This section describes key corporate governance guidelines and practices that we have adopted. Complete copies of our Corporate Governance Guidelines, the charters of the committees of our Board and our Code of Business Conduct and Ethics described below may be viewed on our internet website at http://ir.masimo.comwww.masimo.com/company/investors/corporate-governance/ under “Corporate Governance”. Alternately,Governance.” Alternatively, you can request a copy of any of these documents free of charge by writing to our Corporate Secretary, c/o Masimo Corporation, 52 Discovery, Irvine, California 92618.
a non-employee director will not be nominated for re-election at the next annual meeting of stockholders for which his or her class of directors is up for election following his or her 15th anniversary of service on our Board, unless our Board waives this term limit with respect to such non-employee director as a result of its determination that such nomination is in the best interests of Masimo and its stockholders.
Our Board has an active role, as a whole and also at the committee level, in overseeing management of our risks. The Board regularly reviews information regarding our credit, liquidity and operations, as well as the risks associated with each. Our Compensation Committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements. Our Audit Committee oversees management of financial risks and our Nominating, Compliance and Corporate Governance Committee oversees management of risks associated with environmental, health, safety and other non-financial concerns and manages risks associated with the independence of the Board and potential conflicts of interest. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, our entire Board is informed about such risks by the committees.
Our Board meets on a regular basis throughout the year to review significant developments affecting the Company and to act upon matters requiring its approval. Our Board also holds special meetings, as required from time to time, when important matters arise requiring Board action between scheduled meetings. During fiscal year 2015,2018, our Board met eighteen times and acted by unanimous written consent once.six times. None of our directors attended fewer than 75% of the total number of meetings held by the Board and the committees (on which and for the period during which the director served) during fiscal year 2015, except for Mr. Harkin, who was, due to scheduling conflicts and prior commitments, unable to attend the single meeting of the Board and the single meeting of the Compensation Committee held on the day following his appointment to the Board. These meetings were scheduled by the Board and the Compensation Committee prior to the date of Mr. Harkin’s appointment.2018.
It is the policy of our Board to invite directors and nominees for director to attend annual meetings of our stockholders. We held onean annual meeting of stockholders in fiscal year 2015,2018, which was attended by Mr. Kiani.
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| Mr. Fitch was appointed to the Compensation Committee on February 26, 2015.CORPORATE GOVERNANCE AND BOARD MATTERS |
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| Mr. Fitch was appointed to the Nominating, Compliance and Corporate Governance Committee on May 4, 2015. |
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| Mr. Harkin was appointed to our Board on December 16, 2015, at which time he also joined the Audit Committee, the Compensation Committee and the Nominating, Compliance and Corporate Governance Committee. |
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| Mr. Harkin was appointed as Chairperson of the Nominating, Compliance and Corporate Governance Committee on February 11, 2016. |
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| Mr. Lasersohn served on the Audit Committee from September 11, 2015 through December 16, 2015. |
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| Mr. Lasersohn served on the Compensation Committee until February 26, 2016. |
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| Mr. Lasersohn served on the Nominating, Compliance and Corporate Governance Committee and as its Chairperson until March 20, 2015. |
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| Mr. Reynolds was appointed the Chairperson of the Compensation Committee on May 4, 2015. |
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| Mr. Reynolds was appointed as a member of the Nominating, Compliance and Corporate Governance Committee on March 20, 2015 and served as its Chairperson from March 20, 2015 until February 11, 2016. |
Audit Committee
We have a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. Our Audit Committee is currently comprised of Mr. Fitch, Mr. Reynolds and Mr. Harkin. Mr. Fitch serves as the Chairperson of the Audit Committee. The functions of this Committee include, among others:
appointing, retaining and determining the compensation of our independent registered public accounting firm;
overseeing and approving any proposed audit and permissible non-audit services provided by our independent registered public accounting firm;
reviewing at least annually the qualifications, performance and independence of our independent registered public accounting firm;
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overseeing the relationship with our independent registered public accounting firm, including the rotation of the audit partners, as well as reviewing and resolving any disagreements between our management and ensuring discussions with our management and our independent registered public accounting firm relating to financial controls over financial reporting;
discussing with our management and our independent registered public accounting firm the design, implementation and effectiveness of our internal controls;
reviewing and discussing with our management and our independent registered public accounting firm the results of the annual audit and the review of our quarterly financial statements;
reviewing the quarterly earnings announcement and any other public announcements regarding our results of operations with our management;
reviewing and discussing reports from our independent registered public accounting firm relating to our critical accounting policies and practices;
establishing and overseeing the processes and procedures for the receipt, retention and treatment of any complaints regarding accounting, internal controls or audit matters, as well as the confidential and anonymous submissions by employees concerning questionable accounting, auditing and internal control matters;
investigating any matter brought to its attention, with full access to our books, records, facilities and employees, and with sole authority to select, retain and terminate any consultants, legal counsel or advisors to advise the Audit Committee; and
reviewing and evaluating, at least annually, the performance of the Audit Committee and its members, including compliance of the Audit Committee with its charter.
Typically, the Audit Committee meets at least quarterly and with greater frequency if necessary. Our Board has adopted a written charter of the Audit Committee that is available to stockholders on our internet website at http://ir.masimo.comwww.masimo.com/company/investors/corporate-governance/ under “Corporate Governance”.Governance.”
UnderOur Board has determined that all members of the applicable rulesAudit Committee meet the criteria for independence and regulations of NASDAQ, each member of a company’s audit committee must be considered independent in accordance with NASDAQfinancial literacy under Nasdaq Listing Rule 5605(c)(2)(A)(i) and (ii) and Rule 10A-3(b)(1) under the Exchange Act. Our Board reviews the NASDAQ listing rulesAct and standards and Exchange Act definitions of independence for Audit Committee members on an annual basis and has determined that all members of the Company’s Audit Committee are independent (as independence is currently defined in NASDAQ Listing Rule 5605(c)(2)(A)(i) and (ii)). Our Board has determined that all members of our Audit Committee also meet the requirements forqualify as financial literacyexperts under the NASDAQ Listing Rules.
Our Board has determined that Mr. Fitch, the Chairperson of our Audit Committee, is an audit committee financial expert, as defined under applicable Nasdaq and SEC rules and that Mr. Fitch meets the background and financial sophistication requirements under NASDAQ Listing Rule 5605(c)(2)(A). In making this determination, the Board made a qualitative assessment of Mr. Fitch’s level of knowledge and experience based on a number of factors, including his formal education and experience. Both our independent registered public accounting firm and internal financial personnel regularly meet privately with our Audit Committee and have unrestricted access to this committee.
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Members and Number of Meetings | | Primary Committee Functions |
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Committee Members:(1) | | l Appointing, retaining and determining the compensation of our independent registered public accounting firm; l Overseeing and approving any proposed audit and permissible non-audit services provided by our independent registered public accounting firm; l Reviewing at least annually the qualifications, performance and independence of our independent registered public accounting firm; l Overseeing the relationship with our independent registered public accounting firm, including the rotation of the audit partners, as well as reviewing and resolving any disagreements between our management and ensuring discussions with our management and our independent registered public accounting firm relating to financial controls over financial reporting; l Discussing with our management and our independent registered public accounting firm the design, implementation and effectiveness of our internal controls; l Reviewing and discussing with our management and our independent registered public accounting firm the results of the annual audit and the review of our quarterly financial statements; l Overseeing and approving the annual Committee Report to be included in our annual public filings; l Reviewing the quarterly earnings announcements and any other public announcements regarding our results of operations with our management; l Reviewing and discussing reports from our independent registered public accounting firm relating to our critical accounting policies and practices; l Establishing and overseeing the processes and procedures for the receipt, retention and treatment of any complaints regarding accounting, internal controls or audit matters, as well as the confidential and anonymous submissions by employees concerning questionable accounting, auditing and internal control matters; l Investigating any matter brought to its attention, with full access to our books, records, facilities and employees, and with sole authority to select, retain and terminate any consultants, legal counsel or advisors to advise the Audit Committee; and l Reviewing and evaluating, at least annually, the performance of the Audit Committee and its members, including compliance of the Audit Committee with its charter. |
Mr. Fitch, Chair | |
Mr. Mikkelson | |
Mr. Reynolds(2) | |
Mr. Cohen(2) | |
Dr. Shimer(3) | |
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(1)Our Board has determined that Mr. Fitch, the Chairperson of our Audit Committee, is an audit committee financial expert, as defined under applicable SEC rules, and that Mr. Fitch meets the background and financial sophistication requirements under Nasdaq Listing Rule 5605(c)(2)(A). In making this determination, the Board made a qualitative assessment of Mr. Fitch’s level of knowledge and experience based on a number of factors, including his formal education and experience. Both our independent registered public accounting firm and internal financial personnel regularly meet privately with our Audit Committee and have unrestricted access to this committee. |
(2)Mr. Reynolds served on the Audit Committee until July 31, 2018. Mr. Cohen was appointed to the Audit Committee on July 31, 2018. |
(3)Dr. Shimer was appointed to the Audit Committee effective March 15, 2019. |
(4)Typically, the Audit Committee meets at least quarterly and with greater frequency if necessary. |
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Compensation CommitteeEvaluating Nominees for Director
Our Compensation Committee is currently comprised of Mr. Fitch, Mr. Harkin and Mr. Reynolds. Mr. Reynolds currently serves as the Chairperson of our Compensation Committee. The functions of this committee include, among others:
reviewing and approving our general compensation strategy;
establishing annual and long-term performance goals for our executive officers;
conducting and reviewing with the Board an annual evaluation of the performance of our executive officers;
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considering the competitiveness of the compensation of our executive officers;
reviewing and approving all salaries, bonuses, equity awards, perquisites, post-service arrangements, and other compensation and benefit plans for our Chief Executive Officer and all other executive officers;
reviewing and approving the terms of any offer letters, employment agreements, termination agreements or arrangements, change in control agreements and other material agreements between us, on the one hand, and any of our executive officers, on the other;
acting as the administering committee of our Board for our executive compensation and cash incentive plans and for any equity incentive plans, including establishing performance metrics, determining bonus payouts and granting equity awards to employees and executive officers;
providing oversight for our overall compensation plans and benefit programs;
reviewing and approving compensation programs as well as salaries, fees, bonuses and equity awards for the non-employee members of our Board;
reviewing and discussing with management the annual Compensation Discussion and Analysis disclosure and the related tabular presentations regarding named executive officer compensation;
overseeing risks and exposures associated with executive compensation programs and arrangements, including incentive plans; and
reviewing and evaluating, at least annually, the performance of the Compensation Committee and its members, including compliance of the Compensation Committee with its charter.
Our Board has adopted a written charter of the Compensation Committee that is available to stockholders on our internet website at http://ir.masimo.com under “Corporate Governance”. Our Board has determined that all members of our Compensation Committee are independent (as independence is currently defined in NASDAQ Listing Rule 5605(a)(2)). The Compensation Committee meets from time to time during the year. The agenda for each meeting is usually developed by the Chairperson of the Compensation Committee, in consultation with our Chief Executive Officer and other representatives of senior management and human resources as necessary. The Chief Executive Officer may not participate in or be present during any deliberations or determinations of the Compensation Committee regarding his compensation. The charter of the Compensation Committee grants the Compensation Committee full access to all of our books, records, facilities and personnel. The Compensation Committee has the authority, in its sole discretion, to retain and terminate (or obtain the advice of) any adviser to assist it in the performance of its duties, but only after taking into consideration factors relevant to the adviser’s independence specified in NASDAQ Listing Rule 5605(d)(3). The Compensation Committee will be directly responsible for the appointment, compensation and oversight of the work of any adviser retained by the Compensation Committee, and will have sole authority to approve the adviser’s fees and the other terms and conditions of the adviser’s retention.
Since September 2012, Frederic W. Cook & Co., Inc. (“FW Cook”) has provided compensation consulting services to assist management and the Compensation Committee in assessing and determining competitive compensation packages. FW Cook is independent from Masimo and has received compensation from Masimo only for services provided to the Compensation Committee. For more information regarding the Compensation Committee’s engagement of FW Cook, see “Executive Compensation—Compensation Discussion and Analysis” below.
The Compensation Committee meets outside the presence of all of our executive officers, including the named executive officers, in order to consider appropriate compensation for our Chief Executive Officer. For all other named executive officers, the Compensation Committee meets outside the presence of all executive officers except our Chief Executive Officer. The specific determinations of the Compensation Committee with respect to executive compensation for fiscal year 2015 are described in greater detail in the “Compensation Discussion and Analysis” section of this Proxy Statement.
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Nominating, Compliance and Corporate Governance Committee
Our Nominating, Compliance and Corporate Governance Committee is currently comprised of Mr. Reynolds, Mr. Fitch and Mr. Harkin. Mr. Harkin currently serves as the Chairperson of our Nominating, Compliance and Corporate Governance Committee. The functions of this committee include, among others:
evaluating the composition, size, organization and governance of our Board and its committees, making recommendations to our Board about the appointment of directors to committees of our Board and recommending the selection of chairs of these committees to the Board;
reviewing and recommending to our Board director independence determinations made with respect to continuing and prospective directors;
reviewing and recommending to our Board “Section 16 officer” determinations with respect to our executive officers;
developing and recommending to our Board policies for considering director nominees for election to the Board;
identifying, reviewing, considering and evaluating candidates for election to the Board and recommending to the Board candidates to be nominated for election or incumbent directors to be nominated for re-election at each annual meeting of our stockholders or to fill any vacancies on the Board or any newly-created directorships;
overseeing our Board’s performance and annual self-evaluation process and evaluating the participation of members of the Board in continuing education activities in accordance with NASDAQ rules;
overseeing corporate governance;
overseeing our corporate compliance programs;
developing, and updating as necessary, a legal compliance and ethics program designed to evaluate, maintain and correct, when appropriate, our overall compliance with all federal and state rules and regulations and all of the Company’s codes of ethics and conduct;
in consultation with the Audit Committee, reviewing and, if appropriate, updating or recommending to our Board updates to our existing procedures for the receipt, retention and treatment of reports or evidence of violations of any federal or state rules or regulations or of our codes of ethics and conduct; and
reviewing and evaluating, at least annually, the performance of the Nominating, Compliance and Corporate Governance Committee and its members, including compliance of the Nominating, Compliance and Corporate Governance Committee with its charter.
Our Board has adopted a written charter of the Nominating, Compliance and Corporate Governance Committee that is available to stockholders on our internet website at http://ir.masimo.com under “Corporate Governance”. Our Board has determined that all members of our Nominating, Compliance and Corporate Governance Committee are independent (as independence is currently defined in NASDAQ Listing Rule 5605(a)(2)). The Nominating, Compliance and Corporate Governance Committee meets from time to time as it deems appropriate or necessary.
Consideration of Director Nominees
Director Qualifications
There are no specific minimum qualifications that the Board requires to be met by a director nominee recommended for a position on our Board, nor are there any specific qualities or skills that are necessary for one or more members of our Board to possess, other than as are necessary to meet the requirements of the rules and regulations applicable to us. The Nominating, Compliance and Corporate Governance Committee may consider a potential director candidate’s experience, areas of expertise and other factors relative to the overall composition of our Board and its committees, including the following characteristics:
the highest ethical standards and integrity and a strong personal reputation;
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a background that provides experience and achievement in business, finance, biotechnology or other activities relevant to our business and activities;
a willingness to act on and be accountable for Board and, as applicable, committee decisions;
an ability to provide reasoned, informed and thoughtful counsel to management on a range of issues affecting us and our stockholders;
an ability to work effectively and collegially with other individuals;
loyalty and commitment to driving our success and increasing long-term value for our stockholders;
sufficient time to devote to Board and, as applicable, committee membership and matters; and
the independence requirements imposed by the SEC and NASDAQ.
The Nominating, Compliance and Corporate Governance Committee retains the right to modify these criteria from time to time.
Security Holder Nominations
The Nominating, Compliance and Corporate Governance Committee will consider director candidates that are recommended by members of the committee, other members of our Board, members of management, advisors and our stockholders of record.who submit recommendations in accordance with the requirements set forth above. The Nominating, Compliance and Corporate Governance Committee does not intendmay also retain a third-party search firm to alter the manner in which it evaluatesidentify candidates including the criteria set forth above, based on whether a candidate was recommended by a stockholder of record or not. Stockholders of record who wish
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| CORPORATE GOVERNANCE AND BOARD MATTERS |
terms and conditions acceptable to recommend individuals for consideration by the Nominating, Compliance and Corporate Governance Committee, but has not done so to becomedate. The Nominating, Compliance and Corporate Governance Committee will evaluate all candidates for director using the same approach regardless of who recommended them.
The Nominating, Compliance and Corporate Governance Committee will review candidates for director nominees for election toin the context of the current composition of our Board atand committees, the 2017 Annual Meetingoperating requirements of Stockholders must do so by delivering a written recommendation tothe Company and the long-term interests of our stockholders. In conducting this assessment, the Nominating, Compliance and Corporate Governance Committee may consider the director nominee’s qualifications, diversity, age, skills and such other factors as it deems appropriate given the current needs of the Board, the committees and Masimo, to maintain a balance of knowledge, experience, diversity and capability. In the case of incumbent directors whose terms of office are set to expire, the Nominating, Compliance and Corporate Governance Committee may review such directors’ overall service to the Board, the committees and Masimo during their term, including the number of meetings attended, level of participation, quality of performance and any other relationships and transactions that might impair such directors’ independence. In the case of new director candidates, the Nominating, Compliance and Corporate Governance Committee will also determine whether the nominee must be independent for Nasdaq purposes, which determination will be based upon applicable Nasdaq listing standards and applicable SEC rules and regulations. Although we do not have a formal diversity policy, when considering diversity in evaluating director nominees, the Nominating, Compliance and Corporate Governance Committee will focus on whether the nominees can contribute varied perspectives, skills, experiences and expertise to the Board. Diversity of background, including diversity of gender, race, ethnic or national origin, and experience (including in business, finance, government, technology, healthcare or other activities relevant to our business) is also a relevant factor in considering nominees to the Board, as a diverse Board is more likely to reflect varying perspectives and a breadth of experience that will positively contribute to robust discussion at Board meetings.
The Nominating, Compliance and Corporate Governance Committee will evaluate each of the director candidates and recommend whether the Board should nominate the proposed director candidate for election by our stockholders.
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BOARD LEADERSHIP STRUCTURE |
Our Board believes that our CEO is best situated to serve as Chairman because he is the director who is most familiar with our business and industry, possesses detailed and in-depth knowledge of the issues, opportunities and challenges facing us and is therefore best positioned to ensure that the Board’s time and attention are focused on the most critical matters. Our independent directors bring experience, oversight and expertise from outside the Company and industry, while the CEO brings Company-specific experience and expertise. The Board believes that the combined role of Chairman and CEO facilitates information flow between management and the Board, which is essential to effective governance. We have no lead independent director.
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BOARD’S ROLE IN RISK OVERSIGHT |
Our Board has an active role, as a whole and also at the committee level, in overseeing management of our risks. The Board regularly reviews information regarding our credit, liquidity and operations, as well as the risks associated with each. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, our entire Board is informed about such risks by the committees.
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| The Board of Directors | |
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Audit Committee | | Nominating, Compliance and Corporate Governance Committee | | Compensation Committee |
5 | | 5 | | 5 |
Oversees management of financial risks including: | | Oversees management of non-financial risks including: | | Oversees management of risks relating to our compensation plans and arrangements including: |
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= Financial statement integrity and reporting; = Internal controls; = Major financial and other business risk exposures | | = Legal, environmental, health, safety; = Board governance, independence of the Board and conflicts of interest | | = Employee compensation policies and practices; = Non-employee director compensation policies and practices |
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INVESTOR FEEDBACK AND ENGAGEMENT |
We value the feedback from our potential investors and stockholders. During fiscal 2018, members of the Board met with holders of approximately 23% of our outstanding shares. In addition, one or more members of management were involved in more than 13 in-person or telephonic meetings with stockholders representing more than 27% of our outstanding shares. These discussions helped us shape our compensation programs, board composition, and other strategic priorities.
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FALL | | WINTER | | INVESTOR DISCUSSION POINTS |
Conduct meetings between investors and management | ð | Review feedback from investors with Board and incorporate into proxy disclosures, update governance as necessary | | = Financial performance, corporate governance matters and proxy related matters including: board composition, diversity and succession planning. = Executive compensation; including fiscal 2017 executive compensation program
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SUMMER | | SPRING | | FISCAL 2018 ENHANCEMENTS |
Review stockholder votes from our annual meeting and trends from proxy season | | Conduct meetings between investors and management | | = Updated executive compensation program, lengthening the PSU vesting windows from one year under the fiscal 2017 executive compensation program to three years under the fiscal 2018 executive compensation program; = Refined performance metrics for performance-based equity compensation, focusing on driving long-term stockholder value, product revenue and operating profit margin; = Addition of H Michael Cohen to the Board. |
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ANNUAL STOCKHOLDER MEETING | |
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MEETINGS AND EXECUTIVE SESSIONS |
Our Board meets on a regular basis throughout the year to review significant developments affecting the Company and to act upon matters requiring its approval. Our Board also holds special meetings, as required from time to time, when important matters arise requiring Board action between scheduled meetings. During fiscal 2018, our Board met six times. None of our directors attended fewer than 75% of the total number of meetings held by the Board and the committees (on which and for the period during which the director served) during fiscal 2018.
As required under applicable Nasdaq listing standards, our independent directors periodically meet in executive sessions at which only they are present.
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POLICY REGARDING BOARD MEMBER ATTENDANCE AT ANNUAL MEETINGS |
It is the policy of our Board to invite directors and nominees for director to attend annual meetings of our stockholders. We held an annual meeting of stockholders in fiscal 2018, which was attended by Mr. Kiani.
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INDEPENDENCE OF THE BOARD OF DIRECTORS |
Our Board has the responsibility for establishing corporate policies and for the overall performance of the Company, although it is not involved in day-to-day operations. As required under the Nasdaq rules, a majority of the members of our Board must qualify as “independent” as affirmatively determined by our Board. Our Board consults with our counsel to ensure that the Board’s determinations are consistent with all relevant securities and other laws and regulations regarding the definition of “independent” including those set forth in applicable Nasdaq rules. Consistent with these considerations, after review of all relevant transactions or relationships between each director, and the director’s family members and Masimo, our senior management, and our independent registered public accounting firm, our Board has determined that all of our directors other than Mr. Kiani and Dr. Barker are independent, as that term is defined in Nasdaq Listing Rule 5605(a)(2).
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CODE OF BUSINESS CONDUCT AND ETHICS |
We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, executive officers and directors. The Code of Business Conduct and Ethics is available to stockholders on our website at http://www.masimo.com/company/investors/corporate-governance/ under “Corporate Governance.” If we make any substantive amendments to our Code of Business Conduct and Ethics or grant any waiver from a provision of the Code of Business Conduct and Ethics to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website at http://www.masimo.com/company/investors/corporate-governance/ under “Corporate Governance” and/or in our public filings with the SEC.
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STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS |
Our Board has adopted a formal process by which stockholders may communicate with the Board or any of its directors. Stockholders of Masimo wishing to communicate with our Board or an individual director may send a written communication to the Board or such director, c/o Masimo Corporation, 52 Discovery, Irvine, California 92618, Attention: Corporate Secretary, no later than the close of business on January 31, 2017, and no earlier than January 1, 2017, unless the meeting date is more than 30 days before or after April 20, 2017, in which case the written recommendation must be received by our Corporate Secretary no later than the close of business on the later of (i) the 90th day before the 2017 Annual Meeting of Stockholders, or (ii) the 10th day following the day on which we first publicly announce the date of the 2017 Annual Meeting of Stockholders.Compliance Officer. Each written recommendationcommunication must set forth, among other information:forth:
the name and address of all the stockholder of record and any beneficial ownerMasimo stockholders on whose behalf the nominationcommunication is being made;sent; and
the class, series and number of shares of Masimo and any convertible securities of Masimo,shares that are beneficially owned by the stockholder of record and any beneficial owner on whose behalf the nomination is being made;
any proxy, contract, arrangement, understanding or relationship pursuant to which the stockholder of record and any beneficial owner on whose behalf the nomination is being made has the right to vote any of Masimo’s voting securities;
any “short” interest in Masimo’s securities held by the stockholder of record and any beneficial owner on whose behalf the nomination is being made;
the proposed director candidate’s full legal name, age, business address and residential address;
complete biographical information for the proposed director candidate, including the proposed director candidate’s principal occupation or employment and business experience for at least the previous five years;
a description of the proposed candidate’s qualifications as a director;
the class and number of shares of Masimo that are beneficially owned by the proposed director candidatestockholders as of the date of the written recommendation; andcommunication.
any other information relatingEach communication will be reviewed by Masimo’s Compliance Officer to determine whether it is appropriate for presentation to the proposed director candidate that is required to be disclosed in solicitations for proxies for electionBoard or the individual director. Examples of directors pursuant to Regulation 14A promulgated under the Exchange Act.inappropriate communications include junk mail, spam, mass mailings, product complaints, product inquiries, new product suggestions, resumes, job inquiries, surveys,
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Director candidate nominations from stockholders must include the written consent of each proposed nominee to servebusiness solicitations and advertisements, as director if so elected. If a proposed director candidate is recommendedwell as unduly hostile, threatening, illegal, unsuitable, frivolous, patently offensive or otherwise inappropriate material. These screening procedures have been approved by a stockholder inmajority of the independent members of our Board. Communications determined by our Compliance Officer to be appropriate for presentation to the Board or such director will be submitted to the Board or the individual director on a periodic basis.
In accordance with our Open Door Policy for Reporting Accounting, Audit, and Other Compliance Concerns, (the “Open Door Policy”), all communications directed to the procedural requirements discussed above,Board, a committee of the Corporate SecretaryBoard or an individual director relating to accounting topics, internal accounting controls, or auditing matters involving the Company are forwarded to our Compliance Officer regardless of the method of communication, and then promptly and directly forwarded by the Compliance Officer to the Audit Committee or the Board, as appropriate. All communications directed to the Board, committee, or individual director that relate to non-financial matters (including, without limitation, purported or suspected violations of any law or regulation, our Code of Business Conduct and Ethics or other policies) will providebe forwarded to Masimo’s Compliance Officer, and, if the foregoing informationCompliance Officer deems the matter to be a potentially significant violation of law, the Code of Business Conduct and Ethics, or company policy, the Compliance Officer will promptly and directly forward the communication to the Nominating, Compliance and Corporate Governance Committee.
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INFORMATION REGARDING BOARD COMMITTEES |
Our Board has established a standing Audit Committee, Compensation Committee and Nominating, Compliance and Corporate Governance Committee to devote attention to specific subjects and to assist it in the discharge of the Board’s responsibilities. All of these committees operate under a written charter adopted by our Board, each of which is available on our website at http://www.masimo.com/company/investors/corporate-governance/ under “Corporate Governance.” The following table provides membership and meeting information for fiscal 2018 for the Audit Committee, Compensation Committee and Nominating, Compliance and Corporate Governance Committee.
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Name | | Independent | | Audit | | Compensation | | Nominating, Compliance and Corporate Governance | | Scientific Advisory |
Employee Director: | | | | | | | | | | | | |
Joe Kiani | | — | | — | | — | | — | | — |
Non-Employee Directors: | | | | | | | | | | | | |
Steven J. Barker, Ph.D., M.D.(1) | | — | | — | | — | | — | | ¬ |
H Michael Cohen(2) | | 5 | | ü | | | | | | — |
Sanford Fitch | | 5 | | ¬ | | | — | | — | | — |
Thomas Harkin | | 5 | | — | | ü | | ¬ | | — |
Adam Mikkelson | | 5 | | ü | | ü | | ü | | — |
Craig Reynolds | | 5 | | — | (3) | | ¬ | | ü | | — |
Julie A. Shimer, Ph.D.(4) | | 5 | | — | | — | | — | | — |
Total meetings in fiscal 2018 | | | | 5 | | 4 | | 3 | | |
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¬ | Committee Chairperson. À Financial Expert. ü Member. 5Independent. |
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(1) | Dr. Barker has provided consulting services to Masimo since July 2013. He currently serves as our Chief Science Officer and Chairman of our Scientific Advisory Board and previously served as our interim Chief Medical Officer from July 2013 to March 2015. |
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(2) | Mr. Cohen has been a member of our Board since July 31, 2018. He was appointed to the Audit Committee on July 31, 2018. |
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(3) | Mr. Reynolds served on the Audit Committee until July 31, 2018. |
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(4) | Dr. Shimer has been a member of our Board since January 2, 2019. She was appointed to the Audit Committee on March 15, 2019. |
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Audit Committee
We have a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. Our Board has adopted a written charter of the Audit Committee that is available to stockholders on our website at http://www.masimo.com/company/investors/corporate-governance/ under “Corporate Governance.”
Our Board has determined that all members of the Audit Committee meet the criteria for independence and financial literacy under Nasdaq Listing Rule 5605(c)(2)(A)(i) and (ii) and Rule 10A-3(b)(1) under the Exchange Act and qualify as financial experts under the applicable Nasdaq and SEC rules
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Members and Number of Meetings | | Primary Committee Functions |
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Committee Members:(1) | | l Appointing, retaining and determining the compensation of our independent registered public accounting firm; l Overseeing and approving any proposed audit and permissible non-audit services provided by our independent registered public accounting firm; l Reviewing at least annually the qualifications, performance and independence of our independent registered public accounting firm; l Overseeing the relationship with our independent registered public accounting firm, including the rotation of the audit partners, as well as reviewing and resolving any disagreements between our management and ensuring discussions with our management and our independent registered public accounting firm relating to financial controls over financial reporting; l Discussing with our management and our independent registered public accounting firm the design, implementation and effectiveness of our internal controls; l Reviewing and discussing with our management and our independent registered public accounting firm the results of the annual audit and the review of our quarterly financial statements; l Overseeing and approving the annual Committee Report to be included in our annual public filings; l Reviewing the quarterly earnings announcements and any other public announcements regarding our results of operations with our management; l Reviewing and discussing reports from our independent registered public accounting firm relating to our critical accounting policies and practices; l Establishing and overseeing the processes and procedures for the receipt, retention and treatment of any complaints regarding accounting, internal controls or audit matters, as well as the confidential and anonymous submissions by employees concerning questionable accounting, auditing and internal control matters; l Investigating any matter brought to its attention, with full access to our books, records, facilities and employees, and with sole authority to select, retain and terminate any consultants, legal counsel or advisors to advise the Audit Committee; and l Reviewing and evaluating, at least annually, the performance of the Audit Committee and its members, including compliance of the Audit Committee with its charter. |
Mr. Fitch, Chair | |
Mr. Mikkelson | |
Mr. Reynolds(2) | |
Mr. Cohen(2) | |
Dr. Shimer(3) | |
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Number of Meetings:(4) | |
5 | |
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Attendance Rate: | |
100% | |
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(1)Our Board has determined that Mr. Fitch, the Chairperson of our Audit Committee, is an audit committee financial expert, as defined under applicable SEC rules, and that Mr. Fitch meets the background and financial sophistication requirements under Nasdaq Listing Rule 5605(c)(2)(A). In making this determination, the Board made a qualitative assessment of Mr. Fitch’s level of knowledge and experience based on a number of factors, including his formal education and experience. Both our independent registered public accounting firm and internal financial personnel regularly meet privately with our Audit Committee and have unrestricted access to this committee. |
(2)Mr. Reynolds served on the Audit Committee until July 31, 2018. Mr. Cohen was appointed to the Audit Committee on July 31, 2018. |
(3)Dr. Shimer was appointed to the Audit Committee effective March 15, 2019. |
(4)Typically, the Audit Committee meets at least quarterly and with greater frequency if necessary. |
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Evaluating Nominees for Director
Our Nominating, Compliance and Corporate Governance Committee will consider director candidates whothat are suggestedrecommended by members of the committee, other members of our Board, members of management, advisors and our security holdersstockholders who submit recommendations in accordance with the requirements set forth above. The Nominating, Compliance and Corporate Governance Committee may in the future, also retain a third-party search firm to identify candidates on
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| CORPORATE GOVERNANCE AND BOARD MATTERS |
terms and conditions acceptable to the Nominating, Compliance and Corporate Governance Committee, but to date it has not paid a feedone so to any third party to assist in the process of identifying or evaluating director candidates.date. The Nominating, Compliance and Corporate Governance Committee will evaluate all nomineescandidates for director underusing the same approach whether they areregardless of who recommended by security holders or other sources.them.
The Nominating, Compliance and Corporate Governance Committee will review candidates for director nominees in the context of the current composition of our Board and committees, the operating requirements of the Company and the long-term interests of our stockholders. In conducting this assessment, the Nominating, Compliance and Corporate Governance Committee may consider the director nominee’s qualifications, diversity, age, skills and such other factors as it deems appropriate given the current needs of the Board, the committees and Masimo, to maintain a balance of knowledge, experience, diversity and capability. In the case of incumbent directors whose terms of office are set to expire, the Nominating, Compliance and Corporate Governance Committee may review such directors’ overall service to the Board, the committees and Masimo during their term, including the number of meetings attended, level of participation, quality of performance and any other relationships and transactions that might impair such directors’ independence. In the case of new director candidates, the Nominating, Compliance and Corporate Governance Committee will also determine whether the nominee must be independent for NASDAQNasdaq purposes, which determination will be based upon applicable NASDAQNasdaq listing standards and applicable SEC rules and regulations. Although we do not have a formal diversity policy, when considering diversity in evaluating director nominees, the Nominating, Compliance and Corporate Governance Committee will focus on whether the nominees can contribute varied perspectives, skills, experiences and expertise to the Board. Diversity of background, including diversity of gender, race, ethnic or national origin, and experience (including in business, finance, government, technology, healthcare or other activities relevant to our business) is also a relevant factor in considering nominees to the Board, as a diverse Board is more likely to reflect varying perspectives and a breadth of experience that will positively contribute to robust discussion at Board meetings.
The Nominating, Compliance and Corporate Governance Committee will evaluate each of the proposed director’s candidacy, including proposeddirector candidates recommended by security holders, and recommend whether the Board should nominate the proposed director candidate for election by our stockholders.
Stockholder Communications |
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BOARD LEADERSHIP STRUCTURE |
Our Board believes that our CEO is best situated to serve as Chairman because he is the director who is most familiar with our business and industry, possesses detailed and in-depth knowledge of the issues, opportunities and challenges facing us and is therefore best positioned to ensure that the Board’s time and attention are focused on the most critical matters. Our independent directors bring experience, oversight and expertise from outside the Company and industry, while the CEO brings Company-specific experience and expertise. The Board believes that the combined role of Chairman and CEO facilitates information flow between management and the Board, which is essential to effective governance. We have no lead independent director.
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BOARD’S ROLE IN RISK OVERSIGHT |
Our Board has an active role, as a whole and also at the committee level, in overseeing management of our risks. The Board regularly reviews information regarding our credit, liquidity and operations, as well as the risks associated with each. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, our entire Board is informed about such risks by the committees.
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| The Board of Directors | |
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Audit Committee | | Nominating, Compliance and Corporate Governance Committee | | Compensation Committee |
5 | | 5 | | 5 |
Oversees management of financial risks including: | | Oversees management of non-financial risks including: | | Oversees management of risks relating to our compensation plans and arrangements including: |
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= Financial statement integrity and reporting; = Internal controls; = Major financial and other business risk exposures | | = Legal, environmental, health, safety; = Board governance, independence of the Board and conflicts of interest | | = Employee compensation policies and practices; = Non-employee director compensation policies and practices |
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INVESTOR FEEDBACK AND ENGAGEMENT |
We value the feedback from our potential investors and stockholders. During fiscal 2018, members of the Board met with holders of approximately 23% of our outstanding shares. In addition, one or more members of management were involved in more than 13 in-person or telephonic meetings with stockholders representing more than 27% of our outstanding shares. These discussions helped us shape our compensation programs, board composition, and other strategic priorities.
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FALL | | WINTER | | INVESTOR DISCUSSION POINTS |
Conduct meetings between investors and management | ð | Review feedback from investors with Board and incorporate into proxy disclosures, update governance as necessary | | = Financial performance, corporate governance matters and proxy related matters including: board composition, diversity and succession planning. = Executive compensation; including fiscal 2017 executive compensation program
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ñ | | ò | | | |
SUMMER | | SPRING | | FISCAL 2018 ENHANCEMENTS |
Review stockholder votes from our annual meeting and trends from proxy season | | Conduct meetings between investors and management | | = Updated executive compensation program, lengthening the PSU vesting windows from one year under the fiscal 2017 executive compensation program to three years under the fiscal 2018 executive compensation program; = Refined performance metrics for performance-based equity compensation, focusing on driving long-term stockholder value, product revenue and operating profit margin; = Addition of H Michael Cohen to the Board. |
ñ | | ò | |
ANNUAL STOCKHOLDER MEETING | |
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MEETINGS AND EXECUTIVE SESSIONS |
Our Board meets on a regular basis throughout the year to review significant developments affecting the Company and to act upon matters requiring its approval. Our Board also holds special meetings, as required from time to time, when important matters arise requiring Board action between scheduled meetings. During fiscal 2018, our Board met six times. None of our directors attended fewer than 75% of the total number of meetings held by the Board and the committees (on which and for the period during which the director served) during fiscal 2018.
As required under applicable Nasdaq listing standards, our independent directors periodically meet in executive sessions at which only they are present.
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POLICY REGARDING BOARD MEMBER ATTENDANCE AT ANNUAL MEETINGS |
It is the policy of our Board to invite directors and nominees for director to attend annual meetings of our stockholders. We held an annual meeting of stockholders in fiscal 2018, which was attended by Mr. Kiani.
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INDEPENDENCE OF THE BOARD OF DIRECTORS |
Our Board has the responsibility for establishing corporate policies and for the overall performance of the Company, although it is not involved in day-to-day operations. As required under the Nasdaq rules, a majority of the members of our Board must qualify as “independent” as affirmatively determined by our Board. Our Board consults with our counsel to ensure that the Board’s determinations are consistent with all relevant securities and other laws and regulations regarding the definition of “independent” including those set forth in applicable Nasdaq rules. Consistent with these considerations, after review of all relevant transactions or relationships between each director, and the director’s family members and Masimo, our senior management, and our independent registered public accounting firm, our Board has determined that all of our directors other than Mr. Kiani and Dr. Barker are independent, as that term is defined in Nasdaq Listing Rule 5605(a)(2).
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CODE OF BUSINESS CONDUCT AND ETHICS |
We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, executive officers and directors. The Code of Business Conduct and Ethics is available to stockholders on our website at http://www.masimo.com/company/investors/corporate-governance/ under “Corporate Governance.” If we make any substantive amendments to our Code of Business Conduct and Ethics or grant any waiver from a provision of the Code of Business Conduct and Ethics to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website at http://www.masimo.com/company/investors/corporate-governance/ under “Corporate Governance” and/or in our public filings with the Board of DirectorsSEC.
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STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS |
Our Board has adopted a formal process by which security holdersstockholders may communicate with the Board or any of its directors. Stockholders of Masimo wishing to communicate with our Board or an individual director may send a written communication to the Board or such director, c/o Masimo Corporation, 52 Discovery, Irvine, California 92618, Attention: Compliance Officer. Each communication must set forth:
the name and address of all the Masimo security holder(s)stockholders on whose behalf the communication is sent; and
the number of Masimo shares that are beneficially owned beneficially by the security holder(s)stockholders as of the date of the communication.
Each communication will be reviewed by Masimo’s Compliance Officer to determine whether it is appropriate for presentation to the Board or the individual director. Examples of inappropriate communications include junk mail, spam, mass mailings, product complaints, product inquiries, new product suggestions, resumes, job inquiries, surveys,
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business solicitations and advertisements, as well as unduly hostile, threatening, illegal,
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unsuitable, frivolous, patently offensive or otherwise inappropriate material. These screening procedures have been approved by a majority of the independent members of our Board.
Communications determined by our Compliance Officer to be appropriate for presentation to the Board or such director will be submitted to the Board or the individual director on a periodic basis. All communications directed to the Audit Committee in
In accordance with our Open Door Policy for Reporting Accounting, Audit, and Other Compliance Concerns, (the “Open Door Policy”) that relate, all communications directed to the Board, a committee of the Board or an individual director relating to accounting topics, internal accounting controls, or auditing matters involving the Company generally will beare forwarded to a compliance officer designated byour Compliance Officer regardless of the Audit Committee to receive and review these communicationsmethod of communication, and then promptly and directly forwarded by a compliance officerthe Compliance Officer to the Audit Committee or the Board, as appropriate, in accordance with the terms of the Open Door Policy.appropriate. All communications directed to the Nominating, Compliance and Corporate Governance Committee in accordance with our Open Door PolicyBoard, committee, or individual director that relate to non-financial matters (including, without limitation, purported or suspected violations of any law or regulation, our Code of Business Conduct and Ethics or other policies) will generally be forwarded to aMasimo’s Compliance Officer, designatedand, if the Compliance Officer deems the matter to be a potentially significant violation of law, the Code of Business Conduct and Ethics, or company policy, the Compliance Officer will promptly and directly forward the communication to the Nominating, Compliance and Corporate Governance Committee.
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INFORMATION REGARDING BOARD COMMITTEES |
Our Board has established a standing Audit Committee, Compensation Committee and Nominating, Compliance and Corporate Governance Committee to devote attention to specific subjects and to assist it in the discharge of the Board’s responsibilities. All of these committees operate under a written charter adopted by our Board, each of which is available on our website at http://www.masimo.com/company/investors/corporate-governance/ under “Corporate Governance.” The following table provides membership and meeting information for fiscal 2018 for the Audit Committee, Compensation Committee and Nominating, Compliance and Corporate Governance Committee.
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| | Committee Membership | | | |
Name | | Independent | | Audit | | Compensation | | Nominating, Compliance and Corporate Governance | | Scientific Advisory |
Employee Director: | | | | | | | | | | | | |
Joe Kiani | | — | | — | | — | | — | | — |
Non-Employee Directors: | | | | | | | | | | | | |
Steven J. Barker, Ph.D., M.D.(1) | | — | | — | | — | | — | | ¬ |
H Michael Cohen(2) | | 5 | | ü | | | | | | — |
Sanford Fitch | | 5 | | ¬ | | | — | | — | | — |
Thomas Harkin | | 5 | | — | | ü | | ¬ | | — |
Adam Mikkelson | | 5 | | ü | | ü | | ü | | — |
Craig Reynolds | | 5 | | — | (3) | | ¬ | | ü | | — |
Julie A. Shimer, Ph.D.(4) | | 5 | | — | | — | | — | | — |
Total meetings in fiscal 2018 | | | | 5 | | 4 | | 3 | | |
______________ | |
¬ | Committee Chairperson. À Financial Expert. ü Member. 5Independent. |
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(1) | Dr. Barker has provided consulting services to Masimo since July 2013. He currently serves as our Chief Science Officer and Chairman of our Scientific Advisory Board and previously served as our interim Chief Medical Officer from July 2013 to March 2015. |
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(2) | Mr. Cohen has been a member of our Board since July 31, 2018. He was appointed to the Audit Committee on July 31, 2018. |
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(3) | Mr. Reynolds served on the Audit Committee until July 31, 2018. |
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(4) | Dr. Shimer has been a member of our Board since January 2, 2019. She was appointed to the Audit Committee on March 15, 2019. |
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Audit Committee
We have a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. Our Board has adopted a written charter of the Audit Committee that is available to stockholders on our website at http://www.masimo.com/company/investors/corporate-governance/ under “Corporate Governance.”
Our Board has determined that all members of the Audit Committee meet the criteria for independence and financial literacy under Nasdaq Listing Rule 5605(c)(2)(A)(i) and (ii) and Rule 10A-3(b)(1) under the Exchange Act and qualify as financial experts under the applicable Nasdaq and SEC rules
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Members and Number of Meetings | | Primary Committee Functions |
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Committee Members:(1) | | l Appointing, retaining and determining the compensation of our independent registered public accounting firm; l Overseeing and approving any proposed audit and permissible non-audit services provided by our independent registered public accounting firm; l Reviewing at least annually the qualifications, performance and independence of our independent registered public accounting firm; l Overseeing the relationship with our independent registered public accounting firm, including the rotation of the audit partners, as well as reviewing and resolving any disagreements between our management and ensuring discussions with our management and our independent registered public accounting firm relating to financial controls over financial reporting; l Discussing with our management and our independent registered public accounting firm the design, implementation and effectiveness of our internal controls; l Reviewing and discussing with our management and our independent registered public accounting firm the results of the annual audit and the review of our quarterly financial statements; l Overseeing and approving the annual Committee Report to be included in our annual public filings; l Reviewing the quarterly earnings announcements and any other public announcements regarding our results of operations with our management; l Reviewing and discussing reports from our independent registered public accounting firm relating to our critical accounting policies and practices; l Establishing and overseeing the processes and procedures for the receipt, retention and treatment of any complaints regarding accounting, internal controls or audit matters, as well as the confidential and anonymous submissions by employees concerning questionable accounting, auditing and internal control matters; l Investigating any matter brought to its attention, with full access to our books, records, facilities and employees, and with sole authority to select, retain and terminate any consultants, legal counsel or advisors to advise the Audit Committee; and l Reviewing and evaluating, at least annually, the performance of the Audit Committee and its members, including compliance of the Audit Committee with its charter. |
Mr. Fitch, Chair | |
Mr. Mikkelson | |
Mr. Reynolds(2) | |
Mr. Cohen(2) | |
Dr. Shimer(3) | |
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Number of Meetings:(4) | |
5 | |
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Attendance Rate: | |
100% | |
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(1)Our Board has determined that Mr. Fitch, the Chairperson of our Audit Committee, is an audit committee financial expert, as defined under applicable SEC rules, and that Mr. Fitch meets the background and financial sophistication requirements under Nasdaq Listing Rule 5605(c)(2)(A). In making this determination, the Board made a qualitative assessment of Mr. Fitch’s level of knowledge and experience based on a number of factors, including his formal education and experience. Both our independent registered public accounting firm and internal financial personnel regularly meet privately with our Audit Committee and have unrestricted access to this committee. |
(2)Mr. Reynolds served on the Audit Committee until July 31, 2018. Mr. Cohen was appointed to the Audit Committee on July 31, 2018. |
(3)Dr. Shimer was appointed to the Audit Committee effective March 15, 2019. |
(4)Typically, the Audit Committee meets at least quarterly and with greater frequency if necessary. |
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Compensation Committee
Our Board has adopted a written charter for the Compensation Committee that is available to stockholders on our website at http://www.masimo.com/company/investors/corporate-governance/ under “Corporate Governance.” The charter of the Compensation Committee grants the Compensation Committee full access to all of our books, records, facilities and personnel. The Compensation Committee has the authority, in its sole discretion, to retain and terminate (or obtain the advice of) any advisor to assist it in the performance of its duties, but only after taking into consideration factors relevant to the advisor’s independence specified in Nasdaq Listing Rule 5605(d)(3). The Compensation Committee is directly responsible for the appointment, compensation and oversight of the work of any advisor retained by the Compensation Committee, and has sole authority to approve the advisor’s fees and the other terms and conditions of the advisor’s retention.
Our Board has determined that all members of our Compensation Committee meet the criteria for independence under Nasdaq Listing Rule 5605(a)(2).
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Members and Number of Meetings | | Primary Committee Functions |
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Committee Members: | | l Reviewing and approving our general compensation strategy; l Establishing annual and long-term performance goals for our executive officers; l Conducting and reviewing with the Board an annual evaluation of the performance of our CEO and other executive officers; l Considering the competitiveness of the compensation of our executive officers; l Reviewing and approving all salaries, bonuses, equity awards, perquisites, post-service arrangements, and other compensation and benefit plans for our CEO and all other executive officers; l Reviewing and approving the terms of any offer letters, employment agreements, termination agreements or arrangements, change in control agreements and other material agreements between us, on the one hand, and any of our executive officers, on the other; l Acting as the administering committee of our Board for our executive compensation and cash incentive plans and for any equity incentive plans, including establishing performance metrics, determining bonus payouts and granting equity awards to employees and executive officers; l Providing oversight for our overall compensation plans and benefit programs; l Reviewing and approving compensation programs as well as salaries, fees, bonuses and equity awards for the non-employee members of our Board; l Reviewing and discussing with management the annual Compensation Discussion and Analysis and the related tabular and narrative disclosure regarding named executive officer compensation; l Overseeing and approving the annual Compensation Committee Report to be included in our annual filings; l Overseeing risks and exposures associated with executive compensation programs and arrangements, including incentive plans; and l Reviewing and evaluating, at least annually, the performance of the Compensation Committee and its members, including compliance of the Compensation Committee with its charter. |
Mr. Reynolds, Chair | |
Mr. Harkin | |
Mr. Mikkelson | |
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Number of Meetings:(1)
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4 | |
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Attendance Rate: | |
100% | |
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(1) The Compensation Committee meets from time to time during the year. |
Since the fourth quarter of fiscal 2016, the Compensation Committee has retained the services of Compensia, Inc. (“Compensia”) to assist the Compensation Committee in assessing and determining competitive compensation packages and to provide input on other executive compensation related matters. Compensia provides no other services to Masimo, and its sole relationship with Masimo is as an advisor to the Compensation Committee.
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For more information regarding the Compensation Committee’s engagement of Compensia, see “Executive Compensation—Compensation Discussion and Analysis” starting on page 38.
The Compensation Committee meets outside the presence of all of our executive officers, including the named executive officers, in order to consider appropriate compensation for our CEO. Our CEO may not participate in or be present during any deliberations or determinations of the Compensation Committee regarding his compensation. For all other named executive officers, the Compensation Committee meets outside the presence of all executive officers except our CEO. The specific determinations of the Compensation Committee with respect to executive compensation for fiscal 2018 are described in greater detail in the “Compensation Discussion and Analysis” section of this Proxy Statement.
Nominating, Compliance and Corporate Governance Committee
Our Board has adopted a written charter of the Nominating, Compliance and Corporate Governance Committee that is available to receive and review these communications and then promptly and directly forwarded by a Compliance Officer to thestockholders on our website at http://www.masimo.com/company/investors/corporate-governance/ under “Corporate Governance.” Our Board has determined that all members of our Nominating, Compliance and Corporate Governance Committee meet the criteria for independence under Nasdaq Listing Rule 5605(a)(2). The Nominating, Compliance and Corporate Governance Committee meets from time to time as it deems appropriate or necessary.
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Members and Number of Meetings | | Primary Committee Functions |
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Committee Members: | | l Evaluating the composition, size, organization and governance of our Board and its committees, making recommendations to our Board about the appointment of directors to committees of our Board and recommending the selection of chairs of these committees to the Board; l Reviewing and recommending to our Board director independence determinations made with respect to continuing and prospective directors; l Reviewing and recommending to our Board “Section 16 officer” determinations with respect to our executive officers; l Developing and recommending to our Board policies for considering director nominees for election to the Board; l Identifying, reviewing, considering and evaluating candidates for election to the Board and recommending to the Board candidates to be nominated for election or incumbent directors to be nominated for re-election at each annual meeting of our stockholders or to fill any vacancies on the Board or any newly-created directorships; l Overseeing our Board’s performance and annual self-evaluation process and evaluating the participation of members of the Board in continuing education activities in accordance with Nasdaq rules; l Overseeing corporate governance; l Overseeing our corporate compliance programs; l Developing, and updating as necessary, a legal compliance and ethics program designed to evaluate, maintain and correct, when appropriate, our overall compliance with all federal and state rules and regulations and all of our codes of ethics and conduct; l In consultation with the Audit Committee, reviewing and, if appropriate, updating or recommending to our Board updates to our existing procedures for the receipt, retention and treatment of reports or evidence of violations of any federal or state rules or regulations or of our codes of ethics and conduct; and l Reviewing and evaluating, at least annually, the performance of the Nominating, Compliance and Corporate Governance Committee and its members, including compliance of the Nominating, Compliance and Corporate Governance Committee with its charter. |
Mr. Harkin, Chair | |
Mr. Mikkelson | |
Mr. Reynolds | |
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Number of Meetings:(1)
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3 | |
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Attendance Rate: | |
100% | |
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(1)The Nominating, Compliance and Corporate Governance Committee meets from time to time during the year. |
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NON-EMPLOYEE DIRECTOR COMPENSATION |
In fiscal 2016, after consultation with the Compensation Committee’s independent compensation consultant and consideration of market data for a group of peer companies, our Board adopted a non-employee director compensation policy (the “Non-Employee Director Compensation Policy”), which was amended effective as of December 30, 2018. The Non-Employee Director Compensation Policy in the form adopted in 2016 was in effect for all of fiscal 2018, and provided for the following compensation:
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Compensation Item(s): | | Amount |
Retainer(1) - Board Service | | $ | 50,000 |
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Retainer(1) - Each Committee | | 7,500 |
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Chairperson Additional Retainer(1) - Audit Committee | | 30,000 |
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Chairperson Additional Retainer(1) - Compensation Committee | | 10,000 |
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Chairperson Additional Retainer(1) - Nominating, Compliance and Corporate Governance Committee | | 7,500 |
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Cash Fee Per Committee Meeting in Excess of First Eight Meetings(2) | | 1,000 |
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Restricted Share Units(3)(4) | | $ | 140,000 |
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(1) | All cash retainers are payable on a quarterly basis in arrears. |
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(2) | Each non-employee director receives a $1,000 per meeting cash fee for each committee meeting attended in excess of the first eight meetings of each committee during the fiscal year. |
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(3) | Each year on the date of our annual meeting of stockholders, each non-employee director will be granted an award of restricted share units (“RSUs”) with respect to shares of our common stock having a grant date fair value of $140,000, rounded down to the nearest whole share, which vest on the earlier of the first anniversary of the grant date or the date of the next annual meeting of stockholders. |
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(4) | The Non-Employee Director Compensation Policy also provides that all RSU awards granted to the non-employee directors pursuant to the policy will vest in full in the event of a change in control of Masimo. |
The following table sets forth summary information concerning compensation paid or accrued for services rendered to us in all capacities to the non-employee members of our Board for the fiscal year ended December 29, 2018.
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Fiscal 2018 Director Compensation Table: | | | | | | | | | | |
Name(1) | | Fees Earned or Paid in Cash | | Stock Awards(2)(3) | | Option Awards(4) | | All Other Compensation | | Total |
Steven J. Barker, Ph.D., M.D. | | $ | 51,729 |
| | $ | 139,937 |
| | $ | — |
| | $ | 120,000 |
| (5) | $ | 311,666 |
|
H Michael Cohen(6) | | 24,011 |
| | — |
| | — |
| | — |
| | 24,011 |
|
Sanford Fitch | | 87,816 |
| | 139,937 |
| | — |
| | — |
| | 227,753 |
|
Thomas Harkin | | 72,500 |
| | 139,937 |
| | �� |
| | — |
| | 212,437 |
|
Adam Mikkelson | | 72,500 |
| | 139,937 |
| | — |
| | — |
| | 212,437 |
|
Craig Reynolds | | 79,389 |
| | 139,937 |
| | — |
| | — |
| | 219,326 |
|
______________
| |
(1) | Our Chairman and CEO, Mr. Kiani, is not included in this table as he is an employee of Masimo and therefore receives no compensation for his service as a director. Mr. Kiani’s compensation is included in the “Summary Compensation Table” on page 61 of this Proxy Statement. Dr. Shimer is not included in this table as she was appointed to our Board effective January 2, 2019. |
| |
(3) | As of December 29, 2018, each of the listed non-employee directors held RSU awards with respect to 1,583 shares of our common stock, with the exception of H Michael Cohen, who held none. |
| |
(4) | These amounts generally represent the aggregate grant date fair value of the RSU awards granted to each listed non-employee director in fiscal 2018, computed in accordance with Financial Accounting Standard Board Accounting Standard Codification Topic 718 (“ASC Topic 718”). These amounts do not represent the actual amounts paid to or realized by the directors during fiscal 2018. The value as of the grant date for the RSU awards is calculated based on the number of RSUs at the grant date market price and is recognized once the requisite service period for the RSUs is satisfied. For a detailed description of the assumptions used for purposes of determining grant date fair value, see Note 14 to our Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of |
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| 2019 Proxy Statement
|
| | |
| CORPORATE GOVERNANCE AND BOARD MATTERS |
Operations-Critical Accounting Estimates-Share-Based Compensation,” included in our Annual Report on Form 10-K for the year ended December 29, 2018 that was filed with the SEC on February 26, 2019.
| |
(4) | As of December 29, 2018, each of the listed non-employee directors held the following number of options: Steven J. Barker, Ph.D., M.D.—110,000; H Michael Cohen—0; Sanford Fitch—80,000; Thomas Harkin—0; Adam Mikkelson—0 and Craig Reynolds—100,000. |
| |
(5) | Consists of fees earned by Dr. Barker for non-employee consulting services provided to the Company. |
| |
(6) | H Michael Cohen was appointed to our Board effective July 31, 2018. |
Fiscal 2019 Non-Employee Director Compensation Program Changes
Following an extensive review of our non-employee director compensation policy and after taking into consideration market data and the responsibilities placed upon our non-employee directors, the Compensation Committee made the following changes to our Non-Employee Director Compensation Policy, effective beginning fiscal 2019:
|
| | | | | | | | | | | | | |
Compensation Item(s): | | 2018 | | 2019 | | Change |
Retainer(1) - Board Service | | $ | 50,000 |
| | $ | 70,000 |
| | $ | 20,000 |
|
Retainer(1) - Audit Committee | | 7,500 |
| | 12,500 |
| | 5,000 |
|
Retainer(1) - Compensation Committee | | 7,500 |
| | 10,000 |
| | 2,500 |
|
Retainer(1) - Nominating, Compliance and Corporate Governance Committee | | 7,500 |
| | 5,000 |
| | (2,500 | ) |
Chairperson Additional Retainer(1) - Audit Committee | | 30,000 |
| | 12,500 |
| | (17,500 | ) |
Chairperson Additional Retainer(1) - Compensation Committee | | 10,000 |
| | 10,000 |
| | — |
|
Chairperson Additional Retainer(1) - Nominating, Compliance and Corporate Governance Committee | | 7,500 |
| | 10,000 |
| | 2,500 |
|
Cash Fee Per Committee Meeting in Excess of First Eight Meetings(2) | | 1,000 |
| | — |
| | (1,000 | ) |
Restricted Share Units(3)(4) | | $ | 140,000 |
| | $ | 180,000 |
| | $ | 40,000 |
|
______________
| |
(1) | All cash retainers are payable on a quarterly basis in arrears. |
| |
(2) | Non-employee directors will no longer receive a per meeting cash fee for each committee meeting attended in excess of the first eight meetings of each committee during the fiscal year. |
| |
(3) | Each year on the date of our annual meeting of stockholders, each non-employee director will be granted an RSU award with respect to shares of our common stock having a grant date fair value of $180,000, rounded down to the nearest whole share, which vests on the first anniversary of the grant date. |
| |
(4) | The Non-Employee Director Compensation Policy also provides that all RSU awards granted to the non-employee directors pursuant to the policy will vest in full in the event of a change in control of Masimo. |
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| 2019 Proxy Statement
|
| | | | |
AUDIT COMMITTEE’S PRE-APPROVAL POLICIES AND PROCEDURES |
The Audit Committee has adopted a policy for the pre-approval of audit and non-audit services rendered by our independent registered public accounting firm, Grant Thornton LLP. The policy generally pre-approves specified services in the defined categories of audit, audit-related and tax services up to specified amounts. Pre-approval may also be given as part of the Audit Committee’s approval of the scope of the engagement of the independent registered public accounting firm or on an individual explicit case-by-case basis before the independent registered public accounting firm is engaged to provide each service. The pre-approval of services may be delegated to one or more of the Audit Committee’s members, but the decision must be reported to the full Audit Committee at its next scheduled meeting. By the adoption of this policy, the Audit Committee has delegated the authority to pre-approve services to the Chairperson of the Audit Committee, subject to certain limitations.
The Audit Committee has determined that the rendering of the services other than audit services by Grant Thornton LLP is compatible with maintaining the independent registered public accounting firm’s independence.
|
| | | | |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The following table represents aggregate fees billed to Masimo for the fiscal years ended December 29, 2018 and December 30, 2017 by Grant Thornton LLP, our independent registered public accounting firm for such periods. All fees described below were approved by the Audit Committee.
|
| | | | | | | | |
| | Fiscal Year Ended |
| | December 29, 2018 | | December 30, 2017 |
Audit Fees(1) | | $ | 2,111,428 |
| | $ | 2,035,933 |
|
Audit-Related Fees(2) | | 69,839 |
| | 122,453 |
|
Tax Fees(3) | | 36,305 |
| | 36,952 |
|
All Other Fees | | — |
| | — |
|
Total Fees | | $ | 2,217,572 |
| | $ | 2,195,338 |
|
______________
| |
(1) | Audit fees consist of fees billed for services rendered for the audit of our consolidated annual financial statements, including performance of the attestation procedures required by Section 404 of the Sarbanes-Oxley Act of 2002, as amended, review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by Grant Thornton LLP in connection with statutory and regulatory filings or engagements. |
| |
(2) | Audit-related fees consist of fees for assurance and related services that are traditionally performed by our independent registered public accounting firm and include fees reasonably related to the performance of the audit or review of our interim consolidated financial statements and not reported under the caption “Audit Fees.” For the fiscal years ended December 29, 2018 and December 30, 2017, these services included fees primarily for the audit of our retirement savings plan. |
| |
(3) | Tax fees consist of fees for preparation of our federal and state income tax returns, general consultation and international tax research. |
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| 2019 Proxy Statement
Our Audit Committee is composed of “independent directors,” as determined in accordance with Nasdaq Listing Rule 5605(a)(2) and Rule 10A-3 of the Exchange Act. The Audit Committee operates pursuant to a written charter adopted by the Board, a copy of which may be viewed on our website at http://www.masimo.com/company/investors/corporate-governance/under “Corporate Governance.”
As described more fully in its charter, the purpose of the Audit Committee is to assist our Board with its oversight responsibilities regarding the integrity of our financial statements, assessing the independent registered public accounting firm’s qualifications and independence and the performance of the persons performing internal audit duties for us and the independent registered public accounting firm. Management is responsible for the preparation, presentation and integrity of our financial statements as appropriate,well as our financial reporting process, accounting policies, internal audit function, internal accounting controls and disclosure controls and procedures. The independent registered public accounting firm is responsible for performing an independent audit of our consolidated financial statements in accordance with generally-accepted auditing standards and issuing a report. The Audit Committee’s responsibility is to monitor and oversee these processes. The following is the Audit Committee’s report submitted to the Board for fiscal 2018.
The Audit Committee has:
reviewed and discussed our audited financial statements with management and Grant Thornton LLP, the independent registered public accounting firm;
discussed with Grant Thornton LLP the matters required to be discussed by Auditing Standard No. 1301 Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board; and
received from Grant Thornton LLP the written disclosures and the letter regarding their communications with the Audit Committee concerning independence as required by the Public Company Accounting Oversight Board and discussed the auditors’ independence with them.
In addition, the Audit Committee has met separately with management and with Grant Thornton LLP as part of the committee’s quarterly meetings.
Based on the review and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 29, 2018 for filing with the SEC. The Audit Committee also has selected and engaged Grant Thornton LLP as Masimo’s independent registered public accounting firm for the fiscal year ending December 28, 2019, and is seeking ratification of the selection by Masimo’s stockholders.
|
| |
| Audit Committee |
| H Michael Cohen |
| Mr. Sanford Fitch |
| Mr. Adam Mikkelson |
This foregoing audit committee report is not “soliciting material,” is not deemed “filed” with the SEC, and shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing of ours under the Securities Act of 1933, as amended, or under the Exchange Act, except to the extent we specifically incorporate this report by reference.
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| 2019 Proxy Statement
|
| | | | |
COMPENSATION DISCUSSION AND ANALYSIS |
The following Compensation Discussion and Analysis may contain statements regarding future individual and Company performance targets and goals. Any targets and goals so disclosed are referenced in the limited context of Masimo’s compensation programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. Masimo specifically cautions investors not to apply these statements to other contexts.
This Compensation Discussion and Analysis describes the compensation program for our Principal Executive Officer, Principal Financial Officer and the next three most highly-compensated Executive Officers of the Company for fiscal 2018 (our “Named Executive Officers” or “NEOs”). During fiscal 2018, these individuals were:
|
| | |
Name | | Position(s) |
Joe Kiani | | Chief Executive Officer & Chairman of the Board |
Micah Young | | Executive Vice President, Finance & Chief Financial Officer |
Anand Sampath | | Chief Operating Officer |
Tao Levy | | Executive Vice President, Business Development |
Bilal Muhsin | | Executive Vice President, Engineering, Marketing & Regulatory Affairs |
This Compensation Discussion and Analysis describes the material elements of our executive compensation program for fiscal 2018. It also provides an overview of our executive compensation philosophy and objectives. Finally, it analyzes how and why the Compensation Committee of our Board (the “Compensation Committee”) arrived at the specific compensation decisions for our executive officers, including our NEOs, for fiscal 2018, including the key factors that the Compensation Committee considered in determining their compensation.
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| 2019 Proxy Statement
Fiscal2018 Performance Highlights
In 2018, we experienced strong momentum in our business. Our global organization executed on our strategy to deliver above-market growth and drive operational efficiencies throughout the business. Our product revenues increased 12% to $830 million and we shipped a record number of noninvasive technology boards and monitors, which exclude handheld and finger oximeters. In addition, we delivered significant operating margin improvements and earnings per share (“EPS”) growth that exceeded expectations.
Our strong performance in 2018 demonstrates the significant progress that we are making to drive operational efficiencies throughout the business and take further steps towards achieving our long term goal of 30% operating profit margins. Most importantly, we are making this progress on the profitability front while at the same time increasing our R&D investment and improving the growth profile of the overall business.
Some of our notable fiscal 2018 financial and operational highlights included the following GAAP and non-GAAP measures1:
|
| | | | |
| l Total revenues, including royalties and other revenue of $858 million, which significantly exceeded our original fiscal 2018 financial guidance of $836 million. |
| l Product revenue increased 12.4% to $830 million, or 11.9% on a constant currency basis1, which significantly exceeded our original fiscal 2018 financial guidance of $808 million. |
| l Shipments of noninvasive technology boards and monitors increased 14.1% to 231,700. |
| l GAAP operating profit margin was 24.2%; l Non-GAAP operating profit margin1 improved 100 basis points to 24.5%; l Non-GAAP product operating margin1, excluding the impact of royalty and NRE, improved 340 bps to 22.0%. |
| l GAAP EPS was $3.45; l Non-GAAP total EPS1 increased 31.7% to $3.03; l Non-GAAP product EPS1, excluding the impact of royalty and NRE, increased 53.2% to $2.65. |
| l Adjusted free cash flow was $222 million or 26.0% of total revenue, which was driven by strong earnings performance and significant working capital improvements; l Days sales outstanding (“DSO”) improved 10 days to reach 45 days at the end of fiscal 2018; l Inventory days on hand (“DOH”) improved 10 days to reach 113 days at the end of fiscal 2018. |
The following financial and operational highlights include GAAP and non-GAAP measures1:
|
| | | | | | | | | | | | | | |
| Product Revenue | | | | Constant Currency Product Revenue Growth(1) | | | | Non-GAAP EPS(1) | | | | Non-GAAP EPS Growth(1) | |
| in Millions | | | | % growth on a constant currency basis | | | | $ per diluted share | | | | % growth | |
| $830 | | | | 11.9% | | | | $3.03 | | | | 31.7% | |
| Goal: $808M | | | | | | | | Goal: $2.80 | | | | | |
____________
| |
1 | Non-GAAP financial measure - please see Appendix A to this Proxy Statement for a description of the adjustments and a reconciliation to the corresponding GAAP financial measure. |
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| 2019 Proxy Statement
Our Total Stockholder Return (“TSR”) reflects our strong 2018 results. We delivered 26.6% TSR, outperforming the median of our proxy peer group.
Our financial performance in fiscal 2018 is a continuation of the strong financial performance that we have delivered over the previous two years, which is highlighted in the following charts ($ in millions, excluding per share amounts)1:
________________________
| |
* | Constant currency growth |
|
| | | |
| | | |
| | Stock Price |
| | December 29, 2018 |
| | $105.56 |
| | |
|
|
|
| | |
| | Stock Price |
| | at IPO |
| | (August 2007) |
| | $17.00 |
| | |
| | |
| | |
| | |
____________
| |
1 | Constant currency product revenue and non-GAAP EPS are non-GAAP financial measures - please see Appendix A to this Proxy Statement for a description of the adjustments and a reconciliation to the corresponding GAAP financial measure. |
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| 2019 Proxy Statement
Total Stockholder Return
PEER GROUP INDEX
|
| | | | | | |
| | 1 Year | | 3 Year | | 5 Year |
Masimo TSR (%) | | 26.6% | | 37.3% | | 29.4% |
NASDAQ Composite TSR (%) | | 3.9% | | 9.8% | | 9.7% |
NASDAQ Medical Equipment TSR (%) | | 13.6% | | 14.7% | | 15.1% |
Several widely accepted measures of operating performance reflect the strength of our fiscal 2018 financial performance on both an absolute and relative basis, as compared to other companies that comprised our fiscal 2018 compensation peer group, which included other publicly-traded companies classified as health care equipment and supplies companies in Global Industry Classification Standard Code 351010 (see “—Competitive Positioning” on page 51 of this Proxy Statement for a discussion of our fiscal 2018 compensation peer group). Such operating measures for the fiscal years ended nearest to December 29, 2018 were as follows:
|
| | | | |
Measures of Operating Performance | | Masimo Performance | | Percentile Ranking Versus Fiscal 2018 Compensation Peer Group Companies |
Return on Equity | | 20% | | 83rd |
Return on Capital | | 20% | | 88th |
Return on Assets | | 16.8% | | 93rd |
Total Revenue Growth | | 8.6% | | 34th |
Operating Margin | | 24.2% | | 87th |
We believe that our strong fiscal 2018 performance results reflect the continued attention and focus by our executive team on delivering financial results that reflect not only revenue growth, but also strong financial returns based on our assets, equity, and capital structure. In fact, our fiscal 2018 performance results placed Masimo at the 93rdpercentile of our compensation peer group for return on assets, with three additional percentile achievements at or above the 80thpercentile. We believe that our strong operating performance measures relative to our compensation peer group further demonstrates the success of our executive team’s efforts during fiscal 2018.
Results of Fiscal 2018 Stockholder Advisory Vote
At our 2018 Annual Meeting of Stockholders, we conducted a non-binding stockholder advisory vote on the fiscal 2017 compensation of our named executive officers (commonly known as a “Say-on-Pay” vote). Our stockholders approved our Say-on-Pay proposal with approximately 84% of the votes cast in favor of the fiscal 2017 compensation of our named executive officers. While this represented an increase in support for our executive compensation program compared to fiscal 2017, our Board believes that it remains important to be responsive to the concerns expressed by our stockholders about our executive compensation program. Accordingly, our Board took several additional actions in fiscal 2018 to further enhance the relationship between our performance and the compensation of our executive officers as described below.
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| 2019 Proxy Statement
Fiscal 2018 Executive Compensation Program Enhancements
As previously noted, the Compensation Committee values the feedback we receive from our stockholders. In response to that feedback, the Compensation Committee implemented certain changes to our executive compensation program for fiscal 2018 to further align the compensation of our executive officers with both short-term and long-term performance that supports our business strategy.
| |
• | Annual Cash Bonus - The annual cash bonus plan is designed to provide performance-based compensation that will be earned only upon achieving various pre-established levels of Company financial performance. For fiscal 2018, the Compensation Committee selected 2018 Adjusted Product Revenue2 and 2018 Non-GAAP EPS2 as the performance measures for the funding percentages, each weighted equally, as the Compensation Committee believes these performance measures directly support both our short-term strategy and our long-term objective of creating sustainable stockholder value. |
Long-Term Incentive (“LTI”) Compensation - Equity Awards - The Compensation Committee believed that a one-year performance period was appropriate for the 2017 PSU awards in light of the transition to our new 2017 Equity Incentive Plan. However, to further align the compensation of our executive officers with long-term performance, the Compensation Committee decided to extend the performance period for the 2018 PSU awards from one year to three years. Accordingly, the Compensation Committee granted LTI awards to our executive officers for fiscal 2018 consisting of the following mix of equity awards:
| |
◦ | 25% in the form of stock options that vest annually over a five year period; and |
| |
◦ | 75% in the form of PSU awards that are earned, if at all, at the end of a three-year performance period based on our actual performance as measured against pre-established performance objectives. For the fiscal 2018 PSU awards, the Compensation Committee selected fiscal 2020 Adjusted Product Revenue2 and fiscal 2020 Non-GAAP Operating Profit Margin2 as the performance measures for the targeted PSU award percentages, each weighted equally. |
|
| | | | | |
Performance Stock Unit Awards |
| 2017 | 2018 | 2019 | 2020 | 2021 |
2017 Grant | 1-Year Performance Period | Vest(1) | Vest(1) | Vest(1) | Vest(1) |
2018 Grant | | 3-Year Performance Period | Vest(2)(3) |
_______________
(1) The 2017 Grant will vest annually at 20% per year for the next four years.
(2)Assuming threshold performance level achieved.
| |
(3) | The 2018 Grant will vest in fiscal 2021 based on actual performance during 2020. If performance objectives are achieved, the PSUs will vest on the date of the approval by the Audit Committee of the audit of our financial statements for fiscal 2020 (or such later date determined by the Compensation Committee). |
______________
| |
2 | Non-GAAP financial measure - please see Appendix B to this Proxy Statement for a description of the adjustments and a reconciliation to the corresponding GAAP financial measure. |
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| 2019 Proxy Statement
Previous Executive Compensation Program Enhancements
The foregoing actions are in addition to the following changes that have been made to our executive compensation program in earlier years:
|
| | | |
Corporate Governance or Compensation Practice | Issues Previously Raised in Stockholder Outreach or Corporate Governance Reviews | Our Response | Effective Date of Response |
Executive compensation | Equity compensation is not directly tied to long-term Company performance | Granted performance based equity tied to three-year Company performance | Fiscal 2018 |
Executive compensation | Equity compensation includes a large discretionary component | Granted performance based equity tied to defined target matrix | Fiscal 2017 |
Stockholders’ rights agreement | Presence of “poison pill” arrangement | Eliminated the “poison pill” | Fiscal 2016 |
Non-employee directors’ stock ownership policy | Absence of stock ownership policy for members of Board of Directors | Adopted stock ownership policy for non-employee members of our Board, which requires each non-employee director to own and hold shares of our common stock with a value equal to at least $250,000 | Fiscal 2016 |
Term limits for service on Board of Directors | Absence of term limits for non-employee members of Board of Directors | Adopted term limit of 15 years for non-employee members of our Board | Fiscal 2015 |
Executive stock ownership policy | Absence of formal stock ownership policy for executive officers | Adopted stock ownership policy for executive officers, which requires our CEO to own and hold shares of our common stock with a value equal to at least six times his annual base salary and our other executive officers to own and hold shares of our common stock with a value equal to their annual base salary | Fiscal 2013 |
Compensation recovery (“clawback”) policy | Absence of formal compensation recovery (“clawback”) policy | Adopted formal compensation recovery (“clawback”) policy for executive officers | Fiscal 2012 |
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| 2019 Proxy Statement
|
| | | |
Tax “gross-up” payments | Absence of formal policy restricting the provision of tax “gross-up” or similar payments in connection with a change in control of the Company | Adopted formal policy providing that the Compensation Committee will no longer approve any arrangements with executive officers that include a tax “gross-up” or similar provision that results in the Company paying excise taxes on change in control payments | Fiscal 2011 |
| | In addition, our CEO’s employment agreement, entered into in November 2015, eliminated similar tax “gross-up” provisions. After the elimination of this provision, there are no longer any “gross-up” provisions at the Company | Fiscal 2015 |
We continue to seek and value the opinions of our stockholders, as well as the insights gained from the discussions we have with specific stockholders. The Compensation Committee finds these discussions to be helpful as it considers and adopts compensation policies affecting our executive officers, including our NEOs. We will continue to consider the outcome of future Say-on-Pay votes, as well as feedback received throughout the year when making compensation decisions for our executive officers.
Fiscal 2018 NEO Compensation Highlights
The Compensation Committee took the following key actions for fiscal 2018 with respect to the compensation of our NEOs:
Base Salaries - Increased the annual base salaries of our NEOs, other than Mr. Young, by 3.0%, which was consistent with the increases provided to our other employees as a whole.
| |
• | Annual Cash Bonuses - Based on our Adjusted Product Revenues2and Non-GAAP EPS2for fiscal 2018, under our fiscal 2018 Executive Bonus Incentive Plan, the Company paid annual cash bonuses to our NEOs (other than our CEO) for fiscal 2018 ranging from $240,780 to $335,031, and an annual cash bonus in the amount of $1,595,383 to our CEO. An additional cash bonus of $55,000 was awarded to Mr. Muhsin in connection with the successful and timely completion of a strategic management business objective. |
Long-Term Incentive (“LTI”) Compensation - Equity Awards - In March 2018, granted options to purchase shares of our common stock to each of our NEOs (other than our CEO) with a grant date fair value of $298,458 and an option to purchase shares of our common stock to our CEO with a grant date fair value in the amount of $2,984,635, in all cases with an exercise price equal to the fair market value of our common stock on the date of grant. In March 2018, also granted PSU awards with a target grant date fair value of $899,933 to each of our NEOs (other than our CEO) and a PSU award with a target grant date fair value of $8,999,934 to our CEO.
_____________
| |
2 | Non-GAAP financial measure - please see Appendix B to this Proxy Statement for a description of the adjustments and a reconciliation to the corresponding GAAP financial measure. |
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| 2019 Proxy Statement
Pay-for-Performance
We believe that our fiscal 2018 executive compensation was closely aligned with our stockholders’ interests. While base salary and an annual cash bonus opportunity focused on the achievement of shorter-term goals, our equity awards, in the form of options to purchase shares of our common stock and PSU awards, provided for a longer-term compensation structure to focus attention on our long-term operating results and promote retention. Most of the fiscal 2018 annual compensation of our executive officers was directly tied, through performance-based annual cash bonuses and LTI compensation in the form of stock options and PSU awards, to the achievement of financial and operating results that increased stockholder value.
The following charts show the mix of our CEO’s and, on average, each NEO’s target total direct compensation for fiscal 2018, consisting of base salary, a target annual cash bonus opportunity and the grant date fair value of the equity awards granted during the year:
|
| | | | | | | |
Total “at risk” compensation = | 92.3% | | Total “at risk” compensation = | 79.0% | |
As illustrated above, the target total direct compensation opportunities of our NEOs are directly linked to our financial performance. We believe that our executive officers’ interests were and continue to be aligned with those of our stockholders given that a substantial portion of their target total direct compensation was “at-risk” and variable commensurate with our financial performance. We also believe that our executive compensation program appropriately emphasized performance-based compensation that rewarded our executive officers for delivering financial, operational and strategic results that met or exceeded pre-established goals through our annual cash bonus plan and the PSU awards under our LTI compensation plans. In addition, we further aligned the interests of our executive officers with those of stockholders and our long-term interests through executive stock ownership requirements. As of the date of this Proxy Statement, each of our executive officers to whom such stock ownership requirements are applicable was in compliance with such requirements.
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| 2019 Proxy Statement
Executive Compensation Policies and Practices
We endeavor to maintain sound executive compensation policies and practices, including compensation-related corporate governance standards, consistent with our executive compensation philosophy. During fiscal 2018, we maintained the following executive compensation policies and practices, including both policies and practices we have implemented to drive performance and policies and practices that either prohibit or minimize behaviors that we do not believe serve our stockholders’ long-term interests:
What We Do
| |
ü | Maintain an Independent Compensation Committee. The Compensation Committee consists solely of independent directors who establish our compensation practices. |
| |
ü | Compensation Committee Retains an Independent Compensation Advisor. The Compensation Committee has engaged its own compensation consultant to provide information, analysis and other advice on executive compensation independent of management. |
| |
ü | Annual Executive Compensation Review.At least once a year, the Compensation Committee conducts a review of our compensation strategy. |
| |
ü | Compensation At-Risk - Pay For Performance. Our executive compensation program is designed so that a significant portion of our executive officers’ compensation is “at-risk” based on corporate performance, to align the interests of our executive officers and stockholders. |
| |
ü | Annual Compensation-Related Risk Assessment.The Compensation Committeeconsiders our compensation-related risk profile to ensure that our compensation plans and arrangements do not create inappropriate or excessive risk and are not reasonably likely to have a material adverse effect on the Company. The Compensation Committee has determined that there are no risks arising from our compensation policies and practices for our employees that are reasonably likely to have a material adverse effect on the Company. |
| |
ü | Multi-Year Vesting Requirements. To align the interests of our executive officers and stockholders, the time-based stock-option awards granted to our executive officers vest over a five-year period. In 2018, we granted our executive officers PSU awards that will be earned, if at all, at the end of a three-year performance period based on our actual performance as measured against pre-established performance objectives relating to fiscal 2020 Adjusted Product Revenue2 and fiscal 2020 Non-GAAP Operating Profit Margin2. |
| |
ü | Compensation Recovery (“Clawback”) Policy.We have adopted a compensation recovery (“clawback”) policy, which enables our Board to recover incentive compensation (including gains from equity awards) from our current and former executive officers that is based on erroneous data, received during the three-year period preceding the date on which we become required to prepare an accounting restatement; and is in excess of what would have been paid if calculated under the restatement. |
| |
ü | Stock Ownership Policies.We have adopted stock ownership policies for our executive officers and the non-employee members of our Board under which they must accumulate and maintain, consistent with the terms of our stock ownership policy, shares of our common stock. For additional information, see “Ownership Of Our Stock - Stock Ownership Policies” starting on page 80 of this Proxy Statement. |
| |
ü | Annual Stockholder Advisory Vote on Named Executive Officer Compensation.We conduct an annual stockholder advisory vote on the compensation of our NEOs. The Compensation Committee considers the results of this advisory vote during the course of its deliberations on our executive compensation program. |
| |
ü | Stockholder Engagement that Includes our Compensation Committee Chair. We engage with our stockholders on executive compensation matters and include our Compensation Committee Chairperson in these engagement activities. |
______________
| |
2 | Non-GAAP financial measure - please see Appendix B to this Proxy Statement for a description of the adjustments and a reconciliation to the corresponding GAAP financial measure. |
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| 2019 Proxy Statement
What We Do Not Do
| |
û | No Guaranteed Bonuses.We do not provide guaranteed bonuses to our executive officers. |
| |
û | No Special Executive Retirement Plans.We do not currently offer, nor do we have plans to offer, defined benefit pension plans or any non-qualified deferred compensation plans or arrangements to our executive officers other than the plans and arrangements that are available to all employees. Our executive officers are eligible to participate in our defined contribution plan under Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”), on the same basis as our other employees. |
| |
û | No Hedging; Pledging Requires Pre-Approval.We prohibit our employees, including our executive officers, and the non-employee members of our Board from hedging our equity securities. In addition, all pledging of our equity securities by our executive officers and members of our Board must be pre-approved by the Compensation Committee and, as a condition to pre-approving any pledge of our equity securities, the executive officer or member of our Board seeking to pledge securities must clearly demonstrate his or her financial capacity to repay any loan for which securities will be pledged as collateral without resort to the securities to be pledged. |
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û | No Tax Payments on Perquisites.We do not provide any tax reimbursement payments (including “gross-ups”) to our executive officers on any perquisites or other personal benefits. |
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û | No Gross-Up Payments on Post-Employment Compensation Arrangements.We do not provide any tax reimbursement payments (including “gross-ups”) on payments or benefits contingent upon a change in control of the Company. |
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û | No Special Welfare or Health Benefits.We do not provide our executive officers with any welfare or health benefit programs, other than participation in our broad-based employee programs. |
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û | No Stock Option Re-pricing. We do not permit options to purchase shares of our common stock to be re-priced to a lower exercise price without the approval of our stockholders. We have never repriced our stock options. |
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COMPENSATION PHILOSOPHY AND OBJECTIVES |
The primary objective of our executive compensation program is to attract and retain a talented, entrepreneurial and creative team of executives who will provide leadership for our success in driving our technologies and products to the broadest number of patients, and in turn, creating sustainable long-term value. We seek to accomplish this objective in a way that is aligned with the long-term interests of our stockholders.
Compensation Philosophy
We operate within a very complex business environment, which requires a very strong management team. Our business model requires our management team to be adept at developing competitive products and sales/marketing strategies to support multiple customers, including hospitals, alternate care facilities and OEMs within multiple geographies. Many of our competitors have substantially greater capital resources, larger customer bases and larger sales forces than we do, and have ties with group purchasing organizations (“GPOs”) and other purchasers that are stronger than ours. In addition, the medical device industry is characterized by rapid product development and technological advances, which require our management team to be adept at managing these key areas of the business.
The Compensation Committee believes that it is critical to attract, develop and retain a highly-qualified management team with the experience, knowledge, expertise and vision capable of not only operating, but also excelling, in this complex and competitive business environment, including competing against larger competitors and developing and commercializing new products, new and improved technologies and new applications for our existing technologies.
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| 2019 Proxy Statement
Compensation Objectives and Program Design
Our executive compensation program is intended to help us achieve and foster a goal-oriented, highly-motivated management team with a clear understanding of our business objectives and shared corporate values. To this end, the Compensation Committee believes that our executive compensation program should provide compensation that:
attracts and retains the best executive talent;
appropriately aligns our business objectives and stockholder interests;
maintains a reasonable balance across types and purposes of compensation, particularly with respect to fixed compensation objectives, short-term and long-term performance-based objectives and retention objectives;
motivates our executive officers to achieve our annual and long-term strategic goals and rewards performance based on the attainment of such goals;
appropriately considers risk and reward in the context of our business environment and long-range business plans;
recognizes individual value and contributions to our success;
considers but does not exclusively rely upon competitive market data; and
supports our succession planning objectives.
We seek to achieve these objectives in a way that is consistent with our long-term interests and our stakeholders, including our stockholders and employees. We structure the annual compensation of our executive officers, including our NEOs, using three principal elements: base salary, annual cash bonus opportunities and LTI compensation opportunities in the form of equity awards. While the pay mix may vary from year to year, the ultimate goal is to achieve our compensation objectives as described above. The relationships between each element and such compensation objectives are as follows:
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| | | | | |
Type | | Component | | Objective |
Fixed Compensation | | Base Salary | | l | attracts and retains talent |
| | | | l | motivates strong business performance without encouraging excessive risk-taking |
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| | | | |
| | | | |
Performance-Based | | Cash Incentives | | l | attracts and retains talent |
Compensation | | | | l | drives the achievement of key business results on an annual or multi-year basis |
| | | l | recognizes individuals based on their contributions |
| | | l | performance-based and not guaranteed |
| | | | |
| | | | | |
| | Equity Awards | | l | attracts and retains talent |
| | | | l | drives the achievement of key long-term business results on an annual or multi-year basis |
| | | l | directly ties the interests of executive officers to the interests of our stockholders |
| | | l | recognizes individuals based on their continued contributions |
| | | | |
| | | | | |
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| 2019 Proxy Statement
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GOVERNANCE OF EXECUTIVE COMPENSATION PROGRAM |
Role of Compensation Committee
The Compensation Committee discharges the responsibilities of our Board relating to the compensation of our executive officers. The Compensation Committee consists of directors who are “independent” directors as required by the Nasdaq listing standards and “non-employee directors” for purposes of Exchange Act Rule 16b-3. During fiscal 2018, the Compensation Committee was comprised of Messrs. Harkin, Mikkelson and Reynolds (the current Chair of the Compensation Committee).
The Compensation Committee has responsibility for overseeing our compensation and benefits policies generally, and overseeing, evaluating and approving the compensation plans, policies, and programs applicable to our CEO, as well as our other executive officers, including our other NEOs. In carrying out its responsibilities, the Compensation Committee evaluates our compensation policies and practices with a focus on the degree to which these policies and practices reflect our executive compensation philosophy, develops recommendations, makes decisions that it believes advances our philosophy and reviews the performance of our executive officers when making decisions with respect to their compensation.
The Compensation Committee reviews the base salary levels, annual cash bonus opportunities, and LTI compensation opportunities of our executive officers, including our NEOs, annually or more frequently as warranted. In making decisions about the compensation of our executive officers, the Compensation Committee relies on its general experience and subjective considerations of various factors, including the following:
our performance against the financial, operational and strategic objectives established by the Compensation Committee and our Board;
each individual executive officer’s skills, experience, and qualifications relative to other similarly-situated executives at the companies in our compensation peer group;
the scope of each executive officer’s role compared to other similarly-situated executives at the companies in our compensation peer group;
the performance of each individual executive officer, based on a subjective assessment of his or her contributions to our overall performance, ability to lead his or her business unit or function, and work as part of a team, all of which reflect our core values;
compensation parity among our executive officers;
our financial performance relative to our compensation and performance peers;
feedback from our investor outreach programs; and
with respect to his direct reports, the recommendations of our CEO.
These factors provide the framework for compensation decision-making and final decisions regarding the compensation opportunity for each executive officer. No single factor is determinative in setting pay levels, nor was the impact of any factor on the determination of pay levels quantifiable.
The Compensation Committee also considers the potential risks in our business when designing and administering our executive compensation program, and we believe our balanced approach to performance measurement and pay delivery works to avoid misaligned incentives for individuals to undertake excessive or inappropriate risk.
The Compensation Committee does not engage in formal benchmarking against other companies’ compensation programs or practices to establish our compensation levels or make specific compensation decisions with respect to our executive officers, including our NEOs. Instead, in making its determinations, the Compensation Committee reviews information summarizing the compensation paid at a representative group of peer companies, to the extent that the executive positions at these companies are considered comparable to our positions and informative of the competitive environment, as well as more broad-based compensation surveys to gain a general understanding of market compensation levels.
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Role of Management
In discharging its responsibilities, the Compensation Committee works with members of our management team, including our CEO. The management team assists the Compensation Committee by providing information on company and individual performance, market data and management’s perspective and recommendations on compensation matters.
The Compensation Committee solicits and reviews our CEO’s recommendations and proposals with respect to adjustments to annual cash compensation, LTI compensation opportunities, program structures and other compensation-related matters for our executive officers (other than with respect to his own compensation). The Compensation Committee reviews and discusses these recommendations and proposals with our CEO and uses them as one factor in determining and approving the compensation for our executive officers. However, when the Compensation Committee sets the compensation for our CEO, he recuses himself from discussions regarding his own compensation. The Compensation Committee does not delegate any of its functions to others in deciding executive compensation.
Role of Compensation Consultant
The Compensation Committee engages an independent compensation consultant to assist it by providing information, analysis and other advice relating to our executive compensation program and the decisions resulting from its executive compensation review. The compensation consultant serves at the discretion of the Compensation Committee, which reviews the engagement annually.
In October 2016,the Compensation Committee retained Compensia, a national compensation consulting firm, to serve as its compensation advisor. During fiscal 2018, Compensia provided the following services to the Compensation Committee:
consulting with the Compensation Committee chair and other members between Compensation Committee meetings;
providing competitive market data based on the compensation peer group for our executive officer positions and evaluating how the compensation we pay our executive officers compares both to our performance and to how the companies in our compensation peer group compensate their executives;
reviewing and analyzing the base salary levels, annual cash bonus opportunities, and LTI compensation opportunities of our executive officers;
assessing executive compensation trends within our industry, and providing updates on corporate governance and regulatory issues and developments;
reviewing the Compensation Discussion & Analysis in this Proxy Statement; and
assessing compensation risk to determine whether our compensation policies and practices are reasonably likely to have a material adverse impact on the Company.
Compensia did not provide any services to us other than the consulting services to the Compensation Committee.
The Compensation Committee regularly reviews the objectivity and independence of the advice provided by its compensation consultant to the Compensation Committee on executive compensation matters. During fiscal 2018, the Compensation Committee considered the six specific independence factors adopted by the SEC and Nasdaq in past years, determined that Compensia was still an independent advisor, and concluded that its work did not raise any conflicts of interest. During fiscal 2018, the total fees payable to Compensia were approximately $105,000.
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Competitive Positioning
For purposes of comparing our executive compensation against the competitive market (Industry - health care equipment and supplies; Global Industry Classification Standard code 351010), the Compensation Committee reviews and considers the compensation levels and practices of a group of comparable companies. The companies in this compensation peer group for fiscal 2018 were approved in February 2018on the basis of their similarity to us in size, in terms of annual revenue and market capitalization.
In determining the fiscal 2018 compensation peer group, the Compensation Committee tried to select peer companies that resulted in us being near the median of the group in terms of both revenue and market capitalization. Our compensation peer group for fiscal 2018 was as follows:
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ABIOMED | Hill-Rom Holdings | OSI Systems |
Align Technology, Inc. | Hologic | Penumbra |
Cooper Companies | ICU Medical, Inc. | ResMed |
DENTSPLY SIRONA | Integra LifeSciences Holdings | Teleflex |
Dexcom | LivaNova | Varian Medical Systems |
Globus Medical, Inc. | Merit Medical Systems, Inc. | West Pharmaceutical Services, Inc. |
Haemonetics Corporation | Nuvasive, Inc. | |
The companies included in the compensation peer group had median revenues of $1.2 billion, ranging from approximately $311.0 million to approximately $3.9 billion, based on the four fiscal quarters ended nearest to January 31, 2018, representing approximately 0.39 times to 5.0 times our fiscal 2017 revenue of approximately $798.0 million. In addition, the compensation peer group had a median market capitalization of $5.3 billion, ranging from approximately $1.2 billion to $20.6 billion, as of February 28, 2018, and representing approximately 0.73 times to 3.06 times our market capitalization of $4.5 billion as of such date.
To analyze the compensation practices of the companies in our compensation peer group, Compensia gathered data from public filings (primarily proxy statements). This market data was then used as a general external reference point for the Compensation Committee in assessing our current compensation levels for executive base salaries, annual cash bonus opportunities and total equity compensation targets.
The Compensation Committee reviews our compensation peer group periodically and makes adjustments to its composition as it considers necessary and appropriate, taking into account changes in both our business and the businesses of the companies in the peer group.
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INDIVIDUAL COMPENSATION ELEMENTS |
The specific elements of our executive compensation program for fiscal 2018 included base salary, annual cash bonus opportunities, LTI compensation opportunities in the form of equity awards, welfare and health benefits and post-employment compensation arrangements. We use short-term compensation, such as base salary and annual cash bonus opportunities, to motivate and reward our executive officers. We believe that, in addition to base salaries and annual cash bonus opportunities, LTI compensation opportunities, which in fiscal 2018 were provided in the form of options to purchase shares of our common stock and PSU awards that could be earned and settled for shares of our common stock, are an effective tool in attracting and retaining strong executive talent. A full description of each compensation element follows:
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Base Salary
Base salary represents the fixed portion of the compensation of our executive officers, including our NEOs, and is an important element of compensation intended to attract and retain highly-talented individuals. Generally, we use base salary to provide each executive officer with a specified level of cash compensation during the year with the expectation that he or she will perform his or her responsibilities to the best of his or her ability and in our best interests.
Generally, we establish the initial base salaries of our executive officers through arm’s-length negotiation at the time we hire the individual executive officer, taking into account his or her position, qualifications, experience, prior salary level and the base salaries of our other executive officers. Thereafter, the Compensation Committee reviews the base salaries of our executive officers annually and makes adjustments to base salaries as it determines to be necessary or appropriate.
During fiscal 2018, the Compensation Committee reviewed the base salaries of our executive officers, including the NEOs, taking into consideration a competitive market analysis and the recommendations of our CEO, as well as the other factors described above. Following this review, the Compensation Committee approved a 3% base salary increase (consistent with the overall budgeted base salary increases for the remainder of the Company) for each of our then-current executive officers, including each of the NEOs, effective July 2, 2018, and provided Mr. Young, our Executive Vice President and Chief Financial Officer, with an additional 7% base salary increase for a total increase of 10%. The base salaries of the NEOs for fiscal 2018 were as follows:
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| | | | | | | | | | | |
Name | | Base Salary as of December 31, 2017 | | Base Salary as of December 30, 2018 | | Percentage Change |
Joe Kiani | | $ | 1,060,900 |
| | $ | 1,092,728 |
| | 3.0 | % |
Micah Young | | 365,000 |
| | 401,500 |
| | 10.0 |
|
Anand Sampath | | 445,578 |
| | 458,946 |
| | 3.0 |
|
Tao Levy | | — |
| | 329,835 |
| | — |
|
Bilal Muhsin | | — |
| | 447,784 |
| | — |
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Annual Cash Bonus
In March 2018, the Compensation Committee approved the terms of the Open Door Policy.2018 Executive Bonus Incentive Plan under which our NEOs are eligible to receive a cash bonus based on the achievement of Company performance goals. At the beginning of the year, the Compensation Committee approves funding percentages that include payout scenarios for various levels of Company financial performance. For 2018, the Compensation Committee selected Adjusted Product Revenue and non-GAAP EPS as the performance measures for the funding percentages, each weighted equally, as the Compensation Committee believes these performance measures directly support both our short-term strategy and our long-term objective of creating sustainable stockholder value.
For purposes of calculating the performance achievement and funding percentages for 2018, the Compensation Committee determined that the performance measures would be adjusted to exclude the impact of foreign currency fluctuations. The purpose of these adjustments is to ensure the measurement of performance reflects factors that management can directly control and that payout levels are not artificially inflated or impaired by factors unrelated to the ongoing operations of the business.
The table below sets forth the Adjusted Product Revenue and non-GAAP EPS performance goals and funding percentages at the threshold, target and maximum funding levels for 2018, as well as the actual performance results:
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| | | | | | | | | | |
Metric | Weighting | Target Goal | Actual Performance | Achievement %(1) | Payout %(1) | Weighted Result |
Threshold | Maximum | Actual Performance | Minimum | Maximum | Actual Performance |
Adjusted Product Revenue | 50% | $808.0 | $827.4 | 90% | 110% | 102% | 0% | 200% | 124% | 146% |
Non-GAAP EPS | 50% | $2.80 | $2.99 | 90% | 110% | 107% | 0% | 200% | 168% |
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(1) | Pursuant to the 2018 Executive Bonus Incentive Plan, payouts for achievement levels between the threshold and maximum were based on a linear interpolation between points along the fundingcurve. |
For 2018, we reported Adjusted Product Revenue2 of $829.9 million and non-GAAP EPS2 of $3.03. Excluding the impact of foreign exchange fluctuations versus the plan, we achieved Adjusted Product Revenue2 of $827.4 million and non-GAAP EPS2 of $2.99, which in each case was above the 2018 bonus plan targets. Based on the funding table for the 2018 bonus plan, the Compensation Committee approved a funding percentage of 146% of target for the 2018 Executive Bonus Incentive Plan, which is the average of the actual performance percentages achieved for Adjusted Product Revenue2 and non-GAAP EPS2 for fiscal 2018.
The following is a summary of the target annual cash bonus opportunities, the actual annual 2018 bonus awards for the NEOs and a comparison relative to their target awards:
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| | | | | | | | | | | | | | | | |
Name | | Base Salary as of December 30, 2018 | | 2018 Target Cash Bonus (% of Base Salary) | | 2018 Target Cash Bonus Amount | | 2018 Actual Cash Bonus Amount | | 2018 Award (% of Target) |
Joe Kiani | | $ | 1,092,728 |
| | 100% | | $ | 1,092,728 |
| | $ | 1,595,383 |
| | 146% |
Micah Young | | 401,500 |
| | 50 | | 200,750 |
| | 293,095 |
| | 146 |
Anand Sampath | | 458,946 |
| | 50 | | 229,473 |
| | 335,031 |
| | 146 |
Tao Levy | | 329,835 |
| | 50 | | 164,918 |
| | 240,780 |
| | 146 |
Bilal Muhsin(1) | | 447,784 |
| | 50 | | 223,892 |
| | 326,882 |
| | 146 |
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(1) | During fiscal year 2018, Mr. Muhsin was awarded an additional $55,000 cash bonus unrelated to the 2018 Executive Bonus Incentive Plan. This additional cash bonus was paid in connection with the successful and timely completion of a strategic management business objective and is not included within the amounts presented above. See “Bonus” on the Summary Compensation Table on page 61. |
CodeLong-Term Incentive (“LTI”) Compensation - Equity Awards
The Compensation Committee believes LTI compensation in the form of Business Conductequity awards provides an incentive for our executive officers, including our NEOs, to focus on driving increased stockholder value over a multi-year period, serves as a reward for appreciation in our stock price and Ethicslong-term value creation, and enables us to achieve our retention objectives.
Furthermore, the Compensation Committee believes that stock options and PSU awards are effective tools for increasing long-term stockholder value for several reasons. In the case of stock options, they only have value to the extent that the market price of our common stock price appreciates above the option exercise price, thereby driving value over the vesting period. In the case of PSU awards, the value of the award fluctuates based on our achievement of pre-established performance objectives over the multi-year performance period.
___________
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2 | Non-GAAP financial measure - please see Appendix B to this Proxy Statement for a description of the adjustments and a reconciliation to the corresponding GAAP financial measure. |
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To directly align LTI awards with stockholder value, the Compensation Committee awarded 2018 LTI awards to our NEOs in the form of stock options (25% of total target award value) and PSUs (75% of target award value). The following is a summary of the annual 2018 LTI awards for the NEOs.
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| | | | | | | | | | | | | | | | | | | |
| | | | Stock Options | | PSUs |
Name | | Total 2018 LTI Target Award Value | | Options to Purchase Shares of Common Stock (number of shares) | | Options to Purchase Shares of Common Stock (total fair value at grant date)(1)(2) | | PSUs at Target (number of shares granted)(3) | | PSUs at Target (grant date fair value)(4) |
Joe Kiani | | $ | 11,984,569 |
| | 104,362 |
| | $ | 2,984,635 |
| | $ | 103,507 |
| | $ | 8,999,934 |
|
Micah Young | | 1,198,391 |
| | 10,436 |
| | 298,458 |
| | 10,350 |
| | 899,933 |
|
Anand Sampath | | 1,198,391 |
| | 10,436 |
| | 298,458 |
| | 10,350 |
| | 899,933 |
|
Tao Levy | | 1,913,363 |
| | 35,436 |
| (5) | 1,013,430 |
| | 10,350 |
| | 899,933 |
|
Bilal Muhsin | | 1,198,391 |
| | 10,436 |
| | 298,458 |
| | 10,350 |
| | 899,933 |
|
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(1) | Amounts set forth in this column reflect the grant date fair value of the option awards, computed in accordance with ASC Topic 718. All of these amounts reflect certain assumptions with respect to the option awards and do not necessarily correspond to the actual value that will be recognized by our NEOs. The actual value, if any, that may be realized from an option award is contingent upon the satisfaction of the conditions to vesting of that award, and upon the excess of the stock price over the exercise price, if any, on the date the option award is exercised. See Note 16 of the Notes to Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018 that was filed with the SEC on February 26, 2019 for a discussion of the assumptions made in determining the grant date fair value of the stock options. |
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(2) | The 2018 stock option awards were granted on March 16, 2018. |
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(3) | Reflects the target number of shares subject to PSUs, assuming all performance goals and other requirements are met. As described below, the PSUs earned will range from 50% - 200% of target based on the achievement of performance goals, which vests in the form of shares of our common stock following the conclusion of the three-year performance period. |
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(4) | The 2018 PSU awards were granted on March 16, 2018. The number of shares was determined by dividing the economic value by the closing stock price per share of $86.95 on the date of grant. Any calculation that results in a fractional share was rounded down to the nearest whole share. |
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(5) | Mr. Levy joined Masimo Corporation on January 3, 2018. Upon joining Masimo, Mr. Levy was awarded an option to purchase 25,000 shares of common stock, vesting 20% per year over five years with an exercise price equal to the fair market value of common stock at the date the option was granted. |
The table below sets forth the 2018 LTI award type, purpose, performance goals and vesting terms.
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LTI Award Type | | Purpose | | Performance Goal(s) | | Vesting Terms |
Stock options (25% of total target value) | | Retain and reward executives for driving long-term stockholder value | | Increase in stockholder value (market valuation) | | Vest annually over a five year period (20% per year) |
PSUs (75% of total target value) | | Retain and reward executives for the achievement of multi-year performance goals | | 2020 Adjusted Product Revenue2 and 2020 Non-GAAP Product Operating Margin2 | | Vest in 2021 with opportunity that ranges from 50% - 200% |
The Compensation Committee selected 2020 Adjusted Product Revenue2 and Non-GAAP Product Operating Margin2 as the primary performance metrics for the 2018 PSU awards because it believes management should be incentivized to provide multi-year revenue results and operating margin expansion that deliver long-term stockholder value creation. Furthermore, the Compensation Committee believes that it has set challenging, yet attainable, forward-looking 2020 Adjusted Product Revenue2 and Non-GAAP Product Operating Margin2 goals.
______________
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2 | Non-GAAP financial measure - please see Appendix B to this Proxy Statement for a description of the adjustments and a reconciliation to the corresponding GAAP financial measure. |
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| 2019 Proxy Statement
The Compensation Committee believes that the current LTI equity award structure focuses our NEOs on driving increased stockholder value over a multi-year period and enables us to achieve our retention objectives, while maintaining a conservative approach to overall share usage. As a result, our company-wide equity burn rate was low in 2016 and 2017, and further declined in 2018.
Welfare and Health Benefits
Our NEOs participate in our employee benefit plans on the same terms as all of our other eligible employees.
We have adopted the Masimo Corporationmaintain a tax-qualified Code of Business Conduct and Ethics that applies toSection 401(k) defined contribution plan in which all of our employees, including our executive officers, who satisfy certain eligibility requirements, including requirements relating to age and length of service, are entitled to participate. Employees may contribute their own funds on a pre-tax basis.
The plan permits us to make matching contributions and we have historically provided employer contributions that match eligible employee contributions (“employer matching contributions”), generally limited to 3% of the compensation that can be taken into account for this purpose under federal law. Employer matching contributions vest 50% when an employee has been employed for two years, and vest an additional 25% for each additional year of service until fully vested after four years of eligible employment.
In addition, we provide health care, dental, vision and life insurance, health savings account (“HSA”) employer contributions, an employee assistance plan and both short-term and long-term disability, accidental death and dismemberment benefits to all full-time employees. These benefits are subject to applicable laws and at benefit levels that we believe are generally consistent with the benefits of companies with which we compete for talent.
Perquisites and Other Personal Benefits
Generally, we provide perquisites and other personal benefits to our executive officers, including our NEOs, in situations where we believe it is appropriate to assist an individual in the performance of his or her duties, to make our executive officers more efficient and effective and for recruitment and retention purposes.
In addition, under the Amended CEO Agreement, we reimburse our CEO for all reasonable travel and lodging expenses, which include travel and hospitality expenses for first class travel and accommodations, including travel by private or chartered aircraft, for his family and household members if they accompany him during business travel. Our Board believes that these arrangements are appropriate because of the extensive travel requirements of our CEO’s position.
We also have established a security program for our CEO that provides physical and personal security services as they may, from time to time, be deemed necessary. This security program is not limited to providing security services at business facilities or functions or during business-related travel and may include providing security services during certain non-business occasions, including at his primary residence and during personal travel. Our Board does not consider any of these security services to be a personal benefit as the requirement for this occasional security is directly the result of his role as our CEO. As our CEO, Mr. Kiani’s personal safety is vital to our continued success.
We own one aircraft to facilitate the business travel of our executive officers and directors. The Code of Business Conduct and Ethics iscertain other employees. In general, company employees are not permitted to use the aircraft for personal travel. In fiscal 2017, we entered into an aircraft time share agreement with Mr. Kiani, pursuant to which we have agreed to make our aircraft available to Mr. Kiani from time to time for lease on a time sharing basis. Under this agreement, Mr. Kiani reimburses us for incremental costs incurred in connection with his personal use of our aircraft, in accordance with Federal Aviation Administration requirements.
We have reported the actual amounts that we have paid for our CEO’s family and household members to accompany him during his business travel and for his security arrangements that were not security arrangements provided at our business facilities in the “All Other Compensation” column in the Fiscal 2018 Summary Compensation Table in this Proxy Statement.
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Post-Employment Compensation
Each of our NEOs, other than our CEO, is eligible to participate in our 2007 Severance Protection Plan (the “Severance Plan”) pursuant to a written severance agreement that they have executed with us. The Severance Plan provides these NEOs with specified payments and benefits in the event of certain terminations of employment or a change in control of Masimo or both. Our CEO’s post-employment compensation arrangements are set forth in the Amended CEO Agreement and are described in the section entitled “Employment Arrangements with Named Executive Officers - Employment Agreement with Mr. Kiani” starting on page 67 of this Proxy Statement.
We believe that having in place reasonable and competitive post-employment compensation arrangements is essential to attracting and retaining highly-qualified executive officers. Our post-employment compensation arrangements are designed to provide reasonable compensation to executive officers who leave the Company under certain circumstances to facilitate their transition to new employment. Further, we seek to mitigate any potential employer liability and avoid future disputes or litigation by requiring a departing executive officer to sign a separation and release agreement acceptable to us as a condition to receiving post-employment compensation payments or benefits.
We also believe that these arrangements are designed to align the interests of our executive officers and our stockholders onwhen considering our internet website at http://ir.masimo.com under “Corporate Governance.” If we make any substantive amendments to our Codelong-term future. The primary purpose of Business Conduct and Ethics or grant any waiver fromthese arrangements in the case of a provisionchange in control of the CodeCompany is to keep our most senior executive officers focused on pursuing all corporate transaction activity that is in the best interests of Business Conductour stockholders, regardless of whether those transactions may result in their own job loss. Reasonable post-acquisition payments and Ethicsbenefits should serve the interests of both the executive officer and our stockholders. Further, we believe that these arrangements are necessary to offer compensation packages that are competitive with the market.
For information on the employment arrangements for our CEO and other NEOs, as well as an estimate of the potential payments and benefits payable under these arrangements as of the end of fiscal 2018, see “—Employment Arrangements with Named Executive Officers” in this Proxy Statement.
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OTHER COMPENSATION POLICIES AND PRACTICES |
Equity Awards Grant Policy
Equity awards granted to newly-hired employees are effective as of the later of the date the individual commences work or service with us or the grant approval date. Equity awards granted to existing employees and others providing services to us are effective as of the grant approval date. The terms of each equity award, including the date of grant, the corresponding exercise, purchase or base price, the vesting conditions, the term of such award, and the number of shares of our common stock subject to such award, as applicable, are approved by our Board, the Compensation Committee, or the non-officer equity award committee (as defined in the policy), as applicable. In addition, the exercise price for options to purchase shares of our common stock may not be less than the fair market value of our common stock as of the close of business on the effective date of the option.
Compensation Recovery (“Clawback”) Policy
We maintain a compensation recovery (“clawback”) policy that provides that in the event we are required to restate our financial statements as a result of “material noncompliance” with the financial reporting requirements under the securities laws, we will recover from our current and former executive officers any incentive-based compensation (including stock options) that is:
based on erroneous data;
received during the three-year period preceding the date on which we become required to prepare an accounting restatement; and
in excess of what would have been paid if calculated under the restatement.
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| 2019 Proxy Statement
We intend to review the terms of our policy once the SEC adopts final regulations implementing Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and, if necessary, will revise our policy to conform to such regulations.
Policy Prohibiting Tax “Gross-Up” Payments
We maintain a policy governing the inclusion of tax “gross-up” provisions in agreements with our executive officers. Under this policy, the Compensation Committee will not approve any employment or other agreement or arrangement with any of our executive officers that includes a tax “gross-up” or similar provision that would require payments by us to an executive officer be made in the full amount, free of any deductions or withholdings, and without exercising any right of set-off, in connection with a change in control of the Company. Our policy also provides that the Compensation Committee will not approve an amendment to extend the term of any current employment or other agreement or arrangement between us and any executive officer if such agreement or director,arrangement includes a tax “gross-up” or similar provision. Currently, we will promptly disclosehave no agreements or arrangements in place with any executive officer that require or provide for a tax “gross-up” or similar payment.
Under our Severance Plan in which our NEOs other than our CEO participate, the natureplan administrator has the right to reduce any change in control severance payment or benefits payable to an executive officer to avoid triggering any “excess parachute payments” under Sections 280G and 4999 of the amendment or waiver on our internet website at http://ir.masimo.com under “Corporate Governance” and/or in our public filings with the SEC.Code.
Hedging and Pledging Policies
As partOur Insider Trading Policy prohibits our employees, including our executive officers, and the non-employee members of our insider trading policy, our employees, executives and directors are prohibitedBoard from engaging in short sales“short sales” of our equity securities and from engaging in hedging transactions involving our equity securities. Our insider trading policyFurther, our Insider Trading Policy restricts pledgesour employees, including our executive officers, and the non-employee members of Masimoour Board from pledging our equity securities other than those that areas collateral for a loan or otherwise unless the transaction is pre-cleared by an insider trading compliance officer. our Insider Trading Compliance Officer. Further, as a condition of pre-approving any pledge of our equity securities, the executive officer or member of our Board seeking to pledge securities must clearly demonstrate his or her financial capacity to repay any loan for which securities will be pledged as collateral without resort to the securities to be pledged.
As of March 7, 2016,26, 2019, an aggregate of 1,432,209400,000 shares of our common stock owned by the Kiani Family Remainder Trust and beneficially owned by Mr. Kianiour CEO were pledged as collateral for a personal loan issued to the trustee of the Kiani Family Remainder Trust. In addition to obtaining pre-clearance from an insider trading compliance officer, Mr. Kiani alsoour Insider Trading Compliance Officer, our CEO sought and received the approval of the Compensation Committee prior to entryentering into this transaction in 2013. When requesting such pledge. He statedpre-clearance, Mr. Kiani explained that, without the ability to pledge these shares, certain of his family’s financial planning objectives would need to be satisfied through the sale of shares of Masimo common stock held by the Kiani Family Remainder Trust and that he did not want to diminish his shareholdings. The Compensation Committee considered Mr. Kiani’s request and, as part of that consideration, noted that as reported on page 67 of this Proxy Statement, his beneficial stock ownership is 13.7%, so that,in the Company, even without taking into account the pledged shares, his stock ownership iswould still greatly in excess ofexceed the number of shares that Mr. Kiani would be required to hold under Masimo’sour stock ownership policy. The Compensation Committee also concluded that continued ownership of the pledged shares by the Kiani Family Remainder Trust further aligned Mr. Kiani’s interests with the long termlong-term interests of our stockholders. In light of these facts, the Compensation Committee concluded that approving the pledge was consistent with stockholder interests.
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NON-EMPLOYEE DIRECTOR COMPENSATION
Prior Non-Employee Director Compensation Policy
Our prior non-employee director compensation policy (the “Prior Non-Employee Director Compensation Policy”) provided that our Audit Committee Chairperson received an annual cash retainer of $40,000, payable on a quarterly basis in arrears and that, except as otherwise provided by our Board or Compensation Committee, no other non-employee director was entitled to receive any cash compensation for his service on our Board or any committee thereof. In addition, the Prior Non-Employee Director Compensation Policy provided that our non-employee directors were entitled to reimbursement for their reasonable expenses incurred in connection with attending meetings of our Board and committees thereof and performing their functions and duties as directors.
The Prior Non-Employee Director Compensation Policy provided for the following with respect to granting stock options to non-employee directors:
Upon first becoming a member of our Board, our Audit Committee Chairperson received a stock option grant for 150,000 shares of common stock, which vested at a rate of 20% per year on each anniversary of the grant date.
Upon first becoming a member of our Board, unless otherwise determined by our Compensation Committee, each non-employee director other than our Audit Committee Chairperson was eligible to receive an option to purchase 50,000 to 100,000 shares of our common stock, which vested at a rate of 20% per year on each anniversary of the grant date. Our Compensation Committee was responsible for determining the size of the initial award to be made.
Upon the vesting of 60% of the initial option award made to each of our non-employee directors, such non-employee director was eligible to receive an additional option grant to purchase 20,000 shares that vested at a rate of 20% per year on each anniversary of the grant date. All awards made to our non-employee directors were made under our 2007 Plan or a predecessor plan.
Except as described below with respect to the compensation payable to Mr. Harkin after joining our Board in December 2015, our Audit Committee Chairperson was the only non-employee director who was entitled to receive cash compensation for his Board and committee service in fiscal 2015. The Prior Non-Employee Director Compensation Policy was not a contractual commitment enforceable by any director and it could be modified by the Board in its discretion at any time.
New Non-Employee Director Compensation Policy
On February 11, 2016, after our Compensation Committee consulted with its independent compensation advisor, FW Cook, on market practices for other representative companies, our Board adopted a new non-employee director compensation policy (the “New Non-Employee Director Compensation Policy”). Under the New Non-Employee Director Compensation Policy, each non-employee director receives an annual cash retainer of $50,000 for his or her Board service and an annual cash retainer of $7,500 for each committee of the Board on which he or she serves. Our Audit Committee Chairperson receives an additional annual cash retainer of $15,000, our Compensation Committee Chairperson receives an additional annual cash retainer of $10,000, and our Nominating, Compliance and Corporate Governance Committee Chairperson receives an additional annual cash retainer of $7,500. In addition, each director receives a $1,000 per meeting cash fee for each committee meeting he or she attends in excess of the first eight meetings of each committee during the fiscal year. All cash retainers are payable on a quarterly basis in arrears. Each year on the date of our annual meeting of stockholders, each non-employee director will be also granted an award of restricted share units (“RSUs”) with respect to shares of our common stock having a grant date fair value of $140,000, rounded down to the nearest whole share, which vest on the earlier of the first anniversary of the grant date or the date of the next annual meeting of stockholders. The New Non-Employee Director Compensation Policy also provides that all RSUs granted to the non-employee directors pursuant to the policy will vest in full in the event of a change in control of Masimo. As part of the transition to the New Non-Employee Director Compensation Policy, neither Mr. Reynolds nor Mr. Harkin will be eligible to receive any grants
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on the date of our 2016 Annual Meeting of Stockholders; and they will receive their first equity grants under this policy on the date of our 2017 Annual Meeting of Stockholders.
Mr. Harkin was appointed to our Board on December 16, 2015, during the transition from the Prior Non-Employee Director Compensation Policy to the New Non-Employee Director Compensation Policy. In connection with his appointment to our Board, Mr. Harkin was granted restricted stock units with respect to 3,385 shares of our common stock, which had a grant date fair value of $139,970 and will vest on the one-year anniversary of the date of grant, subject to Mr. Harkin’s continued service with Masimo through the vesting date. From December 16, 2015 through February 11, 2016, Mr. Harkin was entitled to receive cash compensation at a rate of $50,000 per year for his service on our Board and $7,500 per year for his service on each Board committee.
The following table sets forth summary information concerning compensation paid or accrued for services rendered to us in all capacities to the members of our Board for the fiscal year ended January 2, 2016. |
| | | | | | | | | | | | | | | | | | | | |
Name(1) | | Fees Earned or Paid in Cash | | Stock Awards(2)(3) | | Option Awards(3)(4) | | All Other Compensation | | Total |
Steven J. Barker, Ph.D., M.D. | | $ | 120,000 |
| (5) | $ | — |
| | $ | 297,974 |
| (6) | $ | — |
| | $ | 417,974 |
|
Robert Coleman, Ph.D.(7) | | — |
| | — |
| | 294,861 |
| (8) | — |
| | 294,861 |
|
Sanford Fitch | | 40,000 |
| (9) | — |
| | 595,948 |
| (10) | — |
| | 635,948 |
|
Thomas Harkin(11) | | 3,575 |
| (12) | 139,970 |
| (13) | — |
| | — |
| | 143,545 |
|
Jack Lasersohn(14) | | — |
| | — |
| | 297,974 |
| (6) | — |
| | 297,974 |
|
Craig Reynolds | | — |
| | — |
| | — |
| | — |
| | — |
|
___________
| |
(1)
| Joe Kiani, our Chairman and Chief Executive Officer and a named executive officer, is not included in this table as he is an employee of ours and therefore receives no compensation for his service as a director. Mr. Kiani’s compensation is included in the “Summary Compensation Table” on page 46 of this Proxy Statement. |
| |
(2)
| As of January 2, 2016, Thomas Harkin held 3,385 RSUs and none of our other non-employee directors held any RSUs. |
| |
(3)
| These amounts generally represent the aggregate grant date fair value of equity awards for grants of options and RSU awards to each listed director in fiscal 2015, computed in accordance with authoritative accounting guidance. These amounts do not represent the actual amounts paid to or realized by the directors during fiscal 2015. The value as of the grant date for stock options is recognized over the number of days of service required for the stock option to vest in full. The value as of the grant date for the RSUs is calculated based on the number of restricted share units at the grant date market price and is recognized once the requisite service period for the restricted share unit is satisfied. |
For a detailed description of the assumptions used for purposes of determining grant date fair value, see Note 14 to the Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates-Share-Based Compensation”, included in our Annual Report on Form 10-K for the year ended January 2, 2016 filed with the SEC on February 24, 2016.
| |
(4)
| As of January 2, 2016, each of our non-employee directors held the following number of options: Steven J. Barker, Ph.D., M.D.—140,000; Sanford Fitch—145,000; Jack Lasersohn—170,000; Craig Reynolds—100,000 and Thomas Harkin—0. |
| |
(5)
| Consists of fees earned by Dr. Barker for non-employee consulting services provided to the Company. |
| |
(6)
| Consists of the grant of an option on December 17, 2015 to purchase 20,000 shares of common stock under the Prior Non-Employee Director Compensation Policy with a grant date fair value of $297,974. |
| |
(7)
| Dr. Coleman’s service on the Board and related committees ended when his term expired at our 2015 Annual Meeting of Stockholders held on June 2, 2015. |
| |
(8)
| Consistent with Dr. Coleman’s ceasing to serve as a Board Member, all future vesting of Dr. Coleman’s existing stock options terminated. However, the Board extended the exercise date for Dr. Coleman’s vested options by two years to June 2, 2017. This extension of the exercise period was considered a stock option modification under accounting principles generally accepted in the United States (“GAAP”), and accordingly, the Company recorded the incremental fair value of these options resulting from such modification (in excess of the original grant date fair value) of $294,861 as additional stock option expense in the second quarter of fiscal 2015. |
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| 2016 Proxy Statement
| |
(9)
| Consists of an annual retainer paid to our Audit Committee Chairperson pursuant to our Prior Non-Employee Director Compensation Policy. |
| |
(10)
| Consists of the grant of an option on December 17, 2015 to purchase 20,000 shares of common stock under the Prior Non-Employee Director Compensation Policy with a grant date fair value of $297,974, as well as a discretionary grant of an option on December 17, 2015 to purchase an additional 20,000 shares of common stock, with a combined grant date fair value of $595,948. The additional option was granted because the Compensation Committee became aware that Mr. Fitch was entitled to receive a grant of options to purchase 20,000 shares of common stock in February 2011 but was inadvertently omitted from the list of non-employee directors who received grants of options in February 2011. |
| |
(11)
| Mr. Harkin was appointed to our Board effective December 16, 2015. |
| |
(12)
| Consists of prorated amounts of the annual retainers earned by Mr. Harkin as a director and member of the Audit, Compensation and Nominating, Compliance and Corporate Governance Committees during fiscal 2015. |
| |
(13)
| In connection Mr. Harkin’s appointment to our Board, he received a grant of 3,385 RSUs on December 16, 2015 with a grant date fair value of $139,970. |
| |
(14)
| Mr. Lasersohn’s service on the Board will cease when his current term expires at the Annual Meeting. |
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| 2016 Proxy Statement
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The following compensation discussion and analysis contains statements regarding future individual and Company performance targets and goals. These targets and goals are disclosed in the limited context of Masimo’s compensation programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. Masimo specifically cautions investors not to apply these statements to other contexts.
This Compensation Discussion and Analysis provides a description of our executive compensation philosophy and programs, the compensation decisions the Compensation Committee has made under those programs and the factors considered in making those decisions. This Compensation Discussion and Analysis focuses on the compensation of the Company’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), and the three most highly paid executive officers other than the CEO and the CFO. These executive officers are our “named executive officers” or “NEOs”. For fiscal 2015, the NEOs were as follows:
|
| | |
Name | | Position(s) |
Joe Kiani | | Chief Executive Officer & Chairman of the Board |
Mark de Raad | | Executive Vice President, Finance & Chief Financial Officer |
Anand Sampath | | Chief Operating Officer |
Rick Fishel | | President, Worldwide OEM Business & Strategic Development |
Jon Coleman | | President, Worldwide Sales, Professional Services & Medical Affairs |
Executive Summary
The primary objective of our executive compensation program is to attract and retain a talented, entrepreneurial, and creative team of executives who will provide leadership for our success in driving Masimo’s technologies and products to the broadest number of patients, and in turn, sustainable long-term value. We seek to accomplish this goal in a way that is aligned with the long-term interests of our stockholders. Our Compensation Committee oversees our executive compensation program and determines the compensation for our executive officers, including the NEOs. We believe that our executive compensation program effectively aligns the interests of our executive officers with our objective of creating sustainable long-term value.
Financial Performance
Fiscal 2015 was a year of strong financial performance for Masimo. Financial highlights included:
Masimo’s closing stock price of $41.51 on the last trading day of fiscal 2015 represented a 60.4% increase from the closing stock price of $25.88 on the last trading day of fiscal 2014.
| |
• | Fiscal 2015 product revenues significantly exceeded the guidance we issued at the beginning of the year and increased by 7.6% to $599.3 million, or 11.0% to $618.0 million on a constant currency basis1, as compared to product revenues of $556.8 million in fiscal 2014.
|
| |
• | Total fiscal 2015 revenues, including royalties, increased to $630.1 million, up 7.4% from $586.6 million in fiscal 2014. On a constant currency basis2, total fiscal 2015 revenues, including royalties, increased to $648.8 million, up 10.6% compared to fiscal 2014.
|
| |
• | Masimo rainbow® product revenues increased to $61.8 million, up 19.5% from fiscal 2014.
|
| |
• | Masimo SET® and rainbow SET™ shipments totaled 182,600 units, up from 171,600 in the prior year, setting a new Masimo record.
|
1 Non-GAAP financial measure - please see reconciliation to GAAP amounts in Appendix A to this Proxy Statement.
2 Non-GAAP financial measure - please see reconciliation to GAAP amounts in Appendix A to this Proxy Statement.
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| 2016 Proxy Statement
| |
• | Masimo’s fiscal 2015 GAAP earnings per share was $1.55, up 19.2% from $1.30 in 2014. On a constant currency basis3, Masimo’s 2015 adjusted earnings per share would have been $1.69, up 30.0% from fiscal 2014.
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Masimo executed and delivered on a key fiscal 2015 internal metric of delivering earnings per share growth of at least two times product revenue growth. As noted above, GAAP earnings per share grew by 19.2% as compared to GAAP product revenue growth of 7.6%, representing GAAP earnings per share growth of 2.5 times GAAP product revenue growth.
Product revenues have consistently grown in the last five years, rising from $406.4 million in 2011 to $599.3 million in 2015, a compound annual growth rate of 8.8%.
GAAP Earnings Per Share have accelerated in the last two fiscal years as part of the Company’s focus on financial leverage.
3 Non-GAAP financial measure - please see reconciliation to GAAP amounts in Appendix A to this Proxy Statement.
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Several widely accepted measures of operating performance reflect the strength of Masimo’s 2015 financial performance on both an absolute and relative basis versus other representative companies comprised of publicly-traded companies classified as health care equipment and supplies companies in the Global Industry Classification Standard Code, the same classification as Masimo (see “— The Compensation Setting Process” on page 31 of this Proxy Statement for a discussion of the other representative companies). Such operating performance measures based on the four fiscal quarters ended nearest to September 30, 2015, were as follows:
|
| | | | |
Measures of
Operating Performance
| | Masimo | | Percentile Ranking Versus
Other Representative Companies
|
Earnings Per Share Growth | | 40.5% | | 100th
|
Return on Equity | | 23.0% | | 100th
|
Return on Capital | | 17.3% | | 89th
|
Return on Assets | | 13.4% | | 87th
|
Revenue Growth | | 11.1% | | 74th
|
Operating Margin | | 18.4% | | 68th TAX AND ACCOUNTING CONSIDERATIONS |
For fiscal 2015, cash generated from business operations was $114.2 million. Also during fiscal 2015, the Company repurchased approximately 4.1 million shares totaling approximately $155.0 million (and 8.6 million shares totaling approximately $257.4 million over the past two years), returning approximately 135.7%Deductibility of Executive Compensation
Generally, Section 162(m) of the cash generated from business operationsCode (“Section 162(m)”) disallows public companies a tax deduction for federal income tax purposes of compensation in excess of $1 million paid to its stockholders during fiscal 2015. Overtheir chief executive officer, the last five years, the Company has returned approximately 106.2% of cash generated from business operations to its stockholders through a combination of dividendschief financial officer and stock repurchases.
Results of Stockholder Advisory Vote on Executive Compensation
Over the past three years, we received disappointing levels of support on our stockholder advisory vote onother most highly-compensated executive compensation. Based on discussions with many of our stockholders after these votes, we believe the low levels of support were primarily the result of concerns regarding our CEO’s prior employment agreement. During this time period, our Compensation Committee, together with independent legal, tax, executiveofficers in any taxable year. In making compensation and other financial advisors, considered a variety of alternative employment agreement arrangements for our CEO. However, despite considerable efforts by our CEO and our Compensation Committee, no mutually agreeable solution had been identified by the time of last year’s proxy statement preparation. As a result, in last year’s proxy statement, we noted the Compensation Committee’s continued focus on this matter and its on-going effort to attempt to find a mutually agreeable solution.
After continued efforts by our CEO and Compensation Committee, including advice todecisions, the Compensation Committee from two nationally recognized law firms, as well as the Compensation Committee’s compensation consultant, F.W. Cook & Co., Inc. (“FW Cook”), we reached an agreement on a new CEO employment agreement (the “Restated CEO Employment Agreement”) on November 4, 2015. These discussions were very complex since the cost of any new employment agreement to Masimo depended on a variety of factors including (1)considered the potential future stock price; (2) when, if ever, there would be a change in control or a terminationeffects of Section 162(m) on the CEO without cause or by the CEO for Good Reason; and (3) the degree to which the provisions in the employment agreement would continue to apply to the stock option awards that the CEO received prior to any termination of his employment. At the conclusion of these negotiations, the Compensation Committee (comprising all of the members of the Board who were independent under the relevant SEC and NASDAQ requirements) unanimously concluded that the Restated CEO Employment Agreement represented a significant improvement from a stockholder perspective over the then-current agreement and that a more favorable modification to the employment agreement could not be obtained.compensation paid
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| 20162019 Proxy Statement
our executive officers who are subject to the deduction limit (the “covered executives”). The details of the Restated CEO Employment Agreement and the changesexemption from the prior employment agreement are outlined in “— Employment Contract and Severance Arrangements — Employment Agreement with Joe Kiani” on page 52 of this Proxy Statement. The Restated CEO Employment Agreement eliminated many of the provisions of the prior employment agreement that stockholders had considered objectionable thereby significantly reducing the potential cost to Masimo (as noted on page 54 of this Proxy Statement, if a change in control had occurredSection 162(m)’s deduction limit for performance-based compensation has been repealed, effective for taxable years beginning after December 31, 2015, the cost differential between the new employment agreement would have been approximately $52 million). Specifically, the Restated CEO Employment Agreement has eliminated certain provisions of Mr. Kiani’s previous employment agreement, including:
single trigger payments upon a change of control;
Mr. Kiani’s receipt of full value shares in lieu of his stock options upon a qualifying event;
payment of federal and state withholding taxes on2017, such full value shares;
tax gross-up payments in the event that payments were subject to change-in-control excise taxes;
certain provisions in the contract providing for survival of these protections subsequent to contract expiration; and
Mr. Kiani’s guaranteed annual option grant of 300,000 shares after fiscal 2017.
In consideration for these changes, Mr. Kiani became contingently entitled to receive up to 2.7 million shares of Masimo stock and $35 million in cash, which shares and amounts (1) are only issuable and payable if a Qualifying Termination actually occurs, and (2) will be phased out at the rate of 10% a year beginning in 2018.
It is important to note that, although SEC rules require the value of the RSUs to be reported in the Summary Compensation Table for 2015 (see “Summary Compensation Table” on page 46 of this Proxy Statement), the RSUs will only vest and result in realizable value to Mr. Kiani in the event of a Qualifying Termination and will not vest solely in connection with his continued service to Masimo. Accordingly, to assist stockholders in comparing the total compensation provided to Mr. Kiani without taking into account the contingent value of the RSUs, we have added a column to the Summary Compensation Table that shows Mr. Kiani’s 2015 compensation without reference to the value of the RSUs. We believe that this provides a more accurate comparison to the compensation paid to Mr. Kianiour covered officers in 2013 and 2014, sinceexcess of $1 million will generally not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017.
To maintain flexibility in compensating the valuesNEOs in a manner designed to promote varying corporate goals, the Compensation Committee has not adopted a policy that all compensation payable to the covered executives must be deductible for federal income tax purposes. Accordingly, the Compensation Committee may, in its judgment, approve compensation for our executive officers that does not comply with an exemption from the deduction limit when it believes that such compensation is in the Summarybest interests of the Company and our stockholders.
The Compensation TableCommittee believes that stockholder interests are best served by not restricting the Compensation Committee’s discretion and flexibility in structuring compensation programs, even though such programs may result in non-deductible compensation expenses.
Accounting for those years do not include any value relatingStock-Based Compensation
We follow ASC Topic 718 for our stock-based compensation awards. ASC Topic 718 requires us to this contingentmeasure the compensation resulting fromexpense for all share-based payment awards granted to our employees and the Restated CEO Employment Agreement which is only realizable by Mr. Kiani in the eventnon-employee members of a Qualifying Termination. In addition, it is importantour Board, including options to note that the total compensation amount reported for these 2.7 million RSUs in the Summary Compensation Table is calculated based upon the closing stock pricepurchase shares of our common stock and other stock awards, based on the grant date “fair value” of these awards. This calculation is performed for accounting purposes and reported in the executive compensation tables required by the federal securities laws, even though the recipient of the grant. However, since (i) the shares subject to this RSU will only vest in certain limited circumstances (andawards may never vest); (ii)realize any value from their awards.
To calculate the number of shares issuable may decrease with time; and (iii) thefair value of the shares may fluctuate over time based upon our stock price, the actual value that Mr. Kiani may ultimately realize from these RSUs may differ significantly from the accounting value of the award reflected in the Summary Compensation Table.
Immediately after we entered into the Restated CEO Employment Agreement, we reached out to 22 of our largest stockholders, who collectively represented approximately 53% of our outstanding shares of common stock. Over the following month, Mr. Reynolds, the Chairperson of our Compensation Committee, and other Compensation Committee members held calls with all of such stockholders who expressed an interest in speaking with the Compensation Committee. During these calls, which were led by Mr. Reynolds, the Compensation Committee articulated the benefits of the Restated CEO Employment Agreement to stockholders. The response from these stockholders was very positive, with many stockholders acknowledging that, while the process had taken much longer than many anticipated, the Restated CEO Employment Agreement had successfully removed many of the elements they had previously considered problematic and was in fact much more stockholder friendly.
Other Executive Compensation Actions
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| 2016 Proxy Statement
In addition to finalizing the Restated CEO Employment Agreement, other key actions taken by the Compensation Committee with respect to Masimo’s 2015 executive compensation program included the following:
During fiscal 2015, certain base salary adjustments were made for the NEOs other than the CEO, in amounts ranging from 3.0% to 21.7%. See “NEO Base Compensation Below” for further details.
As a result of the Company’s strong fiscal 2015 financial performance, the Compensation Committee established the fiscal 2015 Company Factor under the Executive Annual Cash Bonus Plan (“Executive Annual Plan”) at 105%.
As a result of both Company and individual contributions made by the Company’s NEOs, the Compensation Committee established fiscal 2015 Individual Factors for the NEOs under the Executive Annual Cash Bonus Plan ranging from 100% to 105%.
Performance Orientation of Executive Compensation
We believe that our executive compensation program is closely aligned with our stockholders’ interests. While base salary and an annual cash based bonus opportunity represent the achievement of shorter-term goals, our multi-year cash based bonus plan (three-year performance periods), as well as our equity awards in the form of options to purchase shares of our common stock, (typically five year vesting periods), provide for a longer-term compensation structure to promote retention and focus attention on the long-term operating results of the Company. Most of the annual compensation of our executive officers is directly tied, through performance-based bonuses or stock options, to driving financial and operating results that increase stockholder value.
Executive pay opportunities at Masimo continue to be tightly linked with Company financial performance. The following chart shows the distribution of each NEO’s target total compensation for fiscal 2015, consisting of base salary, target annual cash bonus, target multi-year cash bonus, and grant date fair value of equity awards granted during the fiscal year:
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| 2016 Proxy Statement
___________
| |
(1)
| The Multi-Year Bonus percentage for each NEO is based on 1/3 of the target value for the three year performance period covering 2014 through 2016. |
| |
(2)
| The Equity Awards percentage for Mr. Kiani does not include the RSU award granted to Mr. Kiani in November 2015 in connection with the amendment and restatement of his employment agreement because the RSUs will only vest in the event of a termination of Mr. Kiani’s employment with us other than for death, disability or cause, or Mr. Kiani’s termination of his employment with us for Good Reason. These RSUs will not vest if Mr. Kiani voluntarily terminates his employment with us other than for Good Reason. In addition, 270,000 shares subject to the RSUs will terminate without the payment of any consideration to Mr. Kiani, to the extent then unvested on January 1 of each year, beginning on January 1, 2018. See “— Employment Contract and Severance Arrangements — Employment Agreement with Joe Kiani” on page 52 of this Proxy Statement for additional information regarding the RSU award. |
Recent Governance Practice Changes:
Over the last year, in addition to the significant modifications to our CEO’s employment agreement, the Board and Compensation Committee have taken several other actions that it believes are responsive to stockholder concerns, including:
the termination of our prior stockholder rights plan (poison pill);
the adoption of a stock ownership policy with respect to our non-employee directors, which requires that our non-employee directors hold shares of Masimo stock with a value equal to at least $250,000 (See “— Non-Employee Director Stock Ownership Policy” on page 21 of this Proxy Statement for additional details);
the adoption of a new Non-Employee Director Compensation Policy (See “— Non-Employee Director Compensation” on page 21 of this Proxy Statement for additional details); and
the implementation of a 15 year term limit on non-employee director service.
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| 2016 Proxy Statement
Governance Practice Changes Prior to 2015:
Prior to fiscal 2015, the Compensation Committee took the following actions that it also believed were responsive to stockholder concerns:
the adoption of an executive officer stock ownership policy, which requires that our CEO hold shares of Masimo stock with a value equal to at least six times his base salary and each of our other executive officers hold shares of Masimo stock with a value equal to at least one time his base salary (See “— Executive Officer Stock Ownership Policy” on page 42 of this Proxy Statement for additional details);
the adoption of a policy governing gross-up provisions in agreements and arrangements with our executive officers, pursuant to which the Compensation Committee will no longer approve any arrangements with any of our executive officers that include a tax “gross-up” provision requiring that payments in connection with a change in control be made in an amount that results in the Company paying employee taxes on such payments (See “— Gross-up Policy” on page 43 of this Proxy Statement for additional details);
the adoption of a clawback policy that provides, in the case of a financial restatement, for the recovery of executive compensation that was due to the erroneous prior financial statement (See “Compensation Recovery” on page 41 of this Proxy Statement for additional details); and
the adoption of a policy prohibiting employees, executives and directors from engaging in hedging and similar transactions with respect to Company stock (See “Corporate Governance and Board Matters — Hedging and Pledging Policies” on page 20 of this Proxy Statement for additional details).
Compensation Philosophy and Objectives
Our compensation program is intended to reward the management team and other employees for strong performance over the long-term, with consideration to near-term actions and results that strengthen and protect Masimo. We consider the potential risks in our business when designing and administering our pay program, and we believe our balanced approach to performance measurement and pay delivery works to avoid misaligned incentives for individuals to undertake excessive or inappropriate risk.
The Compensation Committee believes that Masimo operates within a very complex business environment and model, which requires a very strong management team. The Compensation Committee also recognizes that it is critical to attract, develop and retain a senior management team capable of not only managing but also excelling within this complex and competitive business environment. As a result, the intent of the Compensation Committee for the Company’s executive compensation program is to provide compensation that:
appropriately aligns business objectives and stockholder interests;
attracts and retains the best executive talent;
maintains a reasonable balance across types and purposes of compensation, particularly with respect to fixed compensation objectives, short-term and long-term performance-based objectives and retention objectives;
motivates executive officers to achieve the Company’s annual and long-term strategic goals and rewards performance based on the attainment of such goals;
appropriately considers risk and reward in the context of the Company’s business environment and long-range business plans;
recognizes individual value and contributions to the Company’s success;
considers but does not exclusively rely upon market benchmarks; and
supports the Company’s succession planning objectives.
The Compensation Committee seeks to accomplish these goals in a way that is consistent with the long-term interests of the Company, its stockholders and employees. In making decisions about executive compensation, the Compensation Committee relies primarily on its general experience and subjective considerations of various factors, including individual and corporate performance, the Company’s strategic business goals and compensation
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| 2016 Proxy Statement
survey data. The Compensation Committee does not set specific benchmarks for overall compensation or for allocations between different types of compensation. The Compensation Committee oversees the compensation program for the Company’s executive officers with input from independent executive compensation consultants and legal counsel, as well as the assistance of executive management as the Compensation Committee believes appropriate.
Masimo’s business model requires management to be adept at developing competitive products and sales/marketing strategies to support multiple customers, including hospitals, alternate care facilities and original equipment manufacturers (“OEMs”). Many of Masimo’s competitors have substantially greater capital resources, larger customer bases, and larger sales forces than Masimo, and have ties with group purchasing organizations (“GPOs”) and other purchasers that are stronger than ours. In addition, the medical device industry is characterized by rapid product development and technological advances, which require our management team to be very adept at managing these key areas of the business. As a result, the Compensation Committee recognizes the importance of attracting and retaining a strong management team with sufficient knowledge, expertise and vision to be able to compete against these larger competitors and to develop and commercialize new products, new and improved technologies and new applications for our existing technologies. Our compensation program is intended to help us achieve and foster a goal-oriented, highly-motivated management team with a clear understanding of business objectives with shared corporate values.
The Board and Compensation Committee believe that executive pay opportunities, and in particular the CEO’s pay, should be tightly linked with Company financial performance. This perspective is illustrated by the chart on page 28 of this Proxy Statement, which shows the percentages of the CEO’s total target direct compensation (base salary, target annual bonus, target multi-year bonus and long-term incentive grant values) that are at-risk and performance-based.
Role of the Compensation Committee
The Compensation Committee approves, administers and interprets our executive compensation and benefit policies. The Compensation Committee consists of directors who are “outside directors” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and “non-employee directors” for purposes of Rule 16b-3 under the Exchange Act. The Compensation Committee is currently comprised of Mr. Fitch (effective as of February 26, 2015), Mr. Harkin (effective as of December 16, 2015) and Mr. Reynolds (the current Chairperson of the Compensation Committee).
In carrying out its functions, the Compensation Committee evaluates our compensation practices with a focus on the degree to which these practices reflect our executive compensation philosophy, develops recommendations and makes decisions that it believes further our philosophy or align with developments in best compensation practices, and reviews the performance of our executive officers when making decisions with respect to their compensation.
The Compensation Committee considers recommendations from our CEO in determining executive compensation. While Mr. Kiani discusses his recommendations with the Compensation Committee, Mr. Kiani excuses himself from meetings when the Compensation Committee makes determinations regarding his compensation. None of our other executive officers participate in the Compensation Committee’s determinations regarding executive compensation. The Compensation Committee does not delegate any of its functions to others in deciding executive compensation.
Since September 2012, FW Cook has provided compensation consulting services to the Compensation Committee in assessing and determining competitive compensation packages.
The Compensation Setting Process
The Compensation Committee does not engage in formal benchmarking against other companies’ compensation programs or practices to establish our compensation levels or make specific compensation decisions
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| 2016 Proxy Statement
with respect to our executive officers or other employees. Instead, in making its executive compensation determinations, the Compensation Committee reviews information summarizing the compensation paid at a representative group of companies, to the extent that the executive positions at these companies are considered comparable to Masimo positions and informative of the competitive environment, and more broad-based compensation surveys to gain a general understanding of market compensation levels.
With respect to 2015 compensation decisions, the Compensation Committee had available two competitive assessments of compensation levels for NEOs prepared by FW Cook, one prepared in March 2014 and another prepared in August 2015. The competitive market data was obtained from the SEC filings of a representative group comprised of publicly-traded companies classified as health care equipment and supplies companies in the Global Industry Classification Standard Code, the same classification as Masimo. The August 2015 representative group generally overlapped the March 2014 representative group, but differed insofar as it was determined that the representative group should be updated by adding two companies to the group (Cantel Medical Corporation and Invacare Corporation) to replace two companies (ArthoCare Corporation and Volcano Corporation) that had been acquired subsequent to the March 2014 report. In selecting the 2015 representative group, the objective was to choose companies that resulted in Masimo being near the median of the representative group in both revenue and market capitalization. The following were identified as comparable representative companies for the August 2015 study:
|
| | | | | | | | |
Align
Technology, Inc.
| | Analogic
Corporation
| | Cantel Medical Corporation | | CONMED
Corporation
| | Cyberonics
Corporation(1)
|
Globus
Medical, Inc.
| | Greatbatch, Inc. | | Haemonetics
Corporation
| | ICU Medical, Inc. | | Insulet
Corporation
|
Integra LifeSciences
Holding Corporation
| | Invacare Corporation | | Merit Medical
Systems, Inc.
| | Neogen
Corporation
| | NuVasive, Inc. |
Sirona Dental
Systems, Inc.
| | Thoratec
Corporation(2)
| | West
Pharmaceutical
Services, Inc.
| | | | |
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| 2016 Proxy Statement
___________
| |
(1)
| Cyberonics Corporation merged with Sorin S.p.A. effective October 15, 2015 creating a new company, LivaNova PLC. |
| |
(2)
| Thoratec Corporation was acquired by St. Jude Medical, Inc. on October 8, 2015. |
The companies included in the FW Cook report had median revenues of $615.0 million, ranging from $294.7 million to $1.39 billion, based on the four fiscal quarters ended nearest to September 30, 2015, and a median market capitalization of $2.15 billion, ranging from $584.9 million to $6.13 billion, as of December 31, 2015. By way of comparison, Masimo’s revenues of $617.9 million for its four fiscal quarters ended October 2, 2015 and market capitalization of $2.09 billion as of December 31, 2015 placed it at the 50th and 43th percentile among the companies in the study.
Components of our Compensation Program
We chose to build our executive compensation approach around five distinct components: (1) base salary; (2) cash bonuses; (3) equity-based incentives; (4) other benefits; and (5) severance and termination protection. We utilize short-term compensation, including base salary and annual cash bonuses, to motivate and reward our key executives. We believe that, in addition to base salaries and annual bonuses, long-term incentives in the form of multi-year cash bonuses and equity awards, are a very effective tool in attracting and retaining strong executive talent. The use and weight of each compensation element is based on a subjective determination by the Compensation Committee of the importance of each element in meeting our overall objectives. A full description of each compensation component is included below:
| |
1. | Base Salary - Base salary is used to provide each named executive officer (“NEO”) a set amount of money during the year with the expectation that he will perform his responsibilities to the best of his ability and in the best interests of Masimo. Base salaries are intended to attract and retain executive talent and typically recognize the experience, skills, knowledge and responsibilities required of each executive officer, as well as competitive market conditions.
|
| |
2. | Cash Bonuses - Cash bonuses are intended to motivate our executive officers to achieve specified financial goals and operating objectives. These bonuses may be paid under an annual cash bonus plan and/or a multi-year cash bonus plan:
|
(a) Annual Incentive Cash Bonuses -The Compensation Committee approves the annual incentive cash bonuses for all executive officers. These bonuses, if earned, are paid after the end of the calendar year. We currently expect to pay the fiscal 2015 incentive bonuses to our executive officers in March 2016, pursuant to our Executive Annual Cash Bonus Plan (“Executive Annual Plan”) for fiscal 2015.
To be eligible for a bonus under the plan for any plan year, the participant must be employed with us for at least twenty-six full weeks during the plan year.
Pursuant to the terms of the Executive Annual Plan, the 2015 bonus award for each NEO was calculated based upon the product of:
•the NEO’s base salary as of the end of 2015, multiplied by
•the Target Bonus Percentage factor applicable to the NEO, multiplied by
•the applicable Company Factor assigned by the Compensation Committee to the NEOs, multiplied by
•the NEO’s Individual Factor.
Target Bonus Percentage - The 2015 Target Bonus Percentage for the CEO was 100% of base salary, consistent with 2014. The Target Bonus Percentage for the other NEOs was 50% of base salary, also consistent with 2014. In determining these Target Bonus Percentages, the Compensation Committee took into account several factors, including its belief that the CEO continues to play a critical role in Masimo’s overall success and his efforts are central to the future success of the Company. In addition, competitive data
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| 2016 Proxy Statement
that was obtained from FW Cook indicated that the median target bonus percentage for CEOs was 100%, and that a 50% bonus target for other executive officers, including other NEOs, approximated median levels among comparable companies.
Company Factor - Under the Executive Annual Plan, the Compensation Committee reviews Company performance for the NEOs under two key financial targets and for NEOs other than the CEO, also considers certain additional operational targets, all of which are determined early in each fiscal year. The financial targets are not given any particular weighting and do not individually equate to any particular payout. Instead, if the Compensation Committee determines that (i) we did not achieve 100% of the two financial targets and, with respect to the NEOs other than the CEO, the operational objectives, the Compensation Committee can set the applicable Company Factor at any factor it deems appropriate, including 0%; (ii) we achieved 100% of the financial targets and, with respect to the NEOs other than the CEO, the operational objectives, the applicable Company Factor is 100%; and (iii) we achieved more than 100% of the financial targets and, with respect to the NEOs other than the CEO, the operational objectives, the Compensation Committee can set the applicable Company Factor at or above 100%. The Compensation Committee may also allow the CEO to recommend whether, based on his own subjective analysis, the applicable Company Factor, as approved by the Compensation Committee, should be lowered.
While the structure of the Executive Annual Plan gives the Compensation Committee significant flexibility in setting the Company Factor to take into account factors that do not lend themselves to a strictly quantitative evaluation, the Compensation Committee believes it has responsibly exercised this flexibility in a manner that fairly takes into account the overall performance of the Company, as evidenced by the Company Factors approved from 2011 through 2014:
Fiscal 2011 - 50%
Fiscal 2012 - 73%
Fiscal 2013 - CEO - 100% and other NEOs - 85% (The difference reflects the fact that the Company Factor for the CEO is based solely on the combined financial targets, which exceeded 100%, while the Company Factor for the NEOs also includes evaluation of performance against the operational targets, which was below 100%.)
Fiscal 2014 - 100%
Individual Factor - The Compensation Committee determines the Individual Factor for the CEO by assessing his overall performance for the year, provided that if the Compensation Committee has determined that each of the financial targets included in the Company Factor is met or that the Company Factor is 100%, then the CEO automatically receives a bonus equal to at least 100% of his applicable base salary. For all of our NEOs other than our CEO, the Individual Factor is determined by the Compensation Committee taking into account recommendations from our CEO based upon his assessment of each other NEO’s performance of the job-related duties and responsibilities assigned to such NEO during the year.
(b) Multi-Year Cash Bonuses - Our Compensation Committee adopted the Amended Executive Multi-Year Plan to provide our executive officers with an increased incentive to consider a long-term focus and deliver exceptional operational and financial results in a plan period covering three consecutive calendar years. The Amended Executive Multi-Year Plan was adopted on March 13, 2014 and is effective for the plan period of January 1, 2014 to December 31, 2016 (“Plan Period”). The prior plan period covered fiscal 2008 through fiscal 2010 and no similar plan was effective for fiscal 2011 through fiscal 2013. Our executives are eligible to receive a cash bonus at the end of an applicable three-year plan period based on our achievement of certain financial targets (described below) established by our Compensation Committee for the period as long as they have been employed with us for at least the last 18 months during the plan period. Amounts payable under the Amended Executive Multi-Year Plan are prorated based on the number of full weeks during the plan period in which the participant is employed with us, subject to the 18-month employment requirement discussed above.
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| 2016 Proxy Statement
Pursuant to the terms of the Amended Executive Multi-Year Plan, the bonus award for each NEO for the Plan Period will be calculated based upon the product of:
•the three-year average base salary paid to the NEO, multiplied by
•the Multi-Year Performance Bonus Percentage factor applicable to the NEO, multiplied by
•the applicable Company Factor assigned by the Compensation Committee, multiplied by
•the NEO’s Individual Factor, multiplied by
•three.
Multi-Year Performance Bonus Percentage - The Multi-Year Performance Bonus Percentage for the CEO and other NEOs are 100% and 50%, respectively. In determining the Multi-Year Performance Bonus Percentages, the Compensation Committee focused on the critical roles that the CEO and the other NEOs play in the long-term business and financial performance of the Company.
Company Factor - Under the Amended Executive Multi-Year Plan, the Compensation Committee reviews Company performance under specific objective assessment criteria. The criteria established for the Plan Period consists of two key financial targets: GAAP product revenue and GAAP diluted earnings per share. The financial targets under the Amended Executive Multi-Year Plan, which were established when the plan was adopted, were intended to be “stretch goals” that were even more aggressive than the targets established under the Executive Annual Plan. The criteria are not given any particular weighting and the specific targeted goals do not equate to any particular payout. At the end of the Plan Period, the Compensation Committee, with the input of the CEO, will evaluate performance against the criteria and, along with any other relevant financial or Company performance measures that the Compensation Committee determines to be relevant, establish a Company Factor ranging from 0% to above 100%.
Individual Factor - The Compensation Committee determines the Individual Factor for the CEO by assessing his overall job performance for the Plan Period. For all of our NEOs other than our CEO, the Individual Factor is determined by the Compensation Committee taking into account recommendations from our CEO based upon his assessment of each other NEO’s overall job performance during the Plan Period, as well as the assessment of the NEO’s supervisor, if not the CEO.
(c) Discretionary Cash Bonuses - Our Compensation Committee may, from time to time, approve discretionary cash bonuses for any NEO based on specific facts and circumstances that the Compensation Committee believes warrant special recognition. No discretionary cash bonuses were approved or paid in 2015 and only one discretionary bonus was approved during the past three fiscal years.
| |
3. | Equity-Based Incentives - Masimo uses equity-based incentives to retain executives, reward longer-term performance and align the interests of our executive officers with those of our stockholders. Since Masimo’s initial public offering in August 2007, the exclusive form of equity incentive has been stock options, other than the RSU award granted to Mr. Kiani in connection with the amendment and restatement of his employment agreement (See “— Employment Contract and Severance Arrangements — Employment Agreement with Joe Kiani” on page 52 of this Proxy Statement for additional details). We believe that stock options are an effective tool for meeting our compensation goal of increasing long-term stockholder value because stock options only have value if the Company’s stock price rises above the option exercise price. Masimo believes this direct alignment, plus the fact that stock options are well understood by executives, have made them an effective motivational tool and focused executives on results that directly improve the long-term performance of the Company. The stock options granted by Masimo typically vest over a five-year period with 20% vesting on each anniversary of the grant date. Their exercise price is set as the closing price of our common stock on the grant date.
|
As previously noted, in connection with the November 2015 amendment and restatement of Mr. Kiani’s employment agreement, our Compensation Committee granted Mr. Kiani an RSU award with respect to 2.7 million shares of common stock. This RSU was granted to Mr. Kiani in consideration for Mr. Kiani agreeing to
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| 2016 Proxy Statement
make certain amendments to his prior employment agreement, including the elimination of certain obligations of the Company under the prior employment agreement.
| |
4.
| Other Benefits - We utilize a competitive package of fringe benefits to attract and retain our employees and executives. These benefits include:
|
| |
(a) | Retirement Savings Plan - We maintain a 401(k) defined contribution plan in which all of our employees age 18 and older are entitled to participate, with our NEOs participating on the same terms as all other eligible employees. Employees may contribute their own funds, as salary deductions, on a pre-tax basis. Contributions may be made up to plan limits, subject to government limitations. The plan permits us to make matching contributions and we have historically provided contributions that match eligible employee contributions, which contributions are generally limited to 3% of compensation (federal tax law limits the amount of employee compensation that can be taken into account for this purpose). Matching contributions vest, starting at 50% of eligible employee contributions, when an employee has been employed for two years. The vesting percentage increases to 75% of eligible employee contributions when an employee has been employed for three years and to 100% when an employee has been employed for four years.
|
| |
(b) | Health and Welfare Plans - We provide health care, dental, vision and life insurance, an employee assistance plan and both short-term and long-term disability, accidental death and dismemberment benefits to all full-time employees, with our NEOs participating on the same terms as all other eligible employees. These benefits are subject to applicable laws and at benefit levels that we believe are generally consistent with the benefits of companies with which we compete for employees.
|
| |
(c) | Executive Benefits - Certain NEOs are eligible to receive an auto allowance based on their job duties. In addition, under our CEO’s employment agreement, we reimburse Mr. Kiani for all reasonable travel and lodging expenses, which include travel and hospitality expenses for first class travel and accommodations, including travel by private or chartered aircraft, for his family and household members if they accompany him during business travel. We feel that this is appropriate because of the extensive travel requirements of Mr. Kiani’s job. We also have established a security program for Mr. Kiani that provides physical and personal security services as they may, from time to time, be deemed necessary. This security program is not limited to providing security services only at business facilities or functions or during business-related travel and can include providing security services during certain non-business occasions, including at his primary residence and during personal travel. We do not consider any such security services to be personal benefits as the requirement for this occasional security is directly the result of Mr. Kiani’s role as our CEO and as our CEO, his personal safety is vital to our continued success. In addition, as part of the Compensation Committee’s request that Mr. Kiani engage in discussions to amend his prior employment agreement, Mr. Kiani’s legal costs incurred in connection with the amendment to his prior employment agreement were paid on his behalf by the Company. We have reported the actual amounts paid by the Company for Mr. Kiani’s family and household members to accompany him during his business travel, for such security arrangements for Mr. Kiani that were not security arrangements provided at the company’s business facilities, and for the legal costs related to his amended employment agreement in the “All Other Compensation” column in the Summary Compensation Table.
|
| |
5.
| Severance and Termination Protection - Severance and termination protection benefits are intended to attract and retain executive talent as well as facilitate management transitions, and include:
|
| |
(a) | CEO Employment Agreement - Under his employment agreement with us, Mr. Kiani is entitled to certain severance and change in control benefits, the terms of which are described in detail below under “— Employment Contract and Severance Arrangements — Employment Agreement with Joe Kiani”. In general, under the agreement, in the event of certain terminations of Mr. Kiani’s employment, Mr. Kiani is entitled to two times salary and bonus as a severance payment, the 2.7 million RSUs granted to him in November 2015 will vest in full and he will be entitled to receive a cash payment of $35.0 million; provided that each year beginning on January 1, 2018 the number of shares to be issued to Mr. Kiani pursuant to the RSU award and the cash payment will each be reduced by 10% of the original amount.
|
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| 2016 Proxy Statement
| |
(b) | Severance Protection Plan - The Board adopted our 2007 Severance Protection Plan, which became effective on July 19, 2007 and was amended on December 31, 2008, the terms of which are described in detail below under “2007 Severance Protection Plan”. Under the terms of this plan, participants are entitled to a cash payment ranging from 12 months to 24 months of base salary plus bonus and other benefits upon their termination under certain circumstances. In addition, for most participants, the plan provides for equity acceleration as to 50% of their awards upon a change in control and 100% of their awards upon a covered termination in connection with a change in control. The NEOs other than Mr. Kiani all participate in our 2007 Severance Protection Plan. See “2007 Severance Protection Plan” below for additional information.
|
Fiscal 2015 Year NEO Compensation
NEO Base Compensation:
The Compensation Committee approved 3% base salary increases for each of our NEOs, effective July 6, 2015, in each case after taking into account market data, the particular responsibilities and accomplishments of the executive in question, considerations of horizontal equity among executives, competitive considerations and other relevant factors. Pursuant to the amendment and restatement of Mr. Kiani’s employment agreement in November 2015, the Compensation Committee approved an additional increase of Mr. Kiani’s base salary to $1,000,000 effective as of August 1, 2015 (see “— Employment Contract and Severance Arrangements — Employment Agreement with Joe Kiani” on page 52 of this Proxy Statement for additional information regarding the terms of the Restated CEO Employment Agreement). In addition, the Compensation Committee approved additional base salary increases for Messrs. de Raad and Sampath, effective as of October 26, 2015, based on the recommendations of our CEO and the Compensation Committee’s review of external competitive market compensation data related to each of the NEO’s positions.
|
| | | | | | | | | | | |
Name | | Base Salary as of January 3, 2015 | | Base Salary as of January 2, 2016 | | % Change |
Joe Kiani | | $ | 769,549 |
| | $ | 1,000,000 |
| | 30.0 | % |
Mark de Raad | | 344,475 |
| | 390,000 |
| | 13.2 |
|
Anand Sampath | | 345,041 |
| | 420,000 |
| | 21.7 |
|
Rick Fishel | | 345,739 |
| | 356,111 |
| | 3.0 |
|
Jon Coleman | | 342,382 |
| | 352,654 |
| | 3.0 |
|
NEO Annual Cash Bonuses:
For 2015, as in prior years, the Compensation Committee determined that the financial targets for the Company Factor should focus on two critical financial targets that it believes drive our growth and long term stockholder value: product revenues and diluted EPS. These financial targets were (a) total GAAP product revenues of $577.0 million, and (b) GAAP diluted EPS of $1.30. For fiscal 2015, our total GAAP product revenues were $599.3 million which exceeded the target by $22.3 million, or nearly 4%. For fiscal 2015, our total GAAP diluted EPS was $1.55, up $0.25, or approximately 19% in excess of the target.
In addition to the two financial targets noted above, other operational targets used to determine the Company Factor for the NEOs other than the CEO were comprised of the following:
| |
(i) | make our customers 100% successful and 100% advocates of us and our technologies; |
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(ii) | measure and improve our quality compared to our competitors; |
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(iii) | achieve a specified level of OEM board and Masimo monitor shipments; |
| |
(iv) | achieve a specified level of single patient adhesive and disposable sensor shipments; and |
| |
(v) | achieve a specified level of rainbow®product revenues.
|
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| 2016 Proxy Statement
In setting the 2015 Company Factor objectives, the Compensation Committee believed that, provided that there was a maximum and sustained effort from each level of our organization, the goals were achievable but not easily attainable.
Following the end of the fiscal year, Mr. Kiani provided the Compensation Committee with his assessment of the Company’s performance against the subjective and objective operational measurement criteria. With respect to the subjective criteria, Mr. Kiani noted that the Company had, as a result of additional resources and customer focused initiatives, been able to dramatically improve the Company’s customer retention rates. Mr. Kiani also noted that the Company continued to make improvements in its key internal metrics related to improved quality, including on-time delivery, first pass yields and other manufacturing and operational metrics, as well as cost reduction initiatives. Mr. Kiani also reviewed the operational goals, noting the previously reported public data with respect to Masimo’s fiscal 2015 OEM board and monitor shipments of 182,600 units and rainbow®product revenues of $61.8 million. Mr. Kiani indicated that the Company achieved 114% of its OEM board and Masimo monitor shipment goal of 160,000 units, 103% of its single patient adhesive and disposable sensor goal and 103% of its rainbow® product revenues goal of $60.0 million. Mr. Kiani also noted other key activities occurring during fiscal 2015 that required substantial senior management time and focus, including various litigation and trial activities, successful value engineering projects and the introduction of a number of new technologies (ORI™, O3™, etc.) and products (Root® with vital signs, MightySat™, etc.). Although still subject to appeal, Mr. Kiani also noted that in May 2015, the court had upheld the Company’s patent litigation jury damages award against Philips of $466.8 million from October 2014. Mr. Kiani also noted the successful settlement of a patent infringement lawsuit with Mindray Biomedical Electronics Co., Ltd. and certain of its affiliates (collectively, “Mindray”) during the fourth quarter of fiscal 2015, pursuant to which Mindray paid Masimo $25.0 million and assigned certain of its patents to Masimo.
Based on these significant 2015 achievements, including the higher than planned product revenues (actual of $599.3 million as compared to the original $577.0 million target) and GAAP earnings per share (actual of $1.55 as compared to the $1.30 target), Mr. Kiani recommended a 105% Company Factor for 2015. After a careful review of the results of the 2015 key financial targets, the other operational targets, as well as the other achievements noted by Mr. Kiani, the Compensation Committee agreed to set the 2015 Company Factor at 105%.
Individual Factor. The Compensation Committee determined the Individual Factor for the CEO by assessing his overall performance for the year. For all of our NEOs other than our CEO, the Individual Factor was determined by the Compensation Committee taking into account the recommendations from our CEO based upon his assessment of each other NEO’s performance of the job-related duties and responsibilities assigned to such NEO during 2015. The Compensation Committee believed a 100% Individual Factor was appropriate for our CEO given the significant 2015 accomplishments and the continued outstanding leadership provided by Mr. Kiani relative to many of the other external legal and regulatory factors that continued to require a significant amount of Mr. Kiani’s time and attention. Mr. Kiani’s key notable 2015 achievements included:
| |
• | Total GAAP product revenues grew by 7.6% to $599.3 million from $556.8 million or by 11.0%, to $618.0 million, on a constant currency basis.4 Both these numbers dramatically exceeded the Company’s original fiscal year 2015 expectations;
|
Total GAAP earnings per share grew by 19.2% to $1.55 per diluted share from $1.30 per diluted share in the prior year;
| |
• | Total revenues grew by 7.4% to $630.1 million from $586.6 million in the prior year period. On a constant currency basis5, total revenues grew by 10.6% to $648.8 million from the prior year period;
|
The total product revenue and total revenue growth rates noted above are estimated to be between two to three times the overall industry growth rates;
| |
• | Shipments of Masimo SET® and Masimo rainbow SET™ pulse co-oximetry boards and monitors rose to a record 182,600, yielding an estimated annual growth in our installed base of approximately 6.4%;
|
4 Non-GAAP financial measure - please see reconciliation to GAAP amounts in Appendix A to this Proxy Statement.
5 Non-GAAP financial measure - please see reconciliation to GAAP amounts in Appendix A to this Proxy Statement.
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| 2016 Proxy Statement
| |
• | Record volume shipments of Masimo’s pulse oximetry and rainbow® adhesive sensors;
|
Completion and implementation of numerous value engineering initiatives;
The introduction of new technology and products, including:
| |
▪ | MightySat™ fingertip pulse oximeter for personal use;
|
| |
▪ | Patient SafetyNet Series 5000™ along with Iris™ Connectivity and MyView™ through the Root® patient monitoring and connectivity platform; and
|
| |
▪ | Root® connectivity and patient monitoring platform with noninvasive blood pressure and temperature capabilities.
|
The repurchase of approximately 4.1 million outstanding shares, representing a return of 135.7% of fiscal 2015 cash generated from business operations; and
The settlement of Company litigation with Mindray pursuant to which Mindray paid $25 million to Masimo and assigned certain of its patents to Masimo.
With respect to the Individual Factors for the other NEOs, the Committee took into account the fact that fiscal 2015 included many new management challenges that required careful attention and focus by the executive management team - both as a team and as selected groups of executive management team members. These challenges were not limited to internal operations of the Company but also involved having to address a number of external issues, including multiple legal matters that requiredsignificant time and attention. Each of the Board, Compensation Committee and the CEO recognized that 2015 required extensive time and effort from the management team that significantly exceeded the already high levels of activity expected from its senior officers. Each NEO (other than the CEO) had functionally specific goals and objectives that were set by the CEO and NEOs at the beginning of the year, which were designed to contribute to the achievement of our corporate objectives. Based on the CEO’s review of the level of achievement of the individual, non-financial factors for each of the other NEOs, as well as the overall executive and management contributions, the CEO recommended specific 2015 Individual Factors for each NEO. These determinations were based in part on the following summary of the overall management contributions and each NEO’s performance during 2015.
In addition to the team related factors noted above, Mr. de Raad’s individual achievements included becoming a key leader in developing the Company’s new financial plan focused on delivering increased financial leverage. Mr. de Raad was the primary cross-functional interface in establishing a variety of operational goals designed to both improve efficiencies and lower costs. Working with our manufacturing, operations, engineering, sales, marketing and general and administrative organizations, Mr. de Raad helped to drive and ensure that the targeted goals were achieved. In addition to Mr. de Raad’s functional responsibilities, including delivering all internal and external financial reporting obligations on time, he also implemented a number of reporting improvements that allowed for quicker identification and reporting of potential risks against the Company’s business plan. Mr. de Raad was also responsible for expanding the Company’s line-of-credit from $250 million to $450 million, which will allow the Company to become more opportunistic in deploying capital over the next few years. Within Mr. de Raad’s investor relations responsibilities, he continued to attend numerous investor conferences and support various analyst related events focused on ensuring that these constituencies clearly understood the Company’s renewed focus on financial leverage and, at the same time, also had the opportunity to dialogue with management. Based on Mr. de Raad’s 2015 achievements, Mr. Kiani recommended, and the Compensation Committee approved, a 100% individual achievement factor for Mr. de Raad.
During fiscal 2015, Mr. Sampath led a significant number of 2015 key initiatives, including the launch and receipt of FDA clearance for our new MightySat™ fingertip pulse oximeter. Mr. Sampath was also the key management owner of one of the Company’s most strategically important product transitions to a new line of sensors and devices. This complex development was completed on time, allowing the Company to complete its migration away from older technology sensors to a redesigned line of sensors that the Company expects will be much more patient friendly and will provide important manufacturing efficiencies for the Company. Mr. Sampath also led the Company’s on-going value engineering efforts, which in fiscal 2015, exceeded the targeted annual
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| 2016 Proxy Statement
manufacturing efficiencies. In Mr. Sampath’s manufacturing role, the Company was able to build and ship a record number of SpO2 and rainbow® sensors and technology boards, while concurrently working on expanding our production capabilities to support new products. In addition, Mr. Sampath worked extensively to improve the Company’s regulatory processes, requiring collaborative and cross-functional process improvements within the marketing, clinical research, regulatory and research and development organizations. Based on Mr. Sampath’s 2015 achievements, Mr. Kiani recommended, and the Compensation Committee approved, a 100% individual achievement factor for Mr. Sampath.
Mr. Fishel’s individual achievements in 2015 included a new Company record in annual OEM board shipments, reflecting a 5% increase over 2014 OEM board shipments. The 2015 record OEM board shipments also included a record number of OEM products shipped with our rainbow® technology, reflecting a significant 25% year-over-year increase. The increase in board shipments, combined with a 33% increase in OEM sales of rainbow® parameters and accessories, also contributed to 10% growth in annual OEM revenue. In addition, the OEM business executed a significant number of agreements involving the integration of Masimo technology in therapy devices that should lead to continued growth in Masimo OEM shipments while also helping these companies pursue enhanced therapy-delivery applications designed to improve patient safety and outcomes. Throughout 2015, Mr. Fishel also successfully managed the OEM engineering team’s efforts to support our growing number of existing OEM partners plus our many new partners integrating Masimo technologies for the first time, as well as the development of several adaptations of existing Masimo technologies to address new OEM applications or the specific needs of select OEMs. These achievements were the result of Mr. Fishel’s continued multi-year efforts to expand the volume and diversity of the Company’s OEM partners, increase shipments with existing OEM partners, and expand the breadth of Masimo’s OEM offerings, all of which serve as valuable catalysts for the Company’s direct sales business. During fiscal 2015, Mr. Fishel also led the Company’s relatively new Blood Management sales organization focused on sales and applications of the Company’s SpHb® and PVI® technologies, achieving 30% growth in annual revenues. As a result of Mr. Fishel’s multi-year focus on establishing best practices for the many clinical applications of these unique continuous and non-invasive monitoring parameters, the Company substantially refined its sales and support strategies that should lead to increasing growth from these solutions in the future. Mr. Fishel also provided valuable contributions to the Company’s long term strategic planning efforts in evaluating new business development opportunities. Based on Mr. Fishel’s 2015 achievements, Mr. Kiani recommended, and the Compensation Committee approved, a 100% individual achievement factor for Mr. Fishel.
Mr. Coleman’s individual achievements included leading the Company’s strong fiscal 2015 product revenue performance. His specific achievements included growing the U.S. acute care revenues over $300 million for the first time ever. Under Mr. Coleman’s leadership, the Company achieved the second highest amount of new contract conversions and the second highest level of contract renewals in the Company’s history. Mr. Coleman was also responsible for allowing the Company to continue to expand its Patient SafetyNet™ system and its Root® platform in the medical/surgical units at leading institutions around the U.S. He was also instrumental in strong year-over-year revenue growth in the U.S. alternate care organization where the post-acute group converted dozens of facilities to Masimo SET®, and in so doing, established a new record for new contracts from this group. This organization was also a key factor in continuing to drive usage and adoption of SpHb® in the U.S. Internationally, Mr. Coleman delivered the largest single contract in the Company’s history, a contract that also included a significant amount of rainbow® technology. Mr. Coleman also took a variety of organizational steps during the year to strengthen our business in various key countries outside the United States (“OUS”) that we believe will be critical to our long-term goal of growing our OUS product revenues as a percentage of total product revenues. In addition to these sales related efforts and accomplishments, Mr. Coleman has contributed to a variety of cost savings activities to help drive the Company’s overall focus on increased financial leverage. Based on Mr. Coleman’s 2015 accomplishments, Mr. Kiani recommended, and the Compensation Committee approved, a 105% individual achievement factor for Mr. Coleman.
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| 2016 Proxy Statement
The combination of the applicable Company Factor and the applicable Individual Factor discussed above resulted in the NEOs being awarded the following bonus amounts for 2015:
|
| | | | |
Name | | Bonus |
Joe Kiani | | $ | 1,050,000 |
|
Mark de Raad | | 204,750 |
|
Anand Sampath | | 220,500 |
|
Rick Fishel | | 186,958 |
|
Jon Coleman | | 194,400 |
|
NEO Multi-Year Cash Bonuses:
As previously noted, the Amended Executive Multi-Year Plan is effective for the three-year period of January 1, 2014 to December 31, 2016. Our executives will be eligible to receive a cash bonus at the end of this three-year Plan Period based on the Compensation Committee’s evaluation of Company performance against two key financial targets - product revenue and diluted EPS - over the three year plan period, and such targets are intended to be more aggressive than those under the Executive Annual Plan.
Our total GAAP product revenues for fiscal 2014 of $556.8 million were adjusted by $1.7 million to reflect the impact of actual 2014 foreign exchange (“F/X”) rates versus the rates in effect when the 2014 Executive Multi-Year Plan goals were established. As a result, the F/X adjusted product revenue6 total of $558.5 million represented a 97% achievement against the adjusted fiscal 2014 product revenue goal of $574.0 million. At the same time, our $1.30 GAAP earnings per share, when adjusted for the impact of actual 2014 F/X rates versus the rates in effect when the Executive Multi-Year Plan goals were established, yielded F/X adjusted earnings per share7 of $1.31, representing a 94% achievement against the adjusted fiscal 2014 earnings per share goal8 of $1.40. By way of contrast, the 2014 targets under the Executive Annual Plan for GAAP product revenue was $570 million and GAAP EPS was $1.28.
In fiscal 2015, our GAAP 2015 total product revenues of $599.3 million were increased by $19.9 million due to the impact of actual 2015 F/X rates versus the rates in effect when the 2014 Executive Multi-Year Plan goals were established. As a result, the F/X adjusted product revenue total9 of $619.2 million represented a 98% achievement of the original 2015 Executive Multi-Year Plan goal of $630.5 million. At the same time, our fiscal 2015 $1.55 GAAP earnings per share was increased by $0.12, to $1.67, due to the same impact of actual 2015 F/X rates versus the rates in effect when the Executive Multi-Year Plan goals were established. The F/X adjusted earnings per share10of $1.67 represents a 101% achievement as compared to the adjusted earnings per share goal11 of $1.65. By way of contrast, the 2015 targets under the Executive Annual Plan for GAAP product revenue of $577.0 million and GAAP EPS of $1.30 were significantly lower than the targets for these measurements under the Executive Multi-Year Plan.
Fiscal 2016 will be the final year of the 2014-2016 Executive Multi-Year Plan. Under the terms of the Executive Multi-Year Plan, during the first quarter of fiscal 2017, the Compensation Committee will evaluate the results of the performance delivered over the entire three year plan period and will determine the actual bonus achievement level for the current 2014-2016 Executive Multi-Year Plan.
6 Non-GAAP financial measure - please see reconciliation to GAAP amounts in Appendix B to this Proxy Statement.
7 Non-GAAP financial measure - please see reconciliation to GAAP amounts in Appendix B to this Proxy Statement.
8 The original 2014 earnings per share goal of $1.16 was adjusted upward to $1.40 due to the impact of royalty revenues, which were not part of the original 2014 Executive Multi-Year Plan earnings per share goal of $1.16.
9 Non-GAAP financial measure - please see reconciliation to GAAP amounts in Appendix B to this Proxy Statement.
10 Non-GAAP financial measure - please see reconciliation to GAAP amounts in Appendix B to this Proxy Statement.
11 The original 2015 earnings per share goal of $1.33 was adjusted upward to $1.65 due to the impact of royalty revenues, which were not part of the original 2015 Executive Multi-Year Plan earnings per share goal of $1.33.
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| 2016 Proxy Statement
NEO Equity-Based Incentives:
The number of options awarded to each executive officer takes into account his sustained performance over time, ability to impact our results that drive stockholder value and level of responsibility within Masimo. In general, equity forms a key part of the overall compensation for each executive officer and is evaluated each year as part of the annual performance review process and incentive payout calculation.
On March 20, 2015, each of our NEOs other than the CEO was granted 30,000 stock options. The size of the grants to our other NEOs is generally consistent with the size of the annual option grants made to our other NEOs in prior years, and was determined by the Compensation Committee in their business judgment after a recommendation from our CEO.
Pursuant to his prior employment agreement, our CEO was granted 300,000 stock options on June 15, 2015. The annual grant to the CEO of an option to purchase 300,000 shares is only required under the Restated CEO Employment Agreement until fiscal 2017. After fiscal 2017, there are no guaranteed or minimum grants of stock options or any other type of equity required under the Restated CEO Employment Agreement.
The Compensation Committee believes that the 2015 option grants continued to align the long-term incentives of our executives with our stockholders. Our equity-based incentives are also consistent with Masimo’s stock ownership policy that was adopted in January 2012, which requires the CEO to hold shares of Masimo stock with a value equal to at least six times his base salary and the other executive officers to hold shares of Masimo stock with a value equal to at least one time base salary by the dates specified in the policy.
As previously noted, our Compensation Committee granted our CEO an RSU award in connection with the amendment and restatement of Mr. Kiani’s employment agreement in November 2015. This was the first RSU award granted by the Company. As previously noted, this grant was not a standalone grant but instead, was granted in consideration for the CEO’s agreement to relinquish certain rights he had under his prior employment agreement. The Compensation Committee’s decision to grant the RSU award as part of the terms of the Restated CEO Employment Agreement reflected the unanimous decision of the Compensation Committee (comprising all of the members of the Board who were independent under the relevant SEC and NASDAQ requirements) that the benefits to the stockholders from the terms of the Restated CEO Employment Agreement exceeded the contingent cost of the RSUs issued pursuant to this agreement (the RSUs only vest in the event of a Qualifying Termination - see “—Employment Contract and Severance Arrangements — Employment Agreement with Joe Kiani” at page 52 for details). The decision to grant contingent RSUs in consideration of the CEO’s agreement to amend his employment agreement reflected the Compensation Committee’s conclusion that providing contingent benefits in the form of RSUs, as opposed to a contingent cash payment, further aligns the interests of our CEO with those of our stockholders. The underlying philosophy reflected by this approach is that because a significant amount of the CEO’s contingent future compensation lies in the value of the RSU award, the CEO will be motivated to continually improve the Company’s performance, without encouraging unnecessary or excessive risk taking.
Compensation Recovery
Masimo has adopted a clawback policy that provides that in the event we are required to restate our financial statements as a result of “material noncompliance” with financial reporting requirements under the securities laws, we will recover from our current and former executive officers any incentive-based compensation (including stock option awards) that is (i) based on erroneous data, (ii) received during the three-year period preceding the date on which the Company becomes required to prepare an accounting restatement, and (iii) in excess of what would have been paid if calculated under the restatement. We believe that the terms of our clawback policy comply with the statutory requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and the Sarbanes-Oxley Act of 2002, as amended. As of March 16, 2016, the SEC has not issued any final regulations implementing this portion of the Dodd-Frank Act. Once the SEC issues final regulations or guidance regarding the required form of a clawback policy under the Dodd-Frank Act, we will amend our clawback policy accordingly.
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| 2016 Proxy Statement
Executive Officer Stock Ownership Policy
In January 2012, our Nominating, Compliance and Corporate Governance Committee adopted a stock ownership policy that is applicable to each of our executive officers. Our Nominating, Compliance and Corporate Governance Committee believes this policy is an important tool in aligning the interests of our executive officers with the long-term interests of our stockholders.
The policy requires that our CEO hold shares of Masimo stock with a value equal to at least six times his annual base salary and each of our other executive officers hold shares of Masimo stock with a value equal to at least one time his annual base salary. For purposes of calculating ownership under this policy, the following sources are included, whether vested or unvested: (i) shares of our common stock held directly by the executive officer or in a trust for the benefit of the executive officer or his family; (ii) shares of our common stock held by the executive officer jointly with, or separately by, the executive officer’s spouse and/or children sharing the same household as the executive officer; (iii) shares of our common stock held by the executive officer through a profit sharing, savings or deferral plan; and (iv) restricted stock or phantom stock held by the executive officer. Stock options and unearned performance shares are not included in the calculation. For purposes of these requirements, an executive officer’s base salary during any calendar year is deemed to be the executive officer’s base salary as of the close of business on December 31 of the immediately preceding year.
To give our executive officers time to comply with our stock ownership policy, our Nominating, Compliance and Corporate Governance Committee determined that our executive officers have until the later of March 2017 or March 1st of the sixth calendar year following the date an individual first becomes an executive officer to comply with these guidelines. As of January 2, 2016, excluding pledged shares, unvested options and the 2.7 million RSUs, our CEO’s stock ownership greatly exceeds this guideline at more than 138 times his base salary.
Under our stock ownership policy, if an executive officer fails to meet or, in unique circumstances, fails to show sustained progress toward meeting the ownership requirements, we may reduce future long-term incentive equity grants, and/or payments of future annual and/or long-term cash incentive payouts in the form of stock and/or impose other penalties. The Compensation Committee retains the discretion not to levy penalties for non-compliance.
Non-Employee Director Stock Ownership Policy
In February 2016, our Nominating, Compliance and Corporate Governance Committee adopted a new stock ownership policy that is applicable to each of our non-employee directors. Our Nominating, Compliance and Corporate Governance Committee believes this policy is an important tool in aligning the interests of our non-employee directors with the long-term interests of our stockholders.
The policy requires that our non-employee directors hold shares of Masimo stock with a value equal to at least $250,000. For purposes of calculating ownership under this policy, the following sources are included, whether vested or unvested: (i) shares of our common stock held directly by the non-employee director or in a trust for the benefit of the non-employee director or his family; (ii) shares of our common stock held by the non-employee director jointly with, or separately by, the non-employee director’s spouse and/or children sharing the same household as the non-employee director; (iii) shares of our common stock held by the non-employee director through a profit sharing, savings or deferral plan; and (iv) restricted stock or phantom stock held by the non-employee director. Stock options and unearned performance shares are not included in the calculation.
To give our non-employee directors time to comply with our stock ownership policy, our Nominating, Compliance and Corporate Governance Committee determined that our non-employee directors have until the later of March 1, 2021 or the five-year anniversary of their appointment as a director to comply with these guidelines.
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| 2016 Proxy Statement
Gross-Up Policy
The Compensation Committee has adopted a policy governing gross-up provisions in agreements with our executive officers. Under this policy, the Compensation Committee will not approve any employment or other agreement or arrangement with any of our executive officers that includes a tax “gross-up” provision or a similar term that would require payments by us to an executive officer be made in the full amount, free of any deductions or withholdings, and without exercising any right of set-off, in connection with a change in control. This policy also provides that the Compensation Committee will not approve an amendment to extend the term of any current employment or other agreement or arrangement between us and any executive officer if such agreement or arrangements includes a tax “gross-up” provision or a similar term. Although Mr. Kiani’s prior employment agreement provided for a gross-up provision, the Restated CEO Employment Agreement does not include any gross-up provisions, and there are no agreements in place with any other executive officer that require a gross-up payment.
Under our Severance Plan in which our other NEOs participate, the Plan Administrator has the right to reduce any change in control severance benefits payable to an executive to avoid triggering any “excess parachute payments” under Section 280G of the Code.
Accounting and Tax Considerations
We expense employee and non-employee director equity awards in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 718. Pursuant to ASC Topic 718, employee stock options are expensed over the vesting period of the stock options based on the fair value of the award on the date of grant. To calculate the fair value of stock options, we use the Black-ScholesBlack-Scholes-Merton option pricing model which requires the input of several subjective assumptions. These assumptions include estimating the length of time employeesrecipients will retain their vested stock options before exercising them, the estimated volatility of our stock price over the expected option term, and the number of shares of our common stock subject to options that will ultimately be forfeited prior to meeting their vesting requirements. RSUs are expensed based on theThe fair value of the award onoptions granted to our employees and the datenon-employee members of grant,our Board are expensed over the requisite service period of each option, which is the vesting period, using a straight-line attribution method.
The fair value of RSU awards is calculated based upon the closing stockmarket price of our common stock on the date of the grant. Time-basedgrant or any “modification” to the grant, as that term is defined under ASC Topic 718. The fair value of the time-based RSU awards granted to our employees and the non-employee members of our Board are expensed over the requisite service period of each award, which is the vesting period, using the straight-line attribution method.
The fair value of PSU awards is calculated based on the closing price of our common stock on the date of grant. The actual stock-based compensation expense is dependent on the number of PSUs that are ultimately awarded, not the number of PSUs granted. As a result, we are required to estimate, based on our best judgment, the number of PSUs that will ultimately be awarded. In fiscal 2018, the cost of the estimated PSU awards was expensed pursuant to the “graded” vesting concept whereby a higher amount of amortization expense is incurred in the early portion of the vesting period, as compared to the later part of the period. This is required in an attempt to separate the performance period of the award as compared to the retention period of the award.
With respect to the RSU award covering 2.7 million shares of our common stock granted to our CEO as part of the terms of the Amended CEO Agreement, this RSU award vests only in the event of a Qualifying Termination (see “— Employment Arrangements with Named Executive Officers — Employment Agreement with Mr. Kiani” on page 67 of this Proxy Statement for details). Accordingly, and in accordance with ASC Topic 718, we will only recognize compensation expense for this contingent stock award at the time of a change of control of the Company or when it is determined that the occurrence of a Qualifying Termination is “probable.” Should this occur, in accordance with applicable accounting standards, the amount of compensation expense that will be recognized will be based upon the fair value of the RSU award on the date of grant. At the present time, we do not believe that an occurrence of a Qualifying
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| 2019 Proxy Statement
Termination is “probable”, and as a result, no stock-based compensation expense has been recorded related to this RSU award.
While the Compensation Committee considers the expense impact under ASC Topic 718 as one of the factors in granting equity awards, it also considers the importance of aligning NEOthe interests of our executive officers with the interests of our stockholders, the retentive value of equity awards and other factors, and makes its decisions regarding equity awards based on a combinationits evaluation of thesesuch factors.
With regard to the 2.7 million RSU grant provided to our CEO as part of the terms of the Restated CEO Employment Agreement, this RSU grant vests only in the event of a Qualifying Termination (see “— Employment Contract and Severance Arrangements — Employment Agreement with Joe Kiani” at page 52 for details). Accordingly, and in accordance with GAAP, the Company will only recognize an expense related to this contingent RSU grant at the time of a change of control or when it is determined that the occurrence of a Qualifying Termination is “probable”. Should this occur, in accordance with GAAP, the amount of expense that will be recognized will be based upon the fair market value of the RSU on the date of grant. At the current time, the Company does not believe that an occurrence of a Qualifying Termination is “probable”, and as a result, no stock-based compensation expense has been recorded related to this RSU grant.
Section 162(m) of the Code limits the amount that we may deduct in a year for compensation paid to our CEO and each of our three other most highly compensated executive officers (other than our chief financial officer) to $1 million per person. Section 162(m) provides certain exceptions to this limit for certain forms of “performance-based compensation” granted under compensation plans that meet certain technical requirements. The Compensation Committee considers the impact of Section 162(m) when making its compensation decisions, but has determined that it will approve compensation arrangements that do not qualify for tax deductions when, in its business judgment, doing so would be in the best interest of the Company and its stockholders.
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| 2016 Proxy Statement
Compensation Committee Report |
| | | | |
COMPENSATION COMMITTEE REPORT |
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K of the SEC’s rules and regulations with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated into our Annual Report on Form 10-K for the fiscal year ended January 2, 2016.
|
| |
| Compensation Committee |
| Mr. Craig Reynolds |
| Mr. Sanford Fitch |
| Mr. Thomas Harkin |
| Mr. Jack LasersohnAdam Mikkelson |
This foregoing compensation committee report is not “soliciting material”, is not deemed “filed” with the SEC, and shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing of ours under the Securities Act of 1933, as amended, or under the Exchange Act, except to the extent we specifically incorporate this report by reference.
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| 2016 Proxy Statement
Compensation Committee Interlocks and Insider Participation |
| | | | |
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION |
During fiscal 2015,2018, our Compensation Committee consisted of Mr. Lasersohn,Harkin, Mr. Mikkelson and Mr. Reynolds Mr. Fitch (appointed on February 26, 2015), and Mr. Harkin (appointed on December 16, 2015). In addition, Dr. Robert L. Coleman served on our(the current Chairperson of the Compensation Committee during fiscal 2015 until his service on our Board ceased on June 2, 2015.Committee). There are no relationships between the current members of the Compensation Committee and our executive officers of the type contemplated in the SEC’s rules requiring disclosure of “compensation committee interlocks.” None of the current members of the Compensation Committee is our employee and no current member has been an officer of Masimo at any time.
Cercacor Laboratories, Inc. (Cercacor)
Cercacor Laboratories, Inc. (“Cercacor”) is an independent entity spun off from us to our stockholders in 1998. Joe Kiani, our Chairman and Chief Executive Officer,CEO, is also the Chairman and Chief Executive Officer of Cercacor and a member of the board of directors of Cercacor. In addition, Mr. Lasersohn, a member of our Board, also served as a member of the board of directors of Cercacor through April 2, 2015.
We are a party to a cross-licensing agreement with Cercacor, which was amended and restated effective January 1, 2007 (the “Cross-Licensing Agreement”), that governs each party’s rights to certain of the intellectual property held by the two companies. To date, the Company haswe have developed and commercially released devices that measure carbon monoxide, methemoglobin and hemoglobin using licensed rainbow® technology. Pursuant to the Cross-Licensing Agreement, we are currently subject to certain specific minimum royalty payment obligations of $5.0 million per year. Actual aggregate royalty payment liabilities were $6.7$10.9 million for fiscal 2015.2018.
The Company hasWe also entered into a Services Agreement with Cercacor effective January 1, 2007 (the “Services Agreement”), which governs certain general and administrative services the Company provideswe provide to Cercacor. Pursuant to the Services Agreement, Cercacor paid the Companyus $0.2 million for general and administrative services related to fiscal 2015.2018.
In addition, to accelerate the development of the technology and product development supporting our Pronto-7® device, in February 2009, Masimo agreed to reimburse Cercacor for all third-party engineering materials and supplies expenses related to Pronto-7® development and 50% of Cercacor’s total engineering and engineering-related payroll expenses and this arrangement was discontinued by mutual agreement effective January 4, 2015. During fiscal 2015, Cercacor completed a review of its fiscal 2014 cross-charges related to Pronto-7®. Based on this review, it was determined that less than 60% of Cercacor’s total engineering and engineering-related payroll expenses were attributable to the development of Pronto-7®, resulting in an overpayment by us to Cercacor of approximately $1.6 million for fiscal 2014. In addition, in fiscal 2015, we and Cercacor agreed to equally share approximately $1.4 million of previously incurred engineering-related payroll expenses associated with research for a new LED sensor technology and, as a result, we and Cercacor mutually agreed that Cercacor would refund $0.9 million to us.
During fiscal 2015, we also agreed to compensate Cercacor for certain engineering consulting and clinical studies support services that Cercacor may provide to the Company from time-to-time. Expenses incurred by the Company for such services were $0.3 million for the fiscal year ended January 2, 2016.
We also entered into a patent transfer and licensing agreement with Cercacor (the “Patent Agreement”) with Cercacor during fiscaleffective July 2015, pursuant to which, among other things, we purchased certain patents and patent applications from Cercacor (the “Purchased Patents”) for an aggregate purchase price of $2.4 million. Pursuant to the Patent Agreement, the Companywe granted
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| 2019 Proxy Statement
Cercacor an irrevocable, non-exclusive, worldwide license with respect to the products and services covered by the Purchased Patents.
In March 2016, we entered into a sublease agreement with Cercacor for approximately 16,830 square feet of excess office and laboratory space located at 40 Parker, Irvine, California (the “Cercacor Sublease”). The Cercacor Sublease began on May 1, 2016 and expires on November 30, 2019. We recognized $0.4 million of sublease income pursuant to the Cercacor Sublease during fiscal 2018.
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| 20162019 Proxy Statement
Summary Compensation Table |
| | | | |
SUMMARY COMPENSATION TABLE |
The following table provides information regarding the compensation earned during the fiscal year ended January 2, 2016December 29, 2018 by our CEO, our CFO and our three other most highly compensated executive officers who were employed with us as of January 2, 2016,December 29, 2018, the last day of our 20152018 fiscal year. We refer to these five individuals collectively as our “named executive officers” (“NEOs”).NEOs. We generally pay bonuses in the year following the year in which the bonus was earned. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position(s) | | Year | | Salary | | Bonus | | Stock Awards(1) | | Option Awards(1) | | Non-Equity Incentive Plan Compensation(2) | | All Other Compensation | | Total | | Total, Excluding RSU Grant to Mr. Kiani in Connection with the Restated CEO Employment Agreement(3) |
Joe Kiani | | 2015 | | $ | 883,518 |
| | $ | — |
| | $ | 111,915,000 |
| (4) | $ | 3,822,690 |
| | $ | 1,050,000 |
| | $ | 1,551,406 |
| (5) | $ | 119,222,614 |
| | $ | 7,307,614 |
|
Chief Executive Officer and Chairman (PEO) | | 2014 | | 755,846 |
| | 75,000 |
| | | | 2,661,150 |
| | 769,549 |
| | 194,836 |
| | 4,456,381 |
| | 4,456,381 |
|
| | 2013 | | 712,545 |
| | — |
| | | | 2,320,110 |
| | 787,545 |
| | 387,288 |
| | 4,207,488 |
| | 4,207,488 |
|
| | | | | | | | | | | | | | | | | | |
Mark de Raad | | 2015 | | 363,034 |
| | — |
| | | | 313,623 |
| | 204,750 |
| | 7,950 |
| (6) | 889,357 |
| | 889,357 |
|
Executive Vice President, Chief Financial Officer & Corporate Secretary (PFO) | | 2014 | | 346,082 |
| | — |
| | | | 266,115 |
| | 172,237 |
| | 7,500 |
| | 791,934 |
| | 791,934 |
|
| | 2013 | | 334,442 |
| | — |
| | | | 232,011 |
| | 142,138 |
| | 5,788 |
| | 714,379 |
| | 714,379 |
|
| | | | | | | | | | | | | | | | | | |
Anand Sampath | | 2015 | | 369,277 |
| | — |
| | | | 313,623 |
| | 220,500 |
| | 7,950 |
| (6) | 911,350 |
| | 911,350 |
|
Chief Operating Officer | | 2014 | | 307,815 |
| | — |
| | | | 605,780 |
| | 172,520 |
| | 7,500 |
| | 1,093,615 |
| | 1,093,615 |
|
| | 2013 | | 257,396 |
| | — |
| | | | 232,011 |
| | 128,660 |
| | 6,235 |
| | 624,302 |
| | 624,302 |
|
| | | | | | | | | | | | | | | | | | |
Rick Fishel | | 2015 | | 357,574 |
| | — |
| | | | 313,623 |
| | 186,958 |
| | 16,350 |
| (7) | 874,505 |
| | 874,505 |
|
President, Worldwide OEM Business & Strategic Development | | 2014 | | 347,352 |
| | — |
| | | | 266,115 |
| | 155,582 |
| | 15,900 |
| | 784,949 |
| | 784,949 |
|
| | 2013 | | 335,669 |
| | — |
| | | | 232,011 |
| | 142,659 |
| | 11,809 |
| | 722,148 |
| | 722,148 |
|
| | | | | | | | | | | | | | | | | | |
Jon Coleman | | 2015 | | 354,103 |
| | — |
| | | | 313,623 |
| | 194,400 |
| | 7,950 |
| (6) | 870,076 |
| | 870,076 |
|
President, Worldwide Sales, Professional Services & Medical Affairs | | 2014 | | 343,980 |
| | — |
| | | | 266,115 |
| | 145,512 |
| | 7,500 |
| | 763,107 |
| | 763,107 |
|
| | 2013 | | 332,410 |
| | — |
| | | | 232,011 |
| | 141,274 |
| | 5,753 |
| | 711,448 |
| | 711,448 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position(s) | | Year | | Salary | | Bonus | | Stock Awards(1) | | Option Awards(1) | | Non-Equity Incentive Plan Compensation(2) | | All Other Compensation | | Total |
Joe Kiani | | 2018 | | $ | 1,139,855 |
| | $ | — |
| | $ | 8,999,934 |
| | $ | 2,984,635 |
| | $ | 1,595,383 |
| | $ | 327,349 |
| (3) | $ | 15,047,156 |
|
Chief Executive Officer and Chairman (PEO) | | 2017 | | 1,045,450 |
| | — |
| | 9,087,000 |
| | 2,845,199 |
| | 1,060,900 |
| | 152,306 |
| | 14,190,855 |
|
| | 2016 | | 1,015,000 |
| | — |
| | — |
| | 3,930,900 |
| | 3,654,079 |
| | 397,791 |
| | 8,997,770 |
|
| | | | | | | | | | | | | | | | |
Micah Young | | 2018 | | 383,250 |
| | — |
| | 899,933 |
| | 298,458 |
| | 293,095 |
| | 4,390 |
| (4) | 1,879,126 |
|
Executive Vice President, Finance & Chief Financial Officer (PFO) | | 2017 | | 77,212 |
| | — |
| | — |
| | 1,397,802 |
| | — |
| | 300,000 |
| | 1,775,014 |
|
| | 2016 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | | | | | | |
Anand Sampath | | 2018 | | 452,262 |
| | — |
| | 899,933 |
| | 298,458 |
| | 335,031 |
| | 9,326 |
| (5) | 1,995,010 |
|
Chief Operating Officer | | 2017 | | 439,089 |
| | — |
| | 908,700 |
| | 284,520 |
| | 222,789 |
| | 7,950 |
| | 1,863,048 |
|
| | 2016 | | 426,340 |
| | — |
| | — |
| | 393,090 |
| | 760,947 |
| | 7,950 |
| | 1,588,327 |
|
| | | | | | | | | | | | | | | | |
Tao Levy(6) | | 2018 | | 324,917 |
| | 50,000 |
| (7) | 899,933 |
| | 1,013,430 |
| | 240,780 |
| | 28,250 |
| (8) | 2,557,310 |
|
Executive Vice President, Business Development | | 2017 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | 2016 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | | | | | | |
Bilal Muhsin(9) | | 2018 | | 432,360 |
| | 55,000 |
| (10) | 899,933 |
| | 298,458 |
| | 326,882 |
| | 12,151 |
| (11) | 2,024,784 |
|
Executive Vice President, Engineering, Marketing & Regulatory Affairs | | 2017 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | 2016 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
4761
| 20162019 Proxy Statement
___________
| |
(1) | Amounts set forth in the “Stock Awards” and “Option Awards” columns for 2013, 20142016, 2017 and 20152018 reflect the grant date fair value of stock and option awards granted in the year indicated, computed in accordance with authoritative accounting guidance. All of theseASC Topic 718. These amounts reflect certain assumptions with respect to the stock and option awards and do not necessarily correspond to the actual value that will be recognized by the NEOs. The actual value, if any, that may be realized from a stock award or an option award is contingent upon the satisfaction of the conditions to vesting in that award, and, in the case of option awards, upon the excess of the stock price over the exercise price, if any, on the date the option award is exercised. See Note 1416 of the Notes to Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2016December 29, 2018 that was filed with the SEC on February 24, 2016,26, 2019 for a discussion of the grant date fair value of the stock awards and the assumptions made in determining the grant date fair value of the PSUs, RSUs and stock options granted in our fiscal years 2013, 20142016, 2017 and 2015.2018. For PSUs, amounts reflect the target number of shares subject to the PSUs, assuming all performance goals and other requirements are met. As described below, the PSUs earned will range from 50% - 200% of target based on the achievement of performance goals, which vests in the form of shares of our common stock following the conclusion of the three-year performance period. The maximum potential value of the PSUs (assuming 200% of target, the maximum potential value of the award) granted to each of our NEOs was as follows: Mr. Kiani: $17,999,867 and Messrs. Young, Sampath, Levy and Muhsin: $1,799,865. |
| |
(2) | All amounts for fiscal 2018 and 2017 were paid pursuant to the Executive AnnualBonus Incentive Plan. All amounts for fiscal 2016 were paid pursuant to our prior executive bonus plans. |
| |
(3) | This column excludes amounts included in the “Stock Awards” column of $111,915,000 for Mr. Kiani, which represents the grant date fair value of an award of 2.7 million restricted share units (“RSUs”) with contingent vesting granted to Mr. Kiani in November 2015 in connection with the amendment and restatement of his employment agreement. These RSUs will only vest in connection with a termination of Mr. Kiani’s employment with us other than for death, disability or cause, or Mr. Kiani’s termination of his employment with us for Good Reason. These RSUs will not vest if Mr. Kiani voluntarily terminates his employment with us other than for Good Reason. On January 1 of each year, beginning on January 1, 2018, 270,000 shares subject to the RSUs will terminate without the payment of any consideration to Mr. Kiani, to the extent then unvested. See “— Employment Contract and Severance Arrangements — Employment Agreement with Joe Kiani” on page 52 of this Proxy Statement for additional information regarding the restricted share unit award. |
| |
(4)
| Represents the grant date fair value of an award of 2.7 million RSUs with contingent vesting granted to Mr. Kiani in November 2015 in connection with the amendment and restatement of his employment agreement. These RSUs will only vest in connection with a termination of Mr. Kiani’s employment with us other than for death, disability or cause, or Mr. Kiani’s termination of his employment with us for Good Reason. These RSUs will not vest if Mr. Kiani voluntarily terminates his employment with us other than for Good Reason. On January 1 of each year, beginning on January 1, 2018, 270,000 shares subject to the RSUs will terminate without the payment of any consideration to Mr. Kiani, to the extent then unvested. See “— Employment Contract and Severance Arrangements — Employment Agreement with Joe Kiani” on page 52 of this Proxy Statement for additional information regarding the restricted share unit award. |
| |
(5)
| Consists of $7,500$7,063 in retirement savings plan matching contributions, $107,890 for$161,347 related to the net incremental costs of certain lodging, meals and other travel-related expenses incurred by Mr. Kiani’shis family and household members accompanying him during certain business travel pursuant to Mr. Kiani’s employment agreement (see “—Employment Contract and Severance Arrangements — with Named Executive Officers—Employment Agreement with JoeMr. Kiani” on page 5267 of this Proxy Statement), $44,213 forand $158,939 related to the net incremental costs of security personnel and security services provided to Mr. Kiani during certain personal, non-business-related occasions, which represents the actual amounts paid by the Companyus for such security arrangements for Mr. Kiani that were not security arrangements provided at the Company’sour business facilities, and for business travel and $1,391,803 for Mr. Kiani’s legal expenses that were paid by the Company in connection with our negotiation of his Restated CEO Employment Agreement (see “— Employment Contract and Severance Arrangements — Employment Agreement with Joe Kiani” on page 52 of this Proxy Statement).travel. We have established a security program for Mr. Kiani that provides physical and personal security services as they may, from time to time, be deemed necessary. This security program is not limited to providing security services only at business facilities or functions or during business-related travel and can include providing security services during certain non-business occasions, including at his primary residence and during personal travel. We do not consider any such security services to be personal benefits as the requirement for this occasional security is directly the result of Mr. Kiani’s role as our CEO and as our CEO, his personal safety is vital to our continued success. In addition, as part |
| |
(4) | Consists of the Compensation Committee’s request that Mr. Kiani engage$3,201 in discussions to amend his prior employment agreement, Mr. Kiani’s legal costs were paid on his behalf by the Company. We do not consider such legal costs to be personal benefits as these costs were incurred as a resultretirement savings plan matching contributions, $300 in employer HSA contributions and $889 of the Compensation Committee’s request.other travel-related expenses. |
| |
(5) | Consists of $8,250 in retirement savings plan matching contributions and $1,076 of other travel-related expenses. |
| |
(6) | Consists of $7,950 in retirement savings plan matching contributions.Mr. Levy joined Masimo Corporation on January 3, 2018. |
| |
(7) | Consists solely of $8,400 in automobile allowances and $7,950a sign-on bonus. |
| |
(8) | Consists solely of $8,250 in retirement savings plan matching contributions.contributions and $20,000 of a relocation allowance. |
| |
(9) | Mr. Muhsin was promoted to Executive Vice President, Engineering, Marketing & Regulatory Affairs effective March 1, 2018. |
| |
(10) | Consist solely of a one-time cash bonus related to the successful and timely completion of a strategic management business objective. |
| |
(11) | Consists of $8,250 in retirement savings plan matching contributions, $300 in employer HSA contributions and $3,601 of other travel-related expenses. |
4862
| 20162019 Proxy Statement
Pension Benefits-Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation
No pension benefits were paid to any of our NEOs during fiscal 2015.2018. We do not currently sponsor any non-qualified defined contribution plans or non-qualified deferred compensation plans. |
| | |
GRANTS OF PLAN-BASED AWARDS DURING FISCAL YEAR 2018 |
GrantsThe following table presents the plan-based awards granted to each of Plan-Based Awards During Fiscal Year 2015our NEOs in fiscal 2018. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Estimated Possible Payout Under Non-Equity Incentive Plan Awards(1) | | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | | All Other Option Awards: Number of Shares of Stock or Units (#)(3) | | Exercise Price Per Share ($/Sh) | | Grant Date Fair Value of Stock and Option Awards ($)(4) |
Name | | Grant Date | | Threshold ($) | | Target ($) | | Maximum ($) | | Threshold (#) | | Target (#) | | Maximum (#) | |
Joe Kiani | | March 16, 2018 | | $ | — |
| | $ | 1,595,383 |
| | $ | 3,190,766 |
| | — |
| | — |
| | — |
| | — |
| | $ | — |
| | $ | — |
|
| | March 16, 2018 | | — |
| | — |
| | — |
| | 51,753 |
| | 103,507 |
| | 207,014 |
| | — |
| | — |
| | 8,999,934 |
|
| | March 16, 2018 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 104,362 |
| | 86.95 |
| | 2,984,635 |
|
| | | | | | | | | | | | | | | | | | | | |
Micah Young | | March 16, 2018 | | — |
| | 293,095 |
| | 586,190 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | March 16, 2018 | | — |
| | — |
| | — |
| | 5,175 |
| | 10,350 |
| | 20,700 |
| | — |
| | — |
| | 899,933 |
|
| | March 16, 2018 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,436 |
| | 86.95 |
| | 298,458 |
|
| | | | | | | | | | | | | | | | | | | | |
Anand Sampath | | March 16, 2018 | | — |
| | 335,031 |
| | 670,062 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | March 16, 2018 | | — |
| | — |
| | — |
| | 5,175 |
| | 10,350 |
| | 20,700 |
| | — |
| | — |
| | 899,933 |
|
| | March 16, 2018 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,436 |
| | 86.95 |
| | 298,458 |
|
| | | | | | | | | | | | | | | | | | | | |
Tao Levy | | March 16, 2018 | | — |
| | 240,780 |
| | 481,560 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | March 16, 2018 | | — |
| | — |
| | — |
| | 5,175 |
| | 10,350 |
| | 20,700 |
| | — |
| | — |
| | 899,933 |
|
| | March 16, 2018 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 25,000 |
| | 86.95 |
| | 714,972 |
|
| | March 16, 2018 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,436 |
| | 86.95 |
| | 298,458 |
|
| | | | | | | | | | | | | | | | | | | | |
63
| 2019 Proxy Statement
|
| | | | | | | | | | | | | | | | | | | | |
| | Estimated Future Payout Under Non-Equity Incentive Plan Awards(1) | | All Other Stock Awards: Number of Shares of Stock or Units (#) | | Exercise Price Per Share ($/Sh) | | Grant Date Fair Value of Stock and Option Awards ($)(3) |
Named Executive Officer | | Grant Date | | Threshold | | Target(2) | | Maximum | |
Joe Kiani | | February 6, 2015 | | Note(2) | | $ | 1,000,000 |
| | Note(2) | | | | | | |
| | June 15, 2015 | | — | | — |
| | — | | 300,000(4) | | $ | 38.76 |
| | $ | 3,822,690 |
|
| | November 4, 2015 | | — | | — |
| | — | | 2,700,000(5) | | | | 111,915,000 |
|
| | | | | | | | | | | | | | |
Mark de Raad | | February 6, 2015 | | Note(2) | | 195,000 |
| | Note(2) | | | | | | |
| | March 20, 2015 | | — | | — |
| | — | | 30,000(4) | | $ | 31.01 |
| | 313,623 |
|
| | | | | | | | | | | | | | |
Anand Sampath | | February 6, 2015 | | Note(2) | | 210,000 |
| | Note(2) | | | | | | |
| | March 20, 2015 | | — | | — |
| | — | | 30,000(4) | | $ | 31.01 |
| | 313,623 |
|
| | | | | | | | | | | | | | |
Rick Fishel | | February 6, 2015 | | Note(2) | | 178,056 |
| | Note(2) | | | | | | |
| | March 20, 2015 | | — | | — |
| | — | | 30,000(4) | | $ | 31.01 |
| | 313,623 |
|
| | | | | | | | | | | | | | |
Jon Coleman | | February 6, 2015 | | Note(2) | | 176,327 |
| | Note(2) | | | | | | |
| | March 20, 2015 | | — | | — |
| | — | | 30,000(4) | | $ | 31.01 |
| | 313,623 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Estimated Possible Payout Under Non-Equity Incentive Plan Awards(1) | | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | | All Other Option Awards: Number of Shares of Stock or Units (#)(3) | | Exercise Price Per Share ($/Sh) | | Grant Date Fair Value of Stock and Option Awards ($)(4) |
Name | | Grant Date | | Threshold ($) | | Target ($) | | Maximum ($) | | Threshold (#) | | Target (#) | | Maximum (#) | |
Bilal Muhsin | | March 16, 2018 | | — |
| | 326,882 |
| | 653,764 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | March 16, 2018 | | — |
| | — |
| | — |
| | 5,175 |
| | 10,350 |
| | 20,700 |
| | — |
| | — |
| | 899,933 |
|
| | March 16, 2018 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,436 |
| | 86.95 |
| | 298,458 |
|
___________________________
| |
(1) | Excludes potentialRepresents possible payments under the Amended Executive Multi-YearBonus Incentive Plan based on the base salary in effect for each NEO as of March 16, 2018, the three-year period from January 1, 2014 to December 31, 2016. See “—grant date of the award. The fiscal 2018 Executive Bonus Incentive Plan provided that amounts payable thereunder would be based on the base salary in effect for each NEO Multi-Year Cash Bonuses”as of the end of fiscal 2018, and actual payouts were therefore based on page 40base salaries as of this Proxy Statement for additional details.the end of fiscal 2018. |
| |
(2) | Represents potential payments under the Executive Annual Plan. The amounts shown as target represent the potential target payments assuming 100% achievement of the Company Factors (determined based on our performance against financial targets for our CEO and against financial targets and operational objectives for our other NEOs), and 100% achievement of the Individual Factors, as determined by our Board and Compensation Committee. There are no threshold or maximum amounts payable under the Executive Annual Plan. IfFor fiscal 2018, the Compensation Committee determines that (i) we did not achieve 100%selected fiscal 2020 Adjusted Product Revenue2 and fiscal 2020 Non-GAAP Operating Profit Margin2 as the performance measures for the target PSU award percentages, each weighted equally. If performance objectives are achieved, the PSUs will vest on the date of the approval by the Audit Committee of the audit of our financial targets and, with respect to the NEOs other than the CEO, the operational objectives,statements for fiscal 2020 (or such later date determined by the Compensation Committee can set the Company Factor at any factor it deems appropriate, including 0%; (ii) we achieved 100% of the financial targets and, with respect to the NEOs other than the CEO, the operational objectives, the Company Factor is 100%; and (iii) we achieved more than 100% of the financial targets and, with respect to the NEOs other than the CEO, the operational objectives, the Compensation Committee can set the Company Factor at or above 100%Committee). |
| |
(3) | AmountsThis option vests over a five-year period, with 20% of the shares subject to the option vesting on each anniversary of the grant date. |
| |
(4) | For PSUs, amounts reflect the fair value of the award as of the grant date assuming achievement of the “target” performance achievement level. For stock options,amounts reflect the fair value per share as of the grant date of the award multiplied by the number of shares.shares granted. Regardless of the value on the grant date, the actual value will depend on the market value of our common stock on a date in the future when an award vests or stock option is exercised. As described below, the PSUs earned will range from 50% - 200% of target based on the achievement of performance goals, which vests in the form of shares of our common stock following the conclusion of the three-year performance period. The maximum potential value of the PSUs (assuming 200% of target, the maximum potential value of the award) granted to each of our NEOs was as follows: Mr. Kiani: $17,999,867 and Messrs. Young, Sampath, Levy and Muhsin: $1,799,865. |
_______________
| |
(4)2
| This option vests overNon-GAAP financial measure - please see Appendix B to this Proxy Statement for a five-year period, with 20%description of the shares subjectadjustments and a reconciliation to the option vesting on each anniversary.corresponding GAAP financial measure. |
64
| 2019 Proxy Statement
|
| | |
| | (5)EXECUTIVE COMPENSATION
| Represents a restricted share unit award with respect to 2.7 million shares of common stock granted to Mr. Kiani in November 2015 in connection with the amendment and restatement of his employment agreement. The RSUs will only vest in the event of a termination of Mr. Kiani’s employment with us other than for death, disability or cause, or Mr. Kiani’s termination of his employment with us for Good Reason. These RSUs will not vest if Mr. Kiani voluntarily terminates his employment with us other than for Good Reason. On January 1 of each year, beginning on January 1, |
49
| 2016 Proxy Statement
|
| | | | |
OUTSTANDING EQUITY AWARDS AT DECEMBER 29, 2018 |
2018, 270,000 shares subject to the RSUs will terminate without the payment of any consideration to Mr. Kiani, to the extent then unvested. See “— Employment Contract and Severance Arrangements — Employment Agreement with Joe Kiani” on page 52 of this Proxy Statement for additional information regarding the restricted share unit award.
Outstanding Equity Awards at January 2, 2016
The following table presents the outstanding option awards and stock awards held by each of our NEOs as of January 2, 2016.
| | | | Option Awards(1) | | Stock Awards | | Option Awards(1) | | Stock Awards | |
Name | | Grant Date | | Number of Securities Underlying Unexercised Options (#) Exercisable | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | Option Exercise Price ($) | | Option Expiration Date | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | | Grant Date | | Number of Securities Underlying Unexercised Options (#) Exercisable | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | Option Exercise Price ($) | | Option Expiration Date | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | |
Joe Kiani | | 5/24/2007 | | 180,000 |
| | — |
| | $ | 15.40 |
| | 5/24/2017 |
| | — |
| | — |
| | 2/22/2011 | | 300,000 |
| | — |
| | $ | 30.06 |
| | 2/22/2021 |
| | — |
| | — |
| |
| | 2/7/2008 | | 300,000 |
| | — |
| | 30.79 |
| | 2/7/2018 |
| | — |
| | — |
| | 10/27/2011 | | 300,000 |
| | — |
| | 20.19 |
| | 10/27/2021 |
| | — |
| | — |
| |
| | 1/11/2009 | | 300,000 |
| | — |
| | 23.98 |
| | 1/11/2019 |
| | — |
| | — |
| | 5/28/2013 | | 300,000 |
| | — |
| | 21.97 |
| | 5/28/2023 |
| | — |
| | — |
| |
| | 2/11/2010 | | 300,000 |
| | — |
| | 27.25 |
| | 2/11/2020 |
| | — |
| | — |
| | 2/18/2014 | | 240,000 |
| | 60,000 |
| | 28.03 |
| | 2/18/2024 |
| | — |
| | — |
| |
| | 2/22/2011 | | 240,000 |
| | 60,000 |
| | 30.06 |
| | 2/22/2021 |
| | — |
| | — |
| | 6/15/2015 | | 180,000 |
| | 120,000 |
| | 38.76 |
| | 6/15/2025 |
| | — |
| | — |
| |
| | 10/27/2011 | | 240,000 |
| | 60,000 |
| | 20.19 |
| | 10/27/2021 |
| | — |
| | — |
| | 11/4/2015 | | — |
| | — |
| | — |
| | — |
| | 2,700,000 |
| (2) | $ | 111,915,000 |
| (2) |
| | 5/28/2013 | | 120,000 |
| | 180,000 |
| | 21.97 |
| | 5/28/2023 |
| | — |
| | — |
| | 2/29/2016 | | 120,000 |
| | 180,000 |
| | 37.84 |
| | 2/28/2026 |
| | — |
| | — |
| |
| | 2/18/2014 | | 60,000 |
| | 240,000 |
| | 28.03 |
| | 2/18/2024 |
| | — |
| | — |
| | 6/5/2017 | | — |
| | — |
| | — |
| | — |
| | 80,000 |
| (3) | 7,269,600 |
| (3) |
| | 6/15/2015 | | — |
| | 300,000 |
| | 38.76 |
| | 6/15/2025 |
| | — |
| | — |
| | 6/5/2017 | | 20,000 |
| | 80,000 |
| | 90.87 |
| | 6/5/2027 |
| | — |
| | — |
| |
| | 11/4/2015 | | — |
| | — |
| | — |
| | — |
| | 2,700,000 |
| (2) | — |
| | 3/16/2018 | | — |
| | — |
| | — |
| | — |
| | 103,507 |
| (4) | 8,999,934 |
| (4) |
Mark de Raad | | 7/17/2006 | | 120,000 |
| | — |
| | 10.67 |
| | 7/17/2016 |
| | — |
| | — |
| |
| | 1/11/2009 | | 30,000 |
| | — |
| | 23.98 |
| | 1/11/2019 |
| | — |
| | — |
| | 3/16/2018 | | — |
| | 104,362 |
| | 86.95 |
| | 3/16/2028 |
| | — |
| | — |
| |
| | 2/11/2010 | | 30,000 |
| | — |
| | 27.25 |
| | 2/11/2020 |
| | — |
| | — |
| | | | | | | | | | | | | |
| | 2/22/2011 | | 24,000 |
| | 6,000 |
| | 30.06 |
| | 2/22/2021 |
| | — |
| | — |
| |
| | 10/27/2011 | | 24,000 |
| | 6,000 |
| | 20.19 |
| | 10/27/2021 |
| | — |
| | — |
| |
Micah Young | | | 10/16/2017 | | 10,000 |
| | 40,000 |
| | 84.97 |
| | 10/16/2027 |
| | — |
| | — |
| |
| | 5/28/2013 | | 12,000 |
| | 18,000 |
| | 21.97 |
| | 5/28/2023 |
| | — |
| | — |
| | 3/16/2018 | | — |
| | — |
| | — |
| | — |
| | 10,350 |
| (5) | 899,933 |
| (5) |
| | 2/18/2014 | | 6,000 |
| | 24,000 |
| | 28.03 |
| | 2/18/2024 |
| | — |
| | — |
| | 3/16/2018 | | — |
| | 10,436 |
| | 86.95 |
| | 3/16/2028 |
| | — |
| | — |
| |
| | 3/20/2015 | | — |
| | 30,000 |
| | 31.01 |
| | 3/20/2025 |
| | — |
| | — |
| | | | | | | | | | | | | |
Anand Sampath | | 4/13/2007 | | 75,000 |
| | — |
| | 14.22 |
| | 4/13/2017 |
| | — |
| | — |
| | 5/28/2013 | | 30,000 |
| | — |
| | 21.97 |
| | 5/28/2023 |
| | — |
| | — |
| |
| | 8/17/2009 | | 10,000 |
| | — |
| | 24.68 |
| | 8/17/2019 |
| | — |
| | — |
| | 2/18/2014 | | 24,000 |
| | 6,000 |
| | 28.03 |
| | 2/18/2024 |
| | — |
| | — |
| |
| | 2/22/2011 | | 24,000 |
| | 6,000 |
| | 30.06 |
| | 2/22/2021 |
| | — |
| | — |
| | 8/12/2014 | | 40,000 |
| | 10,000 |
| | 21.77 |
| | 8/12/2024 |
| | — |
| | — |
| |
| | 10/27/2011 | | 24,000 |
| | 6,000 |
| | 20.19 |
| | 10/27/2021 |
| | — |
| | — |
| | 3/20/2015 | | 18,000 |
| | 12,000 |
| | 31.01 |
| | 3/20/2025 |
| | — |
| | — |
| |
| | 5/28/2013 | | 12,000 |
| | 18,000 |
| | 21.97 |
| | 5/28/2023 |
| | — |
| | — |
| | 2/29/2016 | | 12,000 |
| | 18,000 |
| | 37.84 |
| | 2/28/2026 |
| | — |
| | — |
| |
| | 2/18/2014 | | 6,000 |
| | 24,000 |
| | 28.03 |
| | 2/18/2024 |
| | — |
| | — |
| | 6/5/2017 | | — |
| | — |
| | — |
| | — |
| | 8,000 |
| (6) | 726,960 |
| (6) |
| | 8/12/2014 | | 10,000 |
| | 40,000 |
| | 21.77 |
| | 8/12/2024 |
| | — |
| | — |
| | 6/5/2017 | | 2,000 |
| | 8,000 |
| | 90.87 |
| | 6/5/2027 |
| | — |
| | — |
| |
| | 3/20/2015 | | — |
| | 30,000 |
| | 31.01 |
| | 3/20/2025 |
| | — |
| | — |
| | 3/16/2018 | | — |
| | — |
| | — |
| | — |
| | 10,350 |
| (5) | 899,933 |
| (5) |
| | | | | | | | | | | | | | 3/16/2018 | | — |
| | 10,436 |
| | 86.95 |
| | 3/16/2028 |
| | — |
| | — |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Tao Levy | | | 3/16/2018 | | — |
| | — |
| | — |
| | — |
| | 10,350 |
| (5) | 899,933 |
| (5) |
| | | 3/16/2018 | | — |
| | 25,000 |
| | 86.95 |
| | 3/16/2028 |
| | — |
| | — |
| |
| | | 3/16/2018 | | — |
| | 10,436 |
| | 86.95 |
| | 3/16/2028 |
| | — |
| | — |
| |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
5065
| 20162019 Proxy Statement
|
| | | | | | | | | | | | | | | | | | | | | |
Rick Fishel | | 2/11/2010 | | 30,000 |
| | — |
| | 27.25 |
| | 2/11/2020 |
| | — |
| | — |
|
| | 2/22/2011 | | 24,000 |
| | 6,000 |
| | 30.06 |
| | 2/22/2021 |
| | — |
| | — |
|
| | 10/27/2011 | | 24,000 |
| | 6,000 |
| | 20.19 |
| | 10/27/2021 |
| | — |
| | — |
|
| | 5/28/2013 | | 12,000 |
| | 18,000 |
| | 21.97 |
| | 5/28/2023 |
| | — |
| | — |
|
| | 2/18/2014 | | 6,000 |
| | 24,000 |
| | 28.03 |
| | 2/18/2024 |
| | — |
| | — |
|
| | 3/20/2015 | | — |
| | 30,000 |
| | 31.01 |
| | 3/20/2025 |
| | — |
| | — |
|
Jon Coleman | | 8/11/2008 | | 100,000 |
| | — |
| | 40.20 |
| | 8/11/2018 |
| | — |
| | — |
|
| | 8/17/2009 | | 50,000 |
| | — |
| | 24.68 |
| | 8/17/2019 |
| | — |
| | — |
|
| | 2/22/2011 | | 20,000 |
| | 5,000 |
| | 30.06 |
| | 2/22/2021 |
| | — |
| | — |
|
| | 10/27/2011 | | 4,000 |
| | 6,000 |
| | 20.19 |
| | 10/27/2021 |
| | — |
| | — |
|
| | 5/28/2013 | | 12,000 |
| | 18,000 |
| | 21.97 |
| | 5/28/2023 |
| | — |
| | — |
|
| | 2/18/2014 | | 6,000 |
| | 24,000 |
| | 28.03 |
| | 2/18/2024 |
| | — |
| | — |
|
| | 3/20/2015 | | — |
| | 30,000 |
| | 31.01 |
| | 3/20/2025 |
| | — |
| | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | Option Awards(1) | | Stock Awards | |
Name | | Grant Date | | Number of Securities Underlying Unexercised Options (#) Exercisable | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | Option Exercise Price ($) | | Option Expiration Date | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | |
| | | | | | | | | | | | | | | |
Bilal Muhsin | | 8/20/2014 | | 10,000 |
| | 5,000 |
| | 21.69 |
| | 8/20/2024 |
| | — |
| | — |
| |
| | 5/13/2015 | | 30,000 |
| | 20,000 |
| | 34.51 |
| | 5/13/2025 |
| | — |
| | — |
| |
| | 2/29/2016 | | 12,000 |
| | 18,000 |
| | 37.84 |
| | 2/28/2026 |
| | — |
| | — |
| |
| | 8/14/2017 | | 6,000 |
| | 24,000 |
| | 85.54 |
| | 8/14/2027 |
| | — |
| | — |
| |
| | 3/16/2018 | | — |
| | — |
| | — |
| | — |
| | 10,350 |
| (5) | 899,933 |
| (5) |
| | 3/16/2018 | | — |
| | 10,346 |
| | 86.95 |
| | 3/16/2028 |
| | — |
| | — |
| |
| | | | | | | | | | | | | | | |
_________________________
| |
(1) | For each NEO, the shares listed in this table are subject to a single stock option award carrying the varying exercise prices as set forth herein. The shares subject to each stock option vest over a five-year period, with 20% of the shares subject to the option vesting on each anniversary of the grant date, with partial or full vesting under certain circumstances upon a change in control of Masimo or various events specified in the NEO’s employment agreement or severance plan agreement, if applicable. The option awards remain exercisable until they expire ten years from the date of grant subject to earlier expiration following termination of employment. |
| |
(2) | Represents a restricted share unitthe original grant date fair value of an award with respect toof 2.7 million shares of common stockRSUs with contingent vesting granted to Mr. Kiani in November 2015 in connection with the amendment and restatement of his employment agreement. The RSUs will only vest in the event of a termination ofIn July 2017, Mr. Kiani’s employment agreement was amended, at which time the 2.7 million RSUs were remeasured, resulting in a revaluation of the modified award under ASC Topic 718 to $259,011,000, representing the fair value of the RSUs as of the date of the 2017 amendment to the employment agreement. |
| |
(3) | Represents the grant date fair value of an award of 80,000 RSUs, vesting over a five-year period, with us other than for death, disability or cause, or Mr. Kiani’s termination20% of his employment with us for Good Reason. These RSUs will not vest if Mr. Kiani voluntarily terminates his employment with us other than for Good Reason. On January 1 of each year, beginning on January 1, 2018, 270,000 sharesthe units subject to Masimo common stock vesting on each anniversary of the RSUs will terminate withoutgrant date, with partial or full vesting under certain circumstances upon a change in control of Masimo or various events specified in the payment of any consideration to Mr. Kiani, to the extent then unvested. See “— Employment Contract and Severance Arrangements — Employment Agreement with Joe Kiani” on page 52 of this Proxy Statement for additional information regarding the restricted share unit award.NEO’s employment agreement or severance agreement, if applicable. |
| |
(4) | Represents the target number of shares issuable pursuant to this PSU award. The target number of shares issuable pursuant to this PSU award was 103,507 shares and the grant date fair value of such 103,507 shares was $8,999,934. The maximum number of shares issuable pursuant to this PSU award was 207,014 shares and the grant date fair value of such 207,014 shares was $17,999,867. |
| |
(5) | Represents the target number of shares issuable pursuant to this PSU award. The target number of shares issuable pursuant to this PSU award was 10,350 shares and the grant date fair value of such 10,350 shares was $899,933. The maximum number of shares issuable pursuant to this PSU award was 20,700 shares and the grant date fair value of such 20,700 shares was $1,799,865. |
| |
(6) | Represents the grant date fair value of an award of 8,000 RSUs, vesting over a five-year period, with 20% of the units subject to Masimo common stock vesting on each anniversary of the grant date, with partial or full vesting under certain circumstances upon a change in control of Masimo or various events specified in the NEO’s employment agreement or severance agreement, if applicable. |
66
| 2019 Proxy Statement
Option Exercises and Stock Vested During Fiscal Year 2015
|
| | | | |
OPTIONS EXERCISES AND STOCK VESTED DURING FISCAL 2018 |
The following table provides details regarding stock options exercised by our NEOs during the fiscal year ended January 2, 2016.December 29, 2018.
| | | | Option Awards | | Option Awards | | Stock awards |
Name | | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise ($)(1) | | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise ($)(1) | | Number of Shares Acquired on Vesting (#) | | Value Realized on Vesting ($)(2) |
Joe Kiani | | — |
| | $ | — |
| | 600,000 |
| | $ | 56,472,897 |
| | 20,000 |
| | $ | 1,721,600 |
|
Mark de Raad | | 90,000 |
| | 2,886,768 |
| |
Micah Young | | | — |
| | — |
| | — |
| | — |
|
Anand Sampath | | 45,000 |
| | 1,389,999 |
| | 30,000 |
| | 2,694,300 |
| | 2,000 |
| | 172,160 |
|
Rick Fishel | | 102,362 |
| | 2,434,898 |
| |
Jon Coleman | | 20,000 |
| | 439,950 |
| |
Tao Levy | | | — |
| | — |
| | — |
| | — |
|
Bilal Muhsin | | | 30,000 |
| | 2,913,206 |
| | — |
| | — |
|