DEF 14A 1 ptc3816641-def14a.htm DEFINITIVE PROXY STATEMENT

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

SCHEDULE 14A

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

Filed by the Registrant Filed by a Party other than the Registrant      

CHECK THE APPROPRIATE BOX:
  Preliminary Proxy Statement
Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
  Definitive Additional Materials
Soliciting Material Under Rule 14a-12

PTC Inc.

(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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NOTICE OF 2021 ANNUAL
MEETING OF STOCKHOLDERS

Wednesday,
February 10, 2021
     

8:00 a.m.
Eastern Standard Time

      PTC Inc.
121 Seaport Boulevard
Boston, MA 02210

Proposals to be Voted on at the Annual Meeting Board Recommendation
Elect eight directors to serve until the 2022 Annual Meeting of Stockholders.  FOR
Advisory vote to approve the compensation of our named executive officers (say-on-pay).        FOR
Advisory vote to confirm the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the current fiscal year.  FOR

Other matters that are properly brought before the meeting may also be considered.

Stockholders at the close of business on December 14, 2020 are entitled to vote.

Please vote your shares before the meeting, even if you plan to attend the meeting.

Your broker will not be able to vote your shares on the election of directors or the say-on-pay proposal unless you have given your broker specific instructions to do so.

By Order of the Board of Directors

AARON C. VON STAATS
Secretary

Boston, Massachusetts
December 29, 2020

    Important Notice of the Internet Availability of Proxy Materials
The Proxy Statement and our 2020 Annual Report are available to stockholders at www.proxyvote.com.

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Despite the challenges posed by the Covid-19
pandemic, over the past year we again executed
well against our strategic initiatives, establishing a
solid foundation for the future.

DEAR FELLOW STOCKHOLDERS,

This past year challenged us, our customers and our partners as we dramatically shifted the way we work and navigated the disruption and uncertainty created by the Covid-19 pandemic.

Our Response to the Pandemic

Through the leadership of our executive team, PTC was able to successfully respond quickly and nimbly to the challenges we, our customers and partners faced.

Support for our Employees. We transitioned our entire workforce to work from home by mid-March and supported our employees with policies and programs as many were called upon to support remote education or other challenges related to the pandemic. We prudently managed our workforce throughout the year, enabling us to retain and motivate our employees without lay-offs, furloughs or pay reductions.

Support for our Customers, Partners and other Stakeholders.

We supported our customers as they moved to remote working environments, diagnosing issues, providing solutions and offering temporary no-cost licensing options.
We provided “white glove” support to our many medical device and health-tech customers who were on the front lines in the fight against the pandemic.
We made our Vuforia® Chalk augmented reality remote support and collaboration technology available for free to our customers and partners.
We made our eLearning suite available for free to all customers so their employees could upskill their capabilities and return to work with greater proficiency and capability.
We provided our professional services to our customers remotely, where possible, to support their implementation and upgrade timelines.
We made our Onshape® SaaS CAD solution available for free to high-schools and universities to enable them to offer their students a solution for remote learning.
We transitioned our LiveWorx® innovation event to a virtual-only event and made it free for all.
     +14%
ARR OVER 2019
    
+16%
REVENUE OVER 2019
+26%
RECURRING REVENUE OVER 2019
$234M
CASH FLOW FROM OPERATIONS
$214M
FREE CASH FLOW
+582%
EPS OVER 2019
+57%
NON-GAAP EPS OVER 2019
+161%
5-YEAR TSR
+47%
3-YEAR TSR
+21%
1-YEAR TSR

PTC Inc. - 2021 Proxy Statement       3


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LETTER FROM OUR CHAIRMAN

Our Performance

Notwithstanding the pandemic, which struck five months into our fiscal year, we managed to deliver solid operating results and continued to create value for stockholders. We faced significant challenges associated with generating new sales of our solutions to customers due to the onsite nature of sales calls and the onsite project scoping and implementation required. We also faced challenges due to the macroeconomic uncertainty created by the pandemic, in which customers were unable to reliably forecast their needs or performance. Against this backdrop, we delivered increases in ARR, revenue and recurring revenue, generated meaningful cash flow, and continued to create value for our stockholders.

Given our execution in 2020, we believe the company is well-positioned for the future.

You can find additional information about our business performance for the year in our Annual Report to Stockholders, which accompanies this proxy statement.

We thank you for your continued support of PTC.

Sincerely,

ROBERT SCHECHTER
Chairman of the Board

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PROXY STATEMENT SUMMARY

This summary highlights information contained elsewhere in this proxy statement and does not contain all the information you should consider. You should read the entire proxy statement before voting.

See the Letter from the Chairman of the Board on page 3 for highlights of PTC’s 2020 performance.

All references to 2020 and 2019 refer to PTC’s fiscal years ended September 30, 2020 and 2019, respectively, unless otherwise indicated.

Matters to be Voted on at the Meeting

   
Proposal 1
Elect eight directors to serve until the 2022 Annual Meeting of Stockholders.
   
The Board of Directors recommends a vote FOR All Nominees
     
   
Proposal 2
Advisory vote to approve the compensation of our named executive officers (say-on-pay).
   
The Board of Directors recommends that you vote FOR the approval of the compensation of our named executive officers as disclosed in COMPENSATION DISCUSSION AND ANALYSIS and the tables and related disclosures contained in EXECUTIVE COMPENSATION.
     
   
Proposal 3
Advisory vote to confirm the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the current fiscal year.
   
The Board of Directors recommends that you vote FOR the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2021.

PTC Inc. - 2021 Proxy Statement       5


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PROXY STATEMENT SUMMARY

Director Nominees

   

Tenure

                

Diversity

Newer Directors (0 to 5 years) - 3


Diverse - 3
A diverse person is either female or an underrepresented minority or LGBTQ+.

Medium Tenured Directors (6 to 12 years) - 4

Longer-Tenured Directors (over 12 years) - 1

 

 

 

Independence

Independent - 7

Non-Independent – 1

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PROXY STATEMENT SUMMARY

Corporate Governance Highlights

Board Independence       Board and Committee
Practices
Independent and Diverse Board of Directors
Independent Board Chair
Independent Audit, Compensation, and Governance Committee Chairs
Independent Audit, Compensation, and Governance Committees
Regular Executive Sessions of Independent Directors
Annual Board and Director Evaluations
Comprehensive Risk Management Oversight
CEO and Management Succession Planning

Stockholder Rights       Stock Governance
Annual Election of All Directors
Annual Say-on-Pay Vote
No Supermajority Voting Requirements
Stockholder Right to Call a Special Meeting
Majority Voting Policy for Uncontested Director Elections
No Poison Pill
Robust Stock Ownership Requirements for Directors and Executive Officers
No Hedging or Pledging of Stock by Directors, Executives or Employees
No Payment or Accumulation of Dividends or Dividend Equivalents on Options or Unvested Shares


Compensation Practices
Pay-for-Performance Compensation
Half Our Executives’ Annual Target Compensation is Performance-Based
Independent Compensation Consultant
All Executives are Employed “At Will”
“Double-Trigger” Change in Control Agreements
No Excise Tax Gross-Ups
Compensation Clawback Policy
No Perquisites or Supplemental Retirement Benefits
Performance-Based Incentive Plan Earnings are Capped
Tally Sheets Reviewed Annually
Annual Risk Assessment of Pay Programs

PTC Inc. - 2021 Proxy Statement     7


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PROXY STATEMENT SUMMARY

Executive Compensation Highlights

Alignment of Our CEO with Our Future

A Decade as Our CEO

Jim Heppelmann has led PTC as our CEO since 2010. Over the past decade, under his leadership, PTC has transformed into a leading industrial software company – expanding the markets we serve, modernizing our business model, and transforming our culture.

2010
$2B Market Cap Low-Growth, Low-Margin CAD and PLM Perpetual License Company

2020
>$10B Market Cap Transformational Leader in Industrial Software with almost 100% Recurring Software Revenue and Growing Margins and Cash Flow

Technology Vision Creates a Leading Industrial Software Company

Expanded technology portfolio with Industrial Internet of Things and augmented reality solutions and infused our solutions with artificial intelligence and machine-learning.
Strengthened the Creo CAD suite with generative design and other advanced technologies and strengthened and expanded the PLM portfolio to provide the digital thread to power our customers’ digital transformations.
Entered the SaaS industrial software market with the acquisition of the Onshape CAD solution in 2019 and, in December 2020, announced agreement to acquire Arena Solutions SaaS PLM solution.

Focus on Creating Stockholder Value with Long-Term Strategies

Transitioned from perpetual license model to subscription license model, resulting in a portfolio of almost 100% recurring software revenue contracts.
Created a customer success organization to drive value for customers and support our recurring revenue model.
Balanced investments in the business with expenses to grow margins and cash flow.

Retention Arrangement to Extend Tenure

Given his continued vision and proven ability to drive value for customers and stockholders, in September 2020, we entered into a new employment arrangement with Jim designed to extend his decade-long tenure and lead us through the next stage of our evolution and transformation. The new arrangement includes a three-year executive agreement and a performance-based equity grant that supports our growth and profitability objectives through September 2023. The retention arrangement and rationale are discussed further in Compensation Discussion and AnalysisLetter from the Compensation Committee and 2020 CEO Compensation Decisions.

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PROXY STATEMENT SUMMARY

Alignment of Pay and Performance

FIVE-YEAR CEO TOTAL REALIZED PAY
VS RELATIVE TSR
      FIVE-YEAR NEO TOTAL REALIZED PAY
VS RELATIVE TSR

Alignment of Executives and Stockholders

PSUs TIED TO
STRATEGIC
GOALS
+ THREE-YEAR
VESTING
OF RSUs
+ SUBSTANTIAL
STOCK
OWNERSHIP
REQUIREMENTS
+ CLAWBACK
PROVISIONS
= ALIGNED INTERESTS
BETWEEN OUR
EXECUTIVES  AND
STOCKHOLDERS

2020 Stockholder Engagement

In-Season Engagement     Fall 2020 Engagement      
Investors
Contacted
Discussions
Held
Investors
Contacted
Discussions
Held
25
Investors
13
Investors
12
Investors
5
Investors
66%
Outstanding
Shares
48%
Outstanding
Shares
41%
Outstanding
Shares
12.5%
Outstanding
Shares
    

           

We engaged with stockholders during the 2020 proxy season to discuss our executive pay program and other corporate governance matters. We again engaged with stockholders in Fall 2020 to discuss the executive compensation decisions we made in September 2020 and other corporate governance matters. Our chairman of the Board, Robert Schechter, participated in a number of these discussions. Other participants from the company included our Investor Relations representatives, our General Counsel and/or our Corporate & Securities Counsel.

For our in-season engagement, we targeted investors that held at least 1% of our outstanding stock; for our Fall engagement, we targeted investors that held at least 2% of our outstanding stock.


PTC Inc. - 2021 Proxy Statement     9


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PROXY STATEMENT SUMMARY

Topics Discussed with Investors were Primarily Those Below

Executive
Compensation
      Board Composition
and Refreshment
      ESG
Reporting
         

      Human Capital
Management
           Sustainability      

2020 PricewaterhouseCoopers LLP Services and Fees

Type of Professional Service       2020       2019
Audit Fees $ 2,813,068 $ 2,511,658
Audit-Related Fees(1) $ 221,580 $ 174,811
Tax Fees(2) $ 2,002,587 $ 1,442,007
All Other Fees(3) $ 2,700 $ 2,700
(1) Consists principally of fees related to the comfort letter for our debt issuance in FY20.
(2) Consists principally of fees related to tax compliance, tax planning and tax advice services, and tax compliance services related to PTC’s expatriate employees (including assistance with individual tax compliance that PTC provides as a benefit to these employees) as follows:

    Type of Tax Service       2020       2019
Tax compliance and preparation services (comprised of preparation of original and amended tax returns, claims for refunds, and tax payment planning services) $ 581,063 $ 486,300
Tax compliance services related to PTC’s expatriate employees $ 11,493 $
Other tax services, including tax planning and advice services and assistance with tax audits $ 1,410,031 $ 955,707
Total $ 2,002,587 $ 1,442,007
(3) Consists of fees for accounting research and compliance software.
   
See Proposal 3 for more information about PricewaterhouseCoopers LLP’s services.

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PROXY STATEMENT SUMMARY

Corporate Responsibility

We recognize the close connection between our success and our ability to make a positive impact on our customers, our employees and the planet. Giving back to communities, embracing a culture of diversity and inclusion, sustaining the environment, and practicing sound ethics aren’t just the right thing to do. These efforts help make us an employer of choice, differentiate our brand, and support profitable and responsible growth. You can read our annual Corporate Social Responsibility Report and about our Corporate Social Responsibility initiatives at ptc.com/en/about/corporate-social-responsibility. The reference to our Corporate Social Responsibility Report and our website are not intended to incorporate information in that report or on our website into this Proxy Statement by reference.

 
 
 

Community Engagement

We engage in the global community and support our employees that do so as well.
In 2018, we founded the PTC Charitable Foundation to bring together our giving initiatives under one umbrella. The Foundation supports important educational initiatives, including the For Inspiration and Recognition of Technology (FIRST) program, which engages children from kindergarten through high school worldwide in research and robotics programs, the City Year program in Boston, which pairs Americorps members to support local middle and high school students, and Citizen Schools, which partners with underserved middle schools that need additional support and resources.
We support other educational institutions with in-kind software donations.
Finally, we support our employees’ engagement by matching our employees’ charitable donations through the Foundation and providing our employees with paid time off to volunteer with charitable organizations and community initiatives.
   
 
 

Inclusion & Diversity

We have prioritized inclusion and diversity (I&D) as part of our corporate-wide strategic goals. Strategies we’ve taken to create and sustain a more inclusive and diverse environment include: hiring a dedicated head of I&D; expanding our recruiting efforts at schools and job fairs focused on minorities and other diversity dimensions; and launching, expanding and supporting our Employee Resource Groups—groups of PTC employees that voluntarily join together based on shared characteristics, life experiences, or interest around particular activities.
We seek employees with diverse backgrounds and insights and are committed to creating a culture of innovation and inspiration where all employees feel a sense of ownership and pride in our success.
PTC was named a Top Place to Work in Massachusetts by The Boston Globe in 2020, 2019, 2018 and 2017.
 
 
  
 

Environmental Sustainability

As a company that operates globally, we seek to reduce and mitigate our environmental impact through our sustainability initiatives.
Our sustainability initiatives include recycling programs, energy and resource conservation programs, and public transportation support programs.
Our new world headquarters building in the Boston Seaport has received LEED Gold certification.

PTC Inc. - 2021 Proxy Statement     11


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TABLE OF CONTENTS

  
 
   3     LETTER FROM OUR CHAIRMAN
                                                            
 
  5 PROXY STATEMENT SUMMARY
  5 Matters to be Voted on at the Meeting
  6 Director Nominees
  7 Corporate Governance Highlights
  8 Executive Compensation Highlights
  9 2020 Stockholder Engagement
  10 2020 PricewaterhouseCoopers LLP Services and Fees
  11 Corporate Responsibility
   
 
  13 INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
   
 
  14 PROPOSAL 1: ELECTION OF DIRECTORS
  16 Director Nominees
  16 Independence of Our Directors
   
 
  22 CORPORATE GOVERNANCE
  22 Board Leadership Structure
  22 Board and Committee Meetings; Attendance at the Annual Meeting
  22 Board Evaluation Process
  23 Board Refreshment Process
  23 Board Risk Oversight
  24 The Committees of the Board
  27 Director and Executive Officer Stock Ownership Requirements
  27 No Hedging or Pledging of PTC Equity
  27 Director Election Process and Voting Standard
  28 Director Nominations
  28 Director Qualifications and Diversity
  28 Qualifications Required of All Directors
  28 Communications with the Board
   
 
  29 DIRECTOR COMPENSATION
  29 Director Compensation Process and Decisions
  30 2020 Director Compensation
   
 
  31 INFORMATION ABOUT OUR EXECUTIVE OFFICERS
   
 
  33 PROPOSAL 2: ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
  33 Summary of Our Compensation Practices
  33 Effect of Say-on-Pay Vote
   
 
  34 COMPENSATION DISCUSSION AND ANALYSIS
  34 Letter from the Compensation Committee
  36 Our Compensation Philosophy and Practices
  39 2020 Compensation Design
  40 FY20 Performance–Based Compensation Decisions
  45 2020 CEO Compensation Decisions
  47 2020 NEO Compensation Decisions
  48 How We Set Executive Compensation
  48 Independent Compensation Consultant
  49 Consultation with Management
  49 Compensation Committee Calendar
  50 Determination of the Total Amount of Compensation
  51 Other Important Elements of Our Compensation Program
  51 Compensation Clawback Policy
  51 Stock Ownership Requirements
  51 No Hedging or Pledging of PTC Stock
  51 Severance and Change in Control Arrangements
  52 Timing of Equity Grants
  53 Consideration of Stock-Based Compensation Expense and Dilution
  53 Annual Assessment of Risks Associated with Our Compensation Programs
  54 Compensation Committee Report
   
 
  55 EXECUTIVE COMPENSATION
  55 Summary Compensation Table
  56 Grants of Plan-Based Awards
  58 Outstanding Equity Awards at Fiscal Year-End
  59 Option Exercises and Stock Vested
  60 Potential Payments upon Termination or Change in Control
   
 
  62 CEO PAY RATIO
   
 
  63 PROPOSAL 3: ADVISORY VOTE TO CONFIRM THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FY21
  63 Engagement of Independent Auditor and Approval of Professional Services and Fees
  64 PricewaterhouseCoopers LLP Professional Services and Fees
  65 Report of the Audit Committee
  65 Attendance at the Annual Meeting
   
 
  66 INFORMATION ABOUT PTC COMMON STOCK OWNERSHIP
  66 Stockholders that Own at least 5% of PTC
  67 Stock Owned by Directors and Officers
   
 
  68 TRANSACTIONS WITH RELATED PERSONS
  68 Review of Transactions with Related Persons
  68 Transactions with Related Persons
   
 
  69 STOCK PERFORMANCE GRAPH
   
 
  70 STOCKHOLDER PROPOSALS AND NOMINATIONS
  70 How to Submit a Proposal
  70 Information to be Provided in Connection with Director Nominations
   
 
  72 ADDITIONAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
  72 Proposals to Be Voted on at the Meeting and Voting Standard
  72 Effect of Abstentions and Broker Non-Votes
  72 Voting by Proxy
  73 Revoking Your Proxy
  73 Confidentiality of Voting and Tabulation of the Votes
  73 Announcement of Voting Results
  73 Costs of Soliciting Proxies
  74 Obtaining a Copy of Our Annual Report on Form 10-K
  74 Questions
   
 
  75 APPENDIX A
  75 Operating Measures
  75 Non-GAAP Financial Measures
  75 Non-GAAP Financial Measures used under Our Executives’ Performance-Based Compensation
  76 Reconciliation of GAAP Results to Non-GAAP Financial Measures
   
 
  77 REDUCING THE ENVIRONMENTAL IMPACT OF OUR SOLICITATIONS
  77 Electronic Delivery of Proxy Materials
  77 Materials Sent to Stockholders Sharing the Same Surname and Address

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INFORMATION ABOUT THE ANNUAL MEETING AND VOTING

DATE
Wednesday,
February 10, 2021

     

TIME
8:00 a.m.
Eastern Standard Time

     

PLACE
PTC Inc.
121 Seaport Boulevard
Boston, MA 02210

2020 Annual Meeting of Stockholders

Proposals to be Voted On at the Meeting

Proposal Board Recommendation
Elect eight directors to serve until the 2022 Annual Meeting of Stockholders.       ✓ FOR
Advisory vote to approve the compensation of our named executive officers (Say-on-Pay). ✓ FOR
Advisory vote to confirm the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the current fiscal year. ✓ FOR

How You May Vote

All stockholders as of December 14, 2020 have the right to attend and vote at the Annual Meeting of Stockholders. You may vote by proxy before the meeting. You may attend the meeting even if you have voted by proxy before the meeting. In order to establish a quorum and to facilitate the tabulation of votes, please vote before the meeting, even if you plan to attend the meeting.

  VOTING BY PROXY         VOTING IN PERSON
  

To vote, you should follow the voting instructions in the notice or proxy card sent to you.

You may vote by Internet or, if you received a proxy card, by telephone or mail.

If you vote by proxy, your shares will be voted at the meeting as you instruct. If you submit your proxy but do not provide instructions, your shares will be voted in accordance with the Board’s recommendations as set forth above. If any matter not listed in the Notice of Meeting is properly presented at the Annual Meeting, your shares will be voted in accordance with the designated proxies’ best judgment.

  

If you wish to vote in person, you must have the required documentation described below with you.

If you are a record holder (that is, you hold your shares directly and not through a brokerage account), you should bring a government issued document that identifies you (such as a Driver’s License or Passport).

If you are a beneficial holder (that is, you hold your shares through a brokerage account), you will need to obtain a legal proxy from the brokerage firm to enable you to vote at the meeting. You should also bring a government issued document that identifies you.

You have one vote for each share of common stock that you owned at the close of business on December 14, 2020. On that date, there were 116,662,768 shares outstanding. See ADDITIONAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING for additional information about voting and other administrative matters.

We made this proxy statement available to stockholders on December 29, 2020.

PTC Inc. - 2021 Proxy Statement     13


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    Proposal 1
ELECTION OF DIRECTORS

The Board is elected by the stockholders to represent and protect their interest in PTC. The Board selects and oversees the members of senior management, who are responsible for conducting the business of PTC.

All director nominees are current directors of the company. Information about each of the director nominees, including their qualifications, skills and experience that led the Corporate Governance Committee and the Board to conclude that the director should serve as a director of the company, is discussed below. Information about their PTC stock ownership is set forth in INFORMATION ABOUT PTC COMMON STOCK OWNERSHIP – Stock Owned by Directors and Officers.

The Board of Directors recommends that you vote FOR the election of all director nominees.

Summary of Qualifications

Qualifications, Skills and Experience

The Nominees have a good balance of the qualifications, skills and experience that the Corporate Governance Committee and the Board have identified as contributing to the effectiveness of the Board.

Leadership Strategy Global Financial Software
Industry
Manufacturing Marketing Research &
Development

8/8 8/8 8/8 7/8 6/8 5/8 5/8 5/8

    Supermajority is Independent         Tenure is Well Balanced         Board is Diverse
Independent - 7                           Newer Directors
(0 to 5 years) - 4

Diverse - 3

A diverse person is either female or an underrepresented minority or LGBTQ+.

Not Independent – 1 Medium Tenured
Directors
(6 to 12 years) - 3
                    
  Longer-Tenured Directors
(over 12 years) - 1

Stockholder Interests are Protected

Seven of the eight director nominees, including our Board chairman, are independent. Our President and CEO is not independent.

An independent board ensures that the directors exercise independent judgment, are willing to question management and are best suited to represent and protect the interests of stockholders.

Stockholders Benefit from Effective Board Refreshment

The Corporate Governance Committee and the Board strive to achieve a balance of service on the Board through a mix of new members and perspectives and members with longer tenure with institutional knowledge.

Stockholders Benefit from Existence of Diverse Views

Of our eight directors, two are women and one other is an underrepresented minority or LGBTQ+. This composition ensures a diverse set of viewpoints and experiences that we believe benefits stockholders.

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PROPOSAL 1: ELECTION OF DIRECTORS

Specific Qualifications, Skills and Experience of the Board

The Committee believes that certain qualifications, skills and experience should be represented on the Board, as described below, although not every member of the Board must possess all such qualifications, skills and experience to be considered capable of making valuable contributions to the Board.

   

Leadership
Our business is complex and evolving rapidly. Individuals who have led companies or operating business units of significant size have proven leadership experience in developing and advancing a vision and making executive-level decisions.

Strategy
Our success depends on successful development and execution of our corporate strategy, including successful selection and execution of strategic alliances and acquisitions.

Global
We are a global company, with approximately 45% of our software revenue coming from the Americas, 35% from Europe and 20% from the Asia-Pacific region. Global experience enhances understanding of the complexities and issues associated with running a global business and the challenges we face.

Financial
Our business and financial model is complex and multinational. Individuals with financial expertise are able to identify and understand the issues associated with our business and financial model.

Software Industry
We are an enterprise software company. Those with enterprise software experience are better able to understand the risks and opportunities facing our business.

Manufacturing
We primarily serve companies in the manufacturing industry. Understanding of this industry enhances understanding of how we can best address the needs of our customers.

Marketing
Our business depends on successfully creating awareness of our products and entering new markets. Persons with marketing experience can help us identify ways to do so successfully.

Research and Development
Our business depends on the success of our research and development efforts to develop our products and expand our offerings. Experience in this area enhances understanding of the challenges we face and best practices.

PTC Inc. - 2021 Proxy Statement     15


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PROPOSAL 1: ELECTION OF DIRECTORS

Director Nominees

Independence of Our Directors

Our Board of Directors has determined that all the director nominees, other than Mr. Heppelmann, our President and Chief Executive Officer, are independent under applicable Nasdaq rules. None of the independent directors, to our knowledge, has any business, financial, family or other type of relationship with PTC or its management that would impact the director’s independence.

                         
 

JANICE CHAFFIN

Director Since
2013

Age 66

Board Committees
Compensation (Chair), Corporate Governance, Strategic Partnerships Oversight

Other Public Company Boards

Synopsys, Inc.
Electronics for Imaging Inc. (2018-2019)
International Game Technology (2010-2015)
Informatica Corporation (2001-2008)

Key Qualifications:

Significant leadership experience with large global technology companies.
Financial and accounting expertise as a result of her positions at Symantec Corporation and Hewlett-Packard Company and her service on the Audit Committees of Synopsys, International Game Technology and Informatica.
Completed the requirements to become a NACD Fellow in 2015, the highest level of credentialing for corporate directors and corporate governance professionals by the National Association of Corporate Directors.
To become a NACD Fellow, Ms. Chaffin demonstrated knowledge of the leading trends and practices that define exemplary corporate governance today and committed to developing professional insights through a comprehensive program of ongoing study.

Career Highlights:

Group President, Consumer Business Unit, Symantec, a global leader in providing cybersecurity solutions, April 2007 – March 2013
Chief Marketing Officer, Symantec, 2003-2007
Spent over twenty years at Hewlett-Packard Company, in management and marketing leadership positions.

Education:

Bachelor of Arts – University of California, San Diego
Master of Business Administration – University of California, Los Angeles

Skills and Attributes:

Leadership

Strategy

Global

Financial

Software Industry

Marketing

   
           

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PROPOSAL 1: ELECTION OF DIRECTORS

                         
 

PHILLIP FERNANDEZ

Director Since
2016

Age 60

Board Committees
Corporate Governance (Chair), Audit

Other Public Company Boards

Yext, Inc. (November 2016 – June 2019)
Marketo, Inc. (January 2006 – August 2016)
Tibco Software, Inc. (June 2014 – December 2014)

Key Qualifications:

Demonstrated leadership experience as a result of his service at Marketo, Inc. and at Epiphany, Inc.
Significant marketing experience through his role at Marketo, Inc.
Well-known writer and speaker on topics related to digital marketing, marketing automation, big data, and entrepreneurialism, and is the author of Revenue Disruption: Game-Changing Sales and Marketing Strategies to Accelerate Growth (Wiley, 2012).

Career Highlights:

Venture Partner, Shasta Ventures, a venture capital firm, January 2017 – January 2018
Founder, Marketo, Inc., a global digital marketing software company
Chief Executive Officer and President, Marketo, Inc., January 2006 – August 2016
President and Chief Operating Officer, Epiphany, Inc., a marketing software company, July 2003 – September 2005

Education:

Bachelor of Arts in History – Stanford University

Skills and Attributes:

Leadership

Strategy

Global

Financial

Software Industry

Marketing

Research and Development
   
           

                         
 

JAMES HEPPELMANN

Director Since
2008

Age 56

Board Committees
None

Other Public Company Boards

Sensata Technologies Holding plc

Key Qualifications:

Significant leadership experience in the enterprise software industry as a result of his positions at PTC Inc. and his position at Windchill Technology, Inc., where he was the founder and President before its acquisition by PTC.
Extensive knowledge of PTC’s history, technologies and the markets in which PTC operates.
Financial and marketing expertise as a result of his positions as Chief Executive Officer, Chief Operating Officer and Chief Product Officer of PTC.
Technology and research and development expertise as a result of his positions as Chief Product Officer and Chief Technology Officer, and at Windchill Technology, Inc.

Career Highlights:

President and Chief Executive Officer, PTC, October 2010 – present
President and Chief Operating Officer, PTC, March 2009 – September 2010
Executive Vice President and Chief Product Officer, PTC, February 2003 – February 2009
Executive Vice President, Software Solutions, and Chief Technology Officer, PTC, June 2001 – January 2003
Joined PTC in 1998

Education:

Bachelor’s degree in Mechanical Engineering – University of Minnesota

Skills and Attributes:

Leadership

Strategy

Global

Financial

Software Industry

Manufacturing

Marketing Research and Development

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PROPOSAL 1: ELECTION OF DIRECTORS

                         
 

KLAUS HOEHN

Director Since
2015

Age 69

Board Committees
Corporate Governance

Key Qualifications:

Extensive knowledge of manufacturing and the markets in which PTC operates, as well as extensive knowledge of PTC software, including as a user of PTC software.
His experience at Deere, a customer of PTC, makes him uniquely qualified to serve as the “voice of the customer” on the Board.
Technology and research and development expertise as a result of his positions at Deere, including his role that included corporate-level responsibility for directing advanced technology development and engineering services that support worldwide agricultural, construction, and commercial and consumer equipment design and manufacturing.

Career Highlights:

Senior Advisor, Innovation and Technology to the Office of the Chairman, Deere & Company, November 2018 – December 2020
Vice President, Advanced Technology and Engineering, Deere & Company, January 2006 – November 2018
Joined Deere & Company in 1992 and has served in several engineering and product development roles at the company

Education:

Bachelor’s degree, Master’s degree, and Doctorate degree in Mechanical and Agricultural Engineering – Rostock University, Germany

Skills and Attributes:

Leadership

Strategy

Global

Manufacturing

Research and Development


                         
 

PAUL LACY

Director Since
2009

Age 73

Board Committees
Audit (Chair), Compensation, Corporate Governance

Key Qualifications:

Extensive financial accounting and manufacturing expertise as a result of his positions at Kronos.
During his tenure at Kronos, Kronos grew from a $26 million hardware company into a $662 million public global enterprise software company.
Significant leadership and public company software experience as a result of his positions at Kronos Incorporated.

Career Highlights:

President, Kronos Incorporated, a global enterprise software company, May 2006 – June 2008
President, Chief Financial and Administrative Officer, Kronos Incorporated, November 2005 – April 2006.
Executive Vice President and Chief Financial and Administrative Officer, Kronos Incorporated, April 2002 – October 2005.

Education:

Bachelor of Science in Accounting – Boston College
Juris Doctor – Boston College of Law School

Skills and Attributes:

Leadership

Strategy

Global

Financial

Software Industry

Manufacturing

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PROPOSAL 1: ELECTION OF DIRECTORS

                         
 

CORINNA LATHAN

Director Since
2017

Age 53

Board Committees
Audit

Key Qualifications:

Extensive experience as a leader and technology innovator as a result of her work at AnthroTronix
Deep expertise in human-technology interfaces for robotics and mobile technology platforms
Significant experience and expertise in augmented reality and other technologies enable her to help us advance our Internet of Things strategy.

Career Highlights:

Chief Executive Officer, Co-Founder and Chair of the Board, AnthroTronix, Inc., a biomedical engineering research and development company that creates diverse products in robotics, digital health, wearable technology, and augmented reality, July 1999 – Present.
Associate Professor of Biomedical Engineering, The Catholic University of America
Adjunct Associate Professor of Aerospace Engineering, University of Maryland, College Park

Education:

Bachelor of Arts degree in Biopsychology and Mathematics – Swarthmore College
S.M. in Aeronautics and Astronautics – MIT
Ph.D. in Neuroscience - MIT

Skills and Attributes:

Leadership

Strategy

Global

Financial

Software Industry

Research and Development

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PROPOSAL 1: ELECTION OF DIRECTORS

                         
 

BLAKE MORET

Director Since
2018

Age 58

Board Committees
Corporate Governance, Strategic Partnerships Oversight

Other Public Company Boards

Rockwell Automation, Inc.

Key Qualifications:

Appointed to the Board in connection with the formation of the strategic alliance between PTC and Rockwell Automation and Rockwell Automation’s purchase of $1 Billion of PTC stock in July 2018. In connection with those transactions, we agreed to appoint to the Board and to the Corporate Governance Committee an individual proposed by Rockwell Automation and reasonably acceptable to us.
Rockwell Automation designated Mr. Moret as the initial designee. Under the strategic alliance, transactions between the parties do not constitute a significant portion of either PTC’s or Rockwell Automation’s annual revenue for 2020.
Significant leadership experience in factory automation and the factory automation market to the Board as a result of his experience at Rockwell Automation, an area that is a significant focus of our digital transformation for industrial enterprises strategy.

Independence Considerations:

We have concluded that Mr. Moret qualifies as an independent director under the applicable Nasdaq rules. In reaching this conclusion, we considered the fact that Mr. Moret continued to meet the objective independence standard under the applicable Nasdaq rules, that Rockwell Automation’s interests are aligned with those of stockholders generally, that transactions between the parties under the strategic alliance are not expected to be a material percentage of annual revenue in 2021, that Mr. Moret does not have any other relationship with us that would compromise his independence, and that, as with all directors, if a matter arises that poses a potential conflict of interest, Mr. Moret would be excluded from consideration of that particular matter.

Career Highlights:

President and Chief Executive Officer, Rockwell Automation, Inc., a company focused on industrial automation and information, July 2016 – Present
Chairman of the Board, Rockwell Automation, Inc., January 2018 – Present
Senior Vice President, Control Products and Solutions, Rockwell Automation, Inc., April 2011 – July 2016
Has been with Rockwell Automation for over 32 years, during which he served in various roles, including leadership roles in marketing, solutions, services and product groups.

Education:

Bachelor’s degree in Mechanical Engineering – Georgia Institute of Technology

Skills and Attributes:

Leadership

Strategy

Global

Financial

Manufacturing

Marketing

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PROPOSAL 1: ELECTION OF DIRECTORS

                         
 

ROBERT SCHECHTER

Chairman of the Board

Director Since
2009

Age 72

Board Committees
Audit, Compensation,
Strategic Partnerships
Oversight

Other Public Company Boards

Mimecast Limited
Telaria, Inc.
(2013-2019)
EXA Corporation
(2012 – 2017)
Unica Corporation
(2005 - 2010)
Soapstone Networks,
Inc. (2003 - 2009)

Key Qualifications:

Significant financial and accounting expertise as a result of his positions at NMS Communications Corporation and at Lotus Development Corporation, where he was the Chief Financial Officer.
Relevant knowledge of the manufacturing market and process [through his position at NMS Communications Corporation]
Marketing experience as well as technology and research and development expertise as a result of his position as Senior Vice President at Lotus Development Corporation, where he was responsible for all sales, marketing, customer service and product development outside North America

Career Highlights:

Chief Executive Officer, NMS Communications Corporation, a global provider of hardware and software solutions for the communications industry, 1995 – 2008
Senior Vice President, International Operations, Lotus Development Corporation, 1990 - 1994
Chief Financial Officer, Lotus Development Corporation, 1987 – 1990

Education:

Bachelor of Science – Rensselaer Polytechnic Institute
Master of Business Administration - Wharton School of the University of Pennsylvania
Skills and Attributes:

Leadership

Strategy

Global

Financial

Software Industry

Manufacturing

Marketing

Research and
Development

   




           

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CORPORATE GOVERNANCE

Board Leadership Structure

Our Board is led by an independent Chairman, Mr. Schechter. We believe this Board leadership structure serves the company and our stockholders well by providing independent leadership of the Board. If we were to decide that combining the Chairman and CEO positions would better serve the company and our stockholders, our policy is to have a Lead Independent Director.

Board and Committee Meetings; Attendance at the Annual Meeting

The Board and committees hold regularly scheduled meetings over the course of the year and hold additional meetings as necessary. The Board met ten times in 2020. All directors attended 100% of meetings of the Board and the committees on which he or she served in 2020.

We expect that each director will attend the Annual Meeting of Stockholders each year. All directors attended the 2020 Annual Meeting of Stockholders.

Board Evaluation Process

The Board conducts an annual evaluation process, which is facilitated by a third-party once every three years.

    Years 1 and 2
Self-Evaluation
    Year 3
Externally Facilitated Evaluation

The Chairman of the Board meets with each director individually to discuss the Board’s performance and the Chair of the Corporate Governance Committee meets with each director individually to assess the Chairman of the Board’s performance.

The results of the assessment are discussed with the full Board.

The external facilitator works with the Board to develop a list of discussion topics and then meets with each of the directors individually to discuss these topics and the Board’s performance.

The results of the assessment are discussed with the full Board.

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CORPORATE GOVERNANCE

Board Refreshment Process

The Corporate Governance Committee is responsible for identifying and recommending to the Board candidates for Board membership. The Corporate Governance Committee considers the Board’s composition, skills and attributes to determine whether they are aligned with our long-term strategy. The Corporate Governance Committee evaluates candidates against the standards and qualifications set forth in our Corporate Governance Guidelines as well as other relevant factors, including the candidate’s potential contributions to the Board.

Our typical search process involves the steps described below.

1            2            3            4            5            6            7           
                           
                           
Assess Board’s Current Skills and Attributes Identify Skills or Attributes that are needed or may be needed in the future Develop Candidate Profile Identify and Retain Search Firm to Lead the Process Screen Candidates Chairman of the Board, CEO, Chair of Corporate Governance Committee and other directors meet with candidates Decision and Nomination

Board Risk Oversight

The Board and the relevant committees review with PTC’s management the risk management practices for which they have oversight responsibility. Since overseeing risk is an ongoing process and inherent in PTC’s strategic decisions, the Board and the relevant committees do not view risk in isolation but discuss risk throughout the year in relation to ongoing operations and proposed actions and initiatives.

Board of Directors
Ultimate responsibility for risk management oversight and oversees risk
management of risks not addressed by a committee.

Audit

Financial Condition and Debt
Accounting and Financial Reporting
Cybersecurity and IT Programs
Compliance Programs
Taxes
Related Party Transactions

Compensation

Overall Compensation Policies, Programs and Practices

Corporate Governance

Corporate Governance Policies
CEO Succession Planning
Composition of the Board
Director Evaluation and Nominations
Director Compensation

Strategic Partnerships Oversight

Implementation and Operation of Significant Strategic Relationships

Covid-19 Crisis Oversight

Oversight of the Company’s Response to the Covid-19 Crisis

Temporary Committee Q2’20 & Q3’20

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CORPORATE GOVERNANCE

The Committees of the Board

The Board has four standing committees: Audit, Compensation, Corporate Governance, and the Strategic Partnerships Oversight Committee. Each of the committees acts under a written charter, all of which are available on the Investor Relations page of our website at www.ptc.com. Mr. Heppelmann, our CEO, does not serve on any committee.

During 2020, we also established the Covid-19 Crisis Oversight Committee to oversee the company’s response to the Covid-19 pandemic. The committee operated in the second and third quarters and was disbanded as the company’s response to the pandemic and related operating changes matured.

2020 Director Audit Compensation Corporate
Governance
Strategic
Partnerships
Covid-19 Crisis
Oversight
Janice Chaffin, Independent C
Phillip Fernandez, Independent C
Klaus Hoehn, Independent
Paul Lacy, Independent* C
Corinna Lathan, Independent
Blake Moret, Independent
Robert Schechter, Independent* C C
Total Meetings in 2020 8 8 4 4 4

C  Chair   Member *  Audit Committee Financial Expert

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CORPORATE GOVERNANCE

                                                                                     
                                                                                   
AUDIT COMMITTEE
Committee Chair:
Paul Lacy
Committee Members:
Phillip Fernandez
Corinna Lathan
Robert Schechter
Responsibilities
Assists our Board in fulfilling its oversight responsibilities for accounting and financial reporting compliance and oversees our compliance programs.
Reviews the financial information provided to stockholders and others, PTC’s accounting policies, disclosure controls and procedures, internal accounting and financial controls, and the audit process.
Meets with management and with our independent auditor to discuss our financial reporting policies and procedures, our internal control over financial reporting, the results of the independent auditor’s examinations, PTC’s critical accounting policies and the overall quality of PTC’s financial reporting, and reports on such matters to the Board.
Meets with the independent auditor, with and without PTC management present.
Appoints (and, if appropriate, replaces), evaluates, and establishes the compensation of, the independent auditor.
Reviews the independent auditor’s performance in conducting the annual financial statement audit and the audit of our internal control over financial reporting, assesses independence of the auditor, and reviews the auditor’s fees.
Reviews and pre-approves audit and non-audit related services that may be performed by the independent auditor.

Independence and Financial Expertise
All committee members are “independent directors” under both SEC rules and the Nasdaq Stock Market listing requirements.
No member has ever been an employee of PTC or any of its subsidiaries.
The Board of Directors has determined that Mr. Lacy and Mr. Schechter qualify as Audit Committee Financial Experts, as defined by the SEC.

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CORPORATE GOVERNANCE

                                                                                     
                                                                                   
COMPENSATION COMMITTEE
Committee Chair:
Janice Chaffin
Committee Members:
Paul Lacy
Robert Schechter
Responsibilities
Establishes the compensation levels for our executive officers.
Oversees our employee compensation programs, including the corporate bonus programs.
Sets performance goals for compensation of executive officers and evaluates performance against those goals.
Oversees our equity compensation plans.

May engage compensation consultants or other advisors to provide information and advice to the Committee.

Independence
All Committee members are “independent directors” under The Nasdaq Stock Market listing rules.

                                                                                     
                                                                                   
CORPORATE GOVERNANCE COMMITTEE
Committee Chair:
Phillip Fernandez
Committee Members:
Klaus Hoehn
Paul Lacy
Blake Moret
Responsibilities
Develops and recommends policies and processes regarding corporate governance.
Maintains a CEO succession plan to ensure continuity of leadership for PTC.
Oversees the director recruitment process, including the assessment of qualifications and skills sought in new directors and the retention of search firms to assist in the identification of potential candidates.
Reviews the composition of the Board and makes recommendations regarding nominees for election to the Board.
Makes recommendations to the Board about the composition of committees of the Board.
Reviews and makes recommendations to the Board with respect to director compensation.

Independence
All Committee members are “independent directors” under The Nasdaq Stock Market listing rules.

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CORPORATE GOVERNANCE

                                                                                     
                                                                                   
STRATEGIC PARTNERSHIPS OVERSIGHT COMMITTEE
Committee Chair:
Robert Schechter
Committee Members:
Janice Chaffin
Blake Moret
Responsibilities
Oversee the implementation and operation of significant strategic relationships entered into by the company.

Independence
All Committee members are “independent directors” under The Nasdaq Stock Market listing rules.

Director and Executive Officer Stock Ownership Requirements

Because we believe our directors’ and executives’ interests are more aligned with those of our stockholders if they are stockholders themselves, our directors and executive officers are required to hold a significant amount of our stock. Options and unvested equity are not counted toward the holding requirement.

     

Directors

5x

Annual Board Cash Retainer

           

Chief Executive
Officer

5x

Annual Salary

           

Other Executive
Officers

3x

Annual Salary

      All our directors and officers meet their stock ownership requirements.
   

Our Director Stock Ownership Policy and our Executive Officer Stock Ownership Policy are available on the Investor Relations page of our website at www.ptc.com.

No Hedging or Pledging of PTC Equity

In order to ensure members of the Board of Directors and our executives and employees are aligned with the interests of our stockholders, our Trading in Company Securities Policy prohibits the hedging of PTC stock or equity by directors, executives and employees and transactions in derivative securities whose value is tied to that of PTC stock (including puts, calls and listed options). The Policy also prohibits the pledging of PTC stock or equity by directors, executives and employees and short sales of PTC stock.

Director Election Process and Voting Standard

All directors stand for election each year. Directors are elected by a plurality of votes received. However, we maintain a Majority Voting Policy for uncontested director elections that requires a director who does not receive a majority of the votes cast for his or her proposed election to promptly tender his or her resignation from the Board. The Corporate Governance Committee will consider the resignation and recommend to the Board whether to accept the resignation. The Board will use its best efforts to act on the resignation and publicly disclose its decision and its rationale within 90 days following certification of the election results. The director who tenders his or her resignation may not participate in the decisions of the Corporate Governance Committee or the Board that concern the resignation.

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CORPORATE GOVERNANCE

Director Nominations

The Corporate Governance Committee is responsible for identifying and evaluating nominees for director and for recommending to the Board a slate of nominees for election at each Annual Meeting of Stockholders. Candidates may be suggested by directors, management, stockholders or a search firm retained by the Committee. Stockholders that wish to nominate a candidate may do so in accordance with the procedures described in STOCKHOLDER PROPOSALS AND NOMINATIONS. Candidates properly nominated by stockholders will be given the same consideration as other proposed candidates.

Director Qualifications and Diversity

The Corporate Governance Committee’s mandate is to create and maintain a Board with a diversity of skills and attributes that is aligned with PTC’s current and anticipated future strategic needs. Beyond a few general requirements, the Corporate Governance Committee does not rely on a fixed set of qualifications for director nominees but considers the composition of the Board and the experience and skills each director nominee brings to the Board.

The Corporate Governance Committee values diversity and believes that diversity among the directors as to personal and professional experiences, opinions, perspectives and backgrounds, as well as diversity with respect to race, ethnicity, gender, age and cultural backgrounds, is desirable. The Committee does not maintain a diversity policy but seeks to achieve diversity through its thoughtful selection of qualified candidates.

Qualifications Required of All Directors

The Corporate Governance Committee considers each candidate’s character and professional ethics, judgment, leadership experience, business experience and acumen, familiarity with relevant industry issues, national and international experience and such other relevant skills and experience as may contribute to the Board’s effectiveness and PTC’s success. In addition, all candidates must be able to dedicate sufficient time and resources for the diligent performance of the duties required of a member of the Board of Directors and must not hold positions or interests that conflict with their responsibilities to PTC. Candidates must also comply with any other minimum qualifications for either individual directors or the Board under applicable laws or regulations. The Committee will also consider whether the candidate is independent of PTC as at least a majority of members of the Board of Directors must qualify as independent in accordance with Nasdaq independence rules.

Communications with the Board

Stockholders may send communications to the Board of Directors at: Board of Directors, PTC Inc., c/o General Counsel, 121 Seaport Boulevard, Boston, Massachusetts 02210.

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DIRECTOR COMPENSATION

We pay our non-employee directors a mix of cash and equity compensation. The amounts established for the annual Board and committee cash and equity retainers for the most recent year are shown in the table below. No fees are paid for service on the Strategic Partnerships Oversight Committee. The retainers are the only compensation paid for service as a director; we do not pay meeting fees for attendance at board or committee meetings.

      Annual
Cash
Retainer
      Annual
Equity
Retainer
      Committee
Chair
Retainer
      Committee
Member
Retainer
     
Chairman of the Board $   125,000 $   300,000
Other Directors $ 60,000 $ 250,000
Audit Committee $   30,000 $   15,000
Compensation Committee $ 25,000 $ 12,500
Corporate Governance Committee $ 15,000 $ 7,500
Strategic Partnerships Oversight Committee $ $

Director Compensation Process and Decisions

The Board establishes the annual compensation for the directors at the meeting of the Board of Directors held directly after the Annual Meeting of Stockholders. In setting such compensation, the Board considers the recommendation of the Corporate Governance Committee. In making its recommendation for 2020, the Corporate Governance Committee considered a competitive assessment of the directors’ compensation with that of our compensation peer group (described in COMPENSATION DISCUSSION AND ANALYSIS) and reviewed each element of compensation to determine whether the compensation is competitive and reasonable for the services provided by the directors. Based on that review, no changes were made to our directors’ compensation for 2020.

We provide a higher annual retainer for service as the Chairman of the Board given the additional work required by that position, but do not pay a committee chair retainer to the Chairman of the Board for service as the Chair of any committee. We provide different retainers for the Chairs and members of the various committees based on the anticipated level of work required with respect to the position and the committee.

We also believe that providing a majority of our directors’ annual retainer compensation in the form of equity rather than cash serves to further align the interests of our directors with our stockholders as they become stockholders themselves.

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DIRECTOR COMPENSATION

2020 Director Compensation

The amounts shown in the Fees Earned or Paid in Cash column of the table are each director’s annual board and committee retainer fees. The amounts shown in the Stock Awards column of the table are the value of the restricted stock unit (RSU) awards made to the directors during the year.

Name(1)       Fees Earned       Stock
Awards
(#)
      Stock
Awards
($)(2)(3)
      Total
($)
Robert Schechter
Chairman of the Board
    $ 152,500 3,439 $ 299,950 $ 452,450
Janice Chaffin $ 92,500 2,866 $ 249,973 $ 342,473
Phillip Fernandez $ 82,500 2,866 $ 249,973 $ 332,473
Klaus Hoehn $ 68,750 2,866 $ 249,973 $ 318,723
Paul Lacy $ 111,500 2,866 $ 249,973 $ 361,473
Corinna Lathan $ 75,000 2,866 $ 249,973 $ 324,973
Blake Moret $ 67,500 2,866 $ 249,973 $ 317,473
Donald Grierson(4) $ 46,250 $ $ 46,250
(1) As an employee of PTC, Mr. Heppelmann, our President and Chief Executive Officer, receives no compensation for his service as a director, and accordingly, is not shown in the Director Compensation Table.
(2) Grant date fair value of restricted stock units granted on February 12, 2020. The grant date fair value is equal to the number of RSUs granted multiplied by the closing price of our common stock on the NASDAQ Stock Market on the grant date, $87.22 per share.
(3) The number of outstanding RSUs held by each director as of September 30, 2020 is shown in the table below. No director held options.

  Name       Restricted
Stock Units
        Robert Schechter 3,439
  Janice Chaffin 2,866
  Phillip Fernandez 2,866
  Klaus Hoehn 2,866
  Paul Lacy 2,866
  Corinna Lathan 2,866
  Blake Moret 2,866
(4) Mr. Grierson retired from the Board on February 12, 2020.

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INFORMATION ABOUT OUR
EXECUTIVE OFFICERS

                    
 

JAMES HEPPELMANN

Information about Jim Heppelmann is provided in “Director Nominees” above.

 
   
 
KRISTIAN TALVITIE

Executive Vice President, Chief Financial Officer

Age 50

Kristian joined PTC as our Chief Financial Officer in May 2019. Before that, Kristian was the Chief Financial Officer of Syncsort Incorporated, a private software company specializing in Big Data, high speed sorting products and data integration software and services from October 2018 through May 2019. He served as Chief Financial Officer of Sovos Compliance, LLC, a private SaaS software company specializing in tax compliance software from July 2016 to October 2018, and served as the Corporate Vice President, Finance of PTC from July 2013 to July 2016 and as the Senior Vice President, Financial Planning and Analysis and Investor Relations of PTC from November 2010 to July 2013.

 
   
 

TROY RICHARDSON

Executive Vice President, Chief Operating Officer

Age 58

Troy joined PTC in November 2020 as our Chief Operating Officer. Troy previously served as the Senior Vice President, Head of Global Sales for DXC Technology, a $20 Billion leading IT services company, from July 2019 to November 2020. Before that, he served as the Senior Vice President, General Manager, Enterprise and Cloud Applications for DXC from April 2017 to July 2019; General Manager, Global Sales Leader for CSC, an information and technology services company, from December 2015 to April 2017; and Senior Vice President, Strategic Alliances for Oracle Corporation from May 2014 to December 2015. Before that, Mr. Richardson held management positions at SAP, Hewlett-Packard, Novell, NCR and IBM.

 
   
 

EDUARDA CAMACHO

Executive Vice President, Chief Customer Officer

Age 48

Eduarda has been our Executive Vice President, Chief Customer Officer since December 2019. Before that, she served as our Divisional Vice President, Customer Success from April 2018 to November 2019, our Senior Vice President, Customer Success from December 2017 to March 2018, and our Senior Vice President, Global Services from July 2016 to November 2017. Before that, she served in various positions in our Global Services organization. Eduarda joined PTC in 1997.

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INFORMATION ABOUT OUR EXECUTIVE OFFICERS

                    
 

MICHAEL DITULLIO

Executive Vice President, Sales

Age 53

Mike has been our Executive Vice President, Sales, since November 2015. Before that, Mike served in various positions in our Sales organization. Mike joined PTC in 1999.

 
   
 

KATHLEEN MITFORD

Executive Vice President, Chief Strategy Officer

Age 48

Kathleen became our Executive Vice President, Chief Strategy Officer, in January 2020. Kathleen previously was Executive Vice President, Products from February 2018 to December 2020. Before that, Kathleen was our Executive Vice President, Products and Market Strategy from October 2017 to February 2018; Executive Vice President, Segments from February 2017 to October 2017; Corporate Vice President, Corporate Strategy from July 2014 to February 2017. Before that, she served in various roles in our product, market and corporate strategy groups. Kathleen joined PTC in 2006.

 
   
 

AARON VON STAATS

Executive Vice President, General Counsel and Secretary

Age 55

Aaron has served as our General Counsel and Secretary since 2003. Before that, he served in other roles in the company’s Legal group. Aaron joined PTC in 1997.

 
   
 

KEVIN WRENN

Executive Vice President, Products

Age 55

Kevin became our Executive Vice President, Products, in January 2020. Kevin previously served as our Divisional General Manager, PLM Segment, from October 2014 to December 2019. Before that, he held various positions in a number of organizations within PTC. Kevin joined PTC in 1995.

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    Proposal 2
ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

This advisory vote on the compensation of our Chief Executive Officer and our other executive officers named in the Summary Compensation Table (our “named executive officers”) gives stockholders the opportunity to express their views on our named executive officers’ compensation. This “say-on-pay” vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers. Additional information about their compensation is discussed in COMPENSATION DISCUSSION AND ANALYSIS and in EXECUTIVE COMPENSATION.

The Board of Directors recommends that you vote FOR the approval of the compensation of our named executive officers as disclosed in COMPENSATION DISCUSSION AND ANALYSIS and the tables and related disclosures contained in EXECUTIVE COMPENSATION.

Summary of Our Compensation Practices

Our compensation programs are designed to pay for performance. A significant portion of the compensation of our named executive officers is comprised of performance-based pay. For 2020, 51% of our CEO’s target compensation was performance-based and 49% of our other named executive officers’ target compensation was performance-based.

As shown in the pay and performance alignment charts in COMPENSATION DISCUSSION AND ANALYSIS, our executives’ pay and the Company’s performance are aligned.

Our compensation programs are designed to align our executives’ interests with our stockholders’ interests. In addition to weighting our executives’ compensation to performance-based pay, approximately 40% of their compensation is in the form of equity (RSUs) that vests over three years. Moreover, our executives are subject to substantial stock ownership requirements and to clawback of incentive compensation in certain circumstances. These elements serve to align our executives’ interests with those of our stockholders in the long-term value of PTC.

Our compensation programs are developed by independent directors advised by an independent consultant. Our Compensation Committee is comprised only of independent directors and retains an independent compensation consultant to advise it on appropriate compensation practices.

Effect of Say-on-Pay Vote

This say-on-pay vote, which is required by Section 14A of the Securities Exchange Act of 1934, is advisory only and is not binding on the company, the Compensation Committee or our Board of Directors. Although the vote is advisory, we, our Compensation Committee and our Board of Directors value the opinions of our stockholders and will consider the outcome of this vote when establishing future compensation for our executive officers. We hold such a vote each year.

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COMPENSATION DISCUSSION AND ANALYSIS

Letter from the Compensation Committee

Dear Fellow Stockholders:

We are committed to overseeing the design and implementation of executive compensation that is oriented toward pay-for-performance and aligns our executives’ interests with those of stockholders. While we maintain a pay-for-performance orientation designed to incent executives to execute our short- and long-term strategies, the compensation we pay to executives must also be sufficient to attract and retain qualified, high-performing executives. We believe our executive compensation programs and the decisions we have made for FY20 effectively balance these considerations.

Effect of the Covid-19 Pandemic. The 2020 fiscal year, which began on October 1, 2019 and ended on September 30, 2020, was significantly impacted by the Covid-19 pandemic. For the first five months, the company was executing well and on-track to achieve or overachieve several of the performance measures underlying our performance-based compensation plans, and, for the second seven months, the company, due to the leadership shown by the executives, continued to execute well, but performance against several compensation performance measures was impeded, significantly in some respects, by the pandemic.

Public and private sector policies and initiatives implemented to reduce the transmission of Covid-19, such as the imposition of travel restrictions, temporary business and plant closures, social distancing, and the adoption of remote working, significantly disrupted our and our customers’ and our prospects’ operations. Accordingly, we faced, and continue to face, challenges associated with conducting in-person sales meetings and on-premise project scoping and implementation activities necessary for new license and implementation sales. In addition, the global macroeconomic uncertainty caused by the pandemic challenged, and continues to challenge, the ability of our customers to forecast business needs and prospects. These factors caused customers and prospects to defer new software purchases and deployments and to reduce the number of licenses they renewed. As a result, new software orders declined in the high single digits in FY20 compared to FY19. Churn (licenses that are not renewed) increased to 8.6% in FY20 from 7.4% in FY19. Despite these challenges, the company delivered solid performance with increases of 14% and 16% in ARR and revenue, respectively, in FY20 over FY19, increases of 582% and 57% in GAAP and non-GAAP EPS, respectively, in FY20 over FY19, and $234 million in cash flow from operations and $214 million of free cash flow in FY20.

Compensation Decisions. Given the unprecedented impact of the pandemic on our business and, particularly, the performance measures under our incentive plans and performance-based equity, the incentive compensation for our named executive officers and other employees was materially adversely impacted for FY20. Further, our earlier strategic decision to further invest to drive top line growth while balancing our cash flow objectives also adversely affected our executives’ outstanding performance-based compensation that was tied solely to free cash flow. Accordingly, as described further below in FY20 Performance-Based Compensation Decisions, the Compensation Committee exercised discretion in determining attainment of certain FY20 performance-based compensation plans and adjusted future performance targets. These compensation decisions for FY20 considered the disruptive nature and effect of the pandemic on our business, the success of our executives in managing and navigating the pandemic environment, the leadership shown by our executives in supporting our customers, employees and other stakeholders, the evolution of the company’s strategic goals, and the demand environment for high-performing executives and employees.

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We particularly want to explain the significant performance-based retention grant made to Mr. Heppelmann in September 2020. This grant supersedes a similar grant we made to Mr. Heppelmann in 2018 tied to FY21, FY22 and FY23 free cash flow performance targets. We made the 2018 grant because we regarded retaining Mr. Heppelmann as essential to the company’s ability to achieve those performance targets and deliver the expected increase in stockholder value. Our view of the necessity of retaining Mr. Heppelmann to drive stockholder value has not changed. However, the company’s business and strategy has evolved since mid-2018 and requires continued investment to develop and add compelling and competitive solutions to the product portfolio, which we expect will ultimately create greater stockholder value. This shift in strategy compromised the company’s ability to achieve the FY21, FY22 and FY23 performance targets, causing both the incentive value and the retentive value of the 2018 grant to decline. The pandemic further eroded the incentive and retentive value as it compromised the company’s ability to generate the sales and revenue required to achieve the free cash flow targets underlying the 2018 grant. Accordingly, after considering the likelihood of achieving the performance targets, we concluded that the grant had lost its incentive and retentive value. Because we believe that it is in the best interests of the company and stockholders to retain Mr. Heppelmann, and to incent him to focus on the two measures we regard as being essential to drive future stockholder value – ARR and free cash flow – we cancelled the 2018 grant and, with the advice and assistance of our independent compensation consultant, developed the new grant that we believe achieves those ends. The new grant performance measures are tied 50% to ARR and 50% to free cash flow, with the ARR measure focusing Mr. Heppelmann on generating recurring revenue from new and existing customers and the free cash flow measure focusing Mr. Heppelmann on growing free cash flow, which our stockholders have indicated is important to them.

While we understand that the value of the new grant is significant, it is performance-based and requires the company to grow free cash flow and ARR in each of FY21, FY22 and FY23. We believe that stockholders will benefit relative to the value of the grant if the company achieves those performance goals. And we believe that Mr. Heppelmann’s demonstrated leadership and vision over the course of his ten-year tenure enhance the company’s ability to achieve those performance goals. Since becoming CEO in FY10, Mr. Heppelmann has transformed the company from a slow-growth company with low margins to a market-leading company with high-growth opportunities, higher and improving margins, and an almost 100% recurring revenue base. We believe his continued commitment to driving sustainable and profitable long-term growth will continue to create stockholder value. Moreover, we believe that an unplanned departure by Mr. Heppelmann would cause significant disruption to the company and its business and adversely impact stockholder value.

While the new grant is intended to retain and incent Mr. Heppelmann over the next three years, we, and the full Board, recognize the length of Mr. Heppelmann’s tenure and have developed a succession plan that can be implemented to ensure a smooth transition of leadership should the need arise. Because we may wish or need to implement a succession plan before 2023, we included provisions in Mr. Heppelmann’s new executive agreement designed to enable the execution of a succession plan without creating a conflict of interest with Mr. Heppelmann and to ensure his full support for any such succession.

Finally, we regard the performance-based retention grant as outside Mr. Heppelmann’s annual compensation and do not plan to make such grants on a regular basis.

We believe the decisions we have made are in the best interests for stockholders as they compensate the executives appropriately for their leadership and performance in FY20, compensate the executives competitively in a competitive market for senior software executives enabling us to retain them, and create alignment of the executives with our strategic initiatives that we believe will generate long-term value for stockholders.

We hope this has been helpful and thank you for your investment in PTC and your continued support.

Respectfully,

The Compensation Committee
Janice Chaffin, Paul Lacy and Robert Schechter

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COMPENSATION DISCUSSION AND ANALYSIS

Our Compensation Philosophy & Practices

Our executive compensation programs are designed to attract, motivate and retain our executives.

We Pay for Performance

We have a pay-for-performance philosophy for executive compensation and emphasize performance-based compensation tied to strategic initiatives designed to create long-term stockholder value. We believe that equity incentives that vest over multiple years provide an important motivational and retentive aspect to the executives’ overall compensation and align our executives’ interest in the long-term performance of PTC with that of our stockholders. Accordingly, a substantial portion of our executives’ compensation consists of performance-based and service-based RSUs that vest over multiple years.

Despite the challenges we faced due to the Covid-19 pandemic, our results for FY20 reflect the successful execution of our business transformation to a subscription company with expanding margins.

LONG-TERM PAY AND PERFORMANCE ALIGNMENT

Our performance over the past several years reflects the success and efficacy of aligning executive compensation with our strategic plan. This pay-for-performance approach has resulted in pay and performance alignment and will continue to be the centerpiece of our executive compensation programs.

5-YEAR CEO TOTAL REALIZED PAY
VS RELATIVE TSR
      5-YEAR NEO TOTAL REALIZED PAY
VS RELATIVE TSR

We are Responsive to Stockholders

We have made significant changes to our executive compensation programs over recent years in response to say-on-pay votes, comments from stockholders and changes to perceived best practices. Those changes included:

Adopting separate performance measures for our annual incentive bonus and our performance-based equity;
Introducing multiple performance periods for our long-term performance-based equity;
Adopting multiple performance measures for our long-term performance-based equity – 50% tied to an operating measure and 50% tied to relative TSR;
Eliminating the “catch-up” provision for outstanding performance-based equity (other than the 2020 rTSR performance-based equity), for the CEO retention award, and for FY21 performance-based equity.
Adopting a clawback policy;

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Eliminating all single-trigger vesting and tax gross-ups in connection with a change in control; and
Reducing the post-change in control protection period from three years to two years.

As a result, stockholders approved our say-on-pay proposals in 2017 and 2018 at the 90%+ level. However, in 2019 and 2020, stockholder support for our say-on-pay proposals was significantly lower. Accordingly, given these disappointing results, we engaged with stockholders in connection with each of the 2019 and 2020 votes and again the Fall of 2020 to understand our stockholders’ views on our executive pay program and, particularly, in the Fall of 2020, the decisions we made in September 2020 with respect to outstanding performance-based compensation.

2020 Stockholder Engagement on Executive Compensation

We engaged with a significant number of stockholders in both the Spring and Fall of 2020. Our Chairman of the Board, Robert Schechter, who is also a member of the Compensation Committee, participated in some of these discussions. Other participants from the company included our Investor Relations professionals and our General Counsel and/or our Senior Vice President, Corporate & Securities Counsel.

In-Season Engagement
Investors
Contacted
Discussions
Held
25
Investors
13
Investors
66%
Outstanding
Shares
48%
Outstanding
Shares

What We Heard and Our Responses

Stockholders were pleased with the addition of the rTSR performance measure to the long-term performance-based equity for FY20.
We included an rTSR performance measure in the FY21 performance-based equity.

Stockholders continued to disfavor the “catch-up” feature of the long-term performance-based equity in which amounts not earned for the first or second performance period could be earned for the third performance period.
When we modified the outstanding performance-based equity awards in September 2020, we removed the “catch-up” feature of those awards and executives forfeited equity not earned for FY20 and prior periods under the applicable award.
We did not include the “catch-up” feature in the long-term performance-based retention award made to our CEO in September 2020.
We did not include the “catch-up” feature in the FY21 long-term performance-based equity granted to executives.

Stockholders continued to disfavor the interim annual earning opportunities in the long-term performance-based equity.
We considered whether to remove the annual earning opportunities but decided to retain those opportunities given the incentive aspect of those opportunities that we believe increase the likelihood that the year three targets will be achieved, benefiting all stockholders. With the removal of the “catch-up” feature, amounts not earned for year one or two are forfeited, so the executives do suffer for non-achievement in those years, even if the year three targets are achieved.

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Fall 2020 Engagement
Investors
Contacted
Discussions
Held
12
Investors
5
Investors
41%
Outstanding
Shares
12.5%
Outstanding
Shares

What We Heard

Stockholders generally understood and were comfortable with the decisions we made with respect to performance-based compensation for FY20 and future periods under outstanding performance-based equity, although some reserved judgment until they had an opportunity to review this proxy statement.
Stockholders were pleased with the elimination of the “catch-up” feature and the fact that it was not included in the long-term performance-based retention award made to our CEO in September 2020.
Some stockholders expressed concern about the new long-term performance-based retention award made to our CEO in September 2020, primarily about the fact that it was incremental to our annual compensation program and about how acquisitions in the period were handled.
Some stockholders expressed concern about the three-year term of the executive agreement we entered into with our CEO in September 2020 as part of our retention program for our CEO and the treatment of outstanding equity under that agreement in connection with a termination without cause or a resignation at the request of the Board in connection with a Board-sponsored CEO succession plan.

How We Think about the CEO Performance-Based Retention Award and Executive Agreement

We believe the performance-based retention award provides a compelling incentive to Mr. Heppelmann to remain with PTC and continue to drive achievement of our strategic initiatives beyond that which is provided by our annual pay programs. We believe this type of additional incentive award is an effective way to drive value for stockholders and have successfully used such an incentive award in the past to drive significant stockholder value. We made such an award to Mr. Heppelmann upon his becoming CEO in 2010 to drive dramatic improvement in earnings over a five-year period and such improvement increased stockholder value significantly. We believe that if the ARR and cash flow performance measures under the award are achieved, stockholders will benefit significantly as well.

Under the award, acquisitions made in a performance-year are not counted when determining achievement of the performance measures for the period, while they are counted in later performance periods because any growth in later periods is considered organic. We believe this approach, the elimination of the catch-up provision, and the oversight provided by our Board of Directors effectively negates the risk of pursuing an acquisition solely for the purpose of achieving a performance measure in a period while enabling us to continue to pursue our strategy to grow our technology portfolio through strategic acquisitions.

We believe that the three-year term of the Executive Agreement supports the intent of the retention award by providing assurance to Mr. Heppelmann that he will have the opportunity to earn the retention award, but enables the company to execute a succession plan or otherwise make a change in leadership.

We intend to continue to engage with stockholders about our executive compensation programs to ensure we understand and consider their views.


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COMPENSATION DISCUSSION AND ANALYSIS

2020 Compensation Design

Our executives’ 2020 target compensation consisted of the compensation elements shown below. We believe these components provide an appropriate mix of fixed compensation and at-risk compensation that promotes short-term and long-term performance and rewards our executives appropriately for their performance. With this mix, we provide a competitive base salary and service-based equity that vests over multiple years while providing our executives the opportunity to earn additional compensation through short-term and long-term performance-based incentives designed to drive company performance and create long-term stockholder value. Because a significant portion of our executives’ target compensation is performance-based, actual compensation earned can differ significantly from target compensation.

FY20 Target Compensation

Target Compensation Compensation Elements
CEO NEO
           

Base Salary
Provide a base level of competitive cash compensation.

Annual Incentive Plan
Focus executives on achieving specific performance goals tied to PTC’s annual business plan.

Performance Measures
Net New ACV       Non-GAAP Operating
Expense
Long-Term Incentives
Focus executives on achieving performance goals to drive PTC’s long-term success. Discourages short-term risk taking and aligns long-term management goals with long-term interests of stockholders.
PSUs (50%) RSUs (50%)
            ARR
over FY19 for each of FY20, FY21, FY22 (25%)
      rTSR
for each of FY20, FY21, FY22 (25%)
      Vest in three equal installments in November 2020, 2021 and 2022
Ultimate realized value depends on stock price performance.

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FY20 Performance-Based Compensation

The performance measures we develop and use for our performance-based compensation are designed to drive and measure our performance against our short-term and long-term business plans and objectives and create value for our stockholders.

Alignment of Corporate Strategy and Performance-Based Compensation

Strategic Goal Compensation Plan and Performance Measure
Increase Recurring Revenue Annual Incentive Plan
New Annual Contract Value
Long-Term Performance-Based Equity
Growth in ARR
Expand Operating Margins Annual Incentive Plan
Non-GAAP Operating Expense
Increase Shareholder Value Long-Term Performance-Based Equity
Relative TSR

FY20 Performance–Based Compensation Decisions

Performance-based compensation decisions for FY20 included decisions related to compensation established at the beginning of our FY20 for FY20 and related to outstanding long-term performance-based equity developed and issued for FY18 and FY19 with FY20 and/or FY21 performance periods.

PERFORMANCE-BASED COMPENSATION FOR FY20

Component       FY20 Performance
Measure
(1)
      Threshold                         Target       % Determined
Earned
(amounts in millions)
Annual
Incentive Plan
Net New ACV 65%
Non-GAAP Operating
Expense
FY20 Long-Term
PSUs
(1st Tranche)
ARR 62.5%
Relative TSR

25th
Percentile

50th
Percentile
120%
FY19 Long-Term
PSUs
(2nd Tranche)
Adjusted Free Cash Flow 50%
FY18 Long-Term
PSUs
(3rd Tranche)
New ACV 58%
(1) Our New ACV and ARR performance measures are described on Appendix A; our non-GAAP adjusted free cash flow and operating expense performance measures are described and reconciled to GAAP results on Appendix A.

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Annual Incentive Plan

The annual Corporate Incentive Plan is intended to focus our employees (including our executive officers) on achieving performance goals tied to our annual business plan. The FY20 Corporate Incentive Plan had two performance measures, which were designed to align our employees with our strategic goals of increasing recurring revenue and expanding operating margins.

Under the plan, Net New ACV was weighted 2/3 and Non-GAAP Operating Expense was weighted 1/3. For each of the performance measures, 50% of the portion of the target bonus attributable to such performance measure would be earned upon achievement of the threshold, 100% upon achievement of the target, and up to 150% for performance above the target. Considering the weighting between the performance measures, the total upside opportunity was 135% of the employee’s target bonus.

As described above in the LETTER FROM THE COMPENSATION COMMITTEE, the COVID-19 pandemic had a significant impact on our ability to generate Net New ACV, with no time for the company to rebound given the macroeconomic headwinds that persisted through the end of the fiscal year. For reference, new ACV declined in the high single digits in FY20 compared to FY19. As a result, the Compensation Committee determined to measure performance of this metric ratably using the five months pre-pandemic and the seven months post-pandemic.

The Compensation Committee did not make any adjustment to the measurement of Non-GAAP Operating Expense as the COVID-19 pandemic did not adversely impact the company’s ability to manage operating expenses and that measure was achieved above the upside target.

For the period from October 1, 2019 through February 29, 2020, the weighted achievement forecast under the Corporate Incentive Plan was 108.4% of target, and for the remainder of the fiscal year, the weighted achievement forecast was 35.0% of target, which resulted in a weighted payout of 65.0% for all employees (including our executive officers) participating in the plan.

The following table summarizes the performance measures for the Corporate Incentive Plan for FY20 and achievement under the plan.

FY20 CORPORATE INCENTIVE PLAN

Threshold
(50%
Earned)
Target
(100%
Earned)
Upside
(135%
Earned)
Pre-Covid
Forecast
Achievement
Actual
Achievement
Determined
Earned
Performance Measure         Weight                                 (in millions)                
Net New ACV 2/3      $ 150   $ 170   $ 190      $175 $120 65%
Non-GAAP Operating Expense 1/3 $ 790 $ 780 $ 770   $780   $741
Weighted Average Forecast
Achievement
108.4% 35%

Long-Term Performance-Based Equity

Annual performance-based compensation for our executives includes a long-term performance-based RSU grant that is eligible to vest in three substantially equal tranches if and to the extent the performance measures for the applicable year are achieved. Accordingly, PSUs granted for FY18, FY19 and FY20 were outstanding and eligible to be earned based on FY20 achievement under the applicable performance measures, which differed among the years.

Under all the grants, 50% of the PSUs eligible to be earned for a period would vest on achievement of the threshold and the full 100% eligible for a period would vest on achievement of the target. Additional PSUs could be earned up to 200% of the target PSUs eligible to be earned for a period for performance above the target (so, if 3,000 PSUs were granted, 1,000 could be earned for each year of the three-year performance cycle, and up to an additional 1,000 PSUs could be earned for each period). As granted, PSUs not earned for either of the first two years could be earned in the last year of the performance cycle if the intended long-term increase in the relevant performance measures is achieved, but in no event could the aggregate number of PSUs earned for all three periods exceed the total number of PSUs eligible to be earned multiplied by the achievement level in the final year (referred to as the “catch-up provision”).

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In its deliberations regarding these awards over the course of four meetings in September 2020, the Compensation Committee, with the assistance of its independent compensation consultant, considered each award on a holistic basis, including the impact of the COVID-19 pandemic on the tranche of each award eligible to vest based on FY20 achievement, the evolution of the Company’s strategic goals and the impact of those changes on attainment of prior period awards, the overall achievement by the executives of the applicable performance measures through the three-year performance cycle to date, and the incentive and retention objectives of the awards with respect to any remaining performance periods.

FY20 PSUs

The FY20 PSUs granted in November 2019 used two performance measures (ARR and relative TSR), which were designed to align our executives with our strategic goals of increasing recurring revenue and total shareholder return. One-half of the target PSUs was tied to the achievement of each of the ARR and relative TSR measures.

DETERMINATION OF FY20 ACHIEVEMENT
ARR PSUs. As described above in LETTER FROM THE COMPENSATION COMMITTEE, the COVID-19 pandemic had a significant impact on ARR, particularly with respect to the ability to generate increases in ARR from new ACV, with no time for the company to rebound given the macroeconomic headwinds that persisted through the end of the fiscal year. As a result, the Compensation Committee determined to measure performance of this metric ratably based on the same methodology used for the annual Corporate Incentive Plan.

For the period from October 1, 2019 through February 29, 2020, forecast achievement of the ARR performance measure under the FY20 PSUs was 150% of target, and for the remainder of the fiscal year, forecast achievement was 0% of target. As a result, 62.5% of the PSUs tied to achievement of ARR in the first year of the performance cycle were earned on a weighted average basis.

Relative TSR PSUs. The Compensation Committee did not make any adjustment to the measurement of relative TSR for FY20, as the COVID-19 pandemic did not impact our total shareholder return on a relative basis. As a result, 120% of the PSUs tied to achievement of relative TSR in the first year of the performance cycle were earned.

Accordingly, the total achievement for the FY20 PSUs was 91.25% when considering achievement under both measures.

FY20 LONG-TERM PERFORMANCE-BASED RSUs

Performance
Measure
Threshold
(50% Earned)
  Target
(100% Earned)
  Upside
(135% Earned)
Pre-Covid
Forecast
Achievement
Actual
Achievement
 Determined
Earned
Total
Earned
Weight                     ($ in millions) 91.25%
ARR 50%   $1,245   $1,275   $1,305 $1,290 $1,236 62.5%
          Forecast Achievement ARR 150% 0%
Relative TSR 50% 25th      50th      90th      N/A      60th      120%     
Percentile Percentile Percentile Percentile

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REALIGNMENT OF FY21 AND FY22 ARR PERFORMANCE MEASURES
The Compensation Committee also recognized that the ARR performance measures used for the FY20 PSUs no longer reflected our business plan given the impact of the COVID-19 pandemic on our business and the resulting change in the base for measuring ARR growth. As a result, the ARR metrics that had been set in November 2019 for FY21 and FY22 and were based on a compound annual growth rate no longer aligned our executives with, nor incentivized execution of, the expected ARR growth coming out of FY20. The Compensation Committee therefore determined to adjust downward the threshold and target ARR metrics for FY21 and FY22 and to change from a compound annual growth rate to an annual growth rate given the uncertainty in forecasting the macroeconomic environment and performance opportunities. The Committee believes these adjustments establish appropriate growth incentives and executive alignment coming out of FY20. The Compensation Committee believes that the adjusted targets, requiring growth from year to year, remain challenging but achievable through strong operating performance.

In approving these adjustments, the Compensation Committee determined to remove the catch-up provision for these awards given the adjustment to the ARR metrics and in response to feedback previously received from shareholders, and also considered that the upside potential for the FY20 PSUs for each of FY21 and FY22 was capped at 200% of the target PSUs for the period, which would avoid the potential risk of outsized payouts in FY21 and FY22.
Accordingly, the executives forfeited the 37.5% of the unearned ARR PSUs for FY20 and will forfeit unearned PSUs for each of FY21 and FY22.

The Compensation Committee did not make any changes to the relative TSR performance measures for FY21 and FY22.

FY19 PSUs

The FY19 PSUs granted in November 2018 used an Adjusted Free Cash Flow performance measure, which was designed to align our executives with our long-term strategic goal of increasing free cash flow. The Adjusted Free Cash Flow targets set for FY19, FY20 and FY21 increased each year based on a compound annual growth rate.

Based on the Adjusted Free Cash Flow performance measure for FY20, no portion of the PSUs was forecast to be earned for FY20.

DETERMINATION OF FY20 ACHIEVEMENT
The Committee determined that, by the end of FY20, the performance targets had fallen out of alignment with the company’s business plan. After considering this misalignment, the impact of the COVID-19 pandemic, investments in ARR growth and in the company’s SaaS strategy, and changes in certain business policies on the company’s free cash flow, and the retention and motivational aspects of the awards, the Compensation Committee determined that it was appropriate to deem the FY19 PSUs eligible to vest for FY20 at the threshold attainment level of 50%.

FY19 LONG-TERM PERFORMANCE-BASED RSUs

Threshold
(50% Earned)
Target
(100% Earned)
Upside
(200% Earned)
Actual Total Vested
Performance Measure         Weight               ($ in millions) 50%
Adjusted Free Cash Flow 100%           $ 365           $ 430                 $ 475       $ 265      

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REALIGNMENT OF FY21 PERFORMANCE MEASURES
The Compensation Committee further recognized that, because the Adjusted Free Cash Flow performance measures for FY21, the final year of the award, did not reflect our current business plan, the FY19 PSUs no longer aligned our executive leadership with, nor incentivized execution of, the strategic business decisions made by our Board of Directors and management coming out of FY20. The Compensation Committee therefore determined to adjust downward the threshold and target Adjusted Free Cash Flow metrics for FY21 to better align those measures with the company’s plan and reduced the amount that could be earned upon achievement of threshold from 50% to 25% given the lower threshold. The Compensation Committee believes that the adjusted target, reflecting growth over FY20 Adjusted Free Cash Flow, remains challenging but achievable through strong operating performance.

In approving this adjustment, the Compensation Committee determined to remove the catch-up provision for the FY19 PSUs given the adjustment to performance measure and in response to feedback previously received from shareholders and also considered that the upside potential for the FY19 PSUs for FY21 was capped at 200% of the target RSUs remaining under the award for FY21, which would avoid the potential risk of an out-sized payout in FY21.
Accordingly, the executives forfeited the 40.7% of the PSUs not earned for the FY19 period (achievement for FY19 was 59.3%) and the 50% of the PSUs not earned for FY20.

FY18 PSUs

The PSUs granted in November 2017 used a new software subscription ACV performance measure, which was designed to align our executives with our strategic goal of increasing subscription revenue and recurring revenue.

DETERMINATION OF FY20 ACHIEVEMENT
With respect to the FY18 PSUs, the Compensation Committee determined that it was appropriate to vest the final tranche of the FY18 PSUs at 58% based on forecast achievement of the New ACV performance metric as of the end of the five-month period in FY20 preceding the COVID-19-pandemic given the timing and disproportionate impact of the pandemic relative to the end of the performance cycle for this award, with the COVID-19 pandemic significantly impacting the last seven months of this three-year award.

In making this determination, the Compensation Committee considered that the executives will have earned 71% of the total number of target shares subject to these awards over the three-year performance cycle.

FY18 LONG-TERM PERFORMANCE-BASED RSUs

Performance Measure Weight Threshold
(50% Earned)
Target
(100% Earned)
      Upside
(135% Earned)
      Pre-Covid
Forecast
Achievement
      Actual
Achievement
      Determined
Earned
      (in millions)
New ACV 100%       $220       $250 $263 $224 $200 58%
Forecast Achievement 58% 0%

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2020 CEO Compensation Decisions

                         
        
     

JAMES HEPPELMANN  President and Chief Executive Officer

Mr. Heppelmann has been our President and CEO since 2010, during which time he has transformed the company into a dynamic force supporting the digital transformations of industrial enterprises.

When establishing his compensation for FY20, we evaluated his compensation against our compensation peer group as to individual elements and as to total target compensation and his performance to determine whether to make any additional changes to his target compensation for FY20. Given his performance, his compensation relative to his peers, and the increase we made to his compensation in FY19, we decided no change in his annual compensation was warranted.

At the end of FY20, the Compensation Committee, with the assistance of its independent compensation consultant, reviewed a long-term performance-based equity award made to Mr. Heppelmann in 2018 and addressed that award as described below.

FY20 TARGET ANNUAL COMPENSATION

CEO Long-Term Performance-Based Retention Award

The 2018 long-term performance-based RSU award was tied to achievement of the Adjusted Free Cash Flow targets that we publicly announced in June 2018. The Compensation Committee selected Adjusted Free Cash Flow as the performance measure under this grant to align to our long-range plan and given the importance of this performance measure to our shareholders and the expected increase in the valuation of the company that achievement of those measures would drive. The RSUs would become eligible to vest in three equal tranches for FY21, FY22 and FY23 if and to the extent the performance measure for the period was met. RSUs not earned for FY21 or FY22 could be earned for FY23 (the “catch-up” feature).

As part of its consideration of modifications to the outstanding performance-based equity awards described above to better align our executives with, and incentivize the execution of, our strategic business plan, the Compensation Committee, with the assistance of its independent compensation consultant, also reviewed the terms of this award. In doing so, the Compensation Committee recognized that this award was not aligned with the company’s focus on recurring revenue, nor did it reflect the company’s current plan with respect to free cash flow. In addition, the award had lost its retentive effect. As a result, the Compensation Committee developed a new retention and performance-based compensation program for Mr. Heppelmann, which included entering into a new, three-year executive agreement with Mr. Heppelmann and canceling the 2018 award and issuing a new performance-based award aligned with the Company’s current business strategy. The new performance-based award consists of 400,040 RSUs (the same number as had been issued for the 2018 award) with a grant date value of $32 million. One-third of the RSUs granted are eligible to be earned for each of the FY21, FY22 and FY23 performance periods. RSUs not earned for a period are forfeited.

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COMPENSATION DISCUSSION AND ANALYSIS

The new performance-based award:

Adds an ARR performance measure (weighted at 50%) for each of FY21, FY22 and FY23, which supports the company’s emphasis on increasing recurring revenue due to the shift to a subscription business model;
Aligns the existing Adjusted Free Cash Flow measures (weighted at 50%) for FY21, FY22 and FY23 to the company’s current plan, which takes into account investments in ARR growth and our SaaS strategy, changes in certain business policies, the impact of the COVID-19 pandemic on our recurring revenue, and the negative effect of those items on our free cash flow;
Contains an upside feature, capped at 10%, aimed to incent performance beyond targeted performance; and
Does not contain the catch-up feature that had been included in the 2018 award as some shareholders had expressed concern with that feature.

The performance measures require a percentage increase in ARR and adjusted free cash flow over the amount achieved in the preceding year. The Compensation Committee believes that the new targets are challenging but achievable through strong operating performance.

We believe that this new performance award provides a compelling retention incentive for Mr. Heppelmann to remain with the company and aligns with the interests of stockholders in retaining and incentivizing Mr. Heppelmann to drive achievement of our long-range plan and outstanding results for our shareholders.

CEO Executive Agreement

The new Executive Agreement with Mr. Heppelmann has a three-year term that expires on September 30, 2023 and provides certain compensation and employment protections to Mr. Heppelmann. The Executive Agreement replaces the similar one-year agreement that the Company had with Mr. Heppelmann. To further motivate and retain Mr. Heppelmann, in addition to the compensation and protections that were included in the prior agreement, the new Executive Agreement provides that, upon termination of Mr. Heppelmann’s employment (i) by the Company without cause, (ii) by Mr. Heppelmann due to the failure of the Company to maintain him in the position of Chief Executive Officer of the Company, or (iii) as a result of his resignation upon the request of the Board in connection with a Board-approved succession plan resulting in the appointment of a new Chief Executive Officer, all service-based equity held by him will vest and the performance measures applicable to any performance-based equity held by him will be deemed to have been met at the target level and vest. To receive the payments and benefits under the Executive Agreement, Mr. Heppelmann must execute a release of claims in favor of the Company and continue to comply with the terms of his Non-Disclosure, Non-Competition and Invention Agreement with the Company. The Executive Agreement is discussed in greater detail below under Severance and Change in Control Arrangements and Executive CompensationPotential Payments upon Termination or Change in Control.

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COMPENSATION DISCUSSION AND ANALYSIS

2020 NEO Compensation Decisions

                                                                                     
                                                                                   
KRISTIAN TALVITIE  Executive Vice President, Chief Financial Officer

Mr. Talvitie joined PTC in May 2019. Accordingly, when setting his compensation for FY20, we maintained his salary and target bonus at the levels set then, but increased his target annual equity by $500,000 for FY20 given his performance and his compensation relative to his peers.

We reviewed his target compensation again in May 2020 after he had a year in the role. Given his performance, his compensation relative to his peers, and the retention risk associated with demand for experienced subscription-software CFOs, we increased his base salary to $500,000 and his target annual incentive bonus to $500,000. We also increased his target equity to $3,250,000.

FY20 TARGET ANNUAL
COMPENSATION


                                                                                     
                                                                                   
MICHAEL DITULLIO  Executive Vice President, Sales

Mr. DiTullio has served as our Executive Vice President, Sales and Corporate Marketing since November 2015. His compensation established for FY20 reflects his tenure and performance in the role and is competitive with peer compensation for the role.

During the year, given the effect of the Covid-19 pandemic on our business and his success in pivoting the sales team to remote selling and continuing to successfully pursue sales opportunities, and the demand for successful sales leaders, we made a retention RSU grant valued at $1 million to Mr. DiTullio in May 2020, which RSUs vest in three-substantially equal installments over three years if he remains with us.

FY20 TARGET ANNUAL
COMPENSATION

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KATHLEEN MITFORD  Executive Vice President, Chief Strategy Officer

Ms. Mitford was promoted to Executive Vice President, Chief Strategy Officer in January 2020. Previously, she served as Executive Vice President, Products and her compensation for FY20 was established for that role. Given her performance in that role in FY19 and her compensation relative to her peers, we increased her target annual incentive bonus from $300,000 to $350,000 for FY20. Upon her promotion to Chief Strategy Officer, we reevaluated her compensation and decided an increase was warranted given the increase in responsibility. Accordingly, we increased her salary to $415,000 and her annual equity compensation by $160,000.

FY20 TARGET ANNUAL
COMPENSATION


                                                                                     
                                                                                   
AARON VON STAATS  Executive Vice President, General Counsel

We evaluated Mr. von Staats’ compensation against our compensation peer group as to individual elements and as to total target compensation and his performance to determine whether to make any additional changes to his target compensation for FY20. As his compensation remained competitive, we did not make any changes to his compensation for FY20.

FY20 TARGET ANNUAL
COMPENSATION

How We Set Executive Compensation

The Compensation Committee, which is comprised entirely of independent directors, establishes and reviews the compensation for our executive officers annually.

Independent Compensation Consultant

The Committee engaged Pearl Meyer & Partners, LLC as its independent compensation consultant for 2020. The Committee assessed the independence of Pearl Meyer and determined that Pearl Meyer is independent of PTC and has no relationships that could create a conflict of interest with PTC. As part of its assessment, the Committee considered the fact that Pearl Meyer provides no other services to PTC and consults with PTC’s management only as necessary to provide the services described below.

Pearl Meyer provides a range of services to the Committee to support the Committee in fulfilling its responsibilities, including providing legislative and regulatory updates, peer group compensation data, advice on the structure and competitiveness of our compensation programs, and advice on the consistency of our programs with our executive compensation philosophy. Pearl Meyer attends Committee meetings, reviews compensation data with the Committee, and participates in discussions regarding executive compensation issues. The Committee meets with Pearl Meyer with and without PTC management present.

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COMPENSATION DISCUSSION AND ANALYSIS

Consultation with Management

Members of management, including our Chief Executive Officer, participate in Committee meetings as requested by the Committee to discuss the materials provided, including recommendations on executive pay, competitive market practices and performance measures. Although the members of management provide their views, decisions on executive compensation are made solely by the Committee and, in the case of the Chief Executive Officer’s compensation, without the presence of the Chief Executive Officer.

Compensation Committee Calendar

November      
Determine achievement under prior period performance-based compensation.
Review pay-for-performance alignment.
Establish performance-based compensation plans for current year.
Make annual performance-based and service-based equity awards.
Review Compensation Discussion and Analysis.
Review equity use and forecast expense.
February      
Review annual say-on-pay vote results and proxy advisor recommendations.
Review in-season stockholder engagement results.
Review compliance with director and executive stock ownership requirements.
Review Compensation Committee Charter.
May      
Review and establish compensation peer group for upcoming year.
Review peer group executive compensation practices.
Review executive agreements.
September      
Review competitive assessment of executive compensation.
Review pay-for-performance analysis.
Review annual risk assessment of compensation practices.
Establish executive compensation for year beginning October 1.
Review independence and retention of independent compensation consultant.

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COMPENSATION DISCUSSION AND ANALYSIS

Determination of the Total Amount of Compensation

We make decisions regarding the amount and mix of compensation for our executives based on:

Objective data provided by Pearl Meyer & Partners (we refer to this as the “competitive analysis”);
Analysis of the scope of each executive’s responsibilities; and
Internal pay equity among the executives.

We use the competitive analysis to assess our executives’ compensation against the compensation paid to executives in similar positions in the peer group to ensure that the compensation we pay is competitive and fair to our executives and to our stockholders. We generally target compensation opportunities for our executives at the median of the market as an initial benchmark. While we use the competitive analysis as a starting point, we also consider the qualitative dimensions of an executive’s role, internal pay equity among our executives and tenure in the position when setting our executives’ compensation as we do not believe an external benchmark should be the only determinant of compensation.

Competitive Analysis (Benchmarking)

The peer group used for the competitive analysis consists of 16 publicly-traded U.S. software companies, most of which are in the enterprise software space, that have revenues and market capitalizations in a range we believe is appropriate. We target companies with revenue within an approximately 0.5x to 2x multiple of PTC’s revenue and an approximately 0.5x to 3x multiple of PTC’s market capitalization. However, we may include companies with revenue and/or market capitalizations outside these parameters if there is strong product and/ or service similarity. We believe this group represents the competition for executive talent in our industry. We review the peer group annually to ensure that the companies in the peer group remain relevant and provide meaningful compensation comparisons.

The 2020 peer group consisted of the companies listed below. The 2020 peer group differed from the 2019 peer group due to the removal of Red Hat Inc. due to its acquisition, and the addition of Blackbaud, Inc., which is smaller than PTC on both a revenue and market capitalization basis, to balance that removal.

2020 PEER GROUP

    Akamai Technologies, Inc.     Nuance Communications, Inc. 16
Publicly-Traded
U.S. Software
Companies
ANSYS, Inc. Open Text Corporation
Autodesk, Inc. Pegasystems Inc.
Blackbaud, Inc. ServiceNow, Inc.
Cadence Design Systems, Inc. Splunk Inc.
Citrix Systems, Inc. SS&C Technologies Holdings Inc.
Fair Isaac Corporation Synopsys, Inc.
LogMeIn, Inc. The Ultimate Software Group, Inc.

Survey Data

We also use survey data for additional perspective. For 2020, we used the Radford Global Technology survey. PTC participates in this survey and believes that it represents a good cross-section of the software industry and that the data is appropriate to PTC. The survey represented 40 software companies with median revenue of $1.49 billion.

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COMPENSATION DISCUSSION AND ANALYSIS

Other Important Elements of Our Compensation Program

Compensation Clawback Policy

We maintain an executive compensation recoupment policy that is intended to enable us to recover incentive compensation paid to an executive officer if such compensation is subsequently determined to have been unearned due to a restatement of our financial results for the performance period as a result of the misconduct of the executive officer. The Executive Compensation Recoupment Policy is available in the Corporate Governance section of the Investor Relations page of our website at www.ptc.com.

Stock Ownership Requirements

Our executives are required to attain and maintain stock ownership levels of our common stock (options and unvested equity are not counted). For our CEO, that amount is 5x his annual salary, and for our other executive officers, that amount is 3x their respective annual salaries. All our executives met their respective stock ownership requirements.

No Hedging or Pledging of PTC Stock

In order to ensure members of our Board of Directors and our executives and employees are aligned with the interests of our stockholders, our Trading in Company Securities Policy prohibits the hedging of PTC stock or equity by directors, executives and employees and transactions in derivative securities whose value is tied to that of PTC stock (including puts, calls and listed options). The Policy also prohibits the pledging of PTC stock or equity by directors, executives and employees and short sales of PTC stock.

Severance and Change in Control Arrangements

Agreements and Conditions

We maintain severance and change in control arrangements with our executives. The agreements require the executive to execute a non-compete agreement with PTC and to execute a general release of claims as a condition to receiving severance benefits. As described above in 2020 CEO Compensation Decisions, the agreement with our CEO has a three-year term that expires on September 30, 2023. Each of the other named executive officers’ agreements has a one-year term and renews automatically for successive one-year terms if the Compensation Committee does not terminate the agreement. The agreements are described in more detail under Potential Payments upon Termination or Change in Control.

Annual Review

The Compensation Committee reviews these agreements each year to determine if these agreements should be maintained, modified or terminated. For 2020, the Committee reviewed current market practices and the terms of the agreements with the Committee’s compensation consultant. Based on this review, the Committee decided that it was appropriate to maintain the agreements. As described above in 2020 CEO Compensation Decisions, the Committee designed a new retention program for Mr. Heppelmann in September 2020 and the company entered into a new executive agreement with Mr. Heppelmann at that time.

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Rationale

The Committee believes that these agreements are important motivational and retention tools because, in a time of continuing consolidation in our industry and increased competition for executive talent, they provide a measure of earnings security by offering income protection in the form of severance and continued benefits if the executive’s employment is terminated without cause, economic protection for the executive’s family if the executive becomes disabled or dies, and additional protections in connection with a change in control of PTC.

The Committee believes that providing severance to PTC employees, including executives, is an appropriate bridge to subsequent employment if the person’s employment is terminated without cause. This is particularly so for executive-level positions for which the opportunities are typically more limited, and the job search lead time is longer. The agreements also benefit PTC by enabling executives to remain focused on PTC’s business in uncertain times without the distraction of potential job loss.

Importance in Connection with a Potential Change in Control

The Committee believes these agreements are even more important in the context of a change in control as it believes they will motivate and encourage the executives to be receptive to potential strategic transactions that are in the best interest of stockholders, even if the executive faces potential job loss. The agreements for our executives have “double triggers” before vesting of any equity is accelerated, so that no equity is accelerated upon a change in control but is accelerated only if the executive is terminated in connection with a change in control. The Committee believes this benefits PTC and any potential acquirer because it enables PTC to retain and motivate the executive while a potential change in control is pending, provides an acquirer with the ability to retain desired executives using existing equity incentives, and does not provide a one-time benefit to the executive that could undermine those efforts.

Timing of Equity Grants

We do not time grants either to take advantage of a depressed stock price or an anticipated increase in stock price and have limited the amount of discretion that can be exercised in connection with the timing of awards. We generally make awards only on pre-determined dates to ensure that awards cannot be timed to take advantage of material non-public information. Typically, our annual executive awards are made in November after public release of the previous fiscal year’s financial results, annual awards to our Board of Directors are made on the day of the annual stockholders’ meeting, and awards to our employees are made in November and June.

Awards to executive officers may be made only by the Compensation Committee. Other employee awards may be made by either the Compensation Committee or by our Chief Executive Officer pursuant to delegated authority. The Compensation Committee generally makes awards only at Committee meetings and generally does not make awards in trading blackout periods (the prophylactic period encompassing the last three weeks of each fiscal quarter through 24 hours after the earnings for that quarter are announced) unless special circumstances exist, such as a new hire or a contractual commitment. Our Chief Executive Officer may make awards only on the 15th of the month (or the next succeeding business day if the 15th is not a business day), other than in the months of January, April, July and October because the 15th of each of those months falls in a blackout period after the end of the quarter before results are announced, and only up to established values set by the Compensation Committee.

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COMPENSATION DISCUSSION AND ANALYSIS

Consideration of Stock-Based Compensation Expense and Dilution

We consider the stock-based compensation expense and dilution (burn rate) associated with equity awards to executives as we develop our overall equity compensation program. The expense associated with the equity awards is equal to the fair value of the equity issued and is amortized over the vesting period of the award. We monitor this expense and dilution to stockholders as we develop our plans and strive to maintain a program that balances the goals of our equity program with the expense and dilution associated with the program. For FY20, stock-based compensation expense as a percentage of our market capitalization and dilution were both at or below the 50th percentile.

Annual Assessment of Risks Associated with Our Compensation Programs

We assess our compensation plans and programs for employees, including our executives, annually to ensure alignment of the various plans and programs with our business plan and to evaluate the potential risks associated with those plans and programs. For 2020, the Compensation Committee retained Pearl Meyer & Partners, the Compensation Committee’s independent compensation consultant, to assist the Committee in assessing those risks. Based on this assessment, the Committee concluded that the company’s compensation plans and programs do not create risks that are reasonably likely to have a material adverse effect on PTC.

The Compensation Committee regularly considers the risks associated with executive compensation and corporate incentive plans when designing such plans. The elements described below with respect to such plans and programs have generally been implemented by or at the direction of the Compensation Committee and were considered when assessing the risk associated with our compensation programs:

A detailed planning process with Compensation Committee or executive oversight exists for all compensation programs;
The proportion of an employee’s performance-based pay increases as the responsibility and potential impact of the employee’s position increases, which structure is in line with market practices;
We set performance goals that we believe are reasonable considering past performance and market conditions;
We use performance measures that are designed to support our long-term financial goals, rather than changing measures to take advantage of changing market conditions;
We use different performance measures for our annual incentive plans and our long-term incentive plans;
Our executives’ long-term equity awards are split 50/50 between service-based and performance-based long-term equity to balance the risk associated with performance-based equity with retention provided by service-based equity;
Our long-term performance-based equity contains performance measures for each of the three years of the term of the award;
We use restricted stock units rather than stock options for equity awards because restricted stock units retain value even if the stock price declines so that employees are less likely to take unreasonable risks to get, or keep, options “in-the-money”;
We use service-based vesting over three years for our long-term equity awards to ensure our employees’ interests are aligned with those of our stockholders for the long-term performance of PTC;

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COMPENSATION DISCUSSION AND ANALYSIS

Assuming achievement of at least a minimum level of performance, payouts under our performance-based plans result in some compensation at levels below full target achievement, rather than an “all-or-nothing” approach;
Upside earning opportunity in our annual cash compensation plans is limited. In addition, our performance-based equity plans are capped at a level commensurate with the industry.
All organizations have a component of their leadership incentive plans tied to overall PTC performance to ensure cross-functional alignment with PTC’s business plan;
Our executive stock ownership policy requires our executives to hold a substantial amount of stock (options and unvested equity do not count), which aligns an appropriate portion of their personal wealth to the long-term performance of PTC;
Our compensation clawback policy enables us to recover incentive compensation paid to an executive officer if it is subsequently determined not to have been earned due to restatement of prior period financial results due to misconduct of the executive officer, thus reducing any incentive to engage in misconduct to meet financial targets.
We maintain effective controls and procedures to ensure that amounts are earned and paid in accordance with our plans and programs.

Compensation Committee Report

The Compensation Committee has reviewed and discussed with management the foregoing Compensation Discussion and Analysis. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

Compensation Committee

Janice Chaffin, Chair
Paul Lacy
Robert Schechter

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EXECUTIVE COMPENSATION

The discussion, table and footnotes below describe the total compensation for FY20 for our named executive officers (our Chief Executive Officer, our Chief Financial Officer, and our three other most highly compensated executive officers).

As described in COMPENSATION DISCUSSION AND ANALYSIS above and reflected in the Summary Compensation Table below, we pay these executive officers a mix of cash and equity compensation. Our target annual compensation consists of a base salary, an incentive plan bonus (Non-Equity Incentive Plan Compensation), and annual long-term equity compensation (Stock Awards) consisting of restricted stock units (RSUs) (50% of which are performance based and 50% of which are service based) that are eligible to vest over three years from the date of grant. Additional equity compensation (Stock Awards) may also include, as it does for FY18 and FY20, retention or special purpose grants and, as it does for FY20, the value of grant modifications.

We do not provide these executives with pensions or the ability to defer compensation or any perquisites. Amounts shown in the All Other Compensation column reflect the matching cash contribution under our 401(k) Savings Plan for those participating in the plan and, for Mr. DiTullio, the additional items described.

Summary Compensation Table

Name and
Principal Position
    Year     Salary
($)
    Bonus
($)
    Stock
Awards
($)
(1)
    Non-Equity
Incentive Plan
Compensation
($)
(2)
    All Other
Compensation
($)
(3)
    Total
($)
    Total without
Retention
Awards or
Modifications
James Heppelmann
President and Chief
Executive Officer
2020 $ 800,000 $ $ 45,844,743 (4)          $ 650,000           $ 8,550 $ 47,303,293   $ 11,626,535
2019 $ 800,000 $ $ 9,199,893 $ 976,062 $ 8,550 $ 10,984,505 $ 10,984,505
2018 $ 800,000 $ $ 48,199,913 (5) $ 961,000 $ 8,250 $ 49,969,163 $ 9,969,163
Kristian Talvitie
EVP, Chief Financial
Officer
2020 $ 444,423 $ $ 4,274,256 $ 268,125 $ 8,550 $ 4,995,354 $ 4,328,926
2019 $ 148,442 $ 200,000 (6) $ 2,234,913 $ 142,401 $ $ 2,725,756 $ 2,725,756
Michael DiTullio
EVP, Sales
2020 $ 400,000 $ $ 4,702,975 $ 227,500 $ 10,980 $ 5,341,454 $ 3,401,414
Kathleen Mitford
EVP, Chief Strategy
Officer
2020 $ 403,923 $ $ 2,760,359 $ 227,500 $ 8,729 $ 3,400,511 $ 2,826,391
2019 $ 375,000 $ $ 1,824,852 $ 292,804 $ 8,435 $ 2,501,091 $ 2,501,091
2018 $ 355,385 $ $ 1,769,419 $ 248,258 $ 9,138 $ 2,382,200 $ 2,382,200
Aaron von Staats
EVP, General Counsel
2020 $ 375,000 $ $ 2,623,641 $ 227,500 $ 8,400 $ 3,234,541 $ 2,572,587
2019 $ 375,000 $ $ 1,774,943 $ 341,629 $ 8,371 $ 2,499,943 $ 2,499,943

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EXECUTIVE COMPENSATION

(1) Aggregate grant date fair value of awards. Assumptions made in the valuation of these awards are described in Note 12 to our financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. For service-based RSUs, the grant date fair value is equal to the number of RSUs granted multiplied by the closing price of our stock on the Nasdaq Stock Market on the grant date. For performance based RSUs other than rTSR RSUs, the grant date fair value is equal to the number of RSUs granted multiplied by the closing price of our stock on the Nasdaq Stock Market on the grant date, assuming achievement at 100%; the maximum potential value of the annual RSUs is 200% of the target RSUs granted; for the CEO retention RSUs granted in 2020, the maximum potential value is 110% of the target RSUs granted. For performance-based rTSR RSUs, the value is determined using a Monte Carlo methodology that considers the probability of achievement of the performance measures at the time of grant. The amounts also include modification values of $3,561,547 for Mr. Heppelmann; $666,428 for Mr. Talvitie; $940,044 for Mr. DiTullio; $574,120 for Ms. Mitford; and $661,954 for Mr. von Staats.

Named Executive Officer       Number of
2020 Target
Performance-
Based RSUs
      Maximum Value of
Performance-Based
RSUs based on Closing
Price on Grant Date
      Maximum Number of
Performance-Based
Retention RSUs
      Maximum Value of
Performance-Based
Retention RSUs Based on
Closing Price on Grant Date
James Heppelmann 61,266                      $ 9,199,703 440,044                           $ 35,326,732
Kristian Talvitie 21,944 $ 3,249,506
Michael DiTullio 16,648 $ 2,499,864
Kathleen Mitford 13,080 $ 1,984,509
Aaron von Staats 11,820 $ 1,774,891
(2) For 2020 and 2019, these amounts were paid in shares of PTC common stock, with the number granted determined by dividing the amount earned by the closing price of a share of PTC common stock on November 12, 2020 and November 15, 2019, respectively.
(3) Amounts shown are matching contributions under PTC’s 401(k) Savings Plan and, for Mr. DiTullio, include imputed non-U.S. income and tax equalization payments of $2,430.
(4) Includes the $32 million grant date value of a performance-based retention equity award with free cash flow and ARR performance measures for 2021, 2022 and 2023. This award and the rationale for the award are described above in Letter from the Compensation Committee and 2020 CEO Compensation Decisions.
(5) Includes the $40 million grant date value of long-term performance-based equity award with performance measures for 2021, 2022 and 2023. This grant was forfeited in September 2020.
(6) Sign-on bonus paid upon hire to compensate him for unvested compensation left behind at his prior employer to join PTC.

Grants of Plan-Based Awards

As discussed in COMPENSATION DISCUSSION AND ANALYSIS above, we tie a substantial portion of our executives’ compensation to PTC’s performance through plan-based awards. For 2020, these awards consisted of:

An annual incentive plan (Non-Equity Incentive Plan Awards),
Performance-based RSUs that vest to the extent earned in each of the three performance periods over three years (Equity Incentive Plan Awards), and
Service-based RSUs that vest over three years (Other Stock Awards).

We describe our compensation decisions for 2020, including the rationale for these awards and the performance measures, in COMPENSATION DISCUSSION AND ANALYSIS above.

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EXECUTIVE COMPENSATION

2020 GRANTS OF PLAN-BASED AWARDS

Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards


Estimated Possible Payouts
Under Equity Incentive
Plan Awards
All Other
Stock Awards:
Number of
Securities
Underlying
Stock or Units
(#)
Grant Date
Fair Value
of Stock
Awards(1)
($)
Name    Grant Date    Threshold
($)
   Target
($)
   Maximum
($)
   Threshold
(#)
    Target
(#)
   Maximum
(#)
     
James
Heppelmann
President, Chief
Executive Officer
11/21/2019 (2)  $ 633,000  $ 1,000,000 $ 1,350,000  
11/21/2019 (3)  15,317 30,633 61,266 $ 2,299,926
11/21/2019 (4)  15,317 30,633 61,266 $ 3,268,133
11/21/2019 (5)  61,267 $ 4,599,926
9/24/2020 (6)  150,015 400,040 440,044 $ 32,115,211
Kristian Talvite
Executive Vice
President, Chief
Financial Officer
11/21/2019 (2)  $ 221,550 $ 350,000 $ 472,500
11/21/2019 (3)  4,553 9,106 18,212 $ 683,678
11/21/2019 (4)  4,553 9,106 18,212 $ 971,477
11/21/2019 (5)  18,213 $ 1,367,432
5/18/2020 (2)  $ 39,563 $ 62,500 $ 125,000
5/18/2020 (3)  933 1,866 3,732 $ 128,698
5/18/2020 (4)  933 1,866 3,732 $ 199,077
5/18/2020 (5)  3,733 $ 257,465
Michael DiTullio
Executive Vice
President, Sales
11/21/2019 (2)  $ 221,550 $ 350,000 $ 472,500
11/21/2019 (3)  4,162 8,324 16,648 $ 624,966
11/21/2019 (4)  4,162 8,324 16,648 $ 888,037
11/21/2019 (5)  16,648 $ 1,249,932
5/18/2020 (7)  14,499 $ 999,996
Kathleen Mitford
Executive Vice
President, Chief
Strategy Officer
11/21/2019 (2)  $ 221,550 $ 350,000 $ 472,500
11/21/2019 (3)  3,038 6,076 12,152 $ 456,186
11/21/2019 (4)  3,038 6,076 12,152 $ 648,216
11/21/2019 (5)  12,153 $ 912,447
2/11/2020 (3)  232 464 928 39,941
2/11/2020 (4)  232 464 928 $ 49,480
2/11/2020 (5)  929 $ 79,968
Aaron von Staats
Executive Vice
President,
General Counsel
11/21/2019 (2)  $ 221,550 $ 350,000 $ 472,500 $
11/21/2019 (3)  2,955 5,910 11,820 $ 443,723
11/21/2019 (4)  2,955 5,910 11,820 $ 630,518
11/21/2019 (5)  11,820 $ 887,446
(1) For all RSUs other than the rTSR RSUs, the grant date fair value was calculated by multiplying the number of RSUs granted by the closing price of a share of our common stock on the Nasdaq Stock Market on the grant date and applying the likelihood of any performance measures being achieved. For the rTSR RSUs, the grant date fair value was determined using a Monte Carlo valuation.
(2) Awards under our annual incentive plan. 65% of the Target value was earned for 2020. Amounts earned were paid in common stock on November 12, 2020, with the number of shares issued calculated by dividing the amount earned by the closing share price on that date.
(3) Performance-based RSUs eligible to vest over three years to the extent the ARR performance measures are met for each of 2020, 2021 and 2022. Only one-third of the RSUs granted are eligible to be earned for each of 2020, 2021 and 2022. 62.5% of the RSUs for 2020 were earned and vested. The 37.5% of RSUs unearned for 2020 were forfeited.
(4) Performance-based RSUs eligible to vest over three years to the extent the TSR performance measures are met for each of 2020, 2021 and 2022. Only one-third of the RSUs granted are eligible to be earned for each of 2020, 2021 and 2022. 120% of the RSUs for 2020 were earned and vested.

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(5) Service-based RSUs that vest over three years. One third of these RSUs vested on November 15, 2020 and the remaining two-thirds will vest in substantially equal installments on November 15, 2021 and November 15, 2022.
(6) Performance-based retention RSUs that are eligible to vest to the extent the ARR and adjusted free cash flow performance measures are met for each of 2021, 2022 and 2023. Only one-third of the RSUs granted are eligible to be earned for each of 2021, 2022 and 2023. RSUs not earned for a performance period are forfeited.
(7) Service-based retention RSUs that vest over three years. The RSUs will vest in substantially equal installments on May 15, 2021, 2022 and 2023.

Outstanding Equity Awards at Fiscal Year-End

The following table shows the equity awards held by each named executive officer as of September 30, 2020. The equity awards in the table are restricted stock units granted in 2018 through 2020.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

Stock Awards
Equity Incentive Plan Awards
      Number of
Shares or Units of
Stock That Have
Not Vested
(#)(1)
      Market Value of
Shares or Units of
Stock That Have
Not Vested
($)(2)
      Number of Unearned
Shares, Units or Other
Rights That Have Not
Vested
(#)(3)
      Market or Payout
Value of Unearned
Shares, Units or
Other Rights That
Have Not Vested
($)(2)
James Heppelmann
President and Chief
Executive Officer
21,380 (4)        $ 1,768,554 12,400 (7)       $ 1,025,728
36,006 (5)  $ 2,978,416 27,004 (8)  $ 2,233,771
61,267 (6)  $ 5,068,006 26,803 (9)  $ 2,217,144
30,633 (10)  $ 2,533,962
400,040 (11)  $ 33,091,309
Kristian Talvitie
Executive Vice President,
Chief Financial Officer
8,556 (5)  $ 707,752 6,417 (8)  $ 530,814
21,946 (6)  $ 1,815,373 9,599 (9)  $ 794,029
10,972 (10)  $ 907,604
Michael DiTullio
Executive Vice President, Sales
5,214 (4)  $ 431,302 3,024 (7)  $ 250,145
2,302 (12)  $ 190,421 7,338 (8)  $ 606,999
9,784 (5)  $ 809,332 7,283 (9)  $ 602,450
16,648 (6)  $ 1,377,123 8,324 (10)  $ 688,561
14,499 (13)  $ 1,199,357
Kathleen Mitford
Executive Vice President,
Chief Strategy Officer
1,303 (4)  $ 107,784 755 (7)  $ 62,454
5,127 (12)  $ 424,105 5,356 (8)  $ 443,048
7,142 (5)  $ 590,786 5,721 (9)  $ 473,241
12,153 (6)  $ 1,005,296 6,540 (10)  $ 540,989
929 (6)  $ 76,847
Aaron von Staats
Executive Vice President,
General Counsel
3,585 (4)  $ 296,551 2,079 (7)  $ 171,975
6,946 (5)  $ 574,573 5,209 (8)  $ 430,888
11,820 (6)  $ 977,750 5,171 (9)  $ 427,745
5,910 (10)  $ 488,875

Footnotes to Outstanding Equity Awards at Fiscal Year End Table

(1) The unvested restricted stock unit (RSU) awards shown in this column are subject to service-based vesting.
(2) The market value of unvested RSUs was calculated as of September 30, 2020 based on the closing price of a share of our common stock on the NASDAQ Global Select Market on September 30, 2020 of $82.72.
(3) The unvested RSUs shown in this column are subject to performance-based vesting.
(4) FY18 service-based RSUs that vested on November 15, 2020.

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(5) FY19 service-based RSUs with that vest in two equal installments on November 15, 2020 and 2021.
(6) FY20 service-based RSUs that vest in three substantially equal installments on November 15, 2020, 2021 and 2022.
(7) FY18 performance-based RSUs that vested on November 15, 2020.
(8) FY19 performance-based RSUs that vest to the extent earned on November 15, 2020 and 2021.
(9) FY20 performance-based ARR RSUs that vest to the extent earned on November 15, 2020, 2021 and 2022.
(10) FY20 performance-based TSR RSUs that vest to the extent earned on November 15, 2020, 2021 and 2022.
(11) Performance-based retention RSUs that vest to the extent earned on November 15, 2021, 2022 and 2023.
(12) Service-based RSUs that vest on March 15, 2021.
(13) Service-based retention RSUs that vest in three substantially equal installments on May 15, 2021, 2022 and 2023.

Option Exercises and Stock Vested

The following table shows the value realized by executive officers upon vesting of restricted stock units during 2020. None of the named executive officers owned or exercised options in 2020.

Stock Awards
Name       Number of
Shares Acquired
on Vesting
      Value
Realized on
Vesting
Jim Heppelmann 152,337 $ 11,286,648
President and Chief Executive Officer
Kristian Talvitie 8,738 $ 647,398
Executive Vice President, Chief Financial Officer
Michael DiTullio 33,134 $ 2,414,107
Executive Vice President, Sales
Kathleen Mitford 19,890 $ 1,382,782
Executive Vice President, Strategy
Aaron von Staats 26,222 $ 1,942,788
Executive Vice President, General Counsel

Grant Date
Share Value
Vest Date Vest Date
Share Value
James
Heppelmann
Kristian
Talvitie
Michael
DiTullio
Kathleen
Mitford
Aaron
von Staats
Grant Date                     #RSUs      #RSUs      #RSUs      #RSUs      #RSUs
10/31/2016     $ 47.44 11/15/2019     $ 74.09 75,900 9,993 2,459 10,278
11/15/2017 $ 63.92 11/15/2019 $ 74.09 34,579 8,434 2,108 5,798
2/28/2017 $ 53.89 11/15/2019 $ 74.09 554
3/7/2018 $ 79.63 3/15/2020 $ 56.37 2,302 5,128
11/14/2018 $ 85.17 11/15/2019 $ 74.09 28,684 7,794 5,689 5,535
5/15/2019 $ 87.07 11/15/2019 $ 74.09 6,816
11/15/2019 $ 74.09 11/15/2019 $ 74.09 13,174 1,922 4,611 3,952 4,611

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Potential Payments upon Termination or Change in Control

We have agreements with our executive officers that provide the benefits described below in connection with certain terminations or a change in control of PTC. We describe our reasons for providing these benefits in COMPENSATION DISCUSSION AND ANALYSIS — Severance and Change in Control Arrangements.

To receive the payments and benefits described below, the executive must execute a release of claims against PTC. The executive also must continue to comply with the material terms of the agreement and the terms of the executive’s Non-Disclosure, Non-Competition and Invention Agreement with PTC, which remains in effect after the termination of the executive’s employment.

SUMMARY OF EXECUTIVE AGREEMENT TERMS COMPENSATION ON CHANGE-IN-CONTROL AND CERTAIN TERMINATIONS

Event or Circumstances of Termination or Event
Name       Termination
without
Cause or
Voluntary
Resignation
at the
Request of
the Board
      Termination for
Cause or
Other Voluntary
Resignation
      Change in
Control
       Termination
without Cause
or Resignation
for Good Reason
within 2 Years
following a
Change in
Control
(1)
      Disability
or Death
James Heppelmann
President & Chief Executive Officer  
Base Salary
Target Bonus
Pro-Rated Target Bonus 1× Pro-Rated
Accelerated Equity 100% 100% 100% at Target
Benefits Continuation(2)
Payment Term 2 Years Upon Event Upon Event Upon Event
Gross-Up Payment
 
All Other Named Executive Officers
Kristian Talvitie
Michael DiTullio
Kathleen Mitford
Aaron von Staats
 
Base Salary
Target Bonus
Pro-Rated Target Bonus 1× Pro-Rated
Accelerated Equity 100% 100% at Target
Benefits Continuation(2)
Payment Term Upon Event Upon Event Upon Event Upon Event
Gross-Up Payment
(1) Accelerated at greater of Target and estimated achievement at the time of the change in control.
(2) Continued participation in PTC’s medical, dental, vision and basic life insurance benefit plans or payment in lieu thereof if such participation is not permissible until the executive becomes eligible for such benefits under another employer’s plans.

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POTENTIAL PAYMENTS ON TERMINATION OR CHANGE IN CONTROL HAD A TERMINATION EVENT OR A CHANGE-IN-CONTROL OCCURRED ON SEPTEMBER 30, 2020

Event or Circumstances of Termination
Name    Termination
without Cause or
Voluntary Resignation
at the Request of the
Board in Connection
with CEO Succession
   Termination for
Cause or
Voluntary
Resignation
   Change in
Control
   Termination
without Cause
or Resignation
for Good Reason
within 2 Years
following a Change
in Control
(1)
   Disability
or Death(1)
James Heppelmann
President & Chief Executive Officer
Base Salary          $ 1,600,000       $ 2,400,000
Target Bonus $ 2,000,000 $ 3,000,000
Pro-Rated Target Bonus  $ 1,000,000
Accelerated Equity $ 50,916,890 $ 50,916,890 $ 50,916,890
Benefits Continuation $ 132,720 $ 132,720
Total $ 54,649,610              $ 0 $ 1,000,000 $ 56,449,610 $ 50,916,890
Kristian Talvitie
Executive Vice President, Chief Financial Officer      
Base Salary $ 500,000 $ 500,000
Target Bonus $ 500,000 $ 500,000
Pro-Rated Target Bonus $ 500,000
Accelerated Equity $ 4,755,573 $ 4,755,573
Benefits Continuation $ 54,573 $ 54,573
Total $ 1,054,573 $ 0 $ 500,000 $ 5,810,146 $ 4,755,573
Michael DiTullio
Executive Vice President, Sales and Corporate Marketing  
Base Salary $ 415,000 $ 415,000
Target Bonus $ 350,000 $ 350,000
Pro-Rated Target Bonus $ 350,000
Accelerated Equity $ 6,155,692 $ 6,155,692
Benefits Continuation $ 43,740 $ 43,740
Total $ 808,740 $ 0 $ 350,000 $ 6,964,432 $ 6,155,692
Kathleen Mitford
Executive Vice President, Chief Strategy Officer      
Base Salary $ 415,000