DEF 14A 1 holx-def14a_031418.htm HOLOGIC, INC. - DEF 14A

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

SCHEDULE 14A

 

(RULE 14a-101)

 

SCHEDULE 14A INFORMATION

 

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

 

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HOLOGIC, 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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(FRONT COVER) 

 

Notice of Annual Meeting of Stockholders and Proxy Statement Wednesday, March 14, 2018 8:00 a.m. Eastern Time

 

 

 

 

(HOLOGIC LOGO)

 

January 26, 2018

 

Dear Fellow Stockholders:

 

Hologic is an innovative medical technology company primarily focused on improving women’s health and well-being through early detection and treatment. Every day, healthcare professionals around the world use our products to find breast cancer, cervical cancer and infectious diseases early, when patient outcomes are best and associated healthcare costs are least.

 

Hologic is also a growth company, one that aspires to deliver superior investment returns over time. So as we approach our 2018 Annual Meeting of Stockholders, I’d like to update you on the significant progress we’ve made to generate sustainable, profitable growth.

 

In fiscal 2017, we strengthened our product leadership positions in mammography, molecular diagnostics, liquid cytology, and gynecologic surgery by providing differentiated value to our customers. As a result, we delivered solid revenue and earnings growth in line with our external guidance.

 

At the same time, we took three important steps to increase growth for the long term. First, we laid the foundations for sustainable international growth through new leadership, new products and better commercial execution. Second, we shifted our business portfolio toward higher-growth segments by divesting our blood screening business and acquiring the leading medical aesthetics company, Cynosure, Inc. And third, we accelerated our launch of new products that reflect increasing innovation from our revitalized research and development pipeline.

 

As a result of these efforts, we reported GAAP revenue of $3,059 million in fiscal 2017, up 8% versus the prior year, and GAAP earnings per share (“EPS”) of $2.64, up 128% versus the prior year. These results include the effects of divesting blood screening and acquiring Cynosure. Excluding these effects, adjusted revenue increased 5% on a constant currency basis, and adjusted EPS, as calculated under our 2017 Short-Term Incentive Plan, increased 12%. These good financial results also enabled us to strengthen our balance sheet and repurchase shares during the fiscal year.

 

Underlying our financial performance are our employees, who are motivated and inspired by the knowledge that we are enabling healthier lives, everywhere, every day. I’d like to thank these employees, as well as our board of directors, for their dedication and contributions throughout fiscal 2017. And I’d like to acknowledge our stockholders for their ongoing interest and support. We look forward to hearing from you at our Annual Meeting and throughout the year.

 

Sincerely,

 

 -s- Steve MacMillan

 

Steve MacMillan

 

Chairman, President and Chief Executive Officer

 

 

 

 

 (HOLOGIC LOGO)

 

Notice of Annual Meeting of Stockholders

 

Wednesday, March 14, 2018

 

8:00 a.m. Eastern Time

250 Campus Drive, Marlborough, Massachusetts 01752

 

To Our Stockholders:

 

The Annual Meeting of Stockholders of Hologic, Inc., a Delaware corporation (“Hologic” or the “Company”), will be held on March 14, 2018 at 8:00 a.m., Eastern Time, at the offices of the Company, 250 Campus Drive, Marlborough, Massachusetts 01752 for the following purposes:

 

1.To consider and act upon the election of the seven (7) nominees identified in the accompanying proxy statement to serve as directors for the ensuing year (Proposal No. 1);

 

2.To conduct an advisory vote to approve our executive compensation (Proposal No. 2);

 

3.To approve the amended and restated Hologic, Inc. 2008 Equity Incentive Plan (Proposal No. 3);

 

4.To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for fiscal 2018 (Proposal No. 4); and

 

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

 

The foregoing items of business are more fully described in the proxy statement accompanying this Notice.

 

Our Board of Directors has fixed the close of business on January 16, 2018 as the record date. Only stockholders of record at the close of business on the record date are entitled to notice of, and to vote at, the meeting and any adjournment or postponement thereof. All stockholders are cordially invited to attend the meeting. Stockholders who plan to attend the meeting must present valid photo identification. Stockholders of record will be verified against an official list available at the registration area. If your shares are held in the name of a bank, broker or other holder of record, please also bring to the Annual Meeting your bank or brokerage statement evidencing your beneficial ownership of Hologic stock to gain admission to the meeting. We reserve the right to deny admittance to anyone who cannot show valid identification or sufficient proof of share ownership as of the record date.

 

We are pleased to continue utilizing the Securities and Exchange Commission (“SEC”) rules that allow issuers to furnish proxy materials to their stockholders on the internet. We believe these rules allow us to provide you with the information you need while lowering the costs of delivery and reducing the environmental impact of the Annual Meeting. On or about January 26, 2018, we will mail to our stockholders of record as of January 16, 2018 (other than those who previously requested electronic or paper delivery on an ongoing basis) a Notice of Meeting and Important Notice Regarding the Availability of Proxy Materials containing instructions on how to access our proxy statement and our Annual Report on Form 10-K.

 

Our Board of Directors appreciates and encourages stockholder participation in the Company’s affairs. Whether or not you plan to attend the meeting, it is important that your shares be represented.

 

January 26, 2018

 

By order of the Board of Directors   
-s- Patricia K. Dolan    
Patricia K. Dolan   
Vice President and Corporate Secretary   

 

IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON MARCH 14, 2018: The Proxy Statement, the Hologic Annual Report on Form 10-K for the fiscal year ended September 30, 2017 and the Proxy Card are available at www.proxyvote.com.  

 

 

Table of Contents

 

PROXY STATEMENT SUMMARY 4
   
GOVERNANCE OF THE COMPANY 9
   
Board Leadership Structure 9
Risk Oversight 10
Stockholder Engagement 11
Director Nomination Process and Board Assessment 11
Code of Ethics 12
Attendance by Directors at the Annual Meeting of Stockholders 12
Stockholder Communications with the Directors 12
   
BOARD COMMITTEES 13
   
Meetings of the Board and its Committees 13
Audit and Finance Committee 14
Nominating and Corporate Governance Committee 14
Compensation Committee 15
   
PROPOSAL NO. 1 Election of Directors 16
     
EXECUTIVE OFFICERS 20
   
COMPENSATION DISCUSSION AND ANALYSIS 21
   
Executive Summary 21
What Guides Our Compensation Program 27
The Fiscal 2017 Executive Compensation Program in Detail 29
   
COMPENSATION COMMITTEE REPORT 40
   
EXECUTIVE COMPENSATION TABLES 41
   
Summary Compensation Table 41
Grants of Plan-Based Awards 42
Outstanding Equity Awards at Fiscal Year-End 43
Option Exercises and Stock Vested 45
Potential Payments upon Termination or Change of Control 46
Non-Qualified Deferred Compensation 47

 

Hologic, Inc. 2018 Proxy Statement 2

 

 

DIRECTOR COMPENSATION 48
   
PROPOSAL NO. 2 Non-Binding Advisory Vote to Approve Executive Compensation 50
     
PROPOSAL NO. 3 Approve the Hologic, Inc. Amended and Restated 2008 Equity Incentive Plan 51
     
PROPOSAL NO. 4 Ratification of Independent Registered Public Accounting Firm Appointment 58
     
Independent Registered Public Accounting Firm Fees 59
Audit and Finance Committee Policy on Pre-Approval of Services 59
Audit and Finance Committee Report 60
   
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 61
   
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE 62
   
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS 62
   
GENERAL INFORMATION ABOUT THE MEETING AND VOTING 63
   
STOCKHOLDER PROPOSALS FOR THE 2019 ANNUAL MEETING 66
   
INCORPORATION BY REFERENCE 67
   
FINANCIAL MATTERS AND FORM 10-K REPORT 67
   
ANNEX A Non-GAAP Financial Reconciliation A-1
   
ANNEX B Proposed Amended and Restated Hologic, Inc. 2008 Equity Incentive Plan B-1

 

Hologic, Inc. 2018 Proxy Statement 3

 

 

PROXY STATEMENT SUMMARY

 

Your Vote is Important

 

 

This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement and the Company’s Annual Report on Form 10-K before casting your vote. References to “Hologic,” the “Company,” “we,” “us” or “our” refer to Hologic, Inc.

 

2018 Annual Meeting of Stockholders

Time and Date: 8:00 a.m. Eastern Time, Wednesday, March 14, 2018
Place: Hologic, Inc., 250 Campus Drive, Marlborough, MA
Record Date: January 16, 2018
Attendance: All stockholders may attend the meeting. Stockholders who plan to attend the meeting must present a valid government-issued picture identification such as a driver’s license or passport. Stockholders of record will be verified against an official list available at the registration area. If your shares are held in the name of a bank, broker or other holder of record, please also bring your bank or brokerage statement evidencing your beneficial ownership of Hologic stock to gain admission. We reserve the right to deny admittance to anyone who cannot show valid identification or sufficient proof of share ownership as of the record date.
Voting: Stockholders as of January 16, 2018, the record date, are entitled to vote. Each share of common stock is entitled to one vote for each of the proposals presented at the meeting.

  

(GRAPHIC)   (GRAPHIC)   (GRAPHIC)   (GRAPHIC)
Vote by Internet   Vote by Telephone   Vote by Mail   Vote in Person
Go to www.proxyvote.com and enter the 12-digit control number provided on your proxy card or voting instruction form.   Call 800-690-6903 or the number on your proxy card or voting instruction form. You will need the 12-digit control number provided on your proxy card or voting instruction form.   Complete, sign and date the proxy card or voting instruction form and mail it in the accompanying pre-addressed envelope.   See the instructions above regarding attendance at the Annual Meeting.

  

(GRAPHIC) Electronic Stockholder Document Delivery

 

To help lower the cost of producing and mailing documents – and reduce the environmental impact of our Annual Meeting – we encourage stockholders to elect to receive an email that will provide electronic links to our proxy materials as well as the proxy voting site. For further information on how to sign up for electronic delivery, please see page 65 of this proxy statement.

 

Meeting Agenda and Voting Recommendations

 

 

Proposal  Board
Recommendation
  Page 
Election of Seven Directors  FOR  16 
Say-on-Pay: Advisory Vote to Approve Executive Compensation  FOR  50 
Approval of the Amended and Restated Hologic, Inc. 2008 Equity Incentive Plan  FOR  51 
Ratification of the Appointment of Ernst & Young LLP for fiscal 2018  FOR  58 

  

Hologic, Inc. 2018 Proxy Statement 4

 

 

Director Nominees

 

 

        Director          
Nominee and Principal Occupation   Age   Since   Independent   Current Committee Membership
Stephen P. MacMillan   54   2013       N/A
Chairman, President and Chief Executive Officer                  
Hologic, Inc.                  
Sally W. Crawford   64   2007     Lead Independent Director
Former Chief Operating Officer               Compensation
Healthsource, Inc.               Nominating and Corporate Governance (Chair)
Charles J. Dockendorff   63   2017     Audit and Finance (Chair)
Former Chief Financial Officer and Executive               Nominating and Corporate Governance
Vice President                  
Covidien plc                  
Scott T. Garrett   68   2013     Compensation (Chair)
Senior Operating Partner               Nominating and Corporate Governance
Water Street Healthcare Partners                  
Namal Nawana   47   2018     N/A
Former Chief Executive Officer and President                  
Alere, Inc.                  
Christiana Stamoulis   47   2011     Audit and Finance
Chief Financial Officer and Head of Corporate               Nominating and Corporate Governance
Development                  
Unum Therapeutics                  
Amy M. Wendell   57   2016     Audit and Finance
Former Senior Vice President, Strategy & BD&L               Nominating and Corporate Governance
Covidien plc                  

 

Business and Financial Highlights

 

 

Hologic, Inc. is an innovative medical technology company primarily focused on improving women’s health and well-being through early detection and treatment. The Company operates in four main areas: Breast & Skeletal Health, Diagnostics, GYN Surgical and Medical Aesthetics. 

 

Our market-leading products include our innovative Genius™ 3D MAMMOGRAPHY™ technology, our Affirm™ prone biopsy system, our new Brevera® breast biopsy system, our ThinPrep® pap test, our Aptima® infectious disease tests, our Panther® and Panther Fusion® fully automated molecular diagnostics instruments, our NovaSure® device for endometrial ablation, our MyoSure® system for intrauterine tissue removal, and our Cynosure® brands. 

 

Over the past four years, under the guidance of a focused and motivated senior management team, almost all of whom joined the Company in fiscal 2014 or later, we have made great progress toward building a sustainable growth company. Our solid financial results in fiscal 2017 reflect the progress we have made. In the short term, we strengthened our product leadership positions, enabling us to deliver solid revenue and earnings growth in line with our external guidance. At the same time, we took three important steps to solidify our growth profile for the long term. First, we laid the foundations for sustainable international growth through new leadership, new products and better commercial execution. Second, we shifted our business portfolio toward higher-growth segments by divesting our blood screening business and acquiring Cynosure. And third, we accelerated our launch of new products that reflect increasing innovation from our revitalized research and development pipeline. 

 

Financial highlights from fiscal 2017, all of which include the effects of divesting our blood screening business and acquiring Cynosure, are shown below:

 

Full-year GAAP revenue increased 8%
GAAP diluted EPS improved 128%
International revenue increased 15%, after struggling in fiscal 2016
Debt declined slightly as a result of eliminating our most dilutive convertible notes
The price per share of our common stock increased 75.5% from the end of fiscal 2013 to the end of fiscal 2017

 

Hologic, Inc. 2018 Proxy Statement 5

 

 

Looking ahead, we are focused on driving sustainable, long-term growth, and believe we have significant opportunities ahead of us.

 

We remain significantly under-penetrated internationally, as only 22% of our sales were generated outside of the United States in fiscal 2017
We continue our commitment to enhancing the research and development pipelines in each area of our business
We believe Cynosure will make steady progress in fiscal 2018 and become an important growth driver for the Company going forward
Multiple opportunities to increase operational efficiency and reduce debt should enable us to continue to grow earnings faster than sales

 

Corporate Governance Highlights

 

 

Hologic is committed to good corporate governance, which we believe will help us to sustain our success and build long-term stockholder value. In fiscal 2017, we continued to improve our corporate governance structure, focusing on the following:

 

Board Assessment, Composition and Structure

 

Our Nominating and Corporate Governance Committee is continually evaluating our Board composition. In 2015, our Nominating and Corporate Governance Committee led a Board assessment which included a Board peer review, managed by our general counsel. In 2016, the Nominating and Corporate Governance Committee continued to spearhead the assessment process by leading a facilitated discussion to evaluate the functioning and composition of the Board and its committees. In 2017, the full Board and each Board committee completed anonymous written evaluations, the results of which were shared with the Board and each respective committee. All evaluations were reviewed in detail by the Chairman and the Lead Director, who led a discussion with the full Board highlighting both areas of strength and areas of opportunity. The Board also assesses annually the efficacy of having a Lead Independent Director and a combined Chairman/CEO. In both 2016 and 2017, the Board affirmed its June 2015 decision to combine the Chairman and CEO roles and to appoint a Lead Independent Director.

 

Our Board continues to evolve.

 

March 2016 – two of our long-tenured directors did not stand for re-election at our Annual Meeting
March 2016 – stockholders elected a new director, Christopher J. Coughlin, at our Annual Meeting
March 2016 – two representatives from the Icahn group resigned from our Board just after our Annual Meeting
December 2016 – our Board appointed a new director, Amy M. Wendell
March 2017 – Nancy L. Leaming, our then longest-tenured director, did not stand for re-election at our Annual Meeting
March 2017 – Mr. Coughlin resigned from our Board due to a conflict with his service on the board of Allergan plc
May 2017 – the Board appointed a new director, Charles J. Dockendorff, who is standing for election at this Annual Meeting
December 2017 – Elaine S. Ullian decided to retire from our Board and not stand for re-election at 2018 Annual Meeting. The Board appointed Sally W. Crawford as our new Lead Independent Director
January 2018 – the Board appointed a new director, Namal Nawana, who is standing for election at this Annual Meeting
March 2018 – Lawrence M. Levy, who is currently our longest-tenured director, is not standing for re-election at this Annual Meeting in compliance with the retirement age provision in the Company’s Corporate Governance Guidelines

 

The Board assesses the structure and composition of its committees at least annually. In December 2017, the Board appointed Mr. Dockendorff as chair of the Audit and Finance Committee, Mr. Garrett as chair of the Compensation Committee and Ms. Crawford as Lead Director and chair of the Nominating and Corporate Governance Committee. Given the current size of the Board and the desire of the full Board to fully participate in the search for a new director, in December 2017, the Board also expanded the Nominating and Corporate Governance Committee to include all existing independent members of the Board.

 

Risk Management Process

 

Our general counsel continues to strengthen the Company’s risk management process, presenting a comprehensive but targeted annual enterprise risk management report to the Board as well as a report from time to time on evolving risks and mitigating actions, as warranted. Additionally, the Compensation Committee worked with Mr. MacMillan to align the executive leadership team’s individual performance objectives with the top risks identified in the annual Enterprise Risk Management process.

 

Continued Stockholder Outreach

 

In fiscal 2017, we continued the year-round approach to stockholder engagement we implemented in 2015. In addition to discussions that take place before our Annual Meeting, we initiated discussions in early fall 2017 during a quieter period, reaching out to our largest stockholders, representing over 50% of our shares. We ultimately met with six of our investors as

 

Hologic, Inc. 2018 Proxy Statement 6

 

 

part of this outreach to discuss business highlights, as well as compensation and governance matters, including proxy access. Details of stockholder feedback are incorporated throughout this proxy statement. We reached out to shareholders again following the announcement of Mr. MacMillan’s special equity retention grant and received positive feedback, as discussed in the Compensation Discussion and Analysis section of this proxy statement.

 

Sustainability

 

We are committed to improving the health of our communities, customers, patients and employees, and to ensuring that the decisions we make today have a positive effect on future generations. In October 2016, we made our first sustainability disclosure, posting information on our website in four initial areas of focus: Energy and Greenhouse Gas Efficiency, Recycling/ Reuse, Supply Chain and Workplace Health and Safety. Our sustainability program is evolving and we are continuing to build on this initial foundation.

 

Election and Removal of Directors

 

In March 2016, we amended our Bylaws to permit stockholders holding a majority of shares entitled to vote to remove directors with or without cause, in accordance with Delaware law.

 

In March 2017, management proposed, and stockholders approved, amending our Bylaws to provide for a majority vote standard in the case of uncontested elections of directors.

 

We Believe in Good Corporate Governance
Board Practices Stockholder Matters

  Annual election of directors 

  Six of our seven director nominees are independent 

  All committees consist solely of independent directors 

  Over 40% of our board nominees are women 

  Regular executive sessions of independent directors 

  Independent Lead Director

  Active stockholder engagement 

  Stockholders permitted to act by written consent 

  Stockholder right to request a special meeting 

  Annual say-on-pay advisory vote 

  No shareholder rights plan (“poison pill”) 

  Majority vote standard in uncontested elections of directors

Other Best Practices

  No hedging or pledging of our securities by executive officers or directors permitted 

  Robust executive and director stock ownership guidelines 

  Majority of shares may remove directors with or without cause 

 

Our Board Profile*

 

Our Director nominees exhibit an effective mix of skills, experience, diversity and fresh perspectives. All Director nominees exhibit:

 

High integrity
Global experience
Strategic thinking
Industry experience
A proven record of success
Financial expertise

 

GENDER DIVERSITY   DIRECTOR TENURE   DIRECTOR AGE
         
    Average Tenure: 3.21 years   Average Age: 57.1

 

*Director nominees

 

Hologic, Inc. 2018 Proxy Statement 7

 

 

Compensation Highlights

 

 

The Compensation Committee has responsibility for oversight of the Company’s executive compensation framework, and within that framework, works with management to align pay with performance.

 

  What we do   What we don’t do
    Double-trigger for accelerated equity vesting upon a change of control      No tax gross-ups on severance or change of control payments 
    Golden parachute policy      No hedging/pledging of Hologic stock 
    Compensation recoupment (“clawback”) policy      No option repricing without stockholder approval 
    Heavy emphasis on performance-based compensation      No excessive perquisites for executives
    Meaningful stock ownership guidelines for our CEO, non-employee directors and executive officers     
    Independent compensation consultant     
    Annual risk assessments    

 

2017  ANNUAL TARGET CEO PAY   2017  ANNUAL TARGET AVERAGE NEO PAY
     
     

 

*Numbers in millions

 

Note About Forward-Looking Statements

 

 

This proxy statement includes estimates, projections and statements relating to our business plans, objectives and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this proxy statement, including but not limited to this Proxy Statement Summary and the Compensation Discussion and Analysis. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. We describe risks and uncertainties that could cause actual results and events to differ materially in “Risk Factors,” “Quantitative and Qualitative Disclosures about Market Risk,” and “Management’s Discussion and Analysis” sections of our Forms 10-K and 10-Q. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.

 

Hologic, Inc. 2018 Proxy Statement 8

 

 

GOVERNANCE OF THE COMPANY

 

Hologic’s governance responsibilities are built on a foundation of interactive dialogue with stockholders, written principles and continuous improvement, which we believe will help us sustain our success, build trust in the Company and continue to create long-term stockholder value. To that end, the Company has in place Corporate Governance Guidelines which are designed to assist the Company and the Board in implementing effective corporate governance practices. The Board has also adopted a Code of Conduct that applies to all of our employees, officers and directors and a Code of Ethics (included as Appendix A to our Code of Conduct) that applies specifically to senior financial officers. These policies are publicly available on our website at investors.hologic.com. Hologic posts additional information on our website from time to time as the Board makes changes to our corporate governance practices.

 

Our Board believes that good governance requires not only an effective set of specific practices, but also a culture of responsibility and accountability throughout the organization. Governance at Hologic is intended to achieve both. Good governance ultimately depends on the quality of an organization’s leadership, and our Board is committed to recruiting and retaining directors and officers with proven leadership ability and personal integrity.

 

The Board has implemented corporate governance practices that it believes are both in the best interests of Hologic and our stockholders as well as compliant with the rules and regulations of the SEC and the listing standards of NASDAQ. The Board reviews these practices on an ongoing basis. Highlights of our corporate governance practices are summarized below.

 

Board Leadership Structure

 

Chairman and Lead Director Roles

 

 

Our Bylaws and Corporate Governance Guidelines permit the roles of Chairman and Chief Executive Officer to be filled by the same or different individuals. This allows the Board flexibility to determine whether the two roles should be combined or separated based upon our needs and the Board’s assessment of its leadership from time to time. The Board and the Nominating and Corporate Governance Committee review the structure of the Board and Hologic leadership as part of the succession planning process on an ongoing basis. The Board also reviews its structure during its annual self-assessment. The Board believes that Hologic and its stockholders are best served at this time by having our CEO, Stephen P. MacMillan, also serve as our Chairman, and Sally W. Crawford, an independent director, serve as our Lead Director. Combining the roles of Chairman and CEO makes clear that we have a single leader who is directly accountable to the Board and, through the Board, to our stockholders. It establishes one voice who speaks for the Company to customers, employees, stockholders and other stakeholders. This structure reinforces Mr. MacMillan’s overall responsibility for the Company’s business and strategy, under the oversight and subject to the review of the Board. It strengthens the Board and the Board’s decision-making process because Mr. MacMillan, who has first-hand knowledge of our operations and the major issues facing Hologic, chairs the Board meetings where the Board discusses strategic and business issues. This structure also enables Mr. MacMillan to act as the key link between the Board and other members of management and facilitate an efficient Board process.

 

The Board recognizes the importance of having a strong independent Board leadership structure to ensure accountability. Accordingly, our Corporate Governance Guidelines provide that if the Chairman is not an independent director, then the independent directors will select a Lead Director. The Board believes that a Lead Director is an integral part of our Board structure and facilitates the effective performance of the Board in its role of providing governance and oversight. After serving as Lead Director since June 2015 and as a member of our Board since 2007, Ms. Ullian has decided to retire and not seek re-election. We thank her for her exceptional leadership and unyielding dedication to the Company and its stockholders. In December 2017, the Board appointed Sally W. Crawford to serve as Lead Director.

 

Ms. Crawford, as Lead Director, has significant responsibilities. Certain specific responsibilities are set forth in Hologic’s Corporate Governance Guidelines and include:

 

presiding at the meetings of the Board at which the Chairman is not present;

convening meetings of the independent directors, including executive sessions held in conjunction with each regularly-scheduled Board meeting;

serving as the principal liaison between the Chairman and the independent directors, including with respect to matters arising in executive sessions of the independent directors;

working with the Chairman and the Nominating and Corporate Governance Committee to establish processes to assist the Board in the efficient discharge of its duties;

approving Board meeting agendas as well as the quality, quantity and timeliness of information sent to the Board;

approving Board meeting schedules to assure that there is sufficient time for discussion of all agenda items;

 

Hologic, Inc. 2018 Proxy Statement9

 

 

recommending to the Chairman the retention of outside advisors, as appropriate, who report directly to the Board on board-wide matters;

being available, if requested by stockholders, and when appropriate, for consultation and direct communication; and

coordinating with the other independent directors in respect of each of the foregoing and performing such other duties as may be properly requested by the Board.

 

Mr. MacMillan’s responsibilities as Chairman of the Board are also set forth in our Corporate Governance Guidelines and include:

 

presiding at meetings of the Board of Directors and stockholders;

establishing processes to assist the Board in the efficient discharge of its duties;

organizing and presenting agendas for Board meetings based on advice from the Lead Director, Committee Chairs, directors and members of senior management;

facilitating the proper flow of information to the Board and working to see that meetings are efficient and informative;

working with the Nominating and Corporate Governance Committee to develop processes for structuring Committees and overseeing their functions, including assignments of Committee members and Chairs;

working with the Nominating and Corporate Governance Committee to develop processes for management development and succession planning for senior executives; and

performing such other duties as may be properly requested by the Board.

 

In addition to discharging the specific responsibilities identified above, Mr. MacMillan consults with Ms. Crawford on a variety of matters, including governance and strategy. As Lead Director and Chair of the Nominating and Corporate Governance Committee, Ms. Crawford takes the lead in Board structure and composition. In addition, Ms. Crawford’s ability to assert independent leadership while working collaboratively with other directors, particularly evident when she served as chair of the Compensation Committee, as well as her diligence and preparedness enable her to serve effectively as our Lead Director and as Chair of our Nominating and Corporate Governance Committee. During 2017, the Board again considered and affirmed the current efficacy of the Lead Director and combined Chairman/CEO structure for the Company. We have also discussed this structure with a number of our largest stockholders. While several advised that they do scrutinize combined Chair/CEO structures as a matter of practice, none expressed concern over this structure for Hologic.

 

Independent Directors and Committees

 

 

In evaluating its leadership structure, the Board also considered that, other than Mr. MacMillan, all of our directors are independent. Our independent directors appropriately challenge management and demonstrate independent judgment in making important decisions for our Company. In addition, each of the Board’s standing committees – Audit and Finance, Compensation, and Nominating and Corporate Governance – is comprised entirely of independent directors. As a result, oversight of key matters, such as the integrity of Hologic’s financial statements, executive compensation, the nomination of directors and evaluation of the Board and its committees, is entrusted to independent directors. Finally, the Board meets in executive session without the CEO in connection with each regularly-scheduled Board meeting as well as any other times it deems appropriate. The active involvement of the independent directors, combined with the qualifications and significant responsibilities of our Lead Director, promote strong, independent oversight of Hologic’s management and affairs.

 

Risk Oversight

 

Our Board is responsible for risk oversight. A fundamental part of risk oversight is understanding the risks that we face, the steps management is taking to manage those risks and assessing our appetite for risk. Risk management systems, including our internal auditing procedures, internal control over financial reporting and corporate compliance programs, are designed in part to inform management about our material risks. It is management’s responsibility to manage risk and bring to the Board’s attention material risks facing the Company. Our Board receives regular reports from management on matters relating to strategic and operational initiatives, financial performance and legal developments, including the related enterprise-risk exposures. The involvement of the Board in the oversight of our strategic planning process is a key part of its assessment of the risks inherent in our corporate strategy. Our general counsel leads the Company’s enterprise risk management process. As part of this process, risk is assessed throughout the business, focusing on three primary areas: financial risk, legal/compliance risk and operational/strategic risk. The resulting enterprise risk management report (“ERM report”) details the Company’s top ten risks, as well as mitigating actions and plans relating to those risks, and is presented to and discussed with the Board on an annual basis. This year, the ERM report highlighted changes in the risks identified in the prior year’s report as well as mitigating actions. Underscoring the Board’s and management’s focus on enterprise risk are the individual performance objectives of the executive leadership team for fiscal 2018, which are again aligned with the Company’s top enterprise risks, as identified in the ERM report.

 

While the Board has overall responsibility for risk oversight, each of the three standing committees of the Board regularly assesses risk in connection with executing their responsibilities. In particular, the Audit and Finance Committee focuses on financial risk, including internal controls, and receives an annual risk assessment report

 

Hologic, Inc. 2018 Proxy Statement10

 

 

from the Company’s internal auditors. At the Compensation Committee’s direction, the Compensation Committee’s independent compensation consultant conducts a risk assessment of our executive compensation programs, and members of our internal legal, human resources and sales operations departments evaluate our other compensation programs. The Committee and its independent compensation consultant reviewed and discussed these assessments for fiscal 2017, and the Compensation Committee concurred with the assessment that our compensation programs do not create risks that are reasonably likely to have a material adverse effect on our business. As we are in the process of integrating Cynosure, including its compensation programs, we did not include the Cynosure compensation programs in our formal annual review. However, in the course of our ongoing integration, our new management team at Cynosure has not identified compensation programs at Cynosure that we believe create risks that are reasonably likely to have a material adverse effect on our business.

 

Stockholder Engagement

 

While the Board, through the Nominating and Corporate Governance Committee, oversees stockholder matters and participates in meetings with stockholders, as appropriate, management has the principal responsibility for stockholder communications and engagement. As discussed below, management provides regular feedback to the Board concerning stockholder feedback.

 

During 2017, we continued the year-round approach to stockholder engagement we implemented in 2015. In addition to discussions just before our Annual Meeting, we initiated discussions during a quieter period several months later, reaching out to a number of our largest stockholders, representing over 50% of our outstanding shares. Topics discussed with the investors with whom we met included business highlights, Board composition, executive compensation, proxy access and other governance practices.

 

Board Composition. All investors with whom we spoke appreciated our Board refreshment process and continued composition assessment. All expressed support for the current Board composition and none expressed concern over our combined CEO/Chairman structure.

Compensation. All investors with whom we spoke were supportive of our focus on performance-based compensation and the metrics that we use, as well as the changes to the long-term incentive program we implemented for fiscal 2017. Please see the “Compensation Discussion and Analysis” beginning on page 21 for more detailed information.

Proxy Access. Investors were mixed in their views as to whether we should pro-actively adopt proxy access bylaw provisions or continue our watchful waiting approach. As a result of the direct feedback from stockholders, the Nominating and Corporate Governance Committee is considering adopting proxy access bylaw provisions.

 

In addition to input on current governance and executive compensation topics specific to Hologic, we invite discussion on any other topics or trends stockholders may wish to share with us. We believe that positive, two-way dialogue builds informed relationships that promote transparency and accountability. Management provides written and oral updates on the discussions with stockholders to our Lead Director, Chairman and the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee in turn allocates specific issues to relevant Board committees for further consideration. Each Board committee reviews relevant feedback and determines if additional discussion and actions are necessary by the respective committee or full Board. The Board considers shareholder perspectives, as well as the interests of all stakeholders, when overseeing company strategy, formulating governance practices and designing compensation programs.

 

Director Nomination Process and Board Assessment

 

Understanding the importance of its responsibility to provide effective oversight, our Board strives to maintain an appropriate balance of tenure, diversity, skills and experience on the Board. As provided in its charter, the Nominating and Corporate Governance Committee is responsible for identifying individuals qualified to become directors. The Nominating and Corporate Governance Committee seeks to identify and evaluate director candidates and may rely on input provided by a number of sources, including the Nominating and Corporate Governance Committee members, our other directors or officers, our stockholders, and third parties such as professional search and screening firms.

 

In evaluating potential candidates for director, the Nominating and Corporate Governance Committee considers the entirety of each candidate’s credentials, including: character and integrity, business acumen, experience, commitment and diligence. The Nominating and Corporate Governance Committee considers diversity as one of a number of factors in identifying nominees for director. It does not, however, have a formal policy in this regard. The Nominating and Corporate Governance Committee views diversity broadly to include diversity of experience, skills and viewpoint, as well as diversity of gender and race. The Nominating and Corporate Governance Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. The Nominating and Corporate Governance Committee believes that the backgrounds and qualifications of the directors considered as a whole should provide a significant breadth of experience, knowledge and abilities to assist the Board in fulfilling its responsibilities. Generally, directors should be individuals who

 

Hologic, Inc. 2018 Proxy Statement11

 

 

have succeeded in their particular field and who demonstrate integrity, reliability, knowledge of corporate affairs and collegiality. The Nominating and Corporate Governance Committee also considers such other relevant factors as it deems appropriate, including the current composition of the Board.

 

In 2015, the Nominating and Corporate Governance Committee led a Board assessment initiative, which included a Board peer review, managed by the general counsel. In 2016, the Nominating and Corporate Governance Committee determined that a facilitated discussion with the full Board would be the most effective form of evaluation. As a part of this discussion, the Board examined several key characteristics which it believed would augment the current skill set of the Board, including experience as a senior executive in a large, complex, global company; extensive operational and transactional experience; deep understanding of the Company’s markets and/or customers; and a product background. In 2017, the Board and each Board committee completed written evaluations.

 

The Chairman and the Lead Director led a discussion of the results of these written evaluations with the full Board, highlighting areas of strength as well as areas of opportunity. All members of the Board agreed that the Board would benefit from the addition of another director with extensive global experience.

 

The Nominating and Corporate Governance Committee will consider stockholder recommendations for candidates for the Board using the criteria described in the preceding paragraphs. The name of any recommended candidate for director, together with a brief biographical sketch, a document indicating the candidate’s willingness to serve, if elected, and evidence of the nominating stockholder’s ownership of the Company’s stock should be sent to the attention of our Corporate Secretary, Hologic, Inc., 250 Campus Drive, Marlborough, MA 01752. If you wish to formally nominate a candidate, you must follow the procedures described in Section 1.4 of our Bylaws.

 

Code of Ethics

 

Pursuant to Section 406 of the Sarbanes-Oxley Act of 2002, we have adopted a Code of Ethics for Senior Financial Officers that applies to our principal executive officer and principal financial officer, principal accounting officer and controller, and other persons performing similar functions. The Company’s Code of Conduct applies to all directors, officers and employees. The Company requires all of its directors, officers and employees to adhere to this code in addressing legal and ethical issues that they encounter in the course of doing their work. This code requires our directors, officers, and employees to avoid conflicts of interest, comply with all laws and regulations, conduct business in an honest and ethical manner and otherwise act with integrity and in the Company’s best interest. All newly hired employees are required to certify that they have reviewed and understand this code. Our Code of Ethics for Senior Financial Officers is publicly available on our website at investors.hologic.com as Appendix A to our Code of Conduct. We intend to satisfy the disclosure requirement under Item 5.05 of Current Report on Form 8-K regarding an amendment to, or waiver from, a provision of this code by posting such information on our website, at the address specified above.

 

Attendance by Directors at the Annual Meeting of Stockholders

 

Our Board has scheduled a Board meeting in conjunction with the Annual Meeting of Stockholders. Our directors are encouraged to attend the Annual Meeting of Stockholders on March 14, 2018. All of our current directors who were nominated for election at our Annual Meeting of Stockholders held on March 8, 2017 attended that Annual Meeting.

 

Stockholder Communications with the Directors

 

In general, any stockholder communication directed to our Board or a committee thereof will be delivered to our Board or the appropriate committee. However, the Company reserves the right not to forward to our Board any abusive, threatening or otherwise inappropriate materials. Stockholders may contact our Board and committees thereof by writing to them in care of Corporate Secretary, Hologic, Inc., 250 Campus Drive, Marlborough, MA 01752.

 

Hologic, Inc. 2018 Proxy Statement12

 

 

BOARD COMMITTEES

 

The standing committees of the Board currently are the Audit and Finance Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee. The Board has adopted a charter for each of the three standing committees that addresses the make-up and functioning of such committee. The charters for each of the three standing committees are publicly available on our website at investors.hologic.com.

 

The Board is composed of a majority of “independent” directors, and all of the committees are composed entirely of “independent” directors, as such term is defined in the listing standards of NASDAQ. The Board has determined that the following current directors are “independent,” according to the above definition: Sally W. Crawford, Charles J. Dockendorff, Scott T. Garrett, Lawrence M. Levy, Christiana Stamoulis, Elaine S. Ullian, Amy M. Wendell and Namal Nawana. Our former directors, Christopher J. Coughlin and Nancy L. Leaming, were also determined to be independent while serving as members of our Board during fiscal 2017. Mr. MacMillan is not considered independent because he is an active officer of the Company. In addition, both the Audit and Finance Committee and the Compensation Committee are composed entirely of “independent” directors as such term is defined in Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

The current membership of each committee is listed below. 

 

            Board Committees

 

 

Name

 

 

 

Age

 

 

 

Position

 

Director

Since

 

Audit and

Finance

 

 

Compensation

 

Nominating

and Corporate

Governance

Sally W. Crawford  64  Director  2007       Chair
Charles J. Dockendorff  63  Director  2017  Chair    
Scott T. Garrett  68  Director  2013     Chair 
Lawrence M. Levy(1)  79  Director  2005       
Christiana Stamoulis  47  Director  2011      
Elaine S. Ullian(1)  70  Lead Director  2007      
Amy M. Wendell  57  Director  2016      
Number of Meetings in Fiscal 2017        9  5  6

 

(1) Not standing for re-election.

 

Meetings of the Board and its Committees

 

The Board met ten (10) times during the fiscal year ended September 30, 2017 and each of our directors attended over 80% of the total number of meetings of the Board and all committees of the Board on which he or she served. During fiscal 2017, the independent directors of the Board met in executive session during each of the Board’s regular quarterly meetings and at such other Board and committee meetings as the independent directors elected.

 

Hologic, Inc. 2018 Proxy Statement13

 

 

Audit and Finance Committee

 

Members 

Mr. Dockendorff (chair)

Ms. Stamoulis

Ms. Wendell

 

FY2017 Meetings: 9

 

 

The Audit and Finance Committee is responsible for assisting our Board in the oversight of (i) our financial reporting process, accounting functions, internal audit functions and internal control over financial reporting, and (ii) the qualifications, independence, appointment, retention, compensation and performance of our independent registered public accounting firm. The Audit and Finance Committee also oversees financing and capital allocation strategies, reviews and approves financing transactions to the extent delegated by the Board, reviews the Company’s ability to enter into swaps and other derivatives transactions, and reviews the Company’s tax structure, among other things. The Audit and Finance Committee also reviews and approves related-party transactions (unless such review and approval has been delegated to another committee consisting solely of independent directors). During fiscal 2017, Ms. Crawford as well as our former directors Mr. Coughlin and Ms. Leaming served on the Audit and Finance Committee.

 

None of the current or former members of the Audit and Finance Committee are employees of the Company and our Board has determined that each such member of the Audit and Finance Committee is independent (as independence is defined in the current listing standards of NASDAQ and Section 10A(m)(3) of the Exchange Act).

 

Audit Committee Financial Expert. The Board has determined that Mr. Dockendorff and Ms. Stamoulis each qualify as an “audit committee financial expert,” as that term is defined in Item 407(d)(5) of Regulation S-K.

 

Nominating and Corporate Governance Committee

 

Members

Ms. Crawford (chair)

Mr. Dockendorff

Mr. Garrett

Mr. Levy

Ms. Stamoulis

Ms. Ullian

Ms. Wendell

 

FY2017 Meetings: 6

  The Nominating and Corporate Governance Committee is responsible for recommending to the Board potential candidates for director and considering various corporate governance issues, including evaluating the performance of the Board and its committees, developing and periodically reviewing our Corporate Governance Guidelines, reviewing and recommending to the Board any changes to the committee charters, recommending the composition and chair of our Board committees, monitoring compliance with our stock ownership guidelines, evaluating the performance of our CEO annually and leading the succession planning and process for our CEO. The Nominating and Corporate Governance Committee also considers suggestions regarding possible candidates for director as described under “Director Nomination Process and Board Assessment” on pages 11 and 12. During fiscal 2017, the members of the Nominating and Corporate Governance Committee were Ms. Ullian and Messrs. Garrett and Levy.

 

Hologic, Inc. 2018 Proxy Statement 14

 

 

Compensation Committee

 

Members

Mr. Garrett (chair)

Ms. Crawford

Ms. Ullian

 

FY2017 Meetings: 5

 

  The primary functions of the Compensation Committee include: (i) reviewing and approving the compensation for each of our executive officers and such other of our senior officers as the Compensation Committee deems appropriate; (ii) evaluating the performance, as it relates to their compensation, of the executive officers, other than the CEO (whose performance is evaluated by the Nominating and Corporate Governance Committee and the Board of Directors), and such other senior officers as the Compensation Committee deems appropriate; (iii) overseeing the administration and the approval of grants and terms of equity awards under our equity-based compensation plans; (iv) reviewing and approving other compensation plans as the Compensation Committee deems appropriate; (v) general oversight of risks associated with our compensation policies and practices; and (vi) approving and/or recommending for review and approval by the Board compensation for members of the Board, and each committee thereof. The Board and Compensation Committee may delegate limited authority to executive officers or other directors of the Company to grant equity awards to non-executive officers. Currently, our Senior Vice President, Human Resources, has been delegated such authority, subject to the terms, conditions and limitations previously approved by the Compensation Committee and the Board, with each of the President and Chief Executive Officer and the Chief Financial Officer authorized to serve as an alternate to the Senior Vice President, Human Resources.

 

Compensation Committee Interlocks and Insider Participation

 

No current or former member of the Compensation Committee listed above is or has ever been an executive officer or employee of the Company (or any of its subsidiaries) and no “compensation committee interlocks” existed during fiscal 2017.

 

For further information about our processes and procedures for the consideration and determination of executive and director compensation, including the Compensation Committee’s retention of an independent compensation consultant, please see “Compensation Discussion and Analysis” beginning on page 21.

 

Hologic, Inc. 2018 Proxy Statement 15

 

 

Proposal No. 1     Election of Directors

 

Seven directors are to be elected at the Annual Meeting. Our Board of Directors (referred to herein as the “Board”), upon the recommendation of the Nominating and Corporate Governance Committee, has nominated the persons listed below for election as directors. All of the director nominees, other than Mr. Dockendorff and Mr. Nawana, were previously elected by our stockholders. Mr. Dockendorff was recommended initially by a non-management director as well as our CEO, while Mr. Nawana was recommended initially by non-management directors. After considering his qualifications and conducting personal interviews, the Nominating and Corporate Governance Committee unanimously recommended that Mr. Dockendorff be appointed to the Board, and in May 2017, the Board of Directors unanimously appointed him to the Board. After also considering the qualifications of Mr. Nawana and conducting personal interviews, in January 2018, the Board unanimously appointed him to the Board. Unless otherwise instructed, the proxy holders will vote the proxies received by them for the Board’s nominees named below. In the event that any nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for the nominee, if any, who shall be designated by the present Board to fill the vacancy. Each nominee has consented to serving as a director if elected. The proposed nominees are being nominated in accordance with the provisions of our Bylaws. The term of office of each person elected as a director will continue until the next Annual Meeting of Stockholders or until a successor has been elected and qualified.

 

Neither Mr. Levy nor Ms. Ullian is standing for re-election at the Annual Meeting. Our Board extends its sincere gratitude to both for their many years of dedicated service.

 

Vote Required

 

Under our Bylaws, a nominee will be elected to the Board of Directors if the votes cast “for” the nominee’s election exceed the votes cast “against” the nominee’s election. Abstentions and broker non-votes will not have any effect on this proposal.

 

Hologic, Inc. 2018 Proxy Statement 16

 

 

Recommendation of the Board

 

Our Board unanimously recommends that you vote “FOR” the nominees listed below. Management proxy holders will vote all duly submitted proxies FOR the nominees listed below unless instructed otherwise.

 

Set forth below is certain biographical information regarding the nominees as of January 16, 2018, as well as the experiences, qualifications, attributes or skills that caused the Nominating and Corporate Governance Committee and the Board to determine that the person should serve as a director.

(GRAPHIC)
Stephen P. MacMillan

 

Director Since: 2013

Age: 54

Mr. MacMillan was appointed as President, Chief Executive Officer and a director in December 2013 and was elected Chairman of the Board in June 2015. From October 2012 to December 2013, Mr. MacMillan was the Chief Executive Officer of sBioMed, LLC, a biomedical research company. From 2003 to 2012, he served in various roles at Stryker Corporation, including Chief Operating Officer from 2003 to 2005, Chief Executive Officer from 2005 to 2012 and Chairman from 2010 to 2012. Prior to 2003, Mr. MacMillan was a senior executive with Pharmacia Corporation, where he oversaw five global businesses. Prior to joining Pharmacia, Mr. MacMillan spent 11 years with Johnson & Johnson in a variety of senior roles in both the U.S. and Europe, including as President of its consumer pharmaceuticals joint venture with Merck. Mr. MacMillan began his career with Procter & Gamble in 1985. Mr. MacMillan currently serves on the board of directors of Boston Scientific Corporation, where he is a member of the Executive Compensation and Human Resources Committee and the Nominating and Governance Committee and on the Board of Trustees of Davidson College. Mr. MacMillan previously served on the board of directors of Alere, Inc. from 2013 to 2015 and Texas Instruments Incorporated from 2008 to 2012. Mr. MacMillan holds a Bachelor of Arts degree in economics from Davidson College, and is a graduate of the Harvard Business School’s Advanced Management Program. As our Chairman, President and Chief Executive Officer, Mr. MacMillan has direct responsibility for the Company’s strategy and operations. During his tenure at Hologic, Mr. MacMillan has led the company through a period of dramatic transformation and revitalization, continued market share gains and sustained revenue growth. Through his leadership, he has positioned Hologic to drive sustainable growth. His performance as CEO, together with his many years of experience in the healthcare industry, make him an invaluable contributor to the Board and uniquely qualified to serve as Chairman.


(GRAPHIC)
Sally W. Crawford

 

Director Since: 2007

Age: 64

Ms. Crawford became one of our directors effective upon our merger with Cytyc Corporation (“Cytyc”) in October 2007, having previously served as a director of Cytyc since January 1998. From April 1985 until January 1997, Ms. Crawford served as Chief Operating Officer of Healthsource, Inc., a publicly held managed care organization headquartered in New Hampshire. During her tenure at Healthsource, Inc., Ms. Crawford held a variety of positions and responsibilities, including leading that company’s Northern Region operations and marketing efforts. Since January 1997, Ms. Crawford has been a healthcare consultant in New Hampshire. Ms. Crawford serves as a director of Insulet Corporation, where she is a member of the Compensation and Nominating, Corporate Governance and Risk Committees. Ms. Crawford previously served as a director of Universal American Corporation, Exact Sciences Corporation, Chittenden Corporation and Zalicus Inc. (now EPIRUS Biopharmaceuticals, Inc.) Ms. Crawford earned a bachelor’s degree from Smith College and a master’s degree in communications from Boston University. Ms. Crawford’s service in various senior executive positions in the managed care sector and her continuing healthcare consulting practice contribute to her significant management and leadership experience and expertise in operational, regulatory and related disciplines applicable to our business and operations.


Hologic, Inc. 2018 Proxy Statement 17

 

(GRAPHIC)
Charles J. Dockendorff

 

Director Since: 2017

Age: 63

Mr. Dockendorff was appointed to our Board in 2017. He was formerly Executive Vice President and Chief Financial Officer of Covidien plc, a global medical device and supplies company. He was CFO at Covidien and its predecessor, Tyco Healthcare, from 1995 to 2015. Mr. Dockendorff joined the Kendall Healthcare Products Company, the foundation of the Tyco Healthcare business, in 1989 as Controller and was named Vice President and Controller in 1994. He was appointed Chief Financial Officer of Tyco Healthcare in 1995. Prior to joining Kendall/Tyco Healthcare, Mr. Dockendorff was the Chief Financial Officer, Vice President of Finance and Treasurer of Epsco Inc. and Infrared Industries, Inc. In addition, Mr. Dockendorff worked as an accountant for Arthur Young & Company (now Ernst & Young) and the General Motors Corporation. Mr. Dockendorff is a director of Boston Scientific Corporation, where he is Chair of the Audit Committee and a member of the Finance Committee, Haemonetics Corporation, where he is Chair of the Audit Committee, and Keysight Technologies, Inc., where he is Chair of the Audit and Finance Committee. Mr. Dockendorff holds a bachelor’s degree in accounting from the University of Massachusetts at Amherst and a Master of Science in finance from Bentley College. Mr. Dockendorff brings a strong track record of value creation, financial acumen and depth of experience in operations and strategy to our Board.


(GRAPHIC)
Scott T. Garrett

 

Director Since: 2013

Age: 68

Mr. Garrett joined our Board in May 2013. Mr. Garrett is currently a Senior Operating Partner at Water Street Healthcare Partners. He joined Water Street in 2011 after approximately 35 years in the global healthcare industry. Prior to joining Water Street, Mr. Garrett served as Chairman, President and Chief Executive Officer of Beckman Coulter, a leading biomedical company, from 2008 to 2011. Mr. Garrett joined Beckman Coulter in 2002 as President, Clinical Diagnostics Division and was promoted in 2003 to President and Chief Operating Officer. In January 2005, he became Chief Executive Officer, adding the position of Chairman in 2008. Prior to that, Mr. Garrett served as Vice Chairman and Interim Chief Executive Officer of Kendro Laboratory Products from 1999 to 2001. From 1994 to 1998, he served as Chairman, President and Chief Executive Officer of Dade Behring, a leading diagnostics company. He began his career at American Hospital Supply Corporation and continued there after that company was acquired by Baxter International, ultimately serving as Chief Executive of Baxter’s global laboratory business, Baxter Diagnostics. Mr. Garrett currently serves on the boards of companies in which Water Street has an ownership interest, including MarketLab Inc. and Orgentec Diagnostics. He also serves as a director of Immucor, Inc. Mr. Garrett received a Bachelor of Science in mechanical engineering from Valparaiso University and an Master of Business Administration from Lake Forest Graduate School of Management. Mr. Garrett’s experience as a Chief Executive Officer and in other senior leadership positions with biomedical and diagnostics companies enables him to bring an operational perspective as well as valuable insights and experience to the Board.


(GRAPHIC)
Christiana Stamoulis

 

Director Since: 2011

Age: 47

Ms. Stamoulis has been a director since November 2011. In January 2015, Ms. Stamoulis was appointed Chief Financial Officer and Head of Corporate Development at Unum Therapeutics. Prior to Unum, she was an independent advisor to biopharmaceutical companies from January 2014 to December 2014. Prior to that, Ms. Stamoulis served as Senior Vice President of Corporate Strategy and Business Development at Vertex Pharmaceuticals Incorporated from 2009 until December 2013. Ms. Stamoulis joined Vertex in 2009 with approximately 15 years of experience in the investment banking and management consulting industries where she advised global pharmaceutical and biotechnology companies on strategic and corporate finance decisions. Prior to joining Vertex, she was a Managing Director in the Investment Banking division of Citigroup from 2006 to 2009 where she led the building of the firm’s U.S. Life Sciences investment banking practice. Prior to her role at Citigroup, she was at Goldman, Sachs & Co. where she spent the majority of her investment banking career. Ms. Stamoulis started her career as a strategy consultant at The Boston Consulting Group. Ms. Stamoulis holds a Bachelor of Science in economics and a Bachelor of Science in architecture from the Massachusetts Institute of Technology (MIT). Additionally, she holds a Master of Business Administration from the MIT Sloan School of Management where she focused on applied economics and finance. Ms. Stamoulis’ solid foundation in strategic development, coupled with her extensive experience in executing initiatives for growth in the medical products field and related industries, enable her to provide valuable insights to the Board.


Hologic, Inc. 2018 Proxy Statement 18

 

(GRAPHIC)
Amy M. Wendell

 

Director Since: 2016  

Age: 57

Ms. Wendell was appointed to our Board in December 2016. Since January 2016, Ms. Wendell has been a Senior Advisor for Perella Weinberg Partner’s Healthcare Investment Banking Practice. Her scope of responsibilities involves providing guidance and advice with respect to mergers and acquisitions and divestures for clients and assisting the firm in connection with firm-level transactions. Since 2015, Ms. Wendell has been a Senior Advisor for McKinsey’s Strategy and Corporate Finance Practice and also serves as a member of McKinsey’s Transactions Advisory Board to help define trends in mergers and acquisitions, as well as help shape McKinsey’s knowledge agenda. From 1986 until January 2015, Ms. Wendell held various roles of increasing responsibility at Covidien plc (including its predecessors, Tyco Healthcare and Kendall Healthcare Products), including engineering, product management and business development. Most recently, from December 2006 until Covidien’s acquisition by Medtronic plc in January 2015, she served as Senior Vice President of Strategy and Business Development, where she led the company’s strategy and portfolio management initiatives and managed all business development, including acquisitions, equity investments, divestitures and licensing/distribution. Ms. Wendell also serves as a director of AxoGen, Inc. and Ekso Bionics, where she is a member of the Compensation Committee and the Nominating and Governance Committee. She is Chairman of the Board of Por Cristo, a non-profit charitable medical service organization involved in health care work for at-risk women and children in Latin America. Ms. Wendell holds a Bachelor of Science in mechanical engineering from Lawrence Technological University and a Master of Science degree in biomedical engineering from the University of Illinois. Ms. Wendell brings deep expertise in all areas of mergers and acquisitions, portfolio management, resource allocation and identification of new market opportunities. This expertise, together with her deep knowledge in developed and emerging markets as well as in early stage technologies, make her a valuable contributor to our Board.


(GRAPHIC)
Namal Nawana

 

Director Since: 2018

Age: 47

Mr. Nawana was appointed to our Board in January 2017. Mr. Nawana was Chief Executive Officer, President and a member of the Board of Directors of Alere, Inc. from October 2014 until October 2017, when Alere was acquired by Abbott Laboratories. Mr. Nawana joined Alere as Chief Operating Officer in December 2012 before being named Interim Chief Executive Officer in July 2014. Before joining Alere, Mr. Nawana spent 15 years at Johnson & Johnson in various leadership roles. Most recently, he served as the Worldwide President of DePuy Synthes Spine, a Johnson & Johnson company, from February 2011 to November 2012. Prior to that, Mr. Nawana served as Area Vice President for Johnson & Johnson Medical in Australia and New Zealand from January 2009 to February 2011, Chairman of the DePuy Asia Pacific Franchise Council, General Manager for DePuy Australia from 2007 to December 2008 and General Manager for DePuy Canada from 2004 to 2007. Mr. Nawana holds an Honors degree in mechanical engineering and a Master of Medical Science from the University of Adelaide, South Australia, and an MBA from Henley Management College. Given his past positions, Mr. Nawana brings to our Board deep global experience in the industry as well as operating expertise.


Hologic, Inc. 2018 Proxy Statement 19

 

 

EXECUTIVE OFFICERS

 

Executive officers are chosen by and serve at the discretion of the Board. Set forth below are the names and ages of our executive officers, as of January 1, 2018, along with certain biographical information for all but Stephen P. MacMillan, our Chairman, President and Chief Executive Officer. For Mr. MacMillan’s biographical information, please see page 17.

 

Name   Age Title
Stephen P. MacMillan 54 Chairman, President and Chief Executive Officer
Robert W. McMahon 49 Chief Financial Officer
John M. Griffin 57 General Counsel
Allison P. Bebo 49 Senior Vice President, Human Resources
Peter J. Valenti,  III 54 Division President, Breast and Skeletal Health
Thomas A. West 53 Division President, Diagnostics

 

Mr. McMahon joined us in May 2014 as Chief Financial Officer with more than 20 years of healthcare finance experience. From 1993 to 2014, Mr. McMahon worked at Johnson & Johnson in executive finance roles of increasing responsibility. Most recently, Mr. McMahon served as the Worldwide Vice President, Finance and Business Development, Ortho Clinical Diagnostics for Johnson & Johnson. From 2006 to 2011, Mr. McMahon served as Vice President, Finance, Consumer Group and from 2004 to 2006 he served as Vice President, Finance, Networking & Computing Services. Earlier in his career at Johnson & Johnson, Mr. McMahon worked in various financial roles at the divisional and corporate headquarters levels. Mr. McMahon began his career in 1991 at Harris Corporation in Florida. Mr. McMahon is a Certified Management Accountant and holds a Master of Business Administration from the University of Central Florida and a Bachelor of Science in business administration from the University of Florida.

 

Mr. Griffin joined us in February 2015 as General Counsel with nearly 30 years of experience across a broad spectrum of legal matters. Mr. Griffin worked at Covidien from 2000 to 2015 where he most recently served as Vice President, Deputy General Counsel. Previously, from 1994 to 2000, Mr. Griffin served as Assistant United States Attorney in Boston, Massachusetts, and prosecuted complex criminal cases. He began his career at Nutter, McClennen & Fish in Boston. Mr. Griffin currently serves on the board of directors for Por Cristo in Boston and New England Legal Foundation. He also serves as Treasurer and on the Board of Directors for Health Care Volunteers International. He has a Juris Doctor degree from Harvard Law School and a Bachelor of Arts in political science from Columbia University.

 

Ms. Bebo joined us in February 2015 as Senior Vice President, Human Resources with 15 years of human resources experience. From 2000 to 2015, Mrs. Bebo held various human resources leadership positions within ANN INC., primarily focused on talent acquisition, associate relations, and talent management. She most recently served as Vice President, Talent Management. From 2007 to 2012, she served as the Vice President, Human Resources for the Ann Taylor and LOFT field organization. She served as Director of Organizational Effectiveness from 2004 to 2007 and as Director of Talent Resources from 2000 to 2004. From 1997 to 2000, she served as the District Manager for the Northeast Region for Ann Taylor and from 1994 to 1997 she served as Store Manager for Ann Taylor in Stamford, CT. She holds a Bachelor of Arts in political science from the University of California, Los Angeles.

 

Mr. Valenti joined us in May 2014 as Division President, Breast and Skeletal Health Solutions with approximately 30 years of sales, brand and product management experience, including 23 years focused on healthcare products. Prior to joining the Company, Mr. Valenti was a Principal at The New England Consulting Group where he served as a consultant to numerous healthcare companies, including Johnson & Johnson, Alcon, Cardinal Health, Align Technology, Inc. and Bausch + Lomb Inc. Mr. Valenti assumed his consulting role following his four-year tenure in the North American and Global President roles of Bausch + Lomb’s Vision Care business from 2009 to 2013. From 2007 to 2009, Mr. Valenti was the General Manager, U.S. Region for Covidien’s Surgical Devices business. From 1995 to 2007, Mr. Valenti was with Johnson & Johnson and held positions of increasing responsibility including Vice President, Global Franchise for the Vistakon business and Executive Director, Women’s Health for Johnson & Johnson’s Personal Products business. Mr. Valenti began his career at Procter & Gamble. He received a Master of Business Administration from Cornell University and a Bachelor of Science in business administration from the University of Connecticut.

 

Mr. West joined us in October 2014 as Division President, Diagnostics Solutions with more than 20 years of healthcare experience. From 1992 to 2014, Mr. West worked at Johnson & Johnson in various roles of increasing responsibility across the globe. Most recently, he served as the Worldwide Vice President – Strategy and Business Development for Johnson & Johnson’s Diabetes Solutions Companies. Previously, he served as President of LifeScan North America and as President of LifeScan EMEA. Mr. West has a proven track record in formulating and implementing growth strategies in the life sciences and consumer healthcare industries in the U.S., Canada, Europe, the Middle East, Africa and Latin America. He has a bachelor’s degree in politics and economics from Princeton University and a Master of Business Administration in marketing and strategic management from the University of Pennsylvania, Wharton School.

 

Hologic, Inc. 2018 Proxy Statement20

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

In this Compensation Discussion and Analysis section (“CD&A”), we describe the executive compensation program for our named executive officers (“NEOs”). We also explain how the Compensation Committee of the Board of Directors (the “Committee”) determined the pay of our NEOs and its rationale for specific decisions related to fiscal 2017 (September 25, 2016 – September 30, 2017) compensation.

 

Our Named Executive Officers (NEOs) for Fiscal 2017

 

 

Name Title
Stephen P. MacMillan Chairman, President and Chief Executive Officer (“CEO”)
Robert W. McMahon Chief Financial Officer (“CFO”)
Eric B. Compton(1) Former Chief Operating Officer (“COO”)
John M. Griffin General Counsel
Peter J. Valenti, III Division President, Breast and Skeletal Health

(1)   Mr. Compton served as COO until December 31, 2017 (the end of the first quarter of fiscal 2018).

 

Executive Summary

 

2017 Business Strategy & Highlights

 

 

Fiscal 2017 was a very productive year for Hologic, a year in which we made excellent progress toward building a sustainable growth company. In the short term, we strengthened our product leadership positions, enabling us to deliver solid revenue and earnings growth in line with our external guidance. At the same time, we took three important steps to solidify our growth profile for the long term. First, we laid the foundations for sustainable international growth through new leadership, new products and better commercial execution. Second, we shifted our business portfolio toward higher-growth segments by divesting our blood screening business and acquiring Cynosure. And third, we accelerated our launch of new products that reflect increasing innovation from our revitalized research and development pipeline.

 

Product leadership. Hologic is focused primarily on improving women’s health and well-being through early detection and treatment. Throughout fiscal 2017, we strengthened our leadership positions in important women’s health markets with products such as Selenia Dimensions and 3Dimensions Mammography Systems, the Panther system and APTIMA assays in molecular diagnostics, the ThinPrep Pap test to detect cervical cancer, and the MyoSure system to remove uterine fibroids.

 

Revenue and earnings growth. In fiscal 2017, we generated GAAP revenue of $3,059 million, up 8% versus 2016, and GAAP earnings per share (“EPS”) of $2.64, up 128% versus the prior year. These results include the effects of divesting blood screening and acquiring Cynosure. Excluding these effects, adjusted revenue increased 5% on a constant currency basis, and adjusted EPS, as calculated pursuant to the provisions of our 2017 Short-Term Incentive Plan, increased 12%.

 

International. After struggling in fiscal 2016, our international franchises rebounded in 2017 behind new leadership, new products, and better commercial execution. On a GAAP basis, international revenue of $684 million increased 16% in fiscal 2017. Excluding the effects of divesting blood screening and acquiring Cynosure, international revenue increased 11% on a constant currency basis.

 

Portfolio enhancement. In January 2017, we divested our share of our blood screening business to long-time partner Grifols for $1.865 billion. Later in the year we acquired Cynosure, a leader in the medical aesthetics industry, for an enterprise value of $1.47 billion. Together, we believe these transactions will accelerate our revenue and EPS growth rates over time.

 

Innovation. We launched multiple new products in each of our divisions, reflecting increasing productivity from our research and development (“R&D”) teams. Most notably, we introduced improvements to our MyoSure and NovaSure gynecological surgical devices, innovative biopsy and mammography systems in our Breast Health division, and new assays to quantify viral load in our molecular diagnostics business.

 

Our strong financial performance in fiscal 2017 enabled us to continue to improve our capital structure. Early in the year, we redeemed the remaining balance of our most dilutive convertible notes, eliminating them from our balance sheet. In addition, we repurchased $286 million in principal of our other convertible notes, further decreasing total debt outstanding. Finally, we bought 5.3 million shares of our common stock for $200 million. As a result, we ended the year with less debt and fewer diluted shares outstanding than a year ago.

 

Hologic, Inc. 2018 Proxy Statement21

 

  

Two of the three financial performance metrics we utilize in our compensation plans, adjusted revenue(1) and adjusted EPS(2), improved from fiscal 2016 to fiscal 2017. Return on invested capital (“ROIC”)(3) declined slightly, from 12.7% to 12.6%.

 

Our Journey to Sustainable Growth

 

 

Financial results for one year are a snapshot of short-term performance. Our focus is on the long term. Since Mr. MacMillan joined the Company in 2013, the Company has invested significantly in its people, infrastructure and products. The power of focused, motivated people is evident, and has driven strong growth in annual revenue and profits, among other things.

 

The financial information in the charts to the right is presented on a GAAP basis. For fiscal 2017, these results include the impact of the divestiture of our blood screening business and the acquisition of Cynosure.

 

November 2013

 

Before the current management team was in place, our sales and earnings were declining, we had $4.4 billion in debt, and we had no meaningful product pipeline. Our interest expense on our debt was higher than our expenditures on R&D.

 

September 2017

 

Under the stewardship of our management team, with significant contributions by our commercial teams, our sales have not only stopped declining, but have returned to growth. In fiscal 2017, organic growth (growth excluding the impact of the Cynosure acquisition and disposition of the blood screening business) was led by our international franchises, by molecular diagnostics products including Panther and APTIMA, and by MyoSure in our GYN Surgical business.

 

In addition to revenue growth, the Company’s disciplined approach to strengthening the balance sheet also has paid off. From fiscal 2013 to fiscal 2017 our net debt, which is total debt minus cash, decreased from $4.0 billion to $2.8 billion, and our ROIC improved significantly.

 

While decreasing our debt, we also have increased our GAAP R&D spending by 17.8% since 2013. This investment is beginning to yield benefits, as evidenced by the multiple new product launches in 2017.

 

These improvements have helped drive our share price. Our share price has increased by 75.5% since 2013, based on a comparison of the closing price on the last trading day of fiscal 2013 to the closing price on the last trading day of fiscal 2017. We are committed to bringing value to our stockholders, as well as to our employees and customers, over the long term.

 

GAAP EPS

 

(BAR CHART) 

 

 

GAAP Revenue
    (in millions)

 

(BAR CHART) 

 

 

GAAP Operating Margin

 

(BAR CHART) 

 

 

(1)The definition of our Non-GAAP adjusted revenue and a reconciliation of our non-GAAP adjusted revenue to our GAAP revenue is provided in Annex A to this proxy statement.
(2)The definition of our Non-GAAP adjusted EPS and a reconciliation of our non-GAAP adjusted EPS to our GAAP EPS is provided in Annex A to this proxy statement.
(3)ROIC means adjusted net operating profit after tax divided by the sum of average net debt and average stockholders’ equity. See “Why ROIC?” on page 33.

 

Hologic, Inc. 2018 Proxy Statement22

 

 

 

We made excellent progress in 2017 in building
a sustainable growth company. We laid the
foundations for long-term growth internationally,
we shifted our portfolio toward higher-growth
markets, and we began to launch new products
that reflect increasing innovation from our
revitalized research and development pipeline.
I’m proud of our team and all that we have
accomplished together and am eager to drive
even greater successes in 2018 and beyond.

 
(GRAPHIC) 

 

A Strong Future with a Strong Leader

 

The appointment of Mr. MacMillan as our CEO in fiscal 2014 is a critical part of our current success story. Since joining Hologic, Mr. MacMillan has led a dramatic turnaround. His leadership and vision are at the core of our significantly improved performance over the short term, and we believe it is his continued commitment to driving sustainable long-term growth and investing in our people and products that will help secure our success as we move into the future.

 

In light of his long track record of success, other larger medical device companies have expressed interest over time in hiring Mr. MacMillan to serve as Chief Executive Officer. In October 2017, Mr. MacMillan received such an offer from a large medical device company. The independent members of the Company’s Board of Directors considered the potential for disruption to Hologic and its business as well as the impact on stockholder value should Mr. MacMillan leave, and determined that it was in the best interests of Hologic and its stockholders to retain him as Chairman, President and Chief Executive Officer. Accordingly, the independent members of the Board, after careful consideration and discussions with Mr. MacMillan and the Compensation Committee’s compensation consultant, awarded Mr. MacMillan a special retention equity grant, effective December 1, 2017, all of which is performance-based and on the same terms as the annual equity grants for fiscal 2018. He formally declined the other more substantial offer, reaffirmed his commitment to Hologic, and remains as Hologic’s Chairman, President and Chief Executive Officer.

 

If the Company does not meet the minimum ROIC and relative TSR threshold targets for the PSUs, none of the PSUs granted to Mr. MacMillan as part of this retention grant will vest. If the Company’s share price does not exceed the exercise price of the options, they will have no value. Of note, during the month between the grant approval date (November 1, 2017) and the grant effective date (December 1, 2017), the Company’s stock price increased 6.9%, resulting in an effective option price premium due to the higher exercise price.

 

See “Say-on-Pay and Stockholder Feedback” below for information regarding the positive reception the grant received from stockholders and investment analysts.

 

Hologic, Inc. 2018 Proxy Statement 23

 

  

“Say-On-Pay” and Stockholder Feedback 

 

 

Each year, we take into account the result of the say-on-pay vote cast by our stockholders. As our journey to sustainable growth continues, so does the evolution of our compensation program. During the tenure of our current management team, we have seen our say-on-pay vote approval increase from 34% at our 2014 Annual Meeting of Stockholders to 95% at our 2017 Annual Meeting of Stockholders. We are making good progress in our compensation design and view the increasingly positive support from stockholders as a continuing endorsement of our compensation program’s evolving design and direction. Our Compensation Committee regularly evaluates our executive compensation structure and assesses its effectiveness to ensure the design is incenting performance that is in the best interests of the Company as well as our stockholders.

 

While say-on-pay is a key indicator of stockholder feedback, we also are committed to maintaining an open dialogue with our institutional investors and stockholders throughout the year. We reach out to discuss business topics, seek feedback on our performance and address other matters of importance to our stockholders, such as executive compensation. Since our 2017 Annual Meeting, we have actively engaged with a number of our largest institutional investors specifically on governance issues, reaching out to holders of more than 50% of our outstanding shares. Through this dialogue, we received additional validation on the design of our executive compensation program as well as strong support for our senior management team, particularly Mr. MacMillan. See below for additional information regarding our discussions with investors regarding performance metrics.

 

Following disclosure of the special performance-based retention equity grant to Mr. MacMillan noted above, the Company reached out to ten of its largest stockholders, representing more than 50% of our outstanding shares, to discuss the grant. In addition, the Company had numerous conversations on the subject with stockholders and investment analysts as part of its normal investor relations activities. Feedback from stockholders and investment analysts has been overwhelmingly positive. Stockholders recognize Mr. MacMillan’s value to the Company and support the decision of the independent members of the Board to award the performance-based grant and retain Mr. MacMillan, and acknowledge the negative effect his departure could have had on the Company and its valuation. The Company publicly announced the grant on November 2, 2017, after the close of market. The Company’s stock price increased 3% on the next day, and from November 2, 2017 to November 30, 2017, the Company’s stock price increased 8.6%.

 

A Unique Asset – Investment Analysts Agree

 

The day after our post-market close announcement of Mr. MacMillan’s special retention equity grant, the response from stockholders and investment analysts was overwhelmingly positive. In the words of several analysts:

 

“We believe the possibility of CEO MacMillan leaving has been an overhang on the stock and we would expect HOLX shares to be up on this news. . . The Board believed (appropriately in our view) it was in the best interest of HOLX shareholders after considering the disruption to HOLX and the business should he leave to issue a retention package. . .”

 

“We view the retention of Mr. MacMillan as positive for HOLX as he has been a key architect behind the company’s turnaround. Since he joined the firm in December 2013, the stock has returned ~75%, outperforming the S&P by ~30%. Quarterly earnings results and sales growth have stabilized during his tenure . . . in our opinion this news underscores the difficulty of hiring talented managers in the medtech space.”

 

“ . . .faith in the execution capabilities of the HOLX management team (many personally recruited by the CEO) is a material component of our and others’ investment theses in HOLX. A leadership change would have been disruptive.”

 

These views expressed by the investment analysts are consistent with and reflect issues discussed by the Board as it considered whether or not to award the special retention equity grant.

 

Performance Metrics and Use of Non-GAAP Measures

 

 

The Committee spent time during 2017 reviewing incentive plan performance metrics and goal setting, as it does every year. We also discussed incentive plan performance metrics with our investors in the fall of 2017. We discussed our current use of ROIC as a performance metric as well as the recent addition of relative total shareholder return (“TSR”). Investors were supportive of the addition of relative TSR as a performance-based metric and were strongly in favor of continuing to use ROIC as a performance-based metric for our long-term incentive awards. Several expressed a preference for ROIC, with one investor sharing the view that compensation should be company and strategy-specific and expressing satisfaction that Hologic utilized ROIC exclusively when it made sense and then added relative TSR as the Company evolved. Another investor appreciated the amendment to Mr. MacMillan’s Employment Agreement at the end of fiscal 2016 which added adjusted net income as a check on adjusted EPS such that increases in annual equity grant values would be based on the lower growth of the two metrics, and decreases in annual equity grant value would be based on the larger decline of the two metrics, as applicable. In our 2016 discussions with investors, we also received positive feedback on our use of adjusted revenue and adjusted earnings per share (“EPS”) as performance measures in our Short-Term Cash Incentive Plan (“STIP”). Several investors commented on the importance of focusing on organic growth, which is a metric in our STIP, as discussed in more detail below, and one investor commented on the potential impact of corporate actions such as share repurchases or mergers and acquisitions on EPS results, which the Committee continually assesses.

 

Hologic, Inc. 2018 Proxy Statement24

 

 

Non-GAAP. The Committee determined that using the measures of adjusted revenue, adjusted EPS and ROIC, which are all non-GAAP measures that are used by management to facilitate its operational decision-making, provided key insights into the Company and management’s achievements during the year and, thus, were appropriate to use in the incentive compensation plans. Additionally, the use of ROIC was specifically supported in discussions with stockholders.

 

Adjusted revenue, which is intended to reflect organic growth, is calculated on a constant currency basis and, pursuant to the terms of our STIP, is also adjusted (i) to remove the effect of acquisitions or dispositions (including the discontinuance of a product or product line other than in the ordinary course of business) that are completed during the reporting period that materially affect the Company’s consolidated revenue; and (ii) to exclude any acquisition-related accounting or other effects that are excluded in the calculation of adjusted EPS. Revenue that is adjusted to exclude the impact of these events is a non-GAAP measure. The Committee believes that organic growth, that is, revenue growth excluding the impact of changes in foreign exchange rates and acquisitions and other transactions, as noted above, is an important measure of management’s achievements in operating the Company’s core businesses during the year. Accordingly, the Committee utilizes adjusted revenue as a performance measure in the STIP. For fiscal 2017, adjusted revenue was calculated on a constant currency basis, using the fiscal 2017 budgeted foreign currency exchange rates, and excludes (i) revenue associated with the Company’s March 2017 acquisition of Cynosure, (ii) incremental revenue from the Company’s April 2017 acquisition of MMS Medicor Medical Supplies GmbH, which was one of the Company’s distributors in Europe, and (iii) revenue related to transition services provided to Grifols Diagnostic Solutions Inc. subsequent to the January 2017 divestiture of our blood screening business to Grifols. Adjusted revenue for fiscal 2017 includes four months of actual revenue from the blood screening business prior to divestiture and eight months of budgeted revenue for the divested blood screening business for the remainder of the annual period. A reconciliation of our non-GAAP adjusted revenue to our GAAP revenue is provided in Annex A to this proxy statement.

 

Adjusted EPS is calculated as set forth in Annex A. This financial measure adjusts for specified items that can be highly variable or difficult to predict, as well as certain effects of acquisitions, dispositions and financings that may not necessarily be indicative of operational performance. This metric is used by management to evaluate our historical operating results and as a comparison to competitor’s operating results. The Committee agrees with this approach and uses this non-GAAP measure as a performance measure in the STIP. A reconciliation of our non-GAAP adjusted EPS to our GAAP EPS is provided in Annex A to this proxy statement.

 

ROIC is also a non-GAAP measure. The key building blocks of our ROIC metric are: (1) adjusted net operating profit after tax (“NOPAT”), (2) average net debt, and (3) average stockholders’ equity. ROIC is calculated as NOPAT/(average net debt + average stockholders’ equity). NOPAT is calculated in a manner similar to the calculation of adjusted net income, as used for the calculation of adjusted EPS under our STIP as described in Annex A, except the operating results of Cynosure post acquisition and the impact to operations from divesting the blood screening business after the disposition date are not excluded, and non-operating income and expenses are excluded, such as interest expense, etc. The NOPAT amounts are intended to match the amounts included in our publicly released Non-GAAP results. Average stockholders’ equity is the average of the beginning of the period and the end of the period stockholders’ equity; provided, however, that average stockholders’ equity is adjusted to exclude any charges for impairment of goodwill or other intangible assets that occur after September 28, 2013. Average net debt is the average of the beginning of the period and the end of the period net debt which is the total book value of all debt outstanding less cash, cash equivalents and restricted cash. The Committee introduced ROIC as a performance metric in fiscal 2014 to hold management accountable for generating greater returns on capital allocated. Investors have been supportive of the use of ROIC. Given the significant improvement in ROIC since its introduction as a performance metric, the Committee believes it is having the intended effect.

 

Goal-setting. In setting the adjusted revenue and adjusted EPS goals for our 2017 STIP, the Committee considered the Company’s historical performance as well as planned growth. For the 2017 STIP, adjusted revenue at target represents approximately 5% growth over the prior year actual revenue, while adjusted revenue at maximum represents approximately 11% growth over prior year actual revenue. Adjusted EPS at target represents approximately 10% growth over prior year adjusted EPS, while adjusted EPS at maximum represents approximately 21% growth over prior year adjusted EPS. If there is no growth in adjusted revenue or adjusted EPS as compared to the prior year actual results, there is no payout under the applicable target.

 

In setting ROIC goals for performance share units (“ROIC PSUs”), the Committee considered past performance as well as future opportunities for efficiencies. The ROIC target goal of 14% for PSUs granted as fiscal 2017 long-term incentive awards represents a 200 basis point increase from the ROIC target goal for ROIC PSUs granted as 2016 long-term incentive awards. In addition, the performance scale for 2017 ROIC PSU grants has a non-linear performance scale above target which only accelerates once ROIC of 15% is achieved. If we fail to achieve the minimum three-year average ROIC goal of 12% for the fiscal 2017-2019 performance period, none of the ROIC PSUs granted as fiscal 2017 long-term incentive awards will vest and all will be forfeited.

 

In implementing and setting the new relative TSR goals for PSUs (“TSR PSUs”), the Committee considered market practice as well as the Company’s focus on driving shareholder value. The TSR PSUs granted as fiscal 2017 long-term incentive awards vest at target upon achievement of relative total shareholder return at the 50th percentile of a custom TSR Peer Group. If the Company’s relative total shareholder return is below the 25th percentile, then no TSR PSUs will vest, and all will be forfeited. The Company considered utilizing the 75th percentile of TSR as the threshold for the maximum 200% payout, as many companies do, but determined to use the more challenging 95th percentile as the threshold for maximum payout.

 

Hologic, Inc. 2018 Proxy Statement25

  

Fiscal 2017 Compensation Actions

 

 

The Committee continued to strengthen the foundation of the executive compensation program, taking the following actions for fiscal 2017:

 

Amended CEO’s Employment Agreement to add adjusted net income as a check on adjusted EPS such that increases in annual equity grant values would be based on the lower growth of the two metrics, and decreases in annual equity grant value would be based on the larger decline of the two metrics.
Amended CEO’s Employment Agreement to remove the annual housing allowance.
Increased annual base salary for NEOs based on personal and Company performance in fiscal 2016.
Continued the focus on pay for performance, basing the overall funding of the 2017 short-term incentive plan (“STIP”) on the Company’s achievement of pre-determined adjusted revenue and adjusted EPS goals and setting challenging ROIC goals for PSU awards.
Set the overall funding level of the 2017 STIP at 100% of target funding, based upon the Company’s performance against the established adjusted revenue and adjusted EPS performance targets.
Exercised negative discretion with regard to fiscal 2017 STIP payout for certain NEOs based on fiscal 2017 performance.
Determined to utilize relative TSR as well as ROIC as performance measures for PSUs awarded as long-term incentive compensation to provide a more balanced approach with one consistent absolute metric (ROIC) and one relative metric (TSR).
Determined that long-term incentive awards for executive officers will continue to be allocated 50% to PSUs, 25% to RSUs and 25% to stock options, as in fiscal 2016.
Approved grants of stock options, RSUs, PSUs and Deferred Compensation Program (“DCP”) contributions in alignment with our compensation philosophy and program.

 

Details of these actions are provided in the applicable sections of this CD&A.

 

Looking Ahead to Fiscal 2018

 

 

The Committee has made several decisions relating to executive pay for fiscal 2018, including:

 

No increase in base salaries for NEOs, other than for Mr. Valenti.
Decrease in fiscal 2018 LTIP grant values for certain NEOs based on fiscal 2017 performance.
Based funding of the 2018 STIP on the achievement of pre-determined adjusted revenue and adjusted EPS goals, as in fiscal 2017.
Determined that long-term incentive awards for executive officers will continue to be allocated 50% to PSUs, 25% to RSUs and 25% to stock options, as in fiscal 2017.
Determined to continue to utilize relative TSR as well as ROIC as performance measures for PSUs awarded as long-term incentive compensation to provide a balanced approach with one consistent absolute metric (ROIC) and one relative metric (TSR).
Awarded a special, one-time retention equity grant to Mr. MacMillan, all of which is performance-based, as discussed above. The grant consists of $10 million in the form of PSUs subject to a three-year average ROIC metric, $10 million in the form of PSUs subject to a three-year relative TSR metric and $10 million in the form of stock options. The PSUs, which are subject to the same performance goals as all fiscal 2018 annual long-term incentive awards, cliff vest at the end of three years, provided the executive is employed and the measurement objectives are achieved, and the stock options vest in four equal installments over four years.

  

Best Compensation Practices and Policies
Below are highlights of our current practices and policies that guide our executive compensation program. We believe the following items promote good corporate governance and are in the best interests of our stockholders and NEOs:
Double-trigger for accelerated equity vesting upon a change of control
No tax gross-ups on severance or change of control payments
Golden parachute policy
Compensation recoupment (“clawback”) policy
Anti-hedging and anti-pledging policy
No option repricing without stockholder consent
Heavy emphasis on performance-based compensation
Robust stock ownership guidelines for our CEO, non-employee directors and executive officers
Independent compensation consultant
Annual risk assessments

  

Hologic, Inc. 2018 Proxy Statement26

 

 

What Guides Our Compensation Program

 

Our Compensation Philosophy

 

The ability to compete effectively in the markets within which we operate depends to a large extent on our success in identifying, recruiting, developing and retaining management talent. We also need to remain focused on creating sustainable long-term growth and stockholder value. To this end, the design of our executive compensation program and the decisions made by the Committee are guided by the following principles:

 

Pay for performance. We believe that our compensation programs should motivate high performance among our NEOs within an entrepreneurial, incentive-driven culture and that compensation levels should reflect the achievement of short- and long-term performance objectives.

Competitive pay. We aim to establish overall target compensation (compensation received when achieving expected results) that is competitive with that being offered to individuals holding comparable positions at other public companies with which we compete for business and talent.

Focus on total direct compensation. We seek to offer a total executive compensation package that best supports our leadership talent and business strategies. We use a mix of fixed and variable pay to support these objectives, as well as provide benefits and perquisites, where appropriate.

 

The Principal Elements of Pay: Total Direct Compensation (“TDC”)

 

Our compensation philosophy is supported by the following principal elements in our annual executive compensation program:

 

Element Form Purpose
Base Salary Cash (fixed) Provides a competitive level of pay that reflects the executive’s experience, role and responsibilities
Short-Term Incentive Plan (“STIP”) Cash (variable) Rewards achievement of individual, business segment/function and/or overall corporate results for the most recently completed fiscal year
Long-Term Incentives Equity (variable) Provides meaningful incentives for management to execute on longer-term financial and strategic growth goals that drive stockholder value creation and supports the Company’s retention strategy
Deferred Compensation Cash (variable) Rewards achievement of corporate results for the most recently completed fiscal year and also serves as a differentiating recruiting tool and retention mechanism.

 

The charts below, which show the TDC of our CEO and our other NEOs for fiscal 2017, illustrate that a majority of NEO TDC is performance based (90.7% for our CEO and an average of 80.3% for our other NEOs). These charts exclude the value of other benefits and perquisites.

 

2017 ANNUAL TARGET CEO PAY 2017 ANNUAL TARGET AVERAGE NEO PAY
   
 (PIE CHART) (PIE CHART) 

 

*Numbers in millions

 

Hologic, Inc. 2018 Proxy Statement 27

 

 

Our Decision-Making Process

 

The Compensation Committee oversees the compensation and benefits programs for our NEOs. The Committee is comprised solely of independent, non-employee members of the Board of Directors. The Committee works very closely with its independent compensation consultant and management to examine the effectiveness of the Company’s executive compensation program throughout the year. Details of the Committee’s authority and responsibilities are specified in the Committee’s charter, which may be accessed through investors.hologic.com.

 

The Role of the Committee

 

The Committee seeks to ensure that the links between our executive compensation program and our business goals are responsible, appropriate and strongly aligned with stockholder interests. The Committee annually determines the compensation levels of our NEOs by considering several factors, including:

 

Each NEO’s role and responsibilities

How the NEO is performing those responsibilities

Our historical and anticipated future financial performance

Compensation practices of the companies in our peer group(s)

Survey data from a broader group of comparable public companies (where appropriate)

 

The Role of Management

 

During fiscal 2017, Mr. MacMillan reviewed the performance and compensation of the NEOs, other than himself, and made recommendations as to their compensation to the Committee. No executive officer participates in the deliberations of the Committee regarding his or her own compensation.

 

The Role of the Independent Compensation Consultant

 

The Committee retained Pearl Meyer & Partners, LLC (“Pearl Meyer”) to serve as its executive compensation consultant for fiscal 2017. Pearl Meyer did not perform any services for us other than as directed by the Committee.

 

During fiscal 2017, Pearl Meyer advised the Committee on a variety of subjects such as compensation plan design and trends, pay for performance analytics, benchmarking norms, and other such matters. Pearl Meyer also conducted a risk assessment of our executive compensation practices for fiscal 2017, as described in “Risk Oversight” on pages 10 and 11. Pearl Meyer reports directly to the Committee, participates in meetings as requested and communicates with the Committee Chair between meetings as necessary.

 

Prior to engaging Pearl Meyer, the Committee reviewed the firm’s qualifications as well as its independence and any potential conflicts of interest. The Committee has the sole authority to modify or approve Pearl Meyer’s compensation, determine the nature and scope of its services, evaluate its performance, and terminate the engagement and hire a replacement or additional consultant at any time.

 

Peer Group

 

The Committee compares our executive compensation program to a group of companies that are comparable in terms of size and industry (the “Primary Peer Group”). The overall purpose of this peer group is to provide a market frame of reference for evaluating our compensation arrangements (current or proposed), understanding compensation trends among comparable companies, and reviewing other compensation and governance-related topics that may arise during the course of the year.

 

For setting target compensation levels for NEOs in fiscal 2017, the Company examined the practices of the following 12 companies (as well as other relevant data):

 

2017 Primary Peer Group Composition
Boston Scientific Corporation PerkinElmer, Inc.
C.R. Bard, Inc. ResMed, Inc.
DENTSPLY Sirona, Inc. St. Jude Medical, Inc.
Edwards Lifesciences Corp. Varian Medical Systems, Inc.
IDEXX Laboratories, Inc. Waters Corporation
Illimuna, Inc. Zimmer Biomet Holdings, Inc.
Intuitive Surgical, Inc.

 

PEER GROUP DATA*
Revenue ($M) Enterprise Value ($M)
50th Percentile $2,911 $11,557
 Hologic $2,681 $12,807
  Hologic Rank 45th 55th

 

* Data as available January 2016.

 

With the exception of Mr. MacMillan, the fiscal 2017 target annual TDC opportunities, comprised of base salary, target annual STIP, annual long-term incentive awards and deferred compensation contributions, were determined to be, on average, competitive with the market median. The Committee recognizes that Mr. MacMillan is a seasoned, accomplished CEO whose market for prospective employment opportunities includes larger organizations, as evidenced by the substantial offer he received from one such company in October 2017. As such, Mr. MacMillan’s fiscal 2017 target annual TDC opportunity is positioned in the upper quartile of the Primary Peer Group, which the Compensation Committee believes is warranted given his value to the Company.

 

Changes to the Primary Peer Group

 

Pearl Meyer reviews our Primary Peer Group annually for appropriateness based on a variety of factors including: similarities in revenue levels and size of market capitalization and enterprise value, similarities to the industries in which we operate, the overlapping labor market for top management talent, our status as a publicly traded, U.S.-based, non-subsidiary company, and various other characteristics. The Company uses enterprise value in addition to market capitalization for comparative purposes because of its capital structure.

 

2016 to 2017

 

As a result of this review in 2016, the Committee changed the Primary Peer Group used for purposes of fiscal 2017 compensation from that utilized for purposes of fiscal 2016 compensation by making the following changes:

 

Hologic, Inc. 2018 Proxy Statement 28

 

 

Changes Companies Rationale
Removals

  Alere, Inc.

  Alere was pending acquisition at the time of the analysis

Additions

  Illumina, Inc.

  Zimmer Biomet
Holdings, Inc.

  Both are reasonable in terms of size and industry, and helped the peer group, in aggregate, more closely approximate our size

 

2017 to 2018

 

Following the 2017 review by Pearl Meyer of our Primary Peer Group, the Committee changed the Primary Peer Group utilized for purposes of fiscal 2018 compensation from that utilized for purposes of fiscal 2017 compensation by making the following changes:

 

Changes Companies Rationale
Removals

  St. Jude Medical, Inc.

  St. Jude was acquired

Additions

  Agilent Technologies, Inc.

  Reasonable in terms of size and industry, and help the peer group, in aggregate, more closely approximate our size

 

Supplemental Practices Peer Group

 

Pearl Meyer also developed a Supplemental Practices Peer Group of larger companies to serve as a reference point in understanding design characteristics of compensation programs at larger companies. The group was not used to set compensation levels for the NEOs. The group consists of both direct product competitors and recent sources of executive talent. Below is the Supplemental Practices Peer Group which the Company referenced while assessing compensation design for fiscal 2017 compensation.

 

Supplemental Practices Peer Group Composition
Abbott Laboratories Medtronic plc
Becton, Dickinson and Company Stryker Corporation
Johnson & Johnson

 

TSR Peer Group

 

The Company uses a custom TSR Peer Group comprised of select companies from the Company investor relations performance benchmarking group and the executive compensation Peer Groups discussed above. The TSR Peer Group is approved by the Compensation Committee each year at the time the TSR PSU awards are granted. Companies which are acquired or otherwise delisted during the performance period are excluded from the final calculation. For the fiscal 2017 TSR PSU awards, the following companies were set as the TSR Peer Group:

 

2017 TSR Peer Group Composition
Abbott Laboratories Mettler-Toledo International Inc.
Agilent Technologies, Inc. Myriad Genetics, Inc.
Baxter International Inc. NuVasive, Inc.
Becton, Dickinson and Company PerkinElmer Inc.
Boston Scientific Corporation Qiagen NV
Bruker Corporation Quest Diagnostics Inc.
CR Bard Inc.* ResMed Inc.
DENTSPLY SIRONA Inc. Stryker Corporation
DexCom, Inc. The Cooper Companies Inc.
Edwards Lifesciences Corp. Thermo Fisher Scientific Inc.
IDEXX Laboratories, Inc. Varian Medical Systems, Inc.
Illumina Inc. VWR Corporation*
Integra LifeSciences Holdings Corp Waters Corporation
Intuitive Surgical, Inc. Zimmer Biomet Holdings, Inc.
Laboratory Corp. of America Holdings
* Removed from TSR peer group due to acquisition

 

The Fiscal 2017 Executive Compensation Program in Detail

 

Base Salary

 

Base salary represents annual fixed compensation and is a standard element of compensation necessary to attract and retain talent. It is the minimum payment for a satisfactory level of individual performance as long as the executive remains employed with us. Base salary is set at the Committee’s discretion after taking into account the competitive landscape including the compensation practices of the companies in our selected peer groups (and where appropriate, survey data from a broader index of comparable

 

Hologic, Inc. 2018 Proxy Statement 29

 

 

public companies), our business strategy, our short- and long-term performance goals and certain individual factors, such as position, salary history, individual performance and contribution, length of service with the Company and placement within the general base salary range offered to our NEOs. Mr. MacMillan’s base salary is set and adjusts in accordance with the term of his Employment Agreement. See pages 36 and 37 for details regarding his Employment Agreement.

 

The base salaries for our NEOs for fiscal 2017 were as follows:

 

   Base Salaries of NEOs(1)  Percentage  
NEO  FY2017 Salary(2)  FY2016 Salary   Increase 
Stephen P. MacMillan  $1,030,000   $1,000,000    3.0%
Robert W. McMahon  $540,000   $515,000(3)   4.9%
Eric B. Compton  $545,000   $520,000(4)   4.8%
John M. Griffin  $470,000   $450,000    4.4%
Peter J. Valenti, III  $480,000   $457,500    4.9%

(1)Reflects base salaries set at the beginning of the fiscal year indicated, except as noted below for Mr. McMahon and Mr. Compton.

(2)The fiscal 2017 base salaries above, which were approved by the Compensation Committee, differ slightly from the fiscal 2017 base salaries reported in the Summary Compensation Table due to an extra payroll week in fiscal 2017.

(3)In March 2016, the Committee increased Mr. McMahon’s base salary from $500,000 to $515,000 in connection with his expanded role and assumption of significant additional responsibilities.

(4)In March 2016, the Committee increased Mr. Compton’s base salary from $485,000 to $520,000 in connection with his expanded role and assumption of significant additional responsibilities.

 

In addition to the considerations noted above, increases in base salary for fiscal 2017 for Messrs. McMahon, Compton, Griffin and Valenti were driven in part by the Company’s strong financial performance in fiscal 2016. For fiscal 2018, no NEOS, other than Mr. Valenti, will receive any increase in base salary.

 

Short-Term Incentive Plan (the “STIP”)

 

How the STIP Works

 

The STIP provided our NEOs the opportunity to earn a performance-based cash bonus based on the achievement of a combination of financial and non-financial corporate, divisional, and/or individual goals. Targeted payout levels are expressed as a percentage of base salary and established for each participant. An individual’s bonus components are determined by such individual’s title and/or role. Bonus payouts could range from 0% to 200% of targeted payout levels (e.g., the maximum bonus payout for an individual with a targeted payout level of 50% of annual base salary would be 100% of annual base salary).

 

The goals under the 2017 STIP were primarily focused on the achievement of adjusted revenue (calculated on a constant currency basis using the fiscal 2017 budget foreign exchange rates) and adjusted EPS performance objectives (for definition of adjusted EPS, see Annex A). The 2017 STIP also provides for the assessment of performance based upon the achievement of individual performance objectives, which for some NEOs included divisional performance objectives, all of which are approved by the Committee.

 

The overall funding level of the 2017 STIP was determined based upon the Company’s performance against the established targets. Funding of the STIP is contingent upon achieving the threshold level for at least one of the two corporate performance objectives. If neither corporate performance objective threshold is met, there is no payout under the STIP. Individual bonus awards for NEOs were calculated based upon the overall funding level, as well as the targeted payout levels and individual performance objectives for each NEO.

 

Individual Bonus Opportunity Ranges

 

  Bonus Opportunity Range(1)
NEO Threshold Target Maximum
Stephen P. MacMillan 50% 150% 300%
Robert W. McMahon 50% 75% 150%
Eric B. Compton 50% 75% 150%
John M. Griffin 50% 75% 150%
Peter J. Valenti, III 50% 75% 150%
(1)Expressed as a percentage of base salary.

 

Hologic, Inc. 2018 Proxy Statement 30

 

 

2017 Performance Objectives and Results

 

The Committee believed the financial performance components of the 2017 STIP were achievable, but appropriately challenging, based on market climate and internal budgeting and forecasting. The following table outlines the threshold, target and maximum financial performance objectives for the 2017 STIP, as well as the results achieved:

 

Performance Measures Threshold Target (100%) Maximum Actual Achieved
under 2017 STIP
Adjusted Revenue (60% weighting) $2.833 billion $2.985 billion $3.137 billion $2.945 billion
Adjusted EPS (40% weighting) $1.96 $2.16 $2.38 $2.20

 

Adjusted revenue at target represents approximately 5% growth over prior year actual revenue, while revenue at maximum represents approximately 11% growth over prior year actual revenue. Adjusted EPS at target represents approximately 10% growth over prior year adjusted EPS, while adjusted EPS at maximum represents approximately 21% growth over prior year adjusted EPS. If there is no growth in adjusted revenue or adjusted EPS over the prior year, there is no payout under the applicable target.

 

Based upon the Company’s performance against the established performance targets, with adjusted revenue weighted 60% and adjusted EPS weighted 40%, the Committee set the overall funding level of the 2017 STIP at 100% of target funding. (Adjusted revenue performance was 87% of target and adjusted EPS performance was 118% of target). Individual bonus awards for NEOs were then calculated based on this overall funding level as well as the targeted payout levels and individual performance objectives for each NEO, as discussed in more detail below.

 

Individual performance objectives for our NEOs reflected the top priorities for our NEOs and were aligned with the top three risks identified in our annual Enterprise Risk Management process. Mr. Valenti’s individual performance objectives also included revenue growth performance goals for the Breast and Skeletal Health divisions.

 

2017 STIP Awards

 

Mr. MacMillan

 

Mr. MacMillan’s targeted payout level was 150% of base salary, with 80% of his bonus opportunity tied to corporate financial performance (60% of which is based on adjusted revenue and 40% of which is based on adjusted EPS) and 20% tied to individual performance objectives. Mr. MacMillan’s individual performance objectives were designed to reward the achievement of goals relating to (i) strengthening the product pipeline for 2018 and beyond by driving for product launches in each division to impact 2018 revenue and identify and execute opportunities to impact 2018 revenue; (ii) driving global growth through continued revenue growth in all U.S. businesses and accelerating growth in the international business; (iii) focusing on succession planning and talent development by continuing to develop leaders as potential backfill for CEO and all senior positions. Based on the Company’s financial performance as well as an assessment of Mr. MacMillan’s performance for fiscal 2017, Mr. MacMillan was awarded a total bonus amount of $1,545,000, which represents 100% of his overall target amount.

 

Mr. McMahon

 

Mr. McMahon’s targeted payout level was 75% of base salary, with 80% of his bonus opportunity tied to corporate financial performance (60% of which is based on adjusted revenue and 40% of which is based on adjusted EPS) and 20% tied to individual performance objectives. Mr. McMahon’s individual performance objectives were designed to reward the achievement of goals relating to (i) strengthening the product pipeline for 2018 and beyond through partnering with the divisions and international to increase the value of the pipeline, supporting business development opportunities, supporting new product launches worldwide and executing on quality assurance/regulatory assurance goals; (ii) driving global growth through continuing to improve the Company’s capital structure through debt reduction and increased cash flow flexibility, optimizing tax planning strategies and supporting investment and prioritization of international expansion plans; and (iii) focusing on succession planning and talent development by continuing to build capabilities and increase engagement. Based on the Company’s financial performance as well as an assessment of Mr. McMahon’s performance for fiscal 2017, Mr. McMahon was awarded a total bonus amount of $405,000, which represents 100% of his overall target amount.

 

Mr. Compton

 

Mr. Compton’s targeted payout level was 75% of base salary, with 80% of his bonus opportunity tied to corporate financial performance (60% of which is based on adjusted revenue and 40% of which is based on adjusted EPS) and 20% tied to individual performance objectives. Mr. Compton’s individual performance objectives were designed to reward the achievement of goals relating to (i) strengthening the product pipeline for 2018 and beyond by meeting 2017 product launch dates and major project milestones, commercializing new product launches and acting with speed and discipline in both research and development pipeline and business development opportunities; (ii) driving global growth through increasing U.S. and international revenue and ensuring the new leadership model drives improved business results internationally; and (iii) focusing on succession planning and talent development by filling all key international leadership positions and identifying and growing near and longer term succession candidates for key leadership roles in the Company. Based on the Company’s financial performance, as well as an assessment of Mr. Compton’s performance for fiscal 2017, including U.S. revenue results, Mr. Compton was awarded a total bonus amount of $345,000, which represents 84% of his overall target amount.

 

Hologic, Inc. 2018 Proxy Statement 31

 

 

Mr. Griffin

 

Mr. Griffin’s targeted payout level was 75% of base salary, with 80% of his bonus opportunity tied to corporate financial performance (60% of which is based on adjusted revenue and 40% of which is based on adjusted EPS) and 20% tied to individual performance objectives. Mr. Griffin’s individual performance objectives were designed to reward the achievement of goals relating to (i) strengthening the product pipeline for 2018 and beyond by delivering and expanding legal support for innovation and research and development projects and enhancing business development capabilities; (ii) driving global growth by providing legal resources and capabilities to support the Company’s growth plan, continuing compliance program enhancements and ensuring collaboration and communication between divisional and international legal teams; and (iii) focusing on succession planning and talent development by developing potential successors, completing development and retention plans for direct reports and retaining key talent. Based on the Company’s financial performance as well as an assessment of Mr. Griffin’s performance for fiscal 2017, Mr. Griffin was awarded a total bonus amount of $355,000, which represents 101% of his overall target amount.

 

Mr. Valenti

 

Mr. Valenti’s targeted payout level was 75% of base salary, with 60% of his bonus opportunity tied to corporate financial performance (60% of which is based on adjusted revenue and 40% of which is based on adjusted EPS) and 40% tied to individual performance objectives. Mr. Valenti’s individual performance objectives were designed to reward the achievement of goals relating to (i) growing divisional revenue in the U.S. and internationally; (ii) strengthening the pipeline for 2018 and beyond by achieving Breast and Skeletal Health product launch dates and critical product development milestones, solidifying the Breast and Skeletal Health product launch timeline and acting with speed and discipline in both research and development and business development opportunities; (iii) driving global growth by delivering against aligned global franchise plans, including supporting dealer to direct conversions as well as providing resource support; (iv) focusing on succession planning and talent development by identifying and growing near and longer term succession candidates for key leadership roles in the Company, having succession plan backfills for critical roles and updating/ completing development plans. Based on the Company’s financial performance as well an assessment of Mr. Valenti’s performance for fiscal 2017, including U.S. revenue performance, Mr. Valenti was awarded a total bonus amount of $325,000, which represents 90% of his overall target amount.

 

Long-Term Equity Incentives

 

We believe that strong sustainable corporate performance is achieved with a culture that encourages long-term focus by our NEOs and aligns the interests of our NEOs with those of our stockholders. We also use our long-term awards to attract and retain critical employee talent by providing a competitive market-based opportunity. To achieve these objectives, we award long-term incentives on an annual basis in the form of equity. For fiscal 2017, we structured our annual equity incentive awards as follows:

 

50% in the form of performance stock units (“PSUs”)

50% of which vest only if the Company achieves a pre-determined return on invested capital (“ROIC”) three-year average minimum threshold (the “ROIC PSUs”). If the threshold is achieved, the level of payout in comparison to the target number of ROIC PSUs granted is determined by the three-year average ROIC achievement against the ROIC goal at the end of the three-year performance period. At the vesting date, any earned awards are settled in shares of Hologic common stock, unless settlement has been deferred pursuant to the Company’s Deferred Equity Plan. For details about our use of ROIC as a performance measure, please see “Why ROIC?” below. ROIC PSUs also are subject to the terms and conditions set forth in the form of ROIC Performance Stock Unit Award Agreement.

50% of which vest based on the Company’s total shareholder return as compared to the total shareholder return of companies in the TSR PSU Peer Group, measured over a three-year performance period (the “TSR PSUs”). The fiscal 2017 TSR PSU awards vest at target and at 200% of target upon achievement of relative total shareholder return at the 50th and 95th percentile, respectively. If the Company’s relative total shareholder return is below the 25th percentile, then no TSR PSUs will vest. At the vesting date, any earned awards are settled in shares of Hologic common stock, unless settlement has been deferred pursuant to the Company’s Deferred Equity Plan. For details about our use of relative total shareholder return as a performance measure, please see “Why relative TSR?” below. TSR PSUs also are subject to the terms and conditions set forth in the form of TSR Performance Stock Unit Award Agreement.

25% in the form of stock options, which vest in four equal annual installments, becoming fully vested on the fourth anniversary of the grant date. Stock options have a ten-year term, and are subject to the terms and conditions set forth in the form of Stock Option Award Agreement.

25% in the form of restricted stock units (“RSUs”), which vest in three equal annual installments, becoming fully vested on the third anniversary of the grant date. Only vested RSUs can be exchanged for shares of Hologic common stock. RSUs also are subject to the terms and conditions set forth in the form of Restricted Stock Unit Award Agreement.

 

Hologic, Inc. 2018 Proxy Statement 32

 

 

Why ROIC?

 

In addition to being well-received and supported by our stockholders, the use of ROIC:

 

  Creates an effective balance in our program of growth (our STIP focuses on adjusted revenue and adjusted EPS) and returns (our long-term incentives focus on ROIC)

 

  Holds management accountable for the efficient use of capital

 

  Links executive compensation to value creation

 

ROIC PSUs only vest if the Company achieves a pre-determined average ROIC threshold at the end of a three-year performance period. If the target three-year average ROIC goal is achieved, 100% of the ROIC PSUs granted will vest. If we fail to achieve the minimum three-year average ROIC threshold, none of the ROIC PSUs granted for that three-year performance period will vest and all will be forfeited. The maximum payout for ROIC PSUs is limited to 200% of the target number of ROIC PSUs granted and is earned only if we achieve the maximum three-year average ROIC goal.

 

The key building blocks of our ROIC metric are: (1) adjusted net operating profit after tax (“NOPAT”), (2) average net debt, and (3) average stockholders’ equity. ROIC is calculated as NOPAT/(average net debt + average stockholders’ equity).(1)

 

In fiscal 2016, the Committee eliminated annual ROIC hurdles for fiscal 2016 PSU grants while retaining the more challenging three-year average ROIC minimum threshold for the performance period. The Committee viewed the annual hurdles as having the potential to penalize recipients for executing value-enhancing acquisitions but believes retaining the three-year average ROIC minimum threshold incents management to remain disciplined on value creation. For fiscal 2017 PSU grants, the Committee continued to utilize the three-year average ROIC minimum threshold for the performance period.

 

       
The following table outlines the threshold, minimum, target and maximum three-year average ROIC goals for the ROIC PSUs granted as fiscal 2017 long-term incentive awards (see “2017 Long-Term Annual Incentive Award Grants” below):
       
  Three-Year Average ROIC Goal(1) Percentage of PSUs Vested(2)  
  ≥16% 200% (Maximum)  
  15% 125%  
  14% 100% (Target)  
  12% 50% (Minimum)  
  <12% 0%  
  (1) Calculated at the end of the three-year performance period.  
  (2) Expressed as a percentage of granted PSUs vesting.  
     

The target goal of 14% represents a 200 basis point increase from the ROIC target goal for PSUs granted as 2016 long-term incentive awards and was the maximum goal for the fiscal 2016 awards. This ROIC target goal for the fiscal 2017 awards also takes into account potential mergers and acquisitions through fiscal 2019.

 

The Company achieved annual ROIC for fiscal 2017 of 12.55%. If we fail to achieve the minimum three-year average ROIC goal of 12% for the fiscal 2017-2019 performance period, none of the PSUs granted as fiscal 2017 long-term incentive awards will vest, and all will be forfeited.

 

Vesting of ROIC PSUs granted in fiscal 2014

 

The Company’s first PSU awards were granted in November 2013 (fiscal 2014) and vested in November 2016 (fiscal 2017). These ROIC PSUs were subject to a three-year cliff vesting period with vesting contingent on the Company achieving an average ROIC of 8.5% for the three-year performance period as well as annual performance hurdles for fiscal 2014, 2015 and 2016 of 7.5%, 8.5% and 9.5%, respectively. If performance was below any of these levels, none of the PSUs would vest. Actual performance was 10.96% for the three-year performance period and 9.3%, 10.88% and 12.7% for fiscal 2014, 2015 and 2016, respectively. Accordingly, these PSUs vested at 196% of target.

 

 

(1)NOPAT is calculated in a manner similar to the calculation of adjusted net income, as used for the calculation of adjusted EPS under our STIP as described in Annex A, except the operating results of Cynosure post acquisition and the impact to operations from divesting the blood screening business after the disposition date are not excluded, and non-operating income and expenses are excluded, such as interest expense, etc. The NOPAT amounts are intended to match the amounts included in our publicly released Non-GAAP results. Average stockholders’ equity is the average of the beginning of the period and the end of the period stockholders’ equity; provided, however, that average stockholders’ equity is adjusted to exclude any charges for impairment of goodwill or intangible assets that occur after September 28, 2013. Average net debt is the average of the beginning of the period and the end of the period net debt which is the total book value of all debt outstanding less cash, cash equivalents and restricted cash.

 

Hologic, Inc. 2018 Proxy Statement 33

 

 

Why relative TSR?

 

In addition to being well-received and supported by our stockholders, use of relative TSR:

 

  Provides an external performance measure, which complements the internal ROIC measure

 

  Links executive compensation directly to shareholder value creation

 

To calculate the Company’s relative TSR performance, the cumulative three-year TSR for Hologic and each of the companies in the TSR Peer group is calculated and then Hologic’s discrete percentile rank is calculated. The TSR PSUs vest at target and at 200% of target upon achievement of relative TSR at the 50th and 95th percentile, respectively. If the Company’s relative TSR is below the 25th percentile, no TSR PSUs will vest and all will be forfeited.

 

2017 Long-Term Annual Incentive Award Grants

 

The annual long-term incentive awards granted to our NEOs in November of 2016 (fiscal 2017) as compared to awards for fiscal 2016 are as follows:

 

NEO  FY2017 Award Value(1)   

FY2016 Award

Value(1)

   % Change 
Stephen P. MacMillan  $7,822,750(2)  $7,250,000    7.9%
Robert W. McMahon  $1,750,000   $1,900,000(3)   (7.9)%
Eric B. Compton  $1,750,000   $2,000,000(3)   (12.5)%
John M. Griffin  $1,300,000   $1,200,000    8.3%
Peter J. Valenti, III  $1,300,000   $1,000,000    30.0%
(1)The award values in this table differ slightly from the grant date fair values of the awards reported in the Summary Compensation Table and the Grants of Plan-Based Awards Table. The award values in this table are the values awarded by the Committee while the grant date fair value of each award reported in the Summary Compensation Table and the Grants of Plan-Based Awards Table is the award value for accounting purposes.

(2)Does not include the value of the December 2016 Matching RSU grant made pursuant to Mr. MacMillan’s Employment Agreement or the special retention equity grant awarded effective December 2017.

(3)Includes value of fiscal 2016 mid-year equity awards. Excluding the value of these mid-year equity awards, Mr. McMahon’s fiscal 2017 grant value increased 9.4% as compared to his fiscal 2016 grant value, and Mr. Compton’s fiscal 2017 grant value increased 16.7% as compared to his fiscal 2016 grant value.

 

The 7.9% increase in the value of Mr. MacMillan’s equity grant from fiscal 2016 to fiscal 2017 is calculated in accordance with the terms of his Employment Agreement, which calls for an increase in grant value based on the lesser of adjusted EPS or adjusted net income growth (or, if adjusted EPS and/or adjusted net income were to decrease, his equity grant value would decrease based on whichever metric decreased the most). The grant value will increase 0.5% for every 1.0% increase in the applicable metric growth and will decrease 1.0% for every 1.0% decrease in the applicable metric growth. For fiscal 2016, adjusted net income grew 15.9% and adjusted EPS grew 17.4%. As adjusted net income grew less than adjusted EPS, adjusted net income is the applicable metric. Half of the 15.9% adjusted net income growth yields a 7.9% increase in grant value.

 

Messrs. McMahon and Compton received mid-year equity grants during fiscal 2016 valued at $300,000 and $500,000, respectively, due to increased responsibilities assumed mid-year in connection with Mr. McMahon’s increased role in global operations and regulatory and quality assurance and the realignment of the international business under Mr. Compton. Mr. Valenti received a significant increase in the value of his long-term incentive award from 2016 to 2017 partially to align with market practice, but also in consideration of the key role his division plays and is expected to play in the Company’s growth, as well as acknowledging the importance of retaining his talent.

 

Hologic, Inc. 2018 Proxy Statement 34

 

 

2018 Long-Term Annual Incentive Award Grants

 

The annual long-term incentive awards granted to our NEOs in November of 2017 (fiscal 2018) as compared to awards for fiscal 2017 are as follows:

 

NEO  FY2018 Award
Value(1)
   FY2017 Award
Value(1)
   % Change 
Stephen P. MacMillan  $8,292,022(2)  $7,822,750(2)  6.0%
Robert W. McMahon  $1,850,000   $1,750,000   5.7%
Eric B. Compton     $1,750,000   N/A 
John M. Griffin  $1,400,000   $1,300,000   7.7%
Peter J. Valenti,  III  $1,000,000   $1,300,000   (23.0)%

(1)The fiscal 2017 award values in this table differ slightly from the grant date fair values of the awards reported in the Summary Compensation Table and the Grants of Plan-Based Awards Table. The award values in this table are the values awarded by the Committee while the grant date fair value of each award reported in the Summary Compensation Table and the Grants of Plan-Based Awards Table is the award value for accounting purposes.

(2)Does not include the value of the December 2016 Matching RSU grant made pursuant to Mr. MacMillan’s Employment Agreement or the special retention equity grant awarded effective December 2017.

  

The 6.0% increase in the value of Mr. MacMillan’s equity grant from fiscal 2017 to fiscal 2018 is calculated in accordance with the terms of his Employment Agreement, as described above. For fiscal 2017, adjusted net income grew 12.0% and adjusted EPS grew 12.2%. As adjusted net income grew slightly less than adjusted EPS, adjusted net income is the applicable metric. Half of the 12.0% adjusted net income growth yields a 6.0% increase in grant value.

 

The decrease in value of Mr. Valenti’s fiscal 2018 long-term incentive award grant as compared to his fiscal 2017 grant was due in large part to the fact that the fiscal 2017 grant was based on excellent financial performance in fiscal 2016 and thus, the fiscal 2017 grant was larger than usual. The fiscal 2018 grant value, which is based on fiscal 2017 financial results, reflects a move back to the target grant value for division presidents. By way of comparison with the STIP, which is based on the Company’s adjusted revenue and adjusted EPS results, the fiscal 2016 STIP funded at 125%, while the fiscal 2017 STIP funded at 100%. Mr. Valenti’s long-term incentive award grant values, while not tied to the STIP, is influenced by Company financial results.

 

Deferred Compensation

 

 

Deferred Compensation Program Contributions

 

The Company’s Non-Qualified Deferred Compensation Plan (the “DCP”) provides our NEOs with non-qualified retirement benefits in excess of what may be provided under our 401(k) Savings and Investment Plan and tax code limitations. The Committee considers the DCP Company contribution in the context of total compensation and views the contribution as a tool to help close a competitive market gap when evaluating the total value of annual compensation.

 

The DCP allows NEOs to contribute up to 75% of their base salary and 100% of their annual bonus to a supplemental retirement account. In addition, the Company has the ability to make annual discretionary contributions to the DCP. Each DCP contribution the Company makes on behalf of our NEOs is subject to a three-year vesting schedule, such that one-third of each contribution vests annually and each contribution is fully-vested three years after the contribution is made. In addition, Company contributions become fully vested upon: (i) death, disability or a change of control; (ii) retirement after the attainment of certain age and/or service milestones; or (iii) as otherwise provided by the Committee in its sole discretion. The DCP Company contributions granted to our NEOs in November 2017 (fiscal 2018) and November 2016 (fiscal 2017) are set forth below:

 

   DCP Company Contribution 
NEO  November 2017
(fiscal 2018)
   November 2016
(fiscal 2017)
 
Stephen P. MacMillan  $250,000   $312,500 
Robert W. McMahon  $150,000   $180,000 
Eric B. Compton     $180,000 
John M. Griffin  $150,000   $180,000 
Peter J. Valenti,  III  $115,000   $150,000 

 

Hologic, Inc. 2018 Proxy Statement35

 

 

The amount of the Company DCP contribution to each individual is based upon role/job level target values. An individual’s final Company DCP contribution is generally based on the applicable target value, modified to track the STIP funding factor.

 

The STIP funding factor applicable to the DCP contributions made in November 2017 was based on the STIP funding factor for fiscal 2017, which was 100%.

The STIP funding factor applicable to the DCP contributions made in November 2016 was based on the STIP funding factor for fiscal 2016, which was 125%.

 

Deferred Equity Plan

 

The Hologic, Inc. Deferred Equity Plan, as amended (the “DEP”) is designed to allow executives and non-employee directors to accumulate Hologic stock in a tax-efficient manner and assist them in meeting their long-term equity accumulation goals and stock ownership guidelines. Participants may elect to defer the settlement of RSUs and PSUs granted under the Amended and Restated 2008 Equity Incentive Plan until separation from service or separation from service plus a fixed number of years. Participants may defer settlement by vesting tranche. Although the equity will vest on schedule, if deferral of settlement is elected, no shares will be issued until the settlement date. The settlement date will be the earlier of death, disability, change in control or separation from service/separation from service plus number of years elected. All of our NEOs have elected to participate in the DEP.

 

Employment, Change of Control and Severance Agreements

 

  

Our Position on Employment, Change of Control and Severance Agreements

 

Our ability to build the exceptional leadership team in place today was due in large part to our having a full complement of compensation tools available to us and the flexibility to use them. This includes the ability to leverage employment, change of control and severance agreements.

 

The Committee strongly believes that together, our employment, change of control and severance agreements, which are guided by our compensation philosophy and governance practices and policies (e.g., double-trigger change of control provisions, no tax gross-ups), are well aligned with those of our peers. More importantly, they foster stability within senior management by helping our executives maintain continued focus and dedication to their responsibilities to maximize stockholder value, including in the event of a transaction that could result in a change in control of our Company.

 

We also understand the concern of our stockholders regarding severance arrangements, and in 2015, the Committee adopted a Policy on Executive Severance Agreements. This policy limits severance benefits under any new severance or employment agreements entered into with executive officers to 2.99 times the sum of the executive officer’s base salary and non-equity incentive plan payment or other annual non-equity bonus or award; any benefits in excess of this amount must be ratified by stockholders. For purposes of this policy “severance benefits” do not include the value of accelerated vesting of any outstanding equity awards or payments under the Company’s retirement and deferred compensation plans. Details about the specific arrangements made with our NEOs are set forth below.

 

Employment Agreement

 

Mr. MacMillan

 

Amended and Restated Agreement, effective September 27, 2015

 

On September 18, 2015, the Company entered into an Amended and Restated Employment Agreement (the “2015 Employment Agreement”) with Mr. MacMillan, effective as of September 27, 2015. The 2015 Employment Agreement has an initial term of five years and will be automatically extended for an additional five-year period unless either the Company or Mr. MacMillan notifies the other party not later than June 27, 2020 that the notifying party has elected not to extend the initial term.

 

Consistent with the terms of Mr. MacMillan’s prior agreement, the 2015 Employment Agreement provides that Mr. MacMillan will receive an initial base salary at the annual rate of $1,000,000 and a target bonus opportunity under the Company’s STIP of no less than 150% of his annual base salary. Any future increases in Mr. MacMillan’s base salary will be tied to the average employee merit pool percentage increase approved for base salaries of U.S. salaried employees. The Company also agreed to continue to contribute to the Company’s DCP on behalf of Mr. MacMillan in fiscal 2016 and each fiscal year thereafter, with an initial target amount of $232,000 in fiscal 2016. The amount may be modified in subsequent fiscal years consistent with changes for other executive officers. During the initial five-year term of the 2015 Employment Agreement, the Company agreed to provide Mr. MacMillan with a housing allowance of $100,000 per year to cover housing in the greater Boston area (prior to the amendment discussed below which removed the annual housing allowance).

 

Pursuant to the 2015 Employment Agreement, Mr. MacMillan also receives an annual equity grant under the Company’s 2008 Amended and Restated Equity Incentive Plan. The value of the grant for fiscal 2017 (made in November 2016) was $7,822,750. Pursuant to the 2015 Employment Agreement (prior to the amendment discussed below which includes adjusted net income as a tempering measure),

 

Hologic, Inc. 2018 Proxy Statement36

 

 

the grant value for subsequent years adjusts as follows: (i) for every one percent (1%) that the Company exceeds the prior fiscal year’s adjusted earnings per share (“EPS”), the annual grant value will be increased by one-half of one percent (0.5%); and (ii) for every one percent (1%) that the Company is below prior year adjusted EPS, the annual grant value will be reduced by one percent (1%). Adjusted EPS shall be calculated in the same manner as calculated for purposes of the STIP. If adjusted EPS is not a financial metric under the STIP in any year, adjusted EPS for that year will be the Company’s publicly reported non-GAAP EPS. As soon as practicable after the end of each fiscal year, Mr. MacMillan will also receive a matching restricted stock unit (“Matching RSU”) grant with a value equal to the number of shares held by Mr. MacMillan as of the fiscal year end, up to a maximum annual grant value of $1,000,000. For purposes of the Matching RSU grant, shares held will include issued and outstanding shares held directly by Mr. MacMillan as well as vested equity, the settlement of which has been deferred pursuant to the Company’s DEP, but will not include shares issued upon the vesting of any Matching RSUs. At the end of fiscal 2016, Mr. MacMillan held (or had the right to receive upon settlement) 362,228 shares. Accordingly, in December 2016, Mr. MacMillan received a Matching RSU grant with a value of $362,228.

 

The severance provisions of the 2015 Employment Agreement are unchanged from Mr. MacMillan’s prior employment agreement. If, during the term of the 2015 Employment Agreement, Mr. MacMillan’s employment is terminated by the Company without cause or if Mr. MacMillan terminates his employment for good reason (as such terms are defined in the 2015 Employment Agreement), then he will be entitled to: (i) a payment equal to his accrued compensation through the termination date, which includes pro-rated base salary, reimbursement for business expenses, vacation pay, his annual bonus for the fiscal year prior to the year in which the termination occurs if not paid prior to his termination date, and any vested and/or earned amounts or benefits under the Company’s employee benefit plans, programs, policies or practices; (ii) continued payment of a cash severance amount in equal payments over a two-year severance period in a total amount equal to two times the sum of his annual base salary plus his annual cash bonus for the prior fiscal year; and (iii) payment of a cash severance in the amount of Mr. MacMillan’s annual cash bonus for the fiscal year in which such termination occurs, pro-rated for the then current fiscal year and payable no later than the thirtieth of November following the end of the applicable fiscal year in which the award was earned. If, following a Notice of Non-Renewal by either Mr. MacMillan or the Company and at or after the expiration of the term, Mr. MacMillan’s employment is terminated by the Company without cause or if Mr. MacMillan terminates his employment for good reason, then he will be entitled to the compensation described above, except that the severance period and amount shall be for one year rather than two. In each case, receipt of any severance payments or benefits is conditioned upon Mr. MacMillan’s release of all claims against the Company and its officers and directors.

 

Mr. MacMillan’s other existing agreements, including his Non-Competition and Proprietary Information Agreement, Change of Control Agreement, Indemnification Agreement and outstanding option and other equity agreements with the Company remain outstanding and are unchanged by the 2015 Employment Agreement. In the event that Mr. MacMillan receives benefits as the result of a change of control, such benefits will be in lieu of any of the severance benefits provided for in the 2015 Employment Agreement.

 

Amendment No. 1 to the 2015 Employment Agreement

 

In September 2016, the Company and Mr. MacMillan entered into an amendment to his 2015 Employment Agreement. This amendment provided for the removal of the annual housing allowance, effective for fiscal 2017, and, more significantly, added adjusted net income as a check on adjusted EPS such that increases in annual equity grant values would be based on the lower growth of the two metrics, and decreases in annual equity grant value would be based on the larger decline of the two metrics. The Compensation Committee recommended these changes to the full Board (other than Mr. MacMillan), which approved. The Board views the addition of the net income metric and the use of whichever metric, net income or adjusted EPS, grows less to limit increases in the annual equity grant value and the use of whichever metric decreases more to drive decreases in annual grant value as a thoughtful and creative design in the best interests of both the Company and its stockholders.

 

Change of Control and Severance Agreements

 

The Committee believes that Change of Control agreements benefit a company in the event of a change of control or a potential change of control by promoting stability during a potentially uncertain period and allowing executives who are parties to such agreements to focus on continuing business operations and the success of a potential business combination. The Committee believes that providing change of control and severance benefits eliminates, or at least reduces, any reluctance of senior management to pursue potential change of control transactions that may be in the best interests of stockholders.

 

The Company has entered into change of control agreements and/or severance agreements with certain of its senior executive officers, including our NEOs.

 

Mr. MacMillan

 

As described above, the Company has entered into an employment agreement with Mr. MacMillan that provides for the payment of severance in certain circumstances. The Company also entered into a Change of Control Agreement with Mr. MacMillan upon his joining the Company in December 2013.

 

Change of Control. Mr. MacMillan’s Change of Control Agreement provides that in the event of a change of control during the term of the agreement, if, in anticipation of or within the three-year period following the change of control (the “Employment Period”), his employment is terminated for reasons other than death, disability or cause, or he resigns for good reason, he is entitled to certain benefits (a double-trigger arrangement). In such circumstances, he shall have the right to receive (i) a lump sum cash payment equal to his accrued and unpaid compensation through the date of his termination; (ii) a pro-rata highest annual bonus (as defined below) based on the number of days elapsed during the fiscal year through the date of termination; (iii) a lump sum cash payment equal to the

 

Hologic, Inc. 2018 Proxy Statement37

 

 

 

product of 2.99 times the sum of his annual base salary for the fiscal year preceding the date of termination and highest annual bonus; and (iv) immediate and full vesting of all stock options, RSUs, PSUs and other equity awards, with any options (or other similar awards) remaining exercisable for the shorter of the remaining term of the award or a period of one year following the executive’s termination.

 

The term “highest annual bonus” is defined as the greater of (i) the average of annual bonuses paid to the executive over the three fiscal years preceding the fiscal year in which the change of control occurs; (ii) the annual bonus paid to the executive in the fiscal year preceding the fiscal year in which the change of control occurs; or (iii) the target bonus award opportunity associated with the Company achieving its 100 percent target payout level as determined in accordance with the Company’s bonus plan for the fiscal year preceding the fiscal year in which the change of control occurs. Mr. MacMillan will continue to receive health and dental benefits for the remaining term of the Employment Period. Mr. MacMillan’s Change of Control Agreement does not provide for any change of control benefits, including the acceleration of equity awards, if he remains employed by the Company, is terminated by the Company for cause or voluntarily terminates his employment (other than a resignation for good reason).

 

If Mr. MacMillan dies or his employment is terminated by reason of disability during the Employment Period, then he, or his heirs or estate, is entitled to receive (i) a lump sum cash payment equal to all accrued and unpaid compensation through the date of termination (or death) plus a pro-rata highest annual bonus based on the number of days elapsed during the fiscal year through the date of termination (or death); (ii) continuation of certain welfare benefits for the remaining term of the Employment Period; and (iii) a lump sum cash payment equal to the sum of his annual base salary and the highest annual bonus.

 

In the event any payments and benefits provided under the Change of Control Agreement is subject to excise taxes under Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), then the payment shall be reduced so that no payment to be made or benefit to be provided to the executive shall be subject to the excise tax.

 

Messrs. McMahon, Compton and Griffin

 

The Company has entered into a Severance and Change of Control Agreement with each of Messrs. McMahon, Compton and Griffin. As noted below, however, Mr. Compton’s Severance and Change of Control Agreement is no longer in effect.

 

Severance. Each agreement provides that if the executive is terminated by the Company without cause or resigns for good reason, then he is entitled to receive certain benefits, including (i) a lump sum cash payment equal to the executive’s accrued and unpaid compensation through the termination date, which includes base salary, reimbursement for reasonable and necessary business expenses and vacation pay; (ii) a pro-rated bonus for the year in which the executive was terminated; (iii) for one-year from the date of termination, continuation of the executive’s previous year’s salary and payment of an amount equal to the executive’s average annual bonus divided by the number of payroll periods during such one-year severance period; and (iv) a one-year continuation of the executive’s medical and dental benefits. The severance pay and benefits provided under the Severance and Change of Control Agreements are in lieu of any other severance or termination pay to which the executive may be entitled under any other severance or termination plans, programs or arrangements. In the event that the executive receives benefits as the result of a change of control, then the executive will receive such change of control benefits in lieu of any of the severance benefits.

 

Change of Control. Terms relating to benefits payable to Messrs. McMahon, Compton and Griffin in connection with termination shortly before or within three years of a change of control are identical to those described above for Mr. MacMillan except that (i) with respect to the exercise of stock options, Messrs. McMahon and Compton have the longer of (A) the period of time provided for in the applicable equity award agreement or plan, or (B) the shorter of the remaining term of the applicable equity award or a period of one year following the executive’s termination; and (ii) Messrs. McMahon, Compton and Griffin shall continue to receive health and dental benefits for a period of one year following the executive’s termination.

 

In the event any payments and benefits provided under the Severance and Change of Control Agreements are subject to excise taxes under Section 280G of the Code, then the payment shall be reduced so that no payment to be made or benefit to be provided to the executive shall be subject to the excise tax.

 

Transition Agreement. On November 30, 2017, Mr. Compton entered into a Transition Agreement with the Company pursuant to which he continued to serve as Chief Operating Officer through December 31, 2017 (the “Transition Date”) and currently serves as a consultant through December 31, 2018 (the “Termination Date”). Under the Transition Agreement, Mr. Compton will be entitled to receive the following severance benefits, which correspond to the severance benefits he otherwise would have been entitled to receive under his existing Severance and Change of Control Agreement, dated March 9, 2014, as described above, specifically: (i) his base salary for twelve (12) months following the Transition Date, payable in accordance with the Company’s normal payroll practices; (ii) the average of his annual bonus paid for the prior three fiscal years, pro-rated for the time worked in fiscal 2018 through the Transition Date; (iii) the average of his annual bonus paid for the three prior fiscal years; and (iv) a cash payment in lieu of Welfare Benefit Continuation (as defined in the Severance Agreement) for twelve (12) months following the Transition Date. Additionally, Mr. Compton’s outstanding equity awards will remain outstanding and continue to vest subject to and in accordance with their respective terms through the Termination Date and his outstanding unvested accounts under the Company’s Amended and Restated Deferred Compensation Program will vest on the Transition Date. The Transition Agreement also provides that Mr. Compton’s existing non-competition agreement will remain in effect. The Transition Agreement supersedes and replaces in its entirety the Severance and Change of Control Agreement.

 

Hologic, Inc. 2018 Proxy Statement38

 

 

Mr. Valenti

 

The Company has entered into a Severance Agreement as well as a Change of Control Agreement with Mr. Valenti.

 

Severance. Mr. Valenti’s Severance Agreement provides that if he is terminated by the Company without cause or resigns for good reason, then he is entitled to receive certain benefits, including (i) a lump sum cash payment equal to his accrued compensation through the termination date, which includes base salary, reimbursement for reasonable and necessary business expenses and vacation pay; (ii) a pro-rated bonus for the year in which he was terminated (based on the average of the bonuses paid for the prior three fiscal years); and (iii) a fifteen-month continuation of his annual base salary. In the event any payments and benefits provided under the Severance Agreement are subject to excise taxes under Section 280G of the Code, then the payment shall be reduced so that no payment to be made or benefit to be provided to the executive shall be subject to the excise tax.

 

The severance pay and benefits provided under Mr. Valenti’s Severance Agreement are in lieu of any other severance or termination pay to which he may be entitled under any of our other severance or termination plans, programs or arrangements. In the event that the executive receives benefits as the result of a change of control, then the executive will receive such change of control benefits in lieu of any of the severance benefits.

 

Change of Control. Mr. Valenti’s Change of Control Agreement provides that in the event of a change of control and during the two-year period following the consummation of such change of control, if Mr. Valenti’s employment is terminated for reasons other than death, disability or cause, or if he resigns for good reason (a “double trigger” arrangement), Mr. Valenti shall be entitled to receive (i) a lump sum cash payment equal to his accrued compensation through the termination date, which includes base salary, reimbursement for reasonable and necessary business expenses and vacation pay; (ii) a pro-rated average annual bonus for the year in which he was terminated; (iii) a lump sum payment equal to the sum of his annual base salary and average annual bonus; (iv) immediate and full vesting of all stock options, RSUs, PSUs and other equity awards; and (v) continued health and dental benefits for a period of one year following termination.

 

The amount of the estimated payments and benefits payable to NEOs, assuming a change of control of the Company as of the last day of fiscal 2017, is shown in the table on page 46 under the heading “Potential Payments upon Termination or Change of Control.”

 

Other Practices, Policies & Guidelines

 

 

Executive Stock Ownership Guidelines

 

Our Board believes that our directors and officers should hold a meaningful financial stake in the Company in order to further align their interests with those of our stockholders. Our CEO is expected to achieve equity ownership in the Company with a value of five times his then current base salary and each of our other NEOs and executive officers is expected to achieve equity ownership in the Company with a value of two times his or her then current base salary, within five years of employment or five years from the adoption of the guideline, whichever is later. Only shares of stock issued and outstanding (or vested and deferred under our deferred equity plan) are credited towards the ownership goals. All of our NEOs have achieved ownership in excess of the guideline. Information about ownership guidelines for our non-employee directors can be found in the “Director Compensation” section on page 48 of this proxy statement.

 

Incentivized to Drive Stockholder Value
 
Mr. MacMillan is invested in Hologic. Literally. Under our stock ownership guidelines, he is expected to achieve equity ownership in the Company with a value of 5 times his base salary. As of the end of fiscal 2017, he owned equity in the Company with a value of over 34 times his fiscal 2017 base salary. The value of these shares held by Mr. MacMillan (including shares vested but deferred, but not including any unvested equity) is over $35 million, based on the closing price per share of Hologic stock on September 29, 2017. Mr. MacMillan purchased 25% of these shares in the open market. As evidenced by his substantial ownership of Hologic shares, Mr. MacMillan’s interests are well-aligned with those of stockholders.

 

Compensation Recoupment Policy

 

Under our compensation recoupment, or clawback, policy, if our Board determines that an officer engaged in fraud or willful misconduct that resulted in a restatement of the Company’s financial results, then the Board may review all performance-based compensation – both cash and equity – awarded to or earned by that officer on the basis of performance during the fiscal periods materially affected by the restatement. If, in the view of our Board, the performance-based compensation would have been lower if it had been based on the restated financial results, the Board may, to the extent permitted by applicable law, seek recoupment from that officer of any portion of such performance-based compensation as it deems appropriate after a review of all relevant facts and circumstances. Any recoupment under this policy may be in addition to, and shall not otherwise limit, any other remedies that may be available to the Company under applicable law, including disciplinary actions up to and including termination of employment.

 

Retirement Benefits

 

The Committee maintains retirement benefits to help the Company attract and retain the most highly talented senior executives. Over the years, the Committee has modified these programs to ensure competitive alignment with an evolving market. We believe the overall value of our retirement programs is consistent with our industry peers.

 

Hologic, Inc. 2018 Proxy Statement39

 

 

401(k) Savings and Investment Plan

 

The Company sponsors a 401(k) Savings and Investment Plan, which is a qualified retirement plan offered to all eligible employees, including our NEOs. The Plan allows participants to elect to defer a portion of their compensation on a pre-tax basis, up to the limits imposed by the Code. In 2017, which includes the first three months of the Company’s fiscal 2018, the Company matched 100% of the first 3% and 50% of the next 2% of each participant’s deferrals, up to an amount equal to 4% of the first $270,000 earned by a participant.

 

Equity Retirement Provision

 

After considering market trends in retirement program practices as well as the needs of the Company, during fiscal 2016, the Committee approved the addition of a retirement provision to its equity compensation program. The provision, which applies solely to U.S. employees, provides for the continued vesting of RSUs and stock options and pro-rata vesting of PSUs when a person retires, if the individual is either 65 years of age or older, or at least 55 years of age with 10 years of continuous service with the Company. While RSUs and stock options continue to vest on their original vesting schedule following retirement, PSUs vest on their original vesting date on a pro-rata basis (based on number of days employed during the applicable performance period) based on actual performance during the performance period (assuming threshold performance is achieved). If threshold performance is not achieved during the applicable performance period, no PSUs will vest. This equity retirement provision is applicable to equity grants made from November 5, 2015 forward.

 

Other Benefits and Perquisites

 

Our NEOs also generally participate in other benefit plans on the same terms as all of our other employees. These plans include our employee stock purchase plan, medical and dental insurance, life insurance, short- and long-term disability insurance programs, as well as customary vacation, leave of absence and other similar policies.

 

We also provide limited perquisites and personal benefits based on considerations unique to each NEO position. During fiscal 2017, we provided each of the NEOs with an automobile allowance. In addition, Mr. MacMillan has access to private air transportation for business purposes and limited non-entertainment personal use. The non-entertainment personal use is subject to a maximum aggregate incremental cost to the Company of $150,000 per fiscal year. The values of all perquisites and other personal benefits provided to our NEOs are included in the “All Other Compensation” column of the Summary Compensation Table on page 41.

 

Tax and Accounting Considerations

 

The Committee considers tax and accounting implications in determining all elements of our compensation plans, programs and arrangements, although they are not the only factors considered. In some cases, other important considerations may outweigh tax or accounting considerations, and the Committee maintains the flexibility to compensate its officers in accordance with the Company’s compensation philosophy.

 

For fiscal year 2017, Section 162(m) of the Code generally limited the deductibility of compensation to $1 million per year for certain named executive officers of the Company, unless compensation in excess of the limit qualified as performance-based compensation. Base salaries, time-vested restricted stock, time-vested retention payments, and bonuses that were not subject to the achievement of pre-established performance goals did not qualify as performance-based compensation, and were generally subject to the deduction limit. For fiscal 2017, we intended for stock options, PSUs and certain annual incentive awards under our STIP to qualify as performance-based compensation under Section 162(m) of the Code. It is anticipated that changes to the tax laws effective as of January 1, 2018 will have an impact on Section 162(m) deductibility going forward. These changes could, but may not, impact compensation decisions for fiscal 2018 and beyond.

 

COMPENSATION COMMITTEE REPORT

 

We, the Compensation Committee of the Board of Directors of Hologic, Inc., have reviewed and discussed the Compensation Discussion and Analysis (CD&A) set forth above with management of the Company, and based on such review and discussion, recommended to the Board that the CD&A be included in this report.

 

Compensation Committee
Scott T. Garrett, Chair (current)
Sally W. Crawford, Chair (former)*
Elaine S. Ullian

 

 

*Ms. Crawford served as Chair of the Compensation Committee during fiscal 2017, the compensation period covered by this CD&A.

 

Hologic, Inc. 2018 Proxy Statement40

 

 

EXECUTIVE COMPENSATION TABLES

 

Summary Compensation Table

 

The following table presents information regarding compensation of each of the NEOs for services rendered during fiscal 2017, 2016 and 2015. A description of our compensation policies and practices as well as a description of the components of compensation payable to our NEOs is included above under “Compensation Discussion and Analysis.”

 

Name and
Principal Position

Year

Salary
($)(1)

Bonus
($)

Stock
Awards
($)(2)

Option
Awards
($)(3)

Non-Equity
Incentive Plan
Compensation ($)(4)

Change in
Pension
Value and
Non-qualified
Deferred
Compensation
Earnings
($)

All Other
Compensation
($)

 

Total
($)

Stephen P. MacMillan

Chairman, President and
Chief Executive Officer

2017

1,048,077

6,229,190

1,955,682

1,545,000

426,959

(5)

11,204,908

2016

1,000,000

5,437,437

1,812,490

1,875,000

669,665

 

10,794,592

2015

1,000,000

5,456,214

1,811,110

2,625,000

441,535

 

11,333,859

Robert W. McMahon

Chief Financial Officer

2017

549,904

1,312,439

437,493

405,000

222,233

(6)

2,927,069

2016

509,192

1,424,951

474,993

485,000

318,120

 

3,212,256

 

2015

450,000

1,124,986

373,422

595,000

242,105

 

2,785,513

Eric B. Compton

Former Chief Operating Officer

2017

555,000

1,312,439

437,493

345,000

233,909

(7)

2,883,841

2016

508,962

1,499,886

499,984

490,000

346,704

 

3,345,536

2015

450,000

1,143,700

379,647

600,000

371,812

 

2,945,159

John M. Griffin

General Counsel

2017

478,654

974,957

324,999

355,000

217,607

(8)

2,351,217

2016

449,539

899,979

299,990

425,000

312,460

 

2,386,968

Peter J. Valenti, III

Division President, Breast &
Skeletal Health

2017

488,798

974,957

324,999

325,000

205,405

(9)

2,319,159

2016

456,962

749,970

249,987

435,000

253,596

 

2,145,515

(1)Salaries for fiscal 2017 listed above differ slightly from the fiscal 2017 base salaries discussed in the CD&A and approved by the Compensation Committee due to an extra payroll week in fiscal 2017, payment for which is included above.

(2)The amount included in the “Stock Awards” column represents the aggregate grant date fair value of RSUs and PSUs subject to ROIC goals (ROIC PSUs”) and relative shareholder return (“TSR”) goals (“TSR PSUs”) granted during the respective fiscal years. The RSUs vest annually in equal installments over a required service period, and the PSUs cliff-vest at the end of a three-year period in the event the pre-determined performance metrics are achieved (whether ROIC or relative TSR achievement). The values of these awards have been determined under U.S. generally accepted accounting principles, which are the values used for purposes of our consolidated financial statements. The grant date fair value of RSUs and ROIC PSUs are calculated using the closing price of our Common Stock on the grant date. The grant date fair value of ROIC PSUs assumes achievement at 100% of target. The maximum payout for ROIC PSUs is 200% of target and assuming achievement at 200% of target, additional compensation of approximately $2.0 million, $437,000, $437,000, $325,000, and $325,000 would be recognized for ROIC PSUs granted in fiscal 2017 for each of Messrs. MacMillan, McMahon, Compton, Griffin, and Valenti, respectively. ROIC PSUs granted in fiscal 2015 vested at 200% of target, resulting in additional compensation of approximately $3.6 million, $750,000 and $762,000 for each of Messrs. MacMillan, McMahon, and Compton, respectively. TSR PSUs were first granted in the fiscal 2017 grant cycle, and the grant date fair value of TSR PSUs was calculated using the Monte Carlo simulation model. The calculation of fair value incorporates the probability of achieving more than the target value of shares granted as achievement can be up to 200% of target, however, the compensation expense recognized remains unchanged. For Mr. MacMillan, the amount in fiscal 2017 also includes matching RSUs granted on December 1, 2016 with a fair value on the date of grant of $362,228, which is equal to the number of shares held by Mr. MacMillan as of September 24, 2016. These matching RSUs were granted by the Company in accordance with Mr. MacMillan’s Amended and Restated Employment Agreement, dated September 18, 2015, as amended September 24, 2016, and vest in one installment on December 1, 2019, assuming Mr. MacMillan’s employment on that date. For more information, see “Employment Agreement” beginning on page 36. For a detailed description of the assumptions used to calculate the grant date fair value, see Note 8 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2017.

(3)The amount included in the “Options Awards” column represents the grant date fair value of all stock options granted during the respective fiscal year. These stock options vest annually in equal installments over a required service period and have a ten-year term. The values have been determined under U.S. generally accepted accounting principles, which are the values used for purposes of our consolidated financial statements. For stock option valuations, we use a binomial lattice model to determine the grant date fair value. The valuation model requires the use of certain underlying assumptions, which are based on management’s best estimates. The key assumptions used in the valuation of stock options include: expected stock price volatility, expected life of the stock option, the risk-free interest rate and dividend yield. For a detailed description of the assumptions used to calculate the grant date fair value, see Note 8 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2017.

(4)Represents cash payments under the STIP. Bonuses paid under the 2017, 2016 and 2015 STIP were based on a combination of Company and individual performance.

(5)The amount represents (i) the Company’s contributions to the DCP in the amount of $312,500; (ii) the Company’s matching contributions under our 401(k) Savings and Investment Plan; (iii) the balance of a temporary housing allowance which has been discontinued; (iv) Company paid insurance premiums; (v) automobile allowance; (vi) reimbursement of expenses related to the Company’s annual salesforce reward trip; (vii) tax reimbursements of $5,027 related to the annual salesforce reward trip; and (viii) $48,142 attributable to non-business use of private aircraft for travel to meetings of the Board of Trustees of an educational institution.

(6)The amount represents (i) the Company’s contributions to the DCP in the amount of $180,000; (ii) the Company’s matching contributions under our 401(k) Savings and Investment Plan; (iii) Company paid insurance premiums; and (iv) automobile allowance.

 

Hologic, Inc. 2018 Proxy Statement

41

 

 

(7)The amount represents (i) the Company’s contributions to the DCP in the amount of $180,000; (ii) the Company’s matching contributions under our 401(k) Savings and Investment Plan; (iii) automobile allowance; (iv) Company paid insurance premiums; (v) reimbursement of expenses related to the Company’s annual salesforce reward trip; and (vi) tax reimbursements of $4,151 related to the annual salesforce reward trip.

(8)The amount represents (i) the Company’s contributions to the DCP in the amount of $180,000; (ii) the Company’s matching contributions under our 401(k) Savings and Investment Plan; (iii) automobile allowance; and (iv) Company paid insurance premiums.

(9)The amount represents (i) the Company’s contributions to the DCP in the amount of $150,000; (ii) the Company’s matching contributions under our 401(k) Savings and Investment Plan; (iii) automobile allowance; (iv) Company paid insurance premiums; (v) reimbursement of expenses related to the Company’s annual salesforce reward trip; and (vi) tax reimbursements of $6,085 related to the annual salesforce reward trip.

 

Grants of Plan-Based Awards

 

                                                 
                      All Other   All Other          
          Estimated Possible   Estimated Future   Stock   Option       Grant  
          Payouts Under   Payouts Under   Awards:   Awards:       Date Fair  
          Non-Equity Incentive   Equity Incentive   Number of   Number of   Exercise   Value of  
          Plan Awards(1)   Plan Awards(2)   Shares of   Securities   Price of   Stock and  
                                  Stock or   Underlying   Option   Option  
  Grant   Approval   Threshold   Target   Maximum   Threshold   Target   Maximum   Units   Options   Awards   Awards  
Name Date   Date   ($)   ($)   ($)   (#)   (#)   (#)   (#)(3)   (#)   ($/Sh)   ($)(4)  

Stephen P. MacMillan

 

        772,500   1,545,000   3,090,000                              
12/1/2016   11/7/2016                               160,565   37.64   1,955,682  
12/1/2016   11/7/2016                           51,957           1,955,661  
12/1/2016   11/7/2016               25,979   51,957   103,914               1,955,661  
12/1/2016   11/7/2016               19,997   39,993   79,986               1,955,658  
12/1/2016   11/7/2016                           9,623 (5)         362,210  

Robert W. McMahon

 

        202,500   405,000   810,000                              
12/1/2016   11/7/2016                               35,919   37.64   437,493  
12/1/2016   11/7/2016                           11,623           437,490  
12/1/2016   11/7/2016               5,812   11,623   23,246               437,490  
12/1/2016   11/7/2016               4,473   8,946   17,892               437,459  

Eric. B. Compton

 

        204,375   408,750   817,500                              
12/1/2016   11/7/2016                               35,919   37.64   437,493  
12/1/2016   11/7/2016                           11,623           437,490  
12/1/2016   11/7/2016               5,812   11,623   23,246               437,490  
12/1/2016   11/7/2016               4,473   8,946   17,892               437,459  

John M. Griffin

 

        176,250   352,500   705,000                              
12/1/2016   11/7/2016                               26,683   37.64   324,999  
12/1/2016   11/7/2016                           8,634           324,984  
12/1/2016   11/7/2016               4,317   8,634   17,268               324,984  
12/1/2016   11/7/2016               3,323   6,646   13,292               324,989  

Peter J. Valenti, III

 

        180,000   360,000   720,000                              
12/1/2016   11/7/2016                               26,683   37.64   324,999  
12/1/2016   11/7/2016                           8,634           324,984  
12/1/2016   11/7/2016               4,317   8,634   17,268               324,984  
12/1/2016   11/7/2016               3,323   6,646   13,292               324,989  
(1)Represents threshold, target and maximum annual cash incentive awards under the 2017 STIP. The threshold amount for each NEO is 50% of target, as the minimum amount payable (subject to individual performance) if threshold performance is achieved. If the threshold is not achieved, the payment to the NEOs would be zero. The target amount is based upon achievement of the performance measures listed in the “2017 Performance Objectives and Results” in the CD&A on page 31. The actual amounts earned by each NEO are set forth in the Summary Compensation Table.

(2)Represents threshold, target and maximum award amounts for the FY17-FY20 performance cycle pursuant to ROIC PSUs and TSR PSUs issued as part of our fiscal 2017 annual equity awards. The PSUs are subject to ROIC goals and relative TSR achievement goals.

ROIC PSUs. ROIC PSUs vest only if the Company achieves a pre-determined average ROIC threshold at the end of a three-year performance period. If we fail to achieve the three-year average ROIC minimum threshold, all ROIC PSUs for that three-year performance period will be forfeited. If the target three-year average ROIC goal is achieved, 100% of the ROIC PSUs will vest. The maximum payout for ROIC PSUs is limited to 200% of the shares granted and is earned only if we achieve the maximum three-year average ROIC goal. Assuming achievement at 200% of target for the ROIC PSUs, additional compensation of approximately $2.0 million, $437,000, $437,000, $325,000, and $325,000 would be recognized for each of Messrs. MacMillan, McMahon, Compton, Griffin, and Valenti, respectively. See “Why ROIC” on page 33 for applicable ROIC goals.

TSR PSUs. TSR PSUs vest only if the Company achieves a minimum relative TSR percentile at the end of a three-year performance period. If we fail to achieve the minimum relative TSR percentile, all of the TSR PSUs for that three-year performance period will be forfeited. The maximum payout for TSR PSUs is limited to 200% of the shares granted and is earned only if we achieve the maximum relative TSR percentile. Compensation expense for TSR PSUs will remain the same regardless of the percentile achieved. For TSR PSUs, threshold, target and maximum award amounts are payable upon achievement of relative TSR in the 25th, 50th and 95th percentile, respectively.

(3)Represents RSUs.

 

Hologic, Inc. 2018 Proxy Statement 42

 

 

(4)This column shows the full grant date fair value of RSUs, ROIC PSUs, TSR PSUs and stock options under U.S. generally accepted accounting principles granted to our NEOs. The RSUs vest over time and the PSUs cliff-vest after three years in the event the pre-determined ROIC and total shareholder return targets are achieved. The grant date fair values of RSUs and PSUs are calculated using the closing price of our common stock on the grant date. The grant date fair value of PSUs assumes achievement at 100% of target. The grant date fair value of TSR PSUs was calculated using the Monte Carlo simulation model. For stock option valuations, we use a binomial lattice model to determine the grant date fair value. For a detailed description of the assumptions used to calculate the grant date fair value, see Note 8 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2017.

(5)Represents matching RSUs granted pursuant to the terms of Mr. MacMillan’s Employment Agreement. For more information, see “Employment Agreement” beginning on page 36.

 

Outstanding Equity Awards at Fiscal Year-End

 

                                   
    Option Awards   Stock Awards
                                Equity Incentive  
                            Equity Incentive   Plan Awards:  
                            Plan Awards:   Market or  
                            Number of   Payout Value  
    Number of   Number of               Market Value   Unearned   of Unearned  
    Securities   Securities           Number of   of Shares or   Shares, Units   Shares, Units or  
    Underlying   Underlying   Option       Shares or   Units of Stock   or Other Rights   Other Rights  
    Unexercised   Unexercised   Exercise   Option   Units of Stock   That Have Not   That Have Not   That Have Not  
    Options (#)   Options (#)   Price   Expiration   That Have Not   Vested   Vested   Vested  
Name   Exercisable   Unexercisable   ($)   Date   Vested (#)   ($)(1)   (#)(2)   ($)(1) (2)  
Stephen P. MacMillan   518,389   345,595 (3) 22.29   12/06/2020                  
  76,337   114,507 (4) 26.21   11/07/2024                  
  34,589   103,769 (5) 39.96   11/05/2025                  
      160,565 (6) 37.64   12/01/2026   47,688 (11) 1,748,939          
                  34,696 (13) 1,272,996          
                  30,238 (15) 1,109,432          
                  51,957 (19) 1,906,302          
                  9,623 (25) 353,068          
                  277,564 (12) 10,183,824          
                          181,430 (14) 6,656,666  
                          103,914 (23) 3,812,604  
                          79,986 (24) 2,934,686  
Robert W. McMahon   50,179   33,453 (7) 23.82   05/26/2021                  
  15,739   23,610 (4) 26.21   11/07/2024                  
  7,633   22,901 (5) 39.96   11/05/2025                  
  1,643   4,930 (8) 34.79   03/07/2026                  
      35,919 (6) 37.64   12/01/2026                  
                  7,347 (16) 269,561          
                  7,154 (13) 262,480          
                  6,707 (15) 246,080          
                  1,444 (18) 52,980          
                  11,623 (19) 426,448          
                  57,230 (12) 2,099,768          
                          40,040 (14) 1,469,068  
                          8,622 (17) 316,342  
                          23,246 (23) 852,896  
                          17,892 (24) 656,458  

 

Hologic, Inc. 2018 Proxy Statement 43

 

 

                                   
    Option Awards   Stock Awards
                                Equity Incentive  
                            Equity Incentive   Plan Awards:  
                            Plan Awards:   Market or  
                            Number of   Payout Value  
    Number of   Number of               Market Value   Unearned   of Unearned  
    Securities   Securities           Number of   of Shares or   Shares, Units   Shares, Units or  
    Underlying   Underlying   Option       Shares or   Units of Stock   or Other Rights   Other Rights  
    Unexercised   Unexercised   Exercise   Option   Units of Stock   That Have Not   That Have Not   That Have Not  
    Options (#)   Options (#)   Price   Expiration   That Have Not   Vested   Vested   Vested  
Name   Exercisable   Unexercisable   ($)   Date   Vested (#)   ($)(1)   (#)(2)   ($)(1) (2)  
Eric B. Compton   28,609   19,074 (9) 20.89   04/14/2021                  
  16,002   24,003 (4) 26.21   11/07/2024                  
  7,156   21,469 (5) 39.96   11/05/2025                  
  2,378   8,217 (8) 34.79   03/07/2026                  
      35,919 (6) 37.64   12/01/2026                  
                  4,189 (20) 153,694          
                  7,273 (13) 266,846          
                  6,256 (15) 229,533          
                  2,407 (18) 88,313          
                  11,623 (19) 426,448          
                  58,182 (12) 2,134,698          
                          37,536 (14) 1,377,196  
                          14,370 (17) 527,236  
                          23,246 (23) 852,896  
                          17,892 (24) 656,458  
John M. Griffin   9,812   14,718 (10) 32.38   03/01/2025                  
  5,725   17,175 (5) 39.96   11/05/2025                  
      26,683 (6) 37.64   12/01/2026                  
                  4,752 (22) 174,351          
                  5,005 (15) 183,633          
                  8,634 (19) 316,781          
                  38,014 (21) 1,394,734          
                          30,030 (14) 1,101,800  
                          17,268 (23) 633,563  
                          13,292 (24) 487,683  
Peter J. Valenti, III   8,394   15,532 (7) 23.82   05/26/2021                  
  4,770   12,592 (4) 26.21   11/07/2024                  
      14,313 (5) 39.96   11/05/2025                  
      26,683 (6) 37.64   12/01/2026                  
                  3,411 (16) 125,150          
                  3,815 (13) 139,972          
                  4,171 (15) 153,034          
                  8,634 (19) 316,781          
                          30,522 (12) 1,119,852  
                          25,024 (14) 918,130  
                          17,268 (23) 633,563  
                          13,292 (24) 487,683  

(1)Based upon the closing price of $36.69, which was the closing market price on NASDAQ of our common stock on September 29, 2017, the last trading day of our common stock in fiscal 2017. The market value of PSUs or RSUs that have not vested was determined by multiplying the closing market price by the number of PSUs or RSUs, respectively.

(2)The number and value of PSUs is based on achieving maximum performance, which is 200% of target.

(3)These stock options were granted on December 6, 2013 and vest over five years in equal annual installments through December 6, 2018.

(4)These stock options were granted on November 7, 2014 and vest over five years in equal annual installments through November 7, 2019.

(5)These stock options were granted on November 5, 2015 and vest over four years in equal annual installments through November 5, 2019.

(6)These stock options were granted on December 1, 2016 and vest over four years in equal annual installments through December 1, 2020.

(7)These stock options were granted on May 26, 2014 and vest over five years in equal annual installments through May 26, 2019.

(8)These stock options were granted on March 7, 2016 and vest over four years in equal annual installments through March 7, 2020.

(9)These stock options were granted on April 14, 2014 and vest over five years in equal annual installments through April 14, 2019.

(10)These stock options were granted on March 1, 2015 and vest over five years in equal annual installments through March 1, 2020.

(11)These RSUs were granted on December 6, 2013 and vest over four years in equal annual installments through December 6, 2017.

 

Hologic, Inc. 2018 Proxy Statement 44

 

 

(12)Represents ROIC PSUs granted on November 7, 2014 which vested in one installment on November 7, 2017. The Company achieved pre-determined annual ROIC minimum improvement hurdles for each year during the FY15-FY17 performance period and exceeded the three-year average threshold at the end of the three-year performance period, resulting in vesting at 200% of target. See “Why ROIC?” on page 33 for applicable performance measures.

(13)These RSUs were granted on November 7, 2014 and vest over four years in equal annual installments through November 7, 2018.

(14)Represents ROIC PSUs that were granted on November 5, 2015 and vest in one installment on November 5, 2018 only if the Company exceeds a three-year average ROIC threshold at the end of a three-year performance period. See “Why ROIC?” on page 33 for applicable performance measures.

(15)These RSUs were granted on November 5, 2015 and vest over three years in equal annual installments through November 5, 2018.

(16)These RSUs were granted on May 26, 2014 and vest over four years in equal annual installments through May 26, 2018.

(17)Represents ROIC PSUs that were granted on March 7, 2016 and vest in one installment on March 7, 2019 only if the Company exceeds a three-year average ROIC threshold at the end of a three-year performance period. See “Why ROIC?” on page 33 for applicable performance measures.

(18)These RSUs were granted on March 7, 2016 and vest over three years in equal annual installments through March 7, 2019.

(19)These RSUs were granted on December 1, 2016 and vest over three years in equal annual installments through December 1, 2019.

(20)These RSUs were granted on April 14, 2014 and vest over four years in equal annual installments through April 14, 2018.

(21)Represents ROIC PSUs granted on February 2, 2015, which vest in one installment on February 2, 2018, assuming the NEO is still employed on such date. The Company achieved pre-determined annual ROIC minimum improvement hurdles for each year during the FY15-FY17 performance period and exceeded the three-year average threshold at the end of the three-year performance period, resulting in satisfaction of the performance conditions at 200% of target. See “Why ROIC?” on page 33 for applicable performance measures.

(22)These RSUs were granted on February 2, 2015 and vest over four years in equal annual installments through February 2, 2019.

(23)Represents ROIC PSUs that were granted on December 1, 2016 and vest in one installment on December 1, 2019 only if the Company achieves a minimum three-year average ROIC threshold at the end of the three-year performance period. See “Why ROIC?” on page 33 for applicable performance measures.

(24)Represents TSR PSUs granted on December 1, 2016 and vest in one installment on December 1, 2019 only if the Company achieves the minimum total shareholder return target relative to a defined peer group.

(25)Represents matching RSUs that were granted on December 1, 2016 and vest in one installment on December 1, 2019. Matching RSUs were granted pursuant to Mr. MacMillan’s Employment Agreement and are conditioned on Mr. MacMillan’s continued employment.

 

Option Exercises and Stock Vested

 

                     
    Option Awards   Stock Awards
Name   Number of Shares
Acquired on Exercise
(#)
  Value Realized on Exercise
($)
  Number of Shares Acquired on Vesting     Value Realized
on Vesting

($)(1)
 
Stephen P. MacMillan       625,394 (2)   24,851,934  
Robert W. McMahon       14,938 (3)   611,751  
Eric B. Compton       82,504 (4)   3,470,915  
John M. Griffin       4,878 (5)   189,057  
Peter J. Valenti, III   7,766   152,632   7,404 (6)   301,065  
(1)Value realized is calculated based on the number of shares vested multiplied by the closing price of our common stock on the date of vesting. This calculation does not account for shares withheld for tax purposes, but rather represents the gross value realized.

(2)Includes 588,418 vested shares as to which settlement has been deferred to termination date or termination plus either 2, 5, 8, 10 or 15 years pursuant to the terms of the Company’s Amended and Restated Deferred Equity Plan.

(3)Includes 7,347 vested shares as to which settlement has been deferred to termination date or termination plus either 2, 5, 8, 10 or 15 years pursuant to the terms of the Company’s Amended and Restated Deferred Equity Plan.

(4)Includes 7,824 vested shares as to which settlement has been deferred to termination date or termination plus either 2, 5, 8, 10 or 15 years pursuant to the terms of the Company’s Amended and Restated Deferred Equity Plan.

(5)Includes 2,502 vested shares as to which settlement has been deferred to termination date or termination plus either 2, 5, 8, 10 or 15 years pursuant to the terms of the Company’s Amended and Restated Deferred Equity Plan.

(6)Includes 2,085 vested shares as to which settlement has been deferred to termination date or termination plus either 2, 5, 8, 10 or 15 years pursuant to the terms of the Company’s Amended and Restated Deferred Equity Plan.

 

Hologic, Inc. 2018 Proxy Statement 45

 

 

Potential Payments upon Termination or Change of Control

 

The following table shows potential payments upon termination or a change of control for our NEOs. The terms and conditions of our employment, change of control and severance agreements with all of our NEOs are discussed above under “Compensation Discussion and Analysis – Employment, Change of Control and Severance Agreements.”

 

Name Potential Payment on
Change of Control
($)(1)
Potential Payment on
Voluntary Termination or
Termination for Cause
($)(2)
Potential Payment on Involuntary
Termination (Without Cause) or
Termination by Executive for
Good Reason
($)(3)
 
Stephen P. MacMillan        
Cash Severance 9,104,550 5,150,000  
Share Awards(4) 24,361,229  
Accelerated DCP(5) 354,167  
Health/Welfare Benefits(6) 49,785  
Total 33,869,731 5,150,000  
Robert W. McMahon        
Cash Severance 3,094,650 1,035,000  
Share Awards(4) 4,642,155  
Accelerated DCP(5) 203,333  
Health/Welfare Benefits(6) 18,939 18,939  
Total 7,959,077 1,053,939  
Eric B. Compton        
Cash Severance 3,059,767 1,023,333  
Share Awards(4) 4,507,608  
Accelerated DCP(5) 203,333  
Health/Welfare Benefits(6) 17,537 17,537  
Total 7,788,245 1,040,870  
John M. Griffin        
Cash Severance 2,581,367 863,333  
Share Awards(4) 2,547,091  
Accelerated DCP(5) 203,333  
Health/Welfare Benefits(6) 16,595 16,595  
Total 5,348,386 879,928  
Peter J. Valenti, III        
Cash Severance 925,833 600,000  
Share Awards(4) 2,646,413  
Accelerated DCP(5) 167,083  
Health/Welfare Benefits(6) 16,595  
Total 3,755,924 600,000  
(1)Benefits and payments calculated assuming the executive’s employment was terminated by us without cause or by the executive for good reason on September 30, 2017 following a change of control and payable as a lump sum.
(2)Benefits and payments calculated assuming the executive’s employment was terminated voluntarily or by us for cause on September 30, 2017 and payable as a lump sum.
(3)Benefits and payments calculated assuming the executive’s employment was terminated by us without cause or by the executive for good reason on September 30, 2017 and payable as a lump sum.
(4)Assumes a change of control price of $36.69, which was the closing market price on NASDAQ of our common stock on September 29, 2017, the last trading day for our common stock in fiscal 2017. In the event of an executive’s death or disability, the value of the accelerated stock options, RSUs and PSUs would be as shown in column (b).
(5)Under the terms of our DCP (see discussion below), employer contributions to the DCP are fully vested in the event of (1) the executive’s death, disability or a change of control or (2) the executive’s retirement after the attainment of certain age and/or service milestones.
(6)Includes medical and dental benefits.

  

Hologic, Inc. 2018 Proxy Statement46

 

 

Non-Qualified Deferred Compensation

 

Name     Executive
Contributions
in Last FY
($)
  Registrant
Contributions
in Last FY
($)(1)
  Aggregate
Earnings
in Last FY
($)
  Aggregate
Withdrawals/
Distributions
($)
  Aggregate
Balance at
Last FYE
($)
 
Stephen P. MacMillan     468,750  312,500  692,818    5,792,577 (2)
   value of deferred equity  23,417,580(3)       21,589,056 (4)
Robert W. McMahon     295,471  180,000  185,030    1,298,695 (2)
   value of deferred equity  318,492(3)       269,561 (4)
Eric B. Compton     383,358  180,000  152,717    1,623,387 (2)
   value of deferred equity  318,295(3)       287,063 (4)
John M. Griffin     159,462  180,000  81,361    742,775 (2)
   value of deferred equity  95,276(3)       91,798 (4)
Peter J. Valenti, III       150,000  58,494    473,515 (2)
   value of deferred equity  73,397(3)       76,499 (4)
(1)These contributions, which were made pursuant to our Non-Qualified Deferred Compensation Plan, were determined and paid in November 2016 (fiscal 2017). These amounts are included in the “All Other Compensation” column of the Summary Compensation Table.
(2)The following amounts of the reported aggregate balance were compensation for fiscal 2016 and are included in the “All Other Compensation” column of the Summary Compensation Table for that year: Messrs. MacMillan, $437,500; McMahon, $250,000, Compton, $250,000, Griffin, $250,000 and Valenti, $201,250.
(3)Reflects value, as of the vesting date, of equity which vested during fiscal 2017 but as to which settlement has been deferred pursuant to the Company’s Amended and Restated Deferred Equity Plan.
(4)Reflects value, as of September 30, 2017, of equity which vested during fiscal 2017 but as to which settlement has been deferred pursuant to the Company’s Amended and Restated Deferred Equity Plan.

 

Non-Qualified Deferred Compensation Plan. Effective as of March 15, 2006, we adopted a Non-Qualified Deferred Compensation Plan (the “DCP”), to provide non-qualified retirement benefits to a select group of our senior management and highly compensated employees including the NEOs. The DCP was amended and restated on each of October 15, 2011, November 5, 2013 (effective as of October 15, 2013) and September 17, 2015. The DCP is a deferred compensation plan that permits our NEOs to contribute up to 75% of their annual base salary and 100% of their annual bonus to a supplemental retirement account. In addition, the Company retains the ability to make annual discretionary contributions to the DCP on behalf of participants. Each DCP contribution the Company makes on behalf of our NEOs is subject to a three-year vesting schedule, such that one-third of each contribution vests annually and each contribution is fully-vested three years after the contribution is made. In addition, Company contributions become fully vested upon (1) death, disability or a change of control, (2) retirement after the attainment of certain age and/or service milestones, or (3) as otherwise provided by the Compensation Committee in its sole discretion. Elective contributions made by the NEOs are 100% vested.

 

A separate DCP account is established for each NEO and each account is credited with earnings, if any, based on the performance of mutual funds in which the account is invested. The obligations under the DCP are our general unsecured obligations to pay money in the future. We established a rabbi trust as a source of funds which can satisfy the obligations under the DCP. An NEO has no rights to any assets held by the rabbi trust, except as general creditors. An NEO’s rights to any amounts credited to his DCP account may not be alienated, sold, transferred, assigned, pledged, attached or otherwise encumbered by the NEO, but may pass upon his death pursuant to a beneficiary designation in accordance with the terms of the DCP.

 

DCP benefits are paid in lump sum, or at the NEO’s election, in annual installments for a period of up to fifteen years. Distributions of DCP benefits will begin following the earlier of the NEO’s normal retirement date or a date-certain distribution date elected by the participant. In certain instances, the Internal Revenue Code of 1986, as amended, requires that distribution not be made to an NEO until six months after his separation from service. An NEO may also receive a distribution if he or she suffers an unforeseeable emergency in accordance with the Internal Revenue Code of 1986, as amended.

 

Deferred Equity Plan. The Hologic, Inc. Deferred Equity Plan, as amended (the “DEP”) is designed to allow executives and non-employee directors to accumulate Hologic stock in a tax-efficient manner and assist them in meeting their long-term equity accumulation goals and stock ownership guidelines. Participants may elect to defer the settlement of RSUs and PSUs granted under the Amended and Restated 2008 Equity Incentive Plan until separation from service or separation from service plus a fixed number of years. Participants may defer settlement by vesting tranche. Although the equity will vest on schedule, if deferral of settlement is elected, no shares will be issued until the settlement date. The settlement date will be the earlier of death, disability, change in control or separation from service/separation from service plus number of years elected. All of our NEOs have elected to participate in the DEP.

 

Hologic, Inc. 2018 Proxy Statement47

 

 

DIRECTOR COMPENSATION

  

The Board of Directors has approved a compensation structure consisting of a $70,000 cash retainer, an annual equity award with a value of $185,000, and, for some positions, a supplemental cash retainer, as described below. Our Lead Director also receives an additional annual equity grant valued at $60,000.

 

The Compensation Committee, in conjunction with the Board of Directors, periodically reviews compensation paid to non-employee directors and makes recommendations for adjustments, as appropriate. In December 2016, the Compensation Committee recommended, and the Board approved, a $10,000 increase in cash compensation (from $60,000 to $70,000) and a $10,000 increase in equity compensation (from $175,000 to $185,000), beginning in the second quarter of fiscal 2017. No change was made to committee retainers or to the Lead Director’s annual equity grant value.

 

The Company reimburses all directors for reasonable travel expenses incurred in connection with Board and committee meetings. We also extend coverage to them under our directors’ and officers’ indemnity insurance policies. We do not provide any other benefits, including retirement benefits or perquisites, to our non-employee directors.

 

Cash Retainers

 

Board members. In fiscal 2017, the non-employee director annual cash retainer was $60,000 during the first quarter and $70,000 during each subsequent quarter, resulting in an effective annual cash retainer of $67,500 ($15,000 of which was paid for the first quarter of fiscal 2017 and $17,500 of which was paid for each of the second, third and fourth fiscal quarters).

 

Committee members. Not including the Chairs, each member of the Audit and Finance Committee and the Compensation Committee receives a supplemental annual cash retainer of $10,000, one-fourth of which is paid each quarter. Not including the Chairs, each member of the Nominating and Corporate Governance Committee receives a supplemental annual cash retainer of $6,000, one-fourth of which is paid each quarter.

 

Committee Chairs. The Chair of each of the Audit and Finance Committee and the Compensation Committee receives a supplemental annual cash retainer of $20,000, one-fourth of which is paid each quarter. The Chair of the Nominating and Corporate Governance Committee receives a supplemental annual cash retainer of $12,000, one-fourth of which is paid each quarter.

 

Lead Director. The Lead Director does not receive a supplemental annual cash retainer, other than for service as a committee member or Chair. The Lead Director is compensated for his or her additional service as the Lead Director in the form of equity only.

 

Equity Awards

 

Board members. Each non-employee director receives an annual equity grant having a value of $185,000 (as determined under generally accepted accounting principles) on the date of the grant. Of this award, $92,500 consists of restricted stock units (“RSUs”) and $92,500 consists of options to purchase common stock of the Company. The RSUs and options are granted on the date of each Annual Meeting and vest on the date of the next year’s Annual Meeting; options have a term of ten years. A non-employee director who joins the Board after the date of an Annual Meeting receives a pro-rated grant based on the number of days served through the next Annual Meeting.

 

Lead Director. Our independent Lead Director receives, in addition to the annual board grant, an annual Lead Director grant having a value of $60,000 (as determined under generally accepted accounting principles). Of this award, $30,000 consists of RSUs and $30,000 consists of options to purchase common stock of the Company. The RSUs and options vest over a one-year period and the options have a term of ten years.

 

Beginning in fiscal 2016, the Compensation Committee approved awarding the annual equity grants on the date of the Annual Meeting of Stockholders following the election or re-election of directors. Each of our non-employee directors elected at our Annual Meeting in March 2017 received an annual equity grant. One of our former directors, Christopher Coughlin, forfeited this annual equity grant due to his resignation from the Board in March 2017 after the 2017 Annual Meeting. 

 

Stock Ownership Guidelines

 

We believe that stock ownership by our non-employee directors aligns the interests of our directors with the long-term interests of our stockholders. Accordingly, the Company has significant stock ownership guidelines in place. In June 2015, the Board of Directors strengthened these ownership guidelines by increasing them for non-employee directors from three times annual base cash retainer to five times annual base cash retainer. Each non-employee director is expected to meet this ownership guideline within five years of his or her election to the Board or June 2020, whichever is later. For purposes of meeting these guidelines, only the value of shares which are issued and outstanding, or restricted stock units which have vested but as to which settlement has been deferred, will be counted. All of our non-employee directors either currently meet our director stock ownership guidelines or are on track to meet the guidelines within five years of becoming a director. For information regarding the stock ownership guidelines applicable to our Chief Executive Officer and other executive officers, please see the Compensation Discussion and Analysis section titled “Executive Stock Ownership Guidelines.

 

 

Hologic, Inc. 2018 Proxy Statement     48

 

The following table sets forth the compensation paid to our non-employee directors for service on our Board during the fiscal year ended September 30, 2017. Compensation for Stephen P. MacMillan, our Chairman, President and Chief Executive Officer, is set forth in the Summary Compensation Table on page 41. Mr. MacMillan does not receive any additional compensation for his service as a director.

 

2017 DIRECTOR COMPENSATION TABLE

 

Name

Fees Earned
or Paid in Cash

($)

 

 Stock
Awards

($)(1)

   

 Option
Awards

($)(1)

   

Total

($)

Christopher J. Coughlin* 40,000   (2)   (2)   40,000
Sally W. Crawford 97,500   92,476     92,493     282,469
Charles J. Dockendorff 26,667   75,540     75,544     177,751
Scott T. Garrett 83,500   92,476     92,493     268,469
Nancy L. Leaming* 40,000   (3)   (3)   40,000
Lawrence M. Levy 73,500   92,476     92,493     258,469
Christiana Stamoulis 77,500   92,476     92,493     262,469
Elaine S. Ullian 89,500   122,490     122,496     334,486
Amy M. Wendell 60,000   112,258     112,293     284,551

 

*Served as a director for a portion of fiscal 2017. As of fiscal year end, this former director did not have any Stock Awards or Option Awards outstanding.

(1)The value of Stock Awards and Option Awards represents the grant date fair value of such award. The fair value of Stock Awards, which are RSUs, is based on the closing price of our common stock on the grant date. The fair value of Option Awards, which are stock options, is determined by use of a binomial lattice model. For a detailed description of the assumptions used to calculate the grant date fair value of stock options, see Note 8 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2017.