Officer
Michael Gasparian(1)
Former Senior Vice President, Former President of Communications Solutions Group
Soon Chai Gooi
Senior Vice President, President of Electronic Industrial Solutions Group
Bethany Mayer(2)
Senior Vice President, President of Ixia Solutions Group
 
(1)
Mr. Gasparian served as a Section 16 officer until July 20, 2017. He served as an advisor from that time until his retirement in January 2018.
 
(2)
Ms. Mayer, the former CEO of Ixia, joined Keysight on April 18, 2017 upon the completion of the Ixia acquisition. Ms. Mayer resigned effective December 1, 2017.
 
Pay for Performance Alignment
 
Our executive compensation program is designed to align the interests of our executive officers with the interests of our stockholders. For this reason, a significant portion of our executive officers’ target total direct compensation opportunity is variable in nature and at risk, and other than with respect to Ms. Mayer, was entirely subject to company performance measured against achievement of certain financial objectives, including Non-GAAP EPS, Non-GAAP Revenue growth, Non-GAAP OM, and TSR relative to our peers. Our variable incentives demonstrate a strong linkage between pay and performance and encourage our executive officers to hold a significant stake in Keysight. Our compensation for fiscal year 2017 aligned with our performance for fiscal 2017.
 
 

COMPENSATION DISCUSSION AND ANALYSIS ǀ 38
Short-Term Incentives

For fiscal year 2017, our Performance-Based Compensation Plan was directly linked to the achievement of pre-established semi-annual financial objectives. These awards were paid in cash and designed to reward achievement of critical short‑term financial goals. The financial objectives are described in more detail beginning on page 42.

Short-Term Performance Incentive Results:
 
First Half Fiscal Year 2017
Achievement Percent of Target
Second Half Fiscal Year 2017
Achievement Percent of Target
Non-GAAP EPS
103%
102%
Keysight Non- GAAP Revenue Growth
33%
90%
CSG Non-GAAP Revenue Growth
-188%
38%
EISG Non-GAAP Revenue Growth
487%
658%
 
These results, combined with an evaluation of individual performance, determined the annual short-term incentive payout for the majority of our executive officers, including NEOs other than Ms. Mayer. Other than Ms. Mayer, our NEOs’ annual incentive payouts ranged from 0% to 128% of their target award opportunities.

Long-Term Incentives

The awards for our executive officers under our Long-Term Performance Program (the “LTP Program”) consist of PSUs and RSUs. PSUs are directly linked to achievement of pre-established objective performance thresholds while RSUs are time-based and except for Ms. Mayer’s awards, vest annually over four years. Except with respect to Ms. Mayer, the PSUs settle at the end of a three-year performance period and are granted to reward multi-year stockholder value creation through the performance of our stock as measured against the relative TSR of our peers and through improving profitability as measured by Non-GAAP OM, both important indicators of our success. The combination of relative TSR and Non-GAAP OM provide a more comprehensive measure of our success relative to our peers and greater returns for our stockholders.

Ixia Incentives

Ms. Mayer’s short-term incentive and equity awards differ from the awards of the other NEOs as they were designed to keep Ms. Mayer focused and accountable for the performance of the Ixia Solutions Group. Ixia’s Revenue Growth was used as the financial objective for Ms. Mayer’s short-term incentive cash award. In order to receive any payout, Ixia’s operating margin must have been at least 15.5% and to receive payout at target, Ixia must have achieved an operating margin of 17.1%. In addition, Ms. Mayer was granted time-based RSUs that cliff vest after one year and PSUs that would have vested based on the achievement of certain cost synergies and the successful integration of Ixia. More information regarding Ms. Mayer’s awards can be found in the Grants of Plan-based Awards table below. Ms. Mayer resigned effective December 1, 2017 and, as a result, did not earn a short-term incentive cash award, vest in any of her equity awards or receive any severance benefits.
 

COMPENSATION DISCUSSION AND ANALYSIS ǀ 39
 
Compensation Policies and Practices

Our executive compensation and corporate governance program are designed to link pay with operational performance and increases in long-term stockholder value while striking a responsible balance between risk and reward. To accomplish these objectives, we have adopted the following policies and practices over time:
 
Compensation Policies and Practices
·     An independent Compensation Committee
·     An independent compensation consultant to the Compensation Committee, F.W. Cook
·     Stock ownership guidelines for our executive officers and the non-employee members of our Board of Directors
·     Prohibitions on executive officers engaging in hedging transactions or pledging our securities as collateral for loans
·     A compensation recoupment (“Clawback”) policy that applies to our executive officers
·     Use of “double trigger” change of control agreements and a prohibition on excise tax gross-ups
·     An annual review and assessment of potential compensation-related risks, conducted independently for the Compensation Committee by F.W. Cook, which for fiscal year 2017 concluded that our compensation programs (including all incentive and commission arrangements at all levels) do not encourage behaviors that are reasonably likely to have a material adverse effect on the Company
·     Maximum limits on the amount of annual cash incentives and PSUs that may be paid out.
·     We do not provide for payment of dividend equivalents on unvested awards.

Process for Determining Compensation

Each November, the Compensation Committee, with the assistance of F.W. Cook, and our management team, determines the target total direct compensation opportunities for all of our executive officers, including our NEOs, based on a thorough review of their individual performance and the following additional factors (collectively, “Compensation Factors”):
 
Compensation Factors
·     Responsibilities and capabilities of each executive officer
·     Competitive market data provided by F.W. Cook
·     “Tally sheets” describing the total compensation received by each executive officer
·     Each executive officer’s self-evaluation and evaluation by the CEO and Senior Vice President of Human Resource as presented to the Compensation Committee
·     Qualitative evaluation of each executive officer’s overall and corporate performance by the Compensation Committee or the independent members of our Board of Directors
·     Objective assessment of each executive officer’s actual performance against pre-established goals and financial targets

The CEO and Senior Vice President of Human Resources do not provide recommendations to the Compensation Committee for his/her own compensation. Our CEO’s target total direct compensation opportunity is reviewed annually by the Compensation Committee, which then presents its recommendation to the independent members of our Board of Directors for discussion. The Compensation Committee then makes the final determination on the target total direct compensation for our CEO.
 

COMPENSATION DISCUSSION AND ANALYSIS ǀ 40
Keysight’s Peer Groups
 
As part of its compensation deliberations, the Compensation Committee conducts an annual review of the compensation practices of the competitive market using one or more groups of peer companies. The Compensation Committee annually reviews our peer groups to ensure the companies continue to be suitable peers for compensation benchmarking purposes. At the beginning of fiscal year 2017, the Compensation Committee, with the assistance of F.W. Cook, approved a compensation peer group based on the following criteria:
 
Peer Group Determining Criteria for Fiscal Year 2017
·     Revenues between approximately $1.5 billion and $7.5 billion, which were approximately 0.5 times and 2.5 times our projected fiscal year 2017 revenue
·     A market capitalization between approximately $2.5 billion and $22 billion, which were approximately 0.33 times and 3 times our projected fiscal year 2017 market capitalization
·     A market capitalization to revenue ratio greater than 1.0, our projected fiscal year 2017 ratio
 
These criteria resulted in the selection of 32 companies, all members of the Russell 3000 Information Sector, including two new companies. The companies that were removed from the peer group were SanDisk due to acquisition and SunEdison due to bankruptcy. The selected companies compete with us either in the same business and capital markets or in the executive talent arena or similarly operate complex business operations with significant global reach.  The Compensation Committee used compensation data drawn from the compensation peer group as one of the Compensation Factors in setting the compensation of our executive officers.
 
Keysight’s Peer Group for Fiscal Year 2017
Acuity Brands
Citrix Systems
Hubbell
NCR
Synopsys
AMETEK
CommScope
Juniper Networks
NetApp
Teradyne
ARRIS Group
EchoStar
KLA-Tencor
Nuance Communications
Trimble Navigation
Autodesk
EnerSys
Lam Research
Regal Beloit
VeriFone Systems*
Brocade Communications
F5 Networks
Motorola Solutions
Rockwell Automation
Viavi Solutions
Cadence Design Sys
FLIR Systems
National Instruments
Roper Technologies
Zebra Technologies
Ciena*
Harris
     
* Companies added to the fiscal year 2017 compensation peer group based on the selection criteria

Competitive Positioning to Peer Group

At the time of its approval, we were approximately at the median of our compensation peer group based on revenue, market capitalization, and number of employees.
 
 
Revenues as of each
company’s most
recent four quarters
ended on 9/30/2016
(in millions) ($)
Market
Capitalization on
9/30/2016
(in millions) ($)
Employees
as of
9/30/2016
(#)
25th Percentile
$2,228
$3,914
5,575
Median
$3,208
$6,539
9,229
75th Percentile
$4,646
$11,159
13,125
Keysight Technologies, Inc.(1)
$2,917
$5,385
10,300
 
(1)
Fiscal Year 2017 Estimates
 
Peer Group for the Long-Term Incentives Program

The Compensation Committee believes that an expanded peer group is more appropriate for determining relative TSR under the Keysight’s LTP Program, as an appropriate peer group provides a broader index for comparison and better alignment with stockholder investment choices. Accordingly, the Compensation Committee selected the S&P 400 Index for determining relative TSR as one of the performance criteria for LTP Program awards granted for the three-year performance period ending October 31, 2019. This index has a strong correlation with Keysight’s stock price. The S&P 400 constituent list is maintained by the S&P Index Committee, which is available at www.standardandpoors.com/ indices/main/en/us. Any change in the expanded peer group is solely due to Standard & Poor’s criteria for inclusion in the index.
 

COMPENSATION DISCUSSION AND ANALYSIS ǀ 41
Elements of 2017 Compensation
 
This section describes the elements of our executive officers, including NEOs, for fiscal year 2017 compensation, which consists of the following:
 
Direct Compensation
Indirect Compensation
·     Base Salary
·     Other Employee Benefits
·     Short-Term Incentives
 
·     Long-Term Incentives
 
 
In fiscal year 2017, approximately 74% of our CEO’s and about 65% on average of our NEO’s target total direct compensation consisted of long-term incentives and was “at-risk” – which means that the component would vary year to year depending on our stock price and TSR against the S&P 400 and our Non-GAAP OM.

 
 
Base Salary
 
The Compensation Committee regularly reviews base salaries for our executive officers and may adjust them, if needed, to reflect changes in market conditions or other factors, including changing responsibilities as our executive officers’ positions evolve. As a relatively new independent company, we target base salaries for our executive officers with the goal of bringing salaries closer to market of our peers over time. The base salary provides a competitive level relative to market data of our peers and each executive officer’s position, performance, skills and experience in order to attract and retain the best talent.

The base salaries of our NEOs are set annually by the Compensation Committee, who considers the Compensation Factors for each NEO and the Company’s expected operating budget. Base salary is a fixed component of our NEOs’ compensation and does not vary with Company performance. The Compensation Committee approved the following adjustments to base salaries, effective December 1, 2016:
 

COMPENSATION DISCUSSION AND ANALYSIS ǀ 42
NEO
2017 Base Salary
Ronald S. Nersesian
$975,000, no change from fiscal 2016
Neil Dougherty
$500,000, no change from fiscal 2016
Jay Alexander
$450,000, no change from fiscal 2016
Michael Gasparian
Increased from $500,000 to $550,000
Soon Chai Gooi(1)
Increased from $392,812 to $409,420
Bethany Mayer
Ms. Mayer’s initial base salary was set at $700,000, which was approximately equal to her base salary at Ixia

(1)
Mr. Gooi is paid in Malaysian Ringgit, and his base salary was converted to US dollars based on the currency exchange rate as of October 31, 2017.
 
Short‑Term Incentives
 
The Performance-Based Compensation Plan for our NEOs and others in executive and senior manager roles provides cash awards every six months depending on Company performance. The awards are directly linked to the achievement of semi-annual financial objectives established by the Compensation Committee at the beginning of each performance period, based on the financial plan approved by the Board for that year. Semi-annual financial objectives are chosen instead of annual objectives to account for the cyclical nature and volatility of our markets. In addition, the Compensation Committee reviews and approves the short-term incentive plan threshold and maximum tied to each objective, benchmarking our internal historical achievement against external market data to ensure alignment with the external market and the latest compensation practices. The short-term cash incentives are tied to the financial objectives with each objective weighted depending on each executive’s roles and responsibilities. Depending upon the Company’s performance, the payout ranges from 0% to 200%. The Compensation Committee may exercise negative discretion to determine the final award payout.

At the end of each performance period, the Compensation Committee certifies our actual performance against the objectives and to the extent earned, the cash incentive awards are paid. Performance measures and target performance goals cannot be changed after they are established by the Compensation Committee.

Financial Objectives for Fiscal Year 2017

For fiscal year 2017, Non-GAAP EPS was one of the financial objectives for the short-term cash incentives of our NEOs, other than Ms. Mayer, for the following reasons:

·
Strengthen line of sight with stockholders
·
Drive leadership behavior to focus on the enterprise rather than at a segment level
·
Create value through growth and cost efficiency priorities (Non-GAAP EPS)
 
The Compensation Committee believes that Non-GAAP EPS is a transparent, operations-based measure, which is computed on the basis of Non-GAAP earnings and diluted shares. Non-GAAP earnings are calculated by excluding the impact of share-based compensation, restructuring costs, separation costs, transformational costs, acquisition and integration costs, asset impairments and non-cash intangible amortization. We also exclude any tax benefits or expenses that are not directly related to ongoing operations and which are either isolated or which could not be expected to occur again with any regularity or predictability. These GAAP exclusions are objectively predetermined by our Compensation Committee in accordance with Section 162(m) of the Code. Non-GAAP EPS is the same metric that we use for our quarterly earnings announcements. Non-GAAP EPS targets are determined by our semi-annual financial planning process. Management prepares a financial plan which is then reviewed and approved by the Board of Directors. The Non-GAAP targets are directly tied to the approved financial plan and do not change during the performance period. The threshold and maximum are designed to account for the cyclical nature and volatility of our markets. Diluted shares are defined as the total number of shares that would be outstanding if all possible sources of conversion are exercised.
 
In fiscal year 2017, the Compensation Committee added a second financial objective in the form of Non-GAAP Revenue growth.  For segment presidents, revenue growth is tied solely to their respective business groups and for other NEOs, revenue growth is based on Keysight’s total revenues. Aligning compensation incentives to the revenue growth of specific business groups creates direct accountability for our executives.  Non-GAAP Revenue growth is based on reported Non-GAAP Revenue, which is Keysight’s GAAP reported revenue and including recognition of acquired deferred revenue that was written down to fair value in purchase accounting and excluding incremental revenue from acquisitions completed within the applicable period.
 

COMPENSATION DISCUSSION AND ANALYSIS ǀ 43
Short‑Term Cash Incentive Awards Calculations and Awards Measures

For fiscal year 2017, for the NEOs, other than Ms. Mayer, the award payouts under the Performance‑Based Compensation Plan were calculated by multiplying the individual’s base salary for the performance period by the individual’s target award bonus percentage, financial target bonus percentage, and actual performance attainment.

Financial Objectives

First Half
Financial
Objectives
 
Annual
Salary/2
 
Individual
Target Bonus
(% varies by
Individual)
 
Financial Target
Bonus
 
Attainment %
(Based on actual
performance)
       
       
   
×
×
×
Second Half
Financial
Objectives
       
       
       
 

COMPENSATION DISCUSSION AND ANALYSIS ǀ 44
The following tables describe the threshold, target and maximum financial measures for the financial objectives Non-GAAP EPS, Keysight Non-GAAP Revenue growth, CSG Non-GAAP Revenue growth and the EISG Non-GAAP Revenue growth, and reports the actual results and achievement percentage. Based on the achievement percentage, payouts ranged from 0% to 200%.
 
Non-GAAP EPS(1)
(Messrs. Nersesian, Dougherty, Alexander, Gasparian, Gooi)
First Half Fiscal Year 2017
   
Second Half Fiscal Year 2017
Threshold $
   
Target $
   
Max $
   
Results $
   
Achievement %
   
Threshold $
   
Target $
   
Max $
   
Results $
   
Achievement %
$0.61
   
$1.21
   
$1.82
   
$1.24
   
103%
 
 
$0.65
   
$1.30
   
$1.95
   
$1.32
   
102%
 
Keysight Non-GAAP Revenue Growth(2)
(Messrs. Nersesian, Dougherty, Alexander)
First Half Fiscal Year 2017
   
Second Half Fiscal Year 2017
Threshold %
   
Target %
   
Max %
   
Results $
   
Achievement %
   
Threshold %
   
Target %
   
Max %
   
Results %
   
Achievement %
-1.8%
 
 
2.2%
 
 
5.2%
 
 
0.7%
 
 
33%
 
 
18.1%
 
 
22.1%
 
 
25.1%
 
 
19.9%
 
 
90%
 
CSG Non-GAAP Revenue Growth(2)
(Mr. Gasparian)
First Half Fiscal Year 2017
   
Second Half Fiscal Year 2017
Threshold %
   
Target %
   
Max %
   
Results %
   
Achievement %
   
Threshold %
   
Target %
   
Max %
   
Results %
   
Achievement %
-2.3%
 
 
1.7%
 
 
4.0%
 
 
-3.2%
 
 
-188%
 
 
-1.5%
 
 
4.5%
 
 
8.1%
 
 
1.7%
 
 
38%
 
EISG Non-GAAP Revenue Growth(2)
(Mr. Gooi)
First Half Fiscal Year 2017
   
Second Half Fiscal Year 2017
Threshold %
   
Target %
   
Max %
   
Results %
   
Achievement %
   
Threshold %
   
Target %
   
Max %
   
Results %
   
Achievement %
-2.5%
 
 
1.5%
 
 
3.5%
 
 
7.3%
 
 
487%
 
 
-2.8%
 
 
1.2%
 
 
5.5%
 
 
7.9%
 
 
658%
 
(1)
Excludes certain items, primarily share-based compensation expense, acquisition-related items, separation and related costs, restructuring and related costs, Northern California wildfire and related costs and other items.
 
(2)
Based on reported Non-GAAP revenue, which is Keysight’s GAAP reported revenue and including recognition of acquired deferred revenue that was written down to fair value in purchase accounting and excluding incremental revenue from acquisitions completed within the applicable period.

The following table sets forth the financial objectives mix and weight as applied to calculating the short-term cash incentive for the NEOs, other than Ms. Mayer.
 
Weight Allocation of Financial Objectives
Name
 
Non-GAAP EPS
 
Revenue Growth
Ronald S. Nersesian
 
75%
 
25%
Neil Dougherty
 
75%
 
25%
Jay Alexander
 
75%
 
25%
Michael Gasparian
 
75%
 
25%
Soon Chai Gooi
 
75%
 
25%
 

COMPENSATION DISCUSSION AND ANALYSIS ǀ 45
Short-Term Cash Incentive for Each NEO
 
The Compensation Committee set the fiscal year 2017 target short-term cash incentive award opportunities as a percentage of base salary for each NEO. Each NEO’s target short-term cash incentive for fiscal year 2017 was set between 80% and 135% of base salary, as follows:
 
Fiscal Year 2017 Target Short-Term Cash Incentive Award Opportunities
(Expressed as a Percentage of Base Salary)
             
Name
 
First Half
Financial
Target Award
 
Second Half
Financial
Target Award
 
Total Target
Short-Term
Cash Incentives
Ronald S. Nersesian
 
67.5%
 
67.5%
 
135.0%
Neil Dougherty
 
42.5%
 
42.5%
 
85.0%
Jay Alexander
 
40.0%
 
40.0%
 
80.0%
Michael Gasparian
 
40.0%
 
40.0%
 
80.0%
Soon Chai Gooi
 
42.5%
 
42.5%
 
85.0%

Fiscal Year 2017 Short-Term Cash Incentive Payouts Table
 
The payouts under the Performance‑Based Compensation Plan for fiscal year 2017 are provided in the table below and in the “Non‑Equity Incentive Plan Compensation” column in the “Summary Compensation Table”. The Compensation Committee determined that the awards earned based on actual performance results for fiscal year 2017 fairly reflected the performances of our executive officers and did not exercise negative discretion with respect to the awards.
 
   
First Half Financial
 
Second Half Financial
   
Name
 
Target
Incentive
 
Actual
Award
 
Actual
Award
 
Target
Incentive
 
Actual
Award
 
Actual
Award
 
Total Actual Short-Term Cash
Incentives
   
($)
 
($)
 
(%)
 
($)
 
($)
 
(%)
 
($)
 
(%)
Ronald S. Nersesian
 
$658,125
 
$657,450
 
99.9%
 
$658,125
 
$632,162
 
96.1%
 
$1,289,612
 
98.0%
Neil Dougherty
 
$212,500
 
$212,282
 
99.9%
 
$212,500
 
$204,117
 
96.1%
 
$416,399
 
98.0%
Jay Alexander
 
$180,000
 
$179,816
 
99.9%
 
$180,000
 
$172,899
 
96.1%
 
$352,715
 
98.0%
Michael Gasparian
 
$220,000
 
$174,900
 
79.5%
 
$220,000
 
$213,780
 
97.2%
 
$388,680
 
88.3%
Soon Chai Gooi*
 
$166,433
 
$215,531
 
129.5%
 
$174,235
 
$223,021
 
128.0%
 
$438,552
 
128.7%
 
 
*
Mr. Gooi is normally paid in Malaysian Ringgit. His target incentive and payout for the first half of fiscal year 2017 was converted to US dollars based on the currency exchange rate as of April 30, 2017. His target incentive and payout for the second half of fiscal year 2017 was converted to US dollars based on the currency exchange rate as of October 31, 2017.
 

COMPENSATION DISCUSSION AND ANALYSIS ǀ 46
Long-Term Incentives
2017 Long-Term Incentive Award Mix
 
We use the following long-term incentive vehicles to ensure that our LTP Program remains balanced, sustainable and supportive of its objectives over a multi-year period:
 
·
PSUs support the objectives of linking realized value to the achievement of critical performance objectives and stockholder alignment. Shares of our common stock earned under our LTP Program are based on long-term returns to stockholders as measured by Keysight’s relative TSR ranking against the S&P 400 index, and absolute Non-GAAP OM.

·
RSUs are used to keep our executive officers focused on the absolute performance of the Company’s stock price. We believe RSUs encourage behavior and initiatives that support sustained long-term stock price increase, which benefits all stockholders. In addition, RSUs are becoming more prevalent in our peer group as have they have greater retentive value.
 
The mix of long-term incentives awards for our NEOs for fiscal year 2017 is shown in the following chart. This mix places a greater emphasis on at-risk compensation and therefore aligns NEOs compensation with long-term stockholder value.


PSU Performance Measure
 
For fiscal year 2017, we modified both the performance measurement approach and comparator group for the TSR metric. Historically, payouts under our long-term incentive program were based on Keysight’s TSR percentile ranking relative to a selected group of companies. Beginning in fiscal year 2017, performance is measured as the difference in basis points between Keysight’s TSR and the S&P 400 Index.  We made this change to better represent the Company’s performance in the entire performance period versus alternative investment opportunities.
 
The Compensation Committee has established rolling three-year performance periods for PSU awards under our LTP Program and for fiscal year 2017 used relative TSR, and Non-GAAP OM  on  an absolute basis, as the performance measures for the performance period ending October 31, 2019, with a portion of each NEO’s PSUs earned based on the attainment of each performance measure. The target number of PSUs subject to each performance measure was approximately equal to 50% of the grant date value of each NEO’s PSUs because Keysight considers TSR and Non-GAAP OM to be equally important for long-term performance by balancing internal operational goals with market performance.
 
Relative TSR reflects (1) the aggregate change in the 90-day average closing price of our stock versus the S&P 400 Total Return Index. The beginning average is the 90-day period prior to the performance period and the ending average will be the final 90-day period of the performance period, and (2) per S&P’s methodology, the price of this index reflects reinvestment of dividends into the entire index on the ex-dividend date and also includes adjustments based on their proprietary formula (which includes additions/deletions to index, rights issues, share buybacks/issuances, and spin-offs).
 

COMPENSATION DISCUSSION AND ANALYSIS ǀ 47
A new Non-GAAP OM performance measure is set each fiscal year and following the completion of the applicable fiscal year, the Non-GAAP OM payout percentage achievement is calculated for such fiscal year. Following the completion of the three-year performance period, the Non-GAAP OM payout percentage achievement for each fiscal year is then averaged and used to determine the total number of PSUs that are earned based on Non-GAAP OM. For fiscal 2017, Non-GAAP OM excludes, among other things, the impacts of share-based compensation, restructuring and related costs, separation and related costs, acquisition and integration costs, amortization of acquisition-related balances, acquisition-related compensation expense, pension curtailment and settlement gains, Northern California wildfire related costs and others. Because the Non-GAAP OM target is set at the beginning of each fiscal year, income and expenses related to an acquisition are excluded for the fiscal year in which the acquisition occurs, but is included in both target and actual results in subsequent years.
 
Long-Term Incentives Granted in Fiscal Year 2017
 
The target value of the long‑term incentive awards granted is determined by the Compensation Committee at the beginning of the then‑current fiscal year for each of our NEOs after considering the Compensation Factors. Grant values were determined as follows:
 
·
To determine the number of PSUs with a TSR metric, we divided the target award amount by the product of the 20-day trailing average closing price of our common stock prior to the date of grant multiplied by a Monte-Carlo valuation (the “TSR PSUs”).
 
·
To determine the number of PSUs with a Non-GAAP OM metric, we divided the target award amount by the 20-day trailing average stock price (the “OM PSUs”).
 
·
The remaining value of the long‑term awards were in the form of RSUs calculated by using a 20-day trailing average stock price.
 
The following table shows the long‑term incentive awards granted in fiscal year 2017 to the NEOs, other than Ms. Mayer.
 
Name
Performance
 Stock Units (TSR)
 (#)
Performance
 Stock Units (OM)
 (#)
Restricted
Stock Units
(#)
Total Target Value of Long-Term Incentive Awards
($)
Ronald S. Nersesian
43,859
53,076
70,769
$5,750,000
Neil Dougherty
9,153
11,076
14,769
$1,200,000
Jay Alexander
7,627
9,230
12,307
$1,000,000
Michael Gasparian
7,704
9,323
12,430
$1,010,000
Soon Chai Gooi
10,892
13,181
17,575
$1,428,000
 
Performance Stock Units Granted in Fiscal Year 2017
 
The TSR PSUs granted in fiscal year 2017 will be measured and paid out based on TSR for the fiscal year 2017 through fiscal year 2019 performance period.  The OM PSUs will be measured and paid out based on Non-GAAP OM for the fiscal year 2017 through fiscal year 2019 performance period. The PSUs are wholly “at risk” compensation as our performance must be at or above the threshold of the TSR and Non-GAAP OM, as applicable, for the award recipients to earn any of the shares of our common stock subject to their PSUs.
 
PSUs Based on TSR
 
With respect to the TSR PSUs, the Compensation Committee changed the TSR methodology from TSR percentile ranking among selected companies to an outperformance approach to better represent the Company’s performance in the entire performance period versus alternative investment opportunities.  Unlike TSR percentile ranking, relative performance is measured as the difference in basis points between Keysight’s TSR and the S&P 400 total return index.
 

COMPENSATION DISCUSSION AND ANALYSIS ǀ 48
The Compensation Committee did not establish an absolute TSR target as it believed that performance would be best measured on a relative basis against the S&P 400 total return index. The payout matrix determined by the Compensation Committee for TSR was:
 
   
Payout as a
% of Target
 
Threshold:  -40 percentage points below S&P 400 Total Return Index
   
25%
Target:         Equals S&P 400 Total Return Index
   
100%
 
Maximum:  +40 percentage points above S&P 400 Total Return Index
   
200%
 

The PSUs will be settled linearly for each level of performance as illustrated below
 
PSUs Based on Non-GAAP OM
 
The table below sets forth the threshold, target and maximum Non-GAAP OM goals for fiscal 2017 and the actual results for fiscal 2017.
 
Fiscal Year 2017 Operating Margin
 
Fiscal Year
 
Threshold $
   
Target %
   
Max %
   
Results %
 
2017
   
14%
   
19%
 
   
24%
 
   
19.1%
 

The OM PSUs are also subject to a profitability financial metric.
 
 
Payout as a
% of Target
 
Threshold:  5 point below annual Non-GAAP OM plan
   
55%
Target:        Achievement of annual Non-GAAP OM plan
   
100%
 
Maximum:  5 points above annual Non-GAAP OM plan
   
200%
 
 

COMPENSATION DISCUSSION AND ANALYSIS ǀ 49
The OM PSUs will be settled linearly for each level of performance as illustrated below:
 

Fiscal Year 2015 ‑ 2017 LTP Program Payout
 
In fiscal 2015, the Compensation Committee granted our NEOs long-term incentive awards in the form of PSUs that would be earned, if at all, based on Keysight’s TSR ranking relative to the companies in the S&P 500 IT & Industrials Sectors Index for the performance period that began on November 1, 2014 and concluded on October 31, 2017 as set forth in the table below:
 
 
On November 16, 2017, the Keysight Compensation Committee certified that Keysight’s TSR ranking relative to the companies in the S&P 500 IT & Industrials Sectors Index was equal to the 35th percentile and accordingly approved a payout at 55% of target for the performance period. The payout of these awards was made in November 2017, with the payouts to our NEOs shown below.
 

COMPENSATION DISCUSSION AND ANALYSIS ǀ 50
The following table sets forth the targeted number of shares for the performance period covering fiscal year 2015 through fiscal year 2017, the shares earned at 55% of target and the cash value of the earned shares.
 
Name
Target Award in Shares
Payout in Shares at 55%
Cash Value of Payout at 55% (1)
Ronald S. Nersesian
63,262
34,794
$1,527,457
Neil Dougherty
11,380
6,259*
$274,770
Jay Alexander
7,375
4,056
$178,058
Michael Gasparian
7,693
4,231
$185,740
Soon Chai Gooi
11,571
6,364
$279,380
Bethany Mayer
0
0
$0
 
(1)
Reflects the fair market value of the shares based on the closing stock price of Keysight’s common stock on November 16, 2017.
 
*
Mr. Dougherty deferred 95% of these shares under the Keysight Technologies, Inc. 2014 Deferred Compensation Plan
 
Policies for Compensation Risk Mitigation
 
Recoupment Policy
 
Our Executive Compensation Recoupment Policy applies to all executive officer’s subject to Section 16 of the Securities Exchange Act. Under this Policy, in the event of (A) a material restatement of financial results (wherein results were incorrect at the time published due to mistake, fraud or other misconduct), or (B) fraud or misconduct by an executive officer, the Compensation Committee will, in the case of a restatement, review all short-term and long-term incentive compensation awards that were paid or awarded to the executive officers for performance periods beginning after October 31, 2014 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 fraud or misconduct, prevent its recurrence, and impose discipline on the wrongdoers, in each case, as it deems appropriate.
 
These actions may include without limitation, to the extent permitted by governing law, requiring reimbursement of compensation, causing 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 shares of our common stock to the extent such profit was, in part or in whole, resulting from fraud or misconduct.
 
The Compensation Committee will amend the Policy, as necessary, to comply with the final SEC rules regarding the recoupment policy required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
 
Hedging and Insider Trading Policy
 
Our Insider Trading Policy expressly bars ownership of financial instruments or participation in investment strategies that hedge the economic risk of owning our equity securities.  We also prohibit our executive officers and the members of our Board from pledging our equity securities as collateral for loans.  In addition, we prohibit our executive 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 and maintain a quarterly black-out window where applicable individuals may not trade.
 
Our executive officers and members of our Board are permitted to enter into trading plans that are intended to comply with the requirements of Exchange Act Rule 10b5-1 so that they can prudently diversify their asset portfolios and exercise their stock options before their scheduled expiration dates.
 
Indemnification Agreements
 
These agreements indemnify our executive officers and the members of our Board of Directors, as well as those who act as directors and officers of other entities at our request, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceedings arising out of their services to us and our subsidiaries.
 

COMPENSATION DISCUSSION AND ANALYSIS ǀ 51
A Culture of Ownership
 
Our stock ownership guidelines are designed to encourage our executive officers, including our NEOs, to achieve and maintain a significant equity stake in the Company and more closely align their interests with those of our stockholders. The guidelines provide that our CEO should accumulate and hold, within five years from election to his position, an investment level in our common stock equal to a multiple of six times his annual base salary. The guidelines further provide that our CFO, COO, and other executive officers should accumulate and hold, within five years from appointment to their respective executive officer positions, an investment level in our common stock equal to the lesser of either (1) a multiple of three times their annual base salary or (2) direct ownership of a certain level of shares of our common stock (40,000 or 80,000 shares).
The investment level as a multiple of annual base salary or direct ownership guidelines are as follows:
 
Level
Investment Level = Multiple of Annual Base
Salary
Direct Ownership of Common Stock (# of Shares)
CEO
6X
N/A
CFO/COO
3X
80,000
All other executive Officers
3X
40,000
 
The Compensation Committee conducts an annual review to assess compliance with the guidelines. At the end of fiscal year 2017, each of our NEOs had either met or were on track to reach his stock ownership guideline requirement within the applicable timeframe.
 
Compensation Risk Assessment
 
F.W. Cook conducts an annual review of our compensation related risks. The risk assessment conducted during fiscal year 2017 concluded that our executive compensation program is well designed to encourage behaviors aligned with the long-term interests of our stockholders. F.W. Cook also found an appropriate balance in fixed versus variable pay, cash and equity, and appropriate mix of financial metrics. Finally, it was determined that there are appropriate policies in place to mitigate compensation-related risk, including stock ownership guidelines, insider-trading prohibitions, the Executive Compensation Recoupment Policy, and independent Compensation Committee oversight of our executive compensation programs.
 
Other Compensation Practices and Policies

Benefits and Limited Perquisites
 
Our global benefits philosophy is to provide our executive officers, including our NEOs, with protection and security through health and welfare, retirement, and life insurance programs. Generally, the Compensation Committee’s philosophy is to provide only perquisites and other personal benefits that we provide to all employees.
 
In addition to these Company‑wide benefits, our NEOs are offered Company‑paid financial counseling through a third‑party service to assist with their personal finances. Providing this service gives our NEOs a better understanding of their compensation and benefits, allowing them to concentrate on their responsibilities and our future success. Our executive officers, including our NEOs, are also offered physical examinations, for which we cover the costs that are not otherwise covered under each of our NEOs’ chosen health plan. We believe that the executive physical is a prudent measure to help ensure the health of our executive officers. Both the financial counseling and the executive physicals are benefits generally provided by our peers and are available to us at a reasonable group cost.
 
Our NEOs are offered Company paid relocation services, mortgage subsidies and tax assistance. Our executive officers also had access to Company drivers to transport them and their families to the airport for personal travel, as do other Company executives.
 
In October 2017 a number of Keysight employees either lost their homes or were temporarily displaced as a result of several wildfires in the Santa Rosa area in the state of California. To assist those employees, the Company offered $10,000 to each employee that lost their home to the wildfires and $1,000 to each employee that was temporarily displaced by the wildfires.  The same level of assistance was offered to our NEOs who were affected by the wildfires.
 

COMPENSATION DISCUSSION AND ANALYSIS ǀ 52
Deferred Compensation
 
Our NEOs are eligible to voluntarily defer base salary, short-term cash incentives, and stock awards under the LTP Program. The deferrals are made through the Keysight Technologies, Inc. 2014 Deferred Compensation Plan (the “Deferred Compensation Plan”).
 
Deferred compensation is distributed to eligible participants in January of the year following termination of their employment, if termination occurs during the first six months of the calendar year. Otherwise, payouts are distributed to participants in July of the year following termination of employment. No early distributions or withdrawals are allowed. If an election is made to defer performance shares earned under the LTP Program, shares are deferred and released to the participants as indicated above.
 
The specific benefits and an additional description of plan features are set forth in the section entitled “Non‑Qualified Deferred Compensation in Last Fiscal Year” below.
 
Pension Plans
 
The Keysight Technologies, Inc. Retirement Plan (the “Retirement Plan”), the Keysight Technologies, Inc. Supplemental Benefit Retirement Plan (the “Supplemental Benefit Retirement Plan), the Keysight Technologies, Inc. Deferred Profit-Sharing Plan (the “Deferred Profit‑Sharing Plan”) and the Keysight Technologies, Inc. 401(k) Plan (the “401(k) Plan”) are designed for long-term employment retention as well as to support the career‑employment strategy and to provide employee retirement savings.
 
·
The Retirement Plan is a U.S. tax qualified defined benefit plan. The Retirement Plan was closed to new entrants on August 1, 2015.
 
·
The Supplemental Benefit Retirement Plan is an unfunded, non-qualified plan that pays amounts upon retirement that would be due under the regular Retirement Plan benefit formula, but are limited under the tax‑qualified Retirement Plan by the Code.
 
·
The Deferred Profit-Sharing Plan provides certain amounts to our NEOs and other employees who provided services to Agilent prior to August 1, 2014 and to Agilent’s predecessor company, Hewlett Packard Company, prior to November 1, 1993. It is a closed and frozen, defined contribution plan. The Deferred Profit-Sharing Plan is used as a floor offset for the Retirement Plan for service prior to November 1, 1993. There have been no contributions into the plan since October 31, 1993.
 
·
The 401(k) Plan is a U.S. tax qualified defined contribution plan.  The 401(k) Plan provides eligible employees with an opportunity to defer eligible covered compensation under section 401(k) of the Internal Revenue Code. The Company provides a matching contribution up to 4% of total deferred compensation for legacy participants and up to 6% of total deferred compensation for participants hired on or after August 1, 2015. The 401(k) Plan also permits a discretionary employer contribution up to 2% of covered compensation for participants hired on or after August 1, 2015.
 
Additional information on the Retirement benefits for which the NEOs are eligible is set forth in the “Fiscal Year 2017 Pension Benefits Table”.
 
Policy Regarding Deduction Limit
 
Section 162(m) of the Code generally disallows a tax deduction for compensation in excess of $1 million paid certain named executive officers, including the CEO. The Tax Cuts and Jobs Act repealed the performance-based exception to the deduction limit for compensation that is deductible in tax years commencing after December 31, 2017. However, certain compensation is specifically exempt from the deduction limit to the extent that it is “performance-based” as defined in Section 162(m) and subject to a “written binding contract” in effect as of November 2, 2017 that is not later modified in any material respect.
 
The fiscal 2017 cash incentive awards and PSUs granted in fiscal 2017 and prior years are intended to comply with this exception for performance-based compensation under Section 162(m). However, because of the fact-based nature of the performance-based compensation exception and the limited amount of binding-related guidance, the Company cannot guarantee that compensation that is intended to comply with the performance-based compensation exception under Section 162(m) will in fact so qualify. With the enactment of the U.S. Tax Cuts and Jobs Act, the Company and the Compensation Committee will review and assess the impact of the new law on our compensation programs and design.
 

COMPENSATION DISCUSSION AND ANALYSIS ǀ 53
Accounting Considerations
 
We follow Financial Accounting Standard Board Accounting Standards Codification Topic 718, or ASC Topic 718, for our stock-based compensation awards. ASC Topic 718 requires companies to measure the compensation expense for all share-based payment awards made to employees and directors based on the grant date “fair value” of these awards. This calculation is performed for accounting purposes and reported in the compensation tables below, even though our executive officers may never realize any value from their awards. ASC Topic 718 also requires companies to recognize the compensation cost of their stock-based compensation awards in their income statements over the period that an executive officer is required to render service in exchange for the option or other award.
 
Termination –Severance Plan and Change of Control Agreements
 
Consistent with the practice of many of our peers, the Compensation Committee has adopted an Officer and Executive Severance Plan (the “Severance Plan”) for our U.S. based officers and executives, which provide specified severance payments and benefits in cases where our management decides to replace or make significant changes to the officer’s duties. A more detailed description of the Severance Plan is provided in the “Officer and Executive Severance Plan” section below.
 
In addition, we have entered into Change-of-Control Agreements (“Change of Control Agreement”) with our officers designed to provide protection to the officers so they are not distracted by their personal, professional and financial situations at a time when we need them to remain focused on their responsibilities, the Company’s best interests and those of our stockholders. These agreements provide for “double‑trigger” payments and benefits, which means that they are eligible to receive such payments and benefits only in the event of a change in control of the Company and a termination of employment or a shift into a position that represents a material change in responsibilities within a limited period of time after the transaction (these agreements do not become operative unless both events occur).
 
The potential payments that would be received by our NEOs under the Severance Plan and the Change-of-Control Agreements are disclosed in the “Termination and Change of Control Table” below.

Compensation Committee Report

The information contained in this report shall not be deemed to be “soliciting material,” to be “filed” with the SEC, or to be subject to Regulation 14A or Regulation 14C (other than as provided in Item 407 of Regulation S-K) or to the liabilities of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed to be incorporated by reference in future filings with the SEC except to the extent that Keysight specifically incorporates it by reference into a document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934.
 
November 15, 2017
 
Our executive compensation program is administered by the Compensation Committee of the Board of Directors (the “Compensation Committee”). The Compensation Committee, which is composed entirely of independent, non-employee directors, is responsible for approving and reporting to our Board of Directors on all elements of compensation for our executive officers. In this regard, the Compensation Committee has reviewed and discussed the “Compensation Discussion and Analysis” section of this Proxy Statement with management. Based on this review and discussion, the Compensation Committee recommended to our Board of Directors that the “Compensation Discussion and Analysis” section be included in this Proxy Statement and incorporated by reference into our 2017 Annual Report on Form 10-K.
 
Submitted by:
 
Compensation Committee
James G. Cullen, Chairperson
Jean M. Halloran
Richard Hamada
Mark B. Templeton
 

EXECUTIVE COMPENSATION ǀ 54
EXECUTIVE COMPENSATION
 
Fiscal Year 2017 Summary Compensation Table
 
Name and Principal Position
Year
Salary

Bonus
(1)
 Stock
Awards
(2)(3)(5)
Option
Awards
(2)(4)(5)
 Non-Equity Incentive Plan Compensation
(6)
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings (7)
All other Compensation
(8)
Total
    
($)
($)
($)
($)
($)
($)
($)
 ($)
Ronald S. Nersesian
2017
$975,000
$0
$6,456,903
$0
$1,289,612
$236,997
$49,583
$9,008,095
President and Chief Executive Officer
2016
$968,750
$0
$6,027,107
$0
$1,247,344
$206,037
$33,373
$8,482,612
2015
$891,667
$0
$8,718,704
$2,609,233
$1,248,750
$160,539
$33,784
$13,662,678
Neil Dougherty
2017
$500,000
$0
$1,347,487
$0
$416,399
$83,685
$45,192
$2,392,763
Senior Vice President and Chief Financial Officer
2016
$497,917
$0
$1,106,988
$0
$379,060
$90,620
$32,705
$2,107,290
2015
$468,750
$0
$1,927,705
$469,398
$421,800
$57,905
$43,898
$3,389,456
Jay Alexander
2017
$450,000
$0
$1,122,864
$0
$352,715
$116,782
$18,744
$2,061,105
Senior Vice President and Chief Technology Officer
2016
$445,000
$0
$848,563
$0
$491,907
$106,030
$12,901
$1,904,401
2015
$384,583
$0
$686,228
$304,190
$259,740
$70,146
$26,822
$1,731,709
Soon Chai Gooi (9)
2017
$407,920
$0
$1,603,522
$0
$438,552
$0
$689,409
$3,139,403
Senior Vice President, President - Electronic Industrial Solutions Group
2016
$389,742
$0
$1,346,430
$0
$306,165
$0
$517,256
$2,559,594
2015
$318,923
$0
$1,494,430
$477,264
$338,167
$0
$365,856
$2,994,640
Michael Gasparian
2017
$545,833
$0
$1,134,150
$0
$388,680
$5,144
$17,926
$2,091,733
Former Senior Vice President, Former President – Communications Solutions Group
2016
$487,917
$0
$890,662
$0
$391,125
$12,846
$14,850
$1,797,399
2015
$353,333
$0
$1,604,424
$317,299
$169,838
$30,404
$12,656
$2,487,953
Bethany Mayer (10)
2017
$362,885
$0
$1,930,597
$0
$0
$0
$50
$2,293,532
Senior Vice President, President - Ixia Solutions Group
                 
                 
 
(1)
None of our NEOs received any service awards or cash bonuses for fiscal year 2017.
 
(2)
Reflects the aggregate grant date fair values of the stock and option awards, computed in accordance with Financial Accounting Standards Board, Accounting Standards Codification, Topic 718, and Stock Compensation (“FASB ASC Topic 718”). The assumptions used in calculating the expense are provided in additional detail in the tables below. Assuming the highest level of performance is achieved under the applicable performance conditions, the maximum possible value of the PSUs granted to each of the named executive officers in 2017 is as follows: Mr. Nersesian: $6,900,000; Mr. Dougherty: $1,440,000; Mr. Alexander: $1,200,000; Mr. Gooi: $1,713,600; Mr. Gasparian: $1,212,000; and Ms. Mayer: $2,280,000.
 
(3)
Amounts consist of expenses relating to PSUs that are outstanding for each of our NEOs. Also, the amounts consist of expenses related to restricted stock units granted in fiscal year 2017 as well as discretionary awards granted by the Compensation Committee.
 
(4)
Amounts consist of expenses relating to option awards granted under the 2014 Equity Plan granted at an exercise price equal to the closing price of Keysight or Agilent common stock on the date of grant.
 
(5)
The expenses disclosed in these columns include expenses for stock awards and options awarded in accordance with the 2014 Equity Plan, as shown in the table below.
 

EXECUTIVE COMPENSATION ǀ 55
(6)
Amounts consist of incentive awards earned by our NEOs during fiscal year 2017 under the Performance‑Based Compensation Plan for covered employees.
 
(7)
Amounts represent the change in pension value for the Retirement Plan and Supplemental Benefit Retirement Plan.
 
(8)
Amounts reflect (i) employer contributions of $10,600 to Mr. Nersesian, Mr. Dougherty, Mr. Alexander, and Mr. Gasparian’s accounts with Keysight Technologies, Inc. 401(k) Plan in fiscal year 2017, as well as $122,536 to Mr. Gooi for the Malaysia defined contribution plan; (ii) $21,815 for Mr. Nersesian and $17,676 for Mr. Dougherty for services incurred from The Ayco Company, LP, financial counseling provider, (iii) travel expenses of $11,000 for Mr. Nersesian, $11,981 for Mr. Dougherty, $7,494 for Mr. Alexander, $6,676 for Mr. Gasparian and $50 for Ms. Mayer for use of Keysight drivers and vehicles for personal travel, as well as $30,019 for Mr. Gooi as an annual car and gasoline allowance, (iv) relocation services of $536,528 to Mr. Gooi for his main office relocation from Malaysia to Singapore and to reimburse him for personal income taxes resulting from the relocation, (v) Club Membership fees of $326 for Mr. Gooi, (vii) $900 for Mr. Nersesian and Mr. Dougherty, as well as $650 for Mr. Alexander and Mr. Gasparian for employer contribution to a health savings account and (viii) $5,268 for Mr. Nersesian and $4,035 for Mr. Dougherty for a full physical exam.
 
(9)
Amounts included for Mr. Gooi, with the exception of stock awards and option awards, are shown in U.S. Dollars but were paid to him in Malaysian Ringgit. To convert the amounts paid to U.S. Dollars, we used exchange rate as of the last business day of the applicable fiscal year (for fiscal year 2017 amounts, an exchange rate of 4.233126461 Malaysian Ringgits per U.S. Dollar).
 
(10)
Ms. Mayer resigned effective December 1, 2017 and as a result, did not earn a short-term incentive cash award, vest in any of her equity awards or receive any severance benefits.

The following table itemizes the full grant date fair value of equity awards granted to our NEOs during fiscal year 2017 in accordance with FASB ASC Topic 718 for the “Stock Awards” and “Option Awards” columns of the “Summary Compensation Table”.
 
Long-Term Incentive Awards
   
Total FY17 Expense
 
Total FY16 Expense
 
Total FY15 Expense
Name
 
Stock
Awards
 
Option
Awards
 
Restricted
Stock
Unit Awards
 
Stock
Awards
 
Option
Awards
 
Restricted
Stock
Unit
Awards
 
Stock
Awards
 
Option
Awards
 
Restricted Stock
Unit
Awards
Ronald S. Nersesian
 
$3,970,788
 
$0
 
$2,486,115
 
$2,576,288
 
$0
 
$3,450,597
 
$2,545,536
 
$2,609,247
 
$6,173,168
Neil Dougherty
 
$828,652
 
$0
 
$518,835
 
$566,762
 
$0
 
$540,178
 
$457,908
 
$469,401
 
$1,469,796
Jay Alexander
 
$690,519
 
$0
 
$432,345
 
$418,372
 
$0
 
$430,155
 
$296,755
 
$304,191
 
$389,473
Michael Gasparian
 
$697,484
 
$0
 
$436,666
 
$442,576
 
$0
 
$448,086
 
$309,551
 
$317,300
 
$1,294,873
Soon Chai Gooi
 
$986,112
 
$0
 
$617,410
 
$669,806
 
$0
 
$676,566
 
$465,594
 
$477,266
 
$1,028,836
Bethany Mayer
 
$1,158,358
 
$0
 
$772,239
 
N/A
 
N/A
 
N/A
 
N/A
 
N/A
 
N/A

FASB ASC Topic 718 Assumptions
 
The following table sets forth the weighted average FASB ASC Topic 718 assumptions used in the calculation of the stock awards and option awards presented in the “Summary Compensation Table” and in the tables above. For all periods presented, the fair values of share‑based awards for employee stock options were estimated using the Black‑Scholes option pricing model, while awards granted under the LTP Program were valued using a Monte Carlo simulation. The estimated fair values of restricted stock unit awards were determined based on the closing price of Keysight’s common stock on the date of grant. Prior to separation, the fair value of awards was determined based on the market price of Agilent’s common stock on the date of grant, adjusted for expected dividend yield.

   
Years Ended October 31,
 
   
2017
   
2016
   
2015
 
Stock Option Plans:
           
Weighted average risk‑free interest rate
   
-
     
-
     
1.60%
 
Dividend yield
   
-
     
-
     
-
 
Weighted average volatility
   
-
     
-
     
31%
 
Expected life
   
-
     
-
   
4.9 yrs
 
LTPP:
                       
Volatility of Keysight shares
   
27%
   
25%
 
   
26%
 
Volatility of selected index/peer group
   
15%
 
   
14%-54%
 
   
17%-67%
 
Price‑wise correlation with selected peers
   
57%
 
   
38%
 
   
38%
 
 

EXECUTIVE COMPENSATION ǀ 56
Fiscal Year 2017 Grants of Plan‑Based Awards in Last Fiscal Year
 
The following table sets forth certain information regarding grants of plan‑based awards to each of our NEOs during fiscal year 2017. For more information, please refer to the “Compensation Discussion and Analysis” above.
 
 
 
   
All Other Stock
Awards: Number of Shares of Stock or
Units
Grant Date
Fair Value of Stock
Awards
Name
Grant Date
Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards (1)
Estimated Future Payouts Under Equity Incentive Plan Awards (2)
Threshold
Target
Maximum
Threshold
Target
Maximum
($)
($)
($)
(#)
(#)
(#)
(#)(3)
($)(4)
                   
Ronald S. Nersesian
11/15/2016
$329,063
$658,125
$1,316,250
         
 
5/17/2017
$329,063
$658,125
$1,316,250
         
 
11/15/2016
     
10,965
43,859
87,718
 
$1,725,000
 
11/15/2016
     
26,538
53,076
106,152
 
$1,725,000
 
11/15/2016
           
70,769
$2,486,115
 
 
               
Neil Dougherty
11/15/2016
$106,250
$212,500
$425,000
         
 
5/17/2017
$106,250
$212,500
$425,000
         
 
11/15/2016
     
2,228
9,153
18,306
 
$360,000
 
11/15/2016
     
5,538
11,076
22,152
 
$360,000
 
11/15/2016
           
14,769
$518,835
 
 
               
Jay Alexander
11/15/2016
$90,000
$180,000
$360,000
         
 
5/17/2017
$90,000
$180,000
$360,000
         
 
11/15/2016
     
1,907
7,627
15,254
 
$300,000
 
11/15/2016
     
4,615
9,230
18,460
 
$300,000
 
11/15/2016
           
12,307
$432,345
 
 
               
Michael Gasparian
11/15/2016
$110,000
$220,000
$440,000
         
 
5/17/2017
$110,000
$220,000
$440,000
         
 
11/15/2016
     
1,926
7,627
15,408
 
$303,000
 
11/15/2016
     
4,662
9,323
18,646
 
$303,000
 
11/15/2016
           
12,430
$436,666
                   
Soon Chai Gooi
11/15/2016
$83,217
$166,433
$332,866
         
 
5/17/2017
$87,118
$174,235
$348,470
         
 
11/15/2016
     
2,723
10,982
21,784
 
$428,400
 
11/15/2016
     
6,591
13,181
26,362
 
$428,400
 
11/15/2016
           
17,575
$617,410
 
 
               
Bethany Mayer
5/17/2017
$168,000
$700,000
$1,050,000
         
 
5/17/2017
     
7,653
15,306
30,162
 
$570,000
 
5/17/2017
     
-
15,306
15,306
 
$570,000
 
5/17/2017
           
20,408
$772,239
 
(1)
Reflects the value of the threshold, target and maximum potential cash payout established for fiscal year 2017 pursuant to the Keysight’s Performance‑Based Compensation Plan. The maximum payout is capped at 200% of target. Actual payout amounts under this plan are disclosed in the “Summary Compensation Table.”
 
(2)
Reflects the threshold, target and maximum number of shares that could be earned with respect to PSUs. Actual payout of these awards, if any, will be in the form of Keysight common stock determined by the Compensation Committee after the end of the performance period depending on whether the performance criteria set forth in Keysight’s LTP Program were met, subject to the applicable NEO being employed through such determination date or being retirement eligible. With the exception of Ms. Mayer, in fiscal 2017, on November 15, 2016, each NEO received TSR PSUs and OM PSUs, which will be paid out, if at all, following the completion of the fiscal year 2017 through fiscal year 2019 performance period. Each NEO’s TSR PSUs will be measured and paid out based on the performance of Keysight’s common stock as measured against the relative TSR of the S&P 400 Index and each NEO’s OM PSUs will be measured and paid out based on improving profitability as measured by Non-GAAP OM. Please see section “Long-Term Incentives” for greater detail regarding the TSR and OM PSU grants made to NEOs in fiscal 2017. Ms. Mayer’s PSUs were granted on May 17, 2017 and would have been paid out, if at all, following the completion of a one-year performance period. 50% of Ms. Mayer’s PSUs would have been measured and paid out based on the achievement of certain cost synergies in order to increase Keysight’s earnings per share and the remaining 50% would have been measured and paid out based on the successful integration of Ixia over the nine-month period following the close of the acquisition.
 
(3)
Reflects the number of shares subject to time-based RSUs, which vest annually over four years from the grant date, subject to the applicable NEO being employed through the applicable vesting date or being retirement eligible, except in the case of Ms. Mayer’s RSUs, which would have vested in full on April 30, 2018.
 
(4)
Reflects the aggregate grant date fair values of the RSUs and PSUs, computed in accordance with FASB ASC Topic 718.
 

EXECUTIVE COMPENSATION ǀ 57
Outstanding Equity Awards at Fiscal Year‑End

The following table provides information on the holdings of stock options, performance‑based stock awards and restricted stock units by our NEOs as of October 31, 2017.
 
Outstanding Equity Awards at Fiscal Year 2017 Year End
 
       
Option Awards(1)
 
Restricted Stock
Units Awards
 
Performance Stock
Units Awards
  
Name
 
Grant
Date
 
Number of Securities
Underlying Unexercised
Options (#)
 
Option
Exercise
Price ($)
 
Option
Vesting
Date
 
Option
Expiration
Date
 
 
Number
of
Shares
or Units
of
Stock
That
Have
Not
Vested
(#)(2)
 
 
Market
Value of
Shares or
Units That
Have Not
Vested
($)(3)
 
 
Number of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested (#)
 
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
($)(3)(4)
 
Exercisable
 
Unexercisable
Ronald S.
 
11/20/2013*
 
162,366
 
54,123
 
$29.83
 
11/20/2014
 
11/20/2023
 
-
 
-
 
-
 
-
Nersesian
 
11/18/2014
 
141,818
 
141,819
 
$31.00
 
11/18/2015
 
11/17/2024
 
-
 
-
 
-
 
-
   
11/20/2013*
 
-
 
-
 
-
 
-
 
-
 
17,965
 
$802,506
 
-
 
-
   
11/5/2014
 
-
 
-
 
-
 
-
 
-
 
66,580
 
$2,974,129
 
-
 
-
   
11/17/2015
 
-
 
-
 
-
 
-
 
-
 
45,405
 
$2,028,241
 
-
 
-
   
11/15/2016
 
-
 
-
 
-
 
-
 
-
 
69,105
 
$3,086,920
 
-
 
-
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