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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No    )
Filed by the Registrant  
Filed by a Party other than the Registrant  
Check the appropriate box:
 
Preliminary Proxy Statement
 
Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
 
Definitive Proxy Statement
 
Definitive Additional Materials
 
Soliciting Material under
§240.14a-12
KLA Corporation
 
 
(Name of Registrant as Specified in its Charter)
 
      
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check all boxes that apply):
 
  No fee required.
  Fee paid previously with preliminary materials.
  Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules
14a-6(i)(1)
and
0-11.
LOGO
 
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LOGO


Table of Contents

LOGO

 

 

Cautionary Statement Regarding Forward-Looking Statements

This proxy statement contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact may be forward-looking statements. You can identify these and other forward-looking statements by the use of words such as “may,” “will,” “could,” “would,” “should,” “expects,” “plans,” “anticipates,” “relies,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “continues,” “thinks,” “seeks,” or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements. Forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements, including unexpected delays, difficulties, and expenses in executing against our environmental, climate, diversity and inclusion or other Environmental, Social, and Governance (ESG) targets, goals and commitments outlined in this document, including, but not limited to, our efforts to reduce our greenhouse gas emissions, as well as changes in laws or regulations affecting us, such as changes in cybersecurity, data privacy, environmental, safety and health laws, and other risks as disclosed in our most recent annual report on Form 10-K and other filings with the Securities and Exchange Commission (the “SEC”). You are cautioned not to place undue reliance on these forward-looking statements, and we expressly assume no obligation and do not intend to update the forward-looking statements in this report after the date hereof. In addition, some of the statements contained in this proxy statement may rely on third-party information and projections that management believes to be reputable; however, we do not independently verify or audit this information, and any inaccuracies or deviations in such information and projections may materially impact our ability to execute on our strategy, achieve our goals, or otherwise adversely impact our business.

This proxy statement contains ESG-related statements based on hypothetical scenarios and assumptions as well as estimates that are subject to a high level of uncertainty, and these statements should not necessarily be viewed as being representative of current or actual risk or performance, or forecasts of expected risk or performance. In addition, historical, current, and forward-looking environmental and social-related statements may be based on standards for measuring progress that are still developing, and internal controls and processes that continue to evolve. Forward-looking and other statements in this report may also address our corporate responsibility and sustainability progress, plans, and goals, and the inclusion of such statements is not an indication that these matters are necessarily material for the purposes of complying with or reporting pursuant to the U.S. federal securities laws and regulations, even if we use the word “material” or “materiality” in this report. Certain of our disclosures are informed by various third-party frameworks, in addition to stakeholder expectations. However, we cannot guarantee strict adherence to framework recommendations, and our disclosures based on these frameworks may change due to revisions in framework requirements, availability of information, changes in our business or applicable governmental policy, or other factors, some of which may be beyond our control. In addition, non-financial information, such as that included in parts of this proxy statement, is subject to greater potential limitations than financial information, given the methods used for calculating or estimating such information. Historical, current, and forward-looking environmental and social-related statements are also based on standards and metrics, as well as standards for the preparation of any underlying data for those metrics, that are still developing and internal controls and processes that continue to evolve. For example, we note that standards and expectations regarding greenhouse gas (GHG) accounting and the processes for measuring and counting GHG emissions and GHG emission reductions are evolving, and it is possible that our approaches both to measuring our emissions and to reducing emissions and measuring those reductions may be, either currently by some stakeholders or at some point future, considered inconsistent with common or best practices with respect to measuring and accounting for such matters, and reducing overall emissions. While these are based on expectations and assumptions believed to be reasonable at the time of preparation, they should not be considered guarantees. If our approaches to such matters are perceived fall out of step with common or best practice, we may be subject to additional scrutiny, criticism, regulatory and investor engagement or litigation, any of which may adversely impact our business, financial condition, or results of operations. Separately, the standards and performance metrics used, and the expectations and assumptions they are based on, have not, unless otherwise expressly specified, been verified by us or any third party.

Website references throughout this document are provided for convenience only, and the content on the referenced websites is not incorporated by reference into this document.

 

LOGO  | 2023 Proxy Statement


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LOGO

 

i

 

LOGO Notice of Annual Meeting of

    Stockholders

September 21, 2023

To our stockholders:

YOUR VOTE IS IMPORTANT    

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the “Annual Meeting”) of KLA Corporation (“KLA,” “we,” “us,” “our” or the “Company”), a Delaware corporation, will be held on Wednesday, November 1, 2023, at 12:00 p.m. PDT, in the Plus Building of our Milpitas headquarters, located at One Technology Drive, Milpitas, California 95035, for the following purposes:

 

1.

To elect the ten candidates nominated by our Board of Directors (the “Board”) to serve as directors for one-year terms, each until his or her successor is duly elected and qualified.

 

2.

To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2024.

 

3.

To approve on a non-binding, advisory basis our named executive officer compensation.

 

4.

To approve on a non-binding, advisory basis the recommended frequency of future stockholder votes to approve our named executive officer compensation.

 

5.

To approve our 2023 Incentive Award Plan.

 

6.

To transact such other business as may properly come before the Annual Meeting or any adjournment thereof.

The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice.

Only stockholders of record at the close of business on September 8, 2023, are entitled to notice of, and to vote at, the Annual Meeting and any adjournment or postponement thereof. A complete list of such stockholders will be open to the examination of any stockholder for a period of ten days prior to the Annual Meeting for a purpose germane to the Annual Meeting at the Company’s offices at One Technology Drive, Milpitas, California 95035.

For admission to the Annual Meeting, stockholders should come to the stockholder check-in table. Those who hold shares of our common stock in their own names should provide identification and have their ownership verified against the list of registered stockholders as of the close of business on the record date, September 8, 2023. Those who have beneficial ownership of stock through a broker, bank or other nominee must bring account statements or letters from the broker, bank or other nominee indicating that they owned our common stock as of the close of business on the record date, September 8, 2023. To vote at the meeting, those who have beneficial ownership of stock through a broker, bank or other nominee must bring a legal proxy, which can be obtained only from the broker, bank or other nominee.

 

 

  Sincerely,

 

    
  LOGO     

 

LOGO

 

Richard P. Wallace

President and Chief Executive Officer

Milpitas, California

 

 

 

 

 

   

                    

 

 

 

 

This Notice of Annual Meeting of Stockholders, Proxy Statement and form of proxy are being made available electronically and mailed on or about September 21, 2023.

 

 

All stockholders are cordially invited to attend the Annual Meeting in person; however, regardless of whether you expect to attend the Annual Meeting in person, we encourage you to vote as soon as possible. You may vote by proxy over the Internet or by telephone, or, if you received paper copies of the proxy materials by mail, you can also vote by mail by following the instructions on the proxy card or voting instruction card. Voting over the Internet, by telephone or by written proxy or voting instruction card will ensure your representation at the Annual Meeting regardless of whether you attend in person.

 

 

LOGO  | 2023 Proxy Statement


Table of Contents

LOGO

 

ii | Table of Contents

 

LOGO Table of Contents

 

1  

Proxy Summary

3

 

Fiscal Year 2023 Performance Highlights

4  

Proposal One: Election of Directors

5

 

Information About the Board of Directors and its Committees

5  

Board Leadership Structure

5  

The Board’s Role in Oversight of Risk

6  

Audit Committee

7  

Compensation and Talent Committee

7

 

Risk Considerations in Our Compensation Programs

8  

Nominating and Governance Committee

8  

Evaluation of Director Candidates

8  

Majority Vote Policy

8  

Director Qualifications and Diversity

10  

Director Nominee Skills Matrix

11  

Board Diversity Matrix

12

 

Nominees for Election at the 2023 Annual Meeting

20  

Director Compensation

23  

Our Corporate Governance Practices

23

 

Adopting and Maintaining Governance Standards

23  

Monitoring Board Effectiveness

23

 

Conducting Formal Independent Director Sessions

23  

Hiring Outside Advisors

23  

Avoiding Conflicts of Interest

23  

Communications with the Board

24

 

Standards of Business Conduct; Whistleblower Hotline and Website

24  

Ensuring Auditor Independence

24

 

Compensation and Talent Committee Interlocks and Insider Participation

24  

Stockholder Nominations to the Board

24  

Majority Vote Policy

24  

Stockholder Outreach

24  

Insider Trading Policy

25  

Environmental, Social and Governance (ESG)

30  

Proposal Two: Ratification of Appointment of PricewaterhouseCoopers LLP as Our Independent Registered Public Accounting Firm for the Fiscal Year Ending June 30, 2024

30  

Audit Committee Recommendation

30  

Attendance at the Annual Meeting

31  

Fees

31  

Pre-Approval Policies and Procedures

31

 

Independence Assessment by Audit Committee

32

 

Proposal Three: Approval of Our Named Executive Officer Compensation

33  

Information About Executive Officers

37

 

Security Ownership of Certain Beneficial Owners and Management

37  

Principal Stockholders

38  

Directors and Management

39

 

Executive Compensation and Other Matters

39  

Compensation Discussion and Analysis

39  

Executive Summary

39  

Fiscal Year 2023 Highlights

 

 

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LOGO

 

iii

 

40  

Multi-Year Growth

42

 

KLA’s Executive Compensation Program at a Glance

42

 

Compensation and Talent Committee Decision Making – Approval Procedures Overview and Market Data

45

 

Key Pay Practices in Our Executive Compensation Program and Last Year’s “Say on Pay” Vote

46  

Elements of Compensation

47  

CEO Compensation at a Glance

47  

Base Salary

47

 

Short-Term Executive Incentive Bonus Plan

51  

Long-Term Incentives

55  

Employee Benefits and Perquisites

58

 

Compensation and Talent Committee Report

59  

Executive Compensation Tables

59  

Summary Compensation Table

62  

Grants of Plan-Based Awards

64

 

Outstanding Equity Awards at Fiscal Year End

66  

Option Exercises and Stock Vested

66  

Nonqualified Deferred Compensation

68

 

Potential Payments Upon Termination or Change in Control

73  

Pay Ratio Disclosure

76

 

Certain Relationships and Related Transactions

77

 

Equity Compensation Plan Information

78  

Report of the Audit Committee

79

 

Proposal Four: Approval of the Frequency of Future Stockholder Votes to Approve our Named Executive Officer Compensation

80

 

Proposal Five: Approval of our 2023 Incentive Award Plan

86  

Questions and Answers

92

 

Information for KLA Annual Meeting of Stockholders on November 1, 2023, 12:00 p.m. PDT

 

 

Helpful Resources

Annual Meeting

Proxy Statement & Annual Report

Board of Directors

Investor Relations

Environmental Social Governance (ESG)

Governance Documents

Corporate governance documents and policies, including:

     LOGO    Corporate Governance Standards

     LOGO    Committee Charters

     LOGO    Standards of Business Conduct

 

 

LOGO  | 2023 Proxy Statement


Table of Contents

LOGO

 

1

 

LOGO Proxy Summary

This summary does not contain all of the information you should consider when casting your vote. You should read the complete Proxy Statement before voting.

 

 

 

 

ANNUAL MEETING OF STOCKHOLDERS

 

    
 

LOGO

  

Time and Date

 

12:00 p.m. PDT November 1, 2023                        

  LOGO   

Place

 

One Technology Drive, Milpitas,

California 95035

  LOGO   

Record Date

 

Close of business on September 8, 2023    

 
                
 

 

STOCKHOLDER VOTING MATTERS

 

 

    
   

Proposal

     Board’s Voting
Recommendation
       Page
Reference
     
 

 

LOGO

  

Election of 10 Directors Named in this Proxy Statement

      

LOGO FOR

Each Nominee

 

 

       4    
 

 

LOGO

  

Ratification of Appointment of our Independent Registered Public Accounting Firm

       LOGO FOR          30    
 

 

LOGO

  

Advisory Vote to Approve Named Executive Officer Compensation

       LOGO FOR          32    
 

 

LOGO

  

Frequency of Future Stockholder Votes to Approve our Named Executive Officer Compensation

      

LOGO FOR

Every Annual Meeting

 

 

       79    
 

 

LOGO

  

Approval of our 2023 Incentive Award Plan

       LOGO FOR          80    
                

 

LOGO  | 2023 Proxy Statement


Table of Contents

LOGO

 

2  | Proxy Summary

 

OUR DIRECTORS

 

Nominee and Principal
Occupation
          Director
Since
 

Current Other Public Company Boards

  LOGO  Committees*  LOGO
  Independent       Age       AC   CTC   NGC

Robert Calderoni

Former Chairman and Interim President and Chief Executive Officer of Citrix Systems, Inc.

  Yes   63   2007  

LOGO  Ansys, Inc.

      🌑  

Chair

Jeneanne Hanley

Former Senior Vice President and President of E-Systems Division of Lear Corporation

  Yes   50   2019  

LOGO  QuantumScape Corporation

      🌑    

Emiko Higashi

Founder of Tohmon Capital Partners, LLC

  Yes   64   2010  

LOGO  Takeda Pharmaceutical Company

LOGO  Rambus, Inc.

  🌑        

Kevin Kennedy

Chairman of Quanergy Systems, Inc.

  Yes   67   2007  

LOGO  Digital Realty Trust, Inc.

LOGO  Quanergy Systems, Inc.

  🌑       🌑

Michael McMullen

President and Chief Executive Officer of Agilent Technologies, Inc.

  Yes   61   2023  

LOGO  Agilent Technologies, Inc.

      🌑    

Gary Moore

Former Executive Chairman and Chief Executive Officer of ServiceSource International, Inc.

  Yes   74   2014  

LOGO  None

      Chair   🌑

Marie Myers

Chief Financial Officer of HP, Inc.

  Yes   55   2020  

LOGO  F5 Networks, Inc.

 

Chair

      🌑

Kiran Patel**

Former Executive

Vice President

and General

Manager, Small

Business Group of Intuit, Inc.

  Yes   75   2008  

LOGO  None

  🌑        

Victor Peng

President, Adaptive, Embedded, and AI Group of Advanced Micro Devices, Inc.

  Yes   63   2019  

LOGO  None

      🌑    

Robert Rango

Former President and Chief Executive Officer of Enevate Corporation

  Yes   65   2014  

LOGO  Keysight Technologies, Inc.

LOGO  Microchip Technology, Inc.

  🌑        

Richard Wallace

President and Chief Executive Officer of KLA Corporation

  No   63   2006  

LOGO  Splunk, Inc.

           

* As of September 8, 2023

** Mr. Patel is not standing for re-election at the Annual Meeting

AC = Audit Committee                 CTC = Compensation and Talent Committee                 NGC = Nominating and Governance Committee

 

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LOGO

 

3

 

GOVERNANCE HIGHLIGHTS

 

 

LOGO

 

Board and Governance Information*

                

Size of the Board

   10   Independent Chair    Yes

Number of Independent Directors

   9   Proxy Access    Yes

Average Age of Directors

   62.5   Stockholder Action by Written Consent    No

Average Tenure of Directors

   9.1 years   Stockholder Ability to Call Special Meeting    No

Annual Election of Directors

   Yes   Poison Pill    No

Women

   30%   Stock Ownership Guidelines for Directors and Executive Officers    Yes

Ethnic/Racial Diversity

   20%   Anti-Hedging and Pledging Policies    Yes

Majority Voting in Director Elections

   Yes   Clawback Policy    Yes

* The information in this table reflects only the directors nominated

LOGO Fiscal Year 2023

    Performance Highlights

(Dollars in thousands)

 

Total revenues

 

$10,496,056

 

 

LOGO 13.9% from FY22

       

Net income attributable to KLA

 

$3,387,277

 

 

LOGO 2.0% from FY22

       

Dividends and stock
repurchases

 

$2,044,420

 

 

LOGO 62.9% from FY22

 

LOGO  | 2023 Proxy Statement


Table of Contents

LOGO

 

4  | Proposal One: Election of Directors

 

LOGO Proposal One: Election of

    Directors

NOMINEES

Ten incumbent directors are nominated for election at the Annual Meeting. The Nominating and Governance Committee, consisting solely of independent directors as determined under the rules of the NASDAQ Stock Market, recommended the nominees listed in this Proposal One. Based on that recommendation, the members of the Board resolved to nominate such individuals for election.

Information regarding the business experience, qualifications, attributes and skills of each nominee is provided below under the section entitled “Nominees for Election at the 2023 Annual Meeting.”

There are no family relationships among our executive officers and directors.

The ten candidates nominated by the Board for election as directors by the stockholders are:

 

     LOGO   Robert Calderoni;  

     LOGO   Gary Moore;

     LOGO   Jeneanne Hanley;  

     LOGO   Marie Myers;

     LOGO   Emiko Higashi;        LOGO   Victor Peng;
     LOGO   Kevin Kennedy;        LOGO   Robert Rango; and
     LOGO   Michael McMullen;        LOGO   Richard Wallace.

If elected, each nominee will serve as a director for a one-year term expiring at our 2024 annual meeting of stockholders. Each director will hold office until his or her successor is duly elected and qualified, or until his or her death, resignation or removal. If any nominee declines to serve or becomes unavailable for any reason, or a vacancy occurs before the election, the proxies may be voted for such substitute nominees as the Board may designate. As of the date of this Proxy Statement, the Board is not aware of any nominee who is unable or who will decline to serve as a director.

VOTE REQUIRED AND RECOMMENDATION

Under our bylaws, in any uncontested election of directors (an election in which the number of nominees does not exceed the number of directors to be elected), any nominee who receives a greater number of votes cast “FOR” his or her election than votes cast “AGAINST” his or her election will be elected. In accordance with our bylaws, the Nominating and Governance Committee has established procedures under which any director who is not elected shall offer to tender his or her resignation to the Board following certification of the stockholder vote. The Nominating and Governance Committee, composed entirely of independent directors, will consider the offer of resignation and recommend to the Board the action to be taken. The Board will take action on the recommendation, and we will publicly disclose the Board’s decision and the rationale behind it, within 90 days following certification of the stockholder vote. In making their respective decisions, the Nominating and Governance Committee and Board will take into consideration all factors they deem relevant. The director who tenders his or her resignation will not participate in the decisions of the Nominating and Governance Committee or the Board regarding his or her resignation.

 

LOGO    The Board unanimously recommends a vote “FOR” each of the director nominees, with the Directors who are nominees abstaining with respect to their own nomination.

 

LOGO  | 2023 Proxy Statement


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LOGO

 

5

 

LOGO Information About the

    Board of Directors and its

    Committees

THE BOARD OF DIRECTORS

Our Board held a total of four meetings during the fiscal year ended June 30, 2023. All directors other than Mr. Wallace are independent within the meaning of the NASDAQ Stock Market director independence standards.

The Board has three standing committees: the Audit Committee, the Compensation and Talent Committee, and the Nominating and Governance Committee. Each committee is comprised entirely of independent directors, meets regularly and has a written charter approved by the Board, all of which are available on our website at http://ir.KLA.com, along with our Standards of Business Conduct, Corporate Governance Standards and other governance-related information. The Board and each committee regularly review the committee charters. In addition, at each quarterly Board meeting, a member of each committee reports on any significant matters addressed by the committee.

During the fiscal year ended June 30, 2023, each of the incumbent directors attended at least 75% of the aggregate of the total number of meetings (a) of the Board held during the period for which such person served as a director and (b) held by all Board committees on which such director served (during the periods that such director served).

Although we do not have a formal policy mandating attendance by members of the Board at our annual meetings of stockholders, we do have a formal policy encouraging their attendance at such meetings. All of the directors serving on our Board at the time attended last year’s annual meeting of stockholders.

Board Leadership Structure

KLA currently separates the positions of Chief Executive Officer and Chairman of the Board. Since November 2022, Robert Calderoni, one of our independent Directors, has served as our 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 the Board; presiding at executive sessions; facilitating and conducting, with the Nominating and Governance Committee, the annual self-assessments by the Board and each standing committee of the Board; and conducting, with the Compensation and Talent Committee, a formal evaluation of the Chief Executive Officer in the context of compensation reviews.

Separating the positions of Chief Executive Officer and Chairman of the Board allows our Chief Executive Officer to focus on our day-to-day business, while allowing the Chairman of the Board to lead the Board in its fundamental role of providing advice to and independent oversight of management. The Board believes that having an independent director serve as Chairman of the Board is the appropriate leadership structure for KLA at this time.

However, our Corporate Governance Standards permit the roles of the Chairman of the Board and the Chief Executive Officer to be filled by the same or different individuals. This provides the Board with flexibility to determine whether the two roles should be combined in the future based on our needs and the Board’s assessment of our leadership from time to time. Our Corporate Governance Standards provide that, in the event the Chairman of the Board is not an independent Director, the independent members of the Board will designate a “lead independent director.”

The Board’s Role in Oversight of Risk

Our Board, as a whole and through its committees, has responsibility for the oversight of risk management. In its oversight role, our Board has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. The involvement of the Board in working with management to establish our business strategy at least annually is a key part of its oversight of risk management, its assessment of

 

LOGO  | 2023 Proxy Statement


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LOGO

 

6  | Information about the Board of Directors and its Committees

 

management’s appetite for risk and its determination of what constitutes an appropriate level of risk for KLA. In addition, the Board periodically conducts a comprehensive review of our overall risk environment and risk management efforts. The Board and its committees also regularly receive updates from management (including representatives of our legal and internal audit teams) regarding certain risks that we face, including industry, business, macroeconomic, litigation, cybersecurity and other operating risks.

While our Board is ultimately responsible for risk oversight, our Board has delegated to the Audit Committee the primary responsibility for the active oversight of our enterprise risk management activities. Our Audit Committee is not only responsible for overseeing risk management of financial matters, the adequacy of our risk-related internal controls, financial reporting and internal investigations, and cybersecurity, but its charter also provides that the Audit Committee will discuss at least annually KLA’s risk assessment, enterprise risk management processes and major financial risk exposures, as well as the steps our management has taken to monitor and control those exposures. Our Audit Committee reports its findings and activities to the Board at each quarterly Board meeting.

In addition, our other Board committees each oversee certain aspects of risk management. Our Compensation and Talent Committee oversees risks related to our compensation and human capital policies and practices, and our Nominating and Governance Committee oversees governance-related risks, such as Board independence, environmental, social and governance (“ESG”) matters, conflicts of interest and management and director succession planning. The Committees report their findings and activities to the Board.

While the Board is responsible for risk oversight, management is responsible for risk management. KLA maintains an effective internal controls environment and has processes to identify and manage risk, including an executive risk council comprised of representatives from our legal, human resources, finance, global operations, internal audit, procurement, and risk and compliance teams. This council reports to our Chief Executive Officer and has oversight of the various risk assessment, monitoring and controls processes across the Company.

The ten nominees currently serve on the committees of the Board indicated in the following table:

 

Director

   Audit   

Compensation and

Talent

  

Nominating and

Governance

Robert Calderoni

           Chair

Jeneanne Hanley

            

Emiko Higashi

            

Kevin Kennedy

          

Michael McMullen

            

Gary Moore

        Chair   

Marie Myers

   Chair        

Victor Peng

            

Robert Rango

            

Richard Wallace

              

AUDIT COMMITTEE

Current Members: Kevin Kennedy, Marie Myers (Chair), Kiran Patel and Robert Rango.

Meetings Held During Fiscal Year 2023: 8

Primary Responsibilities: The Audit Committee is responsible for appointing and overseeing the work of our independent registered public accounting firm, reviewing cybersecurity initiatives, approving the services performed by our independent registered public accounting firm, and reviewing and evaluating our accounting principles and system of internal accounting controls. In addition, the head of our Internal Audit function, who is supervised by our Chief Financial Officer, formally reports to the Audit Committee and provides updates at each quarterly meeting.

Independence: The Board has determined that each of the members of the Audit Committee meets the independence requirements (including the heightened requirements for Audit Committee members) of NASDAQ and under the rules and regulations of the SEC, and has no material relationship with KLA (including any relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment as a director) outside of their service on the Board and its committees.

 

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The Board has determined that each of Messrs. Kennedy and Patel and Ms. Myers is an “audit committee financial expert” within the meaning of the rules and regulations promulgated by the SEC.

Following the Annual Meeting, Ms. Myers will remain the Audit Committee Chair.

COMPENSATION AND TALENT COMMITTEE

Current Members: Robert Calderoni, Jeneanne Hanley, Emiko Higashi, Gary Moore (Chair) and Victor Peng.

Meetings Held During Fiscal Year 2023: 6

Primary Responsibilities: The Compensation and Talent Committee reviews and either approves or recommends to the Board (depending upon the compensation plan and the executive involved) our executive compensation policies and programs and administers our employee equity award plans. The Compensation and Talent Committee also reviews and, except with respect to our Chief Executive Officer and Chairman of the Board, has the authority to approve the cash and equity compensation for our executive officers and for members of the Board. The Compensation and Talent Committee also reviews our human capital initiatives. See “Compensation Discussion and Analysis—Compensation and Talent Committee Decision Making-Approval Procedures Overview and Market Data” for more information concerning the procedures and processes the Compensation and Talent Committee follows in setting such compensation and implementing the various cash and equity compensation programs in effect for such individuals, including the retention of an independent compensation consultant to provide relevant market data and advice.

Independence: The Board has determined that each of the members of the Compensation and Talent Committee meets the independence requirements (including the heightened requirements for Compensation and Talent Committee members) of NASDAQ and under the rules and regulations of the SEC, and has no material relationship with KLA (including any relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment as a director) outside of their service on the Board and its committees.

Following the Annual Meeting, Mr. Moore will remain the Compensation and Talent Committee Chair.

Risk Considerations in Our Compensation Programs

Our management conducted an extensive review and analysis of the design and operation of KLA’s compensation practices, policies and programs for all employees, including our NEOs (as that term is defined elsewhere in this Proxy Statement), to assess the risks associated with those practices, policies and programs. Our Compensation and Talent Committee has reviewed the results of that analysis, including underlying plan data and a risk assessment of significant elements of our compensation program. Based on this review and assessment, we and our Compensation and Talent Committee do not believe our compensation program encourages excessive or inappropriate risk-taking for the following reasons:

 

     LOGO      Our use of different types of compensation provides a balance of short-term and long-term incentives with fixed and variable components;
     LOGO      Our equity awards (including awards of performance-based restricted stock units (“PRSUs”), to the extent earned) typically vest over a four-year period, encouraging participants to look to long-term appreciation in equity values;
     LOGO      The metrics used to determine the amount of a participant’s bonus under our incentive bonus plans and the number of shares earnable under PRSUs focus on Company-wide measures such as Operating Margin Dollars and relative free cash flow margin, metrics that the Compensation and Talent Committee believes encourage the generation of profitable revenue and drive long-term stockholder value;
     LOGO      Our bonus plans impose caps on bonus awards to limit windfalls;
     LOGO      Our system of internal control over financial reporting, Standards of Business Conduct and whistleblower processes, among other things, are intended to reduce the likelihood of manipulation of our financial performance to enhance payments under our performance-based compensation plans; and
     LOGO      Our insider trading policy provides that our employees may not enter into hedging transactions involving our common stock (“Common Stock”), in an effort to prevent employees who receive equity awards from insulating themselves from the effects of changes in our stock price.

 

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NOMINATING AND GOVERNANCE COMMITTEE

Current Members: Robert Calderoni (Chair), Kevin Kennedy, Gary Moore, Marie Myers and Kiran Patel.

Meetings Held During Fiscal Year 2023: 4

Primary Responsibilities: The Nominating and Governance Committee is primarily responsible for identifying and evaluating the qualifications of all candidates for election to the Board, as well as reviewing corporate governance policies and procedures and assessing stockholder proposals related to governance matters. The Nominating and Governance Committee assesses the appropriate size and composition of the Board, the effectiveness of its leadership structure, and whether any vacancies on the Board are expected, and monitors our ESG initiatives.

Independence: The Board has determined that each of the members of the Nominating and Governance Committee meets the independence requirements of NASDAQ, and has no material relationship with KLA (including any relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment as a director) outside of their service on the Board and its committees.

Following the Annual Meeting, Mr. Calderoni will remain the Nominating and Governance Committee Chair.

Evaluation of Director Candidates

In the event that vacancies are anticipated, or otherwise arise, the Nominating and Governance Committee considers potential candidates that may come to its attention through current members of the Board, professional search firms, management, stockholders or other persons. In evaluating properly submitted stockholder recommendations, the Nominating and Governance Committee uses the evaluation standards discussed in further detail below and seeks to achieve a balance of knowledge, background, diversity, experience and capability on the Board.

It is the Nominating and Governance Committee’s policy to consider candidates for the Board recommended by, among other persons, stockholders who have owned at least one percent of our outstanding shares for at least one year and who state that they have an intent to continue as a substantial stockholder for the long term. Stockholders wishing to nominate candidates for the Board must notify our Corporate Secretary in writing of their intent to do so and provide us with certain information set forth in Article II, Section Eleven of our bylaws and all other information regarding nominees that is required to be provided pursuant to Regulation 14A of the Securities Exchange Act of 1934 (the “Exchange Act”), or as otherwise requested by the Nominating and Governance Committee.

Majority Vote Policy

We maintain a governance policy applicable to uncontested director elections (elections in which the number of nominees does not exceed the number of directors to be elected) requiring that directors receive majority support in such elections. Under our bylaws, in any uncontested director election, any nominee who receives a greater number of votes cast “FOR” his or her election than votes cast “AGAINST” his or her election will be elected. In accordance with our bylaws, the Nominating and Governance Committee has established procedures under which any director who is not elected shall offer to tender his or her resignation to the Board following certification of the stockholder vote. The Nominating and Governance Committee, composed entirely of independent directors, will consider the offer of resignation and recommend to the Board the action to be taken. The Board will take action on the recommendation, and we will publicly disclose the Board’s decision and the rationale behind it, within 90 days following certification of the stockholder vote. In making their respective decisions, the Nominating and Governance Committee and Board will take into consideration all factors they deem relevant. The director who tenders his or her resignation will not participate in the decisions of the Nominating and Governance Committee or the Board regarding his or her resignation.

Director Qualifications and Diversity

The Board believes that the skill set, backgrounds and qualifications of our directors, considered as a group, should provide a significant composite mix of diversity in experience, knowledge and abilities that will allow the Board to fulfill its responsibilities. In addition, the Board believes that there are certain attributes that every director should possess, such as demonstrated business or academic achievements, the highest ethical standards and a strong sense of professionalism. Accordingly, the Board and the Nominating and Governance Committee consider the qualifications of directors and director candidates individually and in the broader context of the Board’s overall composition and KLA’s current and future needs.

In considering candidates for director nomination, including evaluating any recommendations from stockholders as set forth above, the Nominating and Governance Committee considers candidates who have demonstrated executive

 

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experience or significant high-level experience in accounting, finance or a technical field or industry applicable to KLA. As set forth in our Corporate Governance Standards, the Nominating and Governance Committee takes into account all factors it considers appropriate when evaluating director candidates, which include strength of character, mature judgment, career specialization and the extent to which the candidate would fill a present need on the Board. In addition, with every candidate search, the Board considers the value of diversity and inclusion, and actively seeks candidates who will enhance the diversity and inclusiveness of the Board. With respect to new Board members, it is the standard practice of the Nominating and Governance Committee to engage a third-party recruiting firm to identify a slate of individuals for consideration as Board candidates based on the above-mentioned criteria. In nominating Mr. McMullen to the Board, the Nominating and Governance Committee had the assistance of an executive search firm which provided a list of potential candidates having the skill set, background and qualifications for a director sought by the Board.

In addition, the Nominating and Governance Committee annually reviews with the Board the appropriate skills and characteristics required of directors in the context of the current composition of the Board. In seeking a diversity of backgrounds, the Nominating and Governance Committee seeks a variety of occupational and personal backgrounds on the Board in order to obtain a range of viewpoints and perspectives. This annual assessment enables the Board to update the skills and experience it seeks in the Board as a whole, and in individual directors, as KLA’s needs evolve and change over time.

In evaluating director candidates, including incumbent directors for re-nomination to the Board, the Nominating and Governance Committee has considered all of the criteria described above. When assessing an incumbent director, the Nominating and Governance Committee also considers the director’s past performance on and contributions to the Board. Among other things, the Nominating and Governance Committee has determined that it is important to have individuals with the following skills and experiences on the Board:

 

     LOGO      Current or former executives who demonstrate strong leadership qualities and possess significant operating experience that together enable them to contribute practical business advice to the Board and management, strategies regarding change and risk management, and valuable insight into developing, implementing and assessing our operating plan and business strategy;
     LOGO      A deep understanding of the key issues relevant to technology companies, including specific knowledge regarding the semiconductor industry, which is vital in understanding and reviewing our business goals and challenges, as well as our product development and acquisition strategies;
     LOGO      Substantial international experience, which is particularly important given our global presence and the international nature of our customer base;
     LOGO      An understanding of finance and related reporting processes. In the case of members of our Audit Committee, we seek individuals with demonstrated financial expertise with which to evaluate our financial statements and capital structure;
     LOGO      Corporate governance experience obtained from service as Board members and/or executives for other publicly traded companies, which we believe results in a greater sense of accountability for management and the Board and enhanced protection of stockholder interests; and
     LOGO      A diverse background and viewpoint, including diversity with respect to race, ethnicity, gender, thought and areas of expertise.

 

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Director Nominee Skills Matrix

 

                                                                                                                                 

Director Nominee Skills Matrix (as of September 8, 2023)

  LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO

Public Company. Experience with reporting obligations, investor interaction, corporate securities rules, and public company governance.

                   

Global Business. Broad exposure to companies or organizations having a significant global presence, including developing and managing business in markets around the world, communicating in different cultures, and understanding different geopolitical situations.

                   

Corporate Governance. Adhering to bylaws and charters; experience in setting and adhering to corporate governance agenda for a board of directors; knowledge and understanding of governance planning, implementation and review processes; experience in encouraging management accountability and protecting stockholder interests.

             

  ¡    

Corporate Financing/Capital Allocation. Experience in making capital allocation decisions; experience in financing or capital markets transactions.

                   

Financial Expertise/Literacy. Experience in accounting or financial reporting, including understanding of internal controls; experience in overseeing such reporting and controls.

           

¡

   

¡

   

Information Services and Technology. Experience, knowledge and understanding of information services industry; significant experience with technology, science and innovation; basic knowledge of various IT solutions, experience in overseeing the implementation of such solutions and using such solutions to improve business performance; particular experience with social media and developing online platforms.

   

¡

                 

Legal/Public/Regulatory. Expertise in compliance with applicable governmental regulations; experience in legal and regulatory matters, corporate compliance and ethics policies; experience in managing the effects of government policies and regulations.

   

¡

 

¡

     

¡

   

¡

 

¡

 

Risk Management. Experience in the management of critical business and/or legal risk; understanding of risk management functions, including risk profiles and appetite statements, scenario planning, crisis management, risk identification/classification and similar functions; history of leadership roles in risk management across a number of organizations; ability to think strategically about risk across several organizations; ability to provide oversight and advice relating to risk.

     

¡

             

Business Operations. Experience managing supply chain risk and functionality; operating within and through economic cycles; ramping up and ramping down significant employee base; appropriate staffing decisions across numerous functions and operational channels.

                     

Business Development and Strategic Planning. Superior knowledge and understanding of business development, strategic planning, implementation, and review processes; experience in leading strategy discussion at the board level; experience in strategy development with more than one organization; strategic agenda-setting experience; experience with developing and implementing strategies for growth and/or downsizing, including mergers and acquisitions, joint ventures, and divestitures.

                   

Human Resource, Executive Compensation and Talent Management. Broad experience in executive development, performance, and compensation; experience with HR processes and strategies and efforts to attract, motivate, and retain candidates for key positions; experience in talent development, including developing diversity, equity, and inclusion in workforce.

     

¡

       

     

Cybersecurity/Data Privacy. Experience in overseeing and managing cybersecurity and data privacy risks; history of leadership roles in cybersecurity risk management; degrees, certifications, or other background in cybersecurity.

 

¡

     

¡

   

¡

     

¡

   

Industry. Experience in the semiconductor industry; perspective and knowledge of semiconductor-related information, including insight into the industry’s challenges and opportunities.

   

¡

     

¡

   

¡

     

 

        Denotes extensive experience, knowledge, and/or expertise and indicates a primary qualification supporting the Director’s nomination.    ¡      Denotes an area in which the Director nominee has demonstrated proficiency and indicates an ancillary qualification supporting the Director’s nomination.

 

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Board Diversity Matrix

The Board Diversity Matrix below depicts the gender and ethnic composition of our Board nominees:

 

Board Nominee Diversity Matrix (As of September 8, 2023)

Total Number of Directors:

  10            
  

 

  Female   Male   Non-Binary   Did Not Disclose Gender

Part I: Gender Identity

               

Directors

  3   7        

Part II: Demographic Background

               

African American or Black (not of Hispanic or Latinx origin)

               

Alaska Native or Native American

               

Asian

  1   1        

Hispanic or Latinx

               

Native Hawaiian or Pacific Islander

               

White (not of Hispanic or Latinx origin)

  2   6        

LGBTQ+

               

Did Not Disclose Demographic Background

               

Our Board and its Nominating and Governance Committee believe that all of the directors and nominees listed below are highly qualified and have the skills and experience required for service on our Board. Below is certain information with respect to our directors and nominees as of the date of this Proxy Statement, including, for each director and nominee, a biography and a summary of his or her significant experiences, qualifications and skills that are most pertinent to that individual’s service as a member of our Board.

 

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NOMINEES FOR ELECTION AT THE 2023 ANNUAL MEETING

 

Robert Calderoni   

 

   

 

LOGO

 

Director Since: 2007

 

Age: 63

 

Board Committees:

Compensation and Talent

Nominating and
Governance (Chair)

 

    

 

Background

 

Mr. Calderoni has more than 30 years of executive experience in the technology industry. He is the former Chairman and Interim President and Chief Executive Officer of Citrix Systems, Inc., retiring in December 2022. Mr. Calderoni was appointed Interim President and CEO at Citrix in October 2021. Mr. Calderoni was the Executive Chairman at Citrix from July 2015 to December 2018. From October 2015 to January 2016, Mr. Calderoni served as the interim Chief Executive Officer and President of Citrix. Prior to that, he was President of SAP AG’s cloud business following SAP’s October 2012 acquisition of Ariba, Inc., a leading provider of cloud software solutions where he served as Chairman and Chief Executive Officer. Prior to the acquisition, Mr. Calderoni served as Chief Executive Officer and a member of the Board of Directors of Ariba from October 2001 until the company was acquired, and he also served as Ariba’s Chairman of the Board of Directors from July 2003 until the acquisition date. Before becoming Chief Executive Officer of Ariba, Mr. Calderoni served as Ariba’s Chief Financial Officer from January 2001 to October 2001. Prior to joining Ariba, Mr. Calderoni was Chief Financial Officer at Avery Dennison Corporation, a global manufacturing company. He also held numerous senior financial executive positions at major technology companies, including Senior Vice President Finance at Apple Inc., and Vice President Finance at IBM.

 

As a former senior executive officer of Citrix, SAP and Ariba, Mr. Calderoni provides our Board with extensive and relevant leadership and international operations experience in the technology industry. In addition, Mr. Calderoni is well-qualified to serve as Chairman of the Board as a result of his over 20 years of experience as a finance executive, including his past service as the Chief Financial Officer of two publicly traded technology companies. As a Board member of one other public company, Mr. Calderoni also has familiarity with a range of corporate governance issues.

 

Other U.S. Public Company Boards:

 

    

Ansys, Inc. (since 2020)

Citrix Systems, Inc. (2014 to 2022)

    

Juniper Networks, Inc. (2003 to 2019)

Logmein, Inc. (2017 to 2020)

 

 

 

 

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Jeneanne Hanley   

 

   

 

LOGO

 

Director Since: 2019

 

Age: 50

 

Board Committees:

Compensation and Talent

 

    

 

Background

 

Ms. Hanley has held various positions at Lear Corporation, a designer and manufacturer of automotive seating systems and electrical distribution systems and related components, from 1994 until January 2019, most recently serving as Senior Vice President and President of the E-Systems Division. Other positions at Lear Corporation she has held include Corporate Vice President, Global Surface Materials, Corporate Vice President, Americas Seating Business Unit and Vice President, Global Strategy and Business Development. Ms. Hanley earned her bachelor’s degree in mechanical engineering in 1994 and her master’s degree in business administration in 2000 from the University of Michigan.

 

Ms. Hanley possesses significant operating and leadership skills, including extensive experience in electrical distribution systems and electronic modules used in the automotive industry. She offers significant experience pairing business strategy with organizational strategy in a complex global industry.

 

Other U.S. Public Company Boards:

 

QuantumScape Corporation (since 2021)

 

 

Emiko Higashi   

 

   

 

LOGO

 

Director Since: 2010

 

Age: 64

 

Board Committees:

Audit

 

    

 

Background

 

Ms. Higashi is a founder of Tohmon Capital Partners, LLC (formerly Tomon Partners, LLC), a strategy and M&A advisory firm based in San Francisco and primarily serving companies in technology- and healthcare-related fields since 2003. Ms. Higashi serves on the boards of Takeda Pharmaceutical Company Ltd. and Rambus, Inc. Prior to Tohmon Partners, she was a co-founder and Chief Executive Officer of Gilo Ventures, a technology-focused venture capital firm, from 2000 to 2002. Before that, Ms. Higashi spent 15 years in investment banking. After beginning her investment banking career at Lehman Brothers from 1985 to 1988, Ms. Higashi was a founding member of Wasserstein Parella and the head of that firm’s technology M&A business from 1988 to 1994, and subsequently served as a managing director in charge of Merrill Lynch’s global technology M&A practice from 1994 until 2000. Prior to her investment banking career, Ms. Higashi spent two years as a consultant at McKinsey & Co. in Tokyo, Japan. Ms. Higashi holds a Carnegie Mellon University Software Engineering Institute CERT Certificate for Cybersecurity Oversight.

 

As a result of her extensive career in technology-focused investment banking and finance, Ms. Higashi brings to the Board significant strategic, business development, mergers and acquisitions and financial experience related to the business and financial issues facing large global technology corporations, a comprehensive understanding of international business matters, particularly in Asia, and knowledge of the semiconductor industry. In addition, as a founder and partner of several consulting firms and a founding member of an investment banking firm, Ms. Higashi also possesses significant leadership and entrepreneurial experience.

 

Other U.S. Public Company Boards:

 

    

Takeda Pharmaceutical Company Ltd.
(since 2016)

Rambus, Inc. (since 2017)

    

One Equity Partners Open Water I Corp. (2021 to 2023)

 

 

 

 

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Kevin Kennedy   

 

   

 

LOGO

 

Director Since: 2007

 

Age: 67

 

Board Committees:

Audit

Nominating and

Governance

 

    

 

Background

 

Mr. Kennedy has served as Chairman of the Board of Directors of Quanergy Systems, Inc., a leading provider of LiDAR sensors, since March 2020. He previously served as the Chief Executive Officer of Quanergy from January 2020 to December 2022. In December 2022 Quanergy filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. From July 2018 through March 2020, Mr. Kennedy was a senior managing director at Blue Ridge Partners, a consulting firm that advises companies on accelerating profitable revenue growth. Prior to that, Mr. Kennedy most recently served as President, Chief Executive Officer and member of the Board of Directors of Avaya Inc., a leading global provider of business communications applications, systems and services, positions he held from January 2009 to October 2017. In January 2017, Avaya Inc. filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of New York. Prior to joining Avaya, Mr. Kennedy was Chief Executive Officer of JDS Uniphase Corporation, a provider of optical products and test and measurement solutions for the communications industry, from September 2003 to December 2008, also serving as JDS Uniphase’s President from March 2004 to December 2008. From 2001 to 2003, he served as Chief Operating Officer of Openwave Systems, Inc., a provider of software solutions for the communication and media industries. Previously, Mr. Kennedy spent nearly eight years at Cisco Systems, Inc. and 17 years at Bell Laboratories. In 1987, Mr. Kennedy was a Congressional Fellow to the U.S. House of Representatives on Science, Space and Technology. In January 2012, Mr. Kennedy was appointed to the President’s National Security Telecommunications Advisory Committee by former President Barack Obama. Mr. Kennedy holds a Carnegie Mellon University Software Engineering Institute CERT Certificate for Cybersecurity Oversight.

 

As a former senior executive at Avaya, JDS Uniphase, Quanergy and Openwave, Mr. Kennedy possesses a vast amount of leadership and operational experience with companies in high technology industries. Also, as the holder of a Ph.D. degree in engineering from Rutgers University, a member of President Obama’s National Security Telecommunications Advisory Committee, a former Congressional Fellow to the U.S. House of Representatives Committee on Science, Space and Technology, and the author of more than 30 papers on computational methods, data networking and technology management, Mr. Kennedy offers relevant expertise in a broad range of technology matters. Specifically, Mr. Kennedy has been associated with over 150 M&A transactions as part of building large and growing organizations. In addition, as a result of his experience on the Boards of Directors of several public companies, Mr. Kennedy offers our Board a deep understanding of corporate governance matters.

 

Other U.S. Public Company Boards:

 

    

Digital Realty Trust, Inc. (since 2013)

Quanergy Systems, Inc. (since 2020)

     Maxeon Solar Technologies, Ltd. (2020 to 2022)

 

 

 

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Michael McMullen   

 

   

 

LOGO

 

Director Since: 2023

 

Age: 61

 

Board Committees:

Compensation and Talent

 

    

 

Background

 

Mr. McMullen has served as Chief Executive Officer of Agilent Technologies (“Agilent”), a global leader in life sciences, diagnostics and applied chemical markets, providing application focused solutions that include instruments, software, services and consumables for the entire laboratory workflow, since 2015 and President since 2014. In his over twenty-year career at Agilent and its predecessor, Hewlett-Packard Company, Mr. McMullen held numerous leadership positions, including Chief Operating Officer from 2014 to 2015, and Senior Vice President, Agilent and President, Chemical Analysis Group from 2009 to 2014. Prior to that, he served in various capacities for Agilent, including Vice President and General Manager of the Chemical Analysis Solutions Unit of the Life Sciences and Chemical Analysis Group and Country Manager for Agilent’s China, Japan and Korea Life Sciences and Chemical Analysis Group. Prior to that, Mr. McMullen served as Controller for the Hewlett-Packard Company and Yokogawa Electric Joint Venture from 1996 to 1999. Mr. McMullen served as a member of the Board of Directors of Coherent, Inc. from 2018 to 2022.

 

As the current President and Chief Executive Officer of Agilent, Mr. McMullen brings to the Board extensive leadership experience, driving growth at a global scale in complex multinational equipment businesses. His experiences will provide valuable insight into challenges faced by a technology company with an international presence.

 

Other U.S. Public Company Boards:

 

    

Agilent Technologies, Inc. (since 2015)

Coherent, Inc. (2018 to 2022)

    

 

 

 

 

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Gary Moore   

 

   

 

LOGO

 

Director Since: 2014

 

Age: 74

 

Board Committees:

Compensation and Talent

(Chair)

Nominating and

Governance

 

    

 

Background

 

Mr. Moore retired in July 2022 from his position as the Chief Executive Officer of ServiceSource International, Inc., a global leader in outsourced, performance-based customer success and revenue growth solutions, a position he had held since December 2018. He also held the position of the Executive Chairman of ServiceSource International, Inc. since November 2018. Mr. Moore previously retired in July 2015 from his positions as President and Chief Operating Officer of Cisco Systems, Inc., a leading global provider of networking and other products and services related to the communications and information technology industry, positions he had held from October 2012 to July 2015. Mr. Moore first joined Cisco in October 2001 as Senior Vice President, Advanced Services, and, in August 2007, he also assumed responsibility as co-lead of Cisco Services. From May 2010 to February 2011, he served as Executive Vice President, Cisco Services, and he was Cisco’s Executive Vice President and Chief Operating Officer from February 2011 until October 2012 when he was named President and Chief Operation Officer. Immediately before joining Cisco, Mr. Moore served for approximately two years as Chief Executive Officer of Netigy Corporation, a network consulting company. Prior to that, he was employed for 26 years by Electronic Data Systems (“EDS”), where he held a number of senior executive positions, including as the President and Chief Executive Officer of joint venture Hitachi Data Systems from 1989 to 1992.

 

As the former Executive Chairman and Chief Executive Officer of ServiceSource and a former senior executive with Cisco and other global companies (including roles as Cisco’s President and Chief Operating Officer, the head of Cisco Services, the creator and manager of EDS’s e-solutions global business unit and the President and Chief Executive Officer of the EDS joint venture Hitachi Data Systems), Mr. Moore brings to the Board extensive leadership experience, as well as expertise in matters relating to international operations in the technology industry. Mr. Moore’s experience managing large-scale operations and growing businesses enables him to provide the Board and the Company with valuable advice and guidance regarding operational and strategic issues faced by global technology companies.

 

Other U.S. Public Company Boards:

 

Finjan Holdings, Inc. (2015 to 2020)

ServiceSource International, Inc. (2016 to 2022)

 

 

 

 

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Marie Myers   

 

   

 

LOGO

 

Director Since: 2020

 

Age: 55

 

Board Committees:

Audit (Chair)

Nominating and Governance

 

    

 

Background

 

Ms. Myers has served as Chief Financial Officer of HP Inc. since February 2021, previously serving as acting Chief Financial Officer from October 2020 to February 2021. She served as Chief Transformation Officer of HP Inc. from June 2020 to May 2021 and as Chief Digital Officer from March 2020 to June 2020. Ms. Myers served as the Chief Financial Officer of UiPath Inc. from December 2018 to December 2019. Prior to UiPath, Ms. Myers held various positions at HP Inc. and the Hewlett-Packard Company from 2001 to 2018, most recently serving as Global Controller. Other positions at Hewlett-Packard included Senior Finance Executive; Vice President for Finance Strategy, Sales and hp.com, Printing and Personal Systems Division; Head of Audit; Chief Financial Officer, Personal Systems Group; Vice President and Americas Controller; and Vice President and Chief Audit Officer. Ms. Myers held finance, audit and business operations positions at Compaq from 1997 until its acquisition by the Hewlett-Packard Company in 2001.

 

Ms. Myers’ extensive experience as a finance executive for a multinational technology company and experience managing the Internal Audit and financial operations functions brings an important and valuable perspective to our Board of Directors. Her experiences also provide valuable insight into challenges faced by a technology company with an international presence.

 

Other U.S. Public Company Boards:

 

F5 Networks, Inc. (since 2019)

 

 

Victor Peng   

 

   

 

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Director Since: 2019

 

Age: 63

 

Board Committees:

Compensation and Talent

 

    

 

Background

 

Mr. Peng has served as President, Adaptive, Embedded, and AI Group, of Advanced Micro Devices, Inc. (“AMD”), a developer of leadership high-performance and adaptive processor technologies, combining CPUs, GPUs, FPGAs, Adaptive SoCs and deep software expertise to enable leadership computing platforms for cloud, edge and end devices, after AMD completed its acquisition of Xilinx, Inc. in February 2022. From January 2018 to February 2022, Mr. Peng served as President and Chief Executive Officer of Xilinx. He served on the Xilinx board of directors from October 2017 to February 2022. From April 2017 to January 2018, Mr. Peng served as Xilinx’s Chief Operating Officer. From July 2014 to April 2017, he served as Executive Vice President and General Manager of Products. Prior to joining Xilinx, Mr. Peng served as Corporate Vice President, Graphics Products Group at AMD from November 2005 to April 2008. Prior to joining AMD, Mr. Peng served in a variety of executive engineering positions at companies in the semiconductor and processor industries.

 

As the current President, Adaptive, Embedded, and AI Group, of AMD, the former Chief Executive Officer of Xilinx and former member of its board of directors, and with his over 30 years of experience in the semiconductor industry, Mr. Peng provides our Board with extensive and relevant leadership and international operations experience.

 

Other U.S. Public Company Boards:

 

Xilinx, Inc. (2017 to 2022)

 

 

 

 

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18  | Information about the Board of Directors and its Committees

 

Robert Rango   

 

   

 

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Director Since: 2014

 

Age: 65

 

Board Committees:

Audit

 

    

 

Background

 

Mr. Rango retired in December 2022 from his position as President and Chief Executive Officer of Enevate Corporation, a company working on the development of next generation Lithium Ion (Li-ion) battery technology, after serving in those roles since May 2016. Prior to that, Mr. Rango served for over 12 years, from March 2002 to July 2014, as an executive at Broadcom Corporation, a leading fabless semiconductor company. He most recently served as Executive Vice President and General Manager of Broadcom’s Mobile and Wireless Group, a role he had held since February 2011. During his tenure with Broadcom, Mr. Rango held a number of senior management positions in the company’s Network Infrastructure Business Unit, Mobile and Wireless Group and Wireless Connectivity Group, including as Senior Vice President and General Manager, Wireless Connectivity Group from January 2006 to February 2010 and as Executive Vice President and General Manager, Wireless Connectivity Group from February 2010 to February 2011. From 1995 to 2002, Mr. Rango held several Vice President and General Manager positions at Lucent Microelectronics, a networking communications company, and Agere Systems, a leader in semiconductors and software solutions for storage, mobility and networking markets, in its Optical Access, New Business Initiatives and Modem/Multimedia Divisions. Mr. Rango holds a Carnegie Mellon University Software Engineering Institute CERT Certificate for Cybersecurity Oversight.

 

Mr. Rango possesses significant operating and leadership skills, including extensive experience in global semiconductor product marketing, development and sales. As a result of his past service as an operational executive and general manager of several large global organizations, Mr. Rango offers a vast understanding of mobile, wireless, semiconductor, optical, software and technology management, which enables him to make significant contributions as a member of our Board.

 

Other U.S. Public Company Boards:

 

Keysight Technologies, Inc. (since 2015)

Microchip Technology, Inc. (since 2023)

Integrated Device Technology, Inc. (2015 to 2019)

 

 

 

 

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Richard Wallace   

 

   

 

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Director Since: 2006

 

Age: 63

 

Board Committees:

None

 

    

 

Background

 

Mr. Wallace currently serves as our President and Chief Executive Officer. He has been our Chief Executive Officer since January 2006 and has also served as our President since November 2008. He began at KLA Instruments in 1988 as an applications engineer and has held various general management positions throughout his 35 years with us, including positions as President and Chief Operating Officer from July 2005 to December 2005, Executive Vice President of the Customer Group from May 2004 to July 2005, and Executive Vice President of the Wafer Inspection Group from July 2000 to May 2004. Earlier in his career, he held positions with Ultratech Stepper and Cypress Semiconductor. Mr. Wallace previously served as a member of the Board of Directors of SEMI (Semiconductor Equipment and Materials International), a prominent industry association, including as SEMI’s Chairman of the Board. He earned his bachelor’s degree in electrical engineering from the University of Michigan and his master’s degree in engineering management from Santa Clara University, where he also taught strategic marketing and global competitiveness courses after his graduation.

 

As our President and Chief Executive Officer and a KLA employee for 35 years, Mr. Wallace brings to the Board extensive leadership and semiconductor industry experience, including a deep knowledge and understanding of our business, operations and employees, the opportunities and risks faced by KLA, and management’s strategy and plans for accomplishing our goals. In addition, Mr. Wallace’s current service as a member of the Boards of Directors of KLA and Splunk, Inc., and his prior service as a member of the Boards of Directors of NetApp and Proofpoint give him a strong understanding of his role as a Director and a broad perspective on key industry issues and corporate governance matters.

 

Other U.S. Public Company Boards:

 

Splunk, Inc. (since 2022)

NetApp, Inc. (2011 to 2019)

Proofpoint, Inc. (2017 to 2021)

 

 

 

 

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20  | Information about the Board of Directors and its Committees

 

DIRECTOR COMPENSATION

Our Fiscal Year 2023 Director Compensation Program

Non-employee members of the Board (“Outside Directors”) receive a combination of equity and cash compensation as approved by the Compensation and Talent Committee (or, in the case of the compensation of the Chairman of the Board, as recommended by the Compensation and Talent Committee and approved by the Board). Equity compensation to Outside Directors is provided under our 2004 Equity Incentive Plan, which has been approved by our stockholders. Retainers and committee fees are paid in quarterly cash installments (unless the applicable director elects to defer such cash payments, as described below). The following table presents the key features of our fiscal year 2023 Outside Director compensation program:

 

COMPENSATION ELEMENT

 

  

FISCAL YEAR 2023 PROGRAM

 

Cash Compensation

 

  Standard annual cash retainer    $90,000
 

 

  Committee member additional annual cash retainers

  (including Committee Chair)

 

  

$15,000 for Audit Committee

$12,500 for Compensation and Talent Committee

$7,500 for Nominating and Governance Committee

 

 

 

  Committee Chair additional annual cash retainers

  

$30,000 for Audit Committee

$20,000 for Compensation and Talent Committee

$10,000 for Nominating and Governance Committee

 

 

  Annual cash retainer for non-executive Chairman

  (in lieu of standard retainer)

 

  

 

$130,000

 

  Reimbursement for reasonable meeting attendance

  expenses

  

 

Included

 

Equity Compensation

 

 

  Market value of standard restricted stock unit (“RSU”) award

  granted at annual meeting

   $220,000 (to be granted at the Annual Meeting); dividend equivalents payable upon vesting
 

  Market value of non-executive Chairman RSU award

  granted at annual meeting in lieu of standard RSU award

   $290,000 (to be granted at the Annual Meeting); dividend equivalents payable upon vesting
 

 

  Vesting period of Outside Director RSUs

   Awards vest in full annually; shares immediately issued upon vesting

Members of the Board do not receive any additional compensation for their services as directors. The Board will separately determine the compensation payable to Outside Directors for service on special purpose committees of the Board, if such committees are created.

If a new Outside Director joins the Board after the date of an annual meeting of stockholders, his or her first RSU award will be granted at the time or promptly after he or she joins the Board and will be prorated to take into account the period of time from the last annual meeting of stockholders to the date the new Outside Director joined the Board.

Under the Outside Director compensation program, the RSU awards granted to our Outside Directors are issued with “dividend equivalent” rights pursuant to our 2004 Equity Incentive Plan. Dividend equivalent rights entitle the recipient to receive credits, payable in cash, equal to the cash dividends that would have been received on the shares of our Common Stock had the shares subject to the RSUs been issued and outstanding on the dividend record date. The dividend equivalents are only payable to the recipient upon vesting and settlement of the underlying award.

 

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We have had in effect since 2008 a policy of providing prorated vesting acceleration of RSUs held by Outside Directors who are in good standing, whose service on the Board terminates before their RSUs are vested and who, at the time of termination, have served on the Board for six years.

In fiscal year 2024, the standard annual cash retainer for Outside Directors other than the Chairman of the Board was increased from $90,000 to $100,000 and the annual cash retainer for the Chairman of the Board was increased from $130,000 to $155,000. In addition, the market value of the standard RSU award granted to Outside Directors other than the Chairman of the Board was increased from $220,000 to $235,000. The market value of the standard RSU award granted to the Chairman of the Board remains at $290,000 for fiscal year 2024.

Deferred Compensation

Each Outside Director is entitled to defer all or a portion of his or her cash retainer pursuant to our Executive Deferred Savings Plan (“EDSP”), a nonqualified deferred compensation plan. Amounts credited to the EDSP may be allocated by the participant among a variety of investment funds. For further information regarding our EDSP, including the list of investment funds available under the EDSP during fiscal year 2023, please refer to the section of this Proxy Statement entitled “Compensation Discussion and Analysis - Nonqualified Deferred Compensation.” Of the current Outside Directors, only Ms. Myers and Mr. Patel participated in the EDSP during fiscal year 2023, though only Ms. Myers made new contributions during the fiscal year.

Matching Program

Since August 2014, Outside Directors have been able to participate in a gift matching program, under which the KLA Foundation will generally match, dollar-for-dollar, gifts by Outside Directors to qualifying tax-exempt institutions up to $10,000 per calendar year.

Stock Ownership Guidelines

We have adopted a policy, pursuant to which each Outside Director is expected to own a specified minimum number of shares of our Common Stock. Under our current policy, each Outside Director, once he or she has served as an Outside Director for at least four years, is expected to own shares of our Common Stock with a market value of at least five (5) times the standard annual cash retainer paid to the Outside Directors. Shares of Common Stock underlying outstanding RSUs held by the directors count toward this ownership requirement.

The table below sets forth as of September 8, 2023, the compliance with our stock ownership guidelines by the eight Outside Directors who have served for at least four years. Value is based on the closing price of our Common Stock on June 30, 2023 ($485.02). Ratio is equal to value divided by annual cash retainer.

 

Name

   Total
Shares
(#)(1)
     Value ($)      Ratio  

Robert Calderoni

     13,922        6,752,448        51.9x  

Jeneanne Hanley

     3,054        1,481,251        16.5x  

Emiko Higashi

     13,923        6,752,933        75.0x  

Kevin Kennedy

     6,989        3,389,805        37.7x  

Gary Moore

     14,185        6,880,009        76.4x  

Kiran Patel

     13,156        6,380,923        70.9x  

Victor Peng

     4,769        2,313,060        25.7x  

Robert Rango

     14,119        6,847,997        76.1x  

(1) Consists of: (i) shares owned, including shares indirectly owned by the Outside Directors through living trusts, and (ii) RSUs.

 

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22  | Information about the Board of Directors and its Committees

 

Director Compensation Table

The following table sets forth certain information regarding the compensation earned by or awarded to each Outside Director during fiscal year 2023. The table below does not include Mr. McMullen who became an Outside Director following the completion of fiscal year 2023:

 

Name

   Fees
Earned
or Paid
in Cash
($)(1)
     Stock
Awards
($)(2)
     Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings ($)(3)
     All Other
Compensation
($)(4)
     Total
($)
 

Edward Barnholt(5)

     80,000        -        -        3,275        83,275  

Robert Calderoni

     163,750        289,926        -        2,483        456,159  

Jeneanne Hanley

     102,500        219,944        -        2,483        324,927  

Emiko Higashi

     102,500        219,944        -        2,483        324,927  

Kevin Kennedy

     112,500        219,944        -        2,483        334,927  

Gary Moore

     128,125        219,944        -        2,483        350,552  

Marie Myers

     133,125        219,944        -        2,483        355,552  

Kiran Patel

     112,500        219,944        -        2,483        334,927  

Victor Peng

     102,500        219,944        -        2,483        324,927  

Robert Rango

     105,000        219,944        -        2,483        327,427  

(1) The amounts set forth in this column represent cash fees earned by each Outside Director during fiscal year 2023, regardless of whether the fees were actually paid during the fiscal year.

(2) The amounts shown represent the aggregate grant date fair value of RSUs awarded to each Outside Director during fiscal year 2023, computed in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 718, referred to in this Proxy Statement as ASC 718 (except that the fair values set forth above have not been reduced by the Company’s estimated forfeiture rate). The ASC 718 grant date fair value of each RSU award was calculated based on the fair market value of our Common Stock on the award date. For further discussion regarding the assumptions used in calculating the grant date fair value for RSUs, please refer to Note 1 to the Company’s consolidated financial statements in Item 8 of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023, filed with the SEC on August 4, 2023.

On November 2, 2022, each Outside Director then in office was granted an RSU award for 704 shares of our Common Stock (other than Mr. Calderoni who, as Chairman of the Board, received an RSU award for 928 shares, as described above under the heading “Our Fiscal Year 2023 Director Compensation Program”). The following table shows, for each Outside Director, the aggregate number of unvested shares of our Common Stock underlying all outstanding RSUs held by that Outside Director then in office as of June 30, 2023:

 

Name

   Aggregate Number of
Unvested Shares of
Common Stock
Underlying Director
RSU Awards as of
June 30, 2023
 

Robert Calderoni

     928  

Jeneanne Hanley

     704  

Emiko Higashi

     704  

Kevin Kennedy

     704  

Gary Moore

     704  

Marie Myers

     704  

Kiran Patel

     704  

Victor Peng

     704  

Robert Rango

     704  

(3) As noted above, of the current Outside Directors, only Ms. Myers and Mr. Patel participated in our EDSP during fiscal year 2023. We have concluded that, because the EDSP earnings correspond to the actual market earnings on a select group of investment funds available under the EDSP, no portion of the Outside Directors’ earnings under the EDSP is “above market” or “preferential.” Accordingly, we do not report any portion of the Outside Directors’ earnings under the EDSP in the Director Compensation Table. The investment earnings (loss) under the EDSP during fiscal year 2023 for the Outside Directors who participated in the EDSP were as follows: (a) Ms. Myers: $50,095; and (b) Mr. Patel: $42,327.

(4) Represents dividend equivalents paid upon the vesting of RSUs during fiscal year 2023.

(5) Mr. Barnholt served as an Outside Director through November 2, 2022.

 

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LOGO Our Corporate Governance

    Practices

At KLA, we believe that strong and effective corporate governance procedures and practices are an extremely important part of our corporate culture. In that spirit, we have summarized several of our corporate governance practices below.

ADOPTING AND MAINTAINING GOVERNANCE STANDARDS

The Board has adopted, and regularly reviews and updates as necessary, a set of Corporate Governance Standards to establish a framework within which it will conduct its business and to guide management in its running of the Company. The governance standards, portions of which are summarized below, can be found on our website at http://ir.KLA.com. We have posted information regarding our corporate governance procedures to help ensure the transparency of our practices.

MONITORING BOARD EFFECTIVENESS

It is important that our Board and its committees are performing effectively and in the best interests of KLA and our stockholders. The Board is responsible for annually assessing its effectiveness and the effectiveness of each of its committees in fulfilling their respective obligations, and each Committee is responsible for reviewing the Board’s assessment of that Committee’s effectiveness. In addition, our Nominating and Governance Committee is charged with overseeing an annual review of the Board and its membership. The standard practice of the Board is that Outside Directors will not stand for re-election after reaching the age of 75. However, upon the recommendation of the Nominating and Governance Committee, the Board may nominate director candidates who have reached the age of 75, if it determines that doing so is in the best interest of the Company. Board members are elected for one-year terms, and there is currently no limitation on the number of terms a director may serve.

CONDUCTING FORMAL INDEPENDENT DIRECTOR SESSIONS

At the conclusion of each regularly scheduled Board meeting, the independent directors meet in executive session without KLA management or any non-independent directors.

HIRING OUTSIDE ADVISORS

The Board and each of its committees may retain outside advisors and consultants of their choosing at our expense, without management’s consent.

AVOIDING CONFLICTS OF INTEREST

We expect our directors, executive officers and employees to conduct themselves with the highest degree of integrity, ethics and honesty. Our credibility and reputation depend upon the good judgment, ethical standards and personal integrity of each director, executive officer and employee. In order to provide assurances internally and to our stockholders, we have implemented Standards of Business Conduct that provide clear conflict of interest guidelines to our employees, as well as an explanation of reporting and investigatory procedures.

COMMUNICATIONS WITH THE BOARD

Stockholders may communicate with the Board by writing to us at KLA Corporation, Attention: Investor Relations, One Technology Drive, Milpitas, California 95035.

Stockholders who would like their submission directed to a member of the Board may so specify, and the communication will be forwarded, as appropriate.

 

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24  | Our Corporate Governance Practices

 

STANDARDS OF BUSINESS CONDUCT; WHISTLEBLOWER HOTLINE AND WEBSITE

The Board has adopted Standards of Business Conduct for all of our employees and directors, including our principal executive and senior financial officers, and we have prepared and made available versions of our Standards of Business Conduct translated into Chinese (Simplified and Traditional), Dutch, French, German, Hebrew, Italian, Japanese and Korean in an effort to maximize the accessibility and understandability of these important guidelines to our employees. You can obtain a copy of our Standards of Business Conduct via our website at http://ir.KLA.com, or by making a written request to us at KLA Corporation, Attention: Investor Relations, One Technology Drive, Milpitas, California 95035. We will make any required disclosures regarding amendments to, or waivers from, the Standards of Business Conduct on our website at the same address.

In addition, we have established a hotline and website for use by employees, as well as third parties such as vendors and customers, to report actual or suspected wrongdoing and to answer questions about business conduct. The hotline and website are both operated by an independent third party, which provides tools to enable individuals to submit reports in a number of different languages and, where permitted by law, on an anonymous basis.

ENSURING AUDITOR INDEPENDENCE

We have taken a number of steps to ensure the continued independence of our outside auditors. Our independent registered public accounting firm reports directly to the Audit Committee, which also has the ability to pre-approve or reject any non-audit services proposed to be conducted by the firm.

COMPENSATION AND TALENT COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During all or a portion of fiscal year 2023, Messrs. Barnholt, Calderoni, Moore and Peng and Mses. Hanley and Higashi served on the Compensation and Talent Committee. None of these individuals was an officer or employee of KLA at any time during fiscal year 2023 or at any other time. During fiscal year 2023, there was no instance in which an executive officer of KLA served as a member of the board of directors or compensation committee of any entity and an executive officer of that same entity served on our Board or Compensation and Talent Committee.

STOCKHOLDER NOMINATIONS TO THE BOARD

Please see “INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES—Nominating and Governance Committee.”

MAJORITY VOTE POLICY

Please see “INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES—Nominating and Governance Committee—Majority Vote Policy.”

STOCKHOLDER OUTREACH

During the year, we engage with our stockholders to better understand their views on matters they consider important, which varies by stockholder, but usually includes topics such as: agenda items for the annual meeting of stockholders; Board composition; business performance and strategy; corporate governance; and environmental, social and human capital management. We typically commence our outreach activities following the filing of our proxy statement. Stockholder outreach is led by our investor relations team, but often includes members of management, our legal and compliance team and occasionally one or more members of our Board. Stockholder concerns expressed in this outreach are summarized and communicated to the Board or one of its committees. Similar to previous years, during outreach sessions, certain stockholders generally expressed a desire to see more disclosure on our website regarding ESG matters. In 2023, we published our third global impact report covering our ESG strategy and the foundation of that strategy.

INSIDER TRADING POLICY

We have adopted a policy on insider trading and unauthorized disclosures that govern the purchase, sale, and other dispositions of our securities by our directors, officers, and employees that are reasonably designed to promote compliance with insider trading laws, rules, and regulations, and the listing standards of the NASDAQ Stock Market. Our policy on insider trading and unauthorized disclosures is filed as Exhibit 19.1 to our Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

 

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Environmental, Social and Governance (ESG)

KLA is built on a foundation of innovative spirit and perseverance—traits we believe are essential to solving tough challenges. Our high-performance teams tackle difficult problems with the belief that our collective creativity and intellect will deliver on our customers’ goals. This past year was no exception, and despite a series of global challenges in the second half of 2022, we advanced our ESG goals, with a sustained focus on progress, people and partnerships. While KLA’s core approach to business has long included a focus on continuous innovation for the greater good, in 2020, we centralized our ESG activities under the leadership of an enterprise-wide ESG Steering Committee. This committee comprises leaders from across the business who create and drive strategies, cross-functional programs, and initiatives to achieve our ESG goals. To promote dialogue between management and the Board for engagement and prioritization of ESG issues, the ESG Steering Committee receives oversight from the Nominating and Governance Committee. The Nominating and Governance Committee is responsible for monitoring KLA’s policies, programs and results related to environmental stewardship, corporate citizenship, human rights, and other social and public matters of significance to KLA and regularly receives updates from and engages with management. ESG oversight was added to the Nominating and Governance Committee’s charter in 2021, in response to input from our stakeholders.

ADVANCING STEWARDSHIP

KLA is focused on responding to the climate challenges facing our world. In addition to the climate goals we announced for our global operations in 2022, we are working to make the microprocessor manufacturing process more efficient (and thus sustainable) through our core business, creating new products and services that can help companies reduce waste, conserve natural resources and reduce their environmental footprint.

We have made important strides in updating and improving our greenhouse gas (GHG) inventory baseline and achieving limited third-party verification across Scopes 1, 2 and 3 of our inventory including renewable energy use. We have also announced that we are submitting our climate goals to the Science Based Target Initiative (SBTi) including a quantifiable Scope 3 reduction target alongside our existing Scope 1 and Scope 2 emissions goals and are continuing to challenge ourselves to find new ways to fulfill our mission of being positive stewards and living our values.

Climate and energy:

We are taking action through our climate goals—reducing Scope 1 and 2 emissions by 50% by 2030 (from 2021 baseline) and achieving net zero Scope 1 and 2 emissions by 2050—building on our previously announced goal of using 100% renewable energy by 2030. As reported in our 2022 Global Impact Report, we are on track toward achieving these goals.

Highlights:

 

     LOGO      Since 2018, we have continued to increase our procurement of electricity from carbon-free sources across our global operations year-over-year. In 2022, 55% of our electricity was sourced from renewable energy sources.

 

     LOGO      In 2021 and 2022, KLA conducted in-depth climate risk and opportunity assessments following the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD).

 

     LOGO      In 2022, we completed our first limited third-party verification of GHG inventory that extended across Scopes 1, 2 and 3 including the use of sold products.

 

     LOGO      Regarding Scope 3 emissions, we have developed a quantifiable emissions target which is being submitted for verification by the Science Based Target Initiative (SBTi) alongside our existing Scope 1 and Scope 2 emissions goals.

 

     LOGO      In 2022, we developed a strategy to engage our suppliers on their climate impacts. Beginning in 2023, we are engaging select suppliers to begin their ESG journey with KLA by disclosing key metrics and working toward climate goals covering their emissions.

Materials and waste:

KLA strives to reduce waste generation across our sites and support our customers in their responsible material management efforts. Within our ISO certified systems, KLA commits to pollution prevention, which begins with understanding the impact and cost of the waste generated by our business and taking steps to reduce our impact. We are committed to continuously improving our use of materials and reducing waste across our sites. Millions of pounds of recyclable materials have been diverted away from local landfills as a result of these efforts. Each KLA site has programs in place to achieve these objectives, from waste diversion processes in manufacturing to encouraging recycling and composting in our dining areas and breakrooms.

 

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Highlights:

 

     LOGO      On a normalized per-headcount basis, our total waste per person improved from 258.2 kgs in 2021 to 247.6 kgs in 2022.

 

     LOGO      Published a global waste and water policy.

Water management:

Water is a shared natural resource that is vital to KLA and its surrounding communities. We acknowledge our role in stewarding local water resources and strive to adopt innovative approaches across our locations to reduce our water usage and reliance on sources of fresh water. Just as we help our customers reduce their water usage, KLA aims to improve water conservation at our own manufacturing sites, with emphasis in locations facing water scarcity and drought conditions.

Highlights:

 

     LOGO      Municipal water usage improved on a normalized per-headcount basis from 6,404 gallons per person in 2021 to 5,884 gallons per person in 2022.

 

     LOGO      We completed a water risk assessment for our Super Sites using the Aqueduct Water Risk Atlas and WWF Water Risk Filter. We performed this analysis to determine which of our water-intensive sites may be exposed to near-term and long-term water-related risks. The assessment will guide future efforts to identify and implement water reduction initiatives at sites identified to be at risk of water stress.

ADVANCING OPPORTUNITY

We believe our impact is powered by our people. That is why we embrace our responsibility to lead through exceptional training programs and professional development and making sure our employees feel included, safe, healthy and empowered to bring their full selves to work.

Inclusion and diversity:

At KLA, Inclusion & Diversity (I&D) is a shared aspiration, commitment and responsibility—and a direct expression of our core values. We celebrate the diversity of our employees, customers and partners, and we are committed to fostering a culture of conscious inclusion.

Highlights:

 

     LOGO      KLA ranked 38th out of 400 companies on the Forbes “World’s Top Female-Friendly Companies 2022” list.

 

     LOGO      In 2022, as part of our Inclusion for All campaign, we strengthened our I&D trainings to promote inclusive behavior. We conducted over 20 employee training sessions focused on inclusive leadership, identity and belonging and unconscious bias and increased our reach globally.

 

     LOGO      To strengthen our culture of inclusion, we continue to increase the number of employee resource groups at our sites. These are voluntary groups of employees who have a common interest in helping KLA achieve its inclusion and diversity goals.

 

     LOGO      Demonstrating our commitment to creating a more diverse workforce, KLA signed the CEO Action for Diversity & Inclusion pledge and joined the Alliance for Global Inclusion in 2022.

 

     LOGO      We continue to prioritize I&D as a key focus area of the KLA Foundation, focusing on our mission to advance humanity by investing in our communities to help create a more equitable, inclusive and accessible world. We aligned our strategic pillars of education, wellness and community enrichment with six of the UN Sustainable Development Goals, including 4-Quality Education, 5-Gender Equality and 10-Reduced Inequities.

 

     LOGO      At KLA, we value I&D throughout our organization and supply chain. We are working to grow an inclusive and diverse global supply chain, that drives innovation and partners with us in advancing humanity through KLA technologies and services.

Talent development:

Our competitive advantage is our people and the technology they develop, so we invest in KLA’s future by fully supporting their personal and professional growth. Our talent development programs focus on developing the unique attributes of our employees through comprehensive training offerings, employee engagement programs, and health and wellness activities.

 

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Highlights:

 

     LOGO      KLA has been included in Training Magazine’s Top 10 Hall of Fame for the past 16 years.

 

     LOGO      We support continued learning through tuition reimbursement. Through our partnerships with Stanford University and the University of Michigan, employees can pursue advanced degrees in engineering that are customized for KLA and the skills/competencies required to support our customers.

 

     LOGO      Our Corporate Learning Center offers extensive training programs that are among the best in the technology industry.

 

     LOGO      In 2022, we achieved a 79% internal rate of promotion at the VP level, which is a testament to our efforts in promoting internal mobility.

 

     LOGO      In 2022, 68 leaders participated in our Enterprise Leadership Program, a comprehensive, two-year management training program that provides robust succession planning to prepare KLA employees to fill future leadership roles.

Health and safety:

Our employees are the lifeblood of our business. That is why their health and safety are always our priority.

Highlights:

 

     LOGO      In 2022, we continued to expand and enhance our health and safety standards globally, along with our Environmental Health & Safety (EHS) team, with the aim of formalizing a consistent governance structure and establish a strong EHS presence across all regions to facilitate site-specific considerations.

 

     LOGO      In 2022, KLA employees completed more than 38,000 hours of health and safety training—more than triple the hours completed in 2021. KLA provides comprehensive training to ensure a consistent approach to employee health and safety across our global locations.

 

     LOGO      In 2022, our U.S. Total Recordable Incident Rate was 0.28, which is below our industry average of 0.80, based on U.S. Department of Labor Bureau of Labor Statistics 2021 Injury and Illness Rates.

Community engagement:

The KLA Foundation’s mission is to advance humanity by investing in our communities to create a more equitable, inclusive and accessible world. The KLA Foundation and KLA employees around the world play an active role in supporting the communities where we live and work through financial support, volunteerism and program facilitation. The KLA Foundation focuses its efforts on three strategic pillars: Education, Wellness and Community Enrichment.

Highlights:

 

     LOGO      In 2022, the KLA Foundation made $4.9 million in direct grants and $1.9 million in employee match funding grants for a total of $6.8 million in community giving.

 

     LOGO      Through its Social Equity Fund, since 2020 the KLA Foundation has invested in organizations that remove barriers to access and provide opportunities for underrepresented communities. In 2022, these organizations included Out in Tech, Facing History and Ourselves, Hispanic Foundation of Silicon Valley, the African Diaspora Network and Year Up. We also granted $75,000 to the National American Red Cross for engaging Black and African American blood donors to help combat sickle cell disease.

 

     LOGO      KLA employees worldwide volunteered to serve their local communities. In collaboration with employees in Milpitas, California, Ann Arbor, Michigan and the nonprofit Science is Elementary (SiE), the KLA Foundation helped deliver innovative, high-quality science experiences to 7,500 preschool and elementary school children. The SiE series of short books features children from diverse backgrounds using science to solve problems. Children learn that they can think like scientists and become scientists.

 

     LOGO      The KLA Foundation’s STEM Inspectors: Searching for Defects in the Microscopic World is helping students around the world see the invisible (to the naked eye). As part of its commitment to help advance science, technology, engineering and mathematics (STEM) education in 2022, the KLA Foundation distributed paper microscopes to more than 1,600 students in Wales, Israel, California and Arizona.

 

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28  | Our Corporate Governance Practices

 

Supply Chain Stewardship:

As a global company, we are committed to continue aligning our supply chain strategy with our broader ESG goals around Advancing Humanity. We seek out suppliers who share our strong values, treat their employees with dignity, respect and fairness, and meet the strict requirements in our Standards of Business Conduct to promote a supply chain free from any human trafficking and labor violations.

Highlights:

 

     LOGO      We expanded inclusion and diversity transparency across our supply chain.

 

     LOGO      Suppliers are required to adhere to KLA’s Standards of Business Conduct as well as our Global Human Rights Standard, which is aligned with the Responsible Business Alliance (RBA) Code of Conduct.

 

     LOGO      We continued to achieve our goal to get 85% of our targeted suppliers to participate in the annual RBA Facility Supplier Assessment Questionnaire, which assesses the supplier’s compliance to the RBA Code of Conduct.

 

     LOGO      In 2022, we initiated the development of a strategy to engage suppliers in setting their own climate-related targets and addressing climate-related risks in the supply chain. This strategy is now in execution with select suppliers.

ADVANCING INNOVATION

We tackle our customers’ most complex problems through significant investment in research and development (“R&D”), collaborative teams and a passion for excellence.

Product innovation and sustainability:

The nature of KLA’s business and involvement in technological advancements requires us to continue to innovate and heavily invest in R&D to deliver for our customers. Our customers are constantly challenged to increase their production yield, reduce waste and meet their own profitability and sustainability goals. KLA solutions make this possible by allowing manufacturers to innovate and produce chips faster, more sustainably and at a lower cost.

Highlights:

 

     LOGO      In fiscal year 2022, our R&D spending was 12% of total revenue.

 

     LOGO      We completed an evaluation of product energy efficiency and began developing a Scope 3 GHG emissions strategy, including near-term targets covering emissions from the use of our products. As noted earlier, this target is being submitted to the Science Based Target Initiative (SBTi) for validation along with our existing climate goals.

 

     LOGO      In 2022, KLA introduced several new products and product enhancements that helped advance the sustainability goals and manufacturing strategies of our customers. A few examples:

 

       LOGO      The new Orbotech Corus 8M doublesided direct imaging (DI) system released in 2022. Manufacturers use DI technology to produce advanced PCBs and IC substrates designed with extremely thin conductors and transmission lines. The result for customers is the ability to produce the accurate, super-fine features required by high-performance applications like smartphones and smartwatches with greater efficiency, quality and yield.

 

       LOGO      The Teron SL670e and Teron SL670e XP reticle inspection defect systems are used by chip manufacturers to qualify incoming EUV reticles or periodically requalify EUV reticles. By detecting yield-critical defects on reticles before they are used, the Teron SL670e and SL670e XP systems help prevent yield loss, thereby reducing wafer scrap and rework.

 

       LOGO      The Axion® T2000 metrology system uses X-rays to measure vertical memory structures along the entire height, identifying small variations that can affect final chip performance or yield. By implementing Axion T2000 measurements in R&D, ramp and production, chip manufacturers can reduce cycles of learning and identify process issues early, increasing yield and reducing scrap.

 

     LOGO      KLA continues to deliver solutions and support to the growing silicon carbide (SiC) and gallium nitride (GaN) power device market that enables advances in electric vehicles and other green technologies.

Protecting intellectual property:

At KLA, we have been a part of the most significant technological breakthroughs in our industry. Protecting the intellectual assets that we create and manage every day enables the innovations that advance humanity tomorrow.

 

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Highlights:

 

     LOGO      We aim to ensure that the technologies we use to secure our digital environment are operational and running more than 99% of the time in any calendar month.

 

     LOGO      We have developed need-to-know and data classification systems to help employees recognize and protect intellectual property. The need-to-know campaign aims to get employees to think more about how and with whom they share information, while the data classification system is a visual way to identify and protect information.

Protecting against cybersecurity threats:

Recent years have brought unique challenges that highlight the importance of keeping our data safe. Around the globe, the switch to hybrid and remote work has led to a huge influx of phishing emails, malware and ransomware at companies across every industry. At KLA, we responded aggressively to these challenges.

Highlights:

 

     LOGO      Our KLA Security Operations Center monitors our digital environment 24/7 to help protect our data.

 

     LOGO      We have introduced key technologies that give us more visibility holistically across our environment—significantly reducing the time needed to detect and contain incidents.

 

     LOGO      We have a culture of open reporting. We want people to feel like they can come to us, ask questions and report concerns.

ADVANCING LEADERSHIP

Our solutions move industries forward, but our people make it happen. We empower today’s leaders—and tomorrow’s—by infusing our foundational values into everything we do. At the heart of this is strong business ethics, corporate governance, and corporate culture.

Business ethics and compliance:

Working ethically and complying with our legal obligations are central to the way we conduct business. At KLA, we continuously strive to create and maintain an ethical and legally compliant culture where everyone is aligned around our value systems, policies and procedures. That means regularly assessing our risk and adjusting our approach as needed.

Highlights:

 

     LOGO      KLA’s Chief Compliance Officer updates the Board’s Audit Committee and the CEO’s staff on a quarterly basis on current and emerging issues.

 

     LOGO      We monitor employee compliance with KLA policies through our Annual Compliance Disclosure process, which targets over 3,000 employees and asks them to certify compliance with specific aspects of KLA’s Standards of Business Conduct and disclose any instances of non-compliance.

 

     LOGO      Our Values in Action (“VIA”) training provides guidance on our values and business ethics. In 2021, we launched VIA training to over 1,000 KLA leaders at the director level and above. In 2022, we updated the training for wider distribution, creating online modules that are rolling out to employees as required training based on their roles and responsibilities.

Corporate governance:

Governance and Ethics at KLA is more than policymaking or having the right systems in place to establish the rights of our people and the responsibilities of our leadership. We view Governance and Ethics as an opportunity to continuously embrace our core values, build trust and live up to our stakeholders’ expectations.

Highlights:

 

     LOGO      ESG oversight was added to the Nominating and Governance Committee’s charter in 2021.

 

     LOGO      The Board approved changes to the Compensation and Talent Committee charter to include oversight of human capital policies and practices, including I&D, and the Audit Committee now reviews cybersecurity initiatives quarterly.

 

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30  | Proposal Two: Ratification of Appointment of PricewaterhouseCoopers LLP as Our Independent Registered Public Accounting

       Firm for the Fiscal Year Ending June 30, 2024

 

LOGO Proposal Two: Ratification of

    Appointment of

    PricewaterhouseCoopers

    LLP as Our Independent

    Registered Public

    Accounting Firm for the

    Fiscal Year Ending June 30,

    2024

AUDIT COMMITTEE RECOMMENDATION

The Audit Committee has the sole authority to retain or dismiss our independent auditors. The Audit Committee has appointed PricewaterhouseCoopers LLP, an independent registered public accounting firm, to audit our consolidated financial statements for our fiscal year ending June 30, 2023. Before making its determination, the Audit Committee carefully considered that firm’s qualifications as independent auditors.

The Board, following the Audit Committee’s determination, unanimously recommends that the stockholders vote for ratification of such appointment.

Although ratification by stockholders is not required by law, the Board has determined that it is desirable to request approval of this appointment by the stockholders. If the stockholders do not ratify the appointment of PricewaterhouseCoopers LLP, the Audit Committee may reconsider such appointment.

ATTENDANCE AT THE ANNUAL MEETING

A representative of PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting with the opportunity to make a statement if he or she desires to do so, and is expected to be available to respond to appropriate questions.

 

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FEES

The aggregate fees billed by PricewaterhouseCoopers LLP, KLA’s independent registered public accounting firm, in fiscal years 2023 and 2022 were as follows:

 

Services Rendered/Fees

   2023 ($)        2022 ($)  

Audit Fees(1)

     5,870,892          6,280,316  

Audit-Related Fees(2)

     21,163          41,552  

Total Audit and Audit-Related Fees

     5,892,055          6,321,868  

Tax Compliance

     879,821          1,130,875  

Tax Planning and Consulting

     323,915          209,413  

Total Tax Fees(3)

     1,203,736          1,340,288  

All Other Fees(4)

     5,400          5,400  

(1) Represents professional services rendered for the audits of annual financial statements set forth in our Annual Reports on Form 10-K for fiscal years 2023 and 2022, the review of quarterly financial statements included in our Quarterly Reports on Form 10-Q filed during fiscal years 2023 and 2022, services related to statutory and regulatory filings or engagements, and audits of new systems/processes. Fiscal year 2022 also includes fees for audit services pertaining to bond offerings and accelerated share repurchase agreements.

(2) Represents audits of employee benefit plans and audits of government-sponsored research and development program grant spending.

(3) Represents tax services for U.S. and foreign tax compliance, planning and consulting.

(4) Represents license fees related to accounting research software.

PRE-APPROVAL POLICIES AND PROCEDURES

The Audit Committee has adopted a policy regarding non-audit services provided by PricewaterhouseCoopers LLP. First, the policy ensures the independence of our auditors by expressly naming all services that the auditors may not perform and reinforcing the principle of independence regardless of the type of service. Second, certain non-audit services, such as tax-related services and acquisition advisory services, are permitted but limited in proportion to the audit fees paid. Third, the Audit Committee pre-approves non-audit services not specifically permitted under this policy (or subsequently ratifies such services in circumstances where ratification is necessary and permissible), and the Audit Committee reviews the annual plan and any subsequent engagements. All non-audit fees were approved by the Audit Committee pursuant to its pre-approval policies and procedures.

INDEPENDENCE ASSESSMENT BY AUDIT COMMITTEE

Our Audit Committee considered and determined that the provision of the services provided by PricewaterhouseCoopers LLP as set forth herein is compatible with maintaining PricewaterhouseCoopers LLP’s independence and approved all non-audit related fees and services.

VOTE REQUIRED AND RECOMMENDATION

If a quorum is present, the affirmative vote of the majority of votes cast is needed to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm, to audit our consolidated financial statements for our fiscal year ending June 30, 2024.

 

LOGO

   The Board unanimously recommends a vote “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2024.

 

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32  | Proposal Three: Approval of our Named Executive Officer Compensation

 

LOGO Proposal Three: Approval of

    Our Named Executive

    Officer Compensation

BACKGROUND

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, enables KLA’s stockholders to vote to approve, on a non-binding advisory basis, the compensation of our NEOs as disclosed in the “Compensation Discussion and Analysis” section, the Summary Compensation Table and the other related tables and disclosures in this Proxy Statement (the “Say on Pay Vote”). This vote is required pursuant to Section 14A of the Exchange Act. The Board has determined, consistent with the feedback from our stockholders, that we will hold this vote every year and, accordingly, we expect that our next Say-on-Pay Vote (following our Annual Meeting) will occur at the annual meeting of stockholders to be held in 2024. However, we are asking our stockholder to vote at the Annual Meeting on a non-binding advisory basis on the recommended frequency of future Say-on-Pay Votes and the Board expects to take the outcome of such vote into consideration in determining the frequency of our future Say-on-Pay Votes.

As described in greater detail under the heading “Compensation Discussion and Analysis,” we seek to closely align the interests of our NEOs with the interests of our stockholders by focusing on a philosophy of “pay-for-performance.” Our compensation programs are designed to support our business goals and to promote both short-term and long-term financial and strategic achievement.

We urge stockholders to read the “Compensation Discussion and Analysis” section of this Proxy Statement, which describes in more detail how our executive compensation policies and procedures operate and are designed to achieve our compensation objectives, and the Summary Compensation Table and other related compensation tables and disclosure in this Proxy Statement, which provide detailed information on the compensation of our NEOs. The Compensation and Talent Committee and the Board believe that the policies and procedures articulated in the “Compensation Discussion and Analysis” are effective in achieving our goals and that the compensation of our NEOs as reported in this Proxy Statement has supported and contributed to our recent and long-term success.

NATURE OF VOTE; RECOMMENDATION

This vote is advisory and therefore not binding on KLA, our Board or the Compensation and Talent Committee. The vote on this resolution is not intended to address any specific element of compensation, but rather relates to the overall compensation of our NEOs, as described in this Proxy Statement in accordance with the compensation disclosure rules of the SEC.

Accordingly, we ask our stockholders to approve the following resolution at the Annual Meeting:

“RESOLVED, that KLA Corporation’s stockholders approve, on an advisory basis, the compensation of the NEOs, as disclosed pursuant to Item 402 of Regulation S-K in the Company’s Proxy Statement for the 2023 annual meeting of stockholders, pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure.”

While this advisory vote on executive compensation is non-binding, the Board and the Compensation and Talent Committee value the opinion of KLA’s stockholders and will carefully assess the voting results and consider the impact of such voting results on our compensation policies and decisions, as described in greater detail in the “Compensation Discussion and Analysis” section of this Proxy Statement.

VOTE REQUIRED

If a quorum is present, the affirmative vote of the majority of votes cast is required for advisory approval of this proposal.

 

LOGO    The Board unanimously recommends a vote “FOR” the approval of the compensation of our NEOs, as disclosed in this Proxy Statement.

 

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LOGO Information About Executive

    Officers

Set forth below are the names, ages and positions of the executive officers of KLA as of the Record Date.

 

Name

  Position   Age

 

Richard Wallace

 

 

LOGO

  President and Chief Executive Officer  

63

Please see “INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES—Nominees for Election at the 2023 Annual Meeting.”

 

Name

  Position   Age

Bren Higgins

 

 

LOGO

  Executive Vice President and Chief Financial Officer  

53

Bren Higgins has served as KLA’s Executive Vice President and Chief Financial Officer since August 2013. In this role, Mr. Higgins oversees and manages the Company’s finance operations and control processes, global manufacturing operations and investor relations functions. Prior to his promotion to Chief Financial Officer, Mr. Higgins oversaw the Company’s treasury and investor relations functions and supported its business development efforts in his role as Vice President of Corporate Finance from January 2012 to August 2013, and as Senior Director of Corporate Finance from August 2011 to January 2012. Before that, he served as the Company’s Senior Director of Financial Planning and Analysis from August 2008 to August 2011. Mr. Higgins has also held various financial and investor relations positions since he began his tenure at the Company in 1999, including multiple product division controller assignments and serving as Group Controller of the Company’s Wafer Inspection Group from 2006 to 2008. Mr. Higgins received his bachelor’s degree from the University of California at Santa Barbara and his master’s degree in business administration with a concentration in finance from the University of California at Davis.

 

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34  | Information About Executive Officers

 

Name

  Position   Age

Ahmad Khan

 

 

LOGO

  President, Semiconductor Process Control  

49

Ahmad Khan has served as KLA’s President, Semiconductor Process Control since August 2019 where he is responsible for overseeing and managing our Semiconductor Process Control segment, and was Executive Vice President, Global Products Group from December 2016 to August 2019, where he was responsible for the Company’s wafer inspection and patterning divisions. From August 2015 to December 2016, he served as Executive Vice President, Patterning Division. In this role, he was responsible for the development and execution of technology roadmaps and customer collaboration strategies for all of KLA’s patterning products. Mr. Khan joined KLA’s Films & Surface Technology Division in 2003 as Senior Director of Business Development, and has since held numerous strategic management positions throughout his 17-year tenure with the Company. In 2007, Mr. Khan served as Vice President and General Manager of KLA’s Optical Films Metrology Division. From 2008 to his current position, his executive management responsibilities expanded to include the Resistivity, Optical CD, Implant, Thermawave, Overlay and SensArray Divisions, all ultimately comprising KLA’s Metrology Division. Prior to joining KLA, Mr. Khan spent nine years at Applied Materials, holding various product engineering, support, operations and senior management positions. Mr. Khan earned his bachelor’s degree in electronics engineering technology from DeVry University.

 

Name

  Position   Age

Oreste Donzella

 

 

LOGO

  Executive Vice President, Electronics, Packaging and Components  

57

Oreste Donzella has held various positions with KLA since he joined us in 1999. He has served as the Company’s Executive Vice President of Electronics, Packaging and Components since March 2020, in which role he is responsible for running our specialty semiconductors, advanced packaging, printed circuit board and flat panel display businesses. Prior to his current role, Mr. Donzella served as our Executive Vice President and Chief Marketing Officer from September 2016 to February 2020 and had responsibilities for market analytics, external communication and company-wide collaborations with the broader electronics industry. From July 2015 to July 2018, he was also responsible for the customer engagement organization at KLA, leading the world-wide field application engineering teams. In his long tenure at KLA, Mr. Donzella also served as general manager of the macro wafer inspection and the unpatterned wafer inspection divisions from August 2007 to June 2015 and held various leadership management positions in product marketing and application engineering across the company prior to that. Mr. Donzella brings more than 27 years of experience in the semiconductor industry. Prior to joining KLA, he spent more than six years at Texas Instruments and Micron Technology, holding engineering and management positions in the process integration and yield enhancement departments. Mr. Donzella earned his master’s degree in electrical engineering from the University La Sapienza in Rome, Italy.

 

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35

 

Name

  Position   Age

Mary Beth Wilkinson

 

 

LOGO

  Executive Vice President, Chief Legal Officer and Corporate Secretary  

51

Mary Beth Wilkinson has served as the Company’s Executive Vice President, Chief Legal Officer and Corporate Secretary since September 2020. In addition to advising on all legal, compliance, and corporate governance matters, Ms. Wilkinson oversees cybersecurity for the Company. Ms. Wilkinson has more than two decades of legal experience including extensive executive and operating experience in industrials and manufacturing. She also holds a Carnegie Mellon University Software Engineering Institute CERT Certificate for Cybersecurity Oversight. Before joining KLA, she served as senior vice president, general counsel and corporate secretary of O-I Glass, Inc. and as a partner at Hogan Lovells, an international law firm. Ms. Wilkinson earned her bachelor’s degree summa cum laude from Saint Mary’s College, Notre Dame, Indiana, with a double major in economics and English writing. She holds a Juris Doctor degree from Northwestern University Pritzker School of Law, is a member of the Bar in two states, and graduated from Stanford University’s Executive Program.

 

Name

  Position   Age

Brian Lorig

 

 

LOGO

  Executive Vice President, Global Support and Services  

49

Brian Lorig has served as Executive Vice President, since August 2019, and Senior Vice President and general manager of the Company’s Global Support and Services organization since March 2016. The Global Support and Services organization includes the Company’s services group, which enables customers in all business sectors to maintain high performance and productivity of their purchased products through a flexible portfolio of services. Global Support and Services also includes KT Pro Systems, which offers certified fully refurbished and tested systems, as well as remanufactured legacy systems, and KT Pro Enhancements, which include enhancements and upgrades for previous-generation KLA tools. Mr. Lorig joined the Company in 1998 and has held a number of leadership positions in Manufacturing Operations and Service, including vice president of U.S. Manufacturing and Operations Group from January 2013 through February 2014, and vice president of Global Support and Services Field Operations from February 2014 through March 2016. Mr. Lorig earned his bachelor of science in supply chain management from Arizona State University and his MBA from Santa Clara University.

 

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36  | Information About Executive Officers

 

Name

  Position   Age

Virendra Kirloskar

 

LOGO

 

  Senior Vice President and Chief Accounting Officer  

59

Virendra Kirloskar has served as the Company’s Senior Vice President and Chief Accounting Officer since March 2008. Mr. Kirloskar rejoined the Company as Vice President and Corporate Controller in May 2003 and served in that role until March 2008, other than the period from August 2006 to August 2007, during which time he held management responsibilities within KLA India. Prior to that, from June 2002 to April 2003, Mr. Kirloskar served as Corporate Controller of Atmel Corporation, a designer and manufacturer of semiconductor integrated circuits. Mr. Kirloskar also held various finance positions within KLA from 1993 to 1999. Mr. Kirloskar received his bachelor’s degree in commerce from the University of Pune, India and his master’s degree in business administration from the University of Massachusetts Amherst.

 

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37

 

LOGO Security Ownership of

    Certain Beneficial Owners

    and Management

PRINCIPAL STOCKHOLDERS

As of September 8, 2023, based solely on our review of filings made with the SEC, we are aware of the following entities being beneficial owners of more than 5% of our Common Stock:

 

Name and Address

   Number of Shares
Beneficially Owned
     Percent of Shares
Beneficially Owned(1)
 

The Vanguard Group, Inc.(2)

100 Vanguard Boulevard

Malvern, PA 19355

     13,243,687        9.7%  

BlackRock, Inc.(3)

40 East 52nd Street

New York, NY 10022

     11,080,837        8.1%  

(1) Based on 136,322,340 outstanding shares of our Common Stock as of September 8, 2023.

(2) All information regarding The Vanguard Group (“Vanguard”) is based solely on information disclosed in an Amendment to Schedule 13G filed by Vanguard with the SEC on February 9, 2023. According to the Schedule 13G/A filing, of the 13,243,687 shares of our Common Stock reported as beneficially owned by Vanguard as of December 30, 2022, Vanguard had shared voting power with respect to 212,874 shares, had sole dispositive power with respect to 12,646,604 shares, and had shared dispositive power with respect to 597,083 shares.

(3) All information regarding BlackRock, Inc. (“BlackRock”) is based solely on information disclosed in an Amendment to Schedule 13G filed by BlackRock with the SEC on January 30, 2023. According to the Schedule 13G/A filing, of the 11,080,837 shares of our Common Stock reported as beneficially owned by BlackRock as of December 31, 2022, BlackRock had sole voting power with respect to 9,870,991 shares and had sole dispositive power with respect to all 11,080,837 shares.

 

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38  | Security Ownership of Certain Beneficial Owners and Management

 

DIRECTORS AND MANAGEMENT

The following table sets forth the beneficial ownership of our Common Stock as of September 8, 2023, by all current directors, each of the NEOs (as defined on page 42 of this Proxy Statement) set forth in the Summary Compensation Table, and all current directors and executive officers as a group. Unless otherwise indicated, the address of each person is c/o KLA Corporation, One Technology Drive, Milpitas, California 95035. Unless otherwise indicated, shares that, as of September 8, 2023, have not yet been issued under outstanding RSUs due to applicable performance or service-vesting requirements that have not yet been satisfied are not included in the table below:

 

Name

   Number of Shares
Beneficially
Owned
     Percent of
Shares
Beneficially
Owned(1)
 

Richard Wallace(2)

     37,519.392        *  

Robert Calderoni(3)

     13,921.527        *  

Jeneanne Hanley(4)

     3,054               *  

Emiko Higashi(4)

     13,923               *  

Kevin Kennedy(5)

     6,989               *  

Michael McMullen(6)

     132               *  

Gary Moore(4)

     14,185               *  

Marie Myers(4)

     3,037               *  

Kiran Patel(7)

     13,156               *  

Victor Peng(8)

     4,769               *  

Robert Rango(4)

     14,119               *  

Oreste Donzella

     8,231.392        *  

Bren Higgins

     12,572.392        *  

Ahmad Khan

     8,836.392        *  

Brian Lorig

     4,103.392        *  

All current directors and executive officers as a group (17 persons)(9)

     159,275.879        *  

* Less than 1%.

(1) Based on 136,322,340 outstanding shares of our Common Stock as of September 8, 2023. In addition, shares of our Common Stock subject to RSUs that will vest and become deliverable within 60 days after September 8, 2023, are deemed to be outstanding for the purpose of computing the percentage ownership of the applicable person or entity in this table, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person or entity.

(2) Includes 9,182 outstanding shares of our Common Stock that are held by the Wallace Living Trust u/a/d dated 3/27/01, as amended, of which Mr. Wallace is a trustee and beneficiary.

(3) Includes (a) 928 shares subject to RSUs that will vest and become deliverable within 60 days after September 8, 2023, and (b) 11,529.527 outstanding shares of our Common Stock that are held by The 2019 Calderoni Family Trust.

(4) Includes 704 shares subject to RSUs that will vest and become deliverable within 60 days after September 8, 2023.

(5) Includes (a) 704 shares subject to RSUs that will vest and become deliverable within 60 days after September 8, 2023, and (b) 4,821 outstanding shares of our Common Stock that are held by the Kennedy Family Trust u/a/d 11/19/98, of which Mr. Kennedy is a trustee and beneficiary.

(6) Includes 132 shares subject to RSUs that will vest and become deliverable within 60 days after September 8, 2023. Mr. McMullen received the 132 shares upon his election to the Board of Directors on July 24, 2023, as a prorated grant of restricted stock units pursuant to the Company’s 2004 Equity Incentive Plan for his service on the Board through the next annual meeting of stockholders (November 1, 2023).

(7) Includes (a) 704 shares subject to RSUs that will vest and become deliverable within 60 days after September 8, 2023, and (b) 11,894 outstanding shares of our Common Stock that are held by The Kiran Patel Trust dated August 28, 2018, of which Mr. Patel is a trustee and beneficiary.

(8) Includes (a) 704 shares subject to RSUs that will vest and become deliverable within 60 days of September 8, 2023, and (b) 4,065 shares of our Common Stock held by the Peng Family Trust, of which Mr. Peng is a trustee and beneficiary.

(9) Includes 6,692 shares subject to RSUs held by Outside Directors and 5,521 shares subject to RSUs held by executive officers that will vest and become deliverable within 60 days after September 8, 2023, together with the other shares set forth in footnotes (2) through (8).

 

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LOGO Executive Compensation

    and Other Matters

COMPENSATION DISCUSSION AND ANALYSIS

EXECUTIVE SUMMARY

This Compensation Discussion and Analysis section discusses the compensation policies and programs for our “Named Executive Officers” as determined under the rules of the SEC, for fiscal year 2023.

The objective of our executive compensation program is to attract, retain and motivate experienced and talented executives who can help KLA to achieve its business objectives and maximize stockholder value. We believe that a significant portion of the compensation paid to our executive officers should be closely aligned with our performance on both a short-term and long-term basis.

The NEO compensation program for fiscal year 2023 was substantially similar to fiscal year 2022, except in fiscal year 2023 we granted awards of performance-based restricted stock units (“PRSUs”) with performance criteria tied to our achievement of non-GAAP diluted earnings per share (“EPS”) objectives during the period from July 1, 2022 through June 30, 2026 (the “EPS Awards”) to align NEO compensation with the long-term EPS goals we articulated in our June 2022 Investor Day.

We delivered strong growth and profitability in fiscal year 2023. Over the past several quarters semiconductor and semiconductor capital equipment industry demand has been impacted by the broad, macro-driven slowdown in electronics markets, with analysts projecting semiconductor device revenues to decline in the high-single-digits percent in calendar 2023. In response to this lower semiconductor demand profile, global device manufacturers have reduced or pushed out capacity growth plans, adopted supply and inventory reduction measures to preserve cash flows and bring supply and demand back into equilibrium. Against this backdrop, we remained focused on supporting our customers while maintaining critical R&D investments to enable our technology roadmap in an effort to create value for our customers, partners and stockholders.

Total revenues grew 13.9% to $10.5 billion in fiscal year 2023, marking the eighth consecutive year of growth. GAAP diluted net income per share attributable to KLA grew 10.2% to $24.15 per share, setting a new record for KLA. Delivering on our commitment to provide healthy capital returns to stockholders, we returned $2.04 billion to our stockholders in fiscal year 2023, including $732.6 million in quarterly dividends and total stock repurchases of $1.31 billion.

FISCAL YEAR 2023 HIGHLIGHTS

KLA delivered strong performance in fiscal year 2023 including double-digit total revenues and service revenues growth. Below are some of the highlights for fiscal year 2023 and the percentage change from fiscal year 2022 (dollars in thousands, except per share data).

 

Total revenues

 

$10,496,056

 

 

LOGO 13.9% from FY22

     

Net income attributable to KLA

 

$3,387,277

 

 

LOGO 2.0% from FY22

     

Diluted EPS attributable to KLA

 

$24.15

 

 

LOGO 10.2% from FY22

                 

Net cash provided by

operating activities

 

$3,669,805

 

 

LOGO 10.8% from FY22

     

Cash, cash equivalents and

marketable securities

 

$3,243,159

 

 

LOGO 19.8% from FY22

     

Dividends and stock
repurchases

 

$2,044,420

 

 

LOGO 62.9% from FY22

                 
       

 

Service revenues

 

$2,117,031

 

 

LOGO 10.8% from FY22

       

 

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MULTI-YEAR GROWTH

We have experienced tremendous growth over the last four years, with total revenues increasing 129.7% to $10.5 billion in fiscal year 2023 from $4.6 billion in fiscal year 2019 and net income attributable to KLA increasing 188.1% to $3.4 billion in fiscal year 2023 from $1.2 billion in fiscal year 2019, and we intend to continue to deliver profitable growth in the future as we execute against our strategic objectives.

The charts below show total stockholder return (stock price appreciation plus cash dividends per share) to a hypothetical investor who purchased a share of our Common Stock on July 2, 2018 and July 1, 2020 and the associated compound annual growth rate (“CAGR”). As demonstrated by the charts below, our total stockholder return has outpaced the S&P 500 and the Philadelphia Semiconductor Index on both a five- and three-year basis.

 

 

Appreciation in Share Price and Cumulative Cash Dividends

Distributed Per Share Since June 30, 2018

 

 

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Appreciation in Share Price and Cumulative Cash Dividends

Distributed Per Share Since June 30, 2020

 

 

LOGO

 

 

 

 

LOGO

 

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KLA’S EXECUTIVE COMPENSATION PROGRAM AT A GLANCE

Introduction

This “Compensation Discussion and Analysis” section describes KLA’s fiscal year 2023 executive compensation program, including the decisions made by the Board and its Compensation and Talent Committee during the year, the processes and tools that they used to reach those decisions, and a discussion of the compensation earned by KLA’s “Named Executive Officers” (i.e., the CEO, the CFO and the three other most highly-compensated executive officers in fiscal year 2023) as presented in the section entitled “Executive Compensation Tables” below.

Named Executive Officers

Our “Named Executive Officers” (or “NEOs”) and their positions for fiscal year 2023 were:

 

LOGO

  

Richard Wallace

  

President and Chief Executive Officer

LOGO

  

Bren Higgins

  

Executive Vice President and Chief Financial Officer

LOGO

  

Ahmad Khan

  

President, Semiconductor Process Control

LOGO

  

Oreste Donzella

  

Executive Vice President, Electronics, Packaging and Components

LOGO

  

Brian Lorig

  

Executive Vice President, Global Support and Services

 

COMPENSATION PHILOSOPHY AND DESIGN PRINCIPLES

 

Executive compensation should be designed to:

 

LOGO

 

 

Attract, retain and reward executives
who contribute to our overall success
by offering compensation packages
that are competitive with those offered
by other employers with which we
compete for talent.

  

LOGO

 

 

Achieve a balance and alignment between
(i) performance-based compensation that rewards
corporate and individual achievement and
stockholder value creation, and (ii) compensation
that supports our long-term retention efforts.

                  

 

This philosophy is reflected in the following design principles:

 

LOGO

 

 

In addition to a competitive base
salary, a substantial portion of the
executives’ potential cash
compensation is tied to a short-term
incentive bonus plan that rewards
corporate and individual achievement
of challenging performance goals.

  

LOGO

 

 

The program also provides two types of long-term
compensation: (i) PRSUs, which provide additional
compensation as a reward for achievement of
corporate performance goals and which, if earned,
include service-vesting requirements, and
(ii) service-based restricted stock unit awards
covering shares of our Common Stock (“RSUs”) with
vesting conditioned only upon continued service.

Compensation and Talent Committee Decision Making – Approval Procedures Overview and Market Data

The Compensation and Talent Committee takes a broad-based approach in evaluating and making decisions with respect to executive compensation. The charter of the Compensation and Talent Committee gives the Compensation and Talent Committee full authority for determining the compensation of our executive officers (including our NEOs), other than the Chief Executive Officer, for whom the Compensation and Talent Committee makes recommendations to the Outside Directors for approval.

 

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Advisor to the Compensation and Talent Committee

The Compensation and Talent Committee retains Semler Brossy Consulting Group, LLC (“Semler Brossy”), an independent compensation consultant, to provide the Compensation and Talent Committee with independent, objective analysis and advice on executive officer and director compensation matters. Semler Brossy reports directly to the Chair of the Compensation and Talent Committee and, aside from its support of the Compensation and Talent Committee, performed no other work for the Company during fiscal year 2023.

Semler Brossy generally attends all meetings of the Compensation and Talent Committee in which evaluations of the effectiveness of overall executive compensation programs are conducted or in which compensation for executive officers is analyzed or approved. During fiscal year 2023, Semler Brossy’s duties included providing the Compensation and Talent Committee with relevant market and industry data and analysis, as well as preparing and reviewing materials for the Compensation and Talent Committee’s meetings. In fulfilling these duties, Semler Brossy met, as needed and at the direction of the Compensation and Talent Committee, with our Chief Executive Officer, Chief Human Resources Officer and other executive officers and members of our Human Resources department.

The Compensation and Talent Committee, in conducting its annual assessment in fiscal year 2023, determined that Semler Brossy was independent and did not have any conflicts of interest.

Approval Procedures

During multiple meetings (both with and without management present) and with the assistance of Semler Brossy, the Compensation and Talent Committee engaged in extensive deliberation in developing the fiscal year 2023 executive compensation program, seeking to establish compensation packages and target performance levels aimed at rewarding strong financial performance and our long-term success. The Compensation and Talent Committee’s deliberations for all executive officers looked at a broad range of market data (described below), individual performance reviews and total compensation reports for each officer, the historically cyclical nature of our business, internally appropriate levels and targets relative to the officer’s role, and initial package recommendations from management informed by market data provided by Semler Brossy. With regard to our 2022 Executive Incentive Plan (“2022 Bonus Plan”) and the fiscal year 2023 PRSUs granted to our NEOs (including the EPS Awards), the proposed financial metrics and payout percentage recommendations were developed by management and approved by the Compensation and Talent Committee, with review and guidance from Semler Brossy.

With respect to the compensation of our Chief Executive Officer (Mr. Wallace), the Compensation and Talent Committee considered recommendations prepared by Semler Brossy. Following extensive deliberation, the Compensation and Talent Committee recommended Mr. Wallace’s proposed fiscal year 2023 target compensation opportunities and RSU and PRSU grants for approval by the Outside Directors. The Outside Directors then discussed and, in August 2022, approved Mr. Wallace’s fiscal year 2023 target compensation opportunities and PRSU and RSU grants as recommended. Mr. Wallace was not present and did not participate in the discussions regarding his own compensation.

For the other NEOs, the Compensation and Talent Committee, after considering the performance reviews and recommendations of Mr. Wallace, as well as extensive comparative compensation data provided by Semler Brossy, approved the fiscal year 2023 target compensation opportunities and PRSU and RSU grants for the other NEOs in August 2022.

In each case, when establishing each element of compensation and the overall target compensation opportunities for the NEOs, the Compensation and Talent Committee and the Outside Directors exercised their judgment based upon the data provided, and no specific formula was applied to determine the weight of each data point.

Market Data

Our ability to continue to attract and retain outstanding contributors, including our core executive team, is essential to our continuing success. Therefore, the Compensation and Talent Committee reviews several different data sources (including Radford survey data for our industry peer group as well as the broader technology market) to assess whether we are offering compensation opportunities that are competitive with those offered by other employers seeking to attract the same talented individuals.

The industry peer group is comprised of U.S. publicly traded companies primarily in the semiconductor and semiconductor equipment industries that had at least 0.33x the Company’s trailing four-quarter revenues and at least 0.2x the Company’s 200-day average market capitalization value. Additionally, the peer group is reviewed to remove companies that we feel are too large to provide meaningful comparison.

 

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Below is the list of industry peer group companies used in developing our fiscal year 2023 program:

 

       
Advanced Micro Devices, Inc.   Keysight Technologies, Inc.  

MKS Instruments, Inc.

 

Teradyne, Inc.

Analog Devices, Inc.   Lam Research Corporation  

NVIDIA Corporation

 

Texas Instruments Incorporated

Applied Materials, Inc.   Marvell Technology Inc.  

ON Semiconductor Corp.

 

Xilinx, Inc.*

Broadcom, Inc.  

Microchip Technology, Inc.

 

Qorvo, Inc.

   
Corning Incorporated  

Micron Technology, Inc.

 

Skyworks Solutions, Inc.

   

* Xilinx, Inc. was acquired by Advanced Micro Devices, Inc. on February 14, 2022.

The Compensation and Talent Committee, in consultation with Semler Brossy, periodically reviews and, as appropriate, may approve changes to the list. The peer group is consistent with our fiscal year 2022 peer group aside from the removal of Maxim Integrated Products, Inc. due to its acquisition by Analog Devices, Inc.

When assessing our fiscal year 2023 executive compensation program, the Compensation and Talent Committee reviewed information developed by Semler Brossy regarding the compensation levels, programs and practices of our industry peer group to obtain comparative data and identify compensation trends and practices.

Though the Compensation and Talent Committee referred to percentile data in its analysis, as well as allocations between annual and long-term compensation, the Compensation and Talent Committee did not employ specific equations for determining compensation amounts based on such data. Rather, the Compensation and Talent Committee’s emphasis was on establishing compensation packages for the executive officers that would be competitive with those offered by other employers in our industry, appropriately reflect each executive officer’s skill set and experience, drive performance and encourage retention of top performers.

 

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KEY PAY PRACTICES IN OUR EXECUTIVE COMPENSATION PROGRAM AND LAST YEAR’S “SAY ON PAY” VOTE

Investor feedback is an important input to us in the design of our executive compensation program. We hold an annual “Say on Pay” advisory vote, with approximately 92% of the votes cast at our 2022 Annual Meeting voting “FOR” approval of our NEO compensation, which the Compensation and Talent Committee believes demonstrated strong stockholder support for our executive compensation policies and practices.

We strive to follow good governance practices and align compensation with the stockholder experience. Our executive compensation program is designed to incorporate the following key pay practices and inputs:

 

What We Do

         What We Don’t Do
   LOGO   Pay for performance: We have a pay for performance focus with a majority of our NEOs’ cumulative annual target compensation in the form of performance-based annual cash bonuses and PRSUs, tied to challenging metrics that reflect and are key to the growth and profitability of our business and promote alignment between executive and stockholder economic interests.     LOGO   No automatic salary increases: We do not guarantee automatic salary increases for our executive officers.

   LOGO

 

  Different metrics in short- and long-term incentive plans: The metrics used for our annual cash bonus program (i.e., Operating Margin Dollar achievement and corporate balanced scorecard assessment) are different from those used for our PRSUs (i.e., Relative Free Cash Flow Margin (as defined below) and non-GAAP EPS).    

 

LOGO

 

 

No hedging and pledging: We prohibit officers, directors and employees from hedging against our stock or pledging our stock.

   LOGO

 

  Long-term incentive alignment: Equity awards vest typically over a four-year period, other than new hire RSU awards which vest over a three-year period, and our PRSUs, other than our EPS Awards, which are tied to a three-year performance period with 50% of earned PRSUs vesting in year three and 50% vesting in year four.    

 

LOGO

 

 

No single-trigger change in control: We only offer “double trigger” change in control benefits.

   LOGO

 

 

 

Stock ownership guidelines: We impose stock ownership guidelines on all executive officers and Outside Directors.

   

 

LOGO

 

 

No gross-ups: We do not provide tax gross-up provisions on any change in control, severance or other payments related to executive terminations.

   LOGO

 

  Clawbacks: We maintain a “clawback” policy that enables us to recover performance-based compensation in the event of a significant restatement of our financial results.    

 

LOGO

 

 

No excessive perquisites: It is our policy to strictly limit the use and value of perquisites.

   LOGO

 

  Compensation consultant: The Compensation and Talent Committee retains and regularly consults with an independent compensation consultant to advise on our executive compensation program and practices.    

 

LOGO

 

 

No dividends prior to vesting: We do not pay dividends on RSUs or PRSUs until the awards vest and then only on the portion that vests.

 

   LOGO

 

 

Independence: Executive compensation decisions for Mr. Wallace, our CEO, are made by the Outside Directors on our Board, and for all other executive officers by the Compensation and Talent Committee, which is comprised exclusively of Outside Directors.

 

     

 

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ELEMENTS OF COMPENSATION

 

Element

  Variability   Objective   How Established   FY23 Terms/ Outcomes
for NEOs

LOGO

 

Base salary

(Page 47)

  FIXED  

 

Provide a competitive fixed component of compensation that, as part of a total compensation package, enables us to attract and retain top talent.

 

Reviewed against the executive officer’s skill, experience and responsibilities, and for competitiveness against our compensation peer group.

 

 

Three of our five NEOs received a salary increase during fiscal year 2023.

LOGO

 

Short-term executive incentive plan

(cash bonus)

(Pages 47 to 51)

 

PERFORMANCE -

BASED

 

 

Offer a variable cash compensation opportunity based upon the level of achievement of challenging corporate goals, with adjustments based on bonus achievement percentage.

 

 

Target payouts set by measuring total cash compensation against our compensation peer group. Corporate performance targets based on challenging operational goals.

 

 

Balanced scorecard and Operating Margin Dollar (as defined below) achievement versus goal for the twelve months ended December 31, 2022, in addition to individual performance, resulted in a bonus payout in fiscal year 2023 equal to 118% of target for each NEO. Bonus achievement percentage multipliers ranged from 95% to 120% for the NEOs.

LOGO

 

PRSUs

(Pages 51 to 53)

 

PERFORMANCE - BASED

and value tied to stock price

 

 

Align long-term management and stockholder interests and strengthen retention with longer vesting provisions. PRSUs provide compensation and ownership opportunity based upon the level of achievement of challenging corporate goals.

 

Total target value of annual awards set using market data (reviewed against our compensation peer group for competitiveness) and the executive officer’s responsibilities, contributions and criticality to ongoing success.

 

 

 

Our fiscal year 2023 annual PRSUs are tied to three-year Relative Free Cash Flow Margin (as defined below). Earned PRSUs vest 50% at three years and 50% at four years after grant date, subject to continued service through each vesting date.

 

In addition to the annual PRSUs, in fiscal year 2023 each of the NEOs received an EPS Award, which are special awards designed to incent the NEOs to achieve the long-term EPS objectives announced at our Investor Day in June 2022. The EPS Awards are split into three tranches tied to a specific EPS performance period. Up to 250% of the target PRSUs in each tranche are eligible to vest if the applicable EPS objectives are met.

LOGO

 

RSUs

(Page 53)

  VALUE TIED TO STOCK PRICE   RSUs promote long-term retention and alignment with stockholder interests.  

RSU awards may be granted when necessary to remain competitive with the marketplace.

  Fiscal year 2023 RSUs vest 25% per year over four years, subject to continued service through each vesting date.

Other compensation

(Pages 53 to 55)

 

PRIMARILY

FIXED

 

 

Provide competitive employee benefits. We do not view this as a significant component of our executive compensation Program.

 

 

Reviewed for competitiveness against our compensation peer group.

 

 

No significant changes in fiscal year 2023, with the exception of Mr. Donzella who continued to receive expatriate benefits for relocating to the United Kingdom.

 

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CEO COMPENSATION AT A GLANCE

Our CEO’s fiscal year 2023 compensation is consistent with our pay for performance philosophy, with a focus on variable and “at-risk” compensation that is closely aligned with our operational and stock price performance. The chart below highlights that 96% of our CEO’s total compensation for fiscal year 2023 (excluding “all other compensation,” consisting principally of dividend equivalents paid on the vesting of awards granted in prior years) is at risk, with 72% of such compensation tied to the achievement of challenging performance objectives:

FISCAL YEAR 2023 CEO

COMPENSATION ALLOCATION

 

 

LOGO

DESCRIPTION OF INDIVIDUAL ELEMENTS OF COMPENSATION

Base Salary

The Compensation and Talent Committee annually reviews the base salaries of the NEOs as part of its overall compensation review and considers the competitive market analysis of the Company’s industry peer group each year in determining whether to make an adjustment to the base salary for each NEO. We increased the annual base salaries of three of our five NEOs in fiscal year 2023 to better align their salaries with competitive data. These changes resulted in competitive positioning that is consistent with our pay philosophy. For fiscal year 2023, the Compensation and Talent Committee (or, in the case of Mr. Wallace, the Outside Directors) approved the base salaries set forth in the table below.

 

Name

   Annual Base Salary Rate Approved
During Fiscal Year 2023 ($)
    

    % Increase from Fiscal Year 2022

Annual Base Salary Rate

 

Richard Wallace

     1,000,000        0.0%  

Bren Higgins

     650,000        8.3%  

Ahmad Khan

     650,000        0.0%  

Oreste Donzella

     480,000        4.3%  

Brian Lorig

     500,000        5.3%  

Short-Term Executive Incentive Bonus Plan

Our annual Executive Incentive Plan (our “Bonus Plan”) is intended to motivate our senior executives, including our NEOs, to achieve short-term corporate objectives by providing a competitive cash bonus which is earned based upon the achievement of pre-determined Company performance goals, relating to Operating Margin Dollar (as defined below), the Company’s “balanced scorecard” objectives (as described below) and individual performance.

Under our Bonus Plan, which operates on a calendar-year basis, participating executives are eligible to earn up to 200% of the applicable executive’s target bonus opportunity based on the level of attainment of performance goals during the relevant calendar year. During our fiscal year 2023, our NEOs participated in our 2022 Bonus Plan through December 31, 2022 and in our 2023 Bonus Plan from January 1, 2023 through June 30, 2023. The 2023 Bonus Plan is substantially identical to the 2022 Bonus Plan, other than with respect to Operating Margin Dollar target levels of performance and the related payout percentages.

 

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Plan Design and Performance Metrics

We used Operating Margin Dollar achievement as a key performance metric in our calendar year 2022 Bonus Plan because we believe that it reflects several important competitive and business elements such as product acceptance, market share and cost discipline, and is therefore a very good barometer of our overall performance. For our calendar year 2022 Bonus Plan, “Operating Margin Dollar” represents our total revenues less total costs of revenues, research and development expenses and selling, general and administrative expenses, other than expenses related to acquisitions, goodwill impairment, severance and merger-related items.

In addition to Operating Margin Dollar achievement, payouts under the 2022 Bonus Plan are also determined in part by a “balanced scorecard” rating awarded by the Compensation and Talent Committee, which is designed to measure our progress based on financial and non-financial metrics related to operational excellence, customer focus, growth and talent management. The use of the balanced scorecard is designed to ensure that the quality of our operating results is high and that those results support the sustainability of our business model. We believe that the balanced scorecard’s use of broad measures of financial and strategic success closely aligns with the interests of our executive officers with those of our stockholders. The balanced scorecard is tracked throughout the year by the Compensation and Talent Committee, and then formally reviewed by the Compensation and Talent Committee and the Board following the conclusion of the applicable calendar year for assessment of the Company’s success in achieving its annual strategic goals.

For calendar year 2022, the corporate goals and objectives were set at levels that the Compensation and Talent Committee believed would be challenging to achieve based on our historical and anticipated performance and the then-prevailing macroeconomic conditions. While the Operating Margin Dollar and many of the “balanced scorecard” metrics are quantitative in nature, some are qualitative and, therefore, introduce a degree of judgment into the bonus determination process. This structure of using both Operating Margin Dollar achievement and the balanced scorecard is intended to ensure that bonus payouts not only reflect the Company’s achievement of specific levels of Operating Margin Dollars, but also the level of management performance necessary to continue to achieve those results over the long term.

The 2022 Bonus Plan also contains an element of an individual assessment. The Compensation and Talent Committee may increase or decrease each executive officer’s bonus amount (to the extent earned) based on a subjective assessment of the executive’s individual performance by applying a “bonus achievement percentage” multiplier. Bonus achievement multipliers for individual performance range from 80% to 120%. Following the completion of calendar year 2022, the Compensation and Talent Committee conducted a performance assessment of each executive officer (including each NEO), with input from Mr. Wallace (except with respect to his own performance), and the Outside Directors conducted a similar assessment for Mr. Wallace, in each case based on the executive officer’s leadership skills, experience and performance, including (for the NEOs) how each NEO led his or her organization as demonstrated against the key balanced scorecard objectives and goals for the NEO’s respective organization.

The payout formula under the Bonus Plan was structured as follows:

 

 

 

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Payout Percentages

Our 2022 Bonus Plan was structured to pay out 100% of each participating executive’s target bonus amount if we successfully achieved our target level of Operating Margin Dollar performance (subject to the applicable executive’s bonus achievement percentage multiplier). Under the 2022 Bonus Plan, we were required to achieve a threshold level of Operating Margin Dollar achievement in order for the Bonus Plan to be funded; to the extent Operating Margin Dollar was achieved below the threshold value, the applicable payout percentage would be equal to 0%. Upon achievement of that threshold level, a participant’s actual bonus amount was then determined based upon a bonus payout grid, with Operating Margin Dollar goals as the variable along one axis and, on the other axis, the “balanced scorecard” rating (which is a score awarded to the Company by the Board based on its assessment of our performance against the “balanced scorecard” metrics), as adjusted by the participant’s bonus achievement percentage multiplier.

The Compensation and Talent Committee sets performance targets for the Bonus Plan in consideration of internal budgets, broader market forecasts, and prior year achievement. In consideration of these factors, with respect to our 2022 Bonus Plan, the Compensation and Talent Committee set the target Operating Margin Dollar achievement at $4.2 billion for the calendar year ended December 31, 2022, which was approximately 59% higher than the comparable target for calendar year 2021 ($2.637 billion) and approximately 23% higher than the actual achievement level for calendar year 2021, reflecting its focus on setting goals that it believed were challenging to achieve.

In addition, the maximum Operating Margin Dollar achievement was set at $5.88 billion for the calendar year ended December 31, 2022, which (if attained) would have surpassed the Operating Margin Dollar for any calendar year in our history.

The 2022 Bonus Plan was structured so that, for each level of Operating Margin Dollar performance, the maximum payout would be reasonable relative to our financial results. The following examples highlight the possible funding levels for our 2022 Bonus Plan at different levels of our performance, before applying individual multipliers.

 

Level of Operating Margin Dollars

   Funding Level Details

Less than $1.26 billion

  

LOGO    No payouts would be made under the 2022 Bonus Plan if we achieved Operating Margin Dollars of less than $1.26 billion

$1.26 billion (threshold)

  

LOGO    Set at 30% of target

 

LOGO    Highest bonus funding level equal to 35% of the NEO’s target bonuses, if the Board awarded the Company a balanced scorecard rating of 5 (“exceptional”)

$4.2 billion (target)

  

LOGO    Target level of Operating Margin Dollars of $4.2 billion was approximately 23% higher than our Operating Margin Dollar performance for the prior calendar year ($3.401 billion)

  

LOGO    Highest bonus funding level equal to 150% of the executive officers’ target bonuses, if the Board awarded the Company a balanced scorecard rating of 5 (“exceptional”)

    

LOGO    Target bonus funding level equal to 100% of the executive officers’ target bonuses, if the Board awarded the Company a balanced scorecard rating of 3+ (“primarily meets expectations”)

$5.88 billion (maximum)

  

LOGO    Set at 40% higher than target

 

LOGO    Operating Margin Dollars of $5.88 billion would have surpassed any calendar year in our history

  

LOGO    Highest bonus funding level equal to 200% of the executive officers’ target bonuses, if the Board awarded the Company a balanced scorecard rating of 3+ (“primarily meets expectations”)

    

LOGO    Minimum bonus funding level equal to 100% of the executive officers’ target bonuses, if the Board awarded the Company a balanced scorecard rating of 1 (“opportunity for improvement”)

 

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With respect to the balanced scorecard assessment, the Compensation and Talent Committee and the Board considered macro-economic and market dynamic factors when making the balanced scorecard assessment, including projected GDP increases despite headwinds caused by slowing growth in China, worldwide supply chain constraints, inflation, rising interest rates, and lower consumer confidence. The Compensation and Talent Committee and the Board reviewed the following categories to determine the balanced scorecard rating for our 2022 Bonus Plan:

 

Balanced Scorecard
  Objectives

   Assessment   

Score

Given

KLA Revenue

   Calendar year 2022 revenue finished at $10.5 billion which was up 28% from calendar year 2021.    4

Market Leadership

   The Board considered market share as a leading indicator of market leadership and noted an expected improvement in market share.    4

Product Differentiation

   The Board assessed gross margin as a leading indicator of product differentiation versus competitors, noting that overall non-GAAP gross margin finished slightly lower for calendar year 2022 than calendar year 2021 due to foreign exchange headwinds and increased inventory reserve.    3+

Productivity

   The Board considered operating margin as a leading indicator of productivity, noting that non-GAAP operating margin finished slightly higher for calendar year 2022 than calendar year 2021.    4

Human Capital

   The Board considered employee engagement and employee retention as leading indicators of human capital performance noting low turnover rates for both the employee base as a whole and for top talent, the successful onboarding of 3,700 employees in calendar year 2022, an increase in the percentage of women in global leadership positions and strong employee productivity and engagement.    4

The Board evaluated the Company’s performance with respect to the objectives described above on a scale of 1 to 5, with:

 

     LOGO      “1” corresponding to “opportunity for improvement,”
     LOGO   “3” corresponding to “primarily meets expectations,” and
     LOGO   “5” corresponding to “exceptional.”

 

The Board awarded the Company a balanced scorecard rating of “4” based on its assessment of our overall performance against our strategic objectives during calendar year 2022. That, combined with Operating Margin Dollar achievement of $4.462 billion in calendar year 2022 (approximately 6% above target), resulted in a funding, before applying bonus achievement percentage multipliers, of 118% of target bonuses under the 2022 Bonus Plan. The matrix for the 2022 Bonus Plan is set for the below.

 

Calendar Year 2022 Bonus Funding Table

Balanced Scorecard Performance

  Operating Margin Dollar ($M) Performance
        < $1,260   $1,260   $3,360   $3,780   $3,990   $4,200   $4,410   $4,462   $4,620   $5,040   $5,460   $5,880

Exceptional

  5   0%   35%   99%   112%   133%   140%   147%   150%   161%   196%        
    4+   0%   30%   85%   96%   114%   120%   126%   128%   138%   168%   198%    
    4   0%   28%   78%   88%   105%   110%   116%   118%   127%   154%   182%    
    3+   0%   25%   71%   80%   95%   100%   105%   107%   115%   140%   165%   200%

Primarily meets expectations

  3   0%   23%   64%   72%   86%   90%   95%   96%   104%   126%   149%   180%
    2+   0%   20%   57%   64%   76%   80%   84%   86%   92%   112%   132%   160%
    2   0%   18%   50%   56%   67%   70%   74%   75%   81%   98%   116%   140%
    1+   0%   15%   43%   48%   57%   60%   63%   64%   69%   84%   99%   120%

Opportunity for improvement

  1   0%   13%   36%   40%   48%   50%   53%   54%   58%   70%   83%   100%

% of Plan

  <30%   30%   80%   90%   95%   100%   105%   106%   110%   120%   130%   140%

In addition, based on the Compensation and Talent Committee’s (or, with respect to Mr. Wallace, the Outside Directors’) assessment of each NEO’s individual performance for calendar year 2022, NEOs were awarded bonus achievement percentages ranging from 95% to 120%.

 

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Payouts

The following table presents each NEO’s target bonus (as a percentage of base salary and in dollars, based on actual salary paid during the calendar year 2022 (rather than fiscal year 2023)), as well as the bonus payout percentage generated by the 2022 Bonus Plan’s payout grid, based on our performance, the bonus achievement percentage multiplier assigned to the NEO and the actual bonus amount paid to the NEO.

 

Name

   NEO’s FY
2022 Target
Bonus Award
Under Bonus
Plan (as a
Percentage of
Base Salary)(1)
     NEO’s Target
Bonus Award
Under Bonus
Plan ($)
     Payout
Multiple
Based on
Company
Performance
(Operating
Margin
Dollars and
Balanced
Scorecard)
    

Bonus
Achievement
Percentage
Assigned by
Compensation
and Talent
Committee

or the Outside
Directors

     Actual
Bonus
Payout
Under 2022
Bonus Plan
($)(2)
     Actual Bonus
Payout
Under 2022
Bonus
Plan as a
Percentage
of Target
Bonus
 

Richard Wallace

     150%        1,500,000        118%        120%        2,124,000        142%  

Bren Higgins

     100%        618,461        118%        120%        875,741        142%  

Ahmad Khan

     100%        650,000        118%        120%        920,400        142%  

Oreste Donzella

     80%        394,108        118%        95%        441,795        112%  

Brian Lorig

     80%        408,404        118%        105%        506,012        124%  

(1) The amounts in this column represent the applicable NEO’s target bonus (stated as a percentage of the executive officer’s base salary). Under the 2022 Bonus Plan, the actual salary paid during the calendar year multiplied by (a) the payout percentage determined by the 2022 Bonus Plan’s bonus payout grid based on the Company’s performance, and (b) the NEO’s bonus achievement percentage multiplier assigned by the Compensation and Talent Committee or, in the case of Mr. Wallace, the Outside Directors, generated the executive officer’s actual bonus payment amount.

(2) Actual bonus payouts are based on the actual salary paid to the NEO during calendar year 2022 rather than fiscal year 2023.

Our NEO’s target bonus opportunities are determined by our Compensation and Talent Committee (or, in the case of Mr. Wallace, by our Outside Directors) by considering each NEO’s performance, role and responsibilities at our Company. The target bonus as a percentage of base salary for each of our NEOs for calendar year 2023 was not changed from calendar year 2022, except for Messrs. Donzella and Lorig whose target bonus opportunities increased from 80% to 90% of base salary.

Long-Term Incentives

Our annual long-term incentives for our NEOs are awarded in the form of RSUs and PRSUs, typically once per year in late July or early August, coinciding with the beginning of our fiscal year.

Annual PRSU Awards

During fiscal year 2023, we granted each of our NEOs an annual award of PRSUs, which vests based on the attainment of specified Company performance goals and service-vesting requirements. The NEOs’ fiscal year 2023 PRSUs are earned based on the Company’s Relative Free Cash Flow Margin (as defined below). “Relative Free Cash Flow Margin” means our cumulative free cash flow (cash flow provided by operations, less capital expenditures), divided by cumulative revenues, relative to the cumulative free cash flow for our industry peer group companies for the three years ending June 30, 2025. A determination will be made after June 30, 2025, based on the Company’s percentile performance relative to its industry peer group, regarding the percentage of the fiscal year 2023 PRSUs that have been earned.

We believe that the Relative Free Cash Flow Margin metric is a key measure of our long-term performance and stockholder value creation. Our ability to generate cash from operations is essential to fund the expansive research and development efforts that are instrumental to our long-term success, as well as our efforts to return cash to stockholders. The relative nature of the metric ensures that our performance must compare favorably to our industry peer group companies for PRSUs to be earned. To the extent that we and/or one of our industry peer group companies completes a significant acquisition, the results of operations of the significant acquisition will be subtracted from our results and/or the results of our industry peer group company that completed the acquisition beginning in the first full quarter immediately following such acquisition, based on the results of the acquired company for the last four quarters of operations for which financial data is publicly available.

Any fiscal year 2023 PRSUs earned by an NEO will vest 50% after three years and 50% after four years from the date of grant, in each case, subject to continued service on each vesting date. Fiscal year 2023 PRSUs are granted with dividend equivalent

 

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rights which entitle the recipient to receive credits, payable in cash or additional shares of our Common Stock, equal to the cash dividends that would have been received on the shares of our Common Stock had the shares been issued and outstanding on the dividend record date. Dividend equivalents are only paid to the recipient upon vesting or settlement of the underlying award.

The following table highlights the possible payouts under the participating NEO’s fiscal year 2023 PRSUs at different levels of Company performance:

 

Level of Relative Free Cash

Flow Margin Performance

   PRSU Payout Details

Less than 30th percentile

  

LOGO    No shares underlying the 2023 PRSU awards will become eligible to vest if our Relative Free Cash Flow Margin is below the 30th percentile

30th percentile (Threshold)

  

LOGO    25% of the target number of shares underlying the 2023 PRSU awards will become eligible to vest if our Relative Free Cash Flow Margin is equal to the 30th percentile

55th percentile (Target)

  

LOGO    Target performance level will require strong performance relative to our industry peer group and is therefore considered challenging

 

LOGO    100% of the target number of shares underlying the 2023 PRSU awards will become eligible to vest if our Relative Free Cash Flow Margin is equal to the 55th percentile

75th percentile or above (Maximum)

  

LOGO    Maximum performance level will require significant performance relative to the Company’s industry peer group and is therefore considered very challenging

 

LOGO    150% of the target number of shares underlying the 2023 PRSU awards will become eligible to vest if our Relative Free Cash Flow Margin is equal to or greater than the 75th percentile

Payout will be linearly interpolated if actual results fall between the threshold and target, or the target and maximum measurement points above.

The following table sets forth the threshold, target and maximum shares achievable by our NEOs with respect to their annual PRSU awards for fiscal year 2023 (rounded down to the nearest whole PRSU):

 

Name

   Type of Grant      Target Value ($)(1)      Threshold Shares (#)      Target Shares (#)      Maximum Shares (#)  

Richard Wallace

     Annual PRSU        8,100,000        6,036        24,146        36,219  

Bren Higgins

     Annual PRSU        2,000,000        1,490        5,962        8,943  

Ahmad Khan

     Annual PRSU        2,100,000        1,565        6,260        9,390  

Oreste Donzella

     Annual PRSU        850,000        633        2,534        3,801  

Brian Lorig

     Annual PRSU        1,000,000        745        2,981        4,471  

(1) The number of shares underlying our fiscal year 2023 PRSUs was determined by dividing a dollar target by the 90-day average of our closing stock price ending on the Friday prior to approval of the awards. In fiscal year 2023, the 90-day average price was 16% lower than the price on the date of grant, which is the price used to determine the value of the award in the “Summary Compensation Table.”

Fiscal Year 2020 Annual PRSUs – Performance Criteria Satisfaction Determination

The fiscal year 2020 PRSUs were earned based on our Relative Free Cash Flow Margin attained over the three-year period ended June 30, 2022. In August 2022, the Compensation and Talent Committee and, in the case of Mr. Wallace, the Outside Directors, determined the extent to which the fiscal year 2020 annual PRSUs had been earned: a 150% payout at the 75th percentile of our industry peer group. The terms of the fiscal year 2020 annual PRSUs, including the target performance and payout level, actual results and vesting schedule, are summarized in the following table:

 

Terms of Fiscal Year 2020 Annual PRSUs

   Threshold    Target Level   

Actual Results

  

Maximum Level

Relative Free Cash Flow
Margin performance

   30th percentile   

55th

percentile

  

75th

percentile

  

75th

percentile

Payout level as a percentage
of target shares

  

LOGO

Vesting schedule

   With respect to the earned fiscal year 2020 annual PRSUs, 50% vested in August 2022 and the remaining 50% vested in August 2023

 

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The following table sets forth the threshold, target and maximum shares achievable by the NEOs, as well as the actual number of shares earned by them, with respect to the fiscal year 2020 PRSUs (rounded down to the nearest whole PRSU):

 

Name

   Type of Grant      Threshold Shares (#)      Target Shares (#)      Maximum Shares (#)      Actual Shares Earned (#)  

Richard Wallace

     Annual PRSU        9,647        38,590        57,885       
57,885
 

Bren Higgins

     Annual PRSU        3,215        12,863        19,294       
19,294
 

Ahmad Khan

     Annual PRSU        3,751        15,007        22,510       
22,510
 

Oreste Donzella

     Annual PRSU        1,340        5,360        8,040       
8,040
 

Brian Lorig

     Annual PRSU        1,393        5,574        8,361        8,361  

Annual RSU Awards

The Compensation and Talent Committee (or in the case of Mr. Wallace, the Outside Directors) also approved annual 2023 RSU grants to our NEOs. Each RSU award vests over four years, with 25% of the RSUs underlying the award vesting on each of the first four anniversaries of the applicable vesting commencement date, subject to continued service through the applicable vesting date. The size of the RSU and annual PRSU awards to NEOs are typically weighted equally, except in the case of Mr. Wallace, whose grants are weighted 60% annual PRSUs (at target levels) and 40% RSUs. Fiscal year RSUs are granted with dividend equivalent rights which entitle the recipient to receive credits, payable in cash or additional shares of our Common Stock, equal to the cash dividends that would have been received on the shares of our Common Stock had the shares been issued and outstanding on the dividend record date. Dividend equivalents are only paid to the recipient upon vesting or settlement of the underlying award.

The following table sets forth the RSU grants for each NEO in fiscal year 2023:

 

Name

   Target Value ($)(1)      Shares (#)  

Richard Wallace

     5,400,000        16,097  

Bren Higgins

     2,000,000        5,961  

Ahmad Khan

     2,100,000        6,260  

Oreste Donzella

     850,000        2,533  

Brian Lorig

     1,000,000        2,980  

(1) The number of shares underlying our fiscal year 2023 RSUs was determined by dividing a dollar target by the 90-day average of our closing stock price ending on the Friday prior to approval of the awards. In fiscal year 2023, the 90-day average price was 16% lower than the price on the date of grant, which is the price used to determine the value of the award in the “Summary Compensation Table.”

Complementary EPS–Based PRSU Awards

At our June 2022 Investor Day, we articulated an ambitious long-term growth plan for our business, including achieving non-GAAP EPS of $36.50 to $39.50 by the end of calendar year 2026 (reflecting +17% and +20% CAGRs off our FY2021 non-GAAP EPS of $21.15, respectively).(1)

In order to align our executive team around this aggressive goal, the Compensation and Talent Committee determined to provide each of our NEOs with EPS Awards. The EPS Awards are intended to provide our NEOs with a strong incentive to meet or exceed our long-term growth plan and requires sustained performance and service through the end of fiscal year 2026 to be fully achieved.

The EPS Awards were provided to complement our ongoing annual long-term incentives as the Compensation and Talent Committee sought to maintain the strong focus on our Relative Free Cash Flow metric applicable to our annual PRSUs, and to balance the risk of tying incentives to four-year absolute financial goals that require significant, sustained EPS growth in a highly cyclical industry. The Compensation and Talent Committee intends for the EPS Awards to be granted only in fiscal year 2023 in connection with our 2026 long-term plan. More broadly, the Compensation and Talent Committee only contemplates the provision of awards outside of our annual compensation programs in limited scenarios when warranted by extraordinary strategic, competitive, or individual contexts. The Compensation and Talent Committee has not granted any awards outside of our recurring annual long-term incentive programs for fiscal year 2024 and is not currently considering any additional future non-annual ongoing long-term incentive awards to our NEOs.

 

1. The reconciliation of long-term non-GAAP measures to the most directly comparable GAAP measures is not presented because of the inherent difficulty in predicting with a reasonable degree of certainty, the occurrence, financial impact and timing of items that would be expected to impact GAAP results but would not impact non-GAAP results, such as acquisition costs, restructuring costs and discrete taxable events without unreasonable efforts. These reconciling items could significantly impact, either individually or in the aggregate, the future GAAP measures.

 

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General. Each EPS Award is comprised of three tranches (each, a “Tranche”), with each Tranche covering approximately one-third of the total target number of PRSUs underlying the EPS Award. A number of PRSUs subject to each Tranche ranging from 0% to 250% of the target number of PRSUs subject to such Tranche will be eligible to vest based on (i) our EPS for each fiscal year during the performance period set forth below for such Tranche (each, a “performance period”) and (ii) the applicable NEO’s continued service with us or our affiliates through applicable service-vesting date(s) set forth below (each, a “Vesting Date”). Vested EPS Awards will be settled in shares of our Common Stock.

 

Tranche

   Performance Period    Vesting Date

Tranche 1

   July 1, 2022 – June 30, 2024    June 30, 2025

Tranche 2

   July 1, 2022 – June 30, 2025    June 30, 2026

Tranche 3

   July 1, 2022 – June 30, 2026    *

* Date following June 30, 2026 upon which the plan administrator determines satisfaction of the performance condition

The goals for the EPS Awards are outlined below. Significant non-GAAP EPS growth is required for any shares to vest, and goals were set to generally reflect achieving $36.50 - $39.50 non-GAAP EPS by calendar year 2026, reflecting ~73%-~87% non-GAAP EPS growth over a four-year period.

 

      EPS Goals     

Performance Vesting Percentage

(% of Target RSUs Subject to
Applicable Tranche)*

 
      Tranche 1      Tranche 2      Tranche 3          
     < $ 40.10      < $ 65.88      < $ 95.74        0%  

Minimum Level

      $ 40.10         $ 65.88        95.74        50%  

Target Level

      $ 47.18         $ 77.50         $ 112.64        100%  

Maximum Level

      $ 56.62         $ 93.00         $ 135.17        250%  

* In the event that the non-GAAP EPS achieved during the applicable Performance Period falls between the Minimum Level and the Target Level specified above and/or the Target Level and Maximum Level specified above, in any case, the Performance Vesting Percentage shall be determined using straight line linear interpolation as between the non-GAAP EPS Goals between which such non-GAAP EPS falls (in accordance with the table above).

Vesting. Up to 250% of the target number of PRSUs subject to each Tranche will be eligible to performance-vest based on our non-GAAP EPS during the applicable performance period compared to certain non-GAAP EPS goals set forth in the applicable award agreement, as described below.

Following the completion of each performance period, the Compensation and Talent Committee or the Outside Directors will confirm our non-GAAP EPS for the applicable performance period and the number of PRSUs that have become earned with respect to the performance period (such earned PRSUs, the “Performance-Vested PRSUs”). Any PRSUs that do not become Performance-Vested PRSUs will be cancelled and forfeited. The Performance-Vested PRSUs will become fully vested on the applicable Vesting Date set forth above, subject to the applicable NEO’s continued service through such date.

Awards. The following amounts represent the target number of PRSUs granted to the named executive officers:

 

Name

   Target Value ($)      Target Number of PRSUs  

Richard Wallace

     7,500,000        18,872  

Bren Higgins

     5,000,000        12,581  

Ahmad Khan

     5,000,000        12,581  

Oreste Donzella

     2,000,000        5,032  

Brian Lorig

     2,000,000        5,032  

 

 

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EPS is a non-GAAP financial measure and is disclosed in our earnings releases each quarter. EPS excludes the following measures included in GAAP earnings per diluted share attributable to KLA: (i) acquisition-related charges; (ii) restructuring, severance and other charges; (iii) charges associated with redemption of debt; (iv) goodwill and intangible impairment; (v) income tax effects of non-GAAP adjustments; and (vi) discrete tax items (in each case, with such adjustments to occur in a manner materially consistent with our past practice or as a result of new laws and regulations). For purposes of calculating non-GAAP EPS, if the effective tax rate is more than (x) 1% greater than the assumed tax rate of 14% (the “Assumed Tax Rate”), then the effective tax rate used for purposes of such calculations shall equal 1% more than the Assumed Tax Rate, or (y) 1% less than the Assumed Tax Rate, then the effective tax rate used for purposes of such calculations shall equal 1% less than the Assumed Tax Rate.

Change of Control. If a “change of control” (as defined in our 2004 Equity Incentive Plan) occurs prior to June 30, 2026 and the applicable NEO remains in continued service until at least immediately prior to the change of control, then: