DEF 14A 1 d777576ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

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Applied Materials, Inc.

 

 

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LOGO

2020 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT


Table of Contents
    

 

LOGO

January 30, 2020

Dear Fellow Shareholders:

On behalf of the Board of Directors, we are pleased to invite you to attend Applied Materials’ 2020 Annual Meeting of Shareholders, which will be held on Thursday, March 12, 2020, at 11:00 a.m. Pacific Time at our corporate offices at 3050 Bowers Avenue, Building 1, Santa Clara, California 95054.

We encourage you to read this Proxy Statement because it contains important information for voting your shares and sets forth how the Board oversaw your investment over the past year. This year’s Proxy Statement reflects our continued focus on our business strategy, an engaged and effective Board, sound corporate governance and executive compensation practices, our sustainability and corporate social responsibility strategy and our regular dialogue with and responsiveness to our shareholders.

Financial Performance and Business Strategy

In fiscal 2019, Applied Materials delivered solid results in a challenging market environment that was shaped by down cycles in both semiconductor and display equipment spending. Our broad portfolio of products and technologies has helped make Applied a more resilient company that can perform well in a variety of conditions. We are carefully managing our spending while increasing our R&D investments in new capabilities and products that put us in a great position for the future.

We maintain a positive long-term view of our markets as major new growth drivers emerge in the form of the Internet of Things (IoT), big data and artificial intelligence (AI). As the industry transitions to this new era of computing, there is a tremendous need for innovation in semiconductors and displays, and we believe this creates exciting opportunities for Applied. We remain focused on working closely with our customers to accelerate their roadmaps and bring technology breakthroughs to market.

Shareholder Engagement

We are committed to effective corporate governance that is informed by our shareholders, promotes the long-term interests of our shareholders, and strengthens the Board’s and management’s accountability.

We have a robust shareholder outreach program that focuses on governance, compensation, environmental and sustainability issues of interest to our shareholders. The outreach is a recurring, year-round effort, led by a cross-functional team that includes members of our Investor Relations, Global Rewards, Diversity and Inclusion, Environmental Health and Safety and Legal functions, with participation of independent directors where appropriate. Shareholder feedback directly informs the Board’s decision-making on a variety of matters.

In response to the high level of shareholder support at last year’s annual meeting for a proposal for shareholder action by written consent, management and directors engaged in an extensive shareholder outreach to hear directly from our shareholders on their views on the topic. Feedback received was shared and discussed with the full Board. In response to the shareholder feedback and after careful consideration, the Board is submitting for shareholder approval an amendment and restatement of our Certificate of Incorporation to allow shareholder action by written consent.

Thank you for your continued investment in and support of Applied Materials.

Sincerely,

 

LOGO

 

Thomas J. Iannotti

Chairman of the Board

  

LOGO

 

 

Gary E. Dickerson

President and Chief Executive Officer

  

 

3050 Bowers Avenue

Santa Clara, California 95054

Phone: (408) 727-5555

  

Mailing Address:

Applied Materials, Inc.

3050 Bowers Avenue

P.O. Box 58039

Santa Clara, California 95052-8039


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LOGO

NOTICE OF

2020 ANNUAL MEETING OF SHAREHOLDERS

Thursday, March 12, 2020

at 11:00 a.m. Pacific Time

The 2020 Annual Meeting of Shareholders of Applied Materials, Inc. will be held on Thursday, March 12, 2020, at 11:00 a.m. Pacific Time at our corporate offices at 3050 Bowers Avenue, Building 1, Santa Clara, California 95054.

Items of Business

 

 

1.  To elect ten directors to serve for a one-year term and until their successors have been duly elected and qualified.

 

 

2.  To approve, on an advisory basis, the compensation of our named executive officers for fiscal year 2019.

 

 

3.  To ratify the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year 2020.

 

 

4.  To approve an amendment and restatement of our Certificate of Incorporation to allow shareholders to act by written consent.

 

 

5.  To transact any other business that may properly come before the Annual Meeting or any adjournment or postponement of the Annual Meeting.

 

Your vote is important to us. You may vote via the Internet or by telephone, or if you requested to receive printed proxy materials, by signing, dating and returning your proxy card. If you are voting via the Internet or by telephone, your vote must be received by 11:59 p.m. Eastern Time on Wednesday, March 11, 2020. For specific voting instructions, please refer to the information provided in the following Proxy Statement, together with your proxy card or the voting instructions you receive by e-mail or that are provided via the Internet.

If you received a Notice of Internet Availability of Proxy Materials on how to access the proxy materials via the Internet, a proxy card was not sent to you, and you may vote only via the Internet, unless you have requested a paper copy of the proxy materials, in which case, you may also vote by telephone or by signing, dating and returning your proxy card. Shares cannot be voted by marking, writing on and returning the Notice of Internet Availability. Any Notices of Internet Availability that are returned will not be counted as votes. Instructions for requesting a paper copy of the proxy materials are set forth on the Notice of Internet Availability.

 

By Order of the Board of Directors

 

LOGO

Christina Y. Lai

Corporate Secretary

Santa Clara, California

January 30, 2020

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be held on March 12, 2020: The Proxy Statement and Annual Report to Shareholders are available at www.proxyvote.com.


Table of Contents

 

TABLE OF CONTENTS

 

 

     Page  
2020 Proxy Statement Summary      i  

Annual Meeting of Shareholders

     i  

Proposals and Board Recommendations

     i  

Director Nominees

     ii  

Board Practices and Composition

     iii  

Corporate Governance

     iv  

Executive Compensation

     v  

Sustainability and Corporate Social Responsibility

     xi  
Proposal 1—Election of Directors      1  

Nominees

     1  
Board and Corporate Governance Practices      7  

Board Composition and Nominee Considerations

     7  

Nominee Skills and Experience

     7  

Board Composition and Refreshment

     8  

Corporate Governance

     9  

Corporate Governance Guidelines

     9  

Board Leadership

     10  

Director Onboarding and Education

     10  

Board and Committee Evaluations

     10  

Board’s Role in Risk Oversight

     11  

Management Succession Planning

     12  

Shareholder Rights

     12  

Shareholder Engagement

     13  

Shareholder Communications

     14  

Stock Ownership Guidelines

     14  

Standards of Business Conduct

     14  

Board Meetings and Committees

     14  
Director Compensation      16  

Compensation Program for Directors

     16  

Director Compensation for Fiscal 2019

     17  
Stock Ownership Information      18  

Principal Shareholders

     18  

Directors and Executive Officers

     19  
Proposal 2—Approval, on an Advisory Basis, of the Compensation of Our Named Executive Officers      20  
Compensation Discussion and Analysis      21  

Executive Summary

     21  

Compensation Governance and Decision-Making Framework

     28  

Components of Total Direct Compensation

     29  

Additional Compensation Programs and Policies

     38  
     Page  
Human Resources and
Compensation Committee Report
     40  
Executive Compensation      41  

Summary Compensation Table for Fiscal 2019, 2018 and 2017

     41  

Grants of Plan-Based Awards for Fiscal 2019

     42  

Outstanding Equity Awards at Fiscal 2019 Year-End

     43  

Option Exercises and Stock Vested for Fiscal 2019

     44  

Non-Qualified Deferred Compensation

     44  

Employment Agreement

     45  

Potential Payments Upon Termination or Change of Control

     46  

CEO Pay Ratio

     46  

Certain Relationships and Related Transactions

     47  
Proposal 3—Ratification of the Appointment of Independent Registered Public Accounting Firm      48  

Fees Paid to KPMG LLP

     48  

Policy on Audit Committee’s Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

     49  

Audit Committee Report

     49  
Proposal 4—Approval of an Amendment and Restatement of Our Certificate of Incorporation to Allow Shareholders to Act by Written Consent      50  

Background

     50  

Shareholder Engagement

     50  

Shareholder Feedback

     50  

Board’s Decision and Rationale

     51  

Shareholder Approval Required

     52  
Questions and Answers About the Proxy Statement and Our 2020 Annual Meeting      53  
Other Matters      58  

Shareholder Proposals or Nominations for 2021 Annual Meeting

     58  

No Incorporation by Reference

     58  
Appendix A: Unaudited Reconciliation of Non-GAAP Adjusted Financial Measures      A-1  
Appendix B: Proposed Amended and Restated Certificate of Incorporation      B-1  

Reconciliation of non-GAAP adjusted financial measures used in the Compensation Discussion and Analysis section and elsewhere in this Proxy Statement, other than as part of disclosure of target levels, can be found in Appendix A.

 

 

Cautionary Note Regarding Forward-Looking Statements

This Proxy Statement contains forward-looking statements, including those regarding anticipated growth and trends in our businesses and markets, industry outlooks, market share, technology transitions, our business, strategies and financial performance, our development of new products, technologies and capabilities, and other statements that are not historical fact, and actual results could differ materially. Risk factors that could cause actual results to differ are set forth in the “Risk Factors” section of, and elsewhere in, our 2019 Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. All forward-looking statements are based on management’s estimates, projections and assumptions as of the date hereof, and Applied Materials undertakes no obligation to update any such statements.


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2020 PROXY STATEMENT SUMMARY

 

2020 PROXY STATEMENT SUMMARY

Your proxy is being solicited on behalf of the Board of Directors of Applied Materials, Inc. We are making this Proxy Statement available to shareholders beginning on January 30, 2020. This summary highlights information contained elsewhere in this Proxy Statement. We encourage you to read the entire Proxy Statement for more information prior to voting.

Annual Meeting of Shareholders

 

 

Date and Time:    March 12, 2020, 11:00 a.m. Pacific Time
Location:    Applied Materials, Inc., 3050 Bowers Avenue, Building 1, Santa Clara, California 95054
Record Date:    January 16, 2020
Voting:    Shareholders as of the record date are entitled to vote. Each share of common stock is entitled to one vote for each director nominee and one vote for each of the proposals to be voted on.
Attendance:    Shareholders and their duly appointed proxies may attend the meeting.

Proposals and Board Recommendations

 

 

      For More Information   Board Recommendation
Proposal 1 – Election of Directors    Pages 1 to 6    FOR each Nominee

Judy Bruner

 

Stephen R. Forrest

 

Yvonne McGill

    

Xun (Eric) Chen

 

Thomas J. Iannotti

 

Scott A. McGregor

    

Aart J. de Geus

Gary E. Dickerson

 

Alexander A. Karsner

Adrianna C. Ma

      
     
Proposal 2 – Executive Compensation    Page 20   FOR

Approval, on an advisory basis, of the compensation of our named executive officers for fiscal year 2019

    
     
Proposal 3 – Ratification of Registered Accounting Firm    Page 48   FOR

Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year 2020

    
     
Proposal 4 – Amend and Restate our Certificate of Incorporation to Allow Shareholders to Act by Written Consent    Pages 50 to 52   FOR

Approval of an amendment and restatement of our Certificate of Incorporation to allow shareholders to act by written consent

        


 

Applied Materials, Inc.    i


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Director Nominees

 

 

Name and Occupation

 

Age

 

Director Since

 

Independent

 

Committees

 

Judy Bruner

 

 

61

 

 

2016

 

 

 

 

Governance (Chair)

Executive Vice President, Administration and Chief
Financial Officer, SanDisk Corporation (retired)

 

       

Audit

 

 

Xun (Eric) Chen

 

 

50

 

 

2015

 

 

 

 

Compensation

Managing Partner, SB Investment Advisers (US), Inc.

 

       

Strategy

 

 

Aart J. de Geus

 

 

65

 

 

2007

 

 

 

 

Strategy (Chair)

Chairman of the Board of Directors, Co-Chief Executive
Officer, Synopsys, Inc.

 

       

Investment

 

 

Gary E. Dickerson

 

 

62

 

 

2013

       

President and Chief Executive Officer, Applied Materials, Inc.

       

 

Stephen R. Forrest

 

 

69

 

 

2008

 

 

 

 

Audit

Professor of Electrical Engineering & Computer Science,
Physics, and Materials Science & Engineering, University of Michigan

 

       

Strategy

Investment

 

 

Thomas J. Iannotti

 

 

63

 

 

2005

 

 

 

 

Compensation (Chair)

Senior Vice President and General Manager, Enterprise
Services, Hewlett-Packard Company (retired)

 

       

 

Alexander A. Karsner

 

 

52

 

 

2008

 

 

 

 

Compensation

Senior Strategist, X

 

       

Governance

 

 

Adrianna C. Ma

 

 

46

 

 

2015

 

 

 

 

Investment (Chair)

Managing Partner, Haleakala Holdings LLC

       

Audit

Governance

 

 

Yvonne McGill

 

 

52

 

 

2019

 

 

 

 

Audit

Chief Financial Officer, Senior Vice President, Infrastructure Solutions Group and Global Financial Planning and Analysis, Dell Technologies

 

       

 

Scott A. McGregor

 

 

63

 

 

2018

 

 

 

 

Audit

President and Chief Executive Officer, Broadcom Corporation (retired)

 

             

Strategy

 



 

ii     2020 Proxy Statement


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2020 PROXY STATEMENT SUMMARY

 

Board Practices and Composition

 

Ensuring the Board is composed of directors who possess a wide variety of relevant skills, professional experience and backgrounds, bring diverse viewpoints and perspectives, and effectively represent the long-term interests of shareholders is a top priority of the Board and the Corporate Governance and Nominating Committee. Our Board composition reflects strong Board practices that support regular refreshment based on board needs and proactive succession planning.

 

Director Nominee Expertise   Key Attributes

 

LOGO

 

 

 

 

LOGO

Semiconductor Industry & Technology Financial and Accounting Global Business Strategy and Innovation Operations and Infrastructure Government Policy M&A and Organizational Growth Risk Management Public Company Board Experience Executive Leadership Independence 9 of 10 director nominees are independent Diversity 40% of director nominees are ethnically and/or gender diverse 30% are female 20% are ethnically diverse Tenure 2 directors added to Board over last 2 years > 10 years tenure 4-10 years tenure 0-4 years tenure 4 directors 3 directors 3 directors

Board Practices Support Thoughtful Board Composition

 

 

Board Composition to Support Company Strategy

The Board and the Corporate Governance and Nominating Committee regularly evaluate the size and composition of the Board to ensure appropriate alignment with the Company’s evolving business and strategic needs.

 

 

Policy on Board Diversity

The Board is committed to having a Board that reflects diverse perspectives, including those based on gender, ethnicity, skills, experience at policy-making levels in areas that are relevant to the Company’s global activities, and functional, geographic or cultural background. The Board has adopted a Policy on Diversity as part of its Corporate Governance Guidelines, which highlights its commitment to actively seek out women and ethnically diverse director candidates.

 

 

Annual Board Evaluations

The Board conducts an annual self-assessment of Board, Board Committees and individual directors to evaluate effectiveness.

 

 

Board Refreshment

The Board believes the fresh perspectives brought by new directors are critical to a forward-looking and strategic Board when appropriately balanced by the deep understanding of Applied’s business provided by longer-serving directors.

 

 

Director Succession Planning

The Corporate Governance and Nominating Committee reviews the short- and long-term strategies and interests of Applied to determine what current and future skills and experience are required of the Board in exercising its oversight function.

 



 

Applied Materials, Inc.    iii


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Corporate Governance

 

We are committed to effective corporate governance that is informed by our shareholders, promotes the long-term interests of our shareholders, and strengthens Board and management accountability.

Governance Highlights

 

 

 Annual Election of Directors

 

 

 

 Shareholder Proxy Access

 

 

 Independent Chairman of the Board

 

 

 

 No Poison Pill

 

 

  Highly Independent Board (9 of 10 Director nominees) and Committees

 

 

 

 No Supermajority Vote Requirements

 

 

 Annual Board, Committee and Individual Evaluations

 

 

 

 Majority Voting for Directors

 

 

 Robust Board Succession Planning

 

 

 

 Regular Executive Sessions of Independent Directors

 

 

 Active Shareholder Engagement Practices

 

 

 

 Stock Ownership Guidelines for Directors and Executives

 

 

 Shareholder Right to Call a Special Meeting

 

 

 

 Clawback Policy for Annual and Long-Term Incentive Plans

 

Shareholder Engagement

We believe that strong corporate governance should include regular engagement with our shareholders to enable us to understand and respond to shareholder concerns. We have a robust shareholder outreach program led by a cross-functional team that includes members of our Investor Relations, Global Rewards, Diversity and Inclusion, Environmental Health and Safety and Legal functions. Independent members of our Board are also involved, as appropriate. In the fall, we solicit feedback on our executive compensation program, corporate governance practices, and sustainability and inclusion and diversity initiatives, as well as any matters voted on at our prior annual meeting. After the filing of our proxy statement, we engage again with our shareholders about important topics to be addressed at our annual meeting. Following our annual meeting, we review the results of the meeting and investor feedback, as well as evaluate emerging trends in corporate governance and other areas. We share feedback we receive from our shareholders with the Human Resources and Compensation Committee, Corporate Governance and Nominating Committee, and the full Board. Shareholder input is then factored into the Board’s decision-making. See “Shareholder Engagement” on page 13 for more information.

In response to the high level of shareholder support at last year’s annual meeting for the proposal on shareholder action by written consent, this year, we also engaged in extensive shareholder outreach to hear directly from our shareholders on their views on shareholder action by written consent, as well as our existing special meeting process. Some of our independent directors participated in the outreach with several of our shareholders. Feedback received from the shareholders was shared and discussed with the Board. See “Shareholder Engagement” on page 13 for more information.



 

iv     2020 Proxy Statement


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2020 PROXY STATEMENT SUMMARY

 

Executive Compensation

 

Company Overview

Applied Materials is the leader in materials engineering solutions used to produce virtually every new chip and advanced display in the world. Our expertise in modifying materials at atomic levels and on an industrial scale enables customers to transform possibilities into reality. At Applied Materials, our innovations make possible the technology shaping the future.

We develop, design, produce and service semiconductor and display equipment for manufacturers that sell into highly competitive and rapidly changing end markets. Our competitive positioning is driven by our ability to identify major technology inflections early, and to develop highly differentiated materials engineering solutions for our customers to enable those technology inflections. Through our broad portfolio of products and technologies, innovation leadership and focused investments in research and development, we are enabling our customers’ success and creating significant value for our shareholders.

2019 Performance Highlights

Over the past several years, our broad portfolio of products and services has made Applied a more resilient company that can perform well in a variety of conditions. In 2019, we delivered solid performance against very aggressive targets in a challenging market environment that was affected by down cycles in both memory and display equipment spending. Key highlights include:

 

   

Revenue of $14.6 billion;

 

   

Operating profit of $3.4 billion, resulting in GAAP EPS of $2.86, and non-GAAP adjusted EPS of $3.04 (see Appendix A for a reconciliation of non-GAAP adjusted measures);

 

   

Delivered operating cash flow of $3.2 billion, equal to 22% of revenue; and

 

   

Returned $3.2 billion to shareholders through dividends and share repurchases.

Highlights of five-year performance achievements across key financial measures

 

 

LOGO

Non-GAAP adjusted operating margin and non-GAAP adjusted EPS are performance targets under our bonus and long-term incentive plans. See Appendix A for non-GAAP reconciliations.



 

Applied Materials, Inc.    v


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Strategic and Operational Highlights

We believe the electronics industry is in a period of transition as major new growth drivers emerge in the form of the Internet of Things (IoT), big data and artificial intelligence (AI). In fiscal 2019, we continued to focus on initiatives that will help accelerate our customers’ roadmaps and put Applied in the best position for the future. Key highlights include:

 

   

We continued to prioritize our operating expenses towards R&D to solve major technology challenges for our customers and drive our long-term growth strategy.

 

   

In addition to advancements in our traditional unit process equipment, we introduced new Integrated Materials Solutions – a new category of products that combine multiple process steps in a single system to help customers create new types of semiconductor structures and devices.

 

   

We strengthened our capabilities to address the growing number of applications within the IoT, communications, automotive, power and sensor markets.

 

   

We grew our installed base of semiconductor and display equipment by approximately 2,000 systems to now total nearly 43,000. Also, the number of tools we have under long-term service agreements (which generate subscription-style revenue) has increased by approximately 30% since 2017.

 

   

We expanded our R&D capabilities by opening the Materials Engineering Technology Accelerator (META Center), a state-of-the-art facility aimed at speeding customer prototyping of new materials, process technologies and devices. The META Center extends Applied’s ability to collaborate with customers to pioneer new ways of improving chip performance, power and cost.

The Human Resources and Compensation Committee (“HRCC”) approved an aggressive set of scorecard targets for the executive officers for fiscal 2019, including financial targets above any levels that Applied had achieved in the past, as well as equally challenging operational targets. Although the aggressive targets resulted in below-target bonus payments, the Company expects to see market share growth for calendar year 2019 and also made significant progress on long-term growth initiatives.

During fiscal 2019, Applied delivered solid financial and operational performance in a challenging environment and made meaningful progress towards our long-term strategic goals that are focused on enabling strong longer-term revenue and EPS growth; however, the results were below aggressively set targets. Accordingly, bonus payouts to our executive officers were below target bonus amounts. As part of our multi-year incentive program, for the period of 2017 to 2019, the HRCC approved aggressive goals for non-GAAP adjusted operating margin and wafer fabrication equipment (“WFE”) market share. The results for this three-year performance period were above target, resulting in above target level performance share unit awards for our executive officers.



 

vi     2020 Proxy Statement


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2020 PROXY STATEMENT SUMMARY

 

Stock Price Performance

In fiscal 2019, our stock price performance reflected steady market optimism, particularly in the second half of the year, as the semiconductor market environment showed early signs of strength in foundry and logic spending, and continued reduction in memory inventory levels. Over the past five years, Applied has outperformed the S&P 500 Index, as shown below. In addition, Applied outperformed peers by over 40% in fiscal 2019.

FY2015 – FY2019 Total Shareholder Return vs. Key Peers

 

 

LOGO

 



 

Applied Materials, Inc.    vii


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Primary Compensation Elements and Executive Compensation Highlights for Fiscal 2019

The primary elements of our compensation program consist of base salary, annual incentive bonuses and long-term incentive awards. Other elements of compensation include a 401(k) savings plan, deferred compensation benefits and other benefits programs that are generally available to all employees. Primary elements and highlights of our fiscal 2019 compensation program were as follows:

 

    Element of Pay  

 

  Structure  

 

  Highlights
                         
         

Base Salary

(see page 29)

   

 

 

 

Fixed cash compensation for expected day-to-day responsibilities

 

   

 

 

 

Fiscal 2019 salaries for each named executive officer (“NEO”) increased from 2018 levels to reflect increases in competitive pay positioning levels

   
     

Reviewed annually and adjusted when appropriate, based on scope of responsibility, performance, time in role, experience, and competitive market for executive talent

 

         
                         
         

Annual

Incentive

Bonuses

(see page 29)

   

 

 

 

 

 

 

 

Variable compensation paid in cash

 

Based on performance against pre-established financial, operational, strategic and individual performance measures

 

Financial and non-financial metrics provide a comprehensive assessment of executive performance

 

Performance metrics evaluated annually for alignment with strategy and market trends

 

NEO annual incentives determined through three-step performance measurement process:

 

 

LOGO     

Funding Allocation 1 Initial Funding Threshold Non-GAAP Adjusted EPS 2 Corporate Scorecard Business and Strategic Goals 3 Individual Performance Modifier Individual NEO Performance

   

 

 

 

 

 

 

 

Fiscal 2019 target bonuses as a percentage of base salary were the same as fiscal 2018 levels for all the NEOs, except for Mr. Durn, whose target was increased to reflect competitive pay positioning level for annual incentive targets for CFOs

 

The initial funding threshold non-GAAP adjusted EPS goal for fiscal 2019 was $2.90. The Company achieved an actual result of $3.04

 

As the initial funding threshold was achieved, the annual bonuses were based on the performance of the Company’s objective and quantifiable business and strategic goals in the corporate scorecard for each NEO

 

Based on achievement compared to goals, fiscal 2019 actual annual bonuses ranged from 0.49x to 0.69x target for our NEOs

 

— Achievement against the corporate scorecard ranged from 0.49x to 0.65x target (see corporate scorecard information on pages 32 and 33)

 

— Based on an assessment of individual performance results and the impact against both quantitative and strategic objectives, each NEO, except for Mr. Durn, received an IPF of 1.0x. Mr. Durn received an IPF of 1.25x in recognition of his above and beyond performance in successfully managing external investor relationships and his vision and execution in driving major improvements in efficiency and effectiveness across the Finance organization (see individual performance highlights on page 34)

   
                                                 
                         
       

Long-Term

Incentives

(see page 35)

 

   

 

 

 

 

 

 

 

Performance share units (“PSUs”) to establish rigorous long-term performance alignment

 

Restricted stock units (“RSUs”) to provide link to shareholder value creation and retention value

 

PSUs vest based on achievement of 3-year non-GAAP adjusted operating margin and 3-year Total Shareholder Return (“TSR”) measured against the S&P 500

 

PSUs vests at end of 3-year performance period, based on achievement of performance goals; RSUs vest ratably over 3 years

 

   

 

 

 

 

 

 

 

The target vehicle mix of the equity awards consists of 75% PSUs and 25% RSUs for the CEO and 50% PSUs and 50% RSUs for the other NEOs

 

Non-GAAP adjusted operating margin is a key measure of our Company’s long-term success

 

For fiscal 2019, the WFE market share metric applicable for fiscal 2018 PSUs was replaced with relative TSR, which better reflects our growing Display and Services businesses, in addition to our semiconductor segment, and incentivizes management to outperform the market through each business environment

   
   
                                   


 

viii     2020 Proxy Statement


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2020 PROXY STATEMENT SUMMARY

 

Pay Mix

In fiscal 2019, a significant portion of our executive compensation consisted of variable compensation and long-term incentives. As illustrated below, 92% of CEO compensation for fiscal 2019 comprised variable compensation elements, and 84% of CEO overall compensation was delivered in equity with multi-year vesting.

 

FY2019 Compensation Mix1

 

CEO

  

All Other NEOs

 

LOGO

  

 

LOGO

84% Long-Term Incentives 92% Variable Compensation 76% Long-Term Incentives 87% Variable Compensation

1 Represents total direct compensation for FY2019

Summary of 2019 Total Direct Compensation

The following table summarizes elements of annual total direct compensation for our NEOs for fiscal 2019, consisting of (1) base salary, (2) annual incentive bonus and (3) long-term incentive awards (the grant date fair value of stock awards). This table excludes amounts not considered by the HRCC to be annual total direct compensation, such as certain other amounts required by the SEC to be reported in the Summary Compensation Table (see page 41 of this Proxy Statement).

 

Name and Principal Position    Salary
($)
    

Annual
Incentive
Bonus

($)

    

Annual
Long-Term
Incentive
Award

($)

    

Total

($)

 

Gary E. Dickerson

  

 

1,024,808

 

  

 

1,133,000

 

  

 

11,696,506

 

  

 

13,854,314

 

President and Chief Executive Officer

                                   

Daniel J. Durn

  

 

620,673

 

  

 

580,078

 

  

 

3,931,029

 

  

 

5,131,780

 

Senior Vice President, Chief Financial Officer

                                   

Ali Salehpour

  

 

620,673

 

  

 

411,750

 

  

 

3,931,029

 

  

 

4,963,452

 

Senior Vice President, Services, Display and Flexible Technology

                                   

Prabu G. Raja

  

 

564,058

 

  

 

430,948

 

  

 

2,892,132

 

  

 

3,887,138

 

Senior Vice President, Semiconductor Products Group

                                   

Steve G. Ghanayem

  

 

564,058

 

  

 

497,543

 

  

 

2,892,132

 

  

 

3,953,733

 

Senior Vice President, New Markets and Alliances Group

                                   


 

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Pay and Performance

The HRCC approves aggressive performance goals for the CEO, as well as for the entire executive leadership team. As a result, despite outstanding TSR growth from fiscal 2015 through 2019, our CEO’s total direct compensation has remained essentially flat over the same period.

 

 

LOGO

 

(1) 

Total direct compensation consists of annual base salary, annual incentive bonus and long-term incentive award (grant date fair value of annual equity awards). Total direct compensation shown above excludes other amounts required by the SEC to be reported in the Summary Compensation Table.

(2) 

TSR line illustrates the total shareholder return on our common stock during the period from October 23, 2015 through October 25, 2019 (the last business day of fiscal 2019), assuming $100 was invested on October 23, 2015 and assuming reinvestment of dividends.



 

x     2020 Proxy Statement


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2020 PROXY STATEMENT SUMMARY

 

Sustainability and Corporate Social Responsibility

 

Our Approach

Applied is committed to growing our business in a sustainable and socially responsible manner. We are focusing our resources and capabilities on addressing the sweeping technological challenges in the era of Artificial Intelligence and big data, and working with our customers to build a safer, more equitable and sustainable future. At the heart of Applied’s values is a commitment to operate with responsibility and integrity while making a positive contribution to our industry and the world around us. To drive change and innovation, we are making investments to research and development, our operations, our supply chain and to our interactions with our local communities.

Sustainability and Corporate Social Responsibility Governance

Our Board and management oversee sustainability matters to foster accountability. We have established executive leadership of a company-wide strategy on environmental, social and governance (ESG) matters and reporting and focused on integrating sustainability into our operations and company culture through initiatives aligned to company strategy that address a broad set of stakeholders, including customers, employees, suppliers, governments and our local communities.

Our Environmental, Health and Safety (“EHS”) organization is dedicated to maintaining a safe and healthful working environment, demonstrating environmental leadership, and meeting or exceeding regulatory compliance. The Head of EHS reports directly to the Board of Directors on a quarterly basis and provides a more in-depth environmental and sustainability update to the Audit Committee on an annual basis. We have a team fully dedicated to supporting our work in designing a culture of inclusion, and our HRCC oversees our corporate culture and human capital management programs, including our diversity and inclusion practices and initiatives. The HRCC approved ESG objectives for our annual bonus program to incentivize our leadership to improve employee safety, engagement and learning and development, to promote a culture of inclusion and to accelerate the representation of women and underrepresented minorities in our workforce. Further details and data on our sustainability and corporate social responsibility practices and accomplishments can be found in our annually published Corporate Social Responsibility Report.

We believe that investing in our people, in our communities, and in operating our business sustainably will drive long-term value for Applied and its shareholders. These three pillars, as described below, provide the framework by which we manage our key initiatives:

 

 

Sustainability

 

    Conducting business in environmentally conscious, socially responsible and ethical manner while protecting the health and safety of our workers and community  

 

    Guiding principles include designing efficient and sustainable products, pollution prevention, worker protection and ethical business practices  

 

 

People

 

    Building a culture of inclusion with a focus on leadership, eliminating systemic barriers and fostering engagement  

 

    Promoting ongoing career development for employees to encourage innovation and engagement  

 

 

 

 

Community

 

    Investing financial and human resources in communities where we work and live  

 

    Investing in education, arts and culture, civic engagement, and the environment  

 

    Encouraging employee involvement through charitable donations and volunteer programs  

 

 


 

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Key Initiatives

 

Diversity and Inclusion    Supply Chain

We believe diverse and inclusive teams create a richer culture, enhance performance, and attract the best talent.

 

  Transparency. Publish diversity and inclusion information to highlight initiatives and accomplishments and provide key diversity data to our stakeholders

 

  Commitment. Continue to build a culture of inclusion to accelerate progress towards meeting Company goals of increasing women’s representation globally and underrepresented minorities in our U.S. workforce. Promote the next generation of diverse technology leaders by supporting STEM education programs

 

  Engagement. Integrate emphasis on diversity and inclusion in new hire orientation and employee development programs and measure inclusion in our annual employee survey

  

Sustainable supply chains are core to our success, and we actively seek to manage and promote global best practices.

 

  Industry Coalition. Member of Responsible Business Alliance (formerly EICC) and have adopted its Code of Conduct, to promote safe working conditions in supply chains and environmentally-responsible, sustainable and ethical business operations

 

  Commitment to High Standards. Require all companies in our global supply chain to implement Responsible Business Alliance Code of Conduct and Applied’s Standards of Business Conduct

  
Environment    Ethics

We seek to operate and develop products in a way that minimizes environmental impact.

 

  GHG Emissions. Committed to reducing GHG emissions in our own operations and in our industries through energy-efficient product design and customer solutions

 

  Water and Waste Reduction. Our Austin, TX water reclamation project has recycled 5.7 million gallons of water. Our continued focus on recycling increased our 2018 waste diversion rate to 81%. Packaging materials now account for roughly 70% of our total recyclables

 

  Renewable Energy. Our onsite green-power generation initiatives in 2018 produced 3.4 Gigawatt hours (the equivalent of powering 2.3 million homes per year). In 2018, 31% of our energy consumption came from renewable sources

  

We maintain highest ethical standards in interactions with employees, customers, suppliers, competitors and public.

 

  Human Rights. Our Standards of Business Conduct include several important provisions on human rights, including prohibitions on the use of child labor or forced, bonded or indentured labor in our operations

 

  Conflict Minerals. Committed to responsible sourcing of materials for our products. Do not directly purchase conflict minerals or have any direct relationship with mines or smelters that process these minerals. Are involved in the Conflict-Free Sourcing Initiative (CFSI)

 

  Training and Business Ethics Helplines. Conduct numerous global training reinforcement programs and offer 24/7 Business Ethics Helplines

 



 

xii     2020 Proxy Statement


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PROPOSAL 1—ELECTION OF DIRECTORS

 

LOGO

PROXY STATEMENT

PROPOSAL 1—ELECTION OF DIRECTORS

Nominees

 

 

Applied’s Board of Directors is elected each year at the Annual Meeting of Shareholders. Applied currently has 11 directors. Dennis D. Powell is retiring from the Board, and his service on our Board will end upon completion of his current term in March 2020. The Board has authorized a reduction in the size of the Board from 11 to ten directors, effective upon the election of directors at the Annual Meeting. Upon the recommendation of the Corporate Governance and Nominating Committee, the Board has nominated the ten individuals listed below for election at the Annual Meeting, each of whom currently serves as a director of Applied. These nominees bring a wide variety of relevant skills, professional experience and backgrounds, as well as diverse viewpoints and perspectives to represent the long-term interests of shareholders, and to fulfill the leadership and oversight responsibilities of the Board.

 

If any nominee listed below becomes unable to stand for election at the Annual Meeting, the persons named as proxies may vote for any person designated by the Board to replace the nominee. Alternatively, the proxies may vote for the remaining nominees and leave a vacancy that the Board may fill later, or the Board may reduce the authorized number of directors. As of the date of this Proxy Statement, the Board is not aware of any nominee who is unable or will decline to serve as a director.

Each director elected at the Annual Meeting will serve until Applied’s 2021 Annual Meeting of Shareholders and until he or she is succeeded by another qualified director who has been elected, or, if earlier, until his or her death, resignation or removal.

 

 

 

 

THE BOARD RECOMMENDS THAT YOU VOTE FOR EACH OF THE FOLLOWING DIRECTOR NOMINEES

 

 

 

 

LOGO  

Judy Bruner

 

Executive Vice President, Administration and Chief Financial Officer, SanDisk Corporation (retired)

    

Independent Director

 

Director since 2016

 

Age 61

 

Board Committees:

 

  Corporate Governance and Nominating (Chair)

 

  Audit

 

Other Current Public Boards:

 

  Rapid7, Inc.

  Seagate Technology plc

  Varian Medical Systems, Inc.

 

Key Qualifications and Expertise:

 

  Executive leadership and management experience

 

  Semiconductor industry leadership

 

  Accounting principles, financial controls, financial reporting rules and regulations, and audit procedures

 

  Global business, industry, finance, information technology and operational experience

 

  Risk management and controls

 

  Strategy and innovation

 

  Public company board experience

 
 

 

Judy Bruner served as Executive Vice President, Administration and Chief Financial Officer of SanDisk

Corporation, a supplier of flash storage products, from June 2004 until its acquisition by Western Digital in May 2016. Previously, she was Senior Vice President and Chief Financial Officer of Palm, Inc., a provider of handheld computing and communications solutions, from September 1999 until June 2004. Prior to Palm, Inc., Ms. Bruner held financial management positions at 3Com Corporation, Ridge Computers and Hewlett-Packard Company. She currently serves as a member of the boards of directors of Rapid7, Inc., Seagate Technology plc and Varian Medical Systems, Inc. Ms. Bruner previously served as a member of the board of directors of Brocade Communications Systems, Inc., from 2009 until its acquisition in November 2017.
 
 
 
 
 
 
 
 
 
 

 

Applied Materials, Inc.    1


Table of Contents

 

 

LOGO  

Xun (Eric) Chen

 

Managing Partner,

SB Investments Advisers (US), Inc.

    

Independent Director

 

Director since 2015

 

Age 50

 

Board Committees:

 

  Human Resources and Compensation

 

  Strategy

 

Key Qualifications and Expertise:

 

  Executive leadership and management experience

 

   Semiconductor industry leadership

 

   Global business, industry and operational experience in the technology and information sector

 

   Mergers and acquisitions, capital markets

 

   Strategy and innovation

 

   Public company board experience

 
 

 

Eric Chen is a Managing Partner of SB Investment

Advisers (US), Inc. (“SBIA”), an investment adviser focused on investments in the technology sector, since March 2018. Prior to joining SBIA, Dr. Chen was the Chief Executive Officer and Co-Founder of BaseBit Technologies, Inc., a technology company in Silicon Valley. He served as CEO of BaseBit Technologies since it was founded in October 2015, except from March 2016 until December 2017, when BaseBit was a portfolio company of Team Curis Group, a group of integrated biotechnology and data technology companies and laboratories, during which time Dr. Chen served as CEO of Team Curis Group. From 2008 to 2015, Dr. Chen served as a managing director of Silver Lake, a leading private investment firm focused on technology-enabled and related growth industries. Prior to Silver Lake, Dr. Chen was a senior vice president and served on the executive committee of ASML Holding N.V. He joined ASML following its 2007 acquisition of Brion Technologies, Inc., a company he co-founded in 2002 and served as Chief Executive Officer. Prior to Brion Technologies, Dr. Chen was a senior vice president at J.P. Morgan. He served as a member of the boards of directors of Qihoo 360 Technology Co. Ltd. from 2014 to July 2016 and of Varian Semiconductor Equipment Associates, Inc. (“Varian”) from 2004 until its acquisition by Applied in 2011. Dr. Chen also currently serves as a member of the board of directors of Che Hao Duo Group.

 

 

 

LOGO     

Aart J. de Geus

 

Chairman and Co-Chief Executive Officer,

Synopsys, Inc.

    

Independent Director

 

Director since 2007

 

Age 65

 

Board Committees:

 

  Strategy (Chair)

  Investment

 

Other Current Public Boards:

 

  Synopsys, Inc.

 

Key Qualifications and Expertise:

 

  Executive leadership and global management experience

 

  Semiconductor industry leadership

 

  Innovation, management development and understanding of global challenges and opportunities

 

  Navigating a company from start-up through various stages of growth

 

  Mergers and acquisitions

 

  Cybersecurity

 

  Risk management and controls

 

  Public company board experience

 
 

 

Aart J.  de Geus is  a co-founder  of  Synopsys,   Inc., a   provider of   electronic   design   automation   software   and

related services for semiconductor design companies, and currently serves as its Chairman of the Board of Directors and Co-Chief Executive Officer. Since 1986, Dr. de Geus has held various positions at Synopsys, including President, Senior Vice President of Engineering and Senior Vice President of Marketing, and has served as a member of its board of directors. From 1982 to 1986, Dr. de Geus was employed by the General Electric Company, a global power, renewable energy, aviation, healthcare and finance company, where he was the Manager of the Advanced Computer-Aided Engineering Group.
 
 
 
 
 
 
 
 
 
 
 

 

2    2020 Proxy Statement


Table of Contents

PROPOSAL 1—ELECTION OF DIRECTORS

 

 

 

LOGO  

Gary E. Dickerson

 

President and Chief Executive Officer,

Applied Materials, Inc.

    

Director since 2013

 

Age 62

 

Key Qualifications and Expertise:

 

  Executive leadership and management experience

 

  Semiconductor industry leadership

 

  Global business, industry and operational experience

 

  Extensive engineering and technological leadership

 

  Understanding of complex industry and global challenges

 

  Expertise in driving strategy, innovation and product development

 
 

 

Gary  E.  Dickerson  has  been   Chief  Executive  Officer and   a member   of   the  Board of  Directors of  Applied

since Mr. Dickerson was named President of Applied in June 2012, after joining Applied following its acquisition in November 2011 of Varian Semiconductor Equipment Associates, Inc., a supplier of semiconductor manufacturing equipment. Mr. Dickerson had served as Chief Executive Officer and a director of Varian since 2004. Prior to joining Varian in 2004, Mr. Dickerson served 18 years with KLA-Tencor Corporation, a supplier of process control and yield management solutions for the semiconductor and related industries, where he held a variety of operations and product development roles, including President and Chief Operating Officer. Mr. Dickerson started his semiconductor career in manufacturing and engineering management at General Motors’ Delco Electronics Division and then AT&T, Inc.
 

 

 

LOGO  

Stephen R. Forrest

 

Professor of Electrical Engineering & Computer

Science, Physics, and Materials Science &

Engineering, University of Michigan

    

Independent Director

 

Director since 2008

 

Age 69

 

Board Committees:

  Audit

  Strategy

  Investment

 

Key Qualifications and Expertise:

 

  Semiconductor, displays and alternative energy technologies

 

  Research and development portfolio management

 

  Government policy

 

  Strategy, innovation, technology licensing and product commercialization

 

  Establishing partnerships to develop businesses in new markets focused on alternative energy and other technologies

 
 

 

Stephen R. Forrest holds faculty appointments as

Professor of Electrical Engineering and Computer Science, as Professor of Physics, and as Professor of Materials Science and Engineering at the University of Michigan, and leads the University’s Optoelectronics Components and Materials Group. Dr. Forrest also has been the lead editor of Physical Review Applied, a scientific journal covering engineering, physics and technologies, since June 2017. From January 2006 to December 2013, Dr. Forrest also served as Vice President for Research at the University of Michigan. From 1992 to 2005, Dr. Forrest served in a number of positions at Princeton University, including Chair of the Electrical Engineering Department, Director of the Center for Photonics and Optoelectronic Materials, and director of the National Center for Integrated Photonic Technology. Prior to Princeton, Dr. Forrest was a faculty member of the Electrical Engineering and Materials Science Departments at the University of Southern California. Dr. Forrest has participated in the founding of five companies commercializing fiber optic components, displays, lighting and solar cells.
 
 

 

Applied Materials, Inc.    3


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LOGO  

Thomas J. Iannotti

 

Senior Vice President and General Manager,

Enterprise Services, Hewlett-Packard Company

(retired)

    

Chairman of the Board

 

Independent Director

 

Director since 2005

 

Age 63

 

Board Committees:

 

  Human Resources and Compensation (Chair)

 

Other Current Public Boards:

 

  Atento S.A.

 

Key Qualifications and Expertise:

 

  Service management for technology companies on a global, regional and country level

 

  Senior leadership and management experience

 

  Global business, industry and operational experience

 

  International strategic and business development

 

  Public company board experience

 
 

 

Thomas J. Iannotti served as Senior Vice President

and General Manager, Enterprise Services, for Hewlett-Packard Company, a technology solutions provider to consumers, businesses and institutions globally, from February 2009 until his retirement in October 2011. From 2002 to January 2009, Mr. Iannotti held various executive positions at Hewlett-Packard, including Senior Vice President and Managing Director, Enterprise Business Group, Americas. From 1978 to 2002, Mr. Iannotti worked at Digital Equipment Corporation, a vendor of computer systems and software, and at Compaq Computer Corporation, a supplier of personal computing systems, after its acquisition of Digital Equipment Corporation. Mr. Iannotti currently serves as lead director of the board of directors of Atento S.A.
 
 
 
 
 
 
      

 

 

LOGO  

Alexander A. Karsner

 

Senior Strategist, X

  

Independent Director

 

Director since 2008

 

Age 52

 

Board Committees:

 

  Human Resources and Compensation

  Corporate Governance and Nominating

 

Key Qualifications and Expertise:

 

  Expertise in public policy and government relations

 

  Domestic and international trade, development and investment markets

 

  Cybersecurity

 

  Environment and sustainability, including renewable energy policy, technologies and commercialization

 

  Entrepreneurial leadership

 

  Strategy and innovation

 

  Public company board experience

 
 

 

Alexander A. Karsner is Senior Strategist at X, the innovation lab of Alphabet Inc. Mr. Karsner is also Executive Chairman of Elemental Labs, which pursues

market transformation through nature-based solutions. Mr. Karsner most recently served as Managing Partner of Emerson Collective, an investment platform funding non-profit, philanthropic and for-profit portfolios advancing education, immigration, the environment and other social innovation initiatives, from January 2016 to July 2019. Prior to this, Mr. Karsner has been Founder and CEO of Manifest Energy Inc., an energy technology development and investment firm, since July 2009, and has served as its Executive Chairman since January 2013. From March 2006 to August 2008, he served as Assistant Secretary for Energy Efficiency and Renewable Energy at the U.S. Department of Energy, and exercised a diplomatic role as a principal in the UN Framework Convention on Climate Change. From August 2002 to March 2006, Mr. Karsner was Founder and Managing Director of Enercorp, a private company involved in international project development, management and financing of energy infrastructure. Mr. Karsner has also worked with Tondu Energy Systems of Texas, Wartsila Power Development of Finland and other multi-national energy firms and developers. He is a Precourt Energy Scholar at Stanford University’s School of Civil and Environmental Engineering, and serves on Advisory Boards of MIT Medialab, and the Polsky Center for Entrepreneurship at the University of Chicago’s Booth School of Business. Mr. Karsner served as a member of the board of directors of Codexis, Inc. from 2009 to 2014, as well as Argonne National Laboratory, and was previously an Associate of the Harvard Kennedy School. He presently is on the board of Conservation International and director emeritus of the National Marine Sanctuaries Foundation. He is a Life Member of the Council of Foreign Relations and the Trilateral Commission, Distinguished Fellow of the Council on Competitiveness and a Henry Crown Fellow of the Aspen Institute.

 

4    2020 Proxy Statement


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PROPOSAL 1—ELECTION OF DIRECTORS

 

 

 

LOGO  

Adrianna C. Ma

 

Managing Partner, Haleakala Holdings LLC

  

Independent Director

 

Director since 2015

 

Age 46

 

Board Committees:

 

  Investment (Chair)

  Audit

  Corporate Governance and Nominating

 

Key Qualifications and Expertise:

 

  Broad experience with technology companies

 

  Expertise in global growth investment

 

  Financial and accounting expertise

 

  Mergers and acquisitions, capital markets

 

  Board experience with technology-enabled growth companies

 
 

 

Adrianna C. Ma has served as Managing Partner of Haleakala Holdings LLC, her personal investment firm, since July 2019. From May 2015 to June 2019,

she was a Managing Partner at the Fremont Group, a private investment company where she was responsible for a portfolio of funds, including its investment strategy, asset allocation, manager selection and risk management. From 2005 to April 2015, Ms. Ma served as a Managing Director at General Atlantic LLC, a global growth equity firm, where she invested in and served on the boards of directors of technology-enabled growth companies around the world. Prior to joining General Atlantic, Ms. Ma worked at Morgan Stanley & Co. Incorporated as an investment banker in the Mergers, Acquisitions and Restructuring Department. Ms. Ma previously served as a member of the board of directors of Jagged Peak Energy Inc. from 2019 to 2020 and C&J Energy Services, Inc. from 2013 to 2015.
 
    

 

 

 

LOGO

 

Yvonne McGill

 

Chief Financial Officer, Senior Vice President, Infrastructure Solutions Group and Global Financial Planning and Analysis

Dell Technologies, Inc.

    

Independent Director

 

Director since 2019

 

Age 52

 

Board Committees:

 

  Audit

 

Key Qualifications and Expertise:

 

  Executive leadership and management experience

 

  Accounting principles, financial controls, financial reporting rules and regulations, and audit procedures

 

  Global business, industry and operational experience in the technology sector

   
 

 

Yvonne McGill has been Chief Financial Officer and

Senior Vice President, Infrastructure Solutions Group since March 2018 and Senior Vice President, Global Financial Planning and Analysis since August 2015 at Dell Technologies, Inc., a leading global end-to-end technology provider, with a comprehensive portfolio of IT hardware, software and service solutions spanning both traditional infrastructure and emerging, multi-cloud technologies. Ms. McGill served in various other finance leadership roles since joining Dell in 1997. Prior to Dell, Ms. McGill worked at ManTech International Corporation and Price Waterhouse. She is a Certified Public Accountant (inactive). Ms. McGill also currently serves on the Susan G. Komen Greater and Central Texas Foundation Board.
 
      

 

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LOGO

 

Scott A. McGregor

 

President and Chief Executive Officer,

Broadcom Corporation (retired)

    

Independent Director

 

Director since 2018

 

Age 63

 

Board Committees:

 

  Audit

  Strategy

 

Other Current Public Boards:

 

  Equifax Inc. (since October 2017)

 

Key Qualifications and Expertise:

 

  Executive leadership and management experience

 

  Semiconductor industry leadership

 

  Global business, industry and operational experience

 

  Strategy, innovation, management development and understanding of global challenges and opportunities

 

  Cybersecurity

 

  Public company board leadership

 
 

 

Scott A. McGregor served as President and Chief

Executive Officer and as a member of the board of directors of Broadcom Corporation, a world leader in wireless connectivity, broadband, automotive and networking infrastructure, from 2005 until the company was acquired by Avago Technologies Limited in February 2016. Mr. McGregor joined Broadcom from Philips Semiconductors (now NXP Semiconductors), where he was President and Chief Executive Officer. He previously served in a range of senior management positions at Santa Cruz Operation Inc., Digital Equipment Corporation (now part of HP), Xerox PARC and Microsoft, where he was the architect and development team leader for Windows 1.0. Mr. McGregor currently serves as a member of the board of directors of Equifax Inc., and Luminar Technologies. He previously served as a member of the boards of directors of Ingram Micro Inc., TSMC, and Xactly Corporation.
 
 
 
 
 

Chairman Emeritus

 

 

James C. Morgan became Chairman Emeritus in March 2009, following his retirement as our director and Chairman of the Board. Mr. Morgan spent more than 31 years as a director and employee of Applied, including over 20 years as Chairman of the Board.

Mr. Morgan first joined Applied in 1976 and served as Chief Executive Officer from 1977 to 2003. As Chairman Emeritus, Mr. Morgan does not attend any Board or Committee meetings, has no voting rights and receives no retainer or meeting fees.

 

 

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BOARD AND CORPORATE GOVERNANCE PRACTICES

 

BOARD AND CORPORATE GOVERNANCE PRACTICES

Board Composition and Nominee Considerations

 

 

Nominee Skills and Experience

Our director nominees have a wide variety of relevant skills, professional experience and backgrounds, and collectively bring to our Board diverse viewpoints and perspectives that

strengthen its ability to represent the long-term interests of shareholders. The chart below illustrates broad categories of skills and expertise that our director nominees offer that we believe contribute to the effective leadership and exercise of oversight responsibilities by the Board.

 

 

 

LOGO   

 

LOGO

Semiconductor Industry & Technology Financial and Accounting Global Business Strategy and Innovation Operations and Infrastructure Government Policy M&A and Organizational Growth Risk Management Public Company Board Experience Executive Leadership Independence 9 of 10 director nominees are independent Diversity 40% of director nominees are ethnically and/or gender diverse 30% are female 20% are ethnically diverse Tenure 2 directors added to Board over last 2 years 10 years tenure 4 directors 4-10 years tenure 3 directors 0-4 years tenure 3 directors

 

Diversity. Our Board values having a Board that reflects diverse perspectives, including those based on gender, ethnicity, skills, experience at policy-making levels in areas that are relevant to the Company’s global activities, and functional, geographic or cultural backgrounds. In 2019 the Board adopted a Policy on Board Diversity within our Corporate Governance Guidelines, which reflects the Board’s commitment to actively seek out women and ethnically diverse director candidates and to consider the factors above, among others, in the context of the current composition of the Board and needs of the Company when identifying and evaluating director candidates.

The 10 director nominees for election at our 2020 Annual Meeting bring to our Board a variety of different backgrounds, skills, professional and industry experience and other attributes and perspectives that contribute to the overall diversity of our Board.

Independence. The Governance Committee expects each non-employee director to be free of relationships, interests or affiliations that could give rise to conflicts of interest or interfere with the director’s exercise of independent judgment. Applied’s Corporate Governance Guidelines require that a majority of our directors must be independent, and that our

Audit, Human Resources and Compensation, and Governance Committees must consist solely of independent directors.

Director independence is determined under Nasdaq listing standards and SEC rules. The Board has affirmatively determined that all members of the Board who served during 2019 and all director nominees, other than Mr. Dickerson, our Chief Executive Officer, are independent under applicable Nasdaq listing standards and SEC rules.

Tenure. The Board believes that new ideas and perspectives are critical to a forward-looking and strategic Board, as are the valuable experiences and deep understanding of Applied’s business and industries that longer-serving directors offer. Our Governance Guidelines do not impose a term limit on Board service; our directors are not typically nominated for re-election after they reach the age of 70. Feedback from the annual Board evaluations and individual discussions between each non-employee director and our Chairman is an important determinant of Board tenure. Our ongoing Board refreshment has added two new directors to the Board over the last two years and has resulted in a balanced range of tenures which ensures both continuity and fresh perspectives among our director nominees.

 

 

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Our nominees have an average tenure of 7 years, which is lower than the average tenure of other S&P 500 companies, and three of our nominees have been members of the Board for four years or less.

 

 

 

 

Regular

refreshment

resulting in

average director

tenure of 7 years

  

 

LOGO

 

 

 

Board Composition and Refreshment

Identification of New Director Candidates. Identifying and recommending individuals for nomination and election to our Board is a principal responsibility of our Governance Committee, which performs this function through an ongoing, year-round process.

The Governance Committee regularly considers the size and composition of the Board and assesses whether the composition appropriately aligns with the Company’s evolving business and strategic needs. The focus is on ensuring that the Board is composed of directors who possess a wide variety of relevant skills, professional experience and backgrounds, bring diverse viewpoints and perspectives, and effectively represent the long-term interests of shareholders.

In its consideration of potential director candidates, the Governance Committee reviews the short- and long-term strategies and interests of the Company to determine what current and future skills and experiences are required of the Board in exercising its oversight function. Specific search criteria evolve over time to reflect the Company’s dynamic business and strategic needs and the changing composition of the Board, and may include such factors as:

 

    Operating experience or thought leadership in key markets, industries, technologies or business models that are aligned with the Company’s strategic growth plans;

 

    Business or cultural background in regions where the Company does significant business;

 

    Senior executive leadership and management experience; and

 

    Subject matter expertise in such areas as corporate finance and financial reporting, governance, compensation, risk management and marketing.

In accordance with the Policy on Board Diversity, the Governance Committee actively seeks out women and ethnically diverse director candidates.

The Governance Committee also considers succession planning in light of anticipated retirements, and for Board and Committee Chair roles, to maintain relevant expertise and depth of experience.

In addition, all director candidates are also expected to possess or demonstrate:

 

    Sound judgment, analytical and inquisitive perspective, and practical wisdom;

 

    Strategic mindset and engaged and collaborative approach;

 

    Independence, personal and professional ethics, integrity and values; and

 

    Commitment to representing the long-term interests of Applied’s shareholders.

The Governance Committee may retain a search firm to assist in identifying and evaluating new candidates for director nominees and may also consider referrals from directors, shareholders or other sources. Ms. McGill, who joined our Board in July 2019, was identified and vetted as a potential candidate by a third-party search firm for consideration by the Governance Committee. The Governance Committee evaluates and interviews potential Board candidates and makes appointment recommendations to the full Board. All members of the Board may interview candidates.

Recent Board Refreshment. As a result of the foregoing process, the Board has added two new directors over the last two years, each of whom have brought valuable and diverse backgrounds and perspectives to the overall composition of the Board. The most recent appointment was Ms. McGill in July 2019. Ms. McGill is a segment chief financial officer for Dell Technologies, Inc. who brings to our Board executive leadership and management experience, as well as global business, industry and operational experience in the technology sector. Her financial and accounting background provides key experience and expertise to the Board, as Mr. Dennis Powell, Chair of the Audit Committee, prepares to retire upon completion of his current term in March 2020.

 

 

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BOARD AND CORPORATE GOVERNANCE PRACTICES

 

Regular Review of Board Composition

Drives Refreshment

 

 

LOGO

1 Assess Develop a search profile of relevant skills, background and experience sought in new directors 2 Identify Information provided to third-party search firms Potential candidates identified by independent directors, shareholders, independent search firm, our people 3 Evaluate Governance Committee screens candidates for qualifications, skills, diversity, independence and potential conflicts Candidates meet with directors 4 Recommend Governance Committee recommends selected candidates to the Board Results Two new directors over the last two years

Re-nomination of Directors for Election at Annual Meeting. In considering whether to recommend re-nomination of a director for election at our Annual Meeting, the Governance Committee considers factors such as:

 

    The extent to which the director’s skills, qualifications and experience continue to contribute to the success of our Board, taking into account current core competencies of the Board, the mix of skills and experience desired;

 

    Feedback from the annual Board evaluations and individual discussions between each non-employee director and our Chairman;

 

    Attendance and participation at, and preparation for, Board and Committee meetings;

 

    Shareholder feedback, including the support received by director nominees elected at our 2019 Annual Meeting;

 

    Outside board and other affiliations, including any actual or perceived conflicts of interest; and

 

    Considerations under the Board’s Policy on Board Diversity and the extent to which the director continues to contribute to the diversity of our Board.

Based on the Governance Committee’s recommendation, the Board selects director nominees and recommends them for election by Applied’s shareholders.

Shareholder Recommendations or Nominations. The evaluation procedures described above apply to all candidates for director nomination, including candidates submitted by shareholders. Shareholders wishing to recommend a candidate for consideration by the Governance Committee should submit the candidate’s name, biographical data and a description of his or her qualifications in light of the criteria listed above to Christina Y. Lai, Corporate Secretary, Applied Materials, Inc., 3225 Oakmead Village Drive, M/S 1268, P.O. Box 58039, Santa Clara, CA 95052, or by e-mail at corporatesecretary@amat.com.

Shareholders wishing to nominate a director should follow the specific procedures set forth in our Bylaws.

 

 

Corporate Governance

 

 

Corporate Governance Guidelines

Applied’s Corporate Governance Guidelines establish the governance framework within which the Board conducts its business and fulfills its responsibilities. These guidelines and other important governance materials are available on our website at:  http://www.appliedmaterials.com/company/

investor-relations/governance-documents. The Board regularly reviews our Corporate Governance Guidelines in light of legal and regulatory requirements, evolving best practices and other developments. In December 2019, the Board formalized its focus on diversity by adopting a Policy on Board Diversity within our Corporate Governance Guidelines as described above on page 7 under “Diversity.”

 

 

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Board Leadership

Our corporate governance framework provides the Board flexibility to determine the appropriate leadership structure for the Company, and whether the roles of Chairman and CEO should be separated or combined. In making this determination, the Board considers many factors, including the needs of the business, the Board’s assessment of its leadership needs from time to time and the best interests of shareholders. If the role of Chairman is filled by a director who does not qualify as an independent director, the Board will designate a Lead Independent Director.

The Board believes that it is currently appropriate to separate the roles of Chairman and CEO. The CEO is responsible for setting our strategic direction and the day-to-day leadership of our business, while the Chairman, along with the rest of our independent directors, ensures that the Board’s time and attention are focused on effective oversight of the matters most critical to Applied. Mr. Iannotti, an independent director, currently serves as the Chairman of the Board. Mr. Iannotti has significant experience and knowledge of Applied, working with two CEOs and different management teams at Applied, and the Board believes that his deep knowledge of the Company and industry, as well as his strong leadership and governance experience, enable him to lead the Board effectively and independently.

Director Onboarding and Education

When new directors join the Board, they participate in a comprehensive onboarding program to learn about our industry, business, strategies and policies. The multi-day onboarding program includes meetings with senior executives to discuss our businesses, strategy, operations and our corporate functions such as finance, technology, information systems and legal, and a tour of the Maydan Technology Center, our state-of-the-art R&D facilities. New directors also meet with the executives and staff supporting the Committees on which they sit, as well as the Committees’ external consultants and advisors. Each new director is also partnered with an experienced fellow director “mentor” to facilitate the integration of the new director to the Board.

For continued education regarding our business and industry, we provide presentations by internal and external experts during Board meetings on topics such as technology inflections, industry trends, changes in the geopolitical and macroeconomic landscape, and the ESG landscape, with particular focus on the implications and impact to the

Company. Our Board and Committees also regularly review developments in corporate governance to continue enhancing the Board’s effectiveness. We encourage directors to participate in external continuing director education programs and provide reimbursement for expenses associated with this participation. Throughout the year, Board members also attend Company events, including Analyst Day, our Engineering and Technology (ET) Conference, and Diversity Day. In addition, in 2019, the Board held Board and Committee meetings at our offices in Taiwan, where directors attended the grand opening of our new Display Equipment Manufacturing Center and R&D Laboratory, participated in a local employee all-hands meeting and met with our regional executives. These interactions, along with meetings with leaders below the CEO Executive Staff level throughout the year, give directors additional visibility to provide oversight of the Company’s culture, strategies and operations.

Board and Committee Evaluations

Our Board recognizes that a thorough, constructive evaluation process enhances our Board’s effectiveness and is an essential element of good corporate governance. Each year, the Governance Committee, in consultation with our independent Board Chairman, reviews and determines the design, scope, content and execution of the evaluation process, including whether to engage a third party to facilitate the evaluation.

The evaluation process consists of assessments of the Board, each standing committee of the Board, and individual directors. Written questionnaires solicit feedback on a range of issues, including Board and Committee structure and composition; meeting process and dynamics; execution of key responsibilities; interaction with management; and information and resources.

Following completion of the written questionnaires, aggregated results, including all written comments, together with data analyzing results compared to the prior year, are provided to the Chairman, who meets with each director individually to discuss additional input on these topics and to provide individual feedback. Committee chairs lead a discussion of evaluation results for their respective Committees, and a summary of Board and Committee evaluation results is discussed with the full Board, including suggestions for updating policies and practices per evaluation results. Director suggestions for improvements to the evaluation questionnaires and process are considered for incorporation for the following year.

 

 

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BOARD AND CORPORATE GOVERNANCE PRACTICES

 

2019 Board Evaluation Process

 

 

LOGO

Questionnaire Evaluation questionnaire provides director feedback on an unattributed basis One-on-One Discussions Candid, one-on-one discussions between the Chairman and each director to solicit additional feedback and provide individual feedback Board Report Board and Committee evaluation results provided to the full Board Closed Session Closed session discussion of Board and Committee evaluations led by our Chairman and independent Committee chairs Policies and practices are updated as appropriate per evaluation results and discussions

Board’s Role in Risk Oversight

One of the Board’s most important functions is overseeing risk management for the Company. Applied’s risk oversight framework illustrated below shows the close interaction between the full Board, individual committees and senior management.

 

 

LOGO

The Board The Board has the ultimate responsibility for, and is actively engaged in, oversight of the Companys risk management, in some cases directly by the full Board, and in some cases through delegation of certain types of risks to the oversight of the appropriate Board Committee. The full Board oversees risks and opportunities associated with ESG matters. COMMITTEES Audit Oversees the enterprise risk management program, as well as risks related to financial, regulatory, compliance, cybersecurity and environmental, health and safety matters, and regularly reviews with management, the head of internal audit and the independent accountants the steps taken to monitor and mitigate risk exposures Governance Oversees the management of risks related to corporate governance matters, including director independence, Board composition and succession, shareholder communications, and overall Board effectiveness HR & Compensation Oversees risks associated with Applieds compensation policies, plans and practices, organizational talent and culture, management succession, and human capital management, including the corporate culture, and diversity and inclusion programs and initiatives Management Applieds management has day-to-day responsibility for: Identifying risks and assessing them in relation to Company strategies and objectives; Implementing suitable risk mitigation plans, processes and controls; and Appropriately managing risks in a manner that serves the best interests of Applied, its shareholders and other stakeholders. Management regularly reports to the Board on its risk assessments and risk mitigation strategies for the major risks of our business. Senior management and other employees also report to the Board and its committees from time to time on risk-related issues.

 

 

Applied has implemented an enterprise risk management (“ERM”) program, overseen by the Audit Committee, which provides an enterprise-wide perspective on Applied’s risks. The risks identified are reported to the Board, with a focus on the most significant risks facing the Company, including strategic,

operational, financial, and legal and compliance risks. Oversight responsibility for a particular risk may fall within an area of responsibility and expertise of one of the Board Committees. Management reviews the ERM program activities regularly with the Audit Committee, presents an analysis of risk mitigation

 

 

Applied Materials, Inc.    11


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strategies to the Board or the respective Committee with oversight responsibility for the risk, and provides annual risk mitigation updates to the full Board.

Risk Assessment of Compensation Programs. We have assessed our compensation policies, plans and practices, and determined that they do not create risks that are reasonably likely to have a material adverse effect on Applied. To make this determination, our management reviewed our compensation policies, plans and practices, and assessed the following aspects: design, payment methodology, potential payment volatility, relationship to our financial results, length of performance period, risk-mitigating features, performance measures and goals, oversight and controls, and plan features and values compared to market practices. Management reviewed its analysis with the Human Resources and Compensation Committee, which agreed with this determination. Applied also has in place various controls to mitigate risks relating to compensation policies, plans and practices, such as executive stock ownership guidelines and a clawback policy that enables the recovery of certain incentive compensation payments in certain circumstances.

Management Succession Planning

The Board has delegated to the Human Resources and Compensation Committee (“HRCC”) primary responsibility for overseeing management succession planning and executive organizational development, as well as human capital management programs. Management updates the HRCC on programs and developments every quarter and reports to the full Board at least annually.

The HRCC reviews and advises on management’s succession and development programs for the CEO and other senior executives, with an eye toward ensuring development of the talent needed to lead Applied today and in the future and readiness of succession candidates who can assume top management positions without undue interruption. Board members have opportunities throughout the year to engage with members of senior management and other high-potential leaders in a variety of formal and informal settings, including Board meetings and events, preparatory meetings, analyst meetings and internal and external business and technology conferences.

The HRCC and Board also regularly discuss matters related to organizational health and discuss individual executive transitions as the need arises over the course of the year. The Board’s goal is to have a long-term and continuing process for effective senior leadership development and succession and to ensure that there are ready choices available when the time is right. The HRCC also receives quarterly reports from the Group Vice President of Human Resources, covering a range of topics relating to corporate culture and human capital management, including the

Company’s diversity and inclusion practices and initiatives and its sexual harassment policies.

Shareholder Rights

In addition to direct engagement through our recurring shareholder engagement program discussed below, Applied has instituted a number of mechanisms that allow shareholders to advance their points of view, including:

Right to Call a Special Meeting. Our Bylaws permit shareholders holding at least 20% of our outstanding shares of common stock to call a special meeting.

Proxy Access. Our Bylaws permit proxy access. Any shareholder (or group of up to 20 shareholders) owning 3% or more of Applied’s common stock continuously for at least three years may nominate up to two individuals or 20% of our Board, whichever is greater, as director candidates for election to the Board, and require us to include such nominees in our annual meeting proxy statement if the shareholders and nominees satisfy the requirements contained in our Bylaws.

Majority Voting. 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.

Our Bylaws provide that in the event an incumbent director receives more “against” than “for” votes, he or she shall tender his or her resignation after certification of the shareholder vote. Our Governance Committee, composed entirely of independent directors, will consider the offer of resignation, taking into consideration all factors it deems relevant, and recommend to the Board the action to be taken. The Board must take action on the recommendation within 90 days following certification of the shareholder vote. No director who tenders an offer of resignation may participate in the vote on the Governance Committee’s recommendation or the Board’s determination of whether to accept the resignation offer. Applied will publicly disclose the Board’s decision, including, if applicable, the reasons for rejecting an offer to resign.

Right to Act by Written Consent. Currently our Certificate of Incorporation prohibits shareholder action by written consent. However, after consideration of the results of last year’s shareholder proposal on shareholder action by written consent and the shareholder feedback we received, we are submitting to shareholders for approval an amendment and restatement of our Certificate of Incorporation to allow shareholder action by written consent. See “Proposal 4—Approval of an Amendment and Restatement of our Certificate of Incorporation to Allow Shareholders to Act by Written Consent” on page 50 for additional information.

 

 

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BOARD AND CORPORATE GOVERNANCE PRACTICES

 

Shareholder Engagement

We believe that strong corporate governance should include regular engagement with our shareholders to enable us to understand and respond to shareholder concerns.

Investor Relations. Our senior management team, including our CEO, CFO and members of our Investor Relations team, maintain regular contact with a broad base of investors, including through quarterly earnings calls, individual meetings and other channels for communication, to understand their concerns. In 2019, senior management participated in over

286 meetings with investors, including more than 121 meetings with the CFO and more than 24 with our CEO.

Shareholder Outreach Program. In addition, we have a robust shareholder outreach program, which is a recurring, year-round effort, led by a cross-functional team that includes members of our Investor Relations, Global Rewards, Culture of Inclusion, Environmental, Health & Safety and Legal functions, with participation of our independent directors, where appropriate. This engagement enables us to build meaningful relationships and trust over time with our shareholders.

 

 

 

LOGO

MARCH - MAY Annual Meeting Based on the results of our 2019 annual meeting, the Board and management developed a plan to solicit feedback on written consent DECEMBER - FEBRUARY Board Deliberations Based on Feedback Continued to meet with shareholders, enhanced proxy statement and annual report content based on feedback, and responded to shareholder concerns JUNE - AUGUST Action by Written Consent Focused Engagement Conducted extensive written consent engagement outreach. We reached out to holders of 57% of outstanding shares and engaged with 46% specifically on written consent SEPTEMBER - NOVEMBER General Off-Season Engagement Conducted general off-season engagement outreach. We reached out to holders of 62% of outstanding shares and engaged with 20% of holders on ESG issues

 

 

 

Key Themes Discussed with Shareholders in 2019

 

 
  Corporate Governance       Governance structure, including current shareholder rights, and desirability of action by written consent
        Input regarding potential adoption of action by written consent, market practice provisions in our corporate charter and bylaws and industry trends
 

  Board Refreshment and

  Composition

      Applied’s commitment to Board diversity, including gender, race/ethnicity and age
      Thoughtful Board processes for refreshment, succession planning and director orientation and education
 
  Risk Oversight       Framework for the Board’s oversight of risk, particularly around human capital management, culture and sustainability
 
  Executive Compensation         Compensation program, metrics, and link between pay and performance
 
  Sustainability       Shareholders’ particular ESG focus areas and Applied’s strategy, initiatives and Board oversight related to ESG matters
      Alignment of sustainability initiatives with corporate strategy; Applied’s commitment to diversity and inclusion

 

We engage with a significant cross-section of our shareholder base, including large institutional investors, pension funds, and other investors. Topics of discussion include key business, Board, governance, executive compensation, environmental, sustainability and diversity and inclusion matters, as well as other subjects of interest to our shareholders. Based on feedback from shareholders, we

have over the last few years adopted proxy access and a special meeting right and implemented changes to our executive compensation programs. During the fall of 2019, we contacted the holders of approximately 62% of our outstanding shares, and engaged in active discussions on these topics with investors who requested meetings, representing approximately 20% of our shares outstanding.

 

 

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Responsiveness to 2019 Shareholder Action by Written Consent Proposal. In response to the high level of shareholder support at the 2019 Annual Meeting for the proposal on shareholder action by written consent, and at the direction of our Governance Committee, we reached out to shareholders for their views on shareholder action by written consent, as well as our existing special meeting process. We contacted the holders of approximately 57% of our outstanding shares. Our independent Chairman of the Board and our independent Chair of the Governance Committee participated in the discussions with several of our shareholders. Feedback received from the shareholders was shared and discussed with the Board.

After careful consideration of the results of the 2019 shareholder action by written consent proposal and the shareholder feedback, as well as a comprehensive review of market practices and provisions adopted by other companies with respect to a shareholder right to act by written consent, the Board is submitting for shareholder approval an amendment and restatement of our Certificate of Incorporation to allow shareholder action by written consent, as further described in “Proposal 4—Approval of an Amendment and Restatement of our Certificate of Incorporation to Allow Shareholders to Act by Written Consent” on page 50.

Disclosure of Diversity Data. In September 2018, we disclosed key diversity data for the first time, including the gender and ethnic composition of our workforce, as well as new goals for increasing our global diversity and ensuring we have an inclusive work environment, which include increasing women and underrepresented minorities in our workforce. The disclosures not only reflect the importance of this issue to Applied, but also the input that we received from our shareholders. Shareholder feedback to the information was universally positive, with the view that it demonstrated our commitment to diversity and inclusion, transparency in disclosing data and accountability in working towards our goals.

In 2019, we provided an update of the diversity data published the previous year, as well as additional information regarding our engineering women employees in the U.S. and globally, to communicate the progress we are making towards our goals of increasing representation of women globally and underrepresented minorities in our U.S. workforce.

Shareholder Communications

Any shareholder wishing to communicate with any of our directors regarding Applied may write to the director, c/o Christina Y. Lai, Corporate Secretary, Applied Materials, Inc., 3225 Oakmead Village Drive, M/S 1268, P.O. Box 58039, Santa Clara, CA 95052, or by e-mail at corporatesecretary@amat.com. The Corporate Secretary reviews correspondence directed to the Board and, at the Corporate Secretary’s discretion, forwards items that she deems appropriate for the Board’s consideration. The independent directors of the Board review and approve the shareholder communication process periodically in order to enable an effective method by which shareholders can communicate with the Board.

Stock Ownership Guidelines

The Board has adopted stock ownership guidelines to align the interests of our directors and executive officers with those of our shareholders. The guidelines provide that non-employee directors should each own Applied stock with a value of at least five times the annual base retainer for non-employee directors. Applied’s Chief Executive Officer should own Applied stock with a value of at least six times his annual base salary. Each Section 16 officer on the CEO Executive Staff should own Applied stock with a value of at least three times his or her annual base salary. As of December 31, 2019, all of our directors and executive officers were in compliance with the stock ownership guidelines.

Standards of Business Conduct

Applied’s Standards of Business Conduct embody our commitment to ethical and legal business practices. The Board expects Applied’s directors, officers and all other members of its workforce to act ethically at all times and to acknowledge their commitment to Applied’s Standards of Business Conduct. The Standards of Business Conduct are available on our website at: http://www.appliedmaterials.com/company/investor-relations/governance-documents.

 

 

Board Meetings and Committees

 

 

The Board met five times in fiscal 2019. Each director attended over 75% of all Board and applicable committee meetings held during fiscal 2019. Directors are strongly encouraged to attend the Annual Meeting of Shareholders, and all of the directors serving on our Board at the time attended our 2019 Annual Meeting of Shareholders.

The Board has three principal committees performing the functions required by applicable SEC rules and Nasdaq listing standards to be performed by independent directors: the Audit Committee, the Human Resources and Compensation Committee, and the Corporate Governance and Nominating Committee. Each of these committees meets regularly and

 

 

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BOARD AND CORPORATE GOVERNANCE PRACTICES

 

has a written charter approved by the Board that is reviewed annually by the respective committee and by the Board. The Board also has a Strategy Committee and an Investment Committee, whose roles and responsibilities are described in Applied’s Corporate Governance Guidelines

In addition, at each regularly-scheduled Board meeting, the Chair of each committee reports on any significant matters addressed by the committee since the last Board meeting. Each director who serves on the Audit Committee, Human Resources and Compensation Committee, or Corporate

Governance and Nominating Committee is an independent director under applicable Nasdaq listing standards and SEC rules.

Copies of the current charters for the Audit, Human Resources and Compensation, and Corporate Governance and Nominating Committees can be found on our website at: http://www.appliedmaterials.com/company/investor-relations/governance-documents. The roles and responsibilities of the Strategy Committee and the Investment Committee are described in Applied’s Corporate Governance Guidelines.

 

 

 Audit Committee

 

Members:

 

Dennis D. Powell, Chair*

Judy Bruner*

Stephen R. Forrest

Adrianna C. Ma*

Yvonne McGill*+

Scott A. McGregor*

 

Primary responsibilities:

 

  Oversee financial statements, internal control over financial reporting and auditing, accounting and financial reporting processes

  Oversee the qualifications, independence, performance and engagement of our independent registered public accounting firm

  Oversee disclosure controls and procedures, and internal audit function

  Review and pre-approve audit and permissible non-audit services and fees

  Oversee tax, legal, regulatory and ethical compliance

  Review and approve related-person transactions

  Oversee financial-related risks, enterprise risk management program and cybersecurity

  Oversee matters related to Environmental Health and Safety

   Meetings in
Fiscal 2019: 11

*   Audit Committee Financial Expert

+   Appointed to Committee in July 2019

    

 

 Human Resources and Compensation Committee

 

Members:

 

Thomas J. Iannotti, Chair

Xun (Eric) Chen

Alexander A. Karsner

 

Primary responsibilities:

 

  Oversee human resources programs, compensation and employee benefits programs, policies and plans

  Review and advise on management succession planning and executive organizational development

  Determine compensation policies for executive officers and employees

  Review the performance and determine the compensation of executive officers

  Approve and oversee equity-related incentive plans and executive bonus plans

  Review compensation policies and practices as they relate to risk management practices

  Approve the compensation program for Board members

  Oversee human capital management, including the Company’s culture and diversity and inclusion programs and initiatives

   Meetings in
Fiscal 2019: 5

 

 Corporate Governance and Nominating Committee

 

Members:

 

Judy Bruner, Chair

Alexander A. Karsner

Adrianna C. Ma

Dennis D. Powell

 

Primary responsibilities:

 

  Oversee the composition, structure and evaluation of the Board and its committees

  Identify and recommend qualified candidates for election to the Board

  Establish procedures for director candidate nomination and evaluation

  Oversee corporate governance policies and practices, including Corporate Governance Guidelines

  Review and approve director service on the board of directors of other companies and oversee director education

  Review shareholder proposals and recommend to the Board actions to be taken in response to each proposal

  Review conflict of interest matters for the Board

   Meetings in
Fiscal 2019: 4

 

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DIRECTOR COMPENSATION

Compensation Program for Directors

 

 

We compensate our non-employee directors for their service on the Board with a combination of cash and equity awards. Directors who are employees of Applied do not receive any compensation for their service as directors.

Retainer and Meeting Fees

Each non-employee director receives an annual cash retainer for his or her service on the Board, as well as additional cash retainers if he or she serves as the Chairman of the Board, on a committee or as the chair of a committee. Annual retainers are paid quarterly and are prorated based on the director’s service during the fiscal year. The following table sets forth cash compensation for non-employee directors in effect during fiscal 2019.

 

Annual Base Retainer (prorated and paid quarterly)

   $ 70,000  
Additional Annual Retainers for Committee Service (prorated and paid quarterly):     

 

 

 

 

 

Audit Committee

   $ 25,000  

Human Resources and Compensation

Committee

   $ 12,500  

Corporate Governance and Nominating

Committee

   $ 10,000  

Strategy Committee

   $ 10,000  

Additional Annual Retainers for Chairman and

Committee Chairs (prorated and paid quarterly):

    

 

 

 

 

 

Chairman of the Board

   $ 150,000  

Audit Committee Chair

   $ 25,000  

Human Resources and Compensation

Committee Chair

   $ 20,000  

Corporate Governance and Nominating

Committee Chair

   $ 12,500  

Strategy Committee Chair

   $ 12,500  

In addition, non-employee directors receive $2,000 per meeting for service on the Investment Committee or other ad-hoc committee of which they are a member, or $3,000 per meeting if they are the chair of such a committee. Non-employee directors are reimbursed for travel and other reasonable out-of-pocket expenses related to attendance at Board and committee meetings, business events on behalf of Applied, and seminars and programs on subjects related to their Board responsibilities.

Equity Compensation

Initial Grant. Upon initial appointment or election to the Board, a non-employee director receives a grant of restricted stock units with respect to a number of shares of Applied common stock with a fair market value on the date of grant equal to $225,000 (rounded down to the nearest whole share), pro-rated based on the period starting on the day of initial appointment or election and ending on the day of the next scheduled annual meeting of shareholders.

Annual Grant. Each non-employee director elected at an annual meeting receives on that date a non-discretionary grant of restricted stock units with respect to a number of shares of Applied common stock with a fair market value on the date of grant equal to $225,000 (rounded down to the nearest whole share). A non-employee director who is initially appointed or elected to the Board on the day of an annual meeting of shareholders receives only an annual grant. Each of our non-employee directors re-elected at the 2019 Annual Meeting received a grant of 5,988 restricted stock units on that date.

Vesting. Grants made to our non-employee directors vest in full on the earlier of March 1 of the year following the date of grant or the next annual meeting, provided the non-employee director remains on the Board through the scheduled vesting date. Vesting of these grants will be accelerated in full upon a non-employee director’s earlier termination of service on the Board due to disability or death, or upon a change of control of Applied if the director ceases to be a non-employee director (and does not become a member of the board of directors of any successor corporation or its parent). Non-employee directors may elect in advance to defer receipt of vested shares until their termination of service on the Board.

Limit on Awards. Under our amended and restated Employee Stock Incentive Plan, grants of equity awards to any individual non-employee director may not exceed a fair market value totaling more than $400,000 in any fiscal year.

Charitable Matching Contributions

Non-employee directors are eligible to participate in The Applied Materials Foundation Matching Gift Program, under which the Foundation annually will match up to $3,000 of a non-employee director’s donations to eligible non-profit and educational organizations, as well as match an unlimited amount of donations to our annual food drive. In addition,

 

 

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DIRECTOR COMPENSATION

 

non-employee directors are eligible to participate in a matching program under the Applied Materials, Inc. Political Action Committee, under which the Company annually will match up to $2,500 of a non-employee director’s contributions for the benefit of eligible non-profit organizations

and kindergarten to 12th grade public and non-profit private schools in the U.S. Non-employee directors are subject to the same maximum matching amounts and other terms as those for Applied’s employees.

 

 

Director Compensation for Fiscal 2019

 

 

 Name      Fees Earned
or Paid in
Cash
($)
       Stock
Awards
($)(1)(2)
       All Other
Compensation
($)(3)
       Total
($)
 

 Judy Bruner

       117,500          220,119          6,500          344,119  

 Xun (Eric) Chen

       92,500          220,119          —            312,619  

 Aart J. de Geus

       104,500          220,119          —            324,619  

 Stephen R. Forrest

       117,000          220,119          750          337,869  

 Thomas J. Iannotti

       252,500          220,119          4,000          476,619  

 Alexander A. Karsner

       92,500          220,119          —            312,619  

 Adrianna C. Ma

       123,000          220,119          2,000          345,119  

 Yvonne McGill(4)

       25,577          142,201          —            167,778  

 Scott A. McGregor

       105,000          220,119          6,000        331,119  

 Dennis D. Powell

       140,000          220,119          —            360,119  
(1)

Amounts shown do not reflect compensation actually received by the directors. Instead, these amounts represent the grant date fair value of stock awards granted in fiscal 2019 (consisting of 5,988 restricted stock units granted to each director on March 7, 2019 and 2,831 restricted stock units granted to Ms. McGill on July 22, 2019 upon her initial appointment to the Board), as determined pursuant to FASB Accounting Standards Codification 718 (“ASC 718”). The assumptions used to calculate the value of stock awards are set forth in Note 12 of the Notes to Consolidated Financial Statements included in Applied’s Annual Report on Form 10-K for fiscal 2019 filed with the SEC on December 13, 2019.

(2)

Each director other than Ms. McGill had 5,988 restricted stock units outstanding at the end of fiscal 2019 and Ms. McGill had 2,831 restricted stock units outstanding at the end of fiscal 2019. In addition, certain directors had restricted stock units that had vested in previous years and for which settlement was deferred until the date of his or her termination of service from the Board, as follows: Dr. Chen, 14,286 units; Ms. Ma, 20,416 units; and Mr. Powell, 58,870 units.

(3)

Amount shown represents The Applied Materials Foundation’s and/or the Company’s matching contribution of the director’s donations/contributions to eligible non-profit organizations.

(4) 

Ms. McGill was appointed to the Board in July 2019.

 

Applied Materials, Inc.    17


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STOCK OWNERSHIP INFORMATION

Principal Shareholders

 

The following table shows the number of shares of our common stock beneficially owned as of December 31, 2019 by each person known by Applied to own 5% or more of our common stock. In general, “beneficial ownership” refers to shares that an entity or individual had the power to vote or the power to dispose of, and shares that such entity or individual had the right to acquire within 60 days after December 31, 2019.

 

    Shares Beneficially Owned  
 Name       Number         Percent(1)  

 The Vanguard Group
 100 Vanguard Blvd.
 Malvern, PA 19355

    75,042,977 (2)      8.20

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

    66,433,313 (3)      7.26

 State Street Corporation
 One Lincoln Street
 Boston, MA 02111

    47,947,194 (4)      5.24

 

(1)

Percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by 915,455,190 shares of common stock outstanding as of December 31, 2019.

(2)

The amended Schedule 13G filed with the SEC by The Vanguard Group (“Vanguard”) on February 11, 2019 indicates that as of December 31, 2018, Vanguard had sole dispositive power over 73,625,049 shares, shared dispositive power over 1,417,928 shares, sole voting power over 1,213,882 shares, and shared voting power over 227,790 shares.

(3)

The amended Schedule 13G filed with the SEC by BlackRock, Inc. (“BlackRock”) on February 4, 2019 indicates that as of December 31, 2018, BlackRock had sole dispositive power over 66,433,313 shares and sole voting power over 55,582,185 shares.

(4)

The amended Schedule 13G filed with the SEC by State Street Corporation (“State Street”) on February 13, 2019 indicates that as of December 31, 2018, State Street had shared dispositive power over 44,618,743 shares and shared voting power over 43,477,113 shares.

 

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STOCK OWNERSHIP INFORMATION

 

Directors and Executive Officers

 

The following table shows the number of shares of our common stock beneficially owned as of December 31, 2019 by: (1) each director and director nominee, (2) each NEO and (3) the current directors and executive officers as a group. In general, “beneficial ownership” refers to shares that a director or executive officer had the power to vote or the power to dispose of, and shares that such individual had the right to acquire within 60 days after December 31, 2019.

 

      Shares Beneficially Owned  
Name    Number(1)         Percent(2)  

Directors, not including the CEO:

  

 

 

 

 

 

 

 

Judy Bruner

     14,566       *  

Xun (Eric) Chen

     24,578 (3)      *  

Aart J. de Geus

     141,467       *  

Stephen R. Forrest

     66,967       *  

Thomas J. Iannotti

     59,970       *  

Alexander A. Karsner

     20,027       *  

Adrianna C. Ma

     23,199 (4)      *  

Yvonne McGill

     163       *  

Scott A. McGregor

     4,261       *  

Dennis D. Powell

     64,259 (5)      *  

Named Executive Officers:

  

 

 

 

 

 

 

 

Gary E. Dickerson

     1,564,568       *  

Daniel J. Durn

     109,696 (6)      *  

Ali Salehpour

     322,689       *  

Prabu G. Raja

     241,635       *  

Steve G. Ghanayem

     283,882       *  

Current Directors and Executive Officers, as a Group (19 persons)

     3,749,538 (7)      *  
*

Less than 1%

(1)

Except as subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all of their shares of common stock.

(2)

Percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of 915,455,190 shares of common stock outstanding as of December 31, 2019, plus the number of shares of common stock that such person or group had the right to acquire within 60 days after December 31, 2019.

(3)

Includes 14,467 restricted stock units that have vested and which, pursuant to Dr. Chen’s election to defer, will be converted to shares of Applied common stock and paid to him on the date of his termination of service from the Applied Board.

(4) 

Includes 20,681 restricted stock units that have vested and which, pursuant to Ms. Ma’s election to defer, will be converted to shares of Applied common stock and paid to her on the date of her termination of service from the Applied Board.

(5)

Includes 59,670 restricted stock units that have vested and which, pursuant to Mr. Powell’s election to defer, will be converted to shares of Applied common stock and paid to him on the date of his termination of service from the Applied Board.

(6)

Includes 18,630 restricted stock units that are scheduled to vest within 60 days after December 31, 2019.

(7)

Includes (a) 32,375 restricted stock units that are scheduled to vest within 60 days after December 31, 2019 and (b) 94,818 restricted stock units that have vested and which, pursuant to each director’s election to defer, will be converted to shares of Applied common stock and paid to the director on the date of the director’s termination of service from the Applied Board.

 

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PROPOSAL 2—APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

 

Pursuant to Section 14A of the Securities Exchange Act of 1934 (the “Exchange Act”), we are asking shareholders to approve, on a non-binding, advisory basis, the compensation of our NEOs, as described in this Proxy Statement. We seek this approval each year. Our annual “say-on-pay” proposals have been supported by our shareholders each year since we began providing this vote in 2011, and received the support of 96% of votes cast in 2019.

Our Board of Directors believes that our compensation policies and practices promote a performance-based culture and align our executives’ interests with those of our shareholders through a strong emphasis on at-risk compensation tied to the achievement of performance objectives and shareholder value. Our executive compensation program is also designed to attract and retain highly-talented executives who are critical to the successful implementation of Applied’s strategic plan.

Pay and Performance. We align compensation with our business objectives, performance and shareholder interests. See pages 26 and 35 for charts illustrating the connection between key financial and Company performance metrics and the compensation paid to our CEO during the last five fiscal years.

Significant Portion of CEO Pay Consists of Variable Compensation and Long-Term Incentives. In fiscal 2019, 92% of our CEO’s compensation comprised variable compensation elements, and 84% of his overall

compensation was delivered in equity with multi-year vesting. Performance objectives include financial and market objectives relating to adjusted operating margin, adjusted gross margin, WFE market share and relative TSR, as well as strategic and operational objectives, as described on pages 32 and 33.

Please see the “Compensation Discussion and Analysis” section for further discussion of our executive compensation program and the fiscal 2019 compensation of our NEOs.

We are asking our shareholders to approve the compensation of our NEOs as described in this Proxy Statement by voting in favor of the following resolution:

“RESOLVED, that the shareholders approve, on a non-binding, advisory basis, the compensation paid to the Company’s named executive officers as disclosed in the Company’s Proxy Statement for the 2020 Annual Meeting of Shareholders pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis section, the Summary Compensation Table, other compensation tables, narrative discussion and related disclosure.”

Even though this say-on-pay vote is advisory and therefore will not be binding on the Company, the HRCC and the Board value the opinions of our shareholders, and will consider the results of the vote when making future compensation decisions for our NEOs.

 

 

   

THE BOARD RECOMMENDS THAT YOU VOTE FOR THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS FOR FISCAL YEAR 2019, AS DISCLOSED IN THIS PROXY STATEMENT

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

 

Our Business and Strategy

Applied Materials is the leader in materials engineering solutions used to produce virtually every new chip and advanced display in the world. Our expertise in modifying materials at atomic levels and on an industrial scale enables customers to transform possibilities into reality. At Applied Materials, our innovations make possible the technology shaping the future.

We develop, design, produce and service semiconductor and display equipment for manufacturers that sell into highly competitive and rapidly changing end markets. Our competitive positioning is driven by our ability to identify major technology inflections early, and to develop highly differentiated materials engineering solutions for our customers to enable those technology inflections. Through our broad portfolio of products and technologies, innovation leadership and focused investments in research and development, we are enabling our customers’ success and creating significant value for our shareholders.

Our Performance Highlights

Over the past several years, our broad portfolio of products and services has made Applied a more resilient company that can perform well in a variety of conditions. In 2019, we delivered solid performance against very aggressive targets in a challenging market environment that was affected by down cycles in both memory and display equipment spending. Key highlights include:

 

   

Revenue of $14.6 billion;

 

   

Operating profit of $3.4 billion, resulting in GAAP EPS of $2.86, and non-GAAP adjusted EPS of $3.04 (see Appendix A for a reconciliation of non-GAAP adjusted measures);

 

   

Delivered operating cash flow of $3.2 billion, equal to 22% of revenue; and

 

   

Returned $3.2 billion to shareholders through dividends and share repurchases.

Highlights of five-year performance achievements across key financial measures

 

 

LOGO

Non-GAAP adjusted operating margin and non-GAAP adjusted EPS are performance targets under our bonus and long-term incentive plans. See Appendix A for non-GAAP reconciliations.



 

Applied Materials, Inc.    21


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Key financial highlights for our reporting segments in fiscal 2019 include the following:

 

   

Semiconductor Systems segment: we delivered annual revenue of $9.0 billion in an environment that included a significant correction in memory spending.

 

   

Applied Global Services segment: we grew revenue to a record $3.9 billion and continued to increase the number of installed base tools covered by long-term service agreements by approximately 30% since 2017.

 

   

For the calendar year 2019, we expect to outperform both the WFE market and our process equipment peers.

 

   

Display and Adjacent Markets segment: we delivered revenue of $1.7 billion and maintained profitability during an industry down cycle.

Strategic and Operational Highlights

Applied’s strategy is to deliver highly differentiated materials engineering products and services that enable major technology inflections and drive our customers’ success.

 

 

LOGO

See inflections early Identify customers High Value Problems Develop Differentiated Valuable Sustainable products Ensure customer success + Generate residual value

We believe the electronics industry is in a period of transition as major new growth drivers emerge in the form of the Internet of Things (IoT), big data and artificial intelligence (AI). In fiscal 2019, we continued to focus on initiatives that will help accelerate our customers’ roadmaps and put Applied in the best position for the future. Key highlights include:

 

   

We continued to prioritize our operating expenses towards R&D to solve major technology challenges for our customers and drive our long-term growth strategy.

 

   

In addition to advancements in our traditional unit process equipment, we introduced new Integrated Materials Solutions – a new category of products that combine multiple process steps in a single system to help customers create new types of semiconductor structures and devices.

 

   

We strengthened our capabilities to address the growing number of applications within the IoT, communications, automotive, power and sensor markets.

 

   

We grew our installed base of semiconductor and display equipment by approximately 2,000 systems to now total nearly 43,000. Also, the number of tools we have under long-term service agreements (which generate subscription-style revenue) has increased by approximately 30% since 2017.

 

   

We expanded our R&D capabilities by opening the Materials Engineering Technology Accelerator (META Center), a state-of-the-art facility aimed at speeding customer prototyping of new materials, process technologies and devices. The META Center extends Applied’s ability to collaborate with customers to pioneer new ways of improving chip performance, power and cost.

The HRCC approved an aggressive set of scorecard targets for the executive officers for fiscal 2019, including financial targets above any levels that Applied had achieved in the past, as well as equally challenging operational targets. Although the aggressive targets resulted in below-target bonus payments, the Company expects to see market share growth for calendar year 2019 and also made significant progress on long-term growth initiatives.

During fiscal 2019, Applied delivered solid financial and operational performance in a challenging environment and made meaningful progress towards our long-term strategic goals that are focused on enabling strong longer-term revenue and EPS growth; however, the results were below aggressively set targets. Accordingly, bonus payouts to our executive officers were below target bonus amounts. As part of our multi-year incentive program, for the period of 2017 to 2019, the HRCC approved aggressive goals for non-GAAP adjusted operating margin and WFE market share. The results for this three-year performance period were above target, resulting in above target level performance share unit awards for our executive officers.



 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Stock Price Performance

In fiscal 2019, our stock price performance reflected steady market optimism, particularly in the second half of the year, as the semiconductor market environment showed early signs of strength in foundry and logic spending, and continued reduction in memory inventory levels. Over the past five years, Applied has outperformed the S&P 500 Index, as shown below. In addition, Applied outperformed peers by over 40% in fiscal 2019.

FY2015 – FY2019 Total Shareholder Return vs. Key Peers

 

 

LOGO

 



 

Applied Materials, Inc.    23


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Primary Compensation Elements and Executive Compensation Highlights for Fiscal 2019

The primary elements of our compensation program consist of base salary, annual incentive bonuses and long-term incentive awards. Other elements of compensation include a 401(k) savings plan, deferred compensation benefits and other benefits programs that are generally available to all employees. Primary elements and highlights of our fiscal 2019 compensation program were as follows:

 

    Element of Pay     Structure     Highlights
                         
         

Base Salary

(see page 29)

 

   

 

 

 

Fixed cash compensation for expected day-to-day responsibilities

 

   

 

 

 

Fiscal 2019 salaries for each named executive officer (“NEO”) increased from 2018 levels to reflect increases in competitive pay positioning levels

   
     

Reviewed annually and adjusted when appropriate, based on scope of responsibility, performance, time in role, experience, and competitive market for executive talent

 

         
                         
         

Annual

Incentive

Bonuses

(see page 29)

   

 

 

 

 

 

 

 

Variable compensation paid in cash

 

Based on performance against pre-established financial, operational, strategic and individual performance measures

 

Financial and non-financial metrics provide a comprehensive assessment of executive performance

 

Performance metrics evaluated annually for alignment with strategy and market trends

 

NEO annual incentives determined through three-step performance measurement process:

 

 

 

LOGO

Funding Allocation 1 Initial Funding Threshold Non-GAAP Adjusted EPS 2 Corporate Scorecard Business and Strategic Goals 3 Individual Performance Modifier Individual NEO Performance

   

 

 

 

 

 

 

Fiscal 2019 target bonuses as a percentage of base salary were the same as fiscal 2018 levels for all the NEOs, except for Mr. Durn, whose target was increased to reflect the competitive pay positioning level for annual incentive targets for CFOs

 

The initial funding threshold non-GAAP adjusted EPS goal for fiscal 2019 was $2.90. The Company achieved an actual result of $3.04

 

As the initial funding threshold was achieved, the annual bonuses were based on the performance of the Company’s objective and quantifiable business and strategic goals in the corporate scorecard for each NEO

 

Based on achievement compared to goals, fiscal 2019 actual annual bonuses ranged from 0.49x to 0.69x target for our NEOs

 

— Achievement against the corporate scorecard ranged from 0.49x to 0.65x target (see corporate scorecard information on pages 32 and 33)

 

— Based on an assessment of individual performance results and the impact against both quantitative and strategic objectives, each NEO, except for Mr. Durn, received an IPF of 1.0x. Mr. Durn received an IPF of 1.25x in recognition of his above and beyond performance in successfully managing external investor relationships and his vision and execution in driving major improvements in efficiency and effectiveness across the Finance organization (see individual performance highlights on page 34)

 

   
                                                 
                         
       

Long-Term

Incentives

(see page 35)

 

   

 

 

 

 

 

 

Performance share units (“PSUs”) to establish rigorous long-term performance alignment

 

Restricted stock units (“RSUs”) to provide link to shareholder value creation and retention value

 

PSUs vest based on achievement of 3-year non-GAAP adjusted operating margin and 3-year Total Shareholder Return (“TSR”) measured against the S&P 500

 

PSUs vests at end of 3-year performance period, based on achievement of performance goals; RSUs vest ratably over 3 years

   

 

 

 

 

 

 

The target vehicle mix of the equity awards consists of 75% PSUs and 25% RSUs for the CEO and 50% PSUs and 50% RSUs for the other NEOs

 

Non-GAAP adjusted operating margin is a key measure of our Company’s long-term success

 

For fiscal 2019, the WFE market share metric applicable for fiscal 2018 PSUs was replaced with relative TSR, which better reflects our growing Display and Services businesses, in addition to our semiconductor segment, and incentivizes management to outperform the market through each business environment

 

   
   
                         


 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Pay Mix

In fiscal 2019, a significant portion of our executive compensation consisted of variable compensation and long-term incentives. As illustrated below, 92% of CEO compensation for fiscal 2019 comprised variable compensation elements, and 84% of CEO overall compensation was delivered in equity with multi-year vesting.

 

FY2019 Compensation Mix1

 

CEO

  

All Other NEOs

 

 

LOGO

  

 

 

LOGO

1 Represents total direct compensation for FY2019

Summary of 2019 Total Direct Compensation

The following table summarizes elements of annual total direct compensation for our NEOs for fiscal 2019, consisting of (1) base salary, (2) annual incentive bonus and (3) long-term incentive awards (the grant date fair value of stock awards). This table excludes amounts not considered by the HRCC to be annual total direct compensation, such as certain other amounts required by the SEC to be reported in the Summary Compensation Table (see page 41 of this Proxy Statement).

 

Name and Principal Position    Salary
($)
    

Annual
Incentive
Bonus

($)

    

Annual
Long-Term
Incentive
Award

($)

    

Total

($)

 

Gary E. Dickerson
President and Chief Executive Officer

     1,024,808        1,133,000        11,696,506        13,854,314  

Daniel J. Durn
Senior Vice President, Chief Financial Officer

     620,673        580,078        3,931,029        5,131,780  

Ali Salehpour
Senior Vice President, Services, Display and Flexible Technology

     620,673        411,750        3,931,029        4,963,452  

Prabu G. Raja
Senior Vice President, Semiconductor Products Group

     564,058        430,948        2,892,132        3,887,138  

Steve G. Ghanayem
Senior Vice President, New Markets and Alliances Group

     564,058        497,543        2,892,132        3,953,733  


 

Applied Materials, Inc.    25


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Pay and Performance

The HRCC approves aggressive performance goals for the CEO, as well as for the entire executive leadership team. As a result, despite outstanding TSR growth from fiscal 2015 through 2019, our CEO’s total direct compensation has remained essentially flat over the same period.

 

 

LOGO

 

(1) 

Total direct compensation consists of annual base salary, annual incentive bonus and long-term incentive award (grant date fair value of annual equity awards). Total direct compensation shown above excludes other amounts required by the SEC to be reported in the Summary Compensation Table.

(2) 

TSR line illustrates the total shareholder return on our common stock during the period from October 23, 2015 through October 25, 2019 (the last business day of fiscal 2019), assuming $100 was invested on October 23, 2015 and assuming reinvestment of dividends.



 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Other Key Compensation Practices

We are committed to executive compensation practices that drive performance, mitigate risk and align the interests of our leadership team with the interests of our shareholders. Below is a summary of best practices that we have implemented and practices that we avoid because we believe they are not in the best interests of Applied or our shareholders.

 

WHAT WE DO        WHAT WE DO NOT DO

 

 

 

Pay for Performance – Significant majority of NEO target compensation is performance-based and tied to pre-established performance goals aligned with our short- and long-term objectives.

 

   

 

 

Ò

 

 

No Guaranteed Bonuses – Our annual bonus plans are performance-based and do not include any minimum payment levels.

 

 

   

 

 

 

 

Mitigation of Risk – Use of varied performance measures in incentive programs mitigates risk that executives will be motivated to pursue results with respect to any one performance measure to the detriment of Applied as a whole.

 

   

 

 

Ò

 

 

No Hedging or Pledging – Our insider trading policy prohibits all directors, NEOs and other employees from engaging in hedging or other speculative trading, and prohibits directors and NEOs from pledging their shares.

 

 

   

 

 

 

 

Compensation Recoupment Policy – Both our annual cash bonus plan and our stock incentive plan contain “clawback” provisions providing for reimbursement of incentive compensation from NEOs in certain circumstances.

 

   

 

Ò

 

 

No Perquisites – We do not provide material perquisites or other personal benefits to our NEOs or directors, except in connection with business-related relocation.

 

 

   

 

 

 

 

Stock Ownership Guidelines – All senior officers and directors are subject to stock ownership guidelines to align their interests with shareholders’ interests.

 

   

 

Ò

 

 

No Dividends on Unvested Equity Awards – We do not pay dividends or dividend equivalents on unvested equity awards.

 

 

   

 

 

 

 

Double-Trigger Change-in-Control Provisions – Equity awards for all NEOs require a “double-trigger” of both a change-in-control and termination of employment for vesting acceleration benefits to apply.

 

   

 

Ò

 

 

No Executive Pensions – We do not offer any executive pension plans.

 

 

   

 

 

 

 

Annual Say-On-Pay Vote – We seek annual shareholder feedback on our executive compensation program.

 

     

 

Ò

 

 

No Tax Gross-Ups – We do not pay tax gross-ups, except in connection with business-related relocation or expatriate assignments.

 



 

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Compensation Governance and Decision-Making Framework

 

 

Overview of Compensation Program Philosophy and Governance Framework

Our executive compensation program has three principal objectives:

 

  To attract, reward and retain highly-talented executive officers and other key employees;

 

  To motivate these individuals to achieve short-term and long-term goals that enhance shareholder value; and

 

  To support our core values and culture.

We seek to achieve these objectives by:

 

  Providing compensation that is competitive with the practices of other leading, high-technology companies; and

 

  Linking rewards to Company and individual performance by:

 

    Setting challenging performance goals for executive officers and other key employees;

 

    Balancing retention needs with performance objectives; and

 

    Providing a high proportion of total target compensation in the form of equity incentives to motivate executive officers and key employees to increase long-term value in alignment with shareholders’ interests.

The HRCC uses these principles to determine base salaries, annual incentive bonuses and long-term incentive awards. The HRCC also considers Applied’s business objectives, external factors such as geopolitical and economic environment, competitive practices and trends, and corporate considerations, including the affordability of the compensation program.

The HRCC further considers the results of the annual advisory “say-on-pay” vote and shareholder feedback. At our Annual Meeting in 2019, our “say-on-pay” proposal received a substantial majority (96%) of votes cast. In consideration of this vote and feedback from our shareholders gathered through our outreach efforts, the HRCC approved an

executive compensation program structure for fiscal 2019 that is unchanged from the fiscal 2018 program.

Fiscal 2019 Peer Group Companies

The HRCC regularly reviews compensation paid by our peer group, which consists of a broad range of high-technology companies whose businesses are similar to ours and with which we typically compete for executive talent, as a reference point for evaluating our compensation program.

For the composition of the fiscal 2019 peer group, we considered companies that met the following criteria: (1) technology companies with manufacturing operations, (2) companies whose revenues or market capitalization were approximately one-third to five times that of Applied, (3) U.S. based publicly-traded companies with global operations that disclose executive compensation pursuant to SEC rules, (4) companies that compete with us for key talent, and (5) companies that devote significant resources to research and development as a percentage of revenue or have approximately one-half to two times market capitalization to revenue multiple as that of Applied. Based on this assessment, the HRCC determined to remove Juniper Networks, Inc., which was part of the fiscal 2018 peer group, from the fiscal 2019 peer group as it no longer met most of the screening criteria listed above, including revenue and multiple of market capitalization to revenue. The HRCC added Analog Devices, Inc. to the fiscal 2019 peer group as it met the criteria for multiple of market capitalization to revenue and it has a stronger business fit with Applied relative to Juniper Networks. Each of the other companies in the peer group listed below met most, if not all, of the five screening criteria and continued to be included in the peer group; in addition, several of the companies were among our principal U.S. competitors or top U.S. customers.

Data gathered on the peer group include base salary, bonus, targeted cash compensation, long-term incentive awards and total direct compensation. The HRCC uses this information as a reference point rather than to target a specific percentile for our NEOs. The peer group data is gathered from the sources described in “Role of Compensation Consultant” below.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Our fiscal 2019 peer group and related information are set forth below.

 

Fiscal 2019 Peer Group
   
Advanced Micro Devices, Inc.    Micron Technology, Inc.
Analog Devices, Inc.    Motorola Solutions, Inc.
Broadcom, Inc.    NetApp, Inc.
Cisco Systems, Inc.    NVIDIA Corp.
Corning Inc.    QUALCOMM, Inc.
Intel Corp.    Seagate Technology plc
KLA Corp.    Texas Instruments, Inc.
Lam Research Corp.    Western Digital Corp.

Applied Materials Positioning Relative to Peers

 

LOGO

Applied Materials Positioning Relative to Peers Revenue 100th percentile Market Capitalization 100th percentile 50th percentile Percentile Rank

 

 

 

Components of Total Direct Compensation

 

 

Determining Annual Total Direct Compensation

At the beginning of fiscal 2019, the HRCC evaluated each NEO’s annual total direct compensation – consisting of annual base salary, annual incentive bonus and long-term incentive award. As part of this annual evaluation, the HRCC considers the NEO’s scope of responsibility, performance, skill set, prior experience and achievements, advancement potential, impact on results and expected future contributions to our business. The HRCC also considers the compensation levels of an executive officer relative to other Applied officers, the need to attract and retain talent, business conditions, and compensation levels at our peer companies for comparable positions; however, no individual element of compensation is targeted to a peer percentile range. The HRCC uses peer group data as a tool to assess how our executives’ compensation compares to the market rather than as a means to establish specific target compensation levels. Actual pay results vary based on the overall performance of the Company and individual NEO performance, as the largest portion of NEO compensation is performance-based.

Base Salaries

Base salaries and bonus opportunities are designed to attract, motivate, reward and retain executive talent, as well as to align pay with performance. At the beginning of each fiscal year, the HRCC determines each NEO’s targeted total cash compensation (salary and target bonus).

Base salaries are an annual fixed level of cash compensation. The HRCC approved an increase for each NEO’s salary to ensure that it continues to reflect competitive pay positioning levels of similar roles, as well as to provide adequate retention value. Applied continues to focus the weighting of cash compensation more heavily toward performance-based incentives.

Annual Incentive Bonus Opportunities

Bonus Plan Overview. In fiscal 2019, all of our NEOs participated in the Senior Executive Bonus Plan (the “Bonus Plan”). The Bonus Plan is a shareholder-approved bonus program designed to motivate and reward achievement of Applied’s business goals aligned with delivering shareholder value and to attract and retain highly-talented individuals. The annual incentive bonus opportunity for each NEO under the Bonus Plan is directly linked to Applied’s achievement of financial and market performance, operational performance and strategic objectives, in addition to individual performance. Company and individual goals are designed to incentivize management to drive strong operating performance, invest in innovation to drive future growth and create shareholder value. Our Bonus Plan is performance-based and does not include any minimum payment levels.

Determining Target Bonus Amounts. Target bonus amounts for the NEOs are expressed as a percentage of base salary. The HRCC approves the annual target bonus amount for each NEO, taking into consideration Mr. Dickerson’s recommendations regarding the annual target bonus amounts for each of the NEOs other than himself. In early fiscal 2019, Mr. Dickerson recommended that, for each NEO, other than Mr. Durn, the target bonus amounts remain unchanged from fiscal 2018. Mr. Dickerson recommended, and the HRCC approved, increasing Mr. Durn’s target bonus from 110% to 135% of his salary to reflect an increase in the competitive pay positioning level for annual incentive targets for CFOs. The HRCC considered a number of factors, including publicly available data and market survey data, as well as an assessment of overall economic and business conditions in deciding not to increase Mr. Dickerson’s target bonus.

 

 

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Assessing Performance and Payout. The determination of fiscal 2019 performance and annual incentive bonuses for our NEOs consisted of three key steps, as illustrated in the diagram below and the following discussion.

 

 

LOGO NEO Bonus Determination Initial Funding Threshold Threshold performance requirement that must be achieved for maximum bonuses to become available Initial funding threshold for fiscal 2019 was non-GAAP adjusted EPS of $2.90 Corporate Scorecard Assessment of performance against pre-defined financial, operational and strategic corporate goals For fiscal 2019, for our CEO and CFO, 50% based on financial and market performance and execution goals; 50% based on objective and measurable operational and strategic goals Individual Performance Factor Assessment of individual NEO performance against personal objectives and contributions to the business

 

The HRCC believes that this multi-step performance framework appropriately emphasizes financial performance, while also providing a mechanism to assess achievement of key business imperatives by individual NEOs.

 

Initial Funding Threshold. For fiscal 2019, the HRCC chose non-GAAP adjusted EPS as the initial funding threshold. EPS, an indicator of overall Company financial performance, is a measure of profits generated on a per share basis that are available either to reinvest in the business or distribute to shareholders, and has a strong link to share price valuation.

If Applied does not achieve a threshold non-GAAP adjusted EPS of $2.90 for the fiscal year, no bonus is payable. If this threshold is achieved, the maximum bonus that becomes payable for each NEO is the lowest of: (a) $5 million, (b) 3x a corporate bonus pool funding modifier, multiplied by the target bonus, and (c) 3x the target bonus, as a percentage of base salary.

In fiscal 2019, Applied’s non-GAAP adjusted EPS was $3.04, resulting in achievement of the initial funding threshold under the Bonus Plan. Adjusted EPS is a non-GAAP measure that excludes certain items from EPS determined in accordance with GAAP (see Appendix A for a reconciliation of non-GAAP adjusted EPS).

Non-GAAP adjusted EPS does not exclude share-based compensation expenses.

Balanced Corporate Scorecard. If the initial performance goal is achieved, the HRCC then uses the corporate scorecard to evaluate achievement of pre-defined corporate objectives and goals for each NEO and as a primary mechanism to exercise negative discretion from the maximum bonus amount. The scorecard is designed to measure financial and non-financial objectives that are considered by the HRCC to be key drivers of the Company’s near-term financial and operational success that will create shareholder value over the longer-term. The fiscal 2019 scorecard measured corporate performance in four broad categories: (1) Financial and Market Performance and Execution, (2) Products and Growth, (3) Customers and Field and (4) People and Organization. These categories align with and support the Company’s strategy of strengthening our materials engineering capabilities to enable major technology inflections for our customers and positioning Applied for sustainable growth to support long-term value creation for its shareholders.

 

 

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Scorecard Category

 

  

Weighting
for CEO

and CFO

 

 

Link to Company Strategy and Performance

 

Financial and Market Performance and Execution    50%  

Financial, market share and TSR goals align with a focus on delivering sustainable performance that increases shareholder value

 

Incentivizes increased efficiency in operational process, product development success and quality and safety performance

Products and Growth    30%   Reinforces strategy of developing new and differentiated products and services and positioning Applied and its products for future revenue and market share growth
Customers and Field    12.5%   Promotes focus on customer service by improving growth and efficiency at key accounts and applications
People and Organization    7.5%   Drives focus on greater employee engagement to promote hiring, retention and development of key talent

 

NEO Objectives and Weightings. Each NEO was assigned individualized weightings for all measures to reflect the relative impact and contributions of that NEO and his business or organizational unit to Applied’s overall performance with respect to a particular measure. The corporate scorecard objectives and weightings were the same for Mr. Dickerson and Mr. Durn. The objectives and weightings for each NEO are set forth in the table below.

Goal Setting and Measurement. At the beginning of the fiscal year, the HRCC reviewed objectives, goals and weightings initially proposed by management, and provided input to the final corporate scorecard and individual weightings for each NEO. Scorecard objectives are intended to be very challenging to incentivize our NEOs to achieve performance

levels that are higher than our externally communicated financial targets. Consequently, delivering results below the 100% target level can still represent very meaningful progress towards our long-term strategic goals. Progress towards achieving the corporate scorecard objectives was evaluated and tracked quarterly during the fiscal year. Scores were awarded for each metric under the scorecard based on the degree to which the pre-determined goals for that metric were achieved. Performance hurdles were set to measure achievement at 0, 0.5, 1.0, 1.5 and 2.0 levels, with a score of 1.0 indicating performance that met very high expectations and scores over 1.0 indicating extraordinary achievement. At the end of the fiscal year, scores were calculated based on actual performance against objectives and were presented to the HRCC to review, adjust and approve.

 

 

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The following table details fiscal 2019 corporate scorecard objectives, their relative weightings for each NEO, the achievements based on performance against rigorous objectives and the resulting scores, as approved by the HRCC (see Appendix A for non-GAAP reconciliations). The HRCC approved an aggressive set of scorecard targets for the executive officers for fiscal 2019, including financial targets above any levels that Applied had achieved in the past, as well as equally challenging operational targets. During fiscal 2019, Applied delivered solid financial and operational performance in a challenging environment and made meaningful progress towards our long-term strategic goals that are focused on enabling strong longer-term revenue and EPS growth; however, the results were below aggressively set targets. Accordingly, bonus payouts to our executive officers were below target bonus amounts.

 

    Weightings    

Achievements

 

Score

 
Objectives   Dickerson
and Durn
    Salehpour     Raja     Ghanayem  
Financial and Market Performance and Execution     50.0%       47.5%       50.0%       40.0%              

Grow wafer fabrication equipment (measured by Gartner) market share

                                 

Expecting growth in wafer fabrication equipment market share but below the aggressive targeted share increase in calendar 2019

    0.5  

Achieve adjusted gross margin targets (gross margin reported externally)

                                 

Delivered 44.0% non-GAAP adjusted gross margin, but below the aggressive targets set for the year

    0.0  

Achieve adjusted operating margin goal (operating margin reported externally)

                                 

Achieved 23.5% non-GAAP adjusted operating margin, narrowly missing the aggressive targets set for the year

    0.5  

Achieve TSR target relative to peers

                                 

Achieved targeted TSR performance relative to semiconductor equipment peer group

    1.0  

Improve operational, quality and safety performance

                                 

Successfully drove improvements in delivery times, materials costs, quality and safety

    1.0  

Products and Growth

    30.0%       37.5%       25.0%       42.5%              

Demonstrate progress towards ability to deliver targeted fiscal 2023 revenue for semiconductor businesses

                                 

Met aggressive milestones towards delivering 2023 revenue target for semiconductor businesses

    1.0  

Demonstrate progress towards ability to deliver targeted fiscal 2023 revenue for Display business

                                 

Made significant progress towards delivering 2023 revenue target for Display business but some results were below the aggressive goals set for the year

    0.5  

Grow Service revenue per target

                                 

Delivered record Service revenue but fell short of the aggressive service revenue growth target for the year

    0.0  

Develop growth pipeline to deliver targeted fiscal 2021 revenue and create opportunities in core and new businesses

                                 

Developed strong pipeline of opportunities to drive significant future growth but fell slightly short of aggressive targets

    0.5  

Customers and Field

    12.5%       7.5%       17.5%       10.0%              

Achieve growth and efficiency metrics at key accounts

                                 

Achieved aggressive field management goals at the majority of, but not all, key accounts

    0.5  

Win development tool of record and production tool of record positions at key customers; grow target applications for systems and service

                                 

Delivered many development tool of record and production tool of record positions, which set us up well for the future, but below the aggressive targets set for the year. Achieved many significant milestones for application growth for systems and service, but below the aggressive targeted goals for the year

    0.5  

Validate Preferred Strategic Partner customer engagements worth targeted fiscal 2023 revenue that create value for customers and meaningfully expand systems and service business

                                 

The Preferred Strategic Partner goal is set as a multiple year objective to go far beyond our existing customer relationships. In 2019, we achieved many milestones for Preferred Strategic Partner engagements, however, fell short of some aggressive targets set for the year

    0.5  

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

    Weightings    

Achievements

 

Score

 
Objectives   Dickerson
and Durn
    Salehpour     Raja     Ghanayem  

People and Organization

    7.5%       7.5%       7.5%       7.5%              

Improve overall health score and employee engagement score relative to 2018 organizational health index survey results

                                 

Despite both a challenging business climate and robust talent market, in 2019, we achieved the same overall health score and employee engagement score as the previous year

    0.5  

Accelerate diversity and inclusion initiative by increasing targeted representation of women and underrepresented minorities, improving culture of inclusion and setting goals, plans and scoring matrices for certain business and functional organizations

                                 

Formed fully-dedicated team to support work in designing a culture of inclusion, which is a catalyst to accelerate progress toward increasing diversity in the workforce. Established Culture of Inclusion Framework and inclusion strategy to include innovative approaches with intentional focus on leadership, eliminating systematic barriers and fostering engagement

    0.5  

Implement next phase of organizational development strategy

         

Drove organizational development by ensuring that 89% of regular full-time employees had development objectives in Workday by end of Q2 and employees participating in training PATHWAY completed 89% of all assigned training by end of fiscal 2019

    1.5  

Goals tied to objective and quantifiable metrics aligned with Company strategy

 

 

 

Individual Performance Factor. The HRCC also considered the individual performance of each NEO as indicated by that NEO’s individual performance factor (“IPF”). The IPF applied only if the initial funding threshold and at least some of the corporate scorecard objectives were achieved. The IPF modified the initial bonus amount as determined based on achievement against the corporate scorecard objectives. The IPF modifier ranges from 0 to 1.5.

The HRCC determined the IPFs for all NEOs. In determining the IPFs, the HRCC took into consideration: (i) financial performance, which came in near threshold performance on EPS, (ii) results of the corporate scorecard and associated goals, (iii) performance during the second half of the fiscal year, which was considered to be very strong given the reduction in WFE market size seen in the first two quarters of the year, and (iv) TSR performance, which increased materially from the end of fiscal 2018 through to the end of fiscal 2019.

The HRCC determined the IPF for each NEO, other than Mr. Dickerson, by taking into consideration Mr. Dickerson’s recommendation, which included his assessment of the achievement of strategic, financial, operational and organizational performance goals specific to the business or organizational unit for which the NEO was responsible, as well as the NEO’s leadership skills and current and expected contributions to the business.

For fiscal 2019, in light of the significant efforts by each NEO in leading his respective organization, and in Mr. Dickerson’s case, Applied, and in recognition of the significant teamwork required of the leadership team to deliver solid financial results despite challenging market conditions, the HRCC determined that Mr. Dickerson’s individual performance aligned with the majority of his leadership team at 1.0, and assigned each NEO an IPF of 1.0, with the exception of Mr. Durn, who was assigned an IPF of 1.25, as recommended by Mr. Dickerson. Mr. Durn’s IPF was in recognition of his above and beyond performance in successfully managing external investor relationships and communications and his vision and execution in driving major improvements in efficiency and effectiveness across the Finance organization.

 

 

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The following table shows the highlights of each NEO’s performance in fiscal 2019 that the HRCC considered in determining their respective IPFs.

 

NEO   

 

Fiscal 2019 Individual Performance Highlights

Gary E. Dickerson

  

  Delivered annual revenue of $14.6 billion and non-GAAP adjusted EPS of $3.04
  

  Positioned Applied for future growth, to win at key industry inflections and to execute well in a range of market conditions

Daniel J. Durn

  

  Delivered annual revenue of $14.6 billion and non-GAAP adjusted EPS of $3.04
  

  Successfully managed external investor relationships and communications
  

  Drove major improvements in efficiency and effectiveness across the Finance organization

Ali Salehpour

  

  Delivered record Applied Global Services revenues of $3.9 billion
  

  Increased the number of installed base tools covered by long-term service agreement by approximately 30% since 2017
  

  Delivered revenues in Display of $1.7 billion in a down market

Prabu G. Raja

  

  Delivered Semiconductor Systems revenues of $9.0 billion
  

  Announced acquisition of Kokusai Electric (scheduled to close in 2020)
  

  Continued to develop pipeline of new products to address future technology inflections to fuel growth

Steve G. Ghanayem

  

  Continued to drive new industry engagements through New Markets and Alliances group
    

  Opened leading edge Materials Engineering Technology Accelerator research and development center in the State of New York

Actual Bonus Payouts. The diagram below shows the results for each of the three key steps in determining the NEOs’ fiscal 2019 annual incentive bonuses. Despite achieving solid financial performance and many of our fiscal 2019 corporate scorecard objectives, there were certain important scorecard areas where we did not reach the targets set at the beginning of the year, which reduced bonus payouts for our NEOs by, on average, 41% from target bonus amounts.

Fiscal 2019 Annual Incentive Calculation

 

 

       

Performance Measures

     

Fiscal 2019 Achievement

       

LOGO

Initial Performance Goal

   

 

  Fiscal 2019 non-GAAP adjusted EPS of $2.90

   

  Achieved non-GAAP adjusted EPS of $3.04

 

       
LOGO

Corporate Scorecard

   

 

  Strong performance on core objectives:

– Financial and Market Performance and Execution

– Products and Growth

– Customers and Field

– People and Organization

 

   

  NEO scorecard results achieved in a range from 0.49 to 0.65 based on individual weightings

 

       

LOGO

Individual Performance Modifier

   

 

  NEO performance against personal objectives and individual contribution to business performance

 

   

  IPF achieved at 1.0 for all NEOs except Mr. Durn at 1.25

 

        LOGO
       

 

Average NEO bonus, as
multiple of target: 0.59

 

 

 

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The following table shows for each NEO: (1) the maximum amount payable under the Bonus Plan, (2) the target bonus amount expressed as a percentage of base salary, (3) the target bonus expressed as a dollar amount and (4) the actual fiscal 2019 bonus amount approved by the HRCC and paid to the NEO.

 

  NEO     

(1)

Maximum

Bonus

Payable

($)

    

(2)

Target
Bonus as a
Percentage
of Base

Salary

(%)

    

(3)

Target

Bonus

($)

      

(4)

Actual

Bonus

($)

 

 Gary E. Dickerson

    

$5,000,000

    

200%

    

$

2,060,000

 

    

$

1,133,000

 

 Daniel J. Durn

    

$2,531,250

    

135%

    

$

843,750

 

    

$

580,078

 

 Ali Salehpour

    

$2,531,250

    

135%

    

$

843,750

 

    

$

411,750

 

 Prabu G. Raja

    

$2,296,350

    

135%

    

$

765,450

 

    

$

430,948

 

 Steve G. Ghanayem

    

$2,296,350

    

135%

    

$

765,450

 

    

$

497,543

 

Pay Driven by Operating Performance. Our process for determining annual bonus awards has resulted in strong pay and performance alignment. Despite achieving solid financial performance and many of the fiscal 2019 corporate scorecard objectives that position Applied for strong longer-term growth, there were certain important scorecard areas where we did not reach the aggressive targets set at the beginning of the year, which resulted in a lower bonus payout for our CEO than for fiscal 2018. The chart below shows the actual annual bonus awards to our CEO and our non-GAAP adjusted EPS achievements over the last five fiscal years.

CEO Actual Annual Bonus vs. Earnings Per Share

 

 

 

LOGO

Actual Annual Bonus Non-GAAP Adjusted Earnings Per Share Non-GAAP Adjusted Earnings Per Share Actual Annual Bonus ($ millions)

Non-GAAP adjusted EPS is a performance target under our bonus plan. See Appendix A for non-GAAP reconciliations.

 

Long-Term Incentives

Overview. Applied’s long-term incentive compensation program is intended to help (1) achieve our business objectives, (2) attract, motivate and retain key talent, and (3) align our executives’ interests with shareholders’ interests to maximize long-term shareholder value.

Timing of Awards. The HRCC grants equity and other long-term incentive awards to NEOs under our shareholder-

approved Employee Stock Incentive Plan (the “Stock Plan”). The HRCC has not granted, nor does it intend to grant, equity awards in anticipation of the release of material, nonpublic information that is likely to result in changes to the price of our common stock, such as a significant positive or negative earnings announcement. Similarly, Applied has not timed, nor does it intend to time, the release of material, nonpublic information based on equity award grant dates.

 

 

Applied Materials, Inc.    35


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Payout of Fiscal 2017 Performance Share Unit Awards

The performance share units (“PSUs”) granted to our NEOs in fiscal 2017 were scheduled to vest three years from the grant date based on achievement of average non-GAAP adjusted operating margin for fiscal 2017 through fiscal 2019 and average WFE market share for calendar years 2016 through 2018, with equal weighting given to each metric. In setting targets for the PSUs, the HRCC considered a number of factors, including the Company’s past performance, analyst expectations, current and expected macro-economic forces, the spectrum of potential outcomes, and competitor positioning. The number of PSUs that may vest was based on the achievement of threshold (minimum required for a payout), target or maximum levels of each metric and may range from 50% to 200% of the target number of shares. The threshold, target and maximum levels and actual achievement for each metric, as well as overall payout for the fiscal 2017 PSUs, are shown below.

 

   

Three-Year Average

       

  Metric

 

Threshold

   

Target

   

Maximum

   

Result

   

Payout

 

 Operating Margin(1)

 

 

19.3%

 

 

 

 21.3%

 

 

 

25.1%

 

 

 

26.8%

 

 

 

200.0%

 

 WFE Share

 

 

18.4%

 

 

 

 20.4%

 

 

 

25.5%

 

 

 

20.9%

 

 

 

111.0%

 

 Total

                                 

 

155.5%

 

  (1)

See Appendix A for a reconciliation of non-GAAP adjusted operating margin.

The payout of the fiscal 2017 PSUs for each NEO is shown below.

 

  NEO     

Target
Number of
PSUs


 
   

Number of
PSUs
Earned

 
 

 Dickerson

  

 

280,316

 

 

 

435,892

 

 Durn

  

 

33,535

(1) 

 

 

52,147

 

 Salehpour

  

 

66,466

 

 

 

103,324

 

 Raja

  

 

51,911

 

 

 

80,722

 

 Ghanayem

  

 

51,911

 

 

 

80,722

 

  (1)

Mr. Durn’s PSU award was pro-rated based on his hire date of August 2017.

Fiscal 2019 Equity Awards

The HRCC believes that a meaningful portion of NEOs’ target compensation should be in the form of long-term incentives. These awards are intended to reward performance over a multi-year period, align the interests of executives with those of shareholders, instill an ownership culture, enhance the personal stake of executive officers in the growth and success of the Company, and provide an incentive for continued service at the Company.

Given the strong support received from our shareholders on our incentive programs last year, we continued our approach to make performance-based equity awards a substantial portion of the overall value of equity awards granted to our NEOs

The long-term incentive awards for NEOs consist of two forms of equity vehicles: PSUs and restricted stock units (“RSUs”). The target vehicle mix of the awards for the fiscal 2019 grant remains unchanged from the previous year’s grants and consists of 75% PSUs and 25% RSUs for the CEO and 50% PSUs and 50% RSUs for the other NEOs.

 

CEO LTI Vehicle Mix   All Other NEO LTI
Vehicle Mix

 

LOGO

 

 

LOGO

For fiscal 2019, in December 2018, the HRCC granted the number of PSUs and RSUs listed in the below table to our NEOs.

 

NEO     

Target Value
of Awards
(1)

($)


 

 

    


Equivalent
Target
Number of
PSUs
(2)



 
      

Equivalent
Number of
RSUs
(2)


 

Dickerson

  

$

11,845,000

 

  

 

256,090

 

    

 

85,364

 

Durn

  

$

4,025,000

 

  

 

58,014

 

    

 

58,014

 

Salehpour

  

$

4,025,000

 

  

 

58,014

 

    

 

58,014

 

Raja

  

$

2,961,250

 

  

 

42,682

 

    

 

42,682

 

Ghanayem

  

$

2,961,250

 

  

 

42,682

 

    

 

42,682

 

  (1)

Value of awards is based on Applied’s stock price on the grant date. Amounts shown in the “Stock Awards” column of the Summary Compensation Table represent grant date fair value determined pursuant to Accounting Standards Codification 718.

  (2) 

Number of shares calculated by dividing value of awards by $34.69, the closing price of Applied stock on December 6, 2018, the grant date.

Size of Performance-Based Equity Awards. In determining the size of the awards, the HRCC considered each NEO’s award as a component of his total direct compensation. Target fiscal 2019 long-term equity awards were determined in light of each NEO’s scope of responsibility, performance, impact on results and expected future contributions to our business, compensation levels relative to other Applied officers, the need to attract and retain talent, and business conditions. In addition, the fiscal 2019 target award sizes provided sufficient performance-based equity incentives to

 

 

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align compensation with the long-term interests of our shareholders, were in line with market norms for the NEOs’ respective roles and were sufficient to provide incentive for them.

Performance Share Units. The long-term incentive program is designed to align performance metrics with our strategic goals over a three-year performance period. Based on discussions with our shareholders, the ongoing examination of the effectiveness of the program across the entire enterprise, and considering simplicity and consistency, for the fiscal 2019 grant, the HRCC approved changing one of the two metrics of the PSU portion of the long-term incentive program. The first metric, three-year average operating margin, remains unchanged from previous year’s grants. The second performance metric, beginning with the fiscal 2019 grant, is relative TSR performance measured against the S&P 500 Index over the three-year performance period. Given the continued evolution of the Company’s business, including the increase in the portions of the business outside of WFE, the HRCC approved eliminating the WFE metric in the PSUs in favor of relative TSR, which applies across the entire enterprise. The HRCC has maintained these two metrics in the long-term incentive program design for fiscal 2020.

The fiscal 2019 PSUs, granted in December 2018, will vest three years from the grant date based on achievement of average non-GAAP adjusted operating margin for fiscal 2019 through fiscal 2021 and TSR relative to the S&P 500 over the performance period of November 2019 through October 2021, with equal weighting given to each metric.

 

 

LOGO

FY19 Long-Term Incentive Plan Metrics 50% Relative TSR-3-year Average Captures the full scale of our business and greater incentivizes management to outperform the market through each business environment. 50% Non-GAAP Adjusted Operating Profit Margin-3-year Average Reflects an important measure of profitability, value creation, and the ability of management to improve operational efficiency over time. It is also a key metric for our shareholders.

The number of PSUs that may vest is based on the achievement of threshold (minimum required for a payout), target or maximum levels of each metric and may range from 50% to 200% of the target number of shares, as set forth below.

 

Achievement Level     

Percentage  

of Shares  

That May  

Vest  

 

 

 

Threshold

  

 

50%

 

Target

  

 

100%

 

Maximum

  

 

200%

 

A TSR payout factor will be determined by calculating the Company’s TSR percentile rank within the S&P 500, with threshold, target and maximum levels based on Applied’s TSR ranking of above the 25th, 50th and 75th percentile, respectively, of the S&P 500. The TSR calculation uses a 60-day average stock price at the beginning and end of the performance period for measurement purposes. This approach minimizes the impact of a single beginning and ending point stock price for each performance cycle.

If the threshold level is not achieved, then no shares will vest. If achievement falls between threshold, target or maximum levels, the portion of the award that may vest will be determined based on straight-line interpolation.

In setting goals for the PSUs, the HRCC considered Applied’s historical results and relative performance and established goals that are aligned with Applied’s financial and strategic objectives and will require significant effort to achieve the maximum level.

The HRCC also approved retirement provisions applicable to long-term incentive awards, beginning with fiscal 2019 awards. The provisions, which became effective in January 2020, provide for a partial payout of PSU awards based on actual performance at the conclusion of the three-year performance period and partial accelerated vesting of RSU awards in the event of a qualifying retirement based on age and years of service. The provisions establish a consistent retirement policy for the executive team reporting to the CEO and are designed to maintain engagement and focus, as well as provide retention incentive, for our executive officers as some approach potential retirement decisions.

Restricted Stock Units. The RSU awards are scheduled to vest ratably over three years, providing a link to shareholder value creation and maintaining retention value.

Role and Authority of the Human Resources and Compensation Committee

The HRCC has a written charter approved by the Board that specifies the HRCC’s duties and responsibilities, which is available on our website at: http://www.appliedmaterials.com/files/hrcc_charter.pdf. In accordance with its charter, the HRCC oversees our programs that foster executive and employee development and retention, with emphasis on leadership development, management capabilities, succession plans and human capital management. The HRCC also determines executive and director compensation, and oversees significant employee benefits programs, policies and plans.

Each member of the HRCC has been determined to be independent under Nasdaq and SEC rules. The HRCC may delegate any of its responsibilities to subcommittees. See “Board Meetings and Committees” on page 14 for more information about the HRCC.

 

 

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Role of Compensation Consultant

The HRCC has the authority to engage independent advisors to assist it in carrying out its responsibilities. For fiscal 2019, the HRCC engaged Semler Brossy Consulting Group (“Semler Brossy”) as its independent executive compensation consultant. Semler Brossy, who reports directly to the HRCC and not to management, is independent from Applied, has not provided any services to Applied other than to the HRCC and receives compensation from Applied only for services provided to the HRCC. The HRCC assessed the independence of Semler Brossy pursuant to SEC rules and concluded that the work of Semler Brossy for the HRCC has not raised any conflict of interest.

Semler Brossy reviews and advises on all principal aspects of the executive compensation program. Its main responsibilities are as follows:

 

    Advise on alignment of pay and performance;

 

    Review and advise on executive total compensation, including base salaries, short- and long-term incentives, associated performance goals, and retention and severance arrangements;

 

    Advise on trends in executive compensation;

 

    Provide recommendations regarding the composition of our peer group;

 

    Analyze peer group proxy statements, compensation survey data and other publicly available data; and

 

    Perform any special projects requested by the HRCC.

The HRCC typically asks Semler Brossy to attend the HRCC’s meetings, including executive sessions at which management is not present. Semler Brossy communicates regularly with the HRCC Chair outside of committee meetings and also meets with management to gather information and review proposals.

Role of Executive Officers and Management in Compensation Decisions

In fiscal 2019, the HRCC invited Mr. Dickerson (as CEO) and other executives, including the heads of Global Human Resources and Global Rewards, to attend its meetings. The HRCC also regularly held executive sessions without management present. The CEO, together with the HRCC, assesses the performance of our NEOs and other executive officers. The CEO presents to the HRCC his evaluation of each executive officer’s performance over the past year and makes recommendations to the HRCC regarding base salaries, bonus targets and actual payments, performance goals and weightings, and long-term incentive awards for executive officers. The HRCC considers these recommendations in making its final determinations, in addition to considering input from Semler Brossy. The HRCC discusses the CEO’s proposed compensation and makes final decisions regarding the CEO’s compensation when he is not present.

 

 

Additional Compensation Programs and Policies

 

 

Non-Qualified Deferred Compensation Plan

Our 2016 Deferred Compensation Plan (the “DCP”) allows our NEOs and other eligible employees to voluntarily defer on a pre-tax basis a portion of their eligible earnings. We do not provide matching or other employer contributions to our executive officers under this plan. Deferrals made prior to October 2015 under the DCP are credited with deemed interest and are subject to the distribution rules in place prior to the plan amendment in October 2015. Beginning in fiscal 2016, participants are permitted to notionally invest new deferrals in certain investment options available under the plan. Additionally, for new deferrals, the DCP provides distribution rules for in-service distributions and upon a qualifying separation from service, disability and change in control. See “Nonqualified Deferred Compensation” below for more information about the DCP.

Retirement Benefits under the 401(k) Plan and Generally Available Benefits Programs

During fiscal 2019, all full-time and part-time (working 20 or more hours a week) U.S. employees, including the NEOs, were eligible to participate in Applied’s 401(k) plan, a tax-qualified retirement plan. Eligible Applied 401(k) plan participants receive matching contributions from Applied. Other than the 401(k) plan, we do not provide defined benefit pension plans or defined contribution retirement plans to the NEOs or other employees, except as required in certain countries outside the U.S. for legal or competitive reasons. Applied offers a number of other benefits programs to a broad base of eligible employees, including a tax-qualified employee stock purchase plan, medical, dental and vision insurance, long-term and short-term disability plans, life and accidental death and dismemberment plans, health and dependent care flexible spending accounts, business travel insurance, wellness programs, educational assistance, employee assistance program and certain other country-specific benefits.

 

 

38    2020 Proxy Statement


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

 

Applied annually benchmarks its overall benefits programs, including the 401(k) plan, against those of our peers. Applied’s overall broad-based benefits programs are at approximately the market median, which the HRCC believes allows us to remain competitive in attracting and retaining talent.

The benefits provided under the programs discussed above are not considered by the HRCC in determining an individual NEO’s total compensation.

Relocation Program

Applied maintains a relocation program available to all eligible employees that is consistent with current practices among global companies. Applied provides competitive relocation benefits to ensure it can fill positions critical to its business needs and provide career development opportunities for high-potential employees. Benefits for employees on international assignment include reimbursement on an after-tax basis for housing and transportation allowances and living and travel expense reimbursements. Benefits also include tax equalization that is intended to put employees who relocate in service to Applied in the same position, from a tax-liability perspective, that they would be in if they were still located in the U.S.

In 2014, at the Board’s request, Mr. Dickerson relocated with his family to Japan to continue leading critical efforts toward the then-anticipated completion of a proposed business combination with Tokyo Electron Limited.

Board Rationale for Relocation. Recognizing the complexity of a U.S.-Japanese merger, including both geographic and cultural differences, the Board felt it was critical to have senior leadership presence from Applied on the ground in Japan to work closely with Tokyo Electron during the regulatory review period and to effect a smooth business combination and increase the likelihood of achieving forecasted business benefits of the merger. The Board considered and determined that the anticipated cost savings that would be generated from the merger would significantly outweigh the expenses to relocate Mr. Dickerson and his family to Japan.

Relocation Benefits. In accordance with our relocation program that is available to all employees on global assignment, the HRCC approved relocation benefits for Mr. Dickerson, which included amounts for taxes incurred in connection with the relocation, as well as tax equalization for the incremental tax-liability resulting from his relocation to Japan in service of Applied.

Tax equalization ensures that the tax costs incurred by Mr. Dickerson on the international assignment be equivalent to what the tax costs would have been had he remained in the U.S. Tax payments were not paid to Mr. Dickerson but

were paid directly to the appropriate tax authorities. While the amounts of the relocation benefits are attributed to Mr. Dickerson in the Summary Compensation Table, they did not provide any additional compensation to him and are not part of his ongoing pay.

Disclosure and Payment Timing. Although Mr. Dickerson relocated to Japan for part of 2014 and 2015, the timing and disclosure of relocation payments extend beyond this period. Mr. Dickerson is subject to income taxes in Japan on income earned for the period of time of his international assignment, including continuing Japanese tax liabilities related to his equity awards. Japan assesses income tax on compensation earned while an individual is resident in Japan. Performance shares are deemed earned over the period during which they vest and stock options are deemed earned from grant to exercise. Applied, in connection with providing tax equalization benefits to Mr. Dickerson under the relocation program, is responsible for incremental taxes in connection with the vesting of performance shares and the stock option award upon its exercise.

Stock Ownership Guidelines

We have stock ownership guidelines to help align the interests of our Section 16 officers on the CEO Executive Staff with those of our shareholders. The guidelines provide that officers should meet the following ownership levels in Applied common stock:

 

Position

 

  

Ownership Level

 

 

 

CEO

 

  

 

 

 

 

6x base salary

 

 

 

 

 

Other Officers

 

  

 

 

 

 

3x base salary

 

 

 

 

As of December 31, 2019, each officer was in compliance with the stock ownership guidelines.

Hedging and Pledging Prohibitions

Applied has an insider trading policy that, among other things, prohibits all of our employees (including officers) and directors from engaging in hedging or other speculative transactions relating to Applied shares. Prohibited transactions include short sales, derivative securities (such as put and call options, or other similar instruments) and other hedging transactions (such as equity swaps, prepaid variable forwards, or similar instruments), or any transactions that have or are designed to have the effect of hedging or offsetting any decrease in the market value of Applied securities. In addition, Section 16 officers and directors are prohibited from holding Applied securities in a margin account or otherwise pledging Applied securities as collateral for a loan.

 

 

Applied Materials, Inc.    39


Table of Contents

Clawback Policy

We have a “clawback” policy that allows the Board to require reimbursement of incentive compensation from an executive officer in the event intentional misconduct by the officer is determined to be the primary cause of a material negative restatement of Applied’s financial results. The compensation that may be recovered is the after-tax portion of any bonus paid to, and any performance-based equity awards earned by, the NEO within the 12 months after filing of the financial statements, if the compensation would not have been paid to the NEO had Applied’s financial results been reported properly. The policy applies to financial statements filed in a rolling three-year, look-back period. This clawback policy is in addition to any policies or recovery rights that are required under applicable laws, including the Sarbanes-Oxley Act and the Dodd-Frank Act.

 

Tax Deductibility

Section 162(m) of the Internal Revenue Code, as amended by the Tax Cuts and Jobs Act of 2017, restricts deductibility for federal income tax purposes of annual individual compensation in excess of $1 million to each NEO, effective for tax years beginning after 2017, subject to a transition rule for certain written binding contracts which were in effect on November 2, 2017, and which were not modified in any material respect on or after such date. In the past, Section 162(m)’s deductibility limitation was subject to an exception for compensation that qualified as ‘performance-based’. Our compensation programs were designed to permit Applied to qualify for the performance-based exception, although the Company reserved the right to pay compensation that did not qualify as ‘performance-based’. While the HRCC will continue to consider the deductibility of compensation as a factor in making compensation decisions, it retains the flexibility to provide compensation that is consistent with the Company’s goals for its executive compensation program, even if such compensation would not be fully tax-deductible.

 

 

HUMAN RESOURCES AND

COMPENSATION COMMITTEE REPORT

 

 

The information contained in this report shall not be deemed to be “soliciting material” or “filed” with the SEC or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that Applied specifically incorporates it by reference into a document filed under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act.

The Human Resources and Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis for fiscal 2019. Based on the review and discussions, the Human Resources and Compensation

Committee recommended to the Board that the Compensation Discussion and Analysis be included in Applied’s Proxy Statement for its 2020 Annual Meeting of Shareholders.

This report is submitted by the Human Resources and Compensation Committee.

Thomas J. Iannotti (Chair)

Xun (Eric) Chen

Alexander A. Karsner

 

 

40    2020 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

 

EXECUTIVE COMPENSATION

Summary Compensation Table for Fiscal 2019, 2018 and 2017

 

The following table shows compensation information for fiscal 2019, 2018 and 2017 for our NEOs.

 

  Name and Principal Position

 

 

Year

 

   

Salary
($)

 

   

Bonus
($)(1)

 

   

Stock
Awards
($)(2)

 

   

Non-Equity
Incentive Plan
Compensation
($)(3)

 

   

All Other
Compensation
($)

 

   

Total

($)

 

 

 

  Gary E. Dickerson
  President and Chief Executive Officer

 

 

 

 

 

 

2019

2018

2017

 

 

 

 

 

 

 

 

 

 

 

1,024,808

1,000,000

1,000,000

 

 

 

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

 

 

 

11,696,506

11,261,311

10,844,501

 

 

 

 

 

 

 

 

 

 

 

1,133,000

1,430,000

2,640,000

 

 

 

 

 

 

 

 

 

 

 

218,081

373,229

838,204

 

 

(4) 

 

 

 

 

 

 

 

 

14,072,395

14,064,540

15,322,705

 

 

 

 

 

 

 

  Daniel J. Durn(5)
  Senior Vice President, Chief Financial Officer

 

 

 

 

 

 

2019

2018

2017

 

 

 

 

 

 

 

 

 

 

 

620,673

600,000

138,462

 

 

 

 

 

 

 

 

 

 

 

—  

250,000

500,000

 

 

 

 

 

 

 

 

 

 

 

3,931,029

5,329,659

5,421,909

 

 

 

 

 

 

 

 

 

 

 

580,078

471,900

—  

 

 

 

 

 

 

 

 

 

 

 

13,620

23,252

411,239

 

 

(6) 

 

 

 

 

 

 

 

 

5,145,400

6,674,811

6,471,610

 

 

 

 

 

 

 

  Ali Salehpour
  Senior Vice President, Services, Display and Flexible Technology

 

 

 

 

 

 

2019

2018

2017

 

 

 

 

 

 

 

 

 

 

 

620,673

600,000

591,346

 

 

 

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

 

 

 

3,931,029

3,610,485

3,868,486

 

 

 

 

 

 

 

 

 

 

 

411,750

588,060

1,060,290

 

 

 

 

 

 

 

 

 

 

 

12,730

15,824

12,058

 

 

(7) 

 

 

 

 

 

 

 

 

4,976,182

4,814,369

5,532,180

 

 

 

 

 

 

 

  Prabu G. Raja(8)
  Senior Vice President, Semiconductor Products Group

 

 

 

 

 

 

2019

2018

2017

 

 

 

 

 

 

 

 

 

 

 

564,058

549,039

—  

 

 

 

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

 

 

 

2,892,132

4,784,842

—  

 

 

 

 

 

 

 

 

 

 

 

430,948

522,720

—  

 

 

 

 

 

 

 

 

 

 

 

16,464

13,923

—  

 

 

(9) 

 

 

 

 

 

 

 

 

3,903,602

5,870,524

—  

 

 

 

 

 

 

 

  Steve G. Ghanayem(8)
  Senior Vice President, New Markets and Alliances Group

 

 

 

 

 

 

2019

2018

2017

 

 

 

 

 

 

 

 

 

 

 

564,058

549,039

—  

 

 

 

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

 

 

 

2,892,132

4,784,842

—  

 

 

 

 

 

 

 

 

 

 

 

497,543

432,878

—  

 

 

 

 

 

 

 

 

 

 

 

13,620

14,869

—  

 

 

(10) 

 

 

 

 

 

 

 

 

3,967,353

5,781,628

—  

 

 

 

 

 

 

 

(1)

Amount shown for Mr. Durn (a) for fiscal 2018 is a special bonus of $250,000, awarded to Mr. Durn in lieu of a fiscal 2017 bonus as his employment occurred after the eligibility date for a 2017 bonus award under the Senior Executive Bonus Plan, which bonus was paid six months following Mr. Durn’s start date and (b) for fiscal 2017 is a new-hire bonus of $500,000, had been subject to repayment by Mr. Durn if he resigned or his employment was terminated by Applied for cause within two years of his hire.

(2)

Amounts shown do not reflect compensation actually received by the executive officer. Instead, the amounts reported represent the aggregate grant date fair value of target stock awards granted in the respective fiscal years, as determined pursuant to ASC 718 (but excluding the effect of estimated forfeitures for performance-based awards). For fiscal 2019, the grant date fair value of maximum number of stock awards that may be earned by each NEO is as follows: Mr. Dickerson: $20,564,903; Mr. Durn: $5,940,053; Mr. Salehpour: $5,940,053; Dr. Raja: $4,370,210; and Mr. Ghanayem: $4,370,210. See “Fiscal 2019 Equity Awards” on page 36 for more information regarding the stock awards. The assumptions used to calculate the value of awards are set forth in Note 12 of the Notes to Consolidated Financial Statements included in Applied’s Annual Report on Form 10-K for fiscal 2019 filed with the SEC on December 13, 2019.

(3)

Amounts consist of bonuses earned under the Senior Executive Bonus Plan for services rendered in the respective fiscal years.

(4)

Amount includes (a) Applied’s matching contribution of $12,600 under the tax-qualified 401(k) Plan, (b) Applied’s payment on behalf of Mr. Dickerson of $1,020 in term life insurance premiums, (c) Applied’s matching contribution of $2,500 pursuant to a program under the Applied Materials, Inc. Political Action Committee to an eligible non-profit organization and (d) a payment of $500 under Applied’s Patent Incentive Award Program. Amount also includes $116,887 paid by Applied on behalf of Mr. Dickerson for tax consultation, $8,833 for taxes incurred and $75,741 of tax equalization payments for Japanese tax liabilities and taxes incurred as a result of these payments made under Applied’s relocation program in connection with Mr. Dickerson’s international assignment in Japan in contemplation of the closing of a proposed business combination with Tokyo Electron. Tax equalization ensures that the tax costs incurred by Mr. Dickerson on the international assignment are equivalent to what the tax costs would have been had he remained in the U.S. The tax equalization amounts were not paid to Mr. Dickerson but were paid directly to the appropriate tax authorities. See “Relocation Program” on page 39 for more information regarding Mr. Dickerson’s international assignment.

(5)

Mr. Durn was appointed CFO effective August 24, 2017.

(6)

Amount consists of (a) Applied’s matching contribution of $12,600 under the tax-qualified 401(k) Plan and (b) Applied’s payment on behalf of Mr. Durn of $1,020 in term life insurance premiums.

(7)

Amount consists of (a) Applied’s matching contribution of $8,335 under the tax-qualified 401(k) Plan, (b) Applied’s payment on behalf of Mr. Salehpour of $1,020 in term life insurance premiums, (c) Applied’s matching contribution of $2,500 pursuant to a program under the Applied Materials, Inc. Political Action Committee to an eligible non-profit organization and (d) a payment of $875 under Applied’s Patent Incentive Award Program.

(8)

Dr. Raja and Mr. Ghanayem were each designated an executive officer effective November 2017.

(9)

Amount consists of (a) Applied’s matching contribution of $12,569 under the tax-qualified 401(k) Plan, (b) Applied’s payment on behalf of Dr. Raja of $1,020 in term life insurance premiums, (c) a payment of $375 under Applied’s Patent Incentive Award Program and (d) Applied’s matching contribution of $2,500 pursuant to a program under the Applied Materials, Inc. Political Action Committee to an eligible non-profit organization.

(10)

Amount consists of (a) Applied’s matching contribution of $12,600 under the tax-qualified 401(k) Plan and (b) Applied’s payment on behalf of Mr. Ghanayem of $1,020 in term life insurance premiums.

 

Applied Materials, Inc.    41


Table of Contents

Grants of Plan-Based Awards for Fiscal 2019

 

The following table shows all plan-based awards granted to the NEOs during fiscal 2019.

 

         

 

Estimated Possible Payouts
Under Non-Equity
Incentive Plan Awards(1)

 

   

 

Estimated Future Payouts
Under Equity
Incentive Plan Awards

 

   

All Other
Stock
Awards:
Number of
Shares of
Stock or
Units

(#)

 

   

All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)

 

   

Exercise
or Base
Price of
Option
Awards
($/share)

 

   

Grant
Date Fair
Value of
Stock and
Option
Awards

($)(2)

 

 

   Name

 

 

Grant

Date

 

   

Threshold
($)

 

   

Target

($)

 

   

Maximum
($)

 

   

Threshold
(#)

 

   

Target

(#)

 

   

Maximum
(#)

 

 

 

  Gary E. Dickerson

 

 

 

 

 

 

12/6/2018

12/6/2018

—  

 

 

 

 

 

 

 

 

 

 

 

—  

—  

0

 

 

 

 

 

 

 

 

 

 

 

—  

—  

2,060,000

 

 

 

 

 

 

 

 

 

 

 

—  

—  

5,000,000

 

 

 

 

 

 

 

 

 

 

 

128,045

—  

—  

 

 

 

 

 

 

 

 

 

 

 

256,090

—  

—  

 

 

 

 

 

 

 

 

 

 

 

512,180

—  

—  

 

 

 

 

 

 

 

 

 

 

 

—  

85,364

—  

 

 

 

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

 

 

 

8,868,397

2,828,109

—  

 

 

 

 

 

 

 

  Daniel J. Durn

 

 

 

 

 

 

12/6/2018

12/6/2018

—  

 

 

 

 

 

 

 

 

 

 

 

—  

—  

0

 

 

 

 

 

 

 

 

 

 

 

—  

—  

843,750

 

 

 

 

 

 

 

 

 

 

 

—  

—  

2,531,250

 

 

 

 

 

 

 

 

 

 

 

29,007

—  

—  

 

 

 

 

 

 

 

 

 

 

 

58,014

—  

—  

 

 

 

 

 

 

 

 

 

 

 

116,028

—  

—  

 

 

 

 

 

 

 

 

 

 

 

—  

58,014

—  

 

 

 

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

 

 

 

2,009,025

1,922,004

—  

 

 

 

 

 

 

 

  Ali Salehpour

 

 

 

 

 

 

12/6/2018

12/6/2018

—  

 

 

 

 

 

 

 

 

 

 

 

—  

—  

0

 

 

 

 

 

 

 

 

 

 

 

—  

—  

843,750

 

 

 

 

 

 

 

 

 

 

 

—  

—  

2,531,250

 

 

 

 

 

 

 

 

 

 

 

29,007

—  

—  

 

 

 

 

 

 

 

 

 

 

 

58,014

—  

—  

 

 

 

 

 

 

 

 

 

 

 

116,028

—  

—  

 

 

 

 

 

 

 

 

 

 

 

—  

58,014

—  

 

 

 

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

 

 

 

2,009,025

1,922,004

—  

 

 

 

 

 

 

 

  Prabu G. Raja

 

 

 

 

 

 

12/6/2018

12/6/2018

—  

 

 

 

 

 

 

 

 

 

 

 

—  

—  

0

 

 

 

 

 

 

 

 

 

 

 

—  

—  

765,450

 

 

 

 

 

 

 

 

 

 

 

—  

—  

2,296,350

 

 

 

 

 

 

 

 

 

 

 

21,341

—  

—  

 

 

 

 

 

 

 

 

 

 

 

42,682

—  

—  

 

 

 

 

 

 

 

 

 

 

 

85,364

—  

—  

 

 

 

 

 

 

 

 

 

 

 

—  

42,682

—  

 

 

 

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

 

 

 

1,478,078

1,414,055

—  

 

 

 

 

 

 

 

  Steve G. Ghanayem

 

 

 

 

 

 

12/6/2018

12/6/2018

—  

 

 

 

 

 

 

 

 

 

 

 

—  

—  

0

 

 

 

 

 

 

 

 

 

 

 

—  

—  

765,450

 

 

 

 

 

 

 

 

 

 

 

—  

—  

2,296,350

 

 

 

 

 

 

 

 

 

 

 

21,341

—  

—  

 

 

 

 

 

 

 

 

 

 

 

42,682

—  

—  

 

 

 

 

 

 

 

 

 

 

 

85,364

—  

—  

 

 

 

 

 

 

 

 

 

 

 

—  

42,682

—  

 

 

 

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

 

 

 

—  

—  

—  

 

 

 

 

 

 

 

 

 

 

 

1,478,078

1,414,055

—  

 

 

 

 

 

 

 

(1)

Amounts shown were estimated possible payouts for fiscal 2019 under the Senior Executive Bonus Plan. These amounts were based on the individual NEO’s fiscal 2019 base salary and position. The maximum amount shown is three times the target amount for the NEO, except the amount for Mr. Dickerson, which is the maximum amount payable per participant in any performance period under the Senior Executive Bonus Plan. Actual bonuses received by the NEOs for fiscal 2019 under the Senior Executive Bonus Plan are reported in the Summary Compensation Table under the column titled “Non-Equity Incentive Plan Compensation.

(2)

Amounts shown do not reflect compensation actually received by the NEOs. Instead, the amounts represent the aggregate grant date fair value of the awards as determined pursuant to ASC 718 (but excluding the effect of estimated forfeitures for performance-based awards). The assumptions used to calculate the awards’ value are set forth in Note 12 of the Notes to Consolidated Financial Statements included in Applied’s Annual Report on Form 10-K for fiscal 2019 filed with the SEC on December 13, 2019.

 

42    2020 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

 

Outstanding Equity Awards at Fiscal 2019 Year-End

 

The following table shows all outstanding equity awards held by the NEOs at the end of fiscal 2019.

 

    Option Awards     Stock Awards(1)  
Name