UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Rule 14a-101)
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Securities Exchange Act of 1934 (Amendment No.__ )
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| ¨ | | Preliminary Proxy Statement |
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| ¨ | | Confidential, forFor Use of the Commission Only (as permitted by Rule 14a- 6(e)14a-6(e)(2)) |
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ýþ | | Definitive Proxy Statement |
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| ¨ | | Soliciting Material Pursuant to §240.14a-12Section 240.14a-12 |
IPG PHOTONICS CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other thanOther Than the Registrant)
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| IPG Photonics Corporation | |
| 2020 Annual Letter | |
Valentin P. Gapontsev, Ph.D. Chairman and Chief Executive Officer | |
| To Our Stockholders, | |
Although 2019 proved to be a challenging year, we demonstrated good progress in a number of key growth initiatives. We delivered product cost reductions and differentiated new features and accessories for our core products. Furthermore, we are leveraging one of the largest R&D investments in the laser industry to launch leading edge laser products and systems for new markets to enhance our growth and margin profile and provide greater geographic and end market diversification. The weaker global macroeconomic backdrop, US-China trade conflict and a more intense competitive landscape in China affected our 2019 financial performance. As a result of these challenges, we experienced a significant decrease in the average selling prices for our products in China, which reduced the dollar value of the laser cutting market. Although we shipped a record number of high power lasers, increasing laser units at 1 kilowatt or greater by 23%, achieving revenue growth was challenging. Despite this challenge, we continue to see customers in the laser cutting market adopt higher power solutions. We increased sales of lasers at 10 kilowatts or greater by more than 25%, even though the second half of the year was weaker for these ultra high power solutions.
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However, multiple IPG customers are launching new cutting systems using our 12 kilowatt lasers, and we increased sales of 20 kilowatt lasers for cutting applications 8-fold. Many of these are sold with our new ultra high power cutting heads. In addition, we sold our first lasers with high peak power (HPP) and adjustable mode beam (AMB) capability. HPP products deliver peak energy twice the average power of the laser, increasing cutting speed and quality while reducing scrap through closer nesting of parts. Our new AMB lasers permit the broadest range of beam tunability, enabling spatterless welding and enhancing the speed of electric vehicle battery production. When combined with our unique high power pulsed lasers for foil cutting and ultra high power continuous wave (CW) lasers for welding, we see significant opportunities in the electric vehicle battery market in 2020 and beyond. Augmenting our laser solutions with high power optical heads is a key differentiator versus our laser competitors. In 2019, we delivered record sales of optical heads and other beam delivery accessories, growing sales of these products by 10%. We also shipped our first volume orders of our Laser Depth Dynamics (LDD) process monitoring systems, our patented real-time weld monitoring solution. LDD enables greater use of laser-based welding in automated production environments, and we are pursuing multiple million dollar plus opportunities with this technology and associated laser product sales. Further, we sold a record number of systems for materials processing in 2019 with revenue increasing 33% excluding Genesis, acquired in December 2018. Standard and custom systems for vehicle and battery production, medical device manufacturing, pipe welding, cleaning and inspection applications drove systems growth. We plan to leverage Genesis’ expertise in robotic systems integration to accelerate laser processing within the transportation, aerospace and industrial end markets. |
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| Product innovation remains core to our success and the source of growth over the coming years. In 2019, new product sales were 19% of total revenue and 24% in the fourth quarter alone. Sales of green pulsed lasers used to improve solar cell efficiency increased by more than 60% in 2019. Sales of ultrafast pulsed lasers increased more than 80% year over year off a small base, with more than 50 new projects for these lasers across a wide range of applications processing glass, ceramics, circuit boards, OLED film, batteries and solar cells. We plan to enhance the pulse energy and expand the portfolio of new green, ultraviolet and ultrafast pulsed lasers to increase our available markets. |
Sales of medical lasers increased 80% in 2019 as our fiber laser-based system solution received approvals in China and the US. We expect sales into urology and other soft tissue applications to ramp over the coming years off a low base. Our lithotripsy medical laser application uses consumable fibers, which have the potential to develop into a more meaningful recurring revenue stream as the number of installed systems increases. We continue to invest in transformative new products for new application areas as well, including new medical treatments, mid-infrared lasers for spectroscopy, inspection and sensing applications, and ultra high power single mode lasers for aerospace and defense. We have one of the strongest balance sheets in the industrial automation industry, with more than $1 billion net cash and ample liquidity. This strength allows us to prioritize R&D investments and capital expenditures focusing on long-term objectives - diversifying our business with new products, finding new markets and driving innovations to maintain and increase margins. In 2019, we spent $130 million on research and development and $134 million on capital expenditures for these purposes. In addition, we repurchased $41 million worth of stock and have offset all dilution from employee equity compensation since our anti-dilutive repurchase program began in July 2016. | |
We believe we have significant long-term growth opportunities in laser welding, fine processing of electric vehicle batteries and our portfolio of new products addressing opportunities in micro processing, medical, systems and beam delivery solutions. Within our core business, we believe there is no company that can deliver high power laser solutions at our quality, scale, cost and lead time. We will rely on our core scientific strengths to optimize investment in strategic initiatives critical to the long-term success of the Company, enabling IPG to deliver strong growth in revenue and cash flow. I want to thank our talented employees for their hard work during a difficult year. I would also like to thank you, our stockholders, for your loyalty and support. As ever, I remain confident in our ability to execute during this more challenging period and deliver on our mission to make our fiber laser technology the tool of choice in mass production. |
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VALENTIN P. GAPONTSEV, PH.D. Chairman and Chief Executive Officer April 1, 2020 | |
2 NOTICE OF 2020 ANNUAL MEETING OF STOCKHOLDERSAND PROXY STATEMENT
To the Stockholders:
We invite you to attend our annual meeting
Notice of stockholders which is being held as follows:Annual Meeting of Stockholders
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DATE AND TIME May 28, 2020
10:00 AM (Eastern Time) | LOCATION IPG Photonics Corporation
50 Old Webster Road
Oxford, Massachusetts 01540 | WHO CAN VOTE Only stockholders of record at the
close of business on April 1, 2020
may vote at the Annual Meeting |
Voting Items
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| Proposals | Board Vote Recommendation | | | | | |
| | Date: | | | | June 1, 2017 |
| | Time: | | | | 10:00 a.m. Eastern Time |
| | Location: | | | | IPG Photonics Corporation
50 Old Webster Road
Oxford, Massachusetts 01540
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At the meeting, we will ask our stockholders to:
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| For Further Details |
| 1 | elect tenElection of nine directors named in the accompanyingthis proxy statement | ü FOR each director nominee | | |
2.2 | cast an advisory vote to approveAdvisory approval of our executive compensation | ü FOR | | |
| 3 | vote on the frequencyRatification of advisory votes on executive compensation and |
4 | ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2017.2020 | ü FOR | | |
| 4 | A stockholder proposal, if properly presented at the Annual Meeting | û AGAINST | | |
Stockholders will also transact any other business that may properly come before the meeting.
You may vote on these matters in person or by proxy. Whether or not you plan to attend the meeting,Annual Meeting, we ask that you promptly vote your shares. Only stockholders
We are monitoring coronavirus (COVID-19) developments and the related recommendations and protocols issued by public health authorities and federal, state, and local governments. If we determine that alternative Annual Meeting arrangements are advisable or required, which may include switching to a virtual meeting format, or changing the time, date or location of record at the closeAnnual Meeting, then we will announce our decision via press release and the filing of business on additional proxy materials with the Securities and Exchange Commission. Please monitor our investor website (investor.ipgphotonics.com) in advance of the Annual Meeting date if you are planning to attend in person. Food and drink will not be served as in past years.
By order of the Board of Directors
IPG PHOTONICS CORPORATION
ANGELO P. LOPRESTI
Secretary
April 3, 2017 may vote at the meeting.1, 2020
Oxford, Massachusetts
How to Vote
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INTERNET Go to www.investorvote.com/ipgp or scan the QR code contained in the attached proxy card
| TELEPHONE 1-800-652-VOTE (8683) | MAIL Mark, sign, date and promptly
mail the enclosed proxy card
in the postage-paid envelope |
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By order
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As permitted by the rules of the Board of DirectorsIPG PHOTONICS CORPORATION
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/s/ Angelo P. Lopresti |
Angelo P. Lopresti
Secretary
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April 4, 2017
Oxford, Massachusetts
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| The Notice of Meeting,United States Securities and Exchange Commission (the “SEC”), we are making this Proxy Statement and Annual Report on Form 10-K are available freeto stockholders electronically via the Internet at investor.ipgphotonics.com. On or about April 9, 2020, we will mail to most of charge at: investor.ipgphotonics.com
our stockholders a notice (the “Notice”) containing instructions on how to access this Proxy Statement and our Annual Report and to vote via the Internet or by telephone. Other stockholders, in accordance with their prior requests, will receive e-mail notification of how to access our proxy materials and vote via the Internet or by telephone, or will be mailed paper copies of our proxy materials and a proxy card on or about April 9, 2020. |
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3
Table of ContentsProxy Statement Summary
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| Page |
Notice of Annual Meeting of Stockholders | |
Proxy Summary | |
General Information About the Meeting | |
Corporate Governance | |
Related Person Transactions | |
Board of Directors | |
Director Compensation | |
Proposal 1: Election of Directors | |
Common Stock Ownership | |
Executive Officers | |
Compensation Committee Report | |
Compensation Discussion and Analysis | |
Executive Compensation Tables | |
Equity Compensation Plans | |
Proposal 2: Advisory Vote on Executive Compensation | |
Proposal 3: Vote on the Frequency of Advisory Votes on Executive Compensation | |
Audit Committee Report | |
Proposal 4: Ratification of Independent Registered Public Accounting Firm | |
Other Matters | |
PROXY SUMMARY
This summary highlights information available within our proxy statement. You should consider all of the information available in thethis proxy statement (the "Proxy Statement") and our Annual Report on Form 10-K for fiscal year 2019 ("Annual Report") prior to voting your shares. AdditionalPage references are supplied to help you find further information onin this Proxy Statement. In this Proxy Statement, the Company's performance in 2016 can be found in our 2016 annual reportterms "IPG", the "Company", "we" and "our" refer to stockholders.IPG Photonics Corporation.
2017 Annual Meeting Information
Time and Date: 10:00 a.m. Eastern Time on Thursday, June 1, 2017
Location:IPG Photonics Corporation 50 Old Webster Road, Oxford, Massachusetts, 01540is the world leader in fiber laser technology, enabling greater precision, higher productivity and more flexible production for industrial applications and other diverse end markets. The Company has a vertically-integrated business model, producing key components of its technology in-house, enabling more powerful and efficient solutions with rapid ongoing cost reduction. Within industrial applications, automated production and miniaturization trends are driving replacement of mechanical machine tools with IPG laser-based solutions. In other end markets, IPG is introducing new products that more than double our addressable market while diversifying end market exposure.Record Date: April 3, 2017Voting: Stockholders as of the record date are entitled to vote. Each share of common stock is entitled to one vote for each director nominee2019 Highlights
Despite industrial demand headwinds within our largest markets, IPG delivered industry-leading profit and one vote for the other proposal to be voted on.operating cash flow while introducing new solutions that significantly enhance our competitive position and addressable market.
Voting Your Shares
We encourage you to vote by proxy, even if you plan to attend the annual meeting. Your vote is important and will contribute to the future of IPG. You can vote your shares using one of the following methods:Financial Performance
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•NET SALES | Completing and mailing the enclosed proxy cardOPERATING INCOME |
• | Calling (800) 652-8683 |
• | Visiting www.investorvote.com/ipgp |
• | In person at the annual meeting* Excluding extraordinary charges related to impairment of goodwill and other long-lived assets and restructuring. |
Financial Highlights
If you own shares throughShipped a bank, broker, trustee, nomineerecord number of high power lasers and increased sales of lasers at 10 kilowatts or greater by more than 25%
Given weaker industrial demand trends resulting from escalation of the US-China trade conflict and macroeconomic challenges in our largest regions, revenue in 2019 decreased by 10%
As we enhance our capability in providing complete laser solutions to end customers, we sold a record number of laser systems for materials processing in 2019
We are leveraging one of the largest R&D investments in the laser industry to launch leading edge products, and in 2019 new product sales were 19% of total revenue
Because of lower absorption of fixed costs in our vertically-integrated business model, lower product pricing, foreign exchange headwinds and other institution, they will provide youfactors, our industry-leading gross margin declined to 46%
We delivered operating cash flow of $324 million
We have one of the strongest balance sheets in the industrial automation industry, with our proxy statementmore than $1 billion net cash and any other solicitation materials, as well as voting instructions.
Items of Business
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| Proposal | Description | Board Vote Recommendation | Page Reference |
| 1 | Elect ten directors named in the proxy statement to serve for a one-year term | FOR | |
| 2 | Advisory vote to approve executive compensation | FOR | |
| 3 | Vote on the frequency of advisory votes on executive compensation | 3 YEARS | |
| 4 | Ratify Deloitte & Touche LLC as our independent registered public accounting firm | FOR | |
ample liquidity at December 31, 2019
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4 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proxy Statement Summary
Director Nominees
Every member of our Board of Directors (the "Board") is elected annually. You are being asked to vote on the election of these ten nominees, all of whom currently serve as directors.
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| Name | Age | Director Since | Principal Occupation | Independent | Committee Memberships | Experience and Skills |
| Valentin P. | 78 | 1990 | CEO and Chm. of Bd. | No | None | • | Executive management |
| Gapontsev, | | | IPG Photonics | | | • | Technology |
| Ph.D. | | | Corporation | | | • | Markets and Applications |
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| Eugene | 69 | 2000 | COO IPG Photonics | No | None | • | Operations |
| Scherbakov, | | | Managing Director | | | • | Technology |
| Ph.D. | | | IPG Laser GmbH | | | • | Markets and Applications |
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| Igor | 54 | 2006 | Chief Technology Officer | No | None | • | Technology |
| Samartsev | | | IPG Photonics Corporation | | | • | Executive Management |
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| Michael C. | 62 | 2000 | Senior Advisor | Yes | NCGC* | • | Management and Operations |
| Child | | | TA Associates, Inc. | | | • | Mergers & Acquisitions |
| | | | | | | • | Technology Growth Companies |
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| Henry E. | 76 | 2006 | Former Pres. and Chm.
| Yes | Presiding Ind. Dir. | • | Laser Industry |
| Gauthier | | | Coherent, Inc. | | Audit | • | Financial Expert |
| | | | | | | • | Management and Operations |
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| William S. | 72 | 2006 | Principal | Yes | Audit | • | Accounting and Finance |
| Hurley | | | W.S. Hurley Financial | | Compensation | • | Financial Expert |
| | | | Consulting | | | • | Management |
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| Catherine P. | 60 | 2016 | Principal | Yes | Audit | • | Accounting and Finance |
| Lego | | | Lego Ventures, LLC | | Compensation | • | Mergers & Acquisitions |
| | | | | | | • | Technology Growth Companies |
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| Eric Meurice | 60 | 2014 | Former President, CEO | Yes | NCGC (Chair) | • | Strategy and Strategic Marketing |
| | | | and Chairman, ASML | | Compensation | • | International Operations |
| | | | Holding NV | | | • | Technology Growth Companies
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| John R. Peeler | 62 | 2012 | CEO and Chm. of Bd. | Yes | Compensation (Chair) | • | Management and Operations |
| | | | Veeco Instruments Inc. | | NCGC | • | International Operations |
| | | | | | | • | Leadership Development |
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| Thomas J. | 53 | 2014 | Former EVP and CFO | Yes | Audit (Chair) | • | Accounting and Finance |
| Seifert | | | Symantec Corporation | | | • | Financial Expert |
| | | | | | | • | Technology Growth Companies |
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* NCGC is the Nominating and Corporate Governance Committee.
Corporate Governance Summary |
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The Board: |
• | is comprised of 70% independent directors |
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• | has a presiding independent director |
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• | is comprised of directors with a broad range of leadership, professional skills, and experiences which, when taken as a whole, is invaluable in evaluating our opportunities and executing them |
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• | meets in executive session at each regularly scheduled Board meeting |
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• | is elected annually |
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• | complies with stock ownership guidelines it adopted to align the interests of directors with stockholders |
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• | adopted a policy that prohibits hedging and limits pledging of Company stock by directors and officers |
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• | engages in an annual self-evaluation process |
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• | oversees risk management with a focus on the most significant risks facing IPG |
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• | regularly considers succession planning to ensure boardroom skills are aligned with IPG's long-term strategic plan
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The Audit, Compensation, and Nominating and Corporate Governance Committees: |
• | are comprised entirely of independent directors; The Audit Committee is comprised of four "financial experts" |
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• | annual review of charters to ensure alignment with evolving Committee responsibilities |
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• | engage in an bi-annual self-evaluation process |
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• | have active Committee member engagement with each director participating in more than 75% of the applicable Committee meetingsVoting Items |
Executive Compensation Summary |
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The Compensation Committee: |
• | is comprised entirely of independent directors who oversee the executive compensation program |
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• | retains an independent compensation consultant to advise the Committee on the executive compensation program and other compensation matters |
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• | annually reviews the executive compensation program to align it with the stockholder interests |
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• | aligns executive pay with performance consistent with our pay-for-performance philosophy |
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• | balances short-term and long-term incentives including multiple measures of performance |
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• | links executive pay to IPG performance with long-term equity incentives |
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• | designs the compensation program to maximize stockholder value while mitigating short-term risk taking |
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• | caps the maximum amount that can be earned for annual incentives |
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The Named Executive Officers: |
• | have a majority of total direct compensation tied to performance, thereby aligning a significant portion of executive compensation payouts with the interest of stockholders |
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• | have no retirement benefits and limited perquisites |
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• | do not receive excise tax gross-up protections |
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• | may not hedge Company stock and are permitted limited pledging |
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• | do not receive single-trigger change of control provisions |
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• | comply with stock ownership guidelines to align the interests of officers with stockholders |
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• | are subject to clawback provisions |
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
GENERAL INFORMATION ABOUT THE MEETING
The Board of Directors of IPG Photonics Corporation is soliciting proxies from our stockholders in connection with our annual meeting of stockholders to be held on Thursday, June 1, 2017 and any and all adjournments thereof. No business can be conducted at the annual meeting unless a majority of all outstanding shares entitled to vote are either present in person or represented by proxy at the meeting. As far as we know, the only matters to be brought before the annual meeting are those referred to in this proxy statement. If any additional matters are presented at the annual meeting, the persons named as proxies may vote your shares in their discretion.
This proxy statement and our 2016 annual report are first being made available on the internet to stockholders of record on or about April 3, 2017 atinvestor.ipgphotonics.com.Information on the website does not constitute part of this proxy statement.
Unless otherwise noted, the information in this proxy statement covers our 2016 fiscal year (or "fiscal 2016"), which ran from January 1, 2016 through December 31, 2016, and, in some cases, our 2015 fiscal year (or "fiscal 2015"), which ran from January 1, 2015 through December 31, 2015.
Questions and Answers about the Meeting and Voting
When and Where Is the Annual Meeting?
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When: |
Proposal
1 | Election of Nine Directors The Board recommends a vote FOR each director nominee named in this Proxy Statement. |
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| | Thursday, June 1, 2017, at 10:00 a.m. Eastern Time |
Director Nominees
The following provides summary information about each director nominee for our Board of Directors (the "Board").
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| | | | | Committee Membership |
| | Name and Principal Occupation | Age | Director Since | AC | CC | NCGC |
| Valentin P. Gapontsev, Ph.D. | | | | | |
| Chief Executive Officer and Chairman of the Board | 81 | 1998 | | | |
| Eugene A. Scherbakov, Ph.D. | | | | | |
Chief Operating Officer Managing Director, IPG Laser GmbH | 72 | 2000 | | | |
| Igor Samartsev | | | | | |
| Chief Technology Officer | 57 | 2006 | | | |
| Michael C. Child IND | | | | | |
| Senior Advisor, T.A. Associates, Inc. | 65 | 2000 | | | ● |
| Gregory P. Dougherty IND | | | | | |
| Former CEO, Oclaro, Inc. | 60 | 2019 | ● | ● | |
| Catherine P. Lego IND | | | | | |
| Professional board director | 63 | 2016 | ● | ● | |
| Eric Meurice IND | | | | | |
| Former President, CEO and Chairman, ASML Holding NV | 63 | 2014 | | ● | ● |
| John R. Peeler Presiding Independent Director | | | | | |
| Chairman, Veeco Instruments, Inc. | 65 | 2012 | | ● | ● |
| Thomas J. Seifert IND | | | | | |
| Chief Financial Officer, Cloudflare, Inc. | 56 | 2014 | ● | | ● |
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Where: | | |
AC Audit Committee | ● | Chair |
CC Compensation Committee | ● | Member |
NCGC Nominating and Corporate Governance Committee | | |
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Board Snapshot*
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DIRECTOR
INDEPENDENCE | BALANCED TENURE | AGE | DIVERSITY |
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6/9 directors
are independent** | 11 years Average Tenure | 65 years Average Age | Over 50% Diverse |
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| * | Following the Annual Meeting |
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| ** | Audit, Compensation and Nominating and Corporate Governance Committees are composed entirely of independent directors |
Skills and Experience*
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| Lasers and
Technology | | | IPG Photonics Corporation | Business
Development
and M&A | 50 Old Webster Road |
Oxford, Massachusetts 01540 | Financial
Literacy | | | | Risk
Management | |
| Global
Business | | | | Executive
Leadership | |
| Manufacturing
and Operating | | | | Other Public
Company Boards | |
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| * | Following the Annual Meeting |
What Matters Am I Being Asked to Vote On at the Meeting and What Vote is Required to Approve Each Matter?
You are being asked to vote on four proposals.
Proposal 1 requests the election of directors. Each director will be elected by the vote of the plurality of the votes cast when a quorum is present. A "plurality of the votes cast" means that the ten persons receiving the greatest number of votes cast "for" will be elected. "Votes cast" excludes "withhold votes" and any broker non-votes (as defined below). Accordingly, withhold votes and broker non-votes will have no effect on Proposal 1. If you hold your shares in "street name", it is critically important that you submit your voting instructions to your bank or broker if you want your shares to count for Proposal 1.
6 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 2 requestsCorporate Governance Highlights
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ü Stockholder proxy access right adopted in March 2019 ü Director majority voting policy adopted October 2018 ü Ongoing Board refreshment: 1 independent director added in 2019, for a total of 2 directors added in 4 prior fiscal years ü Supermajority of independent directors and 100% independent Board committees | ü 55% of Board members come from internationally diverse backgrounds ü 11% of Board members are women ü Presiding independent director ü Single class of voting stock and no supermajority voting provisions ü Annual election of all directors ü Stockholder right to act by written consent
| ü 80% of director compensation at risk based upon stock performance ü Annual Board performance evaluations ü Robust director and executive officer stock ownership guidelines ü Anti-hedging policy applicable to all employees and directors ü Stockholder right to act by written consent |
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Stockholder Engagement
We value the approvalviews of our stockholders and we believe that building positive relationships with our stockholders is critical to our long-term success. Our investor communications and outreach include periodic site visits, investor conferences and quarterly conference calls. Our quarterly conference calls and presentations at investor conferences are open to the public and are available live and as archived webcasts on our website. During 2019, we engaged with a stockholder with respect to a majority voting by-law provision, which we then adopted. To help management and the Board understand and consider the issues that matter most to our stockholders, we periodically engage with our stockholders on a range of topics including performance, executive compensation, governance and sustainability matters.
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Proposal
2 | Advisory Approval of Our Executive Compensation The Board recommends a vote FOR this proposal. |
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7
2019 Executive Compensation Highlights
As further discussed in Compensation Discussion and Analysis starting on page 38, the guiding principles of our executive compensation philosophy are pay-for-performance, accountability for annual and Proposal 3 requests the approval of the frequency of the advisory vote onlong-term performance, alignment with stockholders’ interests, and providing competitive pay to attract and retain executives. The 2019 compensation program for our named executive compensation. Proposals 2officers ("NEOs") has three primary components: annual base salary, annual cash incentives and 3 are advisory votes which means that they are not binding upon the Company.long-term equity incentives.
Proposal 4 requests the ratification of the appointment |
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| Fixed | | | At-risk | | | |
| Base Salary | | Annual Cash Incentive | | Long-Term Equity Incentives |
| Target Mix | CEO* | OTHER NEOs (Average) | | CEO | OTHER NEOs (Average) | | OTHER NEOs (Average) |
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| * CEO receives no equity awards | | | | | | Performance
based RSUs | Service based
Equity Award |
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| Performance | • Executive base salaries were not increased for 2019 in light of the challenging macro-economic environment facing the Company | | • Financial performance fell short of minimum revenue and earnings thresholds in 2019, resulting in no annual incentive payout based on financial performance • Individual performance awards were earned for managing through challenging business conditions | | • Type and proportion of equity grants reflected a 2019 review by our Compensation Committee with the assistance of our independent compensation consultant of grant practices at peer companies • Our CEO, as the founder and a significant stockholder, has not received an equity award since the Company’s 2006 IPO, resulting in lower compensation expenses and equity burn rate |
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| Objective | • Provide a competitive fixed component to attract and retain talented and experienced executives | | • Variable cash compensation opportunity is based upon annual net sales and profitability against threshold, target and maximum performance goals • Additional compensation opportunities are based upon individual performance | | • Align interests of our executives and stockholders by motivating executive officers to increase long-term stockholder value • Service-based equity awards vest over four years providing long-term retention and additional compensation opportunity for stock price increases • PSU awards provide additional incentives and are earned based on IPG’s total stockholder return relative to a comparable stock index |
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8 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Alignment with Stockholder Interests and Performance
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• Annual cash incentive payouts are capped and have challenging performance goals linked to key financial performance metrics • Long-term equity incentives are aligned with long-term stockholder value creation • Approximately 78% of non-CEO compensation in 2019 was at risk based on performance • Executives exceed stock ownership guidelines, aligning with interests of stockholders | | Say-on-pay approval
during last
stockholder vote in 2017 |
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Governance Features of Our
Executive Compensation Program |
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| PRACTICES WE EMPLOY | | PRACTICES WE AVOID |
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ü Align our officer pay with performance ü Balance annual and long-term incentives ü Use long-term incentives to link executive pay to company performance ü Cap on incentive award payouts ü Maximize stockholder value while mitigating risk ü Independent compensation consultant ü Robust stock ownership requirements ü Clawbacks on executive compensation | | û No guaranteed annual bonuses û No retirement benefits û No tax gross-ups û No significant perquisites û Hedging of Company stock is prohibited û No severance for “cause” terminations û No single-trigger change in control provisions û No stock option repricing without stockholder approval û Pledging of Company stock is limited
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Proposal
3 | Ratify Deloitte & Touche LLP as our Independent
Registered Public Accounting Firm for 2020 The Board recommends a vote FOR this proposal. |
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The Audit Committee has sole authority to appoint and replace the Company’s independent registered public accounting firm.
The affirmative vote of a majority of the sharesfirm, which are present at the meeting in person or by proxy, and entitled to vote thereon, is required for approval of Proposals 2 and 4. Abstentions have the same effect as voting
against Proposals 2 and 4. The option receiving the largest number of votes for proposal 3 will be considered the stockholders' preferred frequency for holding an advisory vote on executive compensation. Broker non-votes have no effect on Proposals 2 and 3.
Who Is Entitled to Vote at the Meeting?
You are entitled to vote at the meeting if you owned IPG Photonics shares (directly or in "street name," as defined below) as of the close of business on April 3, 2017, the record date for the meeting. On that date, 53,422,456 shares of our common stock were outstanding and entitled to vote and no shares of our preferred stock were outstanding. Each share of our common stock is entitled to one vote with respect to each matter on which it is entitled to vote. There is no cumulative voting with respect to any proposal.
What Do I Need to Do If I Plan to Attend the Meeting in Person?
If you plan to attend the annual meeting in person, you must provide proof of your ownership of our common stock and a form of personal identification, such as a driver's license, for admissionreports directly to the meeting. If youAudit Committee, and is directly responsible for its compensation and oversight of its work. The Audit Committee conducted its annual evaluation of Deloitte & Touche LLP and, after assessing the performance and independence of Deloitte & Touche LLP, the Audit Committee concluded that the best course of action was to reappoint Deloitte & Touche LLP as our independent external auditor for 2020.
We are a stockholder of record, the top half of your proxy card is your admission ticket and will serve as proof of ownership. If you hold your shares in street name, a recent brokerage statement or a letter from your bank or broker are examples of proof of ownership. If you hold your shares in street name and you also wish to be able to vote at the meeting, you must obtain a proxy, executed in your favor, from your bank or broker.
What Is the Difference Between Holding Shares Directly as a Stockholder of Record and Holding Shares in "Street Name" at a Bank or Broker?
Most of our stockholders hold their shares directly through a broker, bank or other nominee rather than directly in their own name. As summarized below, there are differences between shares held of record and those held in "street name."
Stockholder of Record: If your shares are registered directly in your name with our transfer agent, Computershare, N.A., you are considered the stockholder of record with respect to those shares, and the proxy statement and annual report were sent directly to you. As the stockholder of record, you have the right to vote your shares as described herein.
"Street Name" Stockholder: If your shares are held by a bank, broker or other nominee on your behalf, you are considered the beneficial owner of shares held in "street name," and the proxy statement and annual report were forwarded to you by your bank,broker or other nominee who is considered the stockholder of record with respect to those shares. Your bank, broker or other nominee sent to you, as the beneficial owner, a document describing the procedure for voting your shares. You should follow the instructions provided by your bank, broker or other nominee to vote your shares. You are also invited to attend the annual meeting. However, if you wish to be able to vote at the meeting, you must obtain a proxy card, executed in your favor, from your bank, broker or other nominee.
What Does it Mean to Give a Proxy?
Your properly completed proxy/voting instruction card will appoint Valentin P. Gapontsev and Angelo P. Lopresti as proxy holders or your representatives to vote your shares in the manner directed therein by you. Dr. Gapontsev is our Chairman of the Board and Chief Executive Officer. Mr. Lopresti is our Senior Vice President, General Counsel and Secretary. Your proxy permitsasking you to direct the proxy holders to vote "for" or "withhold" for the nominees for director (Proposal 1), "for," "against," or "abstain" from the advisory vote on our executive compensation and the voteratify this appointment. If stockholders fail to ratify the appointment, of our independent registeredthe Audit Committee will consider it a directive to consider other accounting firm (Proposals 2 and 4 respectively),andfirms for a one, two or three year frequency of the advisory vote for executive compensation.
All of your shares entitled to vote and represented by a properly completed proxy or voting instruction received prior to the meeting and not revoked will be voted at the meeting in accordance with your instruction.
What Happens If I Sign, Date and Return My Proxy But Do Not Specify How I Want My Shares Voted on One of the Proposals?
Stockholder of Record: Your proxy will be counted as a vote "For" all of the nominees for director, "For" Proposals 2 and 4 and for a three year frequency of the advisory vote for equity compensation.
"Street Name" Stockholder: Your bank, broker or nominee may vote your shares only on those proposals on which it has discretion to vote. Under New York Stock Exchange rules, your bank, broker or nominee does not havesubsequent year.
5
9
discretionFees Paid to vote your shares on non-routine matters such asDeloitte & Touche. The fees for services provided by Deloitte & Touche LLP, member firm of Deloitte Touche Tohmatsu, and their respective affiliates, to the electionCompany were:
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| | Fees |
| Fee Category | 2019 |
| 2018 |
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| Audit fees | $ | 2,440,990 |
| $ | 2,051,757 |
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| Audit-related fees | — |
| 170,470 |
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| Tax fees | 90,000 |
| 111,000 |
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| All other fees | — |
| — |
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| Total Fees | $ | 2,530,990 |
| $ | 2,333,227 |
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In 2019 and 2018, the percentage of directors (Proposal 1), the advisory vote on executive compensation (Proposal 2) and the frequency of the advisory vote for executive compensation (Proposal 3). This is called a "broker non-vote." However, your bank, broker or nominee does have discretiontotal fees paid to vote your shares on routine matters such as the vote to ratify the appointment of our independent registered public accounting firm (Proposal 4). Accordingly, if you do not give your bank, broker or nominee specific instructions with respect to Proposal 4, your shares will be voted in such entity's discretion (but only with respect to Proposal 4). We urge you to promptly provide your bank, broker or nominee with appropriate voting instructions so that all of your shares may be voted at the meeting.for audit fees were 96% and 88%, respectively.
Can I Change My Vote Before the Meeting?You can change your vote at any time before your proxy is exercised by delivering a properly executed, later-dated proxy (including an internet or telephone vote), by revoking your proxy by written notice to the Secretary of IPG Photonics, or by voting in person at the meeting. If you choose to revoke your proxy by attending the annual meeting, you must vote your shares for revocation to be effective. The method by which you vote by a proxy will in no way limit your right to vote at the meeting if you decide to attend in person.
If your shares are held in street name, please refer to the information forwarded by your bank, broker or nominee for procedures on changing your voting instructions.
Is the Proxy Statement Available on the Internet?
Yes. We are delivering our proxy statement and 2016 annual report pursuant to the Securities and Exchange Commission rules that allow companies to furnish proxy materials to their stockholders over the internet. On or about April 11, 2017, we will mail to our stockholders a notice (the “Notice”) containing instruction on how to access this proxy statement and our annual report and to vote via the internet or by telephone. Stockholders can view these documents on the internet by accessing the website at investor.ipgphotonics.com.
What does it mean if I receive more than one Notice of Internet Availability of Proxy Materials?
You may receive more than one Notice, more than one e-mail or multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you may receive a separate Notice, a separate e-mail or a separate voting instruction card for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you may receive more than one Notice, more than one e-mail or more than one proxy card. To vote all of your shares by proxy, you must complete, sign, date and return each proxy card and voting instruction card that you receive and vote over the internet the shares represented by each Notice that you receive (unless you have requested and received a proxy card or voting instruction card for the shares represented by one or more of those Notices).
Who Is Soliciting my Proxy and Who is Paying for the Cost of this Proxy Solicitation?
The Board of Directors of IPG Photonics is soliciting your proxy to vote at the 2017 annual meeting of stockholders. IPG Photonics will bear the expense of preparing, posting to the internet, printing and mailing this proxy material, as well as the cost of any required solicitation. Our directors, officers or employees may solicit proxies on our behalf. We have not engaged a proxy solicitation firm to assist us in the solicitation of proxies, but we may if we deem it appropriate. In addition, we will reimburse banks, brokers and other custodians, nominees and fiduciaries for reasonable expenses incurred in forwarding proxy materials to beneficial owners of our stock and obtaining their proxies.
Who Counts the Votes?
We have engaged Computershare, N.A. as our independent agent to receive and tabulate stockholder votes. Computershare, N.A. will separately tabulate "for," "against" and "withhold" votes, abstentions and broker non-votes and the number of votes cast for each year in Proposal 3. Computershare, N.A. will also act as independent election inspector to certify the results, determine the existence of a quorum and the validity of proxies and ballots, and perform any other acts required under the General Corporation Law of Delaware.
How Can I Vote?
Most stockholders have a choice of voting in one of four ways:
via the internet, |
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Proposal
4 | Stockholder Proposal to Prepare a Report on Management Team Diversity The Board recommends a vote AGAINST the stockholder proposal to be presented at the meeting. |
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using a toll-free telephone number,
completing a proxy/voting instruction card and mailing it in the postage-paid envelope provided or
in person at the meeting.
The telephone and internet voting facilities for stockholders of record will close at 1:00 a.m. Central Time on June 1, 2017. The internet and telephone voting procedures are designed to authenticate stockholders by use of a control number and to allow you to confirm that your instructions have been properly recorded.
If you hold your shares in "street name," your bank, broker or other nominee will send you a separate package describing the procedures and options for voting your shares. Please read this information carefully. If you hold your shares in "street name," and wish to vote in person at the annual meeting, you must obtain a "legal proxy" from the organization that holds your shares. A legal proxy is a written document that will authorize you to vote your shares held in "street name" at the annual meeting. Please contact the organization that holds your shares for instructions regarding obtaining a legal proxy. You must bring a copy of the legal proxy to the annual meeting and ask for a ballot when you arrive.
What Is the Quorum Required to Transact Business?
At the close of business on April 3, 2017, the record date, there were 53,422,45610 shares of our common stock outstanding. Our by-laws require that a majority of our common stock be represented, in person or by proxy, at the meeting in order to constitute the quorum we need to transact business at the meeting. We will count withhold votes, abstentions and broker non-votes in determining whether a quorum exists.NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
CORPORATE GOVERNANCETable of Contents
Significant Corporate Governance Practices and PoliciesAt IPG Photonics, we believe that strong and effective corporate governance procedures and practices are an extremely important part of our corporate culture. We have summarized several of our corporate governance practices below. |
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| This Proxy Statement contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and we intend that such forward-looking statements be subject to the safe harbors created thereby. For this purpose, any statements contained in this Proxy Statement except for historical information are forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. The forward-looking statements included herein are based on current expectations of our management based on available information and involve a number of risks and uncertainties, all of which are difficult or impossible to accurately predict and many of which are beyond our control. As such, our actual results may differ significantly from those expressed in any forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to, those discussed in more detail in the section titled “Risk Factors” and elsewhere in our Annual Report and other filings with the SEC. We undertake no obligation to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. |
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Independent Director Majority and Presiding Independent Director. Seven of the ten directors currently on our Board of Directors (the "Board") are non-employees of the Company who meet the independence criteria under the applicable rules of the Securities and Exchange Commission ("SEC") and NASDAQ guidelines. Only independent directors sit on our three standing Board Committees. Several years ago, the Board established the role of a presiding independent director who is elected annually by the independent directors.11
Executive Sessions. Our Board meets regularly in executive sessions without the presence of management, including our Chairman and Chief Executive Officer. These sessions are led by our Presiding Independent Director.
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Proposal
1 | Election of Nine Directors The Board of Directors recommends a vote FOR each director nominee named in this Proxy Statement. |
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Annual Election of Entire Board. Stockholders elect each director annually. We do not have a classified board.
Related Person Transactions. Our Nominating and Corporate Governance Committee is responsible for approving or ratifying transactions involving our Company and related persons and determining if the transaction is in, or not inconsistent with, the best interests of our Company and our stockholders.
Stock Ownership Guidelines. Our directors and executive officers are required to own a minimum amount of IPG Photonics shares. We believe that stock ownership requirements align the interests of the directors and officers with our stockholders. Our directors and executive officers fully complied with our guidelines in 2016.
Prohibition on Hedging; Limits on Pledging. Our insider trading policy expressly prohibits directors and employees from engaging in short sales of our common stock or buying or selling puts, calls or derivative securities in connection with IPG Photonics shares. The policy also limits the pledging of IPG Photonics shares.
Annual Self-Assessments. Our Board engages in annual self-evaluations and our committees perform bi-annual self-assessments to determine if they are functioning effectively.
Oversight of Risk Management. As part of its oversight, the entire Board reviews Company strategy and performance and the principal risks involved. The Board allocates risk oversight responsibility among the full Board, the independent directors acting as a group and the three standing committees.
Additional information is provided below regarding these and certain other key corporate governance policies, which we believe enable us to manage our business in accordance with high standards of business practices and in the best interest of our stockholders. Several of our policies may be found at investor.ipgphotonics.com/corporate-governance/governance-documents. Note that information on our website does not constitute part of this proxy statement.
Corporate Governance Guidelines
Our Board has adopted Corporate Governance Guidelines that outline, among other matters, the roles and functions of the Board, the responsibilities of various Board committees and the mission of the Board. Each of the Board committees has a written charter that sets forth the purposes, goals and responsibilities of the committees as well as qualification for committee membership, procedures for committee membership, appointment and removal, committee structure and operations and committee reporting to the entire Board.
The Corporate Governance Guidelines provide, among other things, that:
a majority of our Board must be independent,
the Presiding Independent Director presides over executive sessions of independent directors,
the Board appoints all members and chairpersons of the Board committees,
the Audit, Compensation, and Nominating and Corporate Governance Committees consist solely of independent directors,
the independent directors meet periodically in executive sessions without the presence of the non-independent directors or members of our management,
directors may not serve on the boards of more than three other public companies or on more than two other audit committees of public companies,
evaluation of the Board is conducted annually and
the Board and key officers should have a meaningful financial stake in the Company.
The Board reviews changing legal and regulatory requirements, evolving best practices and other developments. The Board modifies the Corporate Governance Guidelines and its other corporate governance policies and practices from time to time, as appropriate.
Executive Sessions. Our independent directors meet privately, without employee directors or management present, at least four times during the year. These private sessions are generally held in conjunction with the regular quarterly Board meetings. Other private meetings of the independent directors are held as often as deemed necessary by them. The Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee meet without employee directors or management present from time to time as they deem necessary.
Director Meetings and Policy Regarding Board Attendance. It has been the practice of our Board and its committees to hold at least four in-person regular meetings each year. The Board and its committees also have telephone meetings throughout the year. In accordance with our Corporate Governance Guidelines, our directors are expected to prepare for, attend and actively participate in meetings of the Board and its committees. Our directors are expected to spend the time needed at each meeting and to meet as frequently as necessary to properly discharge their responsibilities. We encourage members of our Board to attend annual meetings of stockholders, but we do not have a formal policy requiring them to do so.
Stock Ownership Guidelines. The Board adopted stock ownership guidelines to more closely align the interests of our directors and executive officers with those of our long-term stockholders. Under the guidelines, the following persons are expected to maintain a minimum investment in our common stock as follows: for non-employee directors, the lesser of 3,000 shares or three times their annual cash Board retainer (excluding committee retainers); for the Chief Executive Officer, five times his annual salary; and for senior executive officers, the lesser of 5,000 shares or one times their respective annual salaries. Vested stock options and unvested restricted stock units count toward the stock ownership levels. Indirect ownership of shares through a separate legal entity counts toward fulfillment of the ownership guidelines. These ownership levels are to be achieved no later than four years after the election as a director or as an executive officer, except that prior to such time the director or officer is expected to retain a certain portion of stock issued upon exercise of stock options or vesting of restricted stock units until the minimum ownership levels are attained. All directors and executive officers were in compliance with our stock ownership guidelines as of December 31, 2016.
Board Self-Assessments. The Board conducts annual self-evaluations and the committees conduct bi-annual self-assessments to determine whether they are functioning effectively. The Nominating and Corporate Governance Committee oversees(the "NCGC") is responsible for identifying and evaluating nominees for director and for recommending to the Board a slate of nominees for election at the Annual Meeting. The NCGC has recommended, and the Board has approved, the following nominees for terms expiring at the annual meeting to be held in 2021, until a successor is elected and qualified or until his or her earlier death, resignation or removal and, unless otherwise marked, a proxy will be voted for such nominees: Dr. Gapontsev, Dr. Scherbakov, Mr. Samartsev, Mr. Child, Mr. Dougherty, Ms. Lego, Mr. Meurice, Mr. Peeler and Mr. Seifert. All of the director nominees set forth in our proxy card have consented to being named in this Proxy Statement and to serving if elected. For more information regarding the nominees for director, see Director Nominees below. Mr. Henry E. Gauthier decided to retire from the Board and committee self-assessments. Each committee also reviews its own performance bi-annuallywill not stand for re-election at the Annual Meeting. We extend our sincere appreciation to Mr. Gauthier for the valuable contributions and reports the results to the Board. Each committee reviews and reassesses the adequacy of its charter annually and recommends proposed changes to the Board.
Prohibition on Hedging; Limits on Pledging. Under our insider trading policy, no director or employee may engage in shorting shares of our common stock, or buying or selling puts, calls or derivatives relatedguidance he provided to our common stock. A director or officer of the Company may not pledge shares constituting more than 20% ofand stockholders during his or her total stock ownership. Pledges of shares constituting 20% or less of total stock ownership are subject to certain conditions.
Governance Trends and Director Education. The Board and its committees proactively monitor legislative and regulatory initiatives,service as well as other corporate governance trends and their potential impact on the Company. Each director has access to publications and other resources that cover these matters. In addition, we reimburse relevant director education expenses.
The Board receives presentations from professionals with expertise in corporate law, governance and other related topics.These experts have specialized knowledge of regulatory actions, governance trends and various other corporate governance topics. Additionally, our directors participate in continuing education sessions to remain informed on recent trends applicable to their committee duties. Likewise, newly elected directors attend a comprehensive director orientation program that covers, among other things, our strategy, business structure, financial performance, and competitive landscape. New committee members are also provided training on committee policies, practices and trends. As part of this program, directors are invited to participate in a tour of selected facilities of the Company. To further familiarize directors with our expanding operations, we conduct Board meetings at our major facilities from time to time.
The committees actively engage with senior management and other parties when necessary to further assess the current environment or respond to governance related matters. The Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee each routinely receive updates on matters applicable to their responsibilities from legal counsel, auditors and independent consultants.
Code of Business Conduct. We have a code of business conduct that applies to all of our directors and employees, including our Chief Executive Officer, Chief Financial Officer and other executive officers. Our code of business conduct includes provisions covering conflicts of interest, business gifts and entertainment, outside activities, compliance with laws and regulations, insider trading practices, antitrust laws, payments to government personnel, bribes or kickbacks, corporate record keeping and accounting records. The code of business conduct is posted on our website at investor.ipgphotonics.com/corporate-governance/governance-documents.
Procedures for Submitting Complaints. We have procedures to treat complaints regarding accounting, internal accounting controls, auditing matters, fight against bribery, banking, and financial crime, including submission of confidential and anonymous concerns regarding questionable accounting, internal accounting controls or auditing matters raised by our directors, officers and employees. These procedures are posted on our website at investor.ipgphotonics.com/corporate-governance/governance-documents.
Board Leadership Structure
As of the date of this proxy statement, the positions of Chairman of the Board and Presiding Independent Director are held by two different individuals. Dr. Gapontsev, our Chief Executive Officer, also serves as the Chairman of the Board. Our independent directors determined several years ago that, for effective board governance, it is important to have a presiding independent director. Mr. Gauthier has been selected as the Presiding Independent Director for the term ending June 2017.
Dr. Gapontsev became our Chief Executive Officer and Chairman in 1998. His dual role was created when the Board was first established in 2000. Our directors believe that each of the possible leadership structures for a board has its particular benefits and drawbacks which must be considered in the context of the specific circumstances, culture and challenges facing a company, and that such consideration is the responsibility of a company's board that has a diversity of views and experiences. Our directors come from a variety of organizational backgrounds and have direct experience with a wide range of leadership and management structures. The makeupmember of our Board puts it in a very strong positionsince 2006. At the Annual Meeting our Board size is being reduced from ten to evaluate the pros and cons of the various types of board leadership structures and to ultimately decide which form is in the best interests of our stockholders. The independent directors believe that having Dr. Gapontsev serve in both capacities is in the best interest of the Company and its stockholders because it allows Dr. Gapontsev to more effectively execute the Company's strategic initiatives and business plans. He is the founder of the Company and beneficially owns approximately 14% of the Company's common stock. The duality of Dr. Gapontsev's roles as Chairman and Chief Executive Officer creates clear and unambiguous authority, which is essential to effective management. The Board and management can respond more effectively to a distinct line of authority. Further, given that he is closer to the Company's business than any other Board member and he has the benefit of over nineteen years of operations and executive management experience within the Company, Dr. Gapontsev is best-positioned to set the Board's agenda and provide leadership. Dr. Gapontsev's extensive scientific and business experience also gives him vast industry knowledge, which the Board believes is critical for the chairman of the board of a company that operates in a highly technical industry. The combined Chairman/Chief Executive structure is a leadership model that has served our stockholders well for many years.nine directors.
The Board also recognizes the importance of having in place, and building upon, a counterbalancing structure to ensure that it functions in an appropriately independent manner. As a result, the Board enhanced its governance structure several years ago by creating the position of Presiding Independent Director with leadership authority and responsibilities. The duties and responsibilities of the Presiding Independent Director include: setting the agenda for, and leading, executive sessions of the independent directors; providing consolidated feedback from those meetings to the Chairman and Chief Executive Officer; providing input on the agenda for Board meetings; periodically providing feedback on the quality and quantity of information flow from management; having the authority to call meetings of the independent directors; facilitating discussions outside of scheduled Board meetings among the independent directors on key issues as required; serving as a non-exclusive liaison with the Chairman and Chief Executive Officer in consultation with the other independent directors; interviewing Board candidates as appropriate; and leading the determination of the goals and objectives for the Chairman and Chief Executive Officer with the input of the independent directorsIn considering each director nominee and the annual performance evaluation for him with the inputcomposition of the independent directors and providing that evaluation to the Compensation Committee. In the event of a crisis, the Presiding Independent Director would have an increased role in crisis management oversight. The independent directors of our Board elected Mr. Gauthier as the Presiding Independent Director for the term ending June 2017, and this position is voted upon annually by our independent directors.
The Board believes that the position and responsibilities of a presiding independent director and the regular use of executive sessions of the independent directors without the Chief Executive Officer or other executive officers present, along with the Company's strong committee system and substantial majority of independent directors, allow the Board to maintain effective oversight.
Risk Oversight
The Board and management recognize that effectively monitoring and managing risk are essential to the successful execution of the Company's strategy. The Board reviews strategy regularly with management and provides input to management. As part of its oversight of operations, the entire Board reviews and discusses the performance of the Company and the principal risks involved in the operations and management of the Company. The Board allocates risk oversight responsibility among the full Board, the independent directors acting as a group and the three standing committees of the Board. The Nominating and Corporate Governance Committee
periodically reviews risk oversight matters and responsibilities, then makes recommendations to the Board to allocate risk oversight responsibilities.
The Board as a whole, reviews risk management practicesthe NCGC evaluates members based on their expertise and diverse perspectives, experiences, qualifications, attributes and skills because the NCGC believes that these attributes enable a number ofdirector nominee to make significant risks in the course of its reviews of corporate strategy, management reports and other presentations. The independent directors as a group participate in senior executive succession and resource planning. The standing committees also contribute to succession and resource planning oversight for management. The Audit Committee oversees certain financial risks and recommends guidelines to monitor and control such exposures. The Compensation Committee reviews the Company's executive compensation programs, their effectiveness at both linking executive pay to performance and aligning the interests of our executives and our stockholders, and oversees an entity-wide compensation risk assessment. The Nominating and Corporate Governance Committee reviews significant related person transactions with directors, executives and managers and may conduct negotiations on behalf of the Company in connection with related person transactions and retain independent advisors to assist it. The Board's risk oversight role is independent from the Company's day-to-day management, as more than two-thirds of the current directors are independent and therefore have no conflicts that might discourage critical review of the Company's risks.
Communication with our Board of Directors
Interested parties wishing to writecontributions to the Board, IPG and our stockholders.
The director nominees have a specified director or a committeemix of various skills and qualifications, some of which are listed in the Board should send correspondence to the Office of the Secretary, IPG Photonics Corporation, 50 Old Webster Road, Oxford, Massachusetts 01540. All written communications received in such manner from stockholders of the Company will be forwarded to the members or committee oftable below. These collective attributes enable the Board to whom the communication is directed or, if the communication is not directedprovide insightful leadership as it strives to any particular member(s) or committee(s) of the Board, the communication shall be forwardedadvance our strategies and deliver returns to all members of the Board.stockholders.
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| | Lasers and Technology | | We have sought directors with management and operational experience in the industries in which we compete. For example, last year we added a director with expertise in optical and electronics components, and telecommunications products. As a diversified technology, science-based company, directors with technology backgrounds understand the Company’s technology platforms and the importance of investing in new technologies for future growth. |
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| | Financial Literacy | | Knowledge of finance or financial reporting; experience with debt/capital market transactions and/or mergers and acquisitions strengthen the Board’s oversight of financial reporting and internal controls. Financial metrics are used to measure our performance. All directors must understand finance and financial reporting processes. Two of the Audit Committee members qualify as “audit committee financial experts.” |
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| | Global Business | | Global business experience is critical to the Company’s international operations and growth with 79% of sales from outside the U.S. in 2019. Knowledge of Asian and European business practices are valuable to understanding our business and strategy. |
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| | Manufacturing
and Operating | | As a vertically-integrated company, manufacturing experience and customer service on a global scale are important to understanding the operations and capital needs of the Company. |
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12NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
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| | Business Development
and M&A | | We have used and will continue to use acquisitions to achieve our strategic goals. Directors with experience in business development and mergers and acquisitions provide valuable perspectives regarding process, due diligence, risk assessment and integration of potential partners. |
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| | Risk Management | | In light of the Board’s role in overseeing risk management and understanding the most significant risks facing the Company, including cybersecurity risk, we continue to require directors with experience in risk management and oversight. |
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| | Executive Leadership | | Significant leadership experience, including services as a CEO, senior executive, division president or functional leader within a complex organization enhances the Board’s leadership role. |
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| | Other Public Company Boards | | Directors with current or recent membership on other public company boards provide valuable perspectives in many areas including operations, strategy, governance and compensation. |
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| | | Gapontsev | Scherbakov | Samartsev | Child | Dougherty | Lego | Meurice | Peeler | Seifert |
| Skills and Expertise |
| Lasers and Technology | ● | ● | ● | | ● | | ● | ● | |
| Financial Literacy | ● | ● | ● | ● | ● | ● | ● | ● | ● |
| Global Business | ● | ● | ● | ● | ● | ● | ● | ● | ● |
| Manufacturing
and Operating | ● | ● | | ● | ● | | ● | ● | ● |
| Business Development
and M&A | ● | ● | | ● | ● | ● | ● | ● | ● |
| Risk Management | ● | ● | ● | ● | ● | ● | ● | ● | ● |
| Executive Leadership | ● | ● | ● | | ● | | ● | ● | ● |
| Other Public
Company Boards | | | | ● | ● | ● | ● | ● | ● |
| Background |
| | Years on Board | 22 | 20 | 14 | 20 | 1 | 4 | 6 | 8 | 6 |
| | Age | 81 | 72 | 57 | 65 | 60 | 63 | 63 | 65 | 56 |
| | Gender | M | M | M | M | M | F | M | M | M |
| | Internationally Diverse | ● | ● | ● | | | | ● | | ● |
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RELATED PERSON TRANSACTIONS
The Board adopted a related person transaction policy that requires the Company's executive officers, directors, nominees for director and ownersProposal 1 Election of more than 5% of the Company's shares to promptly notify the Secretary in writing of any transaction in which (i) the amount exceeds $100,000, (ii) the Company is, was or is proposed to be a participant and (iii) such person or such person's immediate family members ("Related Persons") has, had or may have a direct or indirect material interest (a "Related Person Transaction"). Subject to certain exceptions in the policy, Related Person Transactions must be brought to the attention of the Nominating and Corporate Governance Committee for an assessment of whether the transaction or proposed transaction should be permitted. In deciding whether to approve or ratify the Related Person Transaction, the Nominating and Corporate Governance Committee considers relevant facts and circumstances. If the Nominating and Corporate Governance Committee determines that a Related Person has a direct or indirect material interest in any such transaction, the Committee must review and approve, ratify or disapprove the Related Person Transaction.Nine Directors
Pursuant to our Corporate Governance Guidelines, we expect each of our directors to ensure that other existing and future commitments do not conflict with or materially interfere with his or her service as a director. Directors are expected to avoid any action, position or interest that conflicts with our interests or gives the appearance of a conflict. In addition, directors are required to inform the chairman of our Nominating and Corporate Governance Committee prior to joining the Board of another public company to ensure that any potential conflicts, excessive time demands or other issues are carefully considered.
The Nominating and Corporate Governance Committee reviewed and approved the following Related Person Transactions which were conducted on an "arm's length" basis with the Company. Members of the Nominating and Corporate Governance Committee having an interest in a transaction excuse themselves for the consideration and approval of the transaction in which they have an interest.
In 2016, the Company purchased from Veeco Instruments Inc. equipment, parts and services amounting to approximately $5,392,000. Mr. Peeler, a non-employee member of our Board, is the Chief Executive Officer and Chairman of the Board of Directors of Veeco Instruments Inc. For several years before Mr. Peeler was elected to our Board, Veeco Instruments Inc. was a provider of equipment, parts and services to the Company.
The Company purchased in 2016 an office building located in Marlborough, Massachusetts from a subsidiary of IP Fibre Devices (UK) Ltd. ("IPFD") for $23,750,000. The purchase price was based on the fair market value of the building determined using an independent appraisal. The appraisal was commissioned by the Nominating and Corporate Governance Committee of the Board, and such Committee retained separate legal counsel to represent the Company in connection with the negotiation and closing of the transaction. The Company's CEO is the managing director of IPFD. Messrs. Gapontsev, Samartsev and Scherbakov, each of whom is member of our Board, and trusts created by Dr. Gapontsev, own shares of IPFD. See the table and notes in the section titled "Common Stock Ownership." Prior to the purchase, the Company leased space in the building and reimbursed the landlord for its portion of certain operational costs. The Company paid IPFD $443,000 in 2016 under the office lease.
Dr. Gapontsev leases the annual right to use 25% of the Company's corporate aircraft under a October 2014 lease expiring in November 2019. The 2016 year-end annual lease rate was $651,000 and future rent payments will be adjusted annually. Dr. Gapontsev also pays direct and incidental operating costs for his private use including pilot fees. He paid the Company $651,000 in 2016 under the aircraft lease. In addition, the CEO directly pays an unrelated flight management firm for the operating costs of his private use including pilot fees, fuel and other costs.
The Company sold in 2016 products amounting to $146,000 to Ultratech Inc. Mr. Child, a non-employee member of our Board, is a non-employee member of the Board of of Directors of Ultratech Inc.
BOARD OF DIRECTORS
The Board currently set the number of directors at ten.
The following table sets forth certain information as of the date of this proxy statementProxy Statement regarding the director nominees. Each of our incumbent directors has been nominated by the Board for election at our 2016 annual meeting.
Valentin P. Gapontsev, Ph.D.
Director since 1998
Chief Executive Officer and Chairman of the Board
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| | Dr. Gapontsev has been the CEO and Chairman of the Board of IPG since our inception. Prior to founding the Company's predecessor in 1990, Dr. Gapontsev served as senior scientist in laser material physics and head of the laboratory at the Soviet Academy of Science’s Institute of Radio Engineering and Electronics in Moscow. In 2006, he was awarded the Ernst & Young® Entrepreneur of the Year Award for Industrial Products and Services in New England and in 2009, he was awarded the Arthur L. Schawlow Award by the Laser Institute of America. In 2011, he received the Russian Federation National Award in Science and Technology, and he was selected as a Fellow of the Optical Society of America. Dr. Gapontsev holds a Ph.D. in Laser Materials from the Moscow Institute of Physics and Technology. KEY ATTRIBUTES, EXPERIENCE AND SKILLS Dr. Gapontsev is the founder of the Company and has successfully led the Company and the Board since the Company was formed to now. In the roles of CEO and Chairman of the Board, he has been responsible for formulation and execution of IPG’s strategy and providing leadership and oversight of IPG’s business during a period of rapid and profitable growth, as well as business contractions. He has over thirty years of academic research experience in the fields of solid state laser materials, laser spectroscopy and non-radiative energy transfer between rare earth ions and is the author of many scientific publications and several international patents. His strategic foresight and entrepreneurial spirit along with his deep scientific understanding has guided the Company’s continued growth and technology leadership. |
AGE: 81 DIRECTOR SINCE: 1998 COMMITTEES: None | |
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Dr. Gapontsev has been the Chief Executive Officer and Chairman14 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of the Board of IPG since our inception. Prior to founding the company in 1990, Dr. Gapontsev served as senior scientist in laser material physics and head of the laboratory at the Soviet Academy of Science's Institute of Radio Engineering and Electronics in Moscow. In 2006, he was awarded the Ernst & Young® Entrepreneur of the Year Award for Industrial Products and Services in New England, and in 2009, he was awarded the Arthur L. Schawlow Award by the Laser Institute of America. In 2011, he received the Russian Federation National Award in Science and Technology, and he was selected as a Fellow of the Optical Society of America. Dr. Gapontsev holds a Ph.D. in Physics from the Moscow Institute of Physics and Technology.Nine Directors
Key Attributes, Experience and Skills
He is the founder of the Company and has successfully led the Company and the Board since the Company was formed. In the roles of Chief Executive Officer and Chairman of the Board, he has been responsible for formulation and execution of IPG's strategy and providing leadership and oversight of IPG's business during a period of rapid and profitable growth, as well as business contractions. He has over thirty years of academic research experience in the fields of solid state laser materials, laser spectroscopy and non-radiative energy transfer between rare earth ions and is the author of many scientific publications and several international patents. His strategic foresight and entrepreneurial spirit along with his deep scientific understanding has guided the Company's continued growth and technology leadership. Under Dr. Gapontsev's leadership, the Company continues to generate strong revenue and earnings growth.
Eugene A. Scherbakov, Ph.D.
Director since 2000
Chief Operating Officer, Managing Director of IPG Laser GmbH and Senior Vice President of Europe
Dr. Scherbakov has served as Chief Operating Officer since February 2017, Managing Director of IPG Laser GmbH, our German subsidiary, since August 2000 and Senior Vice President-Europe since 2013. He served as the Technical Director of IPG Laser from 1995 to August 2000. From 1983 to 1995, Dr. Scherbakov was a senior scientist in fiber optics and head of the optical communications laboratory at the General Physics Institute, Russian Academy of Science in Moscow. Dr. Scherbakov graduated from the Moscow Physics and Technology Institute with an M.S. in Physics. In addition, Dr. Scherbakov attended the Russian Academy of Science in Moscow, where he received a Ph.D. in Quantum Electronics from its Lebedev Physics Institute and a Dr.Sci. degree in Laser Physics from its General Physics Institute.
Key Attributes, Experience and Skills
Dr. Scherbakov has extensive knowledge of the Company's business as Managing Director of IPG Laser GmbH, which produces a large volume of our products and is the source of many developments in products, technology and applications. The leadership and operational expertise of Dr. Scherbakov have contributed to IPG increasing production, lowering manufacturing costs and maintaining high margins compared to our industry peers. He also has extensive technological knowledge of fiber lasers, their components and the manufacturing process. His service as an executive officer of the Company provides the Board with a detailed understanding of the Company's |
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| | Dr. Scherbakov has served as Chief Operating Officer since February 2017, Managing Director of IPG Laser GmbH, our German subsidiary, since August 2000 and Senior Vice President-Europe since 2013. He served as the Technical Director of IPG Laser from 1995 to August 2000. From 1983 to 1995, Dr. Scherbakov was a senior scientist in fiber optics and head of the optical communications laboratory at the General Physics Institute, Russian Academy of Science in Moscow. Dr. Scherbakov graduated from the Moscow Physics and Technology Institute with an M.S. in Physics. In addition, Dr. Scherbakov attended the Russian Academy of Science in Moscow, where he received a Ph.D. in Quantum Electronics from its Lebedev Physics Institute and a Dr.Sci. degree in Laser Physics from its General Physics Institute. KEY ATTRIBUTES, EXPERIENCE AND SKILLS Dr. Scherbakov has extensive knowledge of the Company’s business as Managing Director of IPG Laser GmbH, which produces a large volume of our products and is the source of many developments in products, technology and applications. He applies his knowledge and experience across our many international branches. The leadership and operational expertise of Dr. Scherbakov have contributed to IPG increasing production, lowering manufacturing costs, managing risk and maintaining high margins compared to our industry peers. He also has extensive technological knowledge of fiber lasers, their components and manufacturing processes. His service as an executive officer of the Company provides the Board with a detailed understanding of the Company’s operations, sales and customers. |
AGE: 72 DIRECTOR SINCE: 2000 COMMITTEES: None | |
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15
Proposal 1 Election of Nine Directors
Igor Samartsev
Director since 2006
Chief Technology Officer
Since 2011, Mr. Samartsev has served our Chief Technology Officer and since 2005, he was the Deputy General Manager of our Russian subsidiary, NTO IRE-Polus. Prior to that time, he served in technical leadership roles at NTO IRE-Polus. |
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| | Since 2011, Mr. Samartsev has served as our Chief Technology Officer. Prior to that time, he served in management and technical leadership roles at NTO IRE-Polus, our subsidiary in Russia. Mr. Samartsev holds an M.S. in Physics from the Moscow Institute of Physics and Technology.
Key Attributes, Experience and Skills
Mr. Samartsev is one of the founders of the Company and has a significant management role in the Company as Chief Technology Officer. As one of the key developers of the technology platform of the Company and leader in the development of many new optical technologies and products that form part of the Company's strategic plan, the Board values Mr. Samartsev's understanding of technology developments at our company.
KEY ATTRIBUTES, EXPERIENCE AND SKILLS Mr. Samartsev is one of the founders of the Company and has a significant management role in the Company as Chief Technology Officer. As one of the key developers of the technology platform of the Company and leader in the development of many new optical technologies, components and products spanning our global development centers that form part of the Company’s strategic plan, the Board values Mr. Samartsev’s understanding of technology developments at our company. |
AGE: 57 DIRECTOR SINCE: 2006 COMMITTEES: None | |
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Michael C. Child
Independent Director |
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| | Since July 1982, Mr. Child has been employed by TA Associates, Inc., a private equity investment firm, where he currently serves as Senior Advisor and, prior to January 2011, he was Managing Director. Mr. Child holds a B.S. in Electrical Engineering from the University of California at Davis and an M.B.A. from the Stanford University Graduate School of Business. From September 2011 until December 2015, Mr. Child was a Lecturer at the Stanford University Graduate School of Business. KEY ATTRIBUTES, EXPERIENCE AND SKILLS Mr. Child is an established and experienced investor, including in technology companies, from his three decades of experience at TA Associates, Inc. Over the course of his career, he has overseen numerous investments and sales of portfolio companies, and served on the boards of many public and private companies. Through his experiences, he has gained valuable knowledge in the management, operations and finance of technology growth companies. |
AGE: 65 DIRECTOR SINCE: 2000 COMMITTEES: NCGC | |
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16 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Gregory P. Dougherty
Independent Director
Nominating and Corporate Governance Committee
Directorship at Other Public Companies: Finisar Corporation and Ultratech Inc.
Since July 1982, Mr. Child has been employed by TA Associates, Inc., a private equity investment firm, where he currently serves as Senior Advisor and, prior to January 2011, he was Managing Director. Mr. Child holds a B.S. in Electrical Engineering from the University of California at Davis and an M.B.A. from the Stanford University Graduate School of Business.From September 2011 until December 2015, Mr. Child was a Lecturer at the Stanford University Graduate School of Business.
Key Attributes, Experience and Skills
Mr. Child is an established and experienced investor, including in technology companies, from his three decades of experience at TA Associates, Inc., a private equity investment firm. Over the course of his career, he has overseen numerous investments and sales of portfolio companies, and served on the boards of public and private companies. He now serves on the boards of Finisar Corporation, a developer and manufacturer of optical subsystems and components for networks, and Ultratech Inc., a developer and manufacturer of advanced packaging lithography systems and laser processing technologies. Through his experiences, he has gained valuable knowledge in the management, operations and finance of technology growth companies.
Henry E. Gauthier
Director since 2006
Independent Director
Age 76
Presiding Independent Director
Audit Committee - Audit Committee Financial Expert
He served as Chairman of the board of directors of Coherent, Inc., a manufacturer of photonics products, from February 1997 to October 2002 and was its President from 1983 to 1996. Mr. Gauthier served as Vice Chairman of the board of directors of Coherent, Inc. from October 2002 to March 2006. Mr. Gauthier was President from February 2005 to May 2005, consultant from January 2004 to February 2005 and June 2005 to December 2006, and Chairman of the board of directors from May 2005 to December 2008, of Reliant Technologies, Inc., which was acquired in December 2008 by Solta Medical, Inc., a manufacturer of medical laser systems. Since July 1996, Mr. Gauthier has served as a principal at Gauthier Consulting. Mr. Gauthier attended the United States Coast Guard Academy, San Jose State University, and the Executive Institute of the Stanford University Graduate Business School. |
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| | Mr. Dougherty served as Chief Executive Officer of Oclaro, Inc., a maker of optical components and modules for the long-haul, metro and data center markets, from June 2013 and has served as a director of Oclaro from April 2009, until its December 2018 acquisition. Prior to Oclaro, Mr. Dougherty served as a director of Avanex Corporation (“Avanex”), a leading global provider of intelligent photonic solutions, from April 2005 to April 2009. Mr. Dougherty also served as a director of Picarro, Inc., a manufacturer of ultra-sensitive gas spectroscopy equipment using laser-based technology, from October 2002 to August 2013, and as its Interim Chief Executive Officer from January 2003 to April 2004. From February 2001 until September 2002, Mr. Dougherty was the Chief Operating Officer at JDS Uniphase Corporation (“JDS”), an optical technology company. Prior to JDS he was the Chief Operating Officer of SDL, Inc., a maker of laser diodes, from March 1997 to February 2001 when they were acquired by JDS. Mr. Dougherty serves on the boards of directors of Infinera Corporation, a provider of optical transport networking equipment, software and services to telecommunications service providers and others, since January 2019, Fabrinet, a provider of advanced optical packaging and precision optical, electro-mechanical, and electronic manufacturing services to OEMs of complex products, since February 2019, and MaxLinear, Inc., a provider of radio frequency (RF), analog and mixed-signal integrated circuits, since March 2020. Mr. Dougherty earned a B.S. in optics from the University of Rochester. KEY ATTRIBUTES, EXPERIENCE AND SKILLS Mr. Dougherty contributes to the Board significant leadership, operations, sales, marketing and general management experience in optics and components for telecommunications and other applications. For over three decades, Mr. Dougherty has worked in the optical and components industry and can provide the Board with insight into the industry and conditions in which the Company operates. Having been recently a CEO at a publicly-held company, he is familiar with a large range of management, corporate and board responsibilities and brings valuable perspectives to the Board as an independent director. |
AGE: 60 DIRECTOR SINCE: 2019 COMMITTEES: Audit Committee, Compensation Committee DIRECTORSHIP AT OTHER PUBLIC COMPANY: Infinera Corporation, Fabrinet and MaxLinear, Inc. | |
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Key Attributes, Experience and Skills
Mr. Gauthier has extensive management and operational experience in the laser industry from over two decades as an executiveProposal 1 Election of a large publicly-held laser company, Coherent, Inc., as well as emerging growth companies such as Reliant Technologies, Inc. He has obtained an in-depth knowledge of operations, manufacturing, sales and markets, and finances through his CEO positions at these laser-related companies. Having been a past member of the audit, compensation, and nominating and corporate governance committees of public and private company boards in the technology field, Mr. Gauthier is familiar with a full range of corporate and board functions and lends this experience to the Company's Board as an independent director and the Presiding Independent Director.Nine Directors
William S. Hurley
Director since 2006
Independent Director
Age 72
Audit Committee - Audit Committee Financial Expert
Compensation Committee
Mr. Hurley served in several senior financial positions during his career: he was Senior Vice President and Chief Financial Officer at Applied Science & Technology Inc., a developer, manufacturer and supporter of semiconductor capital equipment, from 1999 until 2001; he was Vice President and Chief Financial Officer at Cybex International, Inc., a designer, manufacturer and distributor of fitness equipment, from 1996 to 1999; and from 1992 to 1995 he was Vice President-Controller and Chief Accounting Officer at BBN Corporation, formerly known as Bolt, Beranek & Newman, Inc., a high technology company. Since April 2006, Mr. Hurley has been principal of W.S. Hurley Financial Consulting, which provides supplemental chief financial officer services. He holds a B.S. in Accounting from Boston College and an M.B.A. in Finance from the Columbia University Graduate School of Business.
Key Attributes, Experience and Skills
Mr. Hurley has extensive accounting and financial management experience from his executive and accounting positions with several public and private companies. In addition to being a certified public accountant, he served as a member of an audit committee for over a decade (including several years as chair) and a member of the compensation committee of another publicly-held company. Mr. Hurley possesses a Certificate of Director Education issued by the National Association of Corporate Directors to complement his understanding of corporate governance and the duties of a board of directors. His experiences as an executive in leadership positions and as an independent director have given him the background and skills needed to lead the Audit Committee in its oversight role regarding the reporting of the Company's results of operations, the effectiveness of internal controls and risk management.
Catherine P. Lego
Independent Director |
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| | Ms. Lego is a professional board member and also provides consulting services to early-stage technology companies. From 1999 to 2009, Ms. Lego served as the general partner of The Photonics Fund, LLP, a venture capital investment firm focused on early stage investing in component, module and systems companies in the fiber optic telecommunications market. She served as the director of finance and investment analyst at Oak Investment Partners from 1981 to 1984, and as a general partner from 1985 to 1992. Ms. Lego serves on the boards of directors of Lam Research Corporation, a semiconductor equipment company, Cypress Semiconductor Corporation, a maker of microcontrollers, integrated circuits and memory devices and Guidewire Software, Inc., a provider of a technology platform for the property and casualty insurance industry. Ms. Lego holds a B.A. in Economics and Biology from Williams College and an M.S. in Accounting from the New York University Stern Graduate School of Business. KEY ATTRIBUTES, EXPERIENCE AND SKILLS Ms. Lego has extensive experience working with advanced technology and semiconductor companies. From her current and prior service on the boards of several technology companies as well as her memberships of other audit, compensation and nominating and corporate governance committees, she is familiar with the issues faced and the processes that boards use to manage growth, risk, accounting, acquisitions, due diligence and integration, compensation and investor relations. In addition, she is a frequent speaker on board governance, ethics and audit quality at directors’ colleges and events, including the E&Y Tapestry and KPMG audit committee round tables. Ms. Lego is a member of the NACD’s Audit Committee Advisory Council. She brings valuable perspectives on the latest developments in audit, compensation and other matters to the Board. |
AGE: 63 DIRECTOR SINCE: 2016 COMMITTEES: Audit Committee - Audit Committee
Financial Expert,
Compensation
Committee (Chair) DIRECTORSHIP AT OTHER PUBLIC COMPANY: Lam Research
Corporation, Cypress
Semiconductor
Corporation
and Guidewire
Software, Inc. | |
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18 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Eric Meurice
Independent Director
Audit Committee - Audit Committee Financial Expert
Compensation Committee
Directorship at Other Public Company: Lam Research Corporation
Ms. Lego is principal and founder of Lego Ventures, LLC, a California-based firm that provides consulting services to early-stage technology companies. From 1999 to 2009 Ms. Lego served as the general partner of The Photonics Fund, LLP, a venture capital investment firm focused on early stage investing in component, module and systems companies in the fiber optic telecommunications market. She served as the director of finance and investment analyst at Oak Investment Partners from 1981 to 1984, and as a general partner from 1985 to 1992. Ms. Lego serves on the Board of Directors of technology company Lam Research Corporation and is the chair of its compensation committee. She was also a member of the boards of SanDisk Corporation and Fairchild Semiconductor until their mergers last year. Ms. Lego holds a B.A. in Economics and Biology from Williams College and an M.S. in Accounting from the New York |
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| | Mr. Meurice was President and Chief Executive Officer of ASML Holding NV, a provider of semiconductor manufacturing equipment and technology, from October 2004 to June 2013, and Chairman until March 2014. From 2001 to 2004, he was Executive Vice President of the Thomson Television Division of Thomson, SA, an electronics manufacturer. From 1995 to 2001, he served as head of Dell Computer’s Western, Eastern Europe and EMEA emerging market businesses. Before 1995, he gained significant technology experience at ITT Semiconductors and at Intel Corporation. Mr. Meurice previously served on the boards of Verigy Ltd., a manufacturer of semiconductor test equipment, ARM Holdings plc, a semiconductor intellectual property supplier, NXP Semiconductors N.V., a semiconductor company, and Meyer Burger Technology AG, a solar equipment vendor. Mr. Meurice serves on the boards of UMICORE S.A., a recycling and materials company, since April 2015, and SOITEC S.A., a semiconductor materials manufacturer, since July 2018, and where he was appointed Chairman since March 2019. Mr. Meurice earned a Master’s degree in Mechanics and Energy Generation at the Ecole Centrale de Paris, a Master’s degree in Economics from la Sorbonne University, Paris, and an M.B.A. from the Stanford University Stern Graduate School of Business. KEY ATTRIBUTES, EXPERIENCE AND SKILLS Mr. Meurice has extensive skills and experience as a manager of several rapidly-growing, complex and global businesses in the capital equipment and electronics fields with several billions of dollars in revenues, most recently as former President and Chief Executive Officer of ASML Holding NV. He has experience managing a publicly-held company as well as experience on serving on several public company boards in the equipment and technology fields. Mr. Meurice also has a record of proven leadership as a strategic thinker, operator and marketer at the businesses he managed. |
AGE: 63 DIRECTOR SINCE: 2014 COMMITTEES: NCGC (Chair), Compensation Committee DIRECTORSHIP AT OTHER PUBLIC COMPANY: UMICORE S.A. and SOITEC S.A. | |
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16
19
Proposal 1 Election of Nine Directors
John R. Peeler
Presiding Independent Director
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| | Mr. Peeler was Chief Executive Officer of Veeco Instruments Inc. (“Veeco”) from July 2007 until September 2018, and Chairman or Executive Chairman of its board of directors from May 2012 until May 2020. Veeco is a developer and manufacturer of MOCVD, molecular beam epitaxy, ion beam and other advanced thin film processes equipment. He was Executive Vice President of JDS and President of the Communications Test & Measurement Group of JDS, which he joined upon the closing of JDS’s merger with Acterna, Inc. in August 2005. Before joining JDS, Mr. Peeler served as President and Chief Executive Officer of Acterna. He has a B.S. and M.E. in Electrical Engineering from the University of Virginia. KEY ATTRIBUTES, EXPERIENCE AND SKILLS Over the course of his career, Mr. Peeler has managed several high-growth technology companies. In addition, he has developed managerial leadership skills through his former position as Chief Executive Officer of Veeco, a publicly-traded company with substantial international operations. His managerial positions have provided him with in-depth knowledge of the service needs of customers in demanding markets, including semiconductor capital equipment, various manufacturing models, marketing and sales. In these roles, he has also been responsible for attracting and incentivizing executives on his team. These experiences have provided him important insights in support of his positions as Presiding Independent Director and a member of the Compensation Committee and the NCGC. |
AGE: 65 DIRECTOR SINCE: 2012 COMMITTEES: Compensation
Committee,
NCGC DIRECTORSHIP AT OTHER PUBLIC COMPANY: Veeco Instruments Inc. | |
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20 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Thomas J. Seifert
Independent Director
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| | Mr. Seifert is Chief Financial Officer of Cloudflare, Inc., an internet performance and security provider, from June 2017 to the present. Since February 2018, he is a member of the board of CompuGroup Medical SE, a publicly held company in Germany, which provides software to support medical and organization activities in medical offices and facilities. Mr. Seifert was the Executive Vice President and Chief Financial Officer of Symantec Corporation, a provider of security, backup and availability solutions, from March 2014 to December 2016. Mr. Seifert served as Executive Vice President and Chief Financial Officer of Brightstar Corporation, a wireless distribution and services company, from December 2012 to March 2014. He was Senior Vice President and Chief Financial Officer at Advanced Micro Devices Inc., a semiconductor company, from October 2009 to August 2012, and served as Interim Chief Executive Officer from January 2011 to September 2012. From October 2008 to August 2009, Mr. Seifert served as Chief Operating Officer and Chief Financial Officer of Qimonda AG, a German memory chip manufacturer, and as Chief Operating Officer from June 2004 to October 2008. He also held executive positions at Infineon AG, White Oak Semiconductor, including the position as Chief Executive Officer, and Altis Semiconductor. Mr. Seifert has a Bachelor’s degree and a Master’s degree in Business Administration from Friedrich Alexander University and a Master’s degree in Mathematics and Economics from Wayne State University. KEY ATTRIBUTES, EXPERIENCE AND SKILLS Mr. Seifert has extensive experience as both an operating executive and chief financial officer of large publicly-held international technology businesses, such as Symantec and Advanced Micro Devices. In these and other senior positions, he developed deep financial and accounting knowledge, as well as managerial leadership skills, in larger organizations. With his background in accounting, finance and management, Mr. Seifert brings broad skills and knowledge to the Board, the Audit Committee, and the NCGC including internal controls, mergers and acquisitions, integrations and information technology security. |
AGE: 56 DIRECTOR SINCE: 2014 COMMITTEES: Audit Committee
(Chair) - Audit
Committee Financial
Expert, NCGC DIRECTORSHIP AT OTHER PUBLIC COMPANY: CompuGroup
Medical, SE | |
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The Board of Directors recommends that you vote FOReach director nominee named in this Proxy Statement. |
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21
Proposal 1 Election of Nine Directors
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| Board Refreshment and Composition |
Board Succession Planning
Our Board’s succession planning focuses primarily on the composition of our Board and its committees, anticipated retirements, succession plans for committee members and chairs, our commitment to Board diversity, and recruiting strategies for adding new directors. In its succession planning, the NCGC and our Board consider the results of our Board’s annual self-assessment, as well as other appropriate information, including the types of skills and experience desirable for future Board members and the needs of our Board and its committees at the time in light of the Company’s long-term strategy.
Thoughtful, Deliberate Board Refreshment Process. The Board’s refreshment actions reflect a thoughtful and deliberate process that was informed by our Company’s strategic needs as well as the Board’s annual self-assessment and director nomination processes.
Appropriately Balance Experience and Perspectives While Ensuring an Orderly Transition. Our Board has taken care as part of its Board refreshment process to appropriately balance new perspectives and the experience of existing directors while undergoing an orderly transition of roles and responsibilities on the Board and its committees.
Importance of Board Diversity. In addition, our Board continues to focus on the importance of Board diversity. One of the two new directors who joined our Board since 2016 is female. Gender diverse candidates have been and are included in our board searches.
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DIRECTOR TENURE AND RETIREMENT AGE POLICIES • No Term Limits; Appropriate Balance of Skills, Knowledge, Experience and Perspectives. • Our Board recognizes the importance of periodic Board refreshment and maintaining an appropriate balance of tenure, experience and perspectives on the Board. • We believe it is desirable to maintain a mix of longer-tenured, experienced directors with institutional memory and understanding of our business and culture and newer directors with fresh perspectives. However, we do not impose director tenure limits. • The Board believes that directors should not have an expectation of being renominated annually and that the NCGC’s assessment is a key component of its director nomination process. • In connection with the Board’s annual self-assessment and director nomination processes, the Board considers upcoming retirements, the average tenure and overall mix of individual director tenures of the Board, the overall mix of the skills, knowledge, experience and diversity, each individual director’s performance and contributions to the work of the Board and its committees, the personal circumstances and other time commitments of directors, along with other factors the Board deems appropriate. • The Board believes that, as an alternative to term limits, non-management directors should submit their resignation from the Board upon attaining the age of 72 and on each subsequent anniversary. The Board then considers the needs and circumstances confronting the Board and, upon recommendation of the NCGC, determines whether to accept or decline the resignation. • Our Board’s age resignation policy is intended to facilitate our Board’s recruitment of new directors with appropriate skills, experience and backgrounds and provide for an orderly transition of leadership on our Board. |
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Ms. Lego has extensive
22 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Board Nomination Process
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EVALUATION OF
BOARD COMPOSITION | | IDENTIFICATION OF POOL OF CANDIDATES | | MEETINGS WITH
POTENTIAL
CANDIDATES | | RECOMMENDATION OF
POTENTIAL DIRECTORS
FOR APPROVAL |
• The NCGC and the Board evaluate Board composition annually and identify skills, experience and capabilities desirable for new directors in light of the Company’s long-term strategy | | • The NCGC identifies potential nominees through multiple sources, including third party search firm and input from stakeholders | | • Evaluation and assessment of candidate interest, minimum qualifications, conflicts, independence, background and other information • Members of the NCGC, other Board members and executives meet with qualified candidates | | • NCGC recommends potential nominees to the Board for approval • Stockholders vote on nominees approved by Board at next annual meeting of stockholders |
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The NCGC’s evaluation process and criteria does not vary based upon whether a candidate is recommended by a stockholder. However, the procedural requirements set forth in our bylaws and the procedures described below in Additional Information - 2021 Annual Meeting and Nominations must be met.
The composite skills of the Board members and the ability and willingness of individual Board members to complement each other and to rely on each other's knowledge and expertise should produce informed Board members who are not afraid to disagree and who can intelligently assess management's performance and evaluate our strategic direction. In considering whether to recommend any candidate for nomination to the Board, including candidates recommended by stockholders, the NCGC must be satisfied that the recommended nominee meets the following qualifications at a minimum:
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| Character and Integrity | Must be an individual of the highest character and integrity |
| Leadership Experience | Demonstrated excellence, leadership and significant experience in their field of endeavor |
Financial Literacy and Commitment
to Representing Stockholders | Ability to read and understand financial statement fundamentals and commitment to representing the long-term interests of the Company’s stockholders, while keeping in perspective the interests of the Company’s customers, employees and the public |
Independence and Constructive
Collegiality | Must have a demonstrated ability to think and act independently as well as the ability to work constructively in a collegial environment. Must satisfy independence criteria of the SEC and NASDAQ, where independence is desired |
| Age | A potential director (excluding any incumbent) cannot be aged less than 21 or greater than 72 years |
| Limit on Other Public Boards | Independent directors – 3 (or 4 with Board approval) CEO - 1 |
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The NCGC also considers experience working with advanced technologyin our industry or markets, international business and semiconductor companies. From her current and prior servicecultural experience, experience serving on the boards of severalpublic companies, experience acquiring companies and diversity to be favorable characteristics in evaluating recommended nominees. With over two-thirds of our sales and employees in locations outside of the U.S.A., it is important to have the appropriate experience and background coming from being born and operating in other countries. Diversity is meant to be interpreted broadly. It includes gender, age, race, national origin, geographic background and also includes differences of professional experience, global experience, education, and other individual qualities and attributes. The NCGC does not assign specific weights to particular criteria, and no particular criterion is necessarily applicable to all prospective nominees. The NCGC believes that our Board should be composed of directors who, as a group, have the experience and skills that are collectively required to make informed Board decisions, provide effective Board oversight to allow the Board to fulfill its responsibilities.
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Proposal 1 Election of Nine Directors
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| Board Roles and Responsibilities |
Role in Risk Management
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BOARD OVERSIGHT OF RISK The Board recognizes that effectively monitoring and managing risk are essential to the successful execution of the Company’s strategy. The Board has oversight for risk management at IPG with a focus on the most significant risks facing the Company, including strategic, operational, financial and compliance risks. Upon recommendation of the NCGC, the Board allocates risk oversight responsibility among the full Board, the independent directors acting as a group and the three standing committees of the Board as described below. Throughout the year, the Board, the independent directors and the committees to which the Board has delegated responsibility dedicate a portion of their meetings to review and discuss specific risk topics in greater detail. |
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AUDIT COMMITTEE The Audit Committee oversees the policies, processes and risk relating to the financial statements, financial reporting processes, auditing, cybersecurity and compliance risks. The Audit Committee discusses with management the Company’s risk assessment and risk management practices and, when reviewing and approving the annual audit plan for the Company’s internal audit function, prioritizes audit focus areas based on their potential risk. | COMPENSATION COMMITTEE The Compensation Committee oversees risk associated with management resources, including executive retention and non-CEO succession planning. It reviews the Company’s executive compensation practices, their effectiveness at linking executive pay to performance and aligning the interests of our executives and our stockholders, without encouraging excessive risk taking. The Compensation Committee annually reviews management’s assessment of compensation risk. | THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE The NCGC oversees risk related to the Company’s governance structure and processes, and risks arising from related person transactions. It reviews processes and risk related to Board succession planning, authority delegated to management and certain compliance risk. |
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FULL BOARD Our entire Board as a whole reviews risk management practices and a number of significant risks in the course of its reviews of corporate strategy, management reports and others. |
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INDEPENDENT DIRECTORS As a group, the independent directors oversee risks related to CEO succession planning. |
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The Board’s risk oversight process builds upon management’s risk assessment and mitigation processes, which include reviews of strategic and operational planning; compliance under the Company’s Code of Business Conduct and other policies; the Company’s integrity programs; health, safety and environmental compliance; financial reporting and controllership; and information technology companiesand cybersecurity programs. The Board's oversight role is independent from the Company’s day-to-day management, as well as her membershipsmore than two-thirds of the current directors are independent and therefore have no conflicts that might discourage critical review of the Company’s risks.
24 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Role in Management Succession Planning
The Board is focused on ensuring that the Company has emergency and long-term succession plans in place for key senior executive positions. The entire Board annually reviews with the CEO the Company’s plan for succession for the position of the chief executive officer, including the appropriate individual or individuals who are candidates to succeed to this position. In the event of an unexpected departure of the CEO, an emergency succession plan allows for smooth transfer of responsibilities to an individual who may or may not be permanently tasked with the new role. The Compensation Committee, composed entirely of independent directors, periodically reviews the Company’s plan for succession for other audit,senior executive officers.
If the succession plan is triggered for any of these roles, the full Board would participate in the discussion and consideration of any action with a final decision to be made by the full Board. In the event of a senior executive’s departure, both internal and external candidates may be considered for permanent appointment to a given role.
Role in Ethics
All directors, officers and employees are required to abide by IPG’s Code of Business Conduct to ensure that our business is conducted in a consistently legal and ethical manner. These policies form the foundation of a comprehensive process that includes compliance with corporate policies and procedures and a Company-wide focus on uncompromising integrity in every aspect of our operations. Our Code of Business Conduct covers many topics, including antitrust and competition law, conflicts of interest, financial reporting, protection of confidential information, and compliance with all laws and regulations applicable to the conduct of our business. All of our directors and employees receive bi-annual training on our Code of Business Conduct, which is posted on our website at investor.ipgphotonics.com/governance/governance-documents. If the Board grants any waivers from our Code of Business Conduct to any directors or executive officers, or if we amend our Code of Business Conduct, we will, if required, disclose these matters via updates on our website.
Role in Stockholder Engagement
Accountability to our stockholders is an important component of the Company’s success. We recognize the value of building informed relationships with our investors that promote further transparency and accountability.
While proxy voting is one direct way to influence corporate behavior, proactive engagement with our investors can be effective and impactful. Investor views are continuously communicated to the Board and are instrumental in the development of our governance, compensation and nominatingother policies and corporate governance committees, she is familiar with theinform our business strategy. The Board continues to seek investor input on a range of issues faced and the processes that boards use to manage growth, risk, accounting, acquisitions, due diligence and integration, compensation and investor relations. In addition, she is a frequent speaker on board governance, ethics and audit quality at directors’ colleges and events, including the E&Y Tapestry and KPMG audit committee round tables. Ms. Lego is a memberpractices in furtherance of the NACD’s Audit Committee Advisory Council. She brings new perspectives on the latest developments in governance and other mattersenhancing long-term stockholder value.
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| Publish Annual Report and Proxy Statement. Speak with investors about topics to be addressed at the annual meeting. | | | | | Review results of the annual meeting, governance trends, regulatory developments. Board conducts annual self-assessment of its performance and effectiveness. | |
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| Consider input from investors to enhance disclosures, governance practices and compensation programs. | | Communicate investor feedback to the Board. Board uses self-assessment to develop and implement changes improving effectiveness. | |
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Eric Meurice25
Director since 2014
Independent Director
Age 60
Nominating and Corporate Governance Committee (Chair)
Compensation Committee
Directorship at Other Public Companies: NXP Semiconductor N.V. and UMICORE S.A.
Mr. Meurice was President and Chief Executive OfficerProposal 1 Election of ASML Holding NV, a provider of semiconductor manufacturing equipment and technology, from October 2004 to June 2013, and Chairman until March 2014. From 2001 to 2004, he was Executive Vice President of the Thomson Television Division of Thomson, SA, an electronics manufacturer. From 1995 to 2001, he served as head of Dell Computer's Western, Eastern Europe and EMEA emerging market businesses. Before 1995, he gained significant technology experience at ITT Semiconductors and at Intel Corporation. Mr. Meurice served on the boards of Verigy Ltd. (a manufacturer of semiconductor test equipment), until its acquisition by Advantest Corporation in 2011, and ARM Holdings plc (a semiconductor intellectual property supplier) from July 2013 to March 2014. He has been on the board of NXP Semiconductors N.V. (a semiconductor company) since April 2014 and of UMICORE S.A. (a recycling and materials company), since April 2015. Mr. Meurice earned a Master's degree in mechanics and energy generation at the Ecole Centrale de Paris, a Master's degree in Economics from la Sorbonne University, Paris, and an M.B.A. from the Stanford University Graduate School of Business.Nine Directors
Key Attributes, Experience and SkillsMr. Meurice has extensive skills and experience as a manager of several rapidly-growing, complex and global businesses in the capital equipment and electronics fields with several billions of dollars in revenues, most recently as former President and Chief Executive Officer of ASML. He has experience managing a publicly-held company as well as experience on serving on several public company boards in the equipment and technology fields, such as NXP Semiconductor N.V., UMICORE, Verigy, Ltd. and ARM Holdings plc. Mr. Meurice also has a record of proven leadership as a strategic thinker, operator and marketer at the businesses he managed.
Board Leadership Structure
John R. Peeler
Director since 2012
Independent Director
Age 62
Compensation Committee (Chair)
Nominating and Corporate Governance Committee
Directorship at Other Public Company: Veeco Instruments Inc.
Mr. Peeler has been Chief Executive Officer and a director of Veeco Instruments Inc. since July 2007. He has been serving as its Chairman of the Board since May 2012. Veeco is a developer and manufacturer of MOCVD, molecular beam epitaxy, ion beam and other advanced thin film processes equipment. He was Executive Vice President of JDS Uniphase Corp. ("JDSU") and President of the Communications Test & Measurement Group of JDSU, which he joined upon the closing of JDSU's merger with Acterna, Inc. ("Acterna") in August 2005. Before joining JDSU, Mr. Peeler served as President and Chief Executive OfficerOfficer: Dr. Valentin P. Gapontsev
Presiding Independent Director: John R. Peeler
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| ◦ | Presiding Independent Director position is appointed annually by independent directors |
All three Board committees composed of Acterna.independent directors
Independent directors meet in executive session at each of the Board's in person meetings and as needed outside of regular meetings
There is no single board leadership structure that is optimal in all circumstances. The Board, with its diverse skills and experience, considers the most appropriate leadership structure for the Company in the context of the specific circumstances and challenges facing IPG. The directors come from a variety of organizational backgrounds with direct experiences a wide range of leadership and management structures. The independent directors, who comprise two-thirds of our Board, appropriately challenge management and demonstrate the independence necessary for effective oversight. As a result, the Board is in the best position to evaluate the relative benefits and challenges of different leadership structures and ultimately decide which one best serves the interests of our stockholders.
The independent directors believe that having Dr. Gapontsev serve in the combined role of Chairman and CEO is in the best interest of the Company and its stockholders because it allows Dr. Gapontsev to more effectively execute the Company’s strategic initiatives and business plans. He is the Company's founder and beneficially owns approximately 14% of the Company’s common stock. The duality of Dr. Gapontsev’s roles creates clear and unambiguous authority, which is essential to effective management. Further, given that he is closer to the Company’s business than any other Board member and has the benefit of thirty years of operations, technology, strategy and executive management experience within the Company and its subsidiaries, the Board believes that Dr. Gapontsev is best-positioned to set the Board’s agenda and provide leadership of the board of a B.S.company operating in a highly technical industry.
The Board also recognizes the importance of having in place, and M.E.building upon, a counterbalancing structure to ensure that it functions in Electrical Engineeringan appropriately independent manner. The governance structure approved by the Board endows the position of Presiding Independent Director with leadership duties and responsibilities including:
setting the agenda for and leading executive sessions of the independent directors;
providing consolidated feedback from those meetings to the UniversityChairman and CEO;
providing input on Board meeting agendas;
providing feedback on the quality and quantity of Virginia.information flow from management;
calling and managing meetings of the independent directors;
17facilitating discussions outside of scheduled Board meetings among the independent directors on key issues;
serving as a liaison with the Chairman and CEO;
interviewing Board candidates; and
leading the independent directors in setting the Chairman's and CEO's compensation, goals and objectives, and his annual performance evaluation.
In the event of a crisis, the Presiding Independent Director has an increased role in crisis management oversight. The independent directors of our Board elected Mr. Peeler as the Presiding Independent Director for the term ending May 2020, and this position is voted upon annually by our independent directors.
The Board believes that the position and responsibilities of the Presiding Independent Director and the regular use of executive sessions of the independent directors without the CEO or other executive officers present, along with the Company’s strong committee system and substantial majority of independent directors, allow the Board to maintain effective oversight.
Key Attributes, Experience and Skills
Over the course of his career, Mr. Peeler has managed several high-growth technology companies. In addition, he has developed managerial leadership skills through his position as Chief Executive Officer of Veeco, a publicly-traded company with substantial international operations. His managerial positions have provide him with in-depth knowledge of the service needs of customers in demanding markets, including semiconductor capital equipment, various manufacturing models, marketing and sales. In these roles, he has also been responsible for attracting and incentivizing executives on his team. These experiences have provided him valuable insight in support of his position as Chair of the Compensation Committee where he is responsible for leading the development and implementation of compensation pay practices and programs for the Company's executive management.
Thomas J. Seifert26 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Director since 2014
Independent Director
Age 53
Audit Committee (Chair) - Audit Committee Financial Expert
Mr. Seifert has been the Executive Vice President and Chief Financial OfficerProposal 1 Election of Symantec Corporation, a provider of security, backup and availability solutions, from March 2014 to December 2016. Mr. Seifert served as Executive Vice President and Chief Financial Officer of Brightstar Corporation, a wireless distribution and services company, from December 2012 to March 2014. He was Senior Vice President and Chief Financial Officer at Advanced Micro Devices Inc., a semiconductor company, from October 2009 to August 2012, and served as Interim Chief Executive Officer from January 2011 to September 2012. From October 2008 to August 2009, Mr. Seifert served as Chief Operating Officer and Chief Financial Officer of Qimonda AG, a German memory chip manufacturer, and as Chief Operating Officer from June 2004 to October 2008. He also held executive positions at Infineon AG, White Oak Semiconductor, including the position as Chief Executive Officer, and Altis Semiconductor. Mr. Seifert has a Bachelor's degree and a Master's degree in Business Administration from Friedrich Alexander University and a Master's degree in Mathematics and Economics from Wayne State University.Nine Directors
Key Attributes, Experience and Skills
Mr. Seifert has extensive experience as both an operating executive and chief financial officer of large publicly-held international technology businesses, such as Symantec and Advanced Micro Devices. In these and other senior positions, he developed deep financial and accounting knowledge, as well as managerial leadership skills, in larger organizations. With his background in accounting, finance and management, Mr. Seifert brings broad skills and knowledge to the Board and the Audit Committee, including internal controls, mergers and acquisitions and integrations.
Director Independence
Seven of our ten current directors are independent.independent as defined by Nasdaq and SEC rules. A predominantly independent Board ensures that the Board is acting objectively and in the best interests of our stockholders. The independent directors also bring expertise and a diversity of perspectives to the Board. The culture of the Board enables directors to openly express their opinions in the boardroom and to raise challenges. The NASDAQNasdaq listing standards governing independence require that a majority of the members of the Board be independent as defined by NASDAQ.Nasdaq. The Board conducted its annual review of director independence in March 2017.2020. During this review, the Board examined all direct and indirect transactions or relationships between the Company or any of its subsidiaries and each current director and any immediate family member of the director and determined that no material relationships with the Company existed during 2016.2019. On the basis of this review, the Board determined that each of the following directors qualifies as an independent director as defined in the NASDAQNasdaq guidelines and SEC rules: Michael C. Child, Gregory P. Dougherty, Henry E. Gauthier, William S. Hurley, Catherine P. Lego, Eric Meurice, John R. Peeler and Thomas J. Seifert.
The Board is comprised of directors with short and long-term tenure with Additionally, the Company. This tenure coupled with an independent and objective Board has provided stockholders with strong financial results.
Standing Committees and Board Committee Membership
The Board has a standing Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, each composed entirely of non-employee directors determined to be independent under the listing standards of the NASDAQ stock market. Under their written charters adopted by the Board, each of these committees is authorized and assured appropriate funding to retain and consult with external advisors, consultants and counsel.
The table below sets forth the directors who are currently members or chairs of each of the standing Board committees, and the number of meetings held by each committee and the full Board in 2016. All incumbent directors attended 75% or more of the aggregate meetings of the Board and committees on which they served during 2016. We encourage directors to attend the annual meeting of stockholders, but we do not have a formal policy regarding such attendance. Last year, two of the directors in office attended the annual meeting.
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| | | Board of Directors | | Audit | | Compensation | | Nominating and Corporate Governance |
| Meetings held in 2016 | | 6 | | 8 | | 8 | | 7 |
| Written consents in 2016 | | 2 | | — | | — | | — |
| Valentin P. Gapontsev, Ph.D. | | Chair | | | | | | |
| Michael C. Child | | Member | | | | | | Member |
| Henry E. Gauthier | | Member, and Presiding Independent Director | | Member | | | | |
| William S. Hurley | | Member | | Member | | Member | | |
| Catherine P. Lego | | Member | | Member | | Member | | |
| Eric Meurice | | Member | | | | Member | | Chair |
| John R. Peeler | | Member | | | | Chair | | Member |
| Igor Samartsev | | Member | | | | | | |
| Eugene Scherbakov, Ph.D. | | Member | | | | | | |
| Thomas J. Seifert | | Member | | Chair | | | | |
The Audit Committee assists the Board by providing oversight of financial management, the internal auditor function and the independent auditor and providing oversight with respect to our internal controls including that management is maintaining an adequate system of internal control such that there is reasonable assurance that assets are safeguarded and that financial reports are properly prepared; that there is consistent application of generally accepted accounting principles; and that there is compliance with management's financial reporting policies and procedures. The Audit Committee also pre-approves auditing and permissible non-audit services by our independent auditor, reviews and discusses our annual and quarterly financial statements and related disclosures, and coordinates the oversight of our internal and external controls over financial reporting, disclosure controls and procedures and code of business conduct. In performing these functions, the Audit Committee meets periodically with the independent auditor, management and internal auditor function (including in private sessions) to review their work and confirm that they are properly discharging their respective responsibilities. In addition, the Audit Committee appoints the independent auditor. For more information on Audit Committee activities in 2016, see the Audit Committee Report on page 53 of this proxy statement and "Proposal 4: Ratify Independent Registered Public Accounting Firm" on page 54.
The Board has determined that Mr. Seifert, the Chairmaneach member of the Audit Committee as well as each of Messrs. Gauthier and Hurley and Ms. Lego qualify as an audit committee financial expert (as defined under the rules and regulations of the SEC) after determining that each has the necessary experience and qualifications.
The primary function of the Compensation Committee is to discharge the Board's duties and
responsibilities relating to compensation of our non-employee directors and executive officers, and oversee the design and management of the long-term incentive and savings plans that cover our employees. The Compensation Committee's duties and responsibilities under its charter with respect to the compensation of our executive officers and directors include:
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• | | reviewing and approving the Chairman and Chief Executive Officer's base salary compensation; |
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• | | determining the annual performance bonus of the Chairman and Chief Executive Officer based upon the corporate goals and objectives set by the independent directors and their input on the attainment of such goals and objectives; |
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• | | reviewing and approving compensation decisions recommended by the Chairman and Chief Executive Officer for the other executive officers, including setting base salaries, annual performance bonuses, long-term incentive awards, severance benefits and perquisites; |
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• | | setting our compensation philosophy and composition of the group of peer companies used for comparison of executive compensation; and |
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• | | reviewing and recommending for approval by the Board the compensation for the non-employee directors. |
The Compensation Committee has retained an independent compensation consultant firm, Radford, a unit of Aon Hewitt ("Radford"), for matters related to executive officer and director compensation. The Compensation Committee also retains outside legal counsel to provide advice on compensation-related matters, including executive officers, directors and compensation plans. For further discussion of the role of the Compensation Committee inmeets the executive compensation decision-making processindependence standards specific for members of such committees under Nasdaq guidelines and activities in 2016, and for a description of the nature and scope of the consultant's assignment, see "Compensation Discussion and Analysis - Role of Compensation Committee" on page 37 of this proxy statement. Additionally, the Compensation Committee reviews the Compensation Discussion and Analysis, prepares the Compensation Committee Report in this proxy statement on page 29 and oversees management's risk assessment of the Company's compensation for all employees and compensation-related risks as delegated by the Board.SEC rules.
The Nominating andOur Corporate Governance Committee is responsible for overseeing matters of corporate governance, including the evaluation of the performance and practices of the Board. The Nominating and Corporate Governance Committee develops and recommends criteria for Board membership (see "Board of Directors- Nomination of Directors" forGuidelines require that a description of such criteria), reviews possible candidates for the Board as discussed on pages 20 and 21 of this proxy statement, and recommends the nominees for directors to the Board for approval. In addition, the Nominating and Corporate Governance Committee oversees the process for the performance evaluationsmajority of the Board and its committees. An important rolemembers must consist of this Committee is to engageindependent directors. In general, our Corporate Governance Guidelines also require that an independent director must have no material relationship with the Company, directly or indirectly, that might interfere with the exercise of independent judgment in the performance of director responsibilities. The Board succession planning to ensure boardroom skills are aligned with IPG’s long-term strategic plan. It is also withindetermines independence on the responsibilitiesbasis of the Nominating andstandards specified by Nasdaq, the additional standards referenced in our Corporate Governance Committee to reviewGuidelines, and recommend director orientation, stock ownership guidelines, delegation of authority to management, insider trading guidelines,other facts and consider questions of possible conflicts of interest, including related person transactions, as such questions arise.circumstances the Board considers relevant. The Nominating and Corporate Governance Committee also reviews and recommends risk oversight responsibilitiesNCGC conducts an annual review of the independence of the directors (and candidates for membership on the Board), taking into account all relevant facts and circumstances, and reports its findings to the full Board.
Executive Sessions. Our independent directors meet privately, without employee directors or management present, at least four times during the year. These private sessions are generally held in conjunction with the regular quarterly Board and its committees andmeetings. Other private meetings of the independent directors are held as a group.
Copies of the charters of the three committees can be found on our website at investor.ipgphotonics.com/corporate-governance/governance-documents.
Nomination of Directors
Director Eligibility. Our Corporate Governance Guidelinesoften as deemed necessary by them and director membership guidelines approvedare lead by the NominatingPresiding Independent Director. The Audit Committee, the Compensation Committee and Corporate Governance Committee contain Board membership criteria considered by the Nominating and Corporate Governance Committee in recommending nominees for a position on IPG’s Board. The Nominating and Corporate Governance Committee believes that, at a minimum, a director candidate must possess the qualities of high personal integrity and ethics, sound business judgment and support for our Code of Business Conduct. A director candidate must also have sufficientNCGC meet without employee directors or management present from time to devote to the affairs of IPG and service on the Board and committees, and not be engaged in any activity adverse to the Company's interest. The Nominating and Corporate Governance Committee considers, among other things, the following criteria when reviewing a director candidate or an incumbent director:time as they deem necessary.
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• | | the extent that the director/potential director has demonstrated excellence, leadership and significant experience in a field of endeavor, |
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• | | whether the director/potential director assists in achieving a collective membership on the Board with a broad spectrum of experience and expertise, |
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• | | whether the director/potential director meets the independence requirements of the listing standards of the NASDAQ guidelines and SEC rules (where independence is desired), |
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• | | whether the director/potential director can read and understand financial statement fundamentals and is committed to representing the long-term interests of the Company’s stockholders, while keeping in perspective the interests of the Company’s customers, employees and the public and |
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• | | whether the director/potential director, by virtue of relevant technical expertise, experience or specialized skill relevant to IPG’s current or future business, can add specific value as a Board member. |
In addition, no potential director (excluding any incumbent director) with an age less than 21 years or greater than 72 years is eligible for election as a Board member. Each director/potential director must comply with the limits on other board memberships in our Corporate Governance Guidelines.
The Nominating and Corporate Governance Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. In addition to the criteria set forth above, the Nominating and Corporate Governance Committee considers how the skills and attributes of each individual candidate or incumbent director work together to create a Board that is collegial, engaged and effective in performing its duties. The Nominating and Corporate Governance Committee seeks a Board that reflects diversity, in experience, gender and ethnicity, although it does not have formal objective criteria for determining the degree of diversity desired on the Board.
Director Nomination Process. The Nominating and Corporate Governance Committee identifies potential director nominees through contacts of the Board, executives and a variety of other sources. The Committee may retain a search firm or utilize third-party database search tools to identify director nominees. Stockholders may nominate candidates for election as directors as described below.
The Nominating and Corporate Governance Committee will consider several factors prior to nominating a candidate. Generally, the Committee will consider the existing size, future requirements of the Board, composition and skills of the Board, evaluate biographical information and other background material and interview each candidate selected. The Nominating and Corporate Governance Committee will apply any director selection criteria adopted by it based on the circumstances at the time and the criteria set forth in our Corporate Governance Guidelines.
The Nominating and Corporate Governance Committee will consider all director candidates identified through the processes described above and will evaluate each of them, including incumbents, based on the same criteria. Director candidates are evaluated at regular or special meetings of the Nominating and Corporate Governance Committee and may be considered at any point during the year. If based on the Committee’s initial evaluation, a director candidate continues to be of interest to the Nominating and Corporate Governance Committee, the chair of such Committee and other Committee members will interview the candidate and communicate the evaluation to the Committee and executive management. Additional interviews are conducted and all members of the Board may interview the final candidates. Ultimately, the Nominating and Corporate Governance Committee will meet to finalize its list of recommended candidates for the Board’s consideration.
The Nominating and Corporate Governance Committee will also consider candidates for nomination as a director submitted by stockholders. The Nominating and Corporate Governance Committee’s evaluation process and criteria does not vary based upon whether a candidate is recommended by a stockholder. However, the procedural requirements set forth in our by-laws and the procedures described under "Other Matters - 2018 Annual Meeting and Nominations" must be met.
Compensation Committee Interlocks and Insider ParticipationCOMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of our Compensation Committee (Messrs. Peeler, Hurley(Ms. Lego and Messrs. Dougherty, Meurice and Ms. Lego)Peeler) is or has been an officer or employee of our Company or any of our subsidiaries. None of our executive officers served as a member of:
the compensation committee of another entity in which one of the executive officers of such entity served on our Compensation Committee,Committee;
the compensation committee of another entity in which one of the executive officers of such entity served as a member of our BoardBoard; or
the board of directors of another entity, one of whose executive officers served on our Compensation Committee.
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Proposal 1 Election of Nine Directors
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| Standing Committees and Board Committee Membership |
The objectivesBoard has a standing Audit Committee, Compensation Committee and NCGC, each composed entirely of non-employee, independent directors. Under their written charters adopted by the Board, each of these committees is authorized and assured appropriate funding to retain and consult with external advisors, consultants and counsel. Below we provide the principal functions and current members of the standing Board committees.
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| MEMBERS | FUNCTIONS: |
Thomas J. Seifert (Chair) Gregory P. Dougherty Henry E. Gauthier Catherine P. Lego Meetings in 2019: 8 | • Providing oversight of financial management, the internal auditor function and the independent auditor. • Providing oversight with respect to our internal controls including that management is maintaining an adequate system of internal control such that there is reasonable assurance that assets are safeguarded and that financial reports are properly prepared; that there is consistent application of generally accepted accounting principles; and that there is compliance with management’s financial reporting policies and procedures. • Pre-approving auditing and permissible non-audit services by our independent auditor, reviewing and discussing out annual and quarterly financial statements and related disclosures, and coordinating. • Meeting periodically with the independent auditor, management and internal auditor function (including in private sessions) to review their work and confirm that they are properly discharging their respective responsibilities. • Appointing the independent auditor. For more information on Audit Committee activities in 2019, see the Audit Committee Report on page 60 of this Proxy Statement and Proposal 3: Ratify Deloitte & Touche LLP as Our Independent Registered Public Accounting Firm for 2020 on page 58. |
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The Board has determined that each member of the Audit Committee is independent and financially literate. The Board has designated Ms. Lego and Mr. Seifert, who are each independent directors under the Nasdaq listing standings and the SEC's audit committee requirements, as “audit committee financial experts” pursuant to the SEC’s final rules implementing Section 407 of the Sarbanes-Oxley Act. Stockholders should understand that the designation of Ms. Lego and Mr. Seifert each as an “audit committee financial expert” is an SEC disclosure requirement and that it does not impose upon them any duties, obligations or liabilities that are greater than those imposed on them as members of the Audit Committee and the Board in the absence of such designation.
28 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Compensation Committee
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| MEMBERS | FUNCTIONS: |
Catherine P. Lego (Chair) Gregory P. Dougherty Eric Meurice John R. Peeler Meetings in 2019: 8 | • Reviewing and recommending to the independent directors the CEO’s base salary and opportunities for annual and long-term compensation. • Reviewing and approving compensation decisions recommended by the CEO for the other executive officers, including setting base salaries, annual performance bonuses, long-term incentive awards, severance benefits and perquisites. • Setting our compensation philosophy and composition of the group of peer companies used for comparison of executive compensation. • Reviewing and recommending for approval by the Board the compensation for non-employee directors. • Administering the equity compensation plans under which we compensate our executive officers and other key employees. • Retaining an independent compensation consultant firm, Radford, a unit of Aon Hewitt (“Radford”), for matters related to executive officer and director compensation, and outside legal counsel to provide advice on compensation-related matters. • Preparing the Compensation Committee Report included in this Proxy Statement on page 37 and overseeing management’s risk assessment of compensation for all employees and compensation-related risks as delegated by the Board. |
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Nominating and Corporate Governance Committee
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| MEMBERS | FUNCTIONS: |
Eric Meurice (Chair) Michael C. Child John R. Peeler Thomas J. Seifert Meetings in 2019: 5 | • Overseeing matters of corporate governance, including the evaluation of the performance and practices of the Board. • Developing and recommending criteria for Board membership. • Reviewing possible candidates for the Board and recommending director nominees to the Board for approval. • Overseeing the process for the performance evaluations of the Board and its committees. • Engaging in Board succession planning to ensure boardroom skills are aligned with IPG’s long-term strategic plan. • Reviewing and recommending director orientation, stock ownership guidelines, delegation of authority to management, insider trading guidelines, and consider questions of possible conflict of interest, including related party transactions, as such questions arise. • Reviewing and recommending risk oversight responsibilities of the Board and its committees and of the independent directors as a group. |
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Each of the Board committees has a written charter that states their respective purposes, goals and responsibilities as well as qualifications for committee membership, appointment and removal, committee structure and operations and reporting to the entire Board. The three committee charters and our non-employee director compensation program areCorporate Governance Guidelines can be found at investor.ipgphotonics.com/governance/governance-documents. Information on our website does not constitute part of this Proxy Statement.
29
Proposal 1 Election of Nine Directors
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| Board Practices, Policies and Processes |
IPG’s Ongoing Commitment to attract highly-qualified individuals to serve onEnhancing Governance Practices
Director Meetings and Policy Regarding Board Attendance
It has been the practice of our Board and alignits committees to hold at least four in-person regular meetings each year. The Board and its committees also have telephone meetings throughout the year. Our directors are expected to spend the time needed to prepare for and participate in each meeting and to meet as frequently as necessary to properly discharge their interests with thoseresponsibilities. We encourage members of our Board to attend annual meetings of stockholders, but we do not have a formal policy requiring them to do so. In 2019, six of the directors in office attended the annual meeting of stockholders.
The table below sets forth the number of meetings held by each committee and the full Board in 2019. All incumbent directors attended 75% or more of the aggregate meetings of the Board and committees on which they served during 2019.
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| | Board of Directors | Audit | Compensation | Nominating and
Corporate Governance |
| Meetings held in 2019 | 6 | 8 | 8 | 5 |
| Written consents in 2019 | 4 | 0 | 2 | 0 |
30 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Corporate Governance Guidelines
Our non-employeeBoard adopted Corporate Governance Guidelines that outline, among other matters, the roles and functions of the Board, the responsibilities of various Board committees and the mission of the Board. Our Corporate Governance Guidelines can be found at investor.ipgphotonics.com/governance/governance-documents. Information on our website does not constitute part of this Proxy Statement.
The Corporate Governance Guidelines provide, among other things, that:
a majority of our Board must be independent
the Presiding Independent Director presides over executive sessions of independent directors
the Board appoints all members and chairpersons of the Board committees
the Audit Committee, Compensation Committee, and NCGC consist solely of independent directors
the independent directors meet periodically in executive sessions without the employee directors or management
independent directors may not serve on the boards of more than three other public companies or, with the permission of the Board, four; the CEO may not serve on more than one other public company board
Board self-assessments are conducted annually and
the Board and key officers should have a meaningful financial stake in the Company.
The Board monitors changing legal and regulatory requirements, evolving best practices and other developments. The Board modifies the Corporate Governance Guidelines and its other corporate governance policies and practices from time to time, as appropriate.
Director Orientation and Continuing Education
The Board and its committees proactively monitor legislative and regulatory initiatives, as well as other corporate governance trends and their potential impact on the Company. The Board receives presentations from professionals with expertise in corporate law, governance and other related topics. These experts have specialized knowledge of regulatory actions, governance trends and various other corporate governance topics. In 2019, the Board and its committees received presentations on board oversight and stockholder engagement, SEC rulemaking, governance trends, critical accounting matter disclosures and cybersecurity. Additionally, our directors engage in continuing education to remain informed on recent trends applicable to their committee duties.
Likewise, newly elected directors attend a comprehensive director orientation program that covers, among other things, our strategy, business structure, financial performance, and competitive landscape. New committee members are also provided training on committee policies, practices and trends. As part of this program, directors are paid pursuantasked to tour facilities as appropriate. To further familiarize directors with our expanding operations, we conduct Board meetings at our major manufacturing facilities from time to time.
Board Performance Evaluations
The Board conducts annual self-assessments and its committees conduct bi-annual self-assessments to determine whether they are functioning effectively. Further, the performance of the Presiding Independent Director is evaluated annually. The NCGC oversees the Board and committee self-assessments. Each committee also reviews its own performance bi-annually and reports the results to the Board. Each committee reviews and reassesses the adequacy of its charter annually and recommends proposed changes to the Board.
Prohibition on Hedging; Limits on Pledging
Under our insider trading policy, no director or employee, including NEOs, may engage in shorting shares of our common stock; buying or selling puts, calls or derivatives related to our non-employeecommon stock or other Company securities, which includes equity compensation; or engaging in hedging transactions, including through the use of financial instruments such as prepaid variable forwards, equity swaps, collars and exchange funds. No director or officer, including NEOs, may pledge shares constituting more than 20% of his or her total stock ownership. Pledges of shares constituting 20% or less of total stock ownership are subject to certain conditions.
31
Proposal 1 Election of Nine Directors
Communication with our Board of Directors
Interested parties wishing to write to the Board, a specified director or a committee of the Board should send correspondence to the Office of the Secretary, IPG Photonics Corporation, 50 Old Webster Road, Oxford, Massachusetts 01540. All written communications received in such manner from stockholders of the Company will be forwarded to the members or committee of the Board to whom the communication is directed or, if the communication is not directed to any particular member(s) or committee(s) of the Board, the communication shall be forwarded to all members of the Board.
Procedures for Submitting Complaints
We have procedures to treat complaints regarding accounting, internal accounting controls, auditing matters, fight against bribery, banking, and financial crime, including submission of confidential and anonymous concerns regarding questionable accounting, internal accounting controls or auditing matters raised by our directors, officers and employees. These procedures are posted on our website at investor.ipgphotonics.com/governance/governance-documents.
Transactions with Related Parties
The Board adopted a related person transaction policy that requires the NCGC to approve or ratify any transaction or series of transactions exceeding $100,000 in which our Company is a participant and any related person has a direct or indirect material interest (other than solely as a result of being a director or trustee or less than 10% owner of another entity) ("Related Party Transactions"). Related persons include our directors, director nominees and officers and their immediate family members and persons sharing their households. It also includes persons controlling more than 5% of our outstanding common stock. Subject to certain exceptions in the policy, related parties are required to notify the NCGC of the Related Party Transaction for an assessment of whether the transaction or proposed transaction should be permitted. Management also has established procedures for monitoring transactions that could be subject to approval or ratification under the Related Party Transactions policy.
In deciding whether to approve or ratify the Related Party Transaction, the NCGC considers relevant facts and circumstances. The committee will take into account, among other factors, whether the transaction is on terms no more favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction. Once a Related Party Transaction has been identified, the NCGC will review all of the relevant facts and circumstances and approve or disapprove entry into the transaction. Members of the NCGC having an interest in a transaction excuse themselves for the consideration and approval of the transaction in which they have an interest. Certain transactions are exempt from the policy including compensation plan described below. Our Compensation Committee reviews ourpaid by the Company for service as a director compensation program periodically to confirm that the program remains appropriate and competitive and recommends any changesor an officer.
Pursuant to our full Board for considerationCorporate Governance Guidelines, we expect each of our directors to ensure that other existing and approval.
Director Compensation Plan
Our non-employee director compensation plan provides for both cash and equity compensation for our non-employee directors. Directors who are also our employees receive no additional compensation for theirfuture commitments do not conflict with or materially interfere with his or her service as directors. a director. In addition, directors are required to inform the chairman of our NCGC prior to joining the Board of another public company to ensure that any potential conflicts, excessive time demands or other issues are carefully considered.
The Compensation Committee engaged independent compensation consultantNCGC reviewed and approved the following Related Party Transaction for 2019 in compliance with our policy:
Dr. Gapontsev leases the annual right to use 25% of the Company’s corporate aircraft under a July 2017 lease agreement (the “Aircraft Lease”) in connection with the purchase of an aircraft. The Aircraft Lease expires in July 2022. The annual lease rate under the Aircraft Lease is $924,700 and future rent payments are adjusted annually. Dr. Gapontsev paid the Company $923,712 in 2019 for use of the aircraft, and in addition, directly paid an unrelated flight management firm Radford to provide a comprehensive reviewfor the operating costs of compensation for non-employee directorshis private use, including pilot fees, fuel and to make recommendations with regard to director compensation matters.other costs.
Cash Compensation.32 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Our non-employee directors receive the following annual retainerscompensation from us set forth in the table below. Directors do not receive separate fees for attending meetings of the Board, committees or stockholders.us:
| | | | Amount | Amount |
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| Board Retainer | $ | 40,000 |
| $ | 40,000 |
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| Presiding Independent Director Retainer | $ | 20,000 |
| $ | 20,000 |
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| Audit Committee Retainers | | |
| Chair | $ | 25,000 |
| $ | 25,000 |
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| Non-Chair | $ | 12,500 |
| $ | 12,500 |
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| Compensation Committee Retainers | | |
| Chair | $ | 22,500 |
| $ | 22,500 |
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| Non-Chair | $ | 10,000 |
| $ | 10,000 |
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| Nominating and Corporate Governance Committee Retainers | | |
| Chair | $ | 17,500 |
| $ | 17,500 |
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| Non-Chair | $ | 7,500 |
| $ | 7,500 |
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| Annual Equity Award | | $ | 250,000 |
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Equity Compensation. Each non-employee director continuing in office after theFollowing our annual meeting of stockholders receives a dollarin 2019, we granted to non-employee directors their annual equity award: one-third of the award value annual grant of equity totaling $250,000 (determined pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 718 ("ASC Topic 718")). Of this award, one-third is718) was granted as service-based stock options and two-thirds areof the award value was granted as service-based restricted stock units.units ("RSUs"). The annual awards vest in a single installment on the earlier of the one-yearfirst anniversary of the date of grant or the next annual meeting of stockholders.
Upon initial election to the Board, each new non-employee director receives a grant (determined pursuant to ASC Topic 718 )718) of $250,000$125,000 in stock options and $250,000$125,000 in restricted stock unitsRSUs vesting 25% on the first four anniversariesanniversary of the date of grant. grant subject to the director’s continued service on the Board. If the election to the Board for a new director occurs other than at an annual meeting of stockholders, the subsequent annual equity grant is pro-rated based upon time the director served since first election.
The exercise price of each of the stock options is the closing market price of our common stock on the date of grant. Any director who retires after at least eight years of service on the Board will be entitled to full vesting of all options and restricted stock unitsRSUs then held by the director.
Update 20172020 Update.. In 2017,Based upon changes to Company-wide equity compensation practices approved for 2020 and based upon recommendations and data provided by the Compensation Committee reviewed an assessment of non-employee directorCommittee's independent compensation prepared by Radford. Based upon this assessment, the Compensation Committee recommended, andconsultant, Radford, the Board approved a 50% decreasechanges to the mix of equity-based compensation paid to non-employee directors. Effective after the 2020 Annual Meeting, non-employee directors will receive their entire annual equity award in RSUs. The aggregate amount of equity compensation and vesting conditions remain the initial equity grant to newly elected directors to $125,000 in stock options and $125,000 in restricted stock units vesting 25% on the first four anniversaries of the date of grant.same.
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33
Proposal 1 Election of Nine Directors
Director Compensation TableCOMPENSATION COMMITTEE
The following table summarizesCompensation Committee oversees risk associated with management resources, including executive retention and non-CEO succession planning. It reviews the Company’s executive compensation of eachpractices, their effectiveness at linking executive pay to performance and aligning the interests of our non-employeeexecutives and our stockholders, without encouraging excessive risk taking. The Compensation Committee annually reviews management’s assessment of compensation risk.
THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE The NCGC oversees risk related to the Company’s governance structure and processes, and risks arising from related person transactions. It reviews processes and risk related to Board succession planning, authority delegated to management and certain compliance risk. | | | |
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FULL BOARD Our entire Board as a whole reviews risk management practices and a number of significant risks in the course of its reviews of corporate strategy, management reports and others. |
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INDEPENDENT DIRECTORS As a group, the independent directors for 2016:oversee risks related to CEO succession planning. |
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The Board’s risk oversight process builds upon management’s risk assessment and mitigation processes, which include reviews of strategic and operational planning; compliance under the Company’s Code of Business Conduct and other policies; the Company’s integrity programs; health, safety and environmental compliance; financial reporting and controllership; and information technology and cybersecurity programs. The Board's oversight role is independent from the Company’s day-to-day management, as more than two-thirds of the current directors are independent and therefore have no conflicts that might discourage critical review of the Company’s risks.
24 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Role in Management Succession Planning
The Board is focused on ensuring that the Company has emergency and long-term succession plans in place for key senior executive positions. The entire Board annually reviews with the CEO the Company’s plan for succession for the position of the chief executive officer, including the appropriate individual or individuals who are candidates to succeed to this position. In the event of an unexpected departure of the CEO, an emergency succession plan allows for smooth transfer of responsibilities to an individual who may or may not be permanently tasked with the new role. The Compensation Committee, composed entirely of independent directors, periodically reviews the Company’s plan for succession for other senior executive officers.
If the succession plan is triggered for any of these roles, the full Board would participate in the discussion and consideration of any action with a final decision to be made by the full Board. In the event of a senior executive’s departure, both internal and external candidates may be considered for permanent appointment to a given role.
Role in Ethics
All directors, officers and employees are required to abide by IPG’s Code of Business Conduct to ensure that our business is conducted in a consistently legal and ethical manner. These policies form the foundation of a comprehensive process that includes compliance with corporate policies and procedures and a Company-wide focus on uncompromising integrity in every aspect of our operations. Our Code of Business Conduct covers many topics, including antitrust and competition law, conflicts of interest, financial reporting, protection of confidential information, and compliance with all laws and regulations applicable to the conduct of our business. All of our directors and employees receive bi-annual training on our Code of Business Conduct, which is posted on our website at investor.ipgphotonics.com/governance/governance-documents. If the Board grants any waivers from our Code of Business Conduct to any directors or executive officers, or if we amend our Code of Business Conduct, we will, if required, disclose these matters via updates on our website.
Role in Stockholder Engagement
Accountability to our stockholders is an important component of the Company’s success. We recognize the value of building informed relationships with our investors that promote further transparency and accountability.
While proxy voting is one direct way to influence corporate behavior, proactive engagement with our investors can be effective and impactful. Investor views are continuously communicated to the Board and are instrumental in the development of our governance, compensation and other policies and inform our business strategy. The Board continues to seek investor input on a range of issues and practices in furtherance of enhancing long-term stockholder value.
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| Name | | Fees Earned or Paid in Cash ($) | | Stock Awards ($)(1) | | Option Awards ($)(1) | | Total ($) |
| Michael C. Child | | 52,250 | | 164,775 | | 83,311 | | 300,336 |
| Henry E. Gauthier | | 66,458 | | 164,775 | | 83,311 | | 314,544 |
| William S. Hurley | | 62,667 | | 164,775 | | 83,311 | | 310,753 |
| Catherin P. Lego (2) | | 30,417 | | 246,879 | | 249,991 | | 527,288 |
| Eric Meurice | | 58,542 | | 164,775 | | 83,311 | | 306,628 |
| John R. Peeler | | 64,167 | | 164,775 | | 83,311 | | 312,253 |
| Thomas J. Seifert | | 54,208 | | 164,775 | | 83,311 | | 302,294 |
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| Publish Annual Report and Proxy Statement. Speak with investors about topics to be addressed at the annual meeting. | | | | | Review results of the annual meeting, governance trends, regulatory developments. Board conducts annual self-assessment of its performance and effectiveness. | |
| | | | (1) | Valuation based on the fair value of the restricted stock unit and stock option awards as of the grant date determined pursuant to ASC Topic 718 with respect to 2016. The assumptions that we used with respect to the valuation of restricted stock unit and stock option awards are set forth in Note 2 to our Consolidated Financial Statements in our Annual Report on Form 10-K filed with the SEC on February 27, 2017. On June 1, 2016, each continuing director serving on the Board was granted restricted stock units for 1,896 shares of common stock and options to purchase 3,002 shares of common stock at an exercise price of $87.87 per share. Both restricted stock units and options vest in a single installment on June 1, 2017. | | | | | | | | | | | | | | Consider input from investors to enhance disclosures, governance practices and compensation programs. | | Communicate investor feedback to the Board. Board uses self-assessment to develop and implement changes improving effectiveness. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (2) | Ms. Lego began serving as a director on July 7, 2016. She was granted restricted stock units for 3,012 shares of common stock and options to purchase 8,508 shares of common stock at an exercise price of $82.99 per share. These vest 25% on the four anniversaries of the grant date of August 2, 2016. |
Outstanding Equity Awards Table
The following table provides information regarding unexercised stock options and unvested restricted stock units held by each of our non-employee directors on December 31, 2016:
25
Proposal 1 Election of Nine Directors
| | | | | | | | | Name | | Unvested Restricted Stock Units (#) | | Total Option Awards Held (#) | | Exercisable Option Awards (#) | | Michael C. Child | | 1,896 | | 53,258 | | 50,256 | | Henry E. Gauthier | | 1,896 | | 21,507 | | 18,505 | | William S. Hurley | | 1,896 | | 31,591 | | 28,589 | | Catherine P. Lego | | 3,012 | | 8,508 | | — | | Eric Meurice | | 3,875 | | 14,680 | | 6,967 | | John R. Peeler | | 1,896 | | 33,257 | | 30,255 | | Thomas J. Seifert | | 3,875 | | 14,680 | | 6,967 |
We also reimburse directors for all reasonable out-of-pocket expenses incurred for attending | | Board and committee meetings and director education programs. Non-employeeStructure |
Board Leadership Structure Chairman of the Board and Chief Executive Officer: Dr. Valentin P. Gapontsev Presiding Independent Director: John R. Peeler | | | ◦ | Presiding Independent Director position is appointed annually by independent directors do not receive any additional payments or perquisites.Our certificate of incorporation limits the dollar amount of personal liability of our directors for breaches by them of their fiduciary duties. Our certificate of incorporation requires us to indemnify our directors to the fullest extent permitted by the Delaware General Corporation Law. We have also entered into indemnification agreements with all of our directors and we have purchased directors' and officers' liability insurance.
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All three Board committees composed of independent directors Independent directors meet in executive session at each of the Board's in person meetings and as needed outside of regular meetings There is no single board leadership structure that is optimal in all circumstances. The Board, with its diverse skills and experience, considers the most appropriate leadership structure for the Company in the context of the specific circumstances and challenges facing IPG. The directors come from a variety of organizational backgrounds with direct experiences a wide range of leadership and management structures. The independent directors, who comprise two-thirds of our Board, appropriately challenge management and demonstrate the independence necessary for effective oversight. As a result, the Board is in the best position to evaluate the relative benefits and challenges of different leadership structures and ultimately decide which one best serves the interests of our stockholders. The independent directors believe that having Dr. Gapontsev serve in the combined role of Chairman and CEO is in the best interest of the Company and its stockholders because it allows Dr. Gapontsev to more effectively execute the Company’s strategic initiatives and business plans. He is the Company's founder and beneficially owns approximately 14% of the Company’s common stock. The duality of Dr. Gapontsev’s roles creates clear and unambiguous authority, which is essential to effective management. Further, given that he is closer to the Company’s business than any other Board member and has the benefit of thirty years of operations, technology, strategy and executive management experience within the Company and its subsidiaries, the Board believes that Dr. Gapontsev is best-positioned to set the Board’s agenda and provide leadership of the board of a company operating in a highly technical industry. The Board also recognizes the importance of having in place, and building upon, a counterbalancing structure to ensure that it functions in an appropriately independent manner. The governance structure approved by the Board endows the position of Presiding Independent Director with leadership duties and responsibilities including: setting the agenda for and leading executive sessions of the independent directors; providing consolidated feedback from those meetings to the Chairman and CEO; providing input on Board meeting agendas; providing feedback on the quality and quantity of information flow from management; calling and managing meetings of the independent directors; facilitating discussions outside of scheduled Board meetings among the independent directors on key issues; serving as a liaison with the Chairman and CEO; interviewing Board candidates; and leading the independent directors in setting the Chairman's and CEO's compensation, goals and objectives, and his annual performance evaluation. In the event of a crisis, the Presiding Independent Director has an increased role in crisis management oversight. The independent directors of our Board elected Mr. Peeler as the Presiding Independent Director for the term ending May 2020, and this position is voted upon annually by our independent directors. The Board believes that the position and responsibilities of the Presiding Independent Director and the regular use of executive sessions of the independent directors without the CEO or other executive officers present, along with the Company’s strong committee system and substantial majority of independent directors, allow the Board to maintain effective oversight.
26 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Director Independence Seven of our ten current directors are independent as defined by Nasdaq and SEC rules. A predominantly independent Board ensures that the Board is acting objectively and in the best interests of our stockholders. The independent directors also bring expertise and a diversity of perspectives to the Board. The culture of the Board enables directors to openly express their opinions in the boardroom and to raise challenges. Nasdaq listing standards governing independence require that a majority of the members of the Board be independent as defined by Nasdaq. The Board conducted its annual review of director independence in March 2020. During this review, the Board examined all direct and indirect transactions or relationships between the Company or any of its subsidiaries and each current director and any immediate family member of the director and determined that no material relationships with the Company existed during 2019. On the basis of this review, the Board determined that each of the following directors qualifies as an independent director as defined in Nasdaq guidelines and SEC rules: Michael C. Child, Gregory P. Dougherty, Henry E. Gauthier, Catherine P. Lego, Eric Meurice, John R. Peeler and Thomas J. Seifert. Additionally, the Board has determined that each member of the Audit Committee and the Compensation Committee meets the independence standards specific for members of such committees under Nasdaq guidelines and SEC rules. Our Corporate Governance Guidelines require that a majority of the Board members must consist of independent directors. In general, our Corporate Governance Guidelines also require that an independent director must have no material relationship with the Company, directly or indirectly, that might interfere with the exercise of independent judgment in the performance of director responsibilities. The Board determines independence on the basis of the standards specified by Nasdaq, the additional standards referenced in our Corporate Governance Guidelines, and other facts and circumstances the Board considers relevant. The NCGC conducts an annual review of the independence of the directors (and candidates for membership on the Board), taking into account all relevant facts and circumstances, and reports its findings to the full Board. Executive Sessions. Our independent directors meet privately, without employee directors or management present, at least four times during the year. These private sessions are generally held in conjunction with the regular quarterly Board meetings. Other private meetings of the independent directors are held as often as deemed necessary by them and are lead by the Presiding Independent Director. The Audit Committee, the Compensation Committee and the NCGC meet without employee directors or management present from time to time as they deem necessary. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No member of our Compensation Committee (Ms. Lego and Messrs. Dougherty, Meurice and Peeler) is or has been an officer or employee of our Company or any of our subsidiaries. None of our executive officers served as a member of: the compensation committee of another entity in which one of the executive officers of such entity served on our Compensation Committee; the compensation committee of another entity in which one of the executive officers of such entity served as a member of our Board; or the board of directors of another entity, one of whose executive officers served on our Compensation Committee.
27
Proposal 1 Election of Nine Directors
| | | Standing Committees and Board Committee Membership |
The Board has a standing Audit Committee, Compensation Committee and NCGC, each composed entirely of non-employee, independent directors. Under their written charters adopted by the Board, each of these committees is authorized and assured appropriate funding to retain and consult with external advisors, consultants and counsel. Below we provide the principal functions and current members of the standing Board committees. PROPOSAL 1: ELECTION OF DIRECTORS | | | | | | MEMBERS | FUNCTIONS: | Thomas J. Seifert (Chair)
Gregory P. Dougherty
Henry E. Gauthier Catherine P. Lego Meetings in 2019: 8 | • Providing oversight of financial management, the internal auditor function and the independent auditor. The stockholders• Providing oversight with respect to our internal controls including that management is maintaining an adequate system of internal control such that there is reasonable assurance that assets are being asked to elect Dr. Gapontsev, Dr. Scherbakov, Mr. Samartsev, Mr. Child, Mr. Gauthier, Mr. Hurley, Ms. Lego, Mr. Meurice, Mr. Peelersafeguarded and Mr. Seifert to terms endingthat financial reports are properly prepared; that there is consistent application of generally accepted accounting principles; and that there is compliance with management’s financial reporting policies and procedures.
• Pre-approving auditing and permissible non-audit services by our independent auditor, reviewing and discussing out annual and quarterly financial statements and related disclosures, and coordinating. • Meeting periodically with the annual meetingindependent auditor, management and internal auditor function (including in private sessions) to be held in 2018, until a successor is electedreview their work and qualified or until his or her earlier death, resignation or removal. The Board nominated each of these individuals for election atconfirm that they are properly discharging their respective responsibilities. • Appointing the 2017 annual meeting of stockholders upon the recommendation of the Nominating and Corporate Governance Committee. Each nominee is currently a director of our company. All of the director nominees set forth in the proxy card have consented to being named in this proxy statement and to serving if elected. independent auditor. For more information regardingon Audit Committee activities in 2019, see the nomineesAudit Committee Report on page 60 of this Proxy Statement and Proposal 3: Ratify Deloitte & Touche LLP as Our Independent Registered Public Accounting Firm for director, see 2020"Board of Directors." on page 58. | | |
The Board has determined that each member of the Audit Committee is independent and financially literate. The Board has designated Ms. Lego and Mr. Seifert, who are each independent directors under the Nasdaq listing standings and the SEC's audit committee requirements, as “audit committee financial experts” pursuant to the SEC’s final rules implementing Section 407 of the Sarbanes-Oxley Act. Stockholders should understand that the designation of Ms. Lego and Mr. Seifert each as an “audit committee financial expert” is an SEC disclosure requirement and that it does not impose upon them any duties, obligations or liabilities that are greater than those imposed on them as members of the Audit Committee and the Board in the absence of such designation.
28 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Compensation Committee | | | | | | MEMBERS | FUNCTIONS: | Catherine P. Lego (Chair) Gregory P. Dougherty Eric Meurice John R. Peeler Meetings in 2019: 8 | • Reviewing and recommending to the independent directors the CEO’s base salary and opportunities for annual and long-term compensation. The Board does not contemplate that any• Reviewing and approving compensation decisions recommended by the CEO for the other executive officers, including setting base salaries, annual performance bonuses, long-term incentive awards, severance benefits and perquisites.
• Setting our compensation philosophy and composition of the nominees will be unable to standgroup of peer companies used for election, but should any nominee become unable to serve orcomparison of executive compensation. • Reviewing and recommending for good cause will not serve, all proxies (except proxies marked to the contrary) will be voted for the election of a substitute nominee nominatedapproval by the Board.Board the compensation for non-employee directors.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" ALL OF THE NOMINEES FOR DIRECTOR
COMMON STOCK OWNERSHIP
The following table provides information about• Administering the beneficial ownership of our common stock as of April 3, 2017 by:
each of the Named Executive Officers,
each person who is a director or nominee,
all ofequity compensation plans under which we compensate our executive officers and other key employees.
• Retaining an independent compensation consultant firm, Radford, a unit of Aon Hewitt (“Radford”), for matters related to executive officer and director compensation, and outside legal counsel to provide advice on compensation-related matters. • Preparing the Compensation Committee Report included in this Proxy Statement on page 37 and overseeing management’s risk assessment of compensation for all employees and compensation-related risks as delegated by the Board. | | |
Nominating and Corporate Governance Committee | | | | | | MEMBERS | FUNCTIONS: | Eric Meurice (Chair) Michael C. Child John R. Peeler Thomas J. Seifert Meetings in 2019: 5 | • Overseeing matters of corporate governance, including the evaluation of the performance and practices of the Board. • Developing and recommending criteria for Board membership. • Reviewing possible candidates for the Board and recommending director nominees to the Board for approval. • Overseeing the process for the performance evaluations of the Board and its committees. • Engaging in Board succession planning to ensure boardroom skills are aligned with IPG’s long-term strategic plan. • Reviewing and recommending director orientation, stock ownership guidelines, delegation of authority to management, insider trading guidelines, and consider questions of possible conflict of interest, including related party transactions, as such questions arise. • Reviewing and recommending risk oversight responsibilities of the Board and its committees and of the independent directors as a group andgroup. each person or entity known by us to own beneficially more than five percent of our common stock.
| | |
Each of the Board committees has a written charter that states their respective purposes, goals and responsibilities as well as qualifications for committee membership, appointment and removal, committee structure and operations and reporting to the entire Board. The three committee charters and our Corporate Governance Guidelines can be found at investor.ipgphotonics.com/governance/governance-documents. Information on our website does not constitute part of this Proxy Statement.
29
Proposal 1 Election of Nine Directors
Percentage of beneficial ownership is based on 53,422,456 shares of common stock outstanding as of April 3, 2017.
| | | | | | | | | | | | | | Name | | Shares Owned | | Right to Acquire Shares within 60 Days | | Total Beneficial Ownership (1) | | Percent | | Named Executive Officers and Directors (2) | |
|
| |
| |
|
| |
|
| | Michael C. Child | | 14,502 |
| | 55,154 | | 69,656 |
| | * |
| | Valentin P. Gapontsev, Ph.D. (3) | | 7,249,935 |
| | — | | 7,249,935 |
| | 13.6 | % | | Henry E. Gauthier | | 17,473 |
| | 13,403 | | 30,876 |
| | * |
| | William S. Hurley | | 7,924 |
| | 26,820 | | 34,744 |
| | * |
| | Catherine P. Lego | | 3,000 |
| | — | | 3,000 |
| | * |
| | Timothy P.V. Mammen | | 16,898 |
| | 65,350 | | 82,248 |
| | 8.0 | % | | Alexander Ovtchinnikov, Ph.D. (4) | | 16,580,788 |
| | 12,000 | | 16,592,788 |
| | 31.1 | % | | Trevor D. Ness | | 2,523 |
| | 21,000 | | 23,523 |
| | * |
| | Eric Meurice | | 3,406 |
| | 11,865 | | 15,271 |
| | * |
| | John R. Peeler | | 3,923 |
| | 25,153 | | 29,076 |
| | * |
| | Igor Samartsev (5)(6) | | 888,933 |
| | 17,000 | | 905,933 |
| | 1.7 | % | | Eugene Scherbakov, Ph.D. (4)(5) | | 16,519,503 |
| | 43,125 | | 16,562,628 |
| | 31.0 | % | | Thomas J. Seifert | | 2,713 |
| | 4,898 | | 7,611 |
| | * |
| | All executive officers and directors as a group (15 persons) | | 17,815,884 | | 367,081 | | 18,182,965 |
| | 33.8 | % | | Other >5% Stockholders | |
|
| |
| |
|
| |
|
| | The Valentin Gapontsev Trust I (2)(7) | | 14,636,003 |
| | — | | 14,636,003 |
| | 27.4 | % | | IP Fibre Devices (UK) Ltd. (2)(8) | | 7,014,004 |
| | — | | 7,014,004 |
| | 13.1 | % | | FMR LLC (9) | | 2,963,421 |
| | — | | 2,963,421 |
| | 5.5 | % | | BlackRock, Inc. (10) | | 2,707,306 |
| | — | | 2,707,306 |
| | 5.1 | % | | The Vanguard Group (11) | | 2,680,867 |
| | — | | 2,680,867 |
| | 5.0 | % |
| | (1) | In accordance with SEC rules, beneficial ownership includes any shares for which a person or entity has sole or shared voting power or investment power and any shares for which the person or entity has the right to acquire beneficial ownership within 60 days after April 3, 2017 through the exercise of any option or the vesting of a restricted stock unit. | | | Board Practices, Policies and Processes |
| | (2) | The contact address for each person or entity is in care of IPG Photonics Corporation, 50 Old Webster Road, Oxford, Massachusetts 01540. |
| | (3) | Includes 7,014,004 shares beneficially owned by IP Fibre Devices (UK) Ltd. (“IPFD”), of which Dr. Gapontsev is the sole managing director. See note 8 below. |
| | (4) | Includes (a) 7,621,999 shares owned of record by Valentin Gapontsev Trust I (“Gapontsev Trust I”), (b) 7,014,004 shares owned of record by IPFD which are deemed to be beneficially owned by Gapontsev Trust I (see notes 7 and 8 below), (c) 915,000 shares beneficially owned by Valentin Gapontsev Trust II ("Gapontsev Trust II"), and (d) 966,500 shares beneficially owned by Valentin Gapontsev Trust III ("Gapontsev Trust III"), because such person is a trustee of each said trust. Gapontsev Trust I, Gapontsev Trust II and Gapontsev Trust III were formed by CEO Valentin Gapontsev. Drs. Ovtchinnikov and Scherbakov and Mr. Lopresti, an executive officer of the Company, are trustees of Gapontsev Trust I, Gapontsev Trust II and Gapontsev Trust III. |
| | (5) | Such person disclaims beneficial ownership of the shares held by IPFD except to the extent of his economic interest therein. See note 8 below. |
| | (6) | Includes 545,000 shares held by the spouse of Mr. Samartsev and family trusts formed by her. Mr. Samartsev disclaims beneficial ownership of such shares. |
| | (7) | Includes 7,014,004 shares beneficially owned by IPFD, in which Gapontsev Trust I has a 48% economic interest. Gapontsev Trust I disclaims beneficial ownership of the shares held by IPFD except to the extent of its economic interest therein. See note 8 below. |
| | (8) | Dr. Gapontsev has sole voting and investment power with respect to the shares held of record by IPFD. The following officers and directors of the Company or related parties have economic interests in IPFD: Gapontsev Trust I (48%), Dr. V. Gapontsev (3%), Mr. I. Samartsev (8%), Dr. E. Scherbakov (8%) and Gapontsev Trust III (2%). Each such person and entity (other than Dr. V. Gapontsev) does not possess voting or investment power with respect to such interest and each disclaims beneficial ownership of the shares held by IPFD except to the extent of his or its economic interest therein. |
(9) The address of FMR LLC is 245 Summer Street, Boston, Massachusetts 02210. Based solely on a Schedule 13G filed
with the SEC on February 14, 2017.
(10) The address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055. Based solely on a Schedule
13G filed with the SEC on January 30, 2017.
(11) The address of The Vanguard Group is 100 Vanguard Boulevard, Malvern, PA 19355. Based solely on a Schedule 13G
filed with the SEC on February 10, 2017.
EXECUTIVE OFFICERS
The following table sets forth certain information regarding our executive officers as of April 1, 2017.IPG’s Ongoing Commitment to Enhancing Governance Practices Director Meetings and Policy Regarding Board Attendance It has been the practice of our Board and its committees to hold at least four in-person regular meetings each year. The Board and its committees also have telephone meetings throughout the year. Our directors are expected to spend the time needed to prepare for and participate in each meeting and to meet as frequently as necessary to properly discharge their responsibilities. We encourage members of our Board to attend annual meetings of stockholders, but we do not have a formal policy requiring them to do so. In 2019, six of the directors in office attended the annual meeting of stockholders. The table below sets forth the number of meetings held by each committee and the full Board in 2019. All incumbent directors attended 75% or more of the aggregate meetings of the Board and committees on which they served during 2019. | | | | | | Name | | Age | | Position | Valentin P. Gapontsev, Ph.D. | | 78 | | Chief Executive Officer and Chairman of the Board | Eugene Scherbakov, Ph.D. | | 69 | | Chief Operating Officer, Managing Director of IPG Laser GmbH, Senior Vice President, Europe and Director | Timothy P.V. Mammen | | 47 | | Chief Financial Officer and Senior Vice President | Angelo P. Lopresti | | 53 | | General Counsel, Secretary and Senior Vice President | Alexander Ovtchinnikov, Ph.D. | | 56 | | Senior Vice President, Components | Trevor D. Ness | | 44 | | Senior Vice President, World Wide Sales and Marketing | Igor Samartsev | | 54 | | Chief Technology Officer and Director | Felix Stukalin | | 55 | | Senior Vice President, U.S. Operations |
The biographies of Dr. Gapontsev, Dr. Scherbakov and Mr. Samartsev are presented on pages 14 and 15 of this proxy statement. The biographies of our other executive officers are presented below.
Timothy P.V. Mammen has served as our Chief Financial Officer since July 2000 and as Vice President since November 2000. He was promoted to Senior Vice President in February 2013. Between May 1999 and July 2000, Mr. Mammen served as the Group Finance Director and General Manager of the United Kingdom operations for IPFD. Mr. Mammen was Finance Director and General Manager of United Partners Plc, a commodities trading firm, from 1995 to 1999 and, prior to that, he worked in the finance department of E.I. du Pont de Nemours and Company. Mr. Mammen holds an Upper Second B.Sc. Honours degree in International Trade and Development from the London School of Economics and Political Science. He is a Chartered Accountant and a member of the Institute of Chartered Accountants of Scotland.
Angelo P. Lopresti has served as our General Counsel and Secretary and one of our Vice Presidents since February 2001. He was promoted to Senior Vice President in February 2013. Prior to joining us, Mr. Lopresti was a partner at the law firm of Winston & Strawn LLP from 1999 to 2001. He was a partner at the law firm of Hertzog, Calamari & Gleason from 1998 to 1999 and an associate there from 1991 to 1998. He is on the board of Coastway Bancorp, Inc., the holding company of Coastway Community Bank. Mr. Lopresti holds a B.A. in Economics from Trinity College and a J.D. from the New York University School of Law.
Alexander Ovtchinnikov, Ph.D., has served as our Vice President, Components, since September 2005 and as Director of Material Sciences from October 2001 to September 2005. He was promoted to Senior Vice President in February 2013. Prior to joining us, Dr. Ovtchinnikov was Material Science Manager of Lasertel, Inc., a maker of high-power semiconductor lasers, from 1999 to 2001. For 15 years prior to joining Lasertel, Inc., he worked on the development and commercialization of high power diode pump technology at the Ioffe Institute, Tampere University of Technology, Coherent, Inc. and Spectra-Physics Corporation. He holds an M.S. in Electrical Engineering from the Electrotechnical University of St. Petersburg, Russia, and a Ph.D. from Ioffe Institute of the Russian Academy of Sciences.
Trevor D. Ness has served as our Senior Vice President, World Wide Sales and Marketing since February 2013. From January 2011 until February 2013, he served as our Vice President-Asian Operations. Prior to joining us, Mr. Ness was Director of GSI Precision Technologies China from May 2005 to December 2010 and prior to that he held technical sales management roles with GSI Group, Inc. and Cobham Plc, located in UK, Japan and Taiwan. Mr. Ness holds a B.S. in Geology from Imperial College, a H.N.C. from Bournemouth University and an M.B.A. from The Open University.
Felix Stukalin has served as our Senior Vice President, U.S. Operations since February 2013. From March 2009 until February 2013, he served as our Vice President, Devices. Prior to joining us, he was Vice President, Business Development of GSI Group Inc. from April 2002 to September 2008, and from March 2000 to April 2002 he was Vice President of Components and President of the Wave Precision divisions of GSI Lumonics, Mr. Stukalin holds a B.S. in Mechanical Engineering from the University of Rochester and he is a graduate of the Harvard Business School General Management Program.
28
| | | | | | | | Board of Directors | Audit | Compensation | Nominating and
Corporate Governance | | Meetings held in 2019 | 6 | 8 | 8 | 5 | | Written consents in 2019 | 4 | 0 | 2 | 0 |
30 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Corporate Governance Guidelines Our Board adopted Corporate Governance Guidelines that outline, among other matters, the roles and functions of the Board, the responsibilities of various Board committees and the mission of the Board. Our Corporate Governance Guidelines can be found at investor.ipgphotonics.com/governance/governance-documents. Information on our website does not constitute part of this Proxy Statement. The Corporate Governance Guidelines provide, among other things, that: a majority of our Board must be independent the Presiding Independent Director presides over executive sessions of independent directors the Board appoints all members and chairpersons of the Board committees the Audit Committee, Compensation Committee, and NCGC consist solely of independent directors the independent directors meet periodically in executive sessions without the employee directors or management independent directors may not serve on the boards of more than three other public companies or, with the permission of the Board, four; the CEO may not serve on more than one other public company board Board self-assessments are conducted annually and the Board and key officers should have a meaningful financial stake in the Company. The Board monitors changing legal and regulatory requirements, evolving best practices and other developments. The Board modifies the Corporate Governance Guidelines and its other corporate governance policies and practices from time to time, as appropriate. Director Orientation and Continuing Education The Board and its committees proactively monitor legislative and regulatory initiatives, as well as other corporate governance trends and their potential impact on the Company. The Board receives presentations from professionals with expertise in corporate law, governance and other related topics. These experts have specialized knowledge of regulatory actions, governance trends and various other corporate governance topics. In 2019, the Board and its committees received presentations on board oversight and stockholder engagement, SEC rulemaking, governance trends, critical accounting matter disclosures and cybersecurity. Additionally, our directors engage in continuing education to remain informed on recent trends applicable to their committee duties. Likewise, newly elected directors attend a comprehensive director orientation program that covers, among other things, our strategy, business structure, financial performance, and competitive landscape. New committee members are also provided training on committee policies, practices and trends. As part of this program, directors are asked to tour facilities as appropriate. To further familiarize directors with our expanding operations, we conduct Board meetings at our major manufacturing facilities from time to time. Board Performance Evaluations The Board conducts annual self-assessments and its committees conduct bi-annual self-assessments to determine whether they are functioning effectively. Further, the performance of the Presiding Independent Director is evaluated annually. The NCGC oversees the Board and committee self-assessments. Each committee also reviews its own performance bi-annually and reports the results to the Board. Each committee reviews and reassesses the adequacy of its charter annually and recommends proposed changes to the Board. Prohibition on Hedging; Limits on Pledging Under our insider trading policy, no director or employee, including NEOs, may engage in shorting shares of our common stock; buying or selling puts, calls or derivatives related to our common stock or other Company securities, which includes equity compensation; or engaging in hedging transactions, including through the use of financial instruments such as prepaid variable forwards, equity swaps, collars and exchange funds. No director or officer, including NEOs, may pledge shares constituting more than 20% of his or her total stock ownership. Pledges of shares constituting 20% or less of total stock ownership are subject to certain conditions.
31
Proposal 1 Election of Nine Directors
Communication with our Board of Directors Interested parties wishing to write to the Board, a specified director or a committee of the Board should send correspondence to the Office of the Secretary, IPG Photonics Corporation, 50 Old Webster Road, Oxford, Massachusetts 01540. All written communications received in such manner from stockholders of the Company will be forwarded to the members or committee of the Board to whom the communication is directed or, if the communication is not directed to any particular member(s) or committee(s) of the Board, the communication shall be forwarded to all members of the Board. Procedures for Submitting Complaints We have procedures to treat complaints regarding accounting, internal accounting controls, auditing matters, fight against bribery, banking, and financial crime, including submission of confidential and anonymous concerns regarding questionable accounting, internal accounting controls or auditing matters raised by our directors, officers and employees. These procedures are posted on our website at investor.ipgphotonics.com/governance/governance-documents. Transactions with Related Parties The Board adopted a related person transaction policy that requires the NCGC to approve or ratify any transaction or series of transactions exceeding $100,000 in which our Company is a participant and any related person has a direct or indirect material interest (other than solely as a result of being a director or trustee or less than 10% owner of another entity) ("Related Party Transactions"). Related persons include our directors, director nominees and officers and their immediate family members and persons sharing their households. It also includes persons controlling more than 5% of our outstanding common stock. Subject to certain exceptions in the policy, related parties are required to notify the NCGC of the Related Party Transaction for an assessment of whether the transaction or proposed transaction should be permitted. Management also has established procedures for monitoring transactions that could be subject to approval or ratification under the Related Party Transactions policy. In deciding whether to approve or ratify the Related Party Transaction, the NCGC considers relevant facts and circumstances. The committee will take into account, among other factors, whether the transaction is on terms no more favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction. Once a Related Party Transaction has been identified, the NCGC will review all of the relevant facts and circumstances and approve or disapprove entry into the transaction. Members of the NCGC having an interest in a transaction excuse themselves for the consideration and approval of the transaction in which they have an interest. Certain transactions are exempt from the policy including compensation paid by the Company for service as a director or an officer. Pursuant to our Corporate Governance Guidelines, we expect each of our directors to ensure that other existing and future commitments do not conflict with or materially interfere with his or her service as a director. In addition, directors are required to inform the chairman of our NCGC prior to joining the Board of another public company to ensure that any potential conflicts, excessive time demands or other issues are carefully considered. The NCGC reviewed and approved the following Related Party Transaction for 2019 in compliance with our policy: Dr. Gapontsev leases the annual right to use 25% of the Company’s corporate aircraft under a July 2017 lease agreement (the “Aircraft Lease”) in connection with the purchase of an aircraft. The Aircraft Lease expires in July 2022. The annual lease rate under the Aircraft Lease is $924,700 and future rent payments are adjusted annually. Dr. Gapontsev paid the Company $923,712 in 2019 for use of the aircraft, and in addition, directly paid an unrelated flight management firm for the operating costs of his private use, including pilot fees, fuel and other costs.
32 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Our non-employee directors receive the following annual compensation from us: | | | | | | | Amount |
| | Board Retainer | $ | 40,000 |
| | Presiding Independent Director Retainer | $ | 20,000 |
| | Audit Committee Retainers | | | Chair | $ | 25,000 |
| | Non-Chair | $ | 12,500 |
| | Compensation Committee Retainers | | | Chair | $ | 22,500 |
| | Non-Chair | $ | 10,000 |
| | Nominating and Corporate Governance Committee Retainers | | | Chair | $ | 17,500 |
| | Non-Chair | $ | 7,500 |
| | Annual Equity Award | $ | 250,000 |
|
Following our annual meeting of stockholders in 2019, we granted to non-employee directors their annual equity award: one-third of the award value (determined pursuant to ASC Topic 718) was granted as service-based stock options and two-thirds of the award value was granted as service-based restricted stock units ("RSUs"). The annual awards vest in a single installment on the earlier of the first anniversary of the date of grant or the next annual meeting of stockholders. Upon election to the Board, each new non-employee director receives a grant (determined pursuant to ASC Topic 718) of $125,000 in stock options and $125,000 in RSUs vesting on the first anniversary of the date of grant subject to the director’s continued service on the Board. If the election to the Board for a new director occurs other than at an annual meeting of stockholders, the subsequent annual equity grant is pro-rated based upon time the director served since first election. The exercise price of the stock options is the closing market price of our common stock on the date of grant. Any director who retires after at least eight years of service on the Board will be entitled to full vesting of all options and RSUs then held by the director. 2020 Update.Based upon changes to Company-wide equity compensation practices approved for 2020 and based upon recommendations and data provided by the Compensation Committee's independent compensation consultant, Radford, the Board approved changes to the mix of equity-based compensation paid to non-employee directors. Effective after the 2020 Annual Meeting, non-employee directors will receive their entire annual equity award in RSUs. The aggregate amount of equity compensation and vesting conditions remain the same.
33
Proposal 1 Election of Nine Directors
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors has reviewed and discussed with management the Compensation Discussion and Analysis included in this proxy statement. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company's proxy statement for the Company's 2017 annual meeting of stockholders and in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.
The information in this Compensation Committee Report shall not be considered "soliciting material" or "filed" with the SEC, nor shall this information be incorporated by reference into any previous or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company incorporates it by specific reference.
COMPENSATION COMMITTEE John R. Peeler, ChairThe Compensation Committee oversees risk associated with management resources, including executive retention and non-CEO succession planning. It reviews the Company’s executive compensation practices, their effectiveness at linking executive pay to performance and aligning the interests of our executives and our stockholders, without encouraging excessive risk taking. The Compensation Committee annually reviews management’s assessment of compensation risk.
| THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE William S. HurleyThe NCGC oversees risk related to the Company’s governance structure and processes, and risks arising from related person transactions. It reviews processes and risk related to Board succession planning, authority delegated to management and certain compliance risk.
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| | |
|
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FULL BOARD Our entire Board as a whole reviews risk management practices and a number of significant risks in the course of its reviews of corporate strategy, management reports and others. |
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INDEPENDENT DIRECTORS As a group, the independent directors oversee risks related to CEO succession planning. |
| | |
The Board’s risk oversight process builds upon management’s risk assessment and mitigation processes, which include reviews of strategic and operational planning; compliance under the Company’s Code of Business Conduct and other policies; the Company’s integrity programs; health, safety and environmental compliance; financial reporting and controllership; and information technology and cybersecurity programs. The Board's oversight role is independent from the Company’s day-to-day management, as more than two-thirds of the current directors are independent and therefore have no conflicts that might discourage critical review of the Company’s risks.
24 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Role in Management Succession Planning
The Board is focused on ensuring that the Company has emergency and long-term succession plans in place for key senior executive positions. The entire Board annually reviews with the CEO the Company’s plan for succession for the position of the chief executive officer, including the appropriate individual or individuals who are candidates to succeed to this position. In the event of an unexpected departure of the CEO, an emergency succession plan allows for smooth transfer of responsibilities to an individual who may or may not be permanently tasked with the new role. The Compensation Committee, composed entirely of independent directors, periodically reviews the Company’s plan for succession for other senior executive officers.
If the succession plan is triggered for any of these roles, the full Board would participate in the discussion and consideration of any action with a final decision to be made by the full Board. In the event of a senior executive’s departure, both internal and external candidates may be considered for permanent appointment to a given role.
Role in Ethics
All directors, officers and employees are required to abide by IPG’s Code of Business Conduct to ensure that our business is conducted in a consistently legal and ethical manner. These policies form the foundation of a comprehensive process that includes compliance with corporate policies and procedures and a Company-wide focus on uncompromising integrity in every aspect of our operations. Our Code of Business Conduct covers many topics, including antitrust and competition law, conflicts of interest, financial reporting, protection of confidential information, and compliance with all laws and regulations applicable to the conduct of our business. All of our directors and employees receive bi-annual training on our Code of Business Conduct, which is posted on our website at investor.ipgphotonics.com/governance/governance-documents. If the Board grants any waivers from our Code of Business Conduct to any directors or executive officers, or if we amend our Code of Business Conduct, we will, if required, disclose these matters via updates on our website.
Role in Stockholder Engagement
Accountability to our stockholders is an important component of the Company’s success. We recognize the value of building informed relationships with our investors that promote further transparency and accountability.
While proxy voting is one direct way to influence corporate behavior, proactive engagement with our investors can be effective and impactful. Investor views are continuously communicated to the Board and are instrumental in the development of our governance, compensation and other policies and inform our business strategy. The Board continues to seek investor input on a range of issues and practices in furtherance of enhancing long-term stockholder value.
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| | | | | | | | | |
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| Publish Annual Report and Proxy Statement. Speak with investors about topics to be addressed at the annual meeting. | | | | | Review results of the annual meeting, governance trends, regulatory developments. Board conducts annual self-assessment of its performance and effectiveness. | |
| | | | |
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| Consider input from investors to enhance disclosures, governance practices and compensation programs. | | Communicate investor feedback to the Board. Board uses self-assessment to develop and implement changes improving effectiveness. | |
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25
Proposal 1 Election of Nine Directors
Board Leadership Structure
Chairman of the Board and Chief Executive Officer: Dr. Valentin P. Gapontsev
Presiding Independent Director: John R. Peeler
| |
| ◦ | Presiding Independent Director position is appointed annually by independent directors |
All three Board committees composed of independent directors
Independent directors meet in executive session at each of the Board's in person meetings and as needed outside of regular meetings
There is no single board leadership structure that is optimal in all circumstances. The Board, with its diverse skills and experience, considers the most appropriate leadership structure for the Company in the context of the specific circumstances and challenges facing IPG. The directors come from a variety of organizational backgrounds with direct experiences a wide range of leadership and management structures. The independent directors, who comprise two-thirds of our Board, appropriately challenge management and demonstrate the independence necessary for effective oversight. As a result, the Board is in the best position to evaluate the relative benefits and challenges of different leadership structures and ultimately decide which one best serves the interests of our stockholders.
The independent directors believe that having Dr. Gapontsev serve in the combined role of Chairman and CEO is in the best interest of the Company and its stockholders because it allows Dr. Gapontsev to more effectively execute the Company’s strategic initiatives and business plans. He is the Company's founder and beneficially owns approximately 14% of the Company’s common stock. The duality of Dr. Gapontsev’s roles creates clear and unambiguous authority, which is essential to effective management. Further, given that he is closer to the Company’s business than any other Board member and has the benefit of thirty years of operations, technology, strategy and executive management experience within the Company and its subsidiaries, the Board believes that Dr. Gapontsev is best-positioned to set the Board’s agenda and provide leadership of the board of a company operating in a highly technical industry.
The Board also recognizes the importance of having in place, and building upon, a counterbalancing structure to ensure that it functions in an appropriately independent manner. The governance structure approved by the Board endows the position of Presiding Independent Director with leadership duties and responsibilities including:
setting the agenda for and leading executive sessions of the independent directors;
providing consolidated feedback from those meetings to the Chairman and CEO;
providing input on Board meeting agendas;
providing feedback on the quality and quantity of information flow from management;
calling and managing meetings of the independent directors;
facilitating discussions outside of scheduled Board meetings among the independent directors on key issues;
serving as a liaison with the Chairman and CEO;
interviewing Board candidates; and
leading the independent directors in setting the Chairman's and CEO's compensation, goals and objectives, and his annual performance evaluation.
In the event of a crisis, the Presiding Independent Director has an increased role in crisis management oversight. The independent directors of our Board elected Mr. Peeler as the Presiding Independent Director for the term ending May 2020, and this position is voted upon annually by our independent directors.
The Board believes that the position and responsibilities of the Presiding Independent Director and the regular use of executive sessions of the independent directors without the CEO or other executive officers present, along with the Company’s strong committee system and substantial majority of independent directors, allow the Board to maintain effective oversight.
26 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Director Independence
Seven of our ten current directors are independent as defined by Nasdaq and SEC rules. A predominantly independent Board ensures that the Board is acting objectively and in the best interests of our stockholders. The independent directors also bring expertise and a diversity of perspectives to the Board. The culture of the Board enables directors to openly express their opinions in the boardroom and to raise challenges. Nasdaq listing standards governing independence require that a majority of the members of the Board be independent as defined by Nasdaq. The Board conducted its annual review of director independence in March 2020. During this review, the Board examined all direct and indirect transactions or relationships between the Company or any of its subsidiaries and each current director and any immediate family member of the director and determined that no material relationships with the Company existed during 2019. On the basis of this review, the Board determined that each of the following directors qualifies as an independent director as defined in Nasdaq guidelines and SEC rules: Michael C. Child, Gregory P. Dougherty, Henry E. Gauthier, Catherine P. Lego, Eric Meurice, John R. Peeler and Thomas J. Seifert. Additionally, the Board has determined that each member of the Audit Committee and the Compensation Committee meets the independence standards specific for members of such committees under Nasdaq guidelines and SEC rules.
Our Corporate Governance Guidelines require that a majority of the Board members must consist of independent directors. In general, our Corporate Governance Guidelines also require that an independent director must have no material relationship with the Company, directly or indirectly, that might interfere with the exercise of independent judgment in the performance of director responsibilities. The Board determines independence on the basis of the standards specified by Nasdaq, the additional standards referenced in our Corporate Governance Guidelines, and other facts and circumstances the Board considers relevant. The NCGC conducts an annual review of the independence of the directors (and candidates for membership on the Board), taking into account all relevant facts and circumstances, and reports its findings to the full Board.
Executive Sessions. Our independent directors meet privately, without employee directors or management present, at least four times during the year. These private sessions are generally held in conjunction with the regular quarterly Board meetings. Other private meetings of the independent directors are held as often as deemed necessary by them and are lead by the Presiding Independent Director. The Audit Committee, the Compensation Committee and the NCGC meet without employee directors or management present from time to time as they deem necessary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of our Compensation Committee (Ms. Lego and Messrs. Dougherty, Meurice and Peeler) is or has been an officer or employee of our Company or any of our subsidiaries. None of our executive officers served as a member of:
the compensation committee of another entity in which one of the executive officers of such entity served on our Compensation Committee;
the compensation committee of another entity in which one of the executive officers of such entity served as a member of our Board; or
the board of directors of another entity, one of whose executive officers served on our Compensation Committee.
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Proposal 1 Election of Nine Directors
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| Standing Committees and Board Committee Membership |
The Board has a standing Audit Committee, Compensation Committee and NCGC, each composed entirely of non-employee, independent directors. Under their written charters adopted by the Board, each of these committees is authorized and assured appropriate funding to retain and consult with external advisors, consultants and counsel. Below we provide the principal functions and current members of the standing Board committees.
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| MEMBERS | FUNCTIONS: |
Thomas J. Seifert (Chair) Gregory P. Dougherty Henry E. Gauthier Catherine P. Lego Meetings in 2019: 8 | • Providing oversight of financial management, the internal auditor function and the independent auditor. • Providing oversight with respect to our internal controls including that management is maintaining an adequate system of internal control such that there is reasonable assurance that assets are safeguarded and that financial reports are properly prepared; that there is consistent application of generally accepted accounting principles; and that there is compliance with management’s financial reporting policies and procedures. • Pre-approving auditing and permissible non-audit services by our independent auditor, reviewing and discussing out annual and quarterly financial statements and related disclosures, and coordinating. • Meeting periodically with the independent auditor, management and internal auditor function (including in private sessions) to review their work and confirm that they are properly discharging their respective responsibilities. • Appointing the independent auditor. For more information on Audit Committee activities in 2019, see the Audit Committee Report on page 60 of this Proxy Statement and Proposal 3: Ratify Deloitte & Touche LLP as Our Independent Registered Public Accounting Firm for 2020 on page 58. |
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The Board has determined that each member of the Audit Committee is independent and financially literate. The Board has designated Ms. Lego and Mr. Seifert, who are each independent directors under the Nasdaq listing standings and the SEC's audit committee requirements, as “audit committee financial experts” pursuant to the SEC’s final rules implementing Section 407 of the Sarbanes-Oxley Act. Stockholders should understand that the designation of Ms. Lego and Mr. Seifert each as an “audit committee financial expert” is an SEC disclosure requirement and that it does not impose upon them any duties, obligations or liabilities that are greater than those imposed on them as members of the Audit Committee and the Board in the absence of such designation.
28 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Compensation Committee
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| MEMBERS | FUNCTIONS: |
Catherine P. Lego (Chair) Gregory P. Dougherty Eric Meurice
John R. Peeler
Meetings in 2019: 8
| • Reviewing and recommending to the independent directors the CEO’s base salary and opportunities for annual and long-term compensation. March 28, 2017• Reviewing and approving compensation decisions recommended by the CEO for the other executive officers, including setting base salaries, annual performance bonuses, long-term incentive awards, severance benefits and perquisites.
• Setting our compensation philosophy and composition of the group of peer companies used for comparison of executive compensation.
• Reviewing and recommending for approval by the Board the compensation for non-employee directors. • Administering the equity compensation plans under which we compensate our executive officers and other key employees. • Retaining an independent compensation consultant firm, Radford, a unit of Aon Hewitt (“Radford”), for matters related to executive officer and director compensation, and outside legal counsel to provide advice on compensation-related matters. • Preparing the Compensation Committee Report included in this Proxy Statement on page 37 and overseeing management’s risk assessment of compensation for all employees and compensation-related risks as delegated by the Board. |
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Nominating and Corporate Governance Committee
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Eric Meurice (Chair) COMPENSATION DISCUSSION AND ANALYSISMichael C. Child
John R. Peeler Thomas J. Seifert Meetings in 2019: 5 | • Overseeing matters of corporate governance, including the evaluation of the performance and practices of the Board. • Developing and recommending criteria for Board membership. • Reviewing possible candidates for the Board and recommending director nominees to the Board for approval. • Overseeing the process for the performance evaluations of the Board and its committees. • Engaging in Board succession planning to ensure boardroom skills are aligned with IPG’s long-term strategic plan. • Reviewing and recommending director orientation, stock ownership guidelines, delegation of authority to management, insider trading guidelines, and consider questions of possible conflict of interest, including related party transactions, as such questions arise. • Reviewing and recommending risk oversight responsibilities of the Board and its committees and of the independent directors as a group. |
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Each of the Board committees has a written charter that states their respective purposes, goals and responsibilities as well as qualifications for committee membership, appointment and removal, committee structure and operations and reporting to the entire Board. The three committee charters and our Corporate Governance Guidelines can be found at investor.ipgphotonics.com/governance/governance-documents. Information on our website does not constitute part of this Proxy Statement.
29
Proposal 1 Election of Nine Directors
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| Board Practices, Policies and Processes |
IPG’s Ongoing Commitment to Enhancing Governance Practices
Director Meetings and Policy Regarding Board Attendance
It has been the practice of our Board and its committees to hold at least four in-person regular meetings each year. The Board and its committees also have telephone meetings throughout the year. Our directors are expected to spend the time needed to prepare for and participate in each meeting and to meet as frequently as necessary to properly discharge their responsibilities. We encourage members of our Board to attend annual meetings of stockholders, but we do not have a formal policy requiring them to do so. In 2019, six of the directors in office attended the annual meeting of stockholders.
The table below sets forth the number of meetings held by each committee and the full Board in 2019. All incumbent directors attended 75% or more of the aggregate meetings of the Board and committees on which they served during 2019.
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Corporate Governance |
| Meetings held in 2019 | 6 | 8 | 8 | 5 |
| Written consents in 2019 | 4 | 0 | 2 | 0 |
30 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Corporate Governance Guidelines
Our Board adopted Corporate Governance Guidelines that outline, among other matters, the roles and functions of the Board, the responsibilities of various Board committees and the mission of the Board. Our Corporate Governance Guidelines can be found at investor.ipgphotonics.com/governance/governance-documents. Information on our website does not constitute part of this Proxy Statement.
The Corporate Governance Guidelines provide, among other things, that:
a majority of our Board must be independent
the Presiding Independent Director presides over executive sessions of independent directors
the Board appoints all members and chairpersons of the Board committees
the Audit Committee, Compensation Committee, and NCGC consist solely of independent directors
the independent directors meet periodically in executive sessions without the employee directors or management
independent directors may not serve on the boards of more than three other public companies or, with the permission of the Board, four; the CEO may not serve on more than one other public company board
Board self-assessments are conducted annually and
the Board and key officers should have a meaningful financial stake in the Company.
The Board monitors changing legal and regulatory requirements, evolving best practices and other developments. The Board modifies the Corporate Governance Guidelines and its other corporate governance policies and practices from time to time, as appropriate.
Director Orientation and Continuing Education
The Board and its committees proactively monitor legislative and regulatory initiatives, as well as other corporate governance trends and their potential impact on the Company. The Board receives presentations from professionals with expertise in corporate law, governance and other related topics. These experts have specialized knowledge of regulatory actions, governance trends and various other corporate governance topics. In 2019, the Board and its committees received presentations on board oversight and stockholder engagement, SEC rulemaking, governance trends, critical accounting matter disclosures and cybersecurity. Additionally, our directors engage in continuing education to remain informed on recent trends applicable to their committee duties.
Likewise, newly elected directors attend a comprehensive director orientation program that covers, among other things, our strategy, business structure, financial performance, and competitive landscape. New committee members are also provided training on committee policies, practices and trends. As part of this program, directors are asked to tour facilities as appropriate. To further familiarize directors with our expanding operations, we conduct Board meetings at our major manufacturing facilities from time to time.
Board Performance Evaluations
The Board conducts annual self-assessments and its committees conduct bi-annual self-assessments to determine whether they are functioning effectively. Further, the performance of the Presiding Independent Director is evaluated annually. The NCGC oversees the Board and committee self-assessments. Each committee also reviews its own performance bi-annually and reports the results to the Board. Each committee reviews and reassesses the adequacy of its charter annually and recommends proposed changes to the Board.
Prohibition on Hedging; Limits on Pledging
Under our insider trading policy, no director or employee, including NEOs, may engage in shorting shares of our common stock; buying or selling puts, calls or derivatives related to our common stock or other Company securities, which includes equity compensation; or engaging in hedging transactions, including through the use of financial instruments such as prepaid variable forwards, equity swaps, collars and exchange funds. No director or officer, including NEOs, may pledge shares constituting more than 20% of his or her total stock ownership. Pledges of shares constituting 20% or less of total stock ownership are subject to certain conditions.
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Proposal 1 Election of Nine Directors
Communication with our Board of Directors
Interested parties wishing to write to the Board, a specified director or a committee of the Board should send correspondence to the Office of the Secretary, IPG Photonics Corporation, 50 Old Webster Road, Oxford, Massachusetts 01540. All written communications received in such manner from stockholders of the Company will be forwarded to the members or committee of the Board to whom the communication is directed or, if the communication is not directed to any particular member(s) or committee(s) of the Board, the communication shall be forwarded to all members of the Board.
Procedures for Submitting Complaints
We have procedures to treat complaints regarding accounting, internal accounting controls, auditing matters, fight against bribery, banking, and financial crime, including submission of confidential and anonymous concerns regarding questionable accounting, internal accounting controls or auditing matters raised by our directors, officers and employees. These procedures are posted on our website at investor.ipgphotonics.com/governance/governance-documents.
Transactions with Related Parties
The Board adopted a related person transaction policy that requires the NCGC to approve or ratify any transaction or series of transactions exceeding $100,000 in which our Company is a participant and any related person has a direct or indirect material interest (other than solely as a result of being a director or trustee or less than 10% owner of another entity) ("Related Party Transactions"). Related persons include our directors, director nominees and officers and their immediate family members and persons sharing their households. It also includes persons controlling more than 5% of our outstanding common stock. Subject to certain exceptions in the policy, related parties are required to notify the NCGC of the Related Party Transaction for an assessment of whether the transaction or proposed transaction should be permitted. Management also has established procedures for monitoring transactions that could be subject to approval or ratification under the Related Party Transactions policy.
In deciding whether to approve or ratify the Related Party Transaction, the NCGC considers relevant facts and circumstances. The committee will take into account, among other factors, whether the transaction is on terms no more favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction. Once a Related Party Transaction has been identified, the NCGC will review all of the relevant facts and circumstances and approve or disapprove entry into the transaction. Members of the NCGC having an interest in a transaction excuse themselves for the consideration and approval of the transaction in which they have an interest. Certain transactions are exempt from the policy including compensation paid by the Company for service as a director or an officer.
Pursuant to our Corporate Governance Guidelines, we expect each of our directors to ensure that other existing and future commitments do not conflict with or materially interfere with his or her service as a director. In addition, directors are required to inform the chairman of our NCGC prior to joining the Board of another public company to ensure that any potential conflicts, excessive time demands or other issues are carefully considered.
The NCGC reviewed and approved the following Related Party Transaction for 2019 in compliance with our policy:
Dr. Gapontsev leases the annual right to use 25% of the Company’s corporate aircraft under a July 2017 lease agreement (the “Aircraft Lease”) in connection with the purchase of an aircraft. The Aircraft Lease expires in July 2022. The annual lease rate under the Aircraft Lease is $924,700 and future rent payments are adjusted annually. Dr. Gapontsev paid the Company $923,712 in 2019 for use of the aircraft, and in addition, directly paid an unrelated flight management firm for the operating costs of his private use, including pilot fees, fuel and other costs.
32 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Our non-employee directors receive the following annual compensation from us:
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| Board Retainer | $ | 40,000 |
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| Presiding Independent Director Retainer | $ | 20,000 |
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| Chair | $ | 25,000 |
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| Non-Chair | $ | 12,500 |
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| Compensation Committee Retainers | |
| Chair | $ | 22,500 |
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| Non-Chair | $ | 10,000 |
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| Nominating and Corporate Governance Committee Retainers | |
| Chair | $ | 17,500 |
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| Non-Chair | $ | 7,500 |
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| Annual Equity Award | $ | 250,000 |
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Following our annual meeting of stockholders in 2019, we granted to non-employee directors their annual equity award: one-third of the award value (determined pursuant to ASC Topic 718) was granted as service-based stock options and two-thirds of the award value was granted as service-based restricted stock units ("RSUs"). The annual awards vest in a single installment on the earlier of the first anniversary of the date of grant or the next annual meeting of stockholders.
Upon election to the Board, each new non-employee director receives a grant (determined pursuant to ASC Topic 718) of $125,000 in stock options and $125,000 in RSUs vesting on the first anniversary of the date of grant subject to the director’s continued service on the Board. If the election to the Board for a new director occurs other than at an annual meeting of stockholders, the subsequent annual equity grant is pro-rated based upon time the director served since first election.
The exercise price of the stock options is the closing market price of our common stock on the date of grant. Any director who retires after at least eight years of service on the Board will be entitled to full vesting of all options and RSUs then held by the director.
2020 Update.Based upon changes to Company-wide equity compensation practices approved for 2020 and based upon recommendations and data provided by the Compensation Committee's independent compensation consultant, Radford, the Board approved changes to the mix of equity-based compensation paid to non-employee directors. Effective after the 2020 Annual Meeting, non-employee directors will receive their entire annual equity award in RSUs. The aggregate amount of equity compensation and vesting conditions remain the same.
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Proposal 1 Election of Nine Directors
Director Compensation Table
The following table summarizes the compensation of each of our non-employee directors for 2019:
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| Name | Fees Earned
or Paid in
Cash
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($)(1) | Option Awards
($)(1) | Total
($) |
| Michael C. Child | 47,500 |
| 166,197 | 79,996 | 293,693 |
| Gregory P. Dougherty | 64,180 |
| 207,710 | 160,154 | 432,044 |
| Henry E. Gauthier | 52,500 |
| 166,197 | 79,996 | 298,693 |
| Catherine P. Lego | 75,000 |
| 166,197 | 79,996 | 321,193 |
| Eric Meurice | 67,500 |
| 166,197 | 79,996 | 313,693 |
| John R. Peeler | 77,500 |
| 166,197 | 79,996 | 323,693 |
| Thomas J. Seifert | 72,500 |
| 166,197 | 79,996 | 318,693 |
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(1) | Valuation based on the fair value of the RSU and stock option awards as of the grant date determined pursuant to ASC Topic 718 with respect to 2019. The assumptions that we used with respect to the valuation of restricted stock unit and stock option awards are set forth in Note 12 to our Consolidated Financial Statements in our Annual Report on Form 10-K filed with the SEC on February 24, 2020. On January 23, 2019, Mr. Dougherty was elected to the Board and was granted 807 RSUs and options to purchase 2,325 shares of common stock at an exercise price of $154.88 per share, vesting on February 15, 2020. On May 30, 2019, each continuing director serving on the Board was granted 1,297 RSUs and options to purchase 1,869 shares of common stock at an exercise price of $128.46 per share, except for Mr. Dougherty, who received an award of 648 RSUs and options to purchase 934 shares of common stock, in each case reflecting proration based on the length of his Board service in 2019. The RSUs and options granted on May 30, 2020 vest in a single installment on May 28, 2020. |
Outstanding Equity Awards Table
The following table provides information regarding unexercised stock options and unvested RSUs held by each of our non-employee directors on December 31, 2019:
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Restricted
Stock Units (#) | Total Option
Awards Held (#) | Exercisable
Option Awards (#) |
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| Michael C. Child | 1,297 | 43,579 | 41,710 |
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| Gregory P. Dougherty | 1,455 | 3,259 | — |
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| Henry E. Gauthier | 1,297 | 10,578 | 8,709 |
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| Catherine P. Lego | 2,050 | 13,829 | 9,833 |
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| Eric Meurice | 1,297 | 20,001 | 18,132 |
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| John R. Peeler | 1,297 | 23,578 | 21,709 |
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| Thomas J. Seifert | 1,297 | 7,677 | 5,808 |
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We also reimburse directors for all reasonable out-of-pocket expenses incurred for attending Board and committee meetings and director education programs. We do not pay our non-employee directors any additional payments or perquisites.
Our certificate of incorporation limits the dollar amount of personal liability of our directors for breaches by them of their fiduciary duties. Our certificate of incorporation requires us to indemnify our directors to the fullest extent permitted by the Delaware General Corporation Law. We have also entered into indemnification agreements with all of our directors and we have purchased directors’ and officers’ liability insurance.
34 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 1 Election of Nine Directors
Objectives of Director Compensation
Quality non-employee directors are critical to our success. We believe that the two primary duties of non-employee directors are to effectively represent the long-term interests of our stockholders and to provide guidance to management. As such, our compensation program for non-employee directors is designed to meet several key objectives:
Adequately compensate directors for their responsibilities and time commitments and for the personal liabilities and risks that they face as directors of a public company;
Attract the highest caliber non-employee directors by offering a compensation program consistent with those at companies of similar size, complexity and business character;
Align the interests of directors with our stockholders by providing a significant portion of compensation in equity and requiring directors to own our stock; and
Provide compensation that is simple and transparent to stockholders and reflects corporate governance best practices.
We also believe in aligning director compensation with stockholder interests. In 2019, approximately 80% of independent director compensation was at-risk by being subject to stock price performance.
Elements of Director Compensation
We believe that the following components of our director compensation program support the objectives above:
We provide cash compensation through retainers for Board and committee service, as well as additional cash retainers to the Presiding Independent Director and chairs of our standing Board committees. We do not provide Board and committee meeting fees. Compensating our directors in this manner simplifies the administration of our program and creates greater equality in rewarding service on committees of the Board. The additional retainers compensate directors for the additional responsibilities and time commitments involved with chairperson responsibilities.
We pay for, provide or reimburse directors for expenses, including business class travel, incurred to attend Board and committee meetings and director education programs.
Directors do not have a retirement plan.
Directors who are our employees receive no additional compensation for service on the Board.
Determining Director Compensation
Our Compensation Committee reviews our director compensation program periodically to confirm that the program remains appropriate and competitive and recommends any changes to our full Board for consideration and approval.
The Compensation Committee engaged Radford to provide a comprehensive review of compensation for non-employee directors in comparison to the same compensation peer group used for the Company’s executive compensation analysis. The analysis included review of cash retainer, initial and annual equity grants, vesting schedules, meeting fees for Board and committee service. After considering the analysis provided by Radford in early 2019, the Committee did not change non-employee director compensation from 2018.
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Proposal 1 Election of Nine Directors
PROCESS FOR DETERMINING NON-EMPLOYEE DIRECTOR COMPENSATION
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| The Compensation Committee engages independent compensation consultant to review compensation of non-employee directors as compared to peer group. | | The Compensation Committee evaluates independent compensation consultant report, compensation trends, and need to retain and attract high caliber non-employee directors consistent with comparable companies.
| | The Board considers changes to non-employee directors compensation program recommended by the Compensation Committee. Approved changes generally take effect after disclosure in the proxy statement and the annual meeting of stockholders. |
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Director and Executive Officer Stock Ownership Guidelines
The Board adopted stock ownership guidelines to more closely align the interests of our directors and executive officers with those of our long-term stockholders. Under the guidelines, the following persons are expected to maintain a minimum investment in our common stock as follows:
Non-employee directors, the lesser of 3,000 shares or three times their annual cash Board retainer (excluding committee retainers);
The CEO, five times his annual salary; and
Senior executive officers, the lesser of 5,000 shares or one times their respective annual salaries.
Vested stock options and unvested RSUs count toward required stock ownership levels. Indirect ownership of shares through a separate legal entity counts toward fulfillment of the ownership guidelines. Ownership requirements are to be achieved no later than four years after the election as a director or as an executive officer, except that prior to such time the director or officer is expected to retain a certain portion of stock issued upon exercise of stock options or vesting of RSUs until the minimum ownership levels are attained. All directors and executive officers were in compliance with our stock ownership guidelines on December 31, 2019.
2020 Update: After a review of peer practices, the NCGC recommended and the Board approved, the following increased stock ownership requirements effective February 2020:
Non-employee directors, five times their annual cash Board retainer (excluding committee retainers); and
Senior executive officers, two times their respective annual salaries.
The CEO's stock ownership requirement was not changed. Also, vested stock options no longer count toward required stock ownership levels.
36 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
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Proposal
2 | Advisory Approval of Our Executive Compensation |
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We are asking our stockholders to cast an advisory vote to approve the compensation of the Named Executive Officers as disclosed in this Proxy Statement in accordance with the requirements of Section 14A of the Exchange Act. This proposal gives our stockholders the opportunity to express their views on the design and effectiveness of our executive compensation program. As most recently approved by our stockholders in 2017, we submit this proposal for a non-binding vote on a triennial basis. At the annual meeting of stockholders in 2017, the last time this proposal was up for a non-binding, advisory vote, over 98% of stockholders voted in favor of our executive compensation practices as disclosed in our 2017 proxy statement.
Our compensation program is designed to be simple, effective and link pay to performance. It reflects the size, scope and success of IPG’s business as well as the responsibilities of our NEOs. We believe our compensation program strikes the appropriate balance between utilizing responsible, measured pay practices and effectively incentivizing our executives to dedicate themselves fully to value creation for our stockholders. We encourage you to read the Compensation Discussion and Analysis below and the compensation tables and narrative disclosures that follow for additional details about our 2019 executive compensation program for our NEOs, including information about 2020 compensation.
As an advisory vote, the results of this vote will not be binding upon the Board or the Company. However, the Compensation Committee and the Board value the opinions expressed by our stockholders on this proposal and will consider the outcome of the vote when making future decisions on the compensation of our NEOs.
Thus, the Company is submitting to stockholders the following resolution for their consideration and approval:
RESOLVED, that the stockholders approve, on an advisory basis, the compensation of the Company’s Named Executive Officers as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission (including in the Compensation Discussion and Analysis, the accompanying compensation tables and related narrative).
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The Board of Directors recommends that you vote FORapproval of our executive compensation. |
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| Compensation Committee Report |
The Compensation Committee of the Board has reviewed and discussed with management the Compensation Discussion and Analysis included in this Proxy Statement. Based on this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s Proxy Statement for the Company’s 2020 Annual Meeting of Stockholders and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
COMPENSATION COMMITTEE
Catherine P. Lego, Chair
Gregory P. Dougherty
Eric Meurice
John R. Peeler
March 18, 2020
The information in the Compensation Committee Report shall not be considered “soliciting material” or “filed” with the SEC, nor shall this information be incorporated by reference into any previous or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company incorporates it by specific reference.
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Proposal 2 Advisory Approval of Our Executive Compensation
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Compensation Discussion and Analysis provides a review of our executive compensation philosophy and program, and Compensation Committee decisions for fiscal year 2016. The discussion in this section focuses on the compensation of our "Named Executive Officers" or "NEOs" for fiscal year 2016, |
Executive Overview
This Compensation Discussion and Analysis provides a review of our executive compensation philosophy and program, and Compensation Committee decisions for fiscal 2019. The discussion in this section focuses on the compensation of the NEOs for fiscal 2019, who were:
Valentin |
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VALENTIN P. Gapontsev, Ph.D., our
GAPONTSEV, PH.D. | EUGENE
SCHERBAKOV, PH.D. | TIMOTHY
P.V. MAMMEN | ANGELO
P. LOPRESTI | ALEXANDER
OVTCHINNIKOV, PH.D. |
Chairman and Chief
Executive OfficerTimothy P.V. Mammen, our Senior Vice President and Chief Financial Officer
Eugene Scherbakov, Ph.D., our
| Chief Operating Officer, the Managing Director of IPG Laser GmbH, our subsidiary, and Senior Vice President, Europe Alexander Ovtchinnikov, Ph.D., our
| Senior Vice
President and Chief
Financial Officer | Senior Vice President,
General Counsel
and Secretary | Senior Vice President, Components |
Detailed bios of the NEOs are included in the Annual Report.
Financial and Strategic Highlights of 2019
We shipped a record number of high power lasers in 2019 and increased sales of lasers at 10 kilowatts or greater by more than 25%. However, given weaker industrial demand trends resulting from escalation of the US-China trade conflict and macroeconomic challenges in our largest regions, revenue in 2019 decreased by 10%. As we enhance our capability in providing complete laser solutions to end customers, we sold a record number of laser systems for materials processing in 2019. Furthermore, we are leveraging one of the largest R&D investments in the laser industry to launch leading edge products, and in 2019 new product sales were 19% of total revenue. Because of lower absorption of fixed costs in our vertically-integrated production model, lower product pricing, foreign exchange headwinds and other factors, our industry-leading gross margin declined to 46%. We delivered operating cash flow of $324 million in 2019 and maintain one of the strongest balance sheets in the industrial automation industry, with more than $1 billion net cash and ample liquidity at December 31, 2019.
2019 Executive Compensation Highlights and Changes to 2020 Compensation Program
The Compensation Committee held 2019 executive base salaries, target annual incentives and long term equity incentives at 2018 levels, reflecting the global macroeconomic environment existing at the start of 2019. Financial performance fell short of targets in 2019, which resulted in no 2019 annual incentive payouts for financial performance. Variable cash compensation opportunity is based upon annual net sales and profitability against threshold, target and maximum performance goals. Our NEOs earned a smaller payout based upon their individual performance evaluation as they undertook operational improvements to reduce expenses and increase cash flow as the demand downturn continued.
In 2019, our equity-based award program for executives included service-based stock options, service-based RSUs, and performance-based stock units ("PSUs"), with each award type representing approximately one-third of the overall 2019 long-term incentive opportunity (at target for the PSUs). In 2019, the Compensation Committee changed the index against which the relative performance of the Company’s stock is measured for the 2019 PSU awards to the S&P Composite 1500 Electronic Equipment, Instrument and Components Index (“S&P Electronics Index”) because this index has a higher overall correlation among constituents with the Company, and because the Company’s market cap, revenue and volatility are more in line with the range of such measures in the S&P Electronics Index as compared to the Russell 3000 Index used for prior years. IPG is a member of the S&P Electronics Index. Also in 2019, the Compensation Committee modified executive employment agreements allowing the Company to terminate employment for cause if the executive violates the Company’s Code of Business Conduct, and placing limits on certain outside activities without consent of the Board.
For 2020, executive base salaries and target annual incentives remain at 2018 levels; however, changes were made to the amount of equity incentives provided to Dr. Scherbakov and Mr. Mammen. Consistent with our pay-for-performance philosophy, the Compensation Committee modified our executive equity-based award program increasing the percentage of performance-based awards, which will now include an award based upon an operating metric. The Compensation Committee approved 2020 awards comprised of service-based RSUs (50%), and PSUs based upon relative total stockholder return (at target, 25%), and operating cash flow (at target, 25%).
38 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 2 Advisory Approval of Our Executive Compensation
Trevor Ness, |
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| Stockholder Feedback | | |
At our Senior Vice President, World Wide Sales and Marketing2016 Business Summary
We are committed to increasing penetration2017 annual meeting of fiber lasers into existing industrial laser applications and capitalizing on growing demand for fiber lasers in non-laser applicationsstockholders, our stockholders overwhelmingly approved our executive compensation structure in a manner that generates future value for our stockholders. IPG continued its net sales and income growth“say-on-pay” advisory vote, voting 98% in 2016, finishing another record year, while we continued to make investments for the future.
In 2016, we:
continued strong sales growth at 12% in 2016 and achieved a four-year compounded annual growth rate of 16%,
used our vertical integration and direct sales model to increase our industry-leading gross margins to 54.9%,
•deepened our penetration in laser cutting and expanded laser welding sales,
•continued to gain sales from gas lasers and other types of solid state lasers and
•introduced new products, systems and accessories.
IPG recorded $1,006.2 million in net sales in 2016, which is the highest level of revenues for any fiscal year in our history. Leverage in our business model contributed to a 8% year-over-growth in diluted earnings per share in 2016.
Our operating income grew 7% in 2016 and achieved its highest levels to date, reaching $364 million compared to $342 million in 2015 and $284 million in 2014.
Our gross margin increased to 54.9% in 2016 from 54.6% in 2015, as a result of increased absorption of overhead offset by increasing depreciation from increased investment in plant and equipment. IPG's gross margins are industry-leading as compared to our laser peers.
We also increased our cash and cash equivalents and short term investments to $831 million at December 31, 2016, compared to $689 million at December 31, 2015, while the Company invested $127 million in property, plant, equipment and technology so that we are well-positioned for future demand growth for our industry-leading products.
For more information about our business, please read "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the SEC on February 27, 2017.
Summary of Executive Compensation Pay Practices
The guiding principlesfavor of our executive compensation structure. As a result of the 2017 vote, the Compensation Committee determined not to change its pay philosophy or practices. Also at our annual meeting in 2017, the advisory proposal to hold “say-on-pay” advisory votes every three years received the greatest amount of votes and, practice continuetherefore, we elected to be pay-for-performance, accountabilitysubmit the advisory “say-on-pay” proposal to our stockholders on a triennial basis. Accordingly, Proposal 2 is the “say-on-pay” vote.
| | Say-on-pay approval
during last
stockholder vote (2017) |
Executive Compensation Best Practices
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| PRACTICES WE EMPLOY | | PRACTICES WE AVOID |
üAlign our NEO Pay with Performance: Strong links of compensation to Company performance and stockholder returns for annual and long term incentives. Annual bonus tied to revenue and net income and long term incentives include performance-based stock units which are earned based upon IPG’s total stockholder return relative to a broad stock market index and stock options which have value only if the stock price increases over the grant date price. üBalance Annual and Long-Term Incentives: Incentive programs provide an appropriate balance of annual and long-term performance, alignmentincentives and include multiple measures of performance. üUse Long-Term Incentives to stockholders'Link Executive Pay to Company Performance: Approximately 74% of NEO (other than the CEO) pay consists of long-term incentives linked to increasing our stock price. CEO receives no equity. üCap Incentive Award Payouts: Annual incentive plan award payouts and certain long-term incentive awards are capped. üMaximize Stockholder Value While Mitigating Risk: Service-based equity awards vest over four years. This incentivizes long-term growth and discourages short-term risk taking. üIndependent Compensation Consultant: The Compensation Committee retains a compensation consultant, who is independent and without conflicts of interest with the Company. üRobust Stock Ownership Requirements: Officers and directors are subject to stock ownership guidelines to further align their interests with stockholder interests. Our NEOs substantially exceed the ownership guidelines. üClawbacks on Executive Compensation: We adopted a compensation recovery policy covering cash and equity. | | ûNo Guaranteed Annual Bonuses: Our annual incentive compensation plan is performance-based and does not include any minimum payout levels. ûNo Retirement Benefits: We have no supplemental executive retirement plans (SERPs) or defined benefit pension plans. ûNo Tax Gross-Ups: We do not provide tax gross reimbursements for change in control payouts or executive perquisites. ûNo Significant Perquisites: We provide limited perquisites to our NEOs. ûHedging of Company Stock is Prohibited. ûNo Severance For “Cause” Terminations. ûNo Single-Trigger Change in Control Provisions. Equity awards for NEOs generally require a “double-trigger” of both a change-in-control and termination of employment for both cash and equity compensation acceleration. ûNo Stock Option Repricing without Stockholder Approval. Our equity plans prohibit repricing underwater stock options. û Pledging of Company stock is limited. |
39
Proposal 2 Advisory Approval of Our Executive Compensation
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| 2019 Compensation of Named Executive Officers |
Our Business and Our Compensation Philosophy
The guiding principles of our executive compensation philosophy and practices continue to be pay-for-performance, accountability for annual and long-term performance, alignment to stockholders’ interests, and providing competitive pay to attract and retain executives. We believe our compensation program strikes the appropriate balance between utilizing responsible, measured pay practices and effectively incentivizing our executives to dedicate themselves fully to value creation for our stockholders.
Our executive compensation program is designed to focus our executive officers on both annual and long-term financial and operational performance without encouraging unnecessary risk. The following graphs show that approximately 22% of the CEO’s total direct compensation and approximately 78% of the average total direct compensation of all of the other NEOs’, as reflected in the 2019 column of the Summary Compensation Table, is at risk.
Our CEO, the Company’s founder, does not receive long-term incentive compensation because of his significant level of common stock ownership which the independent directors believe provides him with sufficient incentives to act in the best long-term interest of our stockholders. As a result, a smaller percentage of his total compensation is performance-based as compared to the chief executives of our peer companies who typically receive additional compensation in the form of substantial long-term incentives.
40 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 2 Advisory Approval of Our Executive Compensation
The PSU awards in the chart below are presented at target based upon grant date fair value. The annual incentive plan amounts are presented based on actual amounts earned under the annual incentive plan for services rendered in 2019.
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| Compensation Element | Objective |
| Base Salary | • Provide a competitive fixed component of cash compensation to attract and retain executives. We believe ourtalented and experienced executives with the knowledge and skills necessary to achieve the Company’s strategic business objectives • The Compensation Committee uses the services of an independent compensation program strikesconsultant to assess the appropriate balance between utilizing responsible, measured pay practicesbase salaries as compared to a competitive target range of the Company’s peer group • The Compensation Committee considers these factors when setting base salaries of the NEOs: scope of the NEO's responsibilities, contributions, skills, knowledge, experience, seniority and effectively incentivizing our executives to dedicate themselves fully to value creation for our stockholders. Executive Compensation Design
Our executive compensation program is designed to focus executive officers on both annual and long-term Company performance
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| CEO* | OTHER NEOs |
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| * CEO receives no equity awards | |
| Annual Incentive Plan | • Offer a variable cash compensation opportunity that may be earned based upon the level of achievement of challenging corporate goals, with an additional compensation opportunity based upon individual performance • Foster a shared commitment among executives through establishment of uniform Company financial and operationalgoals • Award payouts are subject to a cap of 225% of target in a performance without encouraging unnecessary risk. The following graphs show approximately 51 percentperiod |
| CEO | OTHER NEOs |
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| Long-Term Incentives | • Align interests of the Chief Executive Officer's total direct compensation and approximately 76 percent of the average total direct compensation of all of the other Named Executive Officers' compensation, as reflected in the 2016 column of the Summary Compensation Table, is at risk. Our Chief Executive Officer, the Company's founder,our NEOs (other than our CEO, who does not receive long-term incentives because of his significant level of commonincentive awards) and stockholders by motivating executive officers to increase long-term stockholder value
• Service-based equity awards include stock ownership. As a result, a smaller percentage of his total compensation is performance-based as compared to the chief executives of our peer companies who typically receiveoptions and RSUs. They offer certainty and long-term retention while providing additional compensation in the form of long-term incentives. The performance-based stock units in the chart below are presented at targetopportunity based upon grant date fair value.
increased stock price levels. Stock options further align executives with the long-term growth of stockholder value
The following provides details• Performance-based RSUs provide an additional incentive to our NEOs (other than the CEO) and are earned based on the components of our executive compensation program:Company's total stockholder return relative to a broad stock market index | | | | Compensation Element | | Objective | Base salary | • | Provide a competitive fixed component of cash compensation to attract and retain talented and experienced executives with the knowledge and skills necessary to achieve the Company's strategic business objectives. | | • | The Compensation Committee uses the services of an independent compensation consultant to assess the base salaries as compared to a competitive target range of the Company's named peer group. | | • | The Compensation Committee considers these when setting base salaries of the executive officers: scope of the executive's responsibilities, performance, contributions, skills and experience, annual and long-term Company performance.
| Annual• Enhance retention with vesting over four years
| | OTHER NEOs | incentive plan
| • | Offer a variable cash compensation opportunity earned based upon the level of achievement of challenging corporate goals, with additional compensation opportunity based upon individual performance. | | • | Foster a shared commitment among executives through establishment of uniform Company financial goals.
| | • | Award payouts are subject to a cap of 225% of target in a performance period.
| Long-term
incentives
| • | Align interests of our executives and stockholders by motivating executive officers to increase long-term stockholder value. | | • | Service-based equity awards offer certainty and long-term retention while providing additional compensation opportunity based upon increased stock price levels. | | • | Performance-based stock units provide additional incentive to our NEOs and will be earned based on IPG's total stockholder return relative to the Russell 3000 index. | | • | Enhance retention with vesting over four years. | 401(k) Retirement Savings Plan
| • | | Performance
based RSUs | Service based
Equity Award | | | | 401(k)
Retirement
Savings Plan | •Provides participants the opportunity to defer a portion of their compensation and receive a company match of 50% of deferrals subject to a maximum of 6% of eligible compensation. | | • | The plan is available to all eligible U.S. employees of the Company. | Pension Plan | • | We provide no pension plan or deferred compensation plan. | Perquisites | • | Perquisites are limited. |
Base Salary
We provide base salary to our Named Executive Officers and other employees to compensate them for services rendered on a day-to-day basis during the fiscal year. Unlike annual cash incentives and long-term equity incentives, base salary is not subject to performance risk. The Compensation Committee reviews information provided by its compensation consultant and considers the experience, skills, knowledge and responsibilities of the executive and the individual's performance assessment provided by the Chief Executive Officer to assist it in evaluating base salary for each Named Executive Officer. With respect to the Chief Executive Officer, the Compensation Committee additionally considers the performance of the Company as a whole.
In 2016, the Compensation Committee evaluated the base salaries and total cash compensation for the Named Executive Officers with the assistance of Radford. The Compensation Committee reviewed Radford's assessment in connection with positioning the midpoint of the Company's target total cash compensation range near the 65thpercentile of our peer group. Based upon this review, the Compensation Committee approved increases of the Named Executive Officers in the following manner; Dr. Gapontsev received an increase in base salary of 11% bringing his base salary in line with the market 65th percentile of our peer group. In addition, the salary of Dr. Scherbakov was increased from approximately $452,900 to $500,000 bringing his base salary within the competitive range of the target market 65th percentile. Messrs. Mammen and Ness and Dr. Ovtchinnikov also received increases to their base salaries of 3%.
Update 2017. In 2017, the Compensation Committee approved merit increases of 5% to the 2016 base salaries of Mr.Mammen and Dr. Ovtchinnikov, following an assessment of base salaries and total cash compensation conducted by Radford. Mr. Ness’s base salary increased by 8%. The CEO's base salary was increased 13% to $832,000, bringing his base closer to the target market 65th percentile. Likewise, the salary
of Dr. Scherbakov increased from approximately $500,000 to $540,000 in consideration of his additional management responsibilities related to his appointment as Chief Operating Officer in February 2017.
2016 Cash Incentive Awards
To focus each executive officer on the importance of the Company's performance, a significant portion of the individual's potential short-term compensation is in the form of annual cash incentive pay that is tied to the achievement of goals set by the Compensation Committee. Our Named Executive Officers participate in our Senior Executive Annual Incentive Plan (the "AIP") administered by the Compensation Committee. The Compensation Committee determines who is eligible to receive awards under the AIP, defines performance goals and objectives for executives, establishes target awards for each participant for the relevant performance period, and determines the percentage of the target award that should be allocated to the achievement of each of the chosen performance goals in consultation with the Chief Executive Officer with respect to other executive officers. The target award percentages established by the Compensation Committee are chosen with input from the compensation assessment conducted by Radford and the seniority level of the executive.
Consistent with prior years, in 2016 the Compensation Committee identified two financial performance measures: net sales and adjusted EBIT and assigned a 50% weighting factor to each financial performance goal. "Adjusted EBIT" is a performance measure that is equal to our earnings before interest income and expense, income taxes, equity-based compensation expenses and expenses for certain litigation matters approved by the Compensation Committee. Further, the Compensation Committee intentionally focused on net sales growth and pretax profits so that our executive officers would be incentivized to deliver the types of growth that benefit our stockholders, namely increasing sales and profits.
Under the 2016 AIP, the executives could receive cash incentive payments in the table below as a percentage of base salaries based upon achievement of the minimum to maximum objectives for both financial performance measures and for individual performance. If the financial performance exceeds one or more of the maximum objectives, the incentive payments to the executive would increase as determined by linear interpolation, subject to limits on award payouts. Consistent with our pay-for-performance philosophy, no cash incentive payments would be made if the minimum financial objectives established by the Compensation Committee in 2016 were not met. The individual goals and objectives for the Chief Executive Officer include operational and strategic targets determined by the independent directors.
The overall target awards in the table below are a percentage of the respective base salaries. The company-wide financial objectives are the same for all executive officers in order to foster a shared commitment among executives. | | | | | | | | | | | Name | | Target as % of Base Salary | Financial Performance Minimum | Financial Performance Maximum | Individual Performance Maximum | Maximum Award Payout | Target Award ($)(1) | Actual Payout ($) | | Valentin P. Gapontsev, Ph.D. | | 100% | 18.8% | 112.5% | 25.00% | 225% | 735,000 | 709,044 | | Timothy P.V. Mammen | | 75% | 14.0% | 84.0% | 19.00% | 225% | 327,375 | 315,694 | | Eugene Scherbakov, Ph.D. | | 75% | 14.0% | 84.0% | 19.00% | 225% | 375,000 | 369,264 | | Alexander Ovtchinnikov, Ph.D. | | 67% | 12.5% | 75.0% | 16.70% | 225% | 265,195 | 255,706 | | Trevor Ness | | 75% | 14.0% | 84.0% | 19.00% | 225% | 285,300 | 275,121 |
| | (1) | Target Awards include both financial and individual performance targets. |
While objectives were intended to be achievable by the Company, a maximum bonus would require very high levels of Company performance. The Compensation Committee adjusted the targets in 2016 to reflect the acquisition of Menara Networks, Inc. in May 2016 and to exclude the effect of an impairment charge for a long-lived asset. The Compensation Committee's adjusted minimum and maximum targets for net sales were $873 million and $1,181 million, respectively, representing an increase of 16.7% for both the minimum and maximum targets from the prior year. The minimum and maximum targets for Adjusted EBIT were set from $314 million to $473 million, representing an increase to the minimum and maximum targets of 15.2% and 15.5%, respectively. The adjusted target levels for net sales and Adjusted EBIT were $1,027 million and $393 million, respectively.
During 2016, the Company achieved net sales of $1,006 million and Adjusted EBIT of $394 million. These results represent a 12% increase in net sales and a 9% increase in Adjusted EBIT over 2015 levels. However, the Company's financial performance for 2016 was slightly below the net sales target and was slightly above the Adjusted EBIT target. The independent directors set the individual goals and objectives for the Chief Executive Officer in 2016. The Compensation Committee reviewed the Chief Executive Officer's attainment of the goals and objectives (with input from the independent directors) in early 2017 and awarded him 25.0% of his base salary for his individual performance during 2016. Also, the Compensation Committee, with input from the Chief Executive Officer, awarded Dr. Scherbakov and Messrs. Mammen and Ness 19.0%, and Dr. Ovtchinnikov 16.7%, of their respective base salaries for their individual performances in 2016.
The Compensation Committee may award discretionary bonuses to executives for exceptional performance. For 2016, the Compensation Committee did not exercise this right.
Equity-Based Incentives Granted in 2016
The goal of our equity-based award program is to provide employees and executives with the perspective of an owner with a long-term financial stake in our success, further increasing alignment with stockholders. Our equity-based incentives align the interests of our executives and stockholders by motivating executive officers to increase long-term stockholder value.
In 2016, our equity-based award program for executives included service-based stock options (33%), service-based restricted stock units (33%), and performance-based stock units (at target, 33%). These grants reflected a 2015 review by our Compensation Committee with the assistance of Radford of grant practices at peer companies. The value of stock options, restricted stock units and performance-based stock units are tied to the Company stock price which links pay to performance.
Consistent with our pay-for-performance philosophy, the service-based stock option awards have no value unless our stock price increases after the grant date. Another reason why we use service-based stock options is because it fosters an innovative environment focused on long-term growth of the Company and stockholder value. With respect to the performance-based stock units, the Compensation Committee decided to measure performance of the Company's stock as compared to the Russell 3000 Index, which includes the Company. The addition of performance-based stock units in 2015 to the equity mix increases the portion of the executives' compensation that is based upon the Company's performance. Also, it directly aligns executives' compensation with stockholders interest because the number of shares earned depends upon performance against the Russell 3000 Index and the value of the shares fluctuates based on the stock price. For each 1% that IPG's common stock exceeds the performance of the Russell 3000 Index for the trailing 60 trading days from the end of the performance measurement period (March 1, 2019) against the comparable period from the beginning of the performance measurement period (March 1, 2016), the grant recipient would receive a 2% increase in the number of shares above target (up to a maximum cap of 200% of the target award). For each 1% below the Russell 3000 Index's performance, the grant recipient would receive a 2% decrease in the number of shares (down to zero). The vesting date is March 1, 2020, should any performance-based stock units vest at all.
In 2016, the Compensation Committee targeted granting equity compensation near the 65th percentile of the target compensation of our peer group, balancing the perspective of delivering competitive compensation based upon Black-Scholes option pricing values. The Compensation Committee analyzed several aspects of the equity grant program, including (i) the "in the money" value, the degree to which executives have incentives to remain employed by the Company through unvested option values, and (ii) the aggregate equity usage in terms of (a) annual usage, typically called burn rate, and (b) cumulative equity delivery, typically called overhang, to determine the dilutive effect of equity awards on investors. The majority of outstanding equity award holdings of the executives were allocated to unvested shares in the aggregate, and all such executives had a minimum of four years' worth of annual award values in unvested equity value. Based upon this information, Radford advised the Compensation Committee that our equity program provides strong retention incentives.
Since the Company's initial public offering in 2006, the Compensation Committee has not granted the Chief Executive Officer any equity compensation awards. As the Company's founder and the beneficial
owner of a large number of our shares, he has the perspective of an owner with a significant financial stake in the Company's success. This practice has resulted in substantially lower total compensation earned by our Chief Executive Officer as compared to the chief executives of our named peers despite our outstanding business and earnings growth. In addition, this practice results in a lower compensation expense and lower equity burn rate for the Company.
The table below provides information on grants of service-based stock options, service-based restricted stock units and performance-based stock units to the Named Executive Officers in 2016. All awards in the table below vest on March 1, 2020.
| | | | | | | | | | | | | | | Equity-Based Incentives Granted in 2016 | | | | | Name | | Service-Based Stock Options (#) | | Exercise Price ($) | | Service-Based Restricted Stock Units (#) | | Performance-Based Stock Units (at Target) (#) | | Performance-Based Stock Units Range (Based upon Achievement) (#) | | Valentin P. Gapontsev, Ph.D. | | — | | — | | — | | — | | — | | Timothy P.V. Mammen | | 7,592 | | 81.89 | | 3,796 | | 3,796 | | 0 - 7,592 | | Eugene Scherbakov, Ph.D. | | 7,592 | | 81.89 | | 3,796 | | 3,796 | | 0 - 7,592 | | Alexander Ovtchinnikov, Ph.D. | | 6,394 | | 81.89 | | 3,197 | | 3,197 | | 0 - 6,394 | | Trevor Ness | | 6,227 | | 81.89 | | 3,114 | | 3,114 | | 0 - 6,228 |
The Compensation Committee believes that four-year vesting for annual awards provides a strong incentive for executives to remain employed by us and to focus on increasing our financial performance over the long-term, while discouraging excessive short-term risk taking. The service-based restricted stock units granted in 2016 may be entitled to dividends, should any be paid, at the discretion of the Compensation Committee. Any dividends on shares underlying the performance-based stock units,s do not vest until the performance-based stock units,s vest.
2017 Update. The Compensation Committee approved the grant of service-based stock options, service-based restricted stock units and performance-based stock units to the Named Executive Officers in February 2017. All equity awards in the table below vest according to the revised vesting schedule approved by the Compensation Committee: stock options and service-based restricted stock units vest 25% on each anniversary of March 1, 2017 and performance-based stock units vest on March 1, 2020, the last day of the performance period which is three years after the start of the performance period on March 1, 2017.
| | | | | | | | | | | | | | | Equity-Based Incentives Granted in 2017 | | | | | Name | | Service-Based Stock Options (#) | | Exercise Price ($) | | Service-Based Restricted Stock Units (#) | | Performance-Based Stock Units (at Target) (#) | | Performance-Based Stock Units Range (Based upon Achievement) (#) | | Valentin P. Gapontsev, Ph.D. | | — | | — | | — | | — | | — | | Timothy P.V. Mammen | | 8,799 | | 119.50 | | 2,876 | | 2,876 | | 0 - 5,752 | | Eugene Scherbakov, Ph.D. | | 10,367 | | 119.50 | | 3,388 | | 3,388 | | 0 - 6,776 | | Alexander Ovtchinnikov, Ph.D. | | 7,119 | | 119.50 | | 2,326 | | 2,326 | | 0 - 4,652 | | Trevor Ness | | 7,871 | | 119.50 | | 2,572 | | 2,572 | | 0 - 5,144 |
All Other Compensation
Severance Benefits.The severance benefits we offer assist us in recruiting and retaining talented individuals and are consistent with the range of severance benefits offered by our peer group. The severance provisions of our employment agreements are summarized below in the section titled "Potential Payments upon Termination or Change in Control."
Retirement Benefits.We do not offer an executive retirement plan or a non-qualified deferred compensation plan. Executive officers in the United States are eligible to participate in our 401(k) retirement savings plan on the same terms as all other U.S. employees. Our 401(k) retirement savings plan is a tax-qualified plan and therefore is subject to certain Internal Revenue Code limitations on the dollar amounts of deferrals and Company contributions that can be made to plan accounts. These limitations apply to our more highly-compensated employees (including the Named Executive Officers). We made matching contributions to our employees at a rate of 50% of deferrals subject to a maximum of 6% of eligible compensation under the 401(k) retirement savings plan, including the Named Executive Officers, who participate in the plan as set forth in the Summary Compensation Table. Our executives outside of the United States participate in government-sponsored retirement programs.
Personal Benefits.• Our executives are eligible to participate in employee benefit plans, including medical, dental, life and disability insurance, vacation and employee stock purchase plans. These plans generally areThe plan is available to all salariedeligible U.S. employees
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| Pension Plan | • We provide no pension plan or deferred compensation plan |
| Perquisites | • Perquisites are limited |
Base Salary
We provide base salary to our NEOs and other employees to compensate them for services rendered on a day-to-day basis during the fiscal year. Unlike annual cash incentives and long-term equity incentives, base salary is not subject to performance risk. The Compensation Committee reviews data provided by its compensation consultant and considers the factors when setting base salaries of the NEOs: experience, skills, seniority, knowledge and responsibilities of the executive and the individual’s performance assessment provided by the CEO. With respect to the CEO, the Compensation Committee additionally considers the performance of the Company as a whole in its recommendation to the independent directors, who set CEO compensation.
41
Proposal 2 Advisory Approval of Our Executive Compensation
In 2019, the Compensation Committee evaluated the base salaries and total cash compensation for the NEOs with the assistance of Radford, its independent compensation consultant. Due to the challenging macroeconomic and foreign trade conditions beginning in 2018 and continuing into 2019, the independent directors accepted the Compensation Committee’s recommendation to not increase the base salary of the CEO and the Compensation Committee concurred with the CEO’s recommendation to not increase the base salaries of the other NEOs in 2019.
Annual Incentives
To focus each NEO on the importance of the Company’s performance, a significant portion of the individual’s potential short-term compensation is in the form of annual cash incentive pay that is tied to the achievement of goals set by the Compensation Committee. Our NEOs participate in our Senior Executive Annual Incentive Plan (the “AIP”) administered by the Compensation Committee. The Compensation Committee determines who is eligible to receive awards under the AIP, defines performance goals and objectives for executives, establishes target awards for each participant for the relevant performance period, and determines the percentage of the target award that should be allocated to the achievement of each of the chosen performance goals in consultation with the CEO with respect to other executives.
ILLUSTRATION OF IPG’S ANNUAL INCENTIVE PLAN (AIP)
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(1) | Non-GAAP “Adjusted EBIT” is an internally defined performance measure that is derived from GAAP net income by adding back the provision for income taxes, interest expense and do not discriminate in favorstock-based compensation expenses and deducting interest income. |
Under the 2019 AIP target approved by the Compensation Committee in February 2019, the NEOs could receive cash incentive payments as a percentage of their base salaries based upon Company performance relative to the financial performance goals. Under the 2019 AIP, if a performance goal is met at the target level as determined by the Compensation Committee, the target bonus is paid for that goal. Performance above target results in a payout of a higher percentage of salary, up to 200% of the NEO’s target cash bonus. Performance below target results in a lower bonus payout for that goal if a minimum threshold is met, with 18.75% of the NEO’s target cash bonus as the minimum in such circumstance, or no payout if the minimum threshold is not met. At target, the financial performance payout accounts for 75% of the overall target award. The CEO and COO can earn up to 25% of their respective target awards based upon goals and objectives determined by the independent directors. For 2019, targets included strategic planning and execution, executive development, inventory management and business growth drivers. The other NEOs also are eligible for payouts up to 25% of the target award based on their individual performance and other factors the Compensation Committee deems relevant.
42 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 2 Advisory Approval of Our Executive Compensation
2019 AIP FINANCIAL PERFORMANCE TARGETS
($ in millions)
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| | Threshold
18.75% Payout | Target
100% Payout | Maximum
200% Payout | Component
Weighing (%) | Financial Performance Award Earned (%) |
| Revenue | | 37.5 | 0 |
| Adjusted EBIT | | 37.5 | 0 |
Revenue in 2019 was $1,315 million and adjusted EBIT in 2019 was $312 million, both of which were below the threshold performance required for a payout based on financial performance. At the beginning of 2019, the Compensation Committee set aggressive goals for management based upon improving business conditions seen in late 2018 and early 2019. However, the expected improvements did not materialize as the Company faced worsening conditions from escalations in the U.S.-China trade war in the second quarter, including escalating tariffs and increased customer uncertainty. Continuing macroeconomic challenges in 2019 affected capital equipment purchases in Europe and China, our two largest regions. The impact of increased price competition together with lower industrial machinery purchasing activity adversely affected both revenues and earnings. Each NEO earned the full payouts with respect to the individual performance component as they took undertook operational improvements to reduce expenses and increase cash flow as increased competition and the demand downturn continued. NEOs also guided continued investments in and development of new products.
43
Proposal 2 Advisory Approval of Our Executive Compensation
The table below shows, for each NEO, the total target annual incentive award, the threshold, target and maximum payouts with respect to financial performance, the maximum payout with respect to individual performance and actual bonus payouts for 2019.
($ in thousands)
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| Named Executive Officer | Target
as a % of
Base Salary(1) | Target Award(1) | Financial Performance | Individual Performance Maximum | Actual Award |
| Threshold | Target | Maximum |
| Valentin P. Gapontsev | 110% | $1,023 | | $256 | $256 |
| Eugene A. Scherbakov | 100% | $679 | | $154 | $154 |
| Timothy P.V. Mammen | 80% | $385 | | $96 | $96 |
| Angelo P. Lopresti | 80% | $350 | | $88 | $88 |
| Alexander Ovtchinnikov | 80% | $350 | | $88 | $88 |
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(1) | Target award includes both financial (weighted at 75%) and individual performance (weighted at 25%) targets. Maximum award from all performance elements limited to 225% of executive officers. Benefits are intendedtarget. As noted above, the NEOs received payouts only with respect to be competitive with the overall market in order to facilitate attraction and retention of high-quality employees. The Compensation Committee compared the Company's executive perquisites against the 2016 peer group and made no changes . The Company provides the use of a corporate aircraft to the Chief Executive Officer and other executivesindividual performance for business travel integral to the performance of their duties. Executives are encouraged to use the aircraft for efficiency, safety and security. However, executives are not allowed to use the aircraft for unreimbursed personal use but family and other guests may accompany executives on the aircraft for business travel. The Company provides the Chief Executive Officer with a car and driver in the United States so that he may use his travel time for company purposes. The Company also provides Dr. Scherbakov use of an automobile, as it does for other high-ranking employees in Germany.2019. |
None of the NEOs' target bonus percentages were increased in 2019 or 2020.
Long-Term Incentives
The goal of our equity-based award program is to provide employees and executives with the perspective of an owner with a long-term financial stake in our success, further increasing alignment with stockholders. Our equity-based incentives align the interests of our executives and stockholders by motivating executives to increase long-term stockholder value.
In 2019, our equity-based award program for our NEOs (other than our CEO) included service-based stock options, service-based RSUs, and PSUs, with each award type representing approximately one-third of the overall 2019 long-term incentive award opportunity (at target for the PSUs). The type and proportion of the equity grants reflected a 2019 review by our Compensation Committee with the assistance of Radford of grant practices at peer companies. The value of stock options, RSUs and PSUs are tied to the Company's stock price which links pay to performance.
Consistent with our pay-for-performance philosophy, the service-based stock option awards have no value unless our stock price increases after the grant date.
The Compensation Committee believes that vesting of awards of service-based options and RSUs over four years provides a strong incentive for executives to remain employed by us and to focus on increasing our financial performance over the long-term, while discouraging excessive short-term risk taking. The Compensation Committee believes that PSUs should vest over three years, rather than four years, because having a four-year performance period would reduce the utility of the performance award and not properly align pay with performance. Service-based RSUs granted in 2019 may be entitled to dividends, should any be paid, at the discretion of the Compensation Committee. Any dividends on shares underlying the PSUs do not vest until the PSUs vest.
44 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 2 Advisory Approval of Our Executive Compensation
In 2019, the Compensation Committee used competitive market data from the total compensation study of peer companies, balancing the perspective of delivering competitive compensation based upon Black-Scholes option pricing values and Monte Carlo simulations for PSUs. The Compensation Committee analyzed several aspects of the equity grant program, including (i) the “in the money” value, the degree to which executives have incentives to remain employed by the Company through unvested option values, and (ii) the aggregate equity usage in terms of (a) annual usage, typically called burn rate, and (b) cumulative equity delivery, typically called overhang, to determine the dilutive effect of equity awards on investors. The majority of outstanding equity award holdings of the executives were allocated to unvested shares in the aggregate, and all such executives had a minimum of two years’ worth of annual award values in unvested equity value. Based upon this information, Radford advised the Compensation Committee that our equity program provides strong retention incentives.
Since the Company’s initial public offering in 2006, the Compensation Committee has not granted the CEO any equity compensation awards. As the Company’s founder and the beneficial owner of a large number of our shares, he has the perspective of an owner with a significant financial stake in the Company’s success and a long-term outlook. This practice has resulted in substantially lower total compensation earned by our CEO as compared to the chief executives of our named peers despite our outstanding business and earnings growth over the long term. In addition, this practice results in a lower compensation expense and lower equity burn rate for the Company.
For the 2019 PSU awards, the Compensation Committee changed the index against which the relative performance of the Company’s stock is measured. The Compensation Committee considered the analysis of Radford with respect to the current peer index, the Russell 3000, and other peer index alternatives. The Committee selected the S&P Composite 1500 Electronic Equipment, Instrument and Components Index (“S&P Electronics Index”) as the 2019 relative stock index for the PSUs in part because it has a higher overall correlation among constituents with the Company, and the Company’s market cap, revenue and volatility are in line with the range of such measures in the index. IPG is a member of the index. This directly aligns executives’ compensation with stockholders interest because the number of shares earned depends upon performance against the S&P Electronics Index and the value of the shares fluctuates based on the stock price. For each 1% by which the Company's common stock exceeds the performance of the S&P Electronics Index for the trailing 60 trading days from the end of the performance measurement period (March 1, 2022) against the comparable period from the beginning of the performance measurement period (March 1, 2019), the grant recipient would receive a 2% increase in the number of shares above target (up to a maximum share cap of 200% of the target award).
For each 1% by which the Company's common stock falls below the S&P Electronics Index’s performance, the grant recipient would receive a 2% decrease in the number of shares (down to zero). In addition, NEOs cannot receive a number of shares that exceeds 600% of the value of the target award on the date of grant.
The table below provides information on grants of service-based stock options, service-based RSUs and PSUs to the NEOs in 2019. All awards in the table below vest 25% on each anniversary of March 1, 2019, except for the PSUs, which vest on March 1, 2022, the last day of the three-year performance measurement period.
|
| | | | | | | | | | |
| Name | Service-Based
Stock Options
(#) |
| Exercise Price
($) |
| Service-Based
Restricted
Stock Units
(#) |
| Performance-
Based Stock Units
(at Target)
(#) |
| Performance-
Based Stock Units
Range (Based
upon Achievement)
(#) |
|
| Valentin P. Gapontsev | — |
| — |
| — |
| — |
| — |
|
| Eugene A. Scherbakov | 17,908 |
| 154.88 |
| 6,214 |
| 6,214 |
| 0 - 12,428 |
|
| Timothy P.V. Mammen | 8,654 |
| 154.88 |
| 3,003 |
| 3,003 |
| 0 - 6,006 |
|
| Angelo P. Lopresti | 7,540 |
| 154.88 |
| 2,616 |
| 2,616 |
| 0 - 5,232 |
|
| Alexander Ovtchinnikov | 7,472 |
| 154.88 |
| 2,592 |
| 2,592 |
| 0 - 5,184 |
|
45
Proposal 2 Advisory Approval of Our Executive Compensation
Actual Performance of Performance-Based Stock Units. The table below contains information concerning award performance for PSUs awarded from 2016 to 2019.
|
| | | | | | |
| | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 |
| 2016 PSUs | | | | | | |
Target TSR Index (Russell 3000® Index) | | 59.7% | | | | |
| IPG Performance | | 200% | | | | |
| Final 2016 Payout | | 125% | | | | |
| | | | | |
| 2017 PSUs | | | | | | |
Target TSR Index (Russell 3000® Index) | | | 47.9% | | | |
| IPG Performance | | | 31.8% | | | |
| Final 2017 Payout | | | 67.7% | | | |
| | | | | |
| 2018 PSUs | | | | | | |
Target TSR Index (Russell 3000® Index) | | | | TBD | | |
| IPG Performance and Payout | | | | TBD | | |
| | | | | |
| 2019 PSUs | | | | | | |
| Target TSR Index (S&P Electronics Index) | | | | | TBD | |
| IPG Performance and Payout | | | | | TBD | |
| | | | | |
Other Compensation
Severance Benefits.The severance benefits that we offer to our NEOs assist us in recruiting and retaining talented individuals and are consistent with the range of severance benefits offered by our peer group. The severance provisions of our NEO employment agreements are summarized in Potential Payments upon Termination or Change in Control below.
Retirement Benefits. We do not offer an executive retirement plan or a non-qualified deferred compensation plan. Executives in the United States are eligible to participate in our 401(k) retirement savings plan on the same terms as all other U.S. employees. Our 401(k) retirement savings plan is a tax-qualified plan and therefore is subject to certain Internal Revenue Code limitations on the dollar amounts of deferrals and company contributions that can be made to plan accounts. These limitations apply to our more highly-compensated employees (including the NEOs). We made matching contributions to our employees at a rate of 50% of deferrals subject to a maximum of 6% of eligible compensation under the 401(k) retirement savings plan, including the NEOs, who participate in the plan as set forth in the Summary Compensation Table. Dr. Scherbakov, who resides in Germany, participates in a German government-sponsored retirement program.
46 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 2 Advisory Approval of Our Executive Compensation
Personal Benefits. Our executives are eligible to participate in employee benefit plans, including medical, dental, life and disability insurance and vacation plans as well as an employee stock purchase plan, which is intended to be qualified under Section 423 of the Code. The employee stock purchase plan allows participants to purchase Company shares at a price equal to 85% of the lesser of the fair market value at the first day or last day of the six month offering period, subject to limitations on the amount of shares. These plans generally are available to all salaried employees and do not discriminate in favor of executives. Benefits are intended to be competitive with the overall market in order to facilitate attraction and retention of high-quality employees.
The Compensation Committee compared the Company’s executive perquisites policies against the 2019 peer group and made no changes. The Company provides the use of a corporate aircraft to the CEO and other executives for business travel integral to the performance of their duties. Executives are encouraged to use the aircraft for efficiency, safety and security. However, executives are not allowed to use the aircraft for personal use that has not been paid for, except that family and other guests may accompany executives on the aircraft for business travel. The Company provides the CEO with a car and driver in the United States so that he may use his travel time for company purposes. The Company also provides Dr. Scherbakov use of an automobile, as it does for other high-ranking employees in Germany.
Executive Compensation Decision-Making
Role of Compensation Committee
The Compensation Committee determines, approves and administers the compensation programs for our executive officers, including our Named Executive Officers.NEOs. The Compensation Committee recommends to the independent directors the CEO’s annual base salary, annual incentive opportunity and long-term incentive opportunity. The independent directors approve the CEO’s compensation and our Compensation Committee approves the compensation for other executive officers in consultation with our CEO. Our Compensation Committee is also responsible for making recommendations to the Board with respect to the adoption of equity plans and certain other benefit plans. The Compensation Committee and the independent directors meet in executive decisions when determining executive compensation.
The Compensation Committee may delegate authority whenever it deems appropriate. In 2016,2019, the Compensation Committee delegated authority to grant equity awards for non-executive officersnon-executives to the Chief Executive OfficerCEO, subject to certain conditions, including amounts of awards and review of awards by the Compensation Committee.
Our Compensation Committee'sCommittee’s policy is to set executive officer pay in accordance with the objectives of the Company'sCompany’s compensation programs as described above. In the Compensation Committee'sCommittee’s view, the Company'sCompany’s executive compensation program provides an overall level of compensation opportunity that is competitive with peer companies. Actual compensation levels may be greater or less than target compensation levels provided by similar companies based upon short-termannual and long-term Company performance, as well as individual performance, contributions, skills, seniority, knowledge, experience and responsibilities.
Role of Management
The Chief Executive OfficerCEO participates in the establishment of the compensation targetslevels and payout levelspayouts for theindividual performance for other Named Executive Officers.NEOs. He assesses the performance forof all Named Executive OfficersNEOs and recommends to the Compensation Committee the overall levels of achievement, and personal performance in the year. Upon request, Named Executive Officersthe NEOs provide supplemental material to the Compensation Committee to assist in the determination and implementation of compensation, policies and practices. The Chief Executive OfficerCEO is not involved indecisionsin decisions regarding the setting of any component of his
compensation. The Chief Executive OfficerCEO and other members of senior management attend Compensation Committee meetings at the invitation of the Compensation Committee.
Role of Independent Consultant
The Compensation Committee engaged Radford, an independent compensation consultant, to conduct a comprehensive review and analysis of our executive and non-employee director compensation programs and to make recommendations for compensation related to 2016.2019. The consultation included non-executive compensation data and valuation services for equity incentives. Radford’s parent company, Aon Hewitt, does not perform any other work for the Company. The Compensation Committee reviews the independence of Radford in light of SEC rules and NASDAQNasdaq listing standards regarding compensation consultants. The Compensation Committee believes that there were no actual or potential conflicts of interest with Radford in 2016.2019.
47
Proposal 2 Advisory Approval of Our Executive Compensation
Pay Positioning Strategy and Peer Group
In 2016,Consistent with prior years, in 2019 the midpoint of the Company's target total cash compensation range was adjusted to near the 65thpercentile. The Compensation Committee also increasedused competitive compensation data from the long-term incentive range to near the 65th percentile as a result of management’s strong performance in 2016 and also to align the long-term incentive range with the market.
These adjustments have positioned our targetedannual total compensation competitively within ourstudy of peer group. An individual's actualcompanies to inform its decisions about overall compensation may fall below or aboveopportunities and specific compensation elements. Additionally, the target positions based onCommittee used multiple reference points when establishing targeted compensation levels. Within the individual's experience, seniority, skills, knowledge, performance, responsibilities and contributions as well ascomparative framework, the Company's performance. These factors are weighedprimary data was the named peer group of specific peers selected by the Compensation Committee and the secondary data was broader, size-appropriate comparisons in itsthe high technology industry using Radford High Technology Survey Data. The Committee does not benchmark specific compensation elements or total compensation to any specific percentile relative to the peer companies or the broader United States market. Instead, the Committee applies judgment and nodiscretion in establishing targeted pay levels, taking into account not only competitive market data, but also factors such as Company, business and individual performance, scope of responsibility, critical needs and skill sets, leadership potential and succession planning. No single factor takes precedence over othersany other, nor is any formula used in making these decisions.
In analyzing our executive compensation program relative to this target market positioning, the Compensation Committee utilizes a comparative analysis of the compensation of our executive officers measured against a group ofThe peer companies selected by the Compensation Committee. The peer companiesCommittee are companies that operate in the laser sourcesemiconductor equipment and photonics industry, as well as a broader groupelectronic manufacturing industries, and are comparable in terms of technology companies of comparable sizerevenue, market capitalization and complexity that have similar growth rates and international scopes.headcount.
For 2016,2019, the peer companies were:
|
| | |
| | |
Analogic Corporation | Arista Networks, Inc. | Barnes Group, Inc. | | Brooks Automation, Inc.
Cognex Corporation |
Cognex Corporation | | |
| Coherent, Inc. | Dolby Laboratories, Inc. | Diodes,Donaldson Company, Inc. |
| | |
| Entegris, Inc. | | FEI Company | | FLIR Systems, Inc. |
| Graco, Inc. |
| | | |
| IDEX Corporation | II-VI Incorporated | ITT, Inc. |
| | |
| MKS Instruments, Inc. |
OSI Systems, Inc. | | National Instruments, Inc. | | Nordson Corporation |
Rofin-Sinar | | |
| Teradyne, Inc. | Trimble Navigation Limited | Waters Corporation |
| | |
| Zebra Technologies, Inc. | | Teradyne, Inc. |
| | Zebra Technologies, Inc. |
The Compensation Committee reviews this peer group annually with input from Radford to ensure that the comparisons are meaningful. In this review, the Compensation Committee considers several factors in developing a peer group: it considers the current peer group to determine appropriateness, the peers used by institutional governance advisors, the companies that list our company as a peer to understand crossover peers and broader research based upon established selection criteria to identify potential future peers. The Committee then develops criteria for business sector, revenue, market capitalization revenue and headcount. Radford also supplements its peer analysis with the data from a broader list of high-technology public company participants in the AON Radford Executive Technology Survey targeting technology companies with comparable revenue levels. Companies that are no longer publicly traded have beenare omitted from the peer group. Based upon the process and applying the criteria above, the Compensation Committee (i) added Barnes Group, Inc., OSI Systems, Inc., National Instruments, Inc., Nordson Corporationapplied the methodology above and Zebra Technologies, Inc. todetermined the peer group and (ii) removed Chart Industries, Inc., Newport Corporation, RBC Bearings Inc., Riverbed Technology, Inc. and Veeco Instruments, Inc. from the peer group.approved for 2018 continued to be appropriate for 2019.
38
48 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 2 Advisory Approval of Our Executive Compensation
COMPANY VS. PEER GROUP
2020 Update.For 20172020 compensation determinations, the Compensation Committee appliedreviewed the methodology aboveanalysis from Radford regarding the Company’s peer group. Radford performed an analysis of similarly-situated public companies, supplemented the peer group with published survey data providing a broad market representation of companies and removed Analogic Corporation, Brooks Automation,deeper position reporting, as well as set parameters for the peer group study. For 2020, the analysis by Radford proposed adding Watts Water Technologies. Inc. (industrial machining) and Lumentum Holdings Inc. (communications networks and lasers), Diodes, Inc., FEI Company and Rofin-Sinarremoving Zebra Technologies Inc.(electronics equipment and instruments) and Arista Networks (communications networks) because such peers fell below the targeted scope of one or more of market values, revenues and headcount or were acquired. Additionally, thetheir different business focuses. The Compensation Committee added Dolby Laboratories, Inc., Fabrinet, IDEX Corporation, ITT, Inc. and Trimble Navigation Limitedapproved the proposed changes to the peer group for 2017.2020 compensation determinations.
Other Factors Affecting Compensation
Tax Deductibility under Section 162(m). Section 162(m) of the Internal Revenue Code ("(“Section 162(m)"”), limits the deductibility for federal income tax purposes of certain compensation paid in any year by a publicly held corporation to its chief executive officer“covered employees” as defined by Section 162(m) (generally, our current and its three other most highly compensated officers other than its chief financial officerformer NEOs) to $1 million per executive (the "$“$1 million cap"cap”). ThePrior to the enactment of the Tax Cuts and Jobs Act (“TCJA”), Section 162(m) provided an exception from this deduction limitation for certain forms of “performance-based compensation,” which included annual incentive pa youts, the gain recognized by NEOs upon the exercise of stock options and the income recognized on the vesting of performance share awards. Due to the TCJA, the “performance-based” compensation exception to the $1 million cap does not apply to "performance-based" compensation as defined under Section 162(m). The Compensation Committee's policy with respect to Section 162(m)for tax years after 2017, unless certain limited transition relief is to consider the tax deductibility of awards as a factor in the compensation setting process while providing our executive officers with appropriate rewards for their performance.met. The Compensation Committee retains the discretion to providegrant or pay compensation that may exceedexceeds the $1 million cap or may not qualify for the performance-based compensation exception to Section 162(m). The Compensation Committee believes it is appropriate to retain the flexibility to authorize payments of compensation that may not qualify for deductibility if, in the Compensation Committee’s judgment, it is in the Company’s best interest to do so. In the past, the Compensation Committee generally sought to structure performance-based compensation for our covered employees, and to undertake the required ministerial actions, in a manner that complies with Section 162(m) in order to provide for the deductibility of such compensation to the extent possible. We generally will continue to emphasize performance-based compensation, even though it may no longer be deductible.
Accounting Considerations. We consider the accounting implications of our executive compensation program. In addition, accounting treatment is just one of many factors impacting plan design and pay determinations. Our executive compensation program is designed to achieve a favorable accounting and tax treatment as long as doing so does not conflict with the intended plan design or program objectives.
49
Proposal 2 Advisory Approval of Our Executive Compensation
Compensation Risk
Management conducts an annual risk assessment of the Company'sCompany’s compensation policies and practices for all employees, including non-executive officers,non-executives, and reports its findings to the Compensation Committee. In 2016,2019, management concluded that the Company'sCompany’s compensation policies and practices are balanced and do not motivate imprudent risk taking. Management believes that IPG’sthe Company's compensation policies do not create risks that are reasonably likely to have a material adverse effect on IPG.the Company.
In reaching this conclusion, they considered the following factors:
our compensation program is designed to provide a mix of both fixed and variable incentive compensation,compensation;
our senior executives are subject to stock ownership guidelines, which we believe incentivize our executives to consider the long-term interests of the Company and our stockholders and discourage excessive risk-taking that could negatively impact our stock price andprice;
our senior executives are subject to compensation recovery policy, which discourages excessive risk-taking that could negatively affect our stock price;
our incentive compensation programs are designed with vesting terms that are relatively consistent, spread out over several years, and do not contain steep payout "cliffs"“cliffs” that might encourage short-term business decisions in order to meet a vesting or payout threshold.threshold; and
our senior executive incentive compensation program caps the amounts that may be paid for performance above target level.
Other Policies
Anti-Hedging and Limitations on Pledging of Company Stock.The Board adopted policies prohibiting hedging transactions and limiting the pledging of our common stock. Under our insider trading policy, no director or employee may engage in shorting shares of our common stock or any type of securities that we may issue, or buying or selling puts, calls or derivatives related to our common stock. A director or officer of the Company may not pledge shares constituting more than 20% of his or her total stock ownership. Pledges of shares constituting 20% or less of total stock ownership are subject to certain conditions.
Stock Ownership Guidelines.The Board adopted stock ownership guidelines to closely align the interests of our executive officersexecutives with those of our long-term stockholders. Under the guidelines, the Chief Executive OfficerCEO is expected to maintain a minimum investment on our common stock of five times his annual salary and other senior executive officersexecutives are expected to maintain a minimum investment on our common stock of the lesser of 5,000 shares or one times their respective annual salaries. All of our senior executive officersexecutives substantially exceed the ownership requirements under our stock ownership guidelines. These ownership levels are to be achieved no later than four years after the election as an executive officer, except that prior to such time the officer is expected to retain a certain portion of stock issued upon exercise
of stock options or vesting of restricted stock awards until the minimum ownership levels are attained. For more information, including recent updates to these guidelines, see "Corporate GovernanceProposal 1 - Director Compensation - Director and Executive Officer Stock Ownership Guidelines."
Clawback Policies.In 2015, the Compensation Committee approved a compensation recovery policy that allows the Company to recapture cash and equity performance-based compensation from executives if the amount of the award was based upon achieving certain financial results that were later restated due to the participant'sparticipant’s misconduct. In addition, all equity awarded to employees since 2007 contain a provision under which employees may be required to forfeit equity awards or profit from equity awards if they engage in certain conduct, including competing against the Company, disclosing confidential information, or soliciting its employees or customers.
40
50 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Executive Compensation Tables
EXECUTIVE COMPENSATION TABLES |
|
| Executive Compensation Tables |
Summary Compensation Table
The following table provides information regarding compensation earned by our Chief Executive Officer, our Chief Financial Officer and our three other most highly compensated executives for the fiscal years indicated below:
|
| | | | | | | | | | | | | | | | |
| Name and Principal Position | | Year | | Salary ($)(1) | | Bonus ($) | | Stock Awards ($)(2) | | Option Awards ($)(2) | | Non-Equity Incentive Plan Compensation ($)(3) | | All Other Compensation ($)(4) | | Total ($) |
| Valentin P. Gapontsev, Ph.D., Chief Executive Officer and Chairman (5) | | 2016 | | 735,400 | | — | | — | | — | | 709,044 | | 36,953 | | 1,481,397 |
| 2015 | | 687,981 | | — | | — | | — | | 713,582 | | 11,853 | | 1,413,416 |
| 2014 | | 559,259 | | — | | — | | — | | 609,780 | | 11,125 | | 1,180,164 |
Timothy P.V. Mammen,
Chief Financial Officer and Senior Vice President | | 2016 | | 436,025 | | — | | 643,031 | | 228,899 | | 315,694 | | 8,760 | | 1,632,409 |
| 2015 | | 440,067 | | — | | 823,772 | | 305,714 | | 342,223 | | 8,764 | | 1,920,540 |
| 2014 | | 411,426 | | — | | 157,894 | | 469,026 | | 299,158 | | 8,610 | | 1,346,114 |
| Eugene Scherbakov, Ph.D., Managing Director of IPG Laser GmbH, Senior Vice President, Europe and Director (5) | | 2016 | | 510,677 | | — | | 643,031 | | 228,899 | | 369,264 | | 30,138 | | 1,782,008 |
| 2015 | | 450,449 | | — | | 636,664 | | 305,714 | | 363,675 | | 30,231 | | 1,973,841 |
| 2014 | | 445,548 | | 14,839 | | 143,540 | | 429,390 | | 323,835 | | 35,806 | | 1,392,958 |
Alexander Ovtchinnikov, Ph.D.,
Senior Vice President —Components | | 2016 | | 396,868 | | — | | 541,562 | | 192,779 | | 255,706 | | 10,272 | | 1,397,187 |
| 2015 | | 400,579 | | — | | 692,661 | | 257,099 | | 277,003 | | 9,240 | | 1,636,582 |
| 2014 | | 374,508 | | — | | 136,363 | | 396,360 | | 272,314 | | 9,042 | | 1,188,587 |
| Trevor Ness, Senior Vice President, World Wide Sales and Marketing | | 2016 | | 379,724 | | — | | 527,502 | | 187,744 | | 275,121 | | 8,490 | | 1,378,581 |
| 2015 | | 383,543 | | — | | 673,995 | | 250,130 | | 298,267 | | 8,511 | | 1,614,446 |
| 2014 | | 351,750 | | — | | 122,009 | | 363,330 | | 255,767 | | 8,340 | | 1,101,196 |
|
| | | | | | | | | | | |
| Name and Principal Position | Year | Salary
($) | Bonus
($) |
| Stock
Awards
($)(1) |
| Option
Awards
($)(1) |
| Non-Equity
Incentive Plan
Compensation
($)(2) | All Other
Compensation
($)(3) | Total
($) |
Valentin P. Gapontsev
Chief Executive Officer and
Chairman of the Board(4) | 2019 | 930,000 | — |
| — |
| — |
| 255,750 | 66,234 | 1,251,984 |
| 2018 | 1,004,585 | — |
| — |
| — |
| 568,000 | 50,150 | 1,622,735 |
| 2017 | 832,000 | — |
| — |
| — |
| 1,399,100 | 53,583 | 2,284,683 |
Eugene Scherbakov
Chief Operating Officer,
Managing Director of IPG Laser
GmbH, Senior Vice President,
Europe and Director(4) | 2019 | 616,730 | | 2,152,254 |
| 930,281 |
| 154,155 | 24,647 | 3,878,067 |
| 2018 | 673,694 | — |
| 2,095,549 |
| 924,421 |
| 351,800 | 23,472 | 4,068,936 |
| 2017 | 510,000 | — |
| 899,514 |
| 340,038 |
| 769,300 | 23,028 | 2,541,880 |
| | | | | | | | |
Timothy P.V. Mammen
Chief Financial Officer and
Senior Vice President | 2019 | 481,200 | — |
| 1,040,106 |
| 449,556 |
| 96,240 | 9,642 | 2,076,744 |
| 2018 | 481,200 | — |
| 1,012,796 |
| 446,741 |
| 213,700 | 9,060 | 2,163,497 |
| 2017 | 458,300 | — |
| 763,578 |
| 288,607 |
| 577,000 | 8,910 | 2,096,395 |
Angelo P. Lopresti
Senior Vice President, General
Counsel and Secretary | 2019 | 442,100 | | 906,066 |
| 391,686 |
| 88,420 | 10,722 | 1,838,994 |
| 2018 | 442,100 | — |
| 882,281 |
| 389,166 |
| 196,400 | 10,572 | 1,920,519 |
| 2017 | 421,000 | — |
| 623,394 |
| 235,635 |
| 530,000 | 9,342 | 1,819,371 |
Alexander Ovtchinnikov
Senior Vice President,
Components | 2019 | 438,100 | | 897,754 |
| 388,154 |
| 87,620 | 10,722 | 1,882,350 |
| 2018 | 438,100 | — |
| 873,928 |
| 385,669 |
| 194,600 | 10,572 | 1,902,869 |
| 2017 | 417,200 | — |
| 617,553 |
| 233,503 |
| 478,200 | 10,422 | 1,756,878 |
| |
(1) | Salaries for 2015 reflect 27 pay periods occurring in the year. |
| |
(2) | Valuation based on the fair value of such awardawards as of the grant date determined pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC Topic 718.718”). The assumptions that we used with respect to the valuation of service-based restricted stock unit, performance-based stock unitsRSUs, PSUs and stock option awards are set forth in Note 212 to our Consolidated Financial Statements in our Annual Report on Form 10-K filed with the SEC on February 27, 2017.Report. The amounts in the Stock Awards Columncolumn reflect service-based restricted stock unitsRSUs and performance-based stock unitsPSUs granted in 2016 and 2015 and service-based restricted stock units granted in 2014.2019. The value of the performance-based stock unitsPSUs is based on the probable outcome of the performance conditions (at the grant date) in accordance with ASC Topic 718 assuming no forfeiture. The valuevalues of performance-based stock unitsPSUs at the grant date assuming the highest level of performance conditions will be achieved is $749,406, $749,406, $631,152are $5,403,197, $2,611,169, $2,274,664 and $614,766$2,253,796 for Mr.Dr. Scherbakov, Messrs. Mammen Drs. Scherbakov and Ovtchinnikov,Lopresti and Mr. Ness,Dr. Ovtchinnikov respectively. There is no assurance that any of the performance targets will be achieved, that the service-based awards will vest or that the any of the recipients will realize the values listed above. Stock option awards and RSUs vest over four years, beginning on the first anniversary of the award date. Stock option awards have a term of ten years. PSUs cliff vest three years after start of the performance measurement period, if at all. |
| |
(3)(2) | Represents amounts earned under our AIP for services rendered in 2016, 20152019, 2018 and 2014,2017, respectively. |
| |
(4)(3) | The amount in 20162019 for Dr. Gapontsev consists of premiums paid for group life insurance, the incrementaldirect variable cost forto the Company associated with a non-employee guestsguest accompanying him on the Company'sCompany’s aircraft when traveling to a specific destination for a business purpose and the costexpense of a carautomobile and driver ($49,594) provided by us.us for his transportation to the Company’s headquarters. The amount in 20162019 for Dr. Scherbakov is the expense of an automobile provided by us. The amount in 2016 for Dr. Ovtchinnikov consist of premiums paid for group life insurance and employer matching 401(k) contributions. |
| |
(5)(4) | Portions of the amounts paid to Dr.Drs. Gapontsev and Dr. Scherbakov were denominated in Euros and Rubles. Dr. Scherbakov'sGapontsev's 2018 salary isamount includes $74,585 in cash paid in lieu of accrued vacation. Dr. Scherbakov’s 2019 salary was approved in US dollars and payments are converted to Euro at then prevailing Euro exchange rate.Euro. Amounts paid in foreign currencies were translated into U.S. Dollars at the average daily exchange rates for the full years. The average daily rates in 2016, 20152019, 2018 and 2014,2017, for the Euro were 0.90, 0.900.89, 0.84 and 0.75, respectively;0.89, respectively, and for the Ruble were 67.0, 61.264.66, 62.69 and 31.9,58.3, respectively. As a result of compensation being paid in one or more currencies that fluctuate against the U.S. Dollar, the amount of salary paid may vary slightly from the salary stated in an employment agreement or approved by the Compensation Committee. |
41
51
Executive Compensation Tables
2019 Grants of Plan-Based Awards
|
| | | | | | | | | | | | | | | | | | | | | | |
| Name | Grant
Date | Estimated Possible Payouts
Under Non-Equity Incentive Plan
Awards
($)(1) | | Estimated Future Payouts
Under Equity Incentive Plan
Awards
(#)(2) | All Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#)(3) |
| Option
Awards
Number of
Securities
Underlying
Options
(#)(3) |
| Exercise
or Base
Price of
Option
Awards
($/Share) |
| Grant Date
Fair Value
of Stock
and Option
Awards
($)(4) |
|
| Threshold | Target | Maximum | | Threshold | Target | Maximum |
Valentin P.
Gapontsev | 2/15/2019 | 447,563 |
| 1,023,000 |
| 2,301,750 |
| | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Eugene
Scherbakov | 2/15/2019 | 269,771 |
| 616,620 |
| 1,387,395 |
| | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| 2/15/2019 | — |
| — |
| — |
| | 3,107 |
| 6,214 |
| 12,428 |
| — |
| — |
| — |
| 1,195,946 |
|
| 2/15/2019 | — |
| — |
| — |
| | — |
| — |
| — |
| 6,214 |
| — |
| — |
| 956,308 |
|
| 2/15/2019 | — |
| — |
| — |
| | — |
| — |
| — |
| — |
| 17,908 |
| 154.88 |
| 930,281 |
|
Timothy P.V.
Mammen | 2/15/2019 | 168,420 |
| 384,960 |
| 866,160 |
| | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| 2/15/2019 | — |
| — |
| — |
| | 1,502 |
| 3,003 |
| 6,006 |
| — |
| — |
| — |
| 577,957 |
|
| 2/15/2019 | — |
| — |
| — |
| | — |
| — |
| — |
| 3,003 |
| — |
| — |
| 462,149 |
|
| 2/15/2019 | — |
| — |
| — |
| | — |
| — |
| — |
| — |
| 8,654 |
| 154.88 |
| 449,556 |
|
Angelo P.
Lopresti | 2/15/2019 | 154,740 |
| 353,680 |
| 795,780 |
| | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| 2/15/2019 | — |
| — |
| — |
| | 1,308 |
| 2,616 |
| 5,232 |
| — |
| — |
| — |
| 503,475 |
|
| 2/15/2019 | — |
| — |
| — |
| | — |
| — |
| — |
| 2,616 |
| — |
| — |
| 402,591 |
|
| 2/15/2019 | — |
| — |
| — |
| | — |
| — |
| — |
| — |
| 7,540 |
| 154.88 |
| 391,686 |
|
Alexander
Ovtchinnikov | 2/15/2019 | 153,335 |
| 350,480 |
| 788,580 |
| | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| 2/15/2019 | — |
| — |
| — |
| | 1,296 |
| 2,592 |
| 5,184 |
| — |
| — |
| — |
| 498,856 |
|
| 2/15/2019 | — |
| — |
| — |
| | — |
| — |
| — |
| 2,592 |
| — |
| — |
| 398,898 |
|
| 2/15/2019 | — |
| — |
| — |
| | — |
| — |
| — |
| — |
| 7,472 |
| 154.88 |
| 388,154 |
|
| |
(1) | Amounts shown include possible payouts under the AIP for 2019 financial performance at the three goals plus individual performance at maximum for each. The performance goals used in determining AIP payments are discussed in Compensation Discussion and Analysis-Annual Incentives above. Actual amounts paid for 2019 performance are shown in the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table above. |
| |
(2) | For a description of the PSUs, see Compensation Discussion and Analysis-Long Term Incentives above. |
| |
(3) | The amounts listed reflect service-based RSUs and stock options granted under our 2006 Incentive Compensation Plan and are described in the Outstanding Equity Awards Table below. |
| |
(4) | The awards are reported based on the fair value as of the grant date determined pursuant to ASC Topic 718. The assumptions that we used with respect to the valuation of equity awards are set forth in Note 12 to our Consolidated Financial Statements in our Annual Report on Form 10-K filed with the SEC on February 24, 2020. The option exercise price has not been deducted from the amounts indicated above and we disregard an estimate of forfeitures. Regardless of the value placed on an equity award on the grant date, the actual value of the equity award will depend on the market value of our common stock at such date in the future when the RSU vests or the stock option is exercised, and the performance of our common stock in relation to the S&P Composite 1500 Electronic Equipment, Instrument and Components stock index on the measurement date with respect to the PSU. For informational purposes, if the maximum level of performance were achieved for the PSUs, the values as limited by the 600% value cap are $5,403,197, $2,611,169, $2,274,664 and $2,253,796 for Dr. Scherbakov, Messrs. Mammen and Lopresti and Dr. Ovtchinnikov, respectively. |
Employment Agreements
52 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Executive Compensation Tables
2019 Outstanding Equity Awards at Fiscal Year-End
|
| | | | | | | | | | | | | | | | | | | |
| | | Option Awards(1) | | Stock Awards(1) |
| Name | Year of
Grant |
| Securities
Underlying
Unexercised
Options
Exercisable
(#) |
| Securities
Underlying
Unexercised
Options
Unexercisable
(#) |
| Option
Exercise
Price
($)(2) |
| Option
Expiration
Date |
| | Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#) |
| Market
Value of
Shares
or Units
of Stock
That
Have
Not
Vested
($)(3) |
| Equity
incentive
plan awards:
Number of
unearned
shares, units
or other rights
that have not
vested
(#)(1)(4) |
| Equity
incentive
plan awards:
Market or
payout value
of unearned
shares, units
or other
rights that
have not
vested
($)(4) |
|
Valentin P.
Gapontsev | — |
| — |
| — |
| — |
| — |
| | — |
| — |
| — |
| — |
|
Eugene
Scherbakov | 2/26/2010 |
| 1,000 |
| — |
| 15.82 |
| 2/25/2020 |
| | — |
| — |
| — |
| — |
|
| 3/1/2011 |
| 3,000 |
| — |
| 53.76 |
| 2/28/2021 |
| | — |
| — |
| — |
| — |
|
| 2/14/2012 |
| 1,500 |
| — |
| 58.65 |
| 2/13/2022 |
| | — |
| — |
| — |
| — |
|
| 3/1/2013 |
| 3,000 |
| — |
| 60.11 |
| 2/28/2023 |
| | — |
| — |
| — |
| — |
|
| 2/28/2014 |
| 13,000 |
| — |
| 71.77 |
| 2/27/2024 |
| | — |
| — |
| — |
| — |
|
| 2/25/2015 |
| 7,326 |
| — |
| 97.65 |
| 2/24/2025 |
| | — |
| — |
| — |
| — |
|
| 2/18/2016 |
| — |
| 7,592 |
| 81.89 |
| 2/17/2026 |
| | 3,796 |
| 550,116 |
| 4,754 |
| 688,950 |
|
| 2/17/2017 |
| 5,184 |
| 5,183 |
| 119.50 |
| 2/16/2027 |
| | 1,694 |
| 245,494 |
| 6,776 |
| 981,978 |
|
| 2/22/2018 |
| 3,436 |
| 10,308 |
| 239.72 |
| 2/21/2028 |
| | 3,010 |
| 436,209 |
| 8,028 |
| 1,163,418 |
|
| 2/15/2019 |
| — |
| 17,908 |
| 154.88 |
| 2/14/2029 |
| | 6,214 |
| 900,533 |
| 12,428 |
| 1,801,066 |
|
Timothy P.V.
Mammen | 3/1/2013 |
| 7,500 |
| — |
| 60.11 |
| 2/28/2023 |
| | — |
| — |
| — |
| — |
|
| 2/28/2014 |
| 14,200 |
| — |
| 71.77 |
| 2/27/2024 |
| | — |
| — |
| — |
| — |
|
| 2/25/2015 |
| 7,362 |
| — |
| 97.65 |
| 2/24/2025 |
| | — |
| — |
| — |
| — |
|
| 2/18/2016 |
| — |
| 7,592 |
| 81.89 |
| 2/17/2026 |
| | 3,796 |
| 550,116 |
| 4,754 |
| 688,950 |
|
| 2/17/2017 |
| 4,400 |
| 4,399 |
| 119.50 |
| 2/26/2027 |
| | 1,438 |
| 208,395 |
| 5,752 |
| 833,580 |
|
| 2/22/2018 |
| 1,661 |
| 4,981 |
| 239.72 |
| 2/21/2028 |
| | 1,455 |
| 210,859 |
| 3,880 |
| 562,290 |
|
| 2/15/2019 |
| — |
| 8,654 |
| 154.88 |
| 2/14/2029 |
| | 3,003 |
| 435,195 |
| 6,006 |
| 870,390 |
|
Angelo P.
Lopresti | 3/1/2011 |
| 9,500 |
| — |
| 53.76 |
| 2/28/2021 |
| | — |
| — |
| — |
| — |
|
| 3/1/2013 |
| 13,000 |
| — |
| 60.11 |
| 2/28/2023 |
| | — |
| — |
| — |
| — |
|
| 2/28/2014 |
| 11,000 |
| — |
| 71.77 |
| 2/27/2024 |
| | — |
| — |
| — |
| — |
|
| 2/25/2015 |
| 5,661 |
| — |
| 97.65 |
| 2/24/2025 |
| | — |
| — |
| — |
| — |
|
| 2/18/2016 |
| — |
| 5,861 |
| 81.89 |
| 2/17/2026 |
| | 2,930 |
| 424,616 |
| 3,669 |
| 531,710 |
|
| 2/17/2017 |
| 3,592 |
| 3,592 |
| 119.50 |
| 2/16/2027 |
| | 1,174 |
| 170,136 |
| 4,696 |
| 680,544 |
|
| 2/22/2018 |
| 1,447 |
| 4,339 |
| 239.72 |
| 2/21/2028 |
| | 1,267 |
| 183,614 |
| 3,380 |
| 489,830 |
|
| 2/15/2019 |
| — |
| 7,540 |
| 154.88 |
| 2/14/2029 |
| | 2,616 |
| 379,111 |
| 5,232 |
| 758,221 |
|
Alexander
Ovtchinnikov | 2/28/2014 |
| 12,000 |
| — |
| 71.77 |
| 2/27/2024 |
| | — |
| — |
| — |
| — |
|
| 2/25/2015 |
| 6,161 |
| — |
| 97.65 |
| 2/24/2025 |
| | — |
| — |
| — |
| — |
|
| 2/18/2016 |
| — |
| 6,394 |
| 81.89 |
| 2/17/2026 |
| | 3,197 |
| 463,309 |
| 4,003 |
| 580,115 |
|
| 2/17/2017 |
| 3,560 |
| 3,559 |
| 119.50 |
| 2/16/2027 |
| | 1,163 |
| 168,542 |
| 4,652 |
| 674,168 |
|
| 2/22/2018 |
| 1,434 |
| 4,300 |
| 239.72 |
| 2/21/2028 |
| | 1,255 |
| 181,875 |
| 3,348 |
| 485,192 |
|
| 2/15/2019 |
| — |
| 7,472 |
| 154.88 |
| 2/14/2029 |
| | 2,592 |
| 375,633 |
| 5,184 |
| 751,265 |
|
| |
(1) | The vesting dates assume the continued service of the NEO. All awards granted in 2016 vest in one installment on March 1, 2020. Service-based stock options and RSUs granted in 2017, 2018 and 2019 vest in four annual installments commencing on March 1, 2018, March 1, 2019 and March 1, 2020 respectively. PSUs granted in 2017, 2018 and 2019 vest in one installment on March 1, 2020, March 1, 2021 and March 1, 2022, respectively. |
| |
(2) | Represents the closing common stock price of a share on the grant date. |
| |
(3) | Based upon the closing common stock price on December 31, 2019, which was $144.92 per share. |
53
Executive Compensation Tables
| |
(4) | The PSU performance measurement periods end March 1, 2020, 2021, and 2022 for units granted in 2017, 2018, and 2019, respectively. The numbers of unearned awards range from 0% to 200% based upon achievement of performance metrics and the amounts presented above assume attainment of the maximum performance levels (200%) not limited by dollar value caps. The actual payout amount for PSUs granted in 2017 which vested on March 1, 2020 was 67.7%. PSUs have dollar payout caps of 400% of target values on the dates of grant for awards granted in 2017, and 600% of target values on the date of grant for those awarded in 2018 and 2019. |
Option Exercises and Stock Vested in 2019
|
| | | | | | | | | |
| | Option Awards | | Stock Awards |
| Name | Number of
Shares Acquired
on Exercise
(#) |
| Value Realized
on Exercise
($) |
| | Number of
Shares Acquired
on Vesting
(#) |
| Value Realized
on Vesting
($)(1) |
|
| Valentin P. Gapontsev | — |
| — |
| | — |
| — |
|
| Eugene A. Scherbakov | — |
| — |
| | 11,378 |
| 1,782,705 |
|
| Timothy P.V. Mammen | — |
| — |
| | 10,731 |
| 1,681,333 |
|
| Angelo P. Lopresti | — |
| — |
| | 8,373 |
| 1,311,882 |
|
| Alexander Ovtchinnikov | — |
| — |
| | 9,011 |
| 1,411,843 |
|
| |
(1) | The value realized is based on the closing common stock prices on the vesting dates of the service-based RSUs. |
Potential Payments upon Termination or Change in Control
The Company has entered into employment agreements with each of the above-named executives,NEOs, effective through December 31, 2017.2020. Upon expiration, the employment agreements will automatically renew for successive one yearone-year periods, unless the Company or a Named Executive OfficerNEO provides written notice of non-renewal at least six months prior to the end of the then currentthen-current term. In the event of a change in control, the agreements would extend through the second anniversary of the change in control.
The employment agreements set the annual base salaries and stipulate that the Compensation Committee may adjust the salaries annually. In 2016, the salaries for the Named Executive Officers were: $735,400 for Dr. Gapontsev, $500,000 for Dr. Scherbakov, $436,500 for Mr. Mammen, $397,300 for Dr. Ovtchinnikovannually, as noted in Compensation Discussion and $380,400 for Mr. Ness. For 2017, the Compensation Committee approved annual base salaries of $832,000 for Dr. Gapontsev, $540,000 for Dr. Scherbakov, $458,300 for Mr. Mammen, $417,200 for Dr. Ovtchinnikov and $410,000 for Mr. Ness.Analysis - Base Salary above. The agreements entitle these executive officers to participate in bonus plans, standard insurance plans such as life, short-term disability and long-term disability insurance and retirement benefits, such as the 401(k) retirement savings plan and equity award plans described above, on similar terms and on a similar basis as such benefits are available to executives at similar levels within the Company. Each of these executive officers also entered into a separate restrictive covenant agreement withThe employment agreements were modified in 2019 to allow the Company in 2013 that prohibits each of them from competing with the Company for a period of one year after the termination of his employment with the Company for any reason and from hiring or attempting to hire the Company's employees or soliciting customers or suppliers of the Company for a period ending eighteen months following the termination of histerminate employment for any reason. Eachcause if an NEO violates the Company’s Code of the officers is entitled to receive his base salary for the period during which the Company enforces the non-competition provisions of the agreement but not for more than one year following the termination of his employment. The severance provisions of the agreements are summarized below in the section titled "Business Conduct.Potential Payments upon Termination or Change in Control."
2016 Grants of Plan-Based Awards
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Grant Date | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards ($)(1) | | Estimated Future Payouts Under Equity Incentive Plan Awards (#)(2) | | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | | Option Awards Number of Securities Underlying Options (#)(3) | | Exercise or Base Price of Option Awards ($/Sh) | | Grant Date Fair Value of Stock and Option Awards ($)(4) |
| Name | | Threshold | | Target | | Maximum | | Threshold | | Target | | Maximum | |
| Valentin P. Gapontsev, Ph.D., Chief Executive Officer and Chairman (5) | | 2/18/2016 | | 321,738 | | 735,400 | | 1,654,650 | | — | | — | | — | | — | | — | | — | | — |
| Timothy P.V. Mammen | | 2/18/2016 | | 144,045 | | 327,375 | | 654,794 | | — | | — | | — | | — | | — | | — | | — |
| | 2/18/2016 | | — | | — | | — | | 1,898 | | 3,796 | | 7,592 | | — | | — | | — | | 335,984 |
| | 2/18/2016 | | — | | — | | — | | — | | — | | — | | 3,796 | | — | | — | | 307,047 |
| | 2/18/2016 | | — | | — | | — | | — | | — | | — | | — | | 7,592 | | 80.89 | | 228,899 |
| Eugene Scherbakov, Ph.D. | | 2/18/2016 | | 165,000 | | 375,000 | | 750,050 | | — | | — | | — | | — | | — | | — | | — |
| | 2/18/2016 | | — | | — | | — | | 1,898 | | 3,796 | | 7,592 | | — | | — | | — | | 335,984 |
| | 2/18/2016 | | — | | — | | — | | | | | | | | 3,796 | | — | | — | | 307,047 |
| | 2/18/2016 | | — | | — | | — | | — | | — | | — | | — | | 7,592 | | 80.89 | | 228,899 |
| Alexander Ovtchinnikov, Ph.D. | | 2/18/2016 | | 116,210 | | 265,198 | | 595,990 | | — | | — | | — | | — | | — | | — | | — |
| 2/18/2016 | | — | | — | | — | | 1,599 | | 3,197 | | 6,394 | | — | | — | | — | | 282,966 |
| 2/18/2016 | | — | | — | | — | | — | | — | | — | | 3,197 | | — | | — | | 258,595 |
| | 2/18/2016 | | — | | — | | — | | — | | — | | — | | — | | 6,394 | | 80.89 | | 192,779 |
| Trevor Ness | | 2/18/2016 | | 125,532 | | 285,300 | | 570,638 | | — | | — | | — | | — | | — | | — | | — |
| 2/18/2016 | | — | | — | | — | | 1,557 | | 3,114 | | 6,228 | | — | | — | | — | | 275,620 |
| 2/18/2016 | | — | | — | | — | | — | | — | | — | | 3,114 | | — | | — | | 251,882 |
| | 2/18/2016 | | — | | — | | — | | — | | — | | — | | — | | 6,227 | | 80.89 | | 187,744 |
| |
(1) | Amounts shown include the payouts under the AIP for 2016 financial performance at the three goals plus individual performance at maximum for each. The performance goals used in determining AIP payments are discussed in the Compensation Discussion and Analysis above. Actual amounts paid for 2016 performance are shown in the "Non-Equity Incentive Plan Compensation" column in the Summary Compensation Table above.
|
| |
(2) | For a description of the performance-based stock units, see Compensation Discussion and Analysis-Equity-Based Incentives Granted in 2016.
|
| |
(3) | The amounts listed reflect restricted stock units and stock options granted under our 2006 Incentive Compensation Plan and are described in the Outstanding Equity Awards Table below. |
| |
(4) | The awards are reported based on the fair value of such award as of the grant date determined pursuant to ASC Topic 718. The assumptions that we used with respect to the valuation of equity awards are set forth in Note 2 to our Consolidated Financial Statements in our Annual Report on Form 10-K filed with the SEC on February 27, 2017. The option exercise price has not been deducted from the amounts indicated above and we disregard an estimate of forfeitures. Regardless of the value placed on an equity award on the grant date, the actual value of the equity award will depend on the market value of our common stock at such date in the future when the restricted stock unit vests or the stock option is exercised, and the performance of our common stock in relation to the Russell 3000 on the measurement date with respect to the award. For informational purposes, if the maximum level of performance was achieved for the performance-based stock units, the values, calculated by multiplying the closing stock price on the grant date by the number of shares issuable upon achievement of the maximum level of performance, are $749,406, $749,406, $631,152 and $614,766 for Mr. Mammen, Drs. Scherbakov and Ovtchinnikov, and Mr. Ness, respectively. |
2016 Outstanding Equity Awards at Fiscal Year-End
|
| | | | | | | | | | | | | | | | | | |
| | | Option Awards (1) | | Stock Awards (1) |
| Name | | Year of Grant | | Securities Underlying Unexercised Options Exercisable (#) | | Securities Underlying Unexercised Options Unexercisable (#) | | Option Exercise Price ($)(2) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | | Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#)(1)(4) | | Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($)(4) |
| Valentin P. Gapontsev, Ph.D. | | — | | — | | — | | — | | — | | — | | — | | — | | — |
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
| Timothy P.V. Mammen | | 2010 | | 16,250 | | — | | 15.82 | | 2/25/2020 | | — | | — | | — | | — |
| | 2011 | | 21,600 | | — | | 53.76 | | 2/28/2021 | | — | | — | | — | | — |
| | | 2012 | | 12,500 | | — | | 58.65 | | 2/13/2022 | | — | | — | | — | | — |
| | | 2013 | | — | | 15,000 | | 60.11 | | 2/28/2023 | | — | | — | | — | | — |
| | | 2013 | | — | | — | | — | | — | | 2,500 | | 246,775 | | — | | — |
| | | 2014 | | — | | 14,200 | | 71.77 | | 2/27/2024 | | — | | — | | — | | — |
| | | 2014 | | — | | — | | — | | — | | 2,200 | | 217,162 | | — | | — |
| | | 2015 | | — | | 7,326 | | 97.65 | | 2/24/2025 | | — | | — | | — | | — |
| | | 2015 | | — | | — | | — | | — | | 3,663 | | — | | — | | — |
| | | 2015 | | — | | — | | — | | — | | — | | 361,575 | | — | | — |
| | | 2016 | | — | | 7,592 | | 81.89 | | 2/17/2026 | | — | | — | | 7,326 | | 723,149 |
| | | 2016 | | — | | — | | — | | — | | 3,796 | | 374,703 | | — | | — |
| | | 2016 | | — | | — | | — | | — | | — | | — | | 7,592 | | 749,406 |
| Eugene Scherbakov, Ph.D. | | 2010 | | 10,000 | | — | | 15.82 | | 2/25/2020 | | — | | — | | — | | — |
| | 2011 | | 13,565 | | — | | 53.76 | | 2/28/2021 | | — | | — | | — | | — |
| | | 2012 | | 12,389 | |
| | 58.65 | | 2/13/2022 | | — | | — | | — | | — |
| | | 2013 | | — | | 14,000 | | 60.11 | | 2/28/2023 | | — | | — | | — | | — |
| | | 2013 | | — | | — | | — | | — | | 2,200 | | 217,162 | | — | | — |
| | | 2014 | | — | | 13,000 | | 71.77 | | 2/27/2024 | | — | | — | | — | | — |
| | | 2014 | | — | | — | | — | | — | | 2,000 | | 197,420 | | — | | — |
| | | 2015 | | — | | 7,326 | | 97.65 | | 2/24/2025 | | — | | — | | — | | — |
| | | 2015 | | — | | — | | — | | — | | 3,663 | | 361,575 | | — | | — |
| | | 2015 | | — | | — | | — | | — | | — | | — | | 7,326 | | 723,149 |
| | | 2016 | | — | | 7,592 | | 81.89 | | 2/17/2026 | | — | | — | | — | | — |
| | | 2016 | | — | | — | | — | | — | | 3,796 | | 374,703 | | — | | — |
| | | 2016 | | — | | — | | — | | — | | — | | — | | 7,592 | | 749,406 |
| Alexander Ovtchinnikov, Ph.D. | | 2012 | | 11,750 | | — | | 58.65 | | 2/13/2022 | | — | | — | | — | | — |
| | 2013 | | — | | 12,000 | | 60.11 | | 2/28/2023 | | — | | — | | — | | — |
| | | 2013 | | — | | — | | — | | — | | 1,800 | | 177,678 | | — | | — |
| | | 2014 | | — | | 12,000 | | 71.77 | | 2/27/2024 | | — | | — | | — | | — |
| | | 2014 | | — | | — | | — | | — | | 1,900 | | 187,549 | | — | | — |
| | | 2015 | | — | | 6,161 | | 97.65 | | 2/24/2025 | | — | | — | | — | | — |
| | | 2015 | | — | | — | | — | | — | | 3,080 | | 304,027 | | — | | — |
| | | 2015 | | — | | — | | — | | — | | — | | — | | 6,160 | | 608,054 |
| | | 2016 | | — | | 6,394 | | 81.89 | | 2/17/2026 | | — | | — | | — | | — |
| | | 2016 | | — | | — | | — | | — | | 3,197 | | 315,576 | | — | | — |
| | | 2016 | | — | | — | | — | | — | | — | | — | | 6,394 | | 631,152 |
| Trevor Ness | | 2011 | | 10,000 | | — | | 53.76 | | 2/28/2021 | | — | | — | | — | | — |
| | | 2012 | | 9,000 | | — | | 58.65 | | 2/13/2022 | | — | | — | | — | | — |
| | | 2013 | | — | | — | | — | | — | | 1,900 | | 187,549 | | — | | — |
| | | 2013 | | — | | 12,000 | | 60.11 | | 2/28/2023 | | — | | — | | — | | — |
| | | 2014 | | — | | — | | — | | — | | 1,700 | | 167,807 | | — | | — |
| | | 2014 | | — | | 11,000 | | 71.77 | | 2/27/2024 | | — | | — | | — | | — |
| | | 2015 | | — | | — | | — | | — | | 2,997 | | 295,834 | | — | | — |
| | | 2015 | | — | | 5,994 | | 97.65 | | 2/24/2025 | | — | | — | | — | | — |
| | | 2015 | | — | | — | | — | | — | | — | | — | | 5,994 | | 591,668 |
| | | 2016 | | — | | 6,227 | | 81.89 | | 2/17/2026 | | — | | — | | — | | — |
| | | 2016 | | — | | — | | — | | — | | 3,114 | | 307,383 | | — | | — |
| | | 2016 | | — | | — | | — | | — | | — | | — | | 6,228 | | $614,766 |
| |
(1) | The vesting dates assume the continued service of the Named Executive Officer. Awards granted in 2013, 2014, 2015 and 2016 vest in one installment on March 1, 2017, 2018, 2019 and 2020, respectively. |
| |
(2) | Represents the closing common stock price of a share on the grant date. |
| |
(3) | Based upon the closing common stock price on December 31, 2016, which was $98.71 per share. |
| |
(4) | The performance-based stock unit vesting determination dates are March 1, 2018 and 2019 for units granted in 2015 and 2016, respectively. They vest in an amount ranging from 0% to 200% based upon achievement of performance metrics. Represent estimated value at December 31, 2016 assuming attainment of maximum levels (200%). |
Option Exercises and Stock Vested in 2016
|
| | | | | | | | |
| | | Option Awards | | Stock Awards |
| Name | | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise ($)(1) | | Number of Shares Acquired on Vesting (#) | | Value Realized on Vesting ($)(2) |
| Valentin P. Gapontsev, Ph.D. | | — | | — | | — | | |
| Timothy P.V. Mammen | | 10,000 | | 781,787 | | 2,050 | | 183,034 |
| Eugene Scherbakov, Ph.D. | | 18,858 | | 1,313,364 | | 2,050 | | 183,034 |
| Alexander Ovtchinnikov, Ph.D. | | 19,000 | | 860,456 | | 1,920 | | 171,427 |
| Trevor Ness | | — | | — | | 1,470 | | 131,249 |
| |
(1) | The value realized is based on the difference between the reported closing common stock price on the date of exercise and the exercise price of the stock option. |
| |
(2) | The value realized is based on the reported closing common stock prices on the vesting dates of the restricted stock units. |
Potential Payments upon Termination or Change in Control
If the Company terminates the employment of any of the Named Executive OfficersNEOs without cause (as defined in the respective employment agreements) or any of the Named Executive OfficersNEOs terminates his employment for good reason (as defined in the respective employment agreements) ("cause"(“cause” and "good reason"“good reason” are referred to below as "Involuntary Terminations"“Involuntary Terminations”), then the officerNEO would receive:
(a) continuation of salary for eighteen months, except in the case of Dr. Gapontsev, who would receive continuation of salary for thirty-six months;
(b) a portion of the annual bonus that the executiveNEO would have received had he remained employed through the end of the applicable bonus period, based on actual performance, including the individual performance element (the portion based upon the percentage of the year that he was employed by the Company);
(c) cash reimbursement for continuation of health benefits for up to eighteen months, except in the case of Dr. Gapontsev, who would receive continuation of health benefits by payment of the officer'sofficer’s COBRA premiums for thirty-six-months; and
(d) accelerated vesting of equity compensation awards that otherwise would have vested within twelve months of the termination of employment.
54 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Executive Compensation Tables
Upon an Involuntary Termination within twenty-four months following a change in control of the Company, the Named Executive OfficerNEO would be entitled to continuation of salary and reimbursement of COBRA premiums for health benefits for twenty-four months, the pro-rated bonus for the year of termination plus a payment of two times the average annual bonus paid to the Named Executive OfficerNEO for the three full years preceding the year of termination. In the case of the Chief Executive Officer,CEO, he would be entitled to continuation of salary and health benefits for thirty-six months, the pro-rated bonus for the year of termination plus a payment of three times the average annual bonus paid to him for the three full years preceding the termination. Under the employment agreements, all equity awards vest fully ifupon an Involuntary Termination that occurs within two years of a change in control occurs followed within two years by an Involuntary Termination.control. Upon a change in control, the officers'NEOs’ employment periods under the agreements would automatically be extended to the second anniversary of the change in control if such date is later than expiration of the current term.
If the total value of all payments and benefits, including any equity vesting ("(“total payments"payments”), made to a Named Executive OfficerNEO following a change in control would result in an excise tax under the provisions of Internal Revenue Code Section 4999 (the "golden“golden parachute tax"tax”), the total payments will be reduced so that the maximum amount of total payments (after reduction) is $1.00 less than the amount that would cause the total payments to be
subject to the golden parachute tax; provided, however, that the total payments will only be reduced to the extent that the after-tax value of amounts received by the officer after application of the above reduction would exceed the after-tax value of the total payments received without application of such reduction (so called "best“best after-tax treatment"treatment”).
If the employment period of any of the Named Executive OfficersNEOs terminates and the Company does not offer such officerNEO continued employment in the same or a substantially similar position or in a higher position than the officer'sNEO's position at the end of the employment period and at a compensation level that is the same or substantially similar to the compensation level in effect at the end of the employment period, then such officerNEO may resign from employment and would receive continuation of salary and health benefits for twelve months, except for the Chief Executive OfficerCEO who would receive the same for twenty-four months, plus a portion of the annualpro-rated bonus that the executive would have received had he remained employed through the end of the applicable bonus period, based on actual performance, including the individual performance element (the portion based upon the percentage offor the year that he was employed by the Company).
of termination.
If a Named Executive Officer'sNEO's employment is terminated by death or disability, the officerNEO would receive a portion of the annualpro-rated bonus that he would have received had he remained employed through the applicable bonus period, based on actual performance, including the individual performance element (the portion based upon the percentage offor the year that he was employed by the Company).Underof termination. Under the employment agreements, the Company would not be obligated to make any cash payments if employment were terminated by the Company for cause or by the executiveNEO not for good reason. Additionally, if the officer'sNEO's employment is terminated due to death, the non-vested portions of stock options, service-based restricted stock unitsRSUs and performance-based stock unitsPSUs would immediately vest.
Severance payments to the officersNEOs are conditioned upon the release of claims by the Named Executive OfficerNEO in favor of the Company. Each of the Named Executive Officers also has anNEOs entered into a separate restrictive agreement with the Company that prohibits himeach from competing with the Company for a period of one year after the termination of his employment with the Company for any reason and from hiring or attempting to hire the Company'sCompany’s employees or soliciting customers or suppliers of the Company for a period ending eighteen months following the termination of his employment for any reason. Each of the Named Executive OfficersNEOs is entitled to receive his base salary for the period during which the Company enforces the non-competition provisions of the agreement but not for more than one year following termination of his employment.
55
Executive Compensation Tables
The following table provides information regarding compensation and benefits that would be payable to our Named Executive OfficersNEOs as of December 31, 2016,2019, upon an Involuntary Termination absent a change in control and preceded by a change in control and upon terminations in other circumstances. The incentive plan severance was calculated using the actual amount awarded under the 20162019 AIP. There can be no assurance that the event triggering payments would produce the same or similar results as those described below if such event occurs on any other date or at any other price, or if any other assumption used to estimate the potential payments and benefits is incorrect. Any actual payments and benefits may be different due to a number of factors that affect the nature and amount of any potential payments or benefits.
|
| | | | | | | | | | | | | | | | | |
| Name | | Benefit | | Termination Without Cause or For Good Reason ($) | | Termination Without Cause or For Good Reason Following a Change in Control ($) | | Termination following Death ($) | | Termination following Disability ($) | | Termination following Non-Renewal ($) |
| Valentin P. Gapontsev, Ph.D. | | Salary Severance and Benefits Continuation | | 2,244,954 |
| | 2,244,954 |
| | — |
| | — |
| | 1,496,636 |
|
| | Incentive Plan Severance | | 709,044 |
| | 2,741,450 |
| | 709,044 |
| | 709,044 |
| | 709,044 |
|
| | Equity Acceleration | | — |
| | — |
| | — |
| | — |
| | — |
|
| | Total | | 2,953,998 |
| | 4,986,404 |
| | 709,044 |
| | 709,044 |
| | 2,205,680 |
|
| Timothy P.V. Mammen | | Salary Severance and Benefits Continuation | | 684,293 |
| | 912,391 |
| | — |
| | — |
| | 456,195 |
|
| | | Incentive Plan Severance | | 315,694 |
| | 953,744 |
| | 315,694 |
| | 315,694 |
| | 315,694 |
|
| | | Equity Acceleration (1) | | 781,356 |
| | 3,754,975 |
| | 3,754,975 |
| | — |
| | — |
|
| | | Total | | 1,781,343 |
| | 5,621,110 |
| | 4,070,669 |
| | 315,694 |
| | 771,889 |
|
| Eugene Scherbakov, Ph.D. | | Salary Severance and Benefits Continuation | | 756,921 |
| | 1,009,228 |
| | — |
| | — |
| | 504,614 |
|
| | Incentive Plan Severance | | 369,264 |
| | 1,073,780 |
| | 369,264 |
| | 369,264 |
| | 369,264 |
|
| | Equity Acceleration (1) | | 742,756 |
| | 3,624,821 |
| | 3,624,821 |
| | — |
| | — |
|
| | Total | | 1,868,940 |
| | 5,707,829 |
| | 3,994,085 |
| | 369,264 |
| | 873,878 |
|
| Alex Ovtchinnikov, Ph.D. | | Salary Severance and Benefits Continuation | | 624,055 |
| | 832,073 |
| | — |
| | — |
| | 416,036 |
|
| | Incentive Plan Severance | | 255,706 |
| | 792,388 |
| | 255,706 |
| | 255,706 |
| | 255,706 |
|
| | Equity Acceleration (1) | | 640,878 |
| | 3,196,698 |
| | 3,196,698 |
| | — |
| | — |
|
| | Total | | 1,520,639 |
| | 4,821,159 |
| | 3,452,404 |
| | 255,706 |
| | 671,742 |
|
| Trevor Ness | | Salary Severance and Benefits Continuation | | 600,143 |
| | 800,191 |
| | — |
| | — |
| | 400,095 |
|
| | Incentive Plan Severance | | 275,121 |
| | 827,891 |
| | 275,121 |
| | 275,121 |
| | 275,121 |
|
| | Equity Acceleration (1) | | 650,749 |
| | 3,021,516 |
| | 3,021,516 |
| | — |
| | — |
|
| | Total | | 1,526,013 |
| | 4,649,598 |
| | 3,296,637 |
| | 275,121 |
| | 675,216 |
|
|
| | | | | | | | | | | |
| Name | Benefit | Termination
Without Cause
or For Good
Reason
($) |
| Termination
Without Cause or
For Good Reason
Following a Change
in Control
($) |
| Termination
following
Death
($) |
| Termination
following
Disability
($) |
| Termination
following Non-
Renewal
($) |
|
Valentin P.
Gapontsev | Salary Severance and
Benefits Continuation | 2,835,542 |
| 2,835,542 |
| — |
| — |
| 1,890,361 |
|
| Incentive Plan Severance | 255,750 |
| 2,478,600 |
| 255,750 |
| 255,750 |
| 255,750 |
|
| Equity Acceleration | — |
| — |
| — |
| — |
| — |
|
| Total | 3,091,292 |
| 5,314,142 |
| 255,750 |
| 255,750 |
| 2,146,111 |
|
Eugene A.
Scherbakov | Salary Severance and
Benefits Continuation | 933,209 |
| 1,244,278 |
| — |
| — |
| 622,139 |
|
| Incentive Plan Severance | 169,850 |
| 1,020,020 |
| 169,850 |
| 169,850 |
| 169,850 |
|
Equity Acceleration(1) | 4,385,255 |
| 12,013,451 |
| 12,013,451 |
| 12,013,451 |
| — |
|
| Total | 5,488,314 |
| 14,277,749 |
| 12,183,301 |
| 12,183,301 |
| 791,989 |
|
Timothy P.V.
Mammen | Salary Severance and
Benefits Continuation | 755,952 |
| 1,007,936 |
| — |
| — |
| 503,968 |
|
| Incentive Plan Severance | 96,240 |
| 687,533 |
| 96,240 |
| 96,240 |
| 96,240 |
|
Equity Acceleration(1) | 3,878,458 |
| 7,905,328 |
| 7,905,328 |
| 7,905,328 |
| — |
|
| Total | 4,730,650 |
| 9,600,798 |
| 8,001,568 |
| 8,001,568 |
| 600,208 |
|
Angelo P.
Lopresti | Salary Severance and
Benefits Continuation | 663,150 |
| 884,200 |
| — |
| — |
| 442,100 |
|
| Incentive Plan Severance | 88,420 |
| 631,633 |
| 88,420 |
| 88,420 |
| 88,420 |
|
Equity Acceleration(1) | 3,090,177 |
| 6,538,817 |
| 6,538,817 |
| 6,538,817 |
| — |
|
| Total | 3,841,747 |
| 8,054,651 |
| 6,627,237 |
| 6,627,237 |
| 530,520 |
|
Alexander
Ovtchinnikov | Salary Severance and
Benefits Continuation | 677,430 |
| 903,204 |
| — |
| — |
| 451,602 |
|
| Incentive Plan Severance | 87,620 |
| 594,567 |
| 87,620 |
| 87,620 |
| 87,620 |
|
Equity Acceleration(1) | 3,210,678 |
| 6,664,322 |
| 6,664,322 |
| 6,664,322 |
| — |
|
| Total | 3,975,702 |
| 8,162,093 |
| 6,751,942 |
| 6,751,942 |
| 539,222 |
|
| |
(1) | Equity acceleration is calculated usingat the full value of service-based restricted stock unitsRSUs and PSUs. Also, PSUs are presented at the maximum possible amount of shares for performance-based stock units based uponshares. Values use the closing sale price of our common stock price on December 31, 20162019, of $98.71$144.92 per share and the aggregate difference between the exercise prices of outstanding stock options and the closing sale price of our common stock price on December 31, 2016.2019. |
56 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Executive Compensation Tables
CEO Pay Ratio
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K, we are providing the following information on the relationship of the annual total compensation of our employees and the annual total compensation of Dr. Valentin P. Gapontsev, our CEO.
Determining our Median Employee: As permitted by SEC rules, because there has been no change in our employee population or employee compensation arrangements that we believe would significantly impact the pay ratio disclosure, the Company determined to use the same median employee in our pay ratio calculation as was used in the proxy statement for the 2018 and 2019 annual meeting of stockholders. However, the median employee used in the proxy statement for the 2018 and 2019 annual meeting of stockholders terminated employment with the Company in 2019. Therefore, as permitted under SEC rules, the Company identified an alternate median employee with comparable pay as the median employee in 2018 for this Proxy Statement.
Calculating the Pay Ratio: As required by the SEC rules, we calculated our median employee’s total annual compensation in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K (which is the calculation method for reporting CEO compensation in the Summary Compensation Table).
The total compensation of our median employee was $31,205. Our CEO’s total compensation as reported in the Summary Compensation Table for 2019 was $1,251,984. Therefore, our CEO to median employee pay ratio in 2019 was approximately 40.1:1.
The pay ratio included in this information is a reasonable estimate calculated in a manner consistent with rules promulgated by the SEC. This information is being provided solely for compliance purposes. The Compensation Committee does not consider this ratio when evaluating compensation arrangements.
47
57
EQUITY COMPENSATION PLANS
Equity Plans
Our 2006 Incentive Compensation Plan (the “2006 Plan”) enables the Company to make stock-based and non-stock awards to its eligible employees, non-employee directors and independent contractors. The 2006 Plan provides for the grant of: incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, stock units, performance shares, performance units, cash awards, and any combination of the foregoing. The purpose of the 2006 Plan is to motivate employees, non-employee directors and independent contractors by providing an opportunity to acquire cash or equity incentive awards, and to provide a means through which the Company, its affiliates and group companies may attract the highest-quality individuals to enter employment or engagement with the Company or its affiliates and to align the interests of such individuals with the Company's stockholders.
The 2006 Plan was approved by our stockholders in 2006 and amendments were approved by stockholders in 2011 and again in 2015. The 2006 Plan terminates in June 2025. The maximum number of shares authorized for issuance under the 2006 Plan is 10,279,192 shares, which includes the 10,000,000 shares approved at the 2011 annual meeting of stockholders, 84,273 shares previously authorized and approved for issuance but not awarded under the IPG Photonics 2000 Incentive Compensation Plan (the “2006 Plan”) and rolled into the 2006 Plan and 194,919 shares previously authorized and approved for issuance but not awarded under the IPG Photonics Corporation Non-Employee Directors Stock Plan which were rolled into the 2006 Plan.
Generally, any shares underlying an award under the 2006 Plan that expire without being exercised, or are forfeited, canceled or otherwise terminated without a distribution to a participant of shares, cash, or other benefit in lieu of shares will again be available for issuance under the 2006 Plan. Notwithstanding the foregoing, the following shares may not be recycled into the 2006 Plan and again become available for issuance: (i) shares tendered to pay the exercise price of stock options and stock appreciation rights (including through "net exercise"), (ii) the total number of shares granted pursuant to stock-settled stock appreciation rights, (iii) any shares withheld by the Company to satisfy tax obligations with respect to any awards, and (iv) shares repurchased on the open market with the proceeds of the stock option exercise price.
The 2006 Plan provides for the following award limitations: |
| | |
• | The maximum aggregate number of shares underlying all stock options, stock appreciation rights and any other awards that are intended to qualify as performance-based compensation under Internal Revenue Code Section 162(m) and are measured in shares (whether payable in shares, cash or a combination of both) that may be granted to any single participant (other than a non-employee director) in any single calendar year is 1,000,000 shares, as adjusted for any Company recapitalization, reorganization, stock dividend or similar event.
|
| |
• | The Company may not grant cash awards intended to qualify as performance-based compensation under Internal Revenue Code Section 162(m) with respect to more than $4,000,000 to any single participant in any single calendar year.
|
| |
• | In determining a cash award payout to a single "covered employees" (as defined in Internal Revenue Code Section 162(m)) in a single year through the use of an incentive pool, the percentage of the incentive pool allocated to such covered employee may not exceed 30% of the total incentive pool. In addition, the aggregate payments to all incentive pool participants may not exceed 100% of the incentive pool.
|
| |
• | The maximum aggregate number of shares underlying all awards measured in shares (whether payable in shares, cash or a combination of both) that may be granted to any single participant who is a non-employee director in any period beginning on an annual stockholder meeting date and ending on the day immediately preceding the following annual stockholder meeting date is 50,000 shares, as adjusted for any Company recapitalization, reorganization, stock dividend or similar event.
|
| |
• | The Company may not grant total cash awards (inclusive of annual retainer amounts under the director compensation plan) more than $250,000 to any single non-employee director in any single calendar year.
|
| |
• | No more than 833,333 shares may be cumulatively available for awards of incentive stock options under the 2006 Plan and maximum aggregate number of shares underlying awards that may be granted in any calendar year to any participant as incentive stock options is 133,333.
|
|
| | | | |
| | |
•Proposal
3 | The aggregate market value of common stock with respect to which incentive stock options are exercisableRatify Deloitte & Touche LLP as Our Independent
Registered Public Accounting Firm for the first time by a participant in a single calendar year may not exceed $100,000.2020 |
| | |
• | Each share of restricted stock, stock unit, performance share, performance unit or other award under the 2006 Plan with value denominated in full shares shall equate to 1.60 shares of common stock for purposes of determining any individual or aggregate award limitations under the 2006 Plan and for purposes of calculating the aggregate number of shares available for awards under the 2006 Plan. If any such awards again become available for issuance under the 2006 Plan as described above, the number of shares added back to the 2006 Plan will follow the same 1.60 per share ratio. |
Stock options, stock appreciation rights, restricted stock, stock units, performance shares, performance units, and other equity-based awards under the 2006 Plan are subject to a minimum required vesting period of one year, except that up to 5% of the shares reserved for issuance under the 2006 Plan may be granted to participants without regard to any minimum vesting periods. The 2006 Plan prohibits the granting of dividend equivalent rights with respect to stock options and stock appreciation rights. Also, the 2006 Plan provides a limited exception to double-trigger vesting by causing awards granted under the 2006 Plan to immediately vest upon a change in control only if the successor entity does not agree to assume outstanding awards or replace outstanding awards with economically equivalent awards. If the If the awards are assumed or replaced with economically equivalent awards, then such awards are treated the same as under the Current Plan-the vesting of awards will only be accelerated if, within two years following a change in control, the participant's employment is terminated by the Company without "Cause" or by the participant for "Good Reason" (each term as defined in the 2006 Plan).
In the event of a change in control (as defined in the 2006 Plan) and a participant's subsequent termination within 24 months of the change in control either (i) by the Company other than for "Cause" or (ii) by the participant for "Good Reason," unless the Compensation Committee expressly provides otherwise in an applicable award agreement, any outstanding awards held by the participant will immediately become vested and exercisable in full. "Cause" and "Good Reason" have the meanings set forth in any applicable employment, consulting, severance or other written agreement between the Company and the participant or, if none, any award agreement or, if none, the 2006 Plan. The Compensation Committee has the discretion to terminate all or a portion of any outstanding awards upon a change in control, after giving notice to each affected participant. Each affected participant would receive an amount equal to the value of such award on the date of the change in control or, with respect to each share of stock subject to a stock option or stock appreciation right, an amount equal to the excess of the fair market value of the shares of stock immediately prior to the occurrence of the change in control over the exercise price per share of such stock option or stock appreciation right. Such amounts would be payable in cash, other property or a combination thereof, in the Committee's discretion. Awards granted to non-employee directors vest upon a change in control.
The 2006 Plan is administered by the Compensation Committee and has delegated to our Chief Executive Officer the authority to grant up to a specific number of equity awards to current or prospective employees (other than those individuals subject to Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") at the time of grant) in the Chief Executive Officer's discretion.
Employee Stock Purchase Plan
We maintain an employee stock purchase plan, which is intended to be qualified under Section 423 of the Code. Each of our U.S. employees and a limited group of our German employees who customarily work more than 20 hours per week and more than five months in any calendar year is eligible to participate in this plan after completing six months of service. To participate in the plan, an employee may designate prior to the commencement of a six-month offering period the amount of payroll deductions to be made from his or her paycheck for the purchase of shares of our common stock under the plan, which amount may not exceed 10% of his compensation. On each purchase date, shares of our stock are purchased automatically for each participant with the amounts withheld from his or her payroll deductions at a price equal to 85% of the lesser of the fair market value of the shares on the purchase date or the fair market value of the shares on the first day of the offering period. An employee may not participate in an offering period if, immediately after the purchase of shares, the employee would own shares or hold options to purchase shares of our stock possessing 5% or more of the total combined voting power or value of all classes of our stock. The employee stock purchase plan includes a "Non-Code Section 423 Component" for the employees of subsidiaries outside the United States.
PROPOSAL 2: ADVISORY VOTE ON EXECUTIVE COMPENSATION
In accordance with the requirements of Section 14A of the Exchange Act and the related rules of the SEC, our stockholders have the opportunity to cast an advisory vote to approve the compensation of our Named Executive Officers as disclosed pursuant to the SEC's compensation disclosure rules, including the Compensation Discussion and Analysis, the compensation tables and the narrative disclosures that accompany the tables (a "say-on-pay proposal").
Our compensation program is designed to be simple, effective and link pay to performance. It reflects the size, scope and success of IPG's business as well as the responsibilities of our Named Executive Officers. We believe our compensation program strikes the appropriate balance between utilizing responsible, measured pay practices and effectively incentivizing our executives to dedicate themselves fully to value creation for our stockholders. This balance is evidenced by IPG Photonics' best pay practices:
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What We Do | | What We Don't Do |
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Align our Officer Pay with Performance:
Compensation is tied to Company performance and stockholder returns, including performance stock units which are earned based upon IPG's total stockholder return.
| | No Retirement Benefits:
We have no supplemental executive retirement plans (SERPs) or defined benefit pension plans.
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| | |
Balance Annual and Long-Term Incentives:
Incentive programs provide an appropriate balance of annual and long-term incentives and include multiple measures of performance.
| | No Tax Gross-Ups: We do not provide tax gross reimbursements for change in control payments or executive perquisites, which are limited.
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Use Long-Term Incentives to Link Executive Pay to Company Performance: 52% of NEO (other than the CEO) pay consists of long-term incentives linked to increasing our stock price.
| | Hedging of Company Stock is Prohibited. We have Limits on Pledging |
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Cap Incentive Awards: Annual incentive plan awards and certain long-term incentives plan awards are capped.
| | No Severance For "Cause" Terminations |
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Maximize Stockholder Value While Mitigating Risk: Annual option and restricted stock unit equity awards vest over four years. These incentives drive growth over the long-term, discouraging short-term risk taking.
| | No Single-Trigger Change in Control Provisions |
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Have Stringent Stock Ownership Requirements:
NEOs substantially exceed our ownership guidelines.
| | No Stock Option Repricing without Stockholder Approval
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Impose Clawbacks on Executive Compensation: In 2015, weadopted a compensation recovery policy.
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As an advisory vote, the results of this vote will not be binding upon the Board or the Company. However, the Compensation Committee and the Board values the opinions expressed by our stockholders on this proposal and will consider the outcome of the vote when making future decisions on the compensation of our Named Executive Officers.
Before you vote, we encourage you to review the Compensation Discussion and Analysis on pages 30-40 of this proxy statement for additional details on our executive compensation.
OUR BOARD OF DIRECTOR RECOMMENDS
A VOTE "FOR" APPROVAL OF EXECUTIVE COMPENSATION
PROPOSAL 3: VOTE ON THE FREQUENCY OF ADVISORY VOTES ON EXECUTIVE COMPENSATION
In accordance with the requirements of Section 14A of the Exchange Act and the related rules of the SEC, our stockholders have the opportunity to cast an advisory vote to approve the compensation of our named executive officers as described in Proposal 2. This Proposal 3 affords stockholders the opportunity to cast an advisory vote on how often we should include a similar say-on-pay proposal in our proxy materials for future stockholder meetings or any special meetings for which we include executive compensation information in the proxy statement for that meeting (a "say-on-pay frequency proposal"). Under this Proposal 3, stockholders may vote to have the say-on-pay vote every one year, two years or three years. In addition, stockholders may abstain from voting.
The law requires the Company to hold an advisory vote on say-on-pay frequency at least once every six years. Our stockholders voted on a similar proposal in 2011 with the three year say-on-pay frequency receiving a greater number of votes than the one year or two year alternatives. We continue to believe that the say-on-pay vote should be conducted every three years and that this frequency is appropriate for the following reasons:
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• | our compensation programs do not change significantly from year to year and we seek to be consistent, |
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• | a longer frequency is consistent with long-term compensation objectives (we do not want to encourage a short-term view in our compensation practices), |
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• | our compensation programs are designed to reward and incentivize long-term performance and a triennial vote closely corresponds with the three- to four-year vesting of our long-term incentive awards, |
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• | our directors, including members of the Compensation Committee, are elected annually for terms of one year, allowing stockholders to express their views through the annual election process and |
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• | our stockholders overwhelmingly approved our executive compensation in our say-on-pay advisory votes, with 99% of the votes cast in favor our executive compensation in both 2014 and 2011, signaling strong stockholder approval of alignment of our executive compensation with performance. |
We encourage our stockholders to evaluate our executive compensation programs over a multi-year horizon. A triennial say-on-pay vote reflects the appropriate time frame for the Compensation Committee to evaluate the results of the most recent say-on-pay vote, to discuss the implications of that vote with stockholders to the extent needed, to develop and implement any adjustments to our executive compensation programs that may be appropriate in light of a past say-on-pay vote, and for stockholders to observe and evaluate the Compensation Committee’s actions in context. Some institutional stockholders believe that triennial say-on-pay votes support a longer-term focus on Company performance.
Because the say-on-pay vote occurs after we have already implemented our executive compensation programs for the current year, and because the different elements of compensation are designed to operate in an integrated manner and to complement one another, we expect that in certain cases it may not be appropriate or feasible to fully address and respond to any one year’s say-on-pay vote by the time of the following year’s annual meeting of stockholders.
We are aware that some stockholders believe that annual say-on-pay votes will enhance or reinforce accountability. However, we will continue to be engaged with our stockholders. Thus, we view the say-on-pay vote as an additional but not exclusive opportunity for our stockholders to communicate with us regarding their views on the Company’s executive compensation programs.
In addition, because our executive compensation programs have typically not changed materially from year to year and are designed to operate over the long term and to enhance long-term performance, we are concerned that an annual say-on-pay vote could lead to a near-term perspective that is inappropriate for evaluating our executive compensation programs.
Finally, although we believe that holding a say-on-pay vote every three years will reflect the right balance of considerations in the normal course, we will periodically reassess that view and can provide for a say-on-pay vote on executive compensation on a more frequent basis if changes in our compensation programs or other circumstances indicate that such a vote would be appropriate.
OUR BOARD OF DIRECTORS RECOMMENDS
A VOTE TO HOLD SAY-ON-PAY VOTES EVERY THREE YEARS
AS OPPOSED TO EVERY ONE YEAR OR TWO YEARS
AUDIT COMMITTEE REPORT
The primary role of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities by reviewing the financial information proposed to be provided to stockholders and others, the adequacy of the system of internal control over financial reporting and disclosure controls and procedures established by management and the Board, and the audit process and the independent registered public accounting firm's qualifications, independence and performance.
Management has primary responsibility for the financial statements and is responsible for establishing and maintaining the Company's system of internal controls and for preparation of the Company's financial statements. The Company's independent registered public accounting firm, Deloitte & Touche LLP, is responsible for performing an integrated audit of the Company's consolidated financial statements and the effectiveness of internal controls over financial reporting in accordance with standards of the Public Company Accounting Oversight Board (United States) (PCAOB) and issuing an opinion on the financial statements and the effectiveness of internal controls over financial reporting. The Audit Committee also employs an international auditing firm to conduct internal audits throughout the Company of various financial, operational and information technology areas as selected each year by the Audit Committee. The Audit Committee periodically met and held separate discussions with the internal auditors and the Company's independent registered public accounting firm, with and without management present, to review the adequacy of the Company's internal controls, financial reporting practices and audit process.
The Audit Committee has reviewed and discussed the Company's audited consolidated financial statements for the year ended December 31, 2016 with management and the independent registered public accounting firm. As part of this review, the Audit Committee discussed with Deloitte & Touche LLP the required communications described in Auditing Standard No. 16, Communication with Audit Committees, and those matters required to be reviewed pursuant to Rule 2-07 of Regulation S-X as well as the results of their audit of the effectiveness of internal controls over financial reporting.
The Audit Committee has received from Deloitte & Touche LLP a written statement describing all relationships between that firm and the Company that might bear on their independence, consistent with PCAOB Ethics and Independence Rule 3526, Communications with Audit Committees Concerning Independence. The Audit Committee has discussed the written statement with the independent registered public accounting firm and has considered whether its provision of any other non-audit services to the Company is compatible with maintaining the auditors' independence.
Based on the above-mentioned reviews and discussions, the Audit Committee recommended to the Board of Directors that the Company's audited consolidated financial statements be included in its Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC.
The information in this Audit Committee Report shall not be considered "soliciting material" or "filed" with the SEC, nor shall this information be incorporated by reference into any previous or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company incorporated it by specific reference.
AUDIT COMMITTEE
Thomas J. Seifert, Chair
Henry E. Gauthier
William S. Hurley
Catherine P. Lego
March 28, 2017
PROPOSAL 4: RATIFY INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP currently serves as our independent registered public accounting firm and audited our consolidated financial statements for the year ended December 31, 2016.2019. Our Audit Committee has appointed Deloitte & Touche LLP to serve as our independent registered public accounting firm for 2017,2020, and to conduct an integrated audit of our consolidated financial statements for the year ending December 31, 20172020 and of our internal control over financial reporting as of December 31, 2017.2020. Deloitte & Touche LLP has served as the Company’s auditor since 1999. A representative of Deloitte & Touche LLP will attend the Annual Meeting where he or she will have the opportunity to make a statement, if he or she desires, and will be available to respond to appropriate stockholder questions.
The Audit Committee is solely responsible for the appointment, retention, termination and oversight of the work of our independent registered public accounting firm, including the approval of all engagement fees, terms, and the annual audit plan. In determining whether to reappoint Deloitte & Touche LLP as the Company'sCompany’s independent external auditor, the Audit Committee took into consideration several factors, including an assessment of the professional qualifications and past performance of the lead audit partner and the Deloitte & Touche LLP team, the quality and level of transparency of the Audit Committee'sCommittee’s relationship and communications with Deloitte & Touche LLP. The Audit Committee considered, among other things, the knowledge and skills of Deloitte & Touche LLP'sLLP’s auditing experts that would be providing services to the Company, international scope and knowledge of the Company and its operations. After its assessment, the Audit Committee concluded that the best course of action was to reappoint Deloitte & Touche LLP as the Company'sCompany’s independent external auditor for 2017.2020. Lead and concurring audit partners are subject to rotation requirements that limit the number of consecutive years an individual partner may provide services. The maximum number of consecutive years of service in that capacity is five years and 2019 will be2024 is a year of lead audit partner rotation. The Audit Committee was directly involved in the selection process of the current and prior lead audit partners. In 2014, the process for rotation of the Company's lead audit partner involvedinvolves an inquiry into the backgrounds and experiences of several potential lead partners, a narrowing of the list to one or more, a meeting between the candidate or candidates for the role with the Chair of the Audit Committee, and the successor candidate, as well as meetings with management. This is accompanied by several discussions with and a final approval by the entire Audit Committee. The Company and Audit Committee followed this process in the 2019 selection of the lead audit partner from Deloitte & Touche LLP.
Fees Paid to Deloitte & Touche.The fees for services provided by Deloitte & Touche LLP, member firm of Deloitte Touche Tohmatsu, and their respective affiliates, to the Company were:
| | | | | Fees | Fees |
| Fee Category | | 2016 | | 2015 | 2019 |
| 2018 |
|
| Audit fees | | $1,662,214 | | $1,509,220 | $ | 2,440,990 |
| $ | 2,051,757 |
|
| Audit-related fees | | $150,258 | | 49,604 | — |
| 170,470 |
|
| Tax fees | | $278,753 | | 50,000 | 90,000 |
| 111,000 |
|
| All other fees | | $— | | — | — |
| — |
|
| Total Fees | | $2,091,225 | | $1,608,824 | $ | 2,530,990 |
| $ | 2,333,227 |
|
Audit fees.These fees comprise fees for professional services rendered in connection with the audit of the Company'sCompany’s consolidated financial statements that are customary under auditing standards generally accepted in the United States. Audit fees also include fees for consents and reviews related to SEC filings and quarterly services with respect to the preparation of our unaudited quarterly financial statements. The increase in audit fees relates to increases in audit hours and audit scope related to acquired companies and increases in hourly rates.
Audit-related fees.These fees comprise fees for services that are reasonably related to the performance of the audit or review of the Company'sCompany’s financial statements. The increase in audit-related fees in 2016 primarily relate to additional audit work required
58 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Proposal 3 Ratify Deloitte & Touche LLP as Our Independent Registered Public Accounting Firm for acquisitions completed in 2016.2020
Tax fees.Fees for tax services consist of fees for tax compliance services and tax planning and advice services. Tax compliance services are services rendered based upon facts already in existence or transactions that have already occurred to document, compute and obtain government approval for amounts to be included in tax filings. Tax planning and advice are services rendered with respect to proposed transactions or that alter a transaction to obtain a particular tax result. The tax fees in 2016 and 2015 relate primarily to assistance with the analysis of research and development tax credits and incentives and assistance. The increase in tax fees relates to additional work for research and development of tax incentives outside the United States.
All other fees. These are fees for any services not included in the other three categories.
Policy on Pre-Approval of Audit and Permissible Non-Audit Services.The Audit Committee pre-approves all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services and tax services as well as specifically designated non-
auditnon-audit services that, in the opinion of the Audit Committee, will not impair the independence of the independent registered public accounting firm. Pre-approval is generally provided for each fiscal year, and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent registered public accounting firm and our management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with the pre-approval, including the fees for the services performed to date. In addition, the Audit Committee also may pre-approve particular services on a case-by-case basis, as required.
Our Audit Committee is solely responsible for selecting and appointing our independent registered public accounting firm, and this appointment is not required to be ratified by our stockholders. However, our Audit Committee has recommended that the Board submit this matter to the stockholders in a non-binding advisory vote as a matter of good corporate practice. If the stockholders fail to ratify the appointment, the Audit Committee will reconsider whether to retain Deloitte & Touche LLP, and may retain that firm or another without re-submitting the matter to our stockholders. Even if the appointment is ratified, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our stockholders.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
RATIFICATION OF DELOITTE & TOUCH LLP AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
|
|
Our Board of Directors Recommends a vote FORratification of Deloitte & Touche LLP as
our independent registered public accounting firm for 2020. |
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55
59
Proposal 3 Ratify Deloitte & Touche LLP as Our Independent Registered Public Accounting Firm for 2020
Section 16(a) Beneficial Ownership Reporting ComplianceSection 16(a)The primary role of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities by reviewing the financial information proposed to be provided to stockholders and others, the adequacy of the system of internal control over financial reporting and disclosure controls and procedures established by management and the Board, and the audit process and the independent registered public accounting firm’s qualifications, independence and performance.
Management has primary responsibility for the financial statements and is responsible for establishing and maintaining the Company’s system of internal controls over preparation of the Company’s financial statements. The Company’s independent registered public accounting firm, Deloitte & Touche LLP, is responsible for performing an integrated audit of the Company’s consolidated financial statements and the effectiveness of internal controls over financial reporting in accordance with standards of the Public Company Accounting Oversight Board (United States) ("PCAOB") and issuing an opinion on the financial statements and the effectiveness of internal controls over financial reporting. The Audit Committee also employs an international auditing firm to conduct internal audits throughout the Company of various financial, operational and information technology areas as selected each year by the Audit Committee. The Audit Committee periodically met and held separate discussions with the internal auditors and the Company’s independent registered public accounting firm, with and without management present, to review the adequacy of the Company’s internal controls, financial reporting practices and audit process.
The Audit Committee has reviewed and discussed the Company’s audited consolidated financial statements for the year ended December 31, 2019 with management. In addition, the Audit Committee has discussed with Deloitte & Touche LLP the matters required to be discussed by the applicable requirements of the PCAOB and the SEC.
The Audit Committee also has received the written disclosures and the letter from Deloitte & Touche LLP required by the applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and the Audit Committee has discussed the independence of Deloitte & Touche LLP with that firm. The Audit Committee also has considered whether Deloitte & Touche LLP’s provision of non-attest services to the Company is compatible with maintaining the auditors’ independence.
Based on the above-mentioned reviews and discussions, the Audit Committee recommended to the Board that the Company’s audited consolidated financial statements be included in its Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC.
AUDIT COMMITTEE
Thomas J. Seifert, Chair
Gregory P. Dougherty
Henry E. Gauthier
Catherine P. Lego
March 18, 2020
The information in the Audit Committee Report shall not be considered “soliciting material” or “filed” with the SEC, nor shall this information be incorporated by reference into any previous or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act requiresof 1934, as amended, except to the extent that the Company incorporated it by specific reference.
60 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
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Proposal
4 | Stockholder Proposal to Prepare a Report on Management Team Diversity |
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The Company has received notice of the intention of a stockholder to present a proposal for voting at the Annual Meeting. The text of the stockholder proposal and supporting statement appear below exactly as received by the Company. All statements contained in the stockholder proposal and supporting statement are the sole responsibility of the proponent of the stockholder proposal. The Company will provide the name, address and stockholdings (to the Company’s knowledge) of the proponent upon request made to Office of the Secretary, IPG Photonics Corporation, 50 Old Webster Road, Oxford, Massachusetts 01540 or by calling (508) 373-1100.
If the proponents of this proposal, or representatives who are qualified under state law, are present at our directorsannual meeting and submit the proposal for a vote, then the proposal will be voted upon.
Beginning of Stockholder Proposal and Statement of Support:
Stockholder Proposal regarding a Report on Diversity in Executive Leadership
WHEREAS:
We believe that diversity, inclusive of gender and race, are critical attributes of a well-functioning executive team and necessary to meaningfully drive diversity throughout an organization.
Currently, IPG Photonics management team has no woman and an undeterminable number of people of color.
The business case for workforce diversity is compelling. McKinsey & Company, found in 2015, and in a larger 2017 study that highly diverse executive teams had higher returns on equity and earnings performance than those with low diversity. ISS Analytics examined companies where the CEO had a tenure of at least three years and found companies that combined gender diversity in the boardroom and the C-Suite showed, overall, the best results in terms of risk-adjusted quality of performance. (ISS Analytics/Governance Insights/October, 2018)
Yet, the number of women and people of color in leadership roles remains low. Nine percent of top executive roles in the Russell 3000 are held by women. Among S&P500 companies women comprise 44.7 percent of all employees yet just 26.5 percent of executives, senior officials and managers. Women of color face a wider gap.
Companies across industries are setting goals to address this significant issue. Intel has been tracking diversity data since 2014 and ties diversity goals to incentive compensation. In 2018, two years ahead of schedule, Intel achieved full representation of underrepresented minorities and women in its U.S. workforce. Symantec set a goal to increase the percentage of women in leadership (Director-level and above) to thirty percent by 2020. Citigroup, in 2018, announced plans to reverse “falling diversity” by setting public quantitative goals and holding senior leaders accountable for meeting them.
IPG Photonics has strengthened diversity on its board of directors. It is time to extend focus and accountability to building diversity in its leadership ranks.
To address the lack of diversity in senior roles we believe the Board must set clear policies to attract, retain and promote women and people of color, including reporting on gender pay equity, establishing sponsorship programs, and family support programs.
Further, we believe that linking diversity performance metrics to senior executive compensation packages can sharpen management’s ability to manage human capital risks, increase accountability and successfully reach inclusion and diversity goals.
RESOLVED: Shareholders request that the Board of Directors prepare a report (at a reasonable cost, in a reasonable time, and omitting confidential information) providing its assessment of the current state of its management team diversity and if and how it plans to make the Company’s management team more diverse in terms of race, ethnicity, and gender.
Supporting Statement: A report adequate for investors to assess IPG Photonic’s strategy and performance could include disclosures such as use of “Rooney Rule” practices when interviewing for open positions, and hiring and promotion rates of women and people of color across employment.
End of Stockholder Proposal and Statement of Support
61
Proposal 4 Stockholder Proposal
BOARD OF DIRECTORS STATEMENT IN OPPOSITION
The Board of Directors carefully considered the stockholder proposal and does not believe that the proposal is in the best interests of the Company or its stockholders for the reasons below.
The Company and its leadership have a long-standing commitment to diversity, inclusion and advancement. We believe that we are made better and stronger by having a diverse and inclusive workforce shaping our business choices, and we are culturally enriched by having the unique perspectives of people of all backgrounds.
The Board acknowledges the benefits of diversity throughout the Company, including its management team. Our Company has been fortunate to not experience impactful senior management turnover. Despite this, we have made strides to increase diversity in manager positions below our upper management, building internal resources for potential future executive openings. For example, women and minorities comprise over 40% of our global management below the executive level. In addition, we have increased diversity exceeding our recent affirmative action plans.
Even in the midst of unprecedented trade uncertainties and competitive challenges facing the Company in 2018 and 2019, we have taken a number of actions to promote our diversity and inclusion initiatives, including the following:
Our executive team has made improvements in making our hiring and promotion of women and minorities a priority and correspondingly the Company has attained improvement in its diversity.
The Company has been subject to two audits of the Office of Federal Contract Compliance Programs (A federal government office monitoring employment discrimination at government contractors), without any adverse findings.
We recruit and develop candidates for available leadership and other positions at the Company identifying persons from diverse backgrounds and with a variety of life experiences, including posting on national and local diversity job boards as well as partnerships with organizations, community groups and colleges that focus on the needs of minority candidates.
We annually send letters to our recruiters informing them of our commitment to recruit and draw from diverse pool of applicants including women and minority candidates.
We actively recruit at universities having higher than average populations of women and minorities in STEM (science, technology, engineering and math) related programs. Also, we support our female engineering employees in attending conferences of their peers and sponsor a female development program at a local college.
We maintain a “Diversity & Inclusion” microsite on our website, available under the “Our People and Communities” link on the “Our Company” page of our website, which provides potential candidates with insight into our diversity and inclusiveness initiatives as well as a view into our diverse and inclusive culture and workforce.
We focus on identifying persons from diverse backgrounds, skills and with a variety of life experiences as candidates for our Board as promoted by our director membership guidelines.
We support our diverse workforce and our commitment to an equal opportunity for all employees through a variety of methods, including a confidential ethics hotline, which promotes reporting of concerns regarding conduct that violates our Code of Business Conduct.
In summary, the Company remains fully committed to our ongoing efforts to promote diversity and foster an inclusive environment for all employees throughout the Company, but we do not believe that this stockholder proposal would advance those goals, nor do we believe that the reporting obligations expected in the stockholder proposal would provide a demonstrated benefit to our stockholders.
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The Board of Directors unanimously recommends that you vote AGAINSTthis proposal. |
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62 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
The following table provides information about the beneficial ownership of our common stock as of April 1, 2020 by:
each NEO,
each person who is a director or nominee,
all executive officers and persons whodirectors as a group and
each person or entity known by us to own beneficially own more than 10% of a registered classfive percent of our equity securitiescommon stock.
Percentage of beneficial ownership is based on 53,142,181 shares of common stock outstanding as of April 1, 2020.
|
| | | | | | | |
Named Executive Officers and Directors(1) | Shares
Owned |
| Right to Acquire
Shares within
60 Days |
| Total
Beneficial
Ownership(2) | Percent |
|
Michael C. Child(3) | 27,033 |
| 44,876 |
| 71,909 | * |
|
| Gregory P. Dougherty | 807 |
| 3,907 |
| 4,714 | * |
|
Valentin P. Gapontsev(4) | 7,397,642 |
| — |
| 7,397,642 | 13.9 | % |
| Henry E. Gauthier | 15,754 |
| 11,875 |
| 27,629 | * |
|
| Catherine P. Lego | 7,094 |
| 12,999 |
| 20,093 | * |
|
Angelo P. Lopresti(5) | 16,223,703 |
| 55,188 |
| 16,278,891 | 30.6 | % |
| Timothy P.V. Mammen | 35,014 |
| 48,702 |
| 83,716 | * |
|
| Eric Meurice | 8,268 |
| 21,298 |
| 29,566 | * |
|
Alexander Ovtchinnikov(5) | 16,260,514 |
| 34,629 |
| 16,295,143 | 30.6 | % |
| John R. Peeler | 7,654 |
| 24,875 |
| 32,529 | * |
|
Igor Samartsev(6)(7) | 928,066 |
| 17,788 |
| 945,854 | 1.8 | % |
Eugene Scherbakov(5)(6) | 16,203,874 |
| 54,542 |
| 16,258,416 | 30.6 | % |
| Thomas J. Seifert | 6,981 |
| 8,974 |
| 15,955 | * |
|
All executive officers and directors as a group
(15 persons) | 17,766,928 |
| 422,018 |
| 18,188,946 | 34.0 | % |
Other >5% Stockholders | | | | |
Valentin Gapontsev Trust I(1)(2)(8) | 14,542,004 |
| — |
| 14,542,004 | 27.4 | % |
IP Fibre Devices (UK) Ltd.(1)(2)(9) | 7,014,004 |
| — |
| 7,014,004 | 13.2 | % |
The Vanguard Group(10) | 3,867,440 |
| — |
| 3,867,440 | 7.3 | % |
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(1) | The contact address for each person or entity is in care of IPG Photonics Corporation, 50 Old Webster Road, Oxford, Massachusetts 01540. |
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(2) | In accordance with SEC rules, beneficial ownership includes any shares for which a person or entity has sole or shared voting power or investment power and any shares for which the person or entity has the right to acquire beneficial ownership within 60 days after April 1, 2020 through the exercise of any option or the vesting of a RSU or a PSU. |
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(3) | Includes 4,912 shares held in the name of Jewell Partners LLC, in which Mr. Child is partial owner and Managing Member. |
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(4) | Includes 7,014,004 shares beneficially owned by IP Fibre Devices (UK) Ltd. (“IPFD”), of which Dr. Gapontsev is the sole managing director. Dr. Gapontsev has sole voting and investment power with respect to the shares held of record by IPFD and has a 3% economic interest in IPFD. See note 9 below. |
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(5) | Includes (a) 7,528,000 shares owned of record by Valentin Gapontsev Trust I (“Gapontsev Trust I”), (b) 7,014,004 shares owned of record by IPFD which may be deemed to be beneficially owned by Gapontsev Trust I (see notes 8 and 9 below), (c) 692,691 shares beneficially owned by Valentin Gapontsev Trust II (“Gapontsev Trust II”), and (d) 950,250 shares beneficially owned by Valentin Gapontsev Trust III (“Gapontsev Trust III”), because such person is a trustee of each trust. Gapontsev Trust I, Gapontsev Trust II and Gapontsev Trust III were formed by CEO Valentin Gapontsev. |
63
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(6) | Each such person has an 8% economic interest in IPFD but does not possess voting or investment power with respect to such interest. Each such person disclaims beneficial ownership of the shares held by IPFD except to the extent of his economic interest therein. See note 9 below. |
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(7) | Includes 566,450 shares held by the spouse of Mr. Samartsev and family trusts formed by her and 10,000 shares held by the mother of Mr. Samartsev’s spouse. Mr. Samartsev disclaims beneficial ownership of such shares. |
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(8) | Includes 7,014,004 shares beneficially owned by IPFD, in which Gapontsev Trust I has a 48% economic interest. Gapontsev Trust I disclaims beneficial ownership of the shares held by IPFD except to the extent of its economic interest therein. See note 9 below. |
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(9) | Dr. Gapontsev has sole voting and investment power with respect to the shares held of record by IPFD. The following officers and directors of the Company or related parties have economic interests in IPFD: Gapontsev Trust I (48%), Dr. Gapontsev (3%), Mr. Samartsev (8%), Dr. Scherbakov (8%) and Gapontsev Trust III (2%). Each such person and entity (other than Dr. Gapontsev) does not possess voting or investment power with respect to such interest and each disclaims beneficial ownership of the shares held by IPFD except to the extent of his or its economic interest therein. |
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(10) | The address of The Vanguard Group is 100 Vanguard Boulevard, Malvern, PA 19355. Based solely on a Schedule 13G/A filed with the SEC on February 12, 2020. |
64 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
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| Questions and Answers About the Meeting and Voting |
When and Where Is the Annual Meeting?
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WHEN:
Thursday, May 28, 2020, at 10:00 a.m. Eastern Time | WHERE:
IPG Photonics Corporation
50 Old Webster Road
Oxford, Massachusetts 01540 |
What is the Impact of COVID-19 on the Annual Meeting?
Circumstances are changing rapidly. We currently intend to file reportshold the Annual Meeting in person. We are monitoring coronavirus (COVID-19) developments and the related recommendations and protocols issued by public health authorities and federal, state, and local governments. If we determine that alternative Annual Meeting arrangements are advisable or required, which may include switching to a virtual meeting format, or changing the time, date or location of ownershipthe Annual Meeting, then we will announce our decision via press release and the filing of and transactions in, our securitiesadditional proxy materials with the SEC. Please monitor our investor website at investor.ipgphotonics.com in advance of the Annual Meeting date if you are planning to attend in person. Please note that: (i) we will not be serving food and drink as we had in past years and (ii) we do not intend to have a presentation concerning the results from 2019.
What is the Purpose of These Materials?
The Board is soliciting proxies from our stockholders in connection with our annual meeting of stockholders to be held on Thursday, May 28, 2020 and any and all adjournments thereof. This Proxy Statement and our Annual Report are first being made available to stockholders of record on or about April 9, 2020 at investor.ipgphotonics.com. Information on the website does not constitute part of this Proxy Statement. Unless otherwise noted, the information in this Proxy Statement covers our 2019 fiscal year, which ran from January 1, 2019 through December 31, 2019.
What Matters Am I Being Asked to Vote On at the Meeting and What Vote is Required to Approve Each Matter?
You are being asked to vote on four proposals.
Proposal 1 requests the election of directors executive officers and 10% stockholders are also required to furnish us with copiesnamed in this Proxy Statement. Our bylaws require that, in uncontested elections, each director be elected by the majority of all Section 16(a) forms that they file. Based solely on its review of such forms received by it and the written representations of its Reporting Persons, the Company has determined that no such persons known to it were delinquentvotes cast with respect to their reporting obligationssuch director. This means that the number of shares voted “for” a director nominee must exceed the number of votes cast “against” that nominee in order for that nominee to be elected. Only votes “for” or “against” are counted as set forthvotes cast with respect to a director. Abstentions and broker non-votes (as defined below) will have no effect on Proposal 1. To be elected in Section 16(a)a “contested election” of directors, which our bylaws define as an election in which the number of nominees for director is greater than the number of directors to be elected, as determined as of the tenth day preceding the date the Company first mails its notice of meeting to stockholders, a director nominee must receive a plurality of the votes cast. The election of directors at the Annual Meeting is an uncontested election.
Proposal 2 requests the approval of our executive compensation. Proposal 2 is an advisory vote, which means that it is not binding on the Company.
Proposal 3 requests the ratification of the appointment of our independent registered public accounting firm for 2020.
Proposal 4 is a stockholder proposal, if properly presented at the meeting.
The affirmative vote of the holders of a majority of the outstanding shares which are present at the meeting in person or by proxy, and entitled to vote thereon, is required for approval of Proposals 2, 3 and 4. Abstentions have the same effect as voting against Proposals 2, 3 and 4. Broker non-votes have no effect on Proposals 2 and 4. Because Proposal 3 is considered a “routine” matter, broker non-votes are not expected to occur with respect to this Proposal.
No business can be conducted at the Annual Meeting unless a majority of all outstanding shares entitled to vote are either present in person or represented by proxy at the meeting. As far as we know, the only matters to be brought before the Annual Meeting are those referred to in this Proxy Statement. If any additional matters are presented at the Annual Meeting, the persons named as proxies may vote your shares in their discretion.
65
Questions and Answers About the Meeting and Voting
What Happens if a Director Nominee Fails to Receive a Majority Vote in an Uncontested Election at the Annual Meeting?
If a nominee who currently is serving as a director does not receive the affirmative vote of at least a majority of the votes cast in an uncontested election, Delaware law provides that the director would continue to serve on the Board as a “holdover director.” However, under our bylaws, each incumbent director is required to submit a letter of resignation as a condition of becoming a nominee of the Board, with the resignation contingent upon not receiving a majority of the votes cast in an uncontested election and acceptance of the resignation by the Board. In such event, the NCGC (or another committee designated by the Board) would make a recommendation to the Board as to whether to accept or reject the tendered resignation, or whether other action should be taken. The Board would act on the tendered resignation, taking into account the committee’s recommendation, and would publicly disclose its decision regarding the resignation within 90 days after the results of the election are certified. If the resignation is not accepted, the director would continue to serve until the next annual meeting of stockholders and until the director’s successor is elected and qualified.
Who Is Entitled to Vote at the Annual Meeting?
You are entitled to vote at the Annual Meeting if you owned shares of IPG (directly or in “street name,” as defined below) as of the close of business on April 1, 2020, the record date for the Annual Meeting. On that date, 53,142,181 shares of our common stock were outstanding and entitled to vote and no shares of our preferred stock were outstanding. Each share of our common stock is entitled to one vote with respect to each matter on which it is entitled to vote. There is no cumulative voting with respect to any proposal.
What Do I Need to Do If I Plan to Attend the Annual Meeting in Person?
If you plan to attend the Annual Meeting in person, you must provide proof of your ownership of our common stock and a form of personal identification, such as a driver’s license, for admission to the Annual Meeting. If you are a stockholder of record, the top half of your proxy card is your admission ticket and will serve as proof of ownership. If you hold your shares in street name, a recent brokerage statement or a letter from your bank or broker are examples of proof of ownership. If you hold your shares in street name and you also wish to be able to vote at the Annual Meeting, you must obtain a proxy, executed in your favor, from your bank or broker.
What Is the Difference Between Holding Shares Directly as a Stockholder of Record and Holding Shares in “Street Name” at a Bank or Broker?
Most of our stockholders hold their shares directly through a broker, bank or other nominee rather than directly in their own name. As summarized below, there are differences between shares held of record and those held in “street name.”
Stockholder of Record: If your shares are registered directly in your name with our transfer agent, Computershare, N.A., you are considered the stockholder of record with respect to those shares, and the Proxy Statement and Annual Report were sent directly to you. As the stockholder of record, you have the right to vote your shares as described herein.
“Street Name” Stockholder: If your shares are held by a bank, broker or other nominee on your behalf, you are considered the beneficial owner of shares held in “street name,” and the Proxy Statement and Annual Report were forwarded to you by your bank, broker or other nominee who is considered the stockholder of record with respect to those shares. Your bank, broker or other nominee sent to you, as the beneficial owner, a document describing the procedure for voting your shares. You should follow the instructions provided by your bank, broker or other nominee to vote your shares. You are also invited to attend the Annual Meeting. However, if you wish to be able to vote at the meeting, you must obtain a proxy card, executed in your favor, from your bank, broker or other nominee.
What Does it Mean to Give a Proxy?
Your properly completed proxy/voting instruction card will appoint Valentin P. Gapontsev and Angelo P. Lopresti as proxy holders or your representatives to vote your shares in the manner directed therein by you. Dr. Gapontsev is our Chairman of the Board and CEO. Mr. Lopresti is our Senior Vice President, General Counsel and Secretary. Your proxy permits you to direct the proxy holders to vote “For,” “Against,” or “Abstain” for each of the proposals included in this Proxy Statement.
All of your shares entitled to vote and represented by a properly completed proxy or voting instruction received prior to the Annual Meeting and not revoked will be voted at the meeting in accordance with your instruction.
66 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
Questions and Answers About the Meeting and Voting
What Happens If I Sign, Date and Return My Proxy But Do Not Specify How I Want My Shares Voted on One of the Proposals?
Stockholder of Record: Your proxy will be counted as a vote “For” all of the nominees for director (Proposal 1), “For” the advisory approval of our executive compensation, “For” the ratification of the appointment of our independent registered accounting firm (Proposal 3) and "Against" the stockholder proposal (Proposal 4).
“Street Name” Stockholder: Your bank, broker or nominee may vote your shares only on those proposals on which it has discretion to vote. Under the rules of Nasdaq, your bank, broker or nominee does not have discretion to vote your shares on non-routine matters, such as the election of directors (Proposal 1), advisory approval of our executive compensation (Proposal 2) and the stockholder proposal (Proposal 4). This is called a “broker non-vote.” However, your bank, broker or nominee does have discretion to vote your shares on routine matters such as the vote to ratify the appointment of our independent registered public accounting firm (Proposal 3). Accordingly, if you do not give your bank, broker or nominee specific instructions with respect to Proposal 3, your shares will be voted in such entity’s discretion (but only with respect to Proposal 3). We urge you to promptly provide your bank, broker or nominee with appropriate voting instructions so that all of your shares may be voted at the Annual Meeting.
Can I Change My Vote Before the Annual Meeting?
You can change your vote at any time before your proxy is exercised by delivering a properly executed, later-dated proxy (including an Internet or telephone vote), by revoking your proxy by written notice to the Secretary of IPG, or by voting in person at the Annual Meeting. If you choose to revoke your proxy by attending the Annual Meeting, you must vote your shares for revocation to be effective. The method by which you vote by a proxy will in no way limit your right to vote at the meeting if you decide to attend in person.
If your shares are held in street name, please refer to the information forwarded by your bank, broker or nominee for procedures on changing your voting instructions.
Is the Proxy Statement Available on the Internet?
Yes. We are delivering this Proxy Statement and the Annual Report pursuant to the Securities and Exchange Act.Commission rules that allow companies to furnish proxy materials to their stockholders over the Internet. On or about April 9, 2020, we will mail to our stockholders a notice (the “Notice”) containing instruction on how to access this Proxy Statement and the Annual Report and to vote via the Internet or by telephone. Stockholders can view these documents on the Internet by accessing the website at investor.ipgphotonics.com.
2018What Does it Mean If I Receive More Than One Notice of Internet Availability of Proxy Materials?
You may receive more than one Notice, more than one e-mail or multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you may receive a separate Notice, a separate e-mail or a separate voting instruction card for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you may receive more than one Notice, more than one e-mail or more than one proxy card.
To vote all of your shares by proxy, you must complete, sign, date and return each proxy card and voting instruction card that you receive and vote over the Internet the shares represented by each Notice that you receive (unless you have requested and received a proxy card or voting instruction card for the shares represented by one or more of those Notices).
Who Is Soliciting My Proxy and Who is Paying for the Cost of This Proxy Solicitation?
The Board of IPG is soliciting your proxy to vote at the Annual Meeting. IPG will bear the expense of preparing, posting to the Internet, printing and mailing proxy materials, as well as the cost of any required solicitation. We may also reimburse banks, brokers and other custodians, nominees and fiduciaries for reasonable expenses incurred in forwarding proxy materials to beneficial owners of our stock and obtaining their proxies. In addition to the mailing of proxy materials, the solicitation of proxies may be made in person, by telephone, or by electronic communication by our directors, officers or employees, without additional compensation, on our behalf. We have also retained Innisfree M&A Incorporated, an independent proxy solicitation firm, to assist us in soliciting proxies. We will pay Innisfree M&A Incorporated a fee of up to $15,000, plus reimbursement of certain out-of-pocket expenses for these services.
67
Questions and Answers About the Meeting and Voting
Who Counts the Votes?
We have engaged Computershare, N.A. as our independent agent to receive and tabulate stockholder votes. Computershare, N.A. will separately tabulate “For” and “Against” votes, abstentions and broker non-votes. Computershare, N.A. will also act as independent election inspector to certify the results, determine the existence of a quorum and the validity of proxies and ballots, and perform any other acts required under the General Corporation Law of Delaware.
How Can I Vote?
Most stockholders have a choice of voting in one of four ways:
via the Internet,
using a toll-free telephone number,
completing a proxy/voting instruction card and mailing it in the postage-paid envelope provided or
in person at the meeting.
The telephone and Internet voting facilities for stockholders of record will close at 1:00 a.m. Central Time on May 28, 2020. The Internet and telephone voting procedures are designed to authenticate stockholders by use of a control number and to allow you to confirm that your instructions have been properly recorded.
If you hold your shares in “street name,” your bank, broker or other nominee will send you a separate package describing the procedures and options for voting your shares. Please read this information carefully. If you hold your shares in “street name,” and wish to vote in person at the Annual Meeting, you must obtain a “legal proxy” from the organization that holds your shares. A legal proxy is a written document that will authorize you to vote your shares held in “street name” at the Annual Meeting. Please contact the organization that holds your shares for instructions regarding obtaining a legal proxy. You must bring a copy of the legal proxy to the Annual Meeting and ask for a ballot when you arrive.
What Is the Quorum Required to Transact Business?
At the close of business on April 1, 2020, the record date, there were 53,142,181 shares of our common stock outstanding. Our bylaws require that a majority of our common stock be represented, in person or by proxy, at the Annual Meeting in order to constitute the quorum we need to transact business at the meeting. We will count broker non-votes and proxies marked “abstain” as present in determining whether a quorum exists.
68 NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
2021 Annual Meeting and Nominations
Stockholders may present proposals for action at a future meeting and nominations for director if they comply with applicable SEC rules and our by-laws.bylaws. Proposals and director nominations must be received by our Secretary at IPG Photonics Corporation, 50 Old Webster Road, Oxford, Massachusetts 01540.
Matters for Inclusion in the Proxy Materials for the 2021 Annual Meeting of Stockholders. If you would like us to consider including a proposal in our proxy statement pursuant to Rule 14a-8 under the Exchange Act, it must be received by our Secretary at IPG Photonics Corporation, 50 Old Webster Road, Oxford, Massachusetts 01540, on or before December 4, 2017.11, 2020.
Matters for Consideration at the 2021 Annual Meeting of Stockholders, but not for Inclusion in the Proxy Materials. If you would like to present a proposal at the 20182021 annual meeting of stockholders, or nominate a director next year, but not to have such proposal or nominee included in our proxy statement relating to that meeting, such proposal or nomination must be received by our Secretary not earlier than February 1, 2018January 28, 2021 and not later than March 3, 2018. February 27, 2021.
Nominations of Individuals for Election as Directors at the 2021 Annual Meeting of Stockholders Using Proxy Access. A stockholder, or group of up to 20 stockholders, that has owned at least three percent of the Company’s outstanding common stock continuously for at least three years through the dates specified in the Company’s bylaws may nominate and include in the Company’s annual meeting proxy materials director nominees constituting up to the greater of two director nominees or 20 percent of the number of directors up for election, provided that the stockholder(s) and nominee(s) satisfy the requirements in specified in our bylaws. Notice of proxy access director nominees must be received by our Secretary not earlier than November 11, 2020 and not later than December 11, 2020.
Nominations of Individuals for Election as Directors at the 2021 Annual Meeting of Stockholders, but not Included in the Proxy Materials. If you would like to nominate a director next year, but not to have such nominee included in our proxy statement relating to that meeting, such nomination must be received by our Secretary not earlier than January 28, 2021 and not later than February 27, 2021.
Additional Requirements. Our by-lawsbylaws contain additional specific requirements regarding a stockholder'sstockholder’s ability to nominate a director or to submit a proposal for consideration at an upcoming meeting. Our by-lawsbylaws require that the notice to the Company include (i) information relating to the name, age and experience of the nominee and such other information concerning such nominee as would be required under the then-current rules of the SEC to be included in a proxy statement soliciting proxies for the election of the nominee, (ii) the nominee'snominee’s written consent to being named in the proxy statement and serving as a director, if elected and (iii) the name and address of the record holder and beneficial holder of the shares, the number of shares held of record or beneficially owned, and representations and other undertakings by both the stockholder nominating a director and its nominee, as described in our by-laws.bylaws. If the Nominating and Corporate Governance CommitteeNCGC or the Board determines that any nomination made by a stockholder was not made in accordance with the Company'sCompany’s procedures, the rules and regulations of the SEC or other applicable laws or regulations, such nomination will be void. If you would like a copy of the requirements contained in our by-laws,bylaws, please contact our Secretary.
No Incorporation by Reference
In our filings with the SEC, information is sometimes "incorporated“incorporated by reference."” This means that we are referring you to information that has previously been filed with the SEC and the information should be considered as part of the particular filing. As provided under SEC regulations, the Compensation Committee Report and the Audit Committee Report contained in this proxy statementProxy Statement specifically are not incorporated by reference into any of our other filings with the SEC, are not to be deemed soliciting materials or subject to the liabilities of Section 18 of the Exchange Act. In addition, this proxy statementProxy Statement includes several website addresses. These website addresses are intended to provide inactive, textual references only. The information on these websites is not part of this proxy statement.Proxy Statement.
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Stockholders Sharing the Same Address
Under the rules adopted by the SEC, we may deliver a single set of proxy materials to one address shared by two or more of our stockholders. This delivery method is referred to as “householding”. This procedure reduces the environmental impact of our annual meeting and can result in significant cost savings.the costs of printing and mailing. To take advantage of this opportunity, we have delivered only one set of proxy materials to multiple stockholders who share an address, unless we received contrary instructions from the impacted stockholders prior to the mailing date. We agreeIf you wish to deliver promptly, upon written or oral request,receive a separate copy of the proxy materials, as requested, to any stockholder at the shared address to which a single copy of these documents was delivered. IfProxy Statement and annual report or if you preferwish to receive separate copies of the Notice,future annual reports and proxy statement or annual report,statements, then call 877-373-6374 if877-373-6374.
If you are a stockholder of record, orhold your shares in “street name”, contact your bank or broker if you own shares in "street name."
In addition, if you currently are a stockholder who shares an address with another stockholder and would like to receive only one copy of future notices and proxy materials for your household, you may notify your bank or broker if your shares are held in "street name." You may notify us if you are a stockholder of record by calling 877-373-6374.
request information about how to eliminate duplicate mailings.
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IMPORTANT ANNUAL MEETING INFORMATION
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Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas.
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Admission Ticket
Electronic Voting Instructions
You can vote by Internet or telephone!
Available 24 hours a day, 7 days a week!
Instead of mailing your proxy, you may choose one of the two
voting methods outlined below to vote your proxy.
VALIDATION DETAILS ARE LOCATED BELOW IN THE
TITLE BAR.
Proxies submitted by the Internet or telephone must be
received by 1:00 a.m., Central Time, on June 1, 2017.
Vote by Internet
Log on to the Internet and go to
www.investorvote.com/ipgp
Follow the steps outlined on the secured website.
Vote by telephone
Ÿ70 Call toll free 1-800-652-VOTE (8683) within theNOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT
USA, US territories & Canada any time on a touchtone telephone. There is NO CHARGE to you for
the call.
• Follow the instructions provided by the recorded
message.
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Annual Meeting Proxy Card
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IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
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| | Proposals — The Board recommends a vote FOR all nominees and Proposals 2 and 4, and three (3) years in Proposal 3.
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1. | | Election of Directors | | For | | Withhold | | | | For | | Withhold | | | | For | | Withhold | | +
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| | 01 - Valentin P.
Gapontsev, Ph.D.
| | ¨ | | ¨ | | 02 - Eugene Scherbakov,
Ph.D.
| | ¨ | | ¨ | | 03 - Igor Samartsev
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| | 04 - Michael C. Child
| | ¨ | | ¨ | | 05 - Henry E. Gauthier
| | ¨ | | ¨ | | 06 – William S. Hurley | | ¨ | | ¨ | | |
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| | 07 - Catherine P. Lego
| | ¨ | | ¨ | | 08 - Eric Meurice
| | ¨ | | ¨ | | 09 – John R. Peeler
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| | 10 - Thomas J. Seifert | | ¨ | | ¨ | | | | | | | | | | | | | | |
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2. | | Advisory vote to approve our executive compensation | | | For | | Against | | Abstain | | |
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3. | | Advisory vote on the frequency of executive compensation votes. Uninstructed shares will be voted for 3 years | | 3 Yrs | | 2 Yrs | | 1 Yr | | Abstain |
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4. | | Ratify Deloitte & Touche LLP as IPG's independent registered public accounting firm for 2017 | | For | | Against | | Abstain | | |
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B Non-Voting Items
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Change of Address — Please print your new address below.
| | Comments — Please print your comments below.
| | Meeting Attendance
Mark the box to the right if
you plan to attend the
Annual Meeting.
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C | | Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below
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Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title.
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Date (mm/dd/yyyy) — Please print date below.
| | Signature 1 — Please keep signature within
the box.
| | | | Signature 2 — Please keep signature
within the box.
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2017 Annual Meeting Admission Ticket
2017 Annual Meeting of Shareholders
IPG Photonics Corporation
June 1, 2017
50 Old Webster Road
Oxford, MA 01540
Upon arrival, please present this admission ticket
and photo identification at the registration desk.
If you plan to attend the annual meeting, please bring this admission ticket with you. This ticket admits a shareholder and one guest. All meeting attendees must present valid photo identification. For your safety, all personal items including bags, purses and briefcases are subject to inspection. The use of photographic and recording devices is prohibited in the building. Cell phone use is permitted only in the lobby area. No personal items, with the exception of purses, may be carried into the meeting area.
From the East
Travel the Mass Turnpike West to Auburn Exit 10. From the tollbooth bear to the left and take the second right, I-395 South, Oxford. Travel I-395 South and take Exit 4B Sutton Ave., Oxford. From Exit 4B go to the set of traffic lights and turn left onto Main Street (Rt. 12 South). Follow Main Street for approximately 1.5 miles turn right onto Harwood Street. Follow Harwood Street for 1.5 miles (bear left at fork in road), Harwood Street becomes Old Webster Road. IPG Photonics will be on your left.
From the West
Travel the Mass Pike East to Exit 10 Auburn, approximately a 15 minute drive. From the tollbooth, bear to the left and take the second right, I-395 South, Oxford. From Exit 4B go to the set of traffic lights and turn left onto Main Street (Rt. 12 South). Follow Main Street for approximately 1.5 miles turn right onto Harwood Street. Follow Harwood Street for 1.5 miles (bear left at fork in road), Harwood Street becomes Old Webster Road. IPG Photonics will be on your left.
IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
Proxy - IPG Photonics Corporation
Notice of 2017 Annual Meeting of Stockholders
50 Old Webster Road, Oxford, MA 01540
Proxy Solicited by Board of Directors for Annual Meeting - June 1, 2017
Valentin P. Gapontsev and Angelo P. Lopresti, each with the power of substitution, are hereby authorized to represent and vote the shares of the undersigned, with all the powers which the undersigned would possess if personally present, at the Annual Meeting of Stockholders of IPG Photonics to be held on June 1, 2017 or at any postponement or adjournment thereof.
Shares represented by this proxy will be voted by the stockholder. If no such directions are indicated, the Proxies will have authority to vote FOR all nominees and Proposals 2 and 4, and three (3) years in Proposal 3.
In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting.
(Items to be voted appear on reverse side.)
