The following table sets forth certain information regarding our executive officers as of April 1, 2018.
The biographies of Dr. Gapontsev, Dr. Scherbakov and Mr. Samartsev are presented on pages 1420 and 1521 of this proxy statement. The biographies of our other executive officers are presented below.
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis provides a review of our executive compensation philosophy and program, and Compensation Committee decisions for fiscal 2018. The discussion in this section focuses on the compensation of the "Named Executive Officers" or "NEOs" for fiscal 2018, who were:
•Valentin P. Gapontsev, Ph.D., our Chairman and Chief Executive Officer
•Eugene Scherbakov, Ph.D., our Chief Operating Officer, the Managing Director of IPG Laser GmbH, our subsidiary, and Senior Vice President, Europe
•Timothy P.V. Mammen, our Senior Vice President and Chief Financial Officer
•Angelo P. Lopresti, our Senior Vice President, General Counsel and Secretary
•Alexander Ovtchinnikov, Ph.D., our Senior Vice President, Components
Summary of Executive Compensation Pay Practices
The guiding principles of our executive compensation philosophy and practice 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.
Executive Compensation Design
Our executive compensation program is designed to focus executive officers on both annual and long-term financial and operational performance, without encouraging unnecessary risk. The following graphs show approximately 36 percent of the CEO's total direct compensation and approximately 79 percent of the average total direct compensation of all of the other NEOs' compensation, as reflected in the 2018 column of the Summary Compensation Table, is at risk.
Our CEO, the Company's founder, does not receive long-term incentives because of his significant level of common stock ownership, which the independent directors believe provides him 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.
The performance-based stock unit awards in the chart above are presented at target based upon grant date fair value.
The following provides details on the components of our executive compensation program:
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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 peer group. |
| • | The Compensation Committee considers these factors when setting base salaries of the executive officers: scope of the executive's responsibilities, contributions, skills, knowledge, experience, seniority and annual and long-term Company performance.
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Annual 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.
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| • | Award payouts are subject to a cap of 225% of target in a performance period.
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Long-Term Incentives | • | Align interests of our executives and stockholders by motivating executive officers to increase long-term stockholder value. |
| • | Service-based equity awards include stock options and restricted stock units. They offer certainty and long-term retention while providing additional compensation opportunity based upon increased stock price levels. Stock options further align executives with the long-term growth of stockholder value. |
| • | Performance-based stock units provide additional incentive to our NEOs (other than the CEO) and are earned based on IPG's total stockholder return relative to a broad stock market index. |
| • | Enhance retention with vesting over four years. |
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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. |
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Pension Plan | • | We provide no pension plan or deferred compensation plan. |
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Perquisites | • | Perquisites are limited. |
Say-On-Pay
At our 2017 annual meeting of stockholders, our stockholders overwhelmingly approved our executive compensation structure in a "say-on-pay" advisory vote, voting 98% percent in favor of our executive compensation structure. At our stockholders meeting in 2017, the advisory proposal to hold "say-on-pay" advisory votes every three years received the greatest amount of votes and, therefore, we elected to submit the advisory "say-on-pay" proposal to our stockholders on a triennial basis. Accordingly, the next "say on pay" advisory vote is being held at our annual meeting of stockholders to be held in 2020.
2018 Base Salaries
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 information provided by its compensation consultant and considers the experience, skills, seniority, knowledge and responsibilities of the executive and the individual's performance assessment provided by the CEO to assist it in evaluating base salary for each NEO. 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.
In 2018, the Compensation Committee evaluated the base salaries and total cash compensation for the NEOs 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. Following 2017, a year of 40% revenue growth, salaries were increased in 2018, reflecting the larger size and complexity of the Company in 2018. Dr. Gapontsev received an increase in base salary of 12% bringing his base salary in line with the market 65th percentile of our peer group, which also factored in the fact that the Compensation Committee does not grant any equity awards to Dr. Gapontsev. Likewise, the salary of Dr.
Scherbakov increased approximately 26% to €550,900 (which was then equivalent to $679,400), which also factored in his additional management responsibilities related to his appointment as Chief Operating Officer in February 2018. Finally, the Compensation Committee approved merit increases of 5% for the base salaries of Messrs. Mammen, Ovtchinnikov and Lopresti.
2019 Update. In light of challenging macroeconomic conditions 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.
2018 Cash Incentive Awards
To focus each executive 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. 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 2018 the Compensation Committee identified two financial performance measures: net sales and adjusted EBIT and assigned a 50% weighting factor to each financial performance goal. 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 stock-based compensation expenses and deducting interest income. Adjusted EBIT excludes stock-based compensation expenses as they can vary substantially from period to period due to changes in the stock price, compensation practice and structure as well as the number of equity grants in the year, which are variables that are not under the control of the executives. We believe the use of non-GAAP Adjusted EBIT is a useful measure allowing the Compensation Committee to compare and reward operational performance on a more consistent basis without significant variations arising from income taxes, interest income or expense and stock-based compensation. The Compensation Committee intentionally focused on net sales growth and pretax profits so that our executives would be incentivized to deliver the types of growth that benefit our stockholders, namely increasing sales and profits.
Under the 2018 AIP, the NEOs 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 individual performance. If the financial performance exceeds one or more of the stretch objectives the incentive payments to the NEOs would be limited at 200% of the financial performance target payout. If both minimum financial objectives established by the Compensation Committee in 2018 are not met, the Compensation Committee has the discretion to grant an award for individual performance. The Compensation Committee also has the discretion to reduce the payments for attainment of revenue targets and individual performance measures if the Company incurs earnings losses. The individual goals and objectives for the CEO 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 them.
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Name | | Target as % of Base Salary | | Financial Performance Minimum | | Financial Performance Maximum | | Individual Performance Maximum | | Maximum Award Payout (1) | | Target Award ($)(2) | | Actual Payout ($) |
Valentin P. Gapontsev, Ph.D. | | 110% | | | 20.63% | | | 220.0% | | | 27.50% | | | 225% | | | 1,023,000 | | 568,000 |
Eugene A. Scherbakov, Ph.D. | | 100% | | | 18.75% | | | 200.0% | | | 25.00% | | | 225% | | | 679,400 | | 351,800 |
Timothy P.V. Mammen | | 80% | | | 15.00% | | | 160.0% | | | 20.00% | | | 225% | | | 384,960 | | 213,700 |
Angelo P. Lopresti | | 80% | | | 15.00% | | | 160.0% | | | 20.00% | | | 225% | | | 353,680 | | 196,400 |
Alexander Ovtchinnikov | | 80% | | | 15.00% | | | 160.0% | | | 20.00% | | | 225% | | | 350,480 | | 194,600 |
1.Maximum award payout includes both financial and individual payouts presented as a percentage of the financial target award.
2.Target award includes both financial and individual performance targets.
While financial performance targets were intended to be achievable by the Company, a maximum bonus would require very high levels of Company performance. The Compensation Committee excluded the acquisition of
Genesis Systems Group, LLC and other acquisitions occurring in 2018 and significant unbudgeted legal expenses from the calculation of the 2018 bonus. The target levels for net sales and Adjusted EBIT were $1,619 million and $649 million, respectively, representing 15% and 9% increases, respectively, from prior year levels. The Compensation Committee's adjusted minimum and stretch targets for net sales were $1,409 million and $1,832 million, and for Adjusted EBIT were $521 million and $733 million.
After adjustments, the Company achieved net sales of $1,449 million and Adjusted EBIT of $550 million. These results represented a 3% increase in net sales and a 9% decrease in Adjusted EBIT from 2017 levels. Following the high growth of 2017, the Company faced a challenging macroeconomic environment in 2018, affecting our two largest regions, Europe and China, exacerbated by the U.S.-China trade conflict, escalating tariffs and increased customer uncertainty. During the year, the Company continued to invest in future development and infrastructure which, together with the impact of increased price competition, lowered margins and earnings. Both net sales and Adjusted EBIT were below target levels but above threshold levels set by the Compensation Committee. The independent directors set the individual goals and objectives for the CEO in 2018 and reviewed the CEO's attainment of the goals. As a result of this process, the independent directors awarded the CEO 27.5% of his base salary for his individual performance during 2018. The Compensation Committee, with input from the CEO, awarded the Chief Operating Officer 25.0% of his base salary and the other NEOs 20% of their respective base salaries for their individual performances in 2018.
The Compensation Committee may award discretionary bonuses to executives for exceptional performance. For 2018, the Compensation Committee did not exercise this right.
2019 Update. In February 2019, the Committee approved annual financial targets and incentive payouts to the NEOs for the fiscal year 2019 AIP. The financial performance targets have changed for the 2019 AIP, but the incentive payout targets as a percentage of salary have not changed from the 2018 AIP.
Equity-Based Incentives Granted in 2018
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 2018, 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%). The type and proportion of the equity grants reflected a 2018 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 creation of increased stockholder value.
In 2018, the Compensation Committee decided to compare performance of the Company's stock to the Russell 3000 Index, which includes the Company. This 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, 2021) against the comparable period from the beginning of the performance measurement period (March 1, 2018), 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% below the Russell 3000 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 vesting date is March 1, 2021, should any performance-based stock units vest at all.
In 2018, 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 and Monte Carlo simulations for performance-based stock units. 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. 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 NEOs in 2018. All awards in the table below vest 25% on each anniversary of March 1, 2018, except for the performance-based stock units which vest on March 1, 2021.
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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. | | — | | — | | — | | — | | — |
Eugene A. Scherbakov, Ph.D. | | 13,744 | | 239.72 | | 4,014 | | 4,014 | | 0 - 8,028 |
Timothy P.V. Mammen | | 6,642 | | 239.72 | | 1,940 | | 1,940 | | 0 - 3,880 |
Angelo P. Lopresti | | 5,786 | | 239.72 | | 1,690 | | 1,690 | | 0 - 3,380 |
Alexander Ovtchinnikov | | 5,734 | | 239.72 | | 1,674 | | 1,674 | | 0 - 3,348 |
The Compensation Committee believes that vesting of awards of service-based options and restricted stock units 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 performance-based stock units 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 restricted stock units granted in 2018 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 do not vest until the performance-based stock units vest.
2019 Update. The Compensation Committee approved the grant of service-based stock options and restricted stock units and performance-based stock units to the NEOs (other than the CEO) in February 2019. All equity awards in the table below vest as follows: service-based stock options and restricted stock units vest 25% on each anniversary of March 1, 2019 and performance-based stock units vest on March 1, 2022, the last day of the performance period which is three years after the start of the performance period. The Compensation Committee also changed the index against which the relative performance of the Company’s stock is measured for the 2019 and future awards. The Committee considered the analysis of Radford for 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 as the 2019 relative stock index for the performance-based stock units because, among other reasons, 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.
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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. | | — | | — | | — | | — | | — |
Eugene A. Scherbakov, Ph.D. | | 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 |
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. 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 government-sponsored retirement program.
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 2018 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.
Role of Compensation Committee
The Compensation Committee determines, approves and administers the compensation programs for our executive officers, including our 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 may delegate authority whenever it deems appropriate. In 2018 the Compensation Committee delegated authority to grant equity awards for non-executives to the CEO subject to certain conditions including amounts of awards and review of awards by the Compensation Committee.
Our Compensation Committee's policy is to set executive pay in accordance with the objectives of the Company's compensation programs as described above. In the Compensation Committee's view, the Company'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 annual and long-term Company performance, as well as individual performance, contributions, skills, seniority, knowledge, experience and responsibilities.
Role of Management
The CEO participates in the establishment of the compensation targets and payout levels for the other NEOs. He assesses the performance of all NEOs and recommends to the Compensation Committee the overall levels of achievement, and personal performance in the year. Upon request, the NEOs provide supplemental material to the Compensation Committee to assist in the determination and implementation of compensation, policies and practices. The CEO is not involved in decisions regarding the setting of any component of his compensation. The CEO 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 2018. The consultation included non-executive compensation data and valuation services for equity incentives. Radford’s parent company does not perform any other work for the Company. The Compensation Committee reviews the independence of Radford in light of SEC rules and Nasdaq listing standards regarding compensation consultants. The Compensation Committee believes that there were no actual or potential conflicts of interest with Radford in 2018.
Pay Positioning Strategy
Consistent with prior years, the Compensation Committee in 2018 set the market 65th percentile as its target for base salary, target annual bonus, long-term incentives and total direct compensation (the sum of the three compensation elements). Also, competitive target ranges for the elements and target total direct compensation were established. Within the comparative framework, the primary data was the named peer group of specific peers discussed below and the secondary data was broader, size-appropriate comparisons in the high technology industry using Radford High Technology Survey Data. In 2018, the midpoint of the Company's target total cash compensation range was near the 65th percentile. An individual's actual compensation may fall below or above the target positions based on the individual's experience, seniority, skills, knowledge, performance, responsibilities and contributions as well as the Company's performance.
These factors are weighed by the Compensation Committee in its judgment, and no single factor takes precedence over others 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 executives measured against a group of peer companies selected by the Compensation Committee. The peer companies are companies in the laser source and photonics industry, as well as a broader group of technology companies of comparable size and complexity with international scope that experience growth.
For 2018, the peer companies were:
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Arista Networks, Inc. | | Barnes Group, Inc. | | Cognex Corporation |
Coherent, Inc. | | Dolby Laboratories, Inc. | | Donaldson Company, Inc. |
Entegris, Inc. | | FLIR Systems, Inc. | | Graco, Inc. |
IDEX Corporation | | II-VI Incorporated | | ITT, Inc. |
MKS Instruments, Inc. | | National Instruments, Inc. | | Nordson Corporation |
Teradyne, Inc. | | Trimble Navigation Limited | | Waters Corporation |
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 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, 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 been omitted from the peer group. Based upon the process and applying the criteria above, the Compensation Committee (i) added Arista Networks, Inc., Donaldson Company, Inc. and Waters Corporation to the peer group and (ii) removed Fabrinet and OSI Systems, Inc. from the peer group.
2019 Update. For 2019 compensation determinations, the Compensation Committee applied the methodology above and determined the historical peer group continues to be appropriate for 2019.
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 "covered employees" as defined by Section 162(m) (generally, our current and former NEOs) to $1 million per executive (the "$1 million cap"). Prior 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 payments, 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 for tax years after 2017, unless certain limited transition relief is met. The Compensation Committee retains the discretion to grant or pay compensation that may exceed 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.
Compensation Risk
Management conducts an annual risk assessment of the Company's compensation policies and practices for all employees, including non-executives, and reports its findings to the Compensation Committee. In 2018, management concluded that the Company's compensation policies and practices are balanced and do not motivate imprudent risk taking. Management believes that IPG’s compensation policies do not create risks that are reasonably likely to have a material adverse effect on IPG.
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;
•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;
•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" that might encourage short-term business decisions in order to meet a vesting or payout 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 executives with those of our long-term stockholders. Under the guidelines, the CEO is expected to maintain a minimum investment on our common stock of five times his annual salary and other senior executives 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 executives 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, see "Corporate Governance - Stock Ownership Guidelines."
Clawback Policies.In 2015, the Compensation Committee approved a compensation recovery policy that allows the Company to recapture 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'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.
COMPENSATION COMMITTEE REPORT
Role of Compensation Committee
The Compensation Committee ofdetermines, approves and administers the compensation programs for our executive officers, including our 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 Directors has reviewedequity plans and discussed with management thecertain other benefit plans.
The Compensation Discussion and Analysis included in this proxy statement. Based on this review and discussion,Committee may delegate authority whenever it deems appropriate. In 2018 the Compensation Committee recommendeddelegated authority to grant equity awards for non-executives to the BoardCEO subject to certain conditions including amounts of Directors thatawards and review of awards by the Compensation DiscussionCommittee.
Our Compensation Committee's policy is to set executive pay in accordance with the objectives of the Company's compensation programs as described above. In the Compensation Committee's view, the Company'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 annual and Analysis be includedlong-term Company performance, as well as individual performance, contributions, skills, seniority, knowledge, experience and responsibilities.
Role of Management
The CEO participates in the Company's proxy statementestablishment of the compensation targets and payout levels for the Company's 2018 annual meetingother NEOs. He assesses the performance of stockholdersall NEOs and recommends to the Compensation Committee the overall levels of achievement, and personal performance in the Company's Annual Report on Form 10-K foryear. Upon request, the year ended December 31, 2017.NEOs provide supplemental material to the Compensation Committee to assist in the determination and implementation of compensation, policies and practices. The CEO is not involved in decisions regarding the setting of any component of his compensation. The CEO and other members of senior management attend Compensation Committee meetings at the invitation of the Compensation Committee.
Role of Independent Consultant
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, exceptengaged Radford, an independent compensation consultant, to the extent that the Company incorporates it by specific reference.
COMPENSATION COMMITTEE
Catherine P. Lego, Chair
William S. Hurley
Eric Meurice
John R. Peeler
March 28, 2018
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussionconduct a comprehensive review and Analysis provides a reviewanalysis of our executive and non-employee director compensation philosophyprograms and program, and Compensation Committee decisions for fiscal 2017. The discussion in this section focuses on the compensation of our "Named Executive Officers" or "NEOs" for fiscal 2017, who were:
Valentin P. Gapontsev, Ph.D., our Chairman and Chief Executive Officer
Eugene Scherbakov, Ph.D., our Chief Operating Officer, the Managing Director of IPG Laser GmbH, our subsidiary, and Senior Vice President, Europe
Timothy P.V. Mammen, our Senior Vice President and Chief Financial Officer
Trevor Ness, our Senior Vice President, World Wide Sales and Marketing
Angelo P. Lopresti, our Senior Vice President, General Counsel and Secretary
2017 Business Summary
We are committed to delivering increasing value to our shareholders by: (1) enhancing our core market leadership through the growing market penetration of our fiber laser technology over other lasers and non-laser technology and (2) expanding into multiple new markets and applications. In 2017, IPG delivered record revenue, operating margin, net income, and cash flow from operations, while we continued to make investments to drive future growth.
In 2017, we:
increased revenue by 40%, our strongest annual growth in six years, and achieved a four-year compounded annual growth rate of 21%,
used our vertical integration and direct sales model to increase our industry-leading gross margins to 56.6%,
•deepened our penetration in laser cutting and expanded laser welding sales,
•continued to gain sales from other laser and non-laser technologies and
•introduced new products, systems and accessories to expand our addressable markets.
IPG recorded $1,408.9 million in net sales in 2017, which is the highest level of revenuesrecommendations for any fiscal year in our history. We delivered $6.36 in diluted earnings per share, up 31% year-over-year, which includes charges of $0.90compensation related to the U.S. Tax Cuts2018. The consultation included non-executive compensation data and Jobs Act.
Our operating income increased 51% in 2017 and achieved its highest levels to date, reaching $551 million compared to $364 million in 2016 and $342 million in 2015.
Our gross margin increased to 56.6% in 2017 up from 54.9% in 2016, as a result of increased manufacturing efficiency 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 $1.12 billion at December 31, 2017, compared to $831 million at December 31, 2016, while investing $127 million in property, plant, equipment and technology in 2017 so that we are well-positionedvaluation services 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 28, 2018.
Summary of Executive Compensation Pay Practices
The guiding principles of our executive compensation philosophy and practice 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.
Executive Compensation Design
Our executive compensation program is designed to focus executive officers on both annual and long-term financial and operational performance, without encouraging unnecessary risk. The following graphs show approximately 63 percent of the Chief Executive Officer's total direct compensation and approximately 78 percent of the average total direct compensation of all of the other Named Executive Officers' compensation, as reflected in the 2017 column of the Summary Compensation Table, is at risk.
Our Chief Executive Officer, the Company's founder,equity incentives. Radford’s parent company does not receive long-term incentives because of his significant level of common stock ownership. As a result, a smaller percentage of his total compensation is performance-based as compared toperform any other work for the chief executives of our peer companies who typically receive additional compensation in the form of long-term incentives.
The performance-based stock units in the chart below are presented at target based upon grant date fair value.
The following provides details on the components of our executive compensation program: |
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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
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 (other than the CEO) and are 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
| • | 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. |
2017 Base Salaries
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 itsthe independence of Radford in light of SEC rules and Nasdaq listing standards regarding compensation consultant and considers the experience, skills, knowledge and responsibilitiesconsultants. The Compensation Committee believes that there were no actual or potential conflicts of the executive and the individual's performance assessment provided by the Chief Executive Officer to assist itinterest with Radford in evaluating base salary for each Named Executive Officer. With respect to the Chief Executive Officer,2018.
Pay Positioning Strategy
Consistent with prior years, the Compensation Committee additionally considersin 2018 set the performancemarket 65th percentile as its target for base salary, target annual bonus, long-term incentives and total direct compensation (the sum of the Company as a whole.
In 2017, the Compensation Committee evaluated the base salaries and total cashthree compensation elements). Also, competitive target ranges for the Named Executive Officers withelements and target total direct compensation were established. Within the assistancecomparative framework, the primary data was the named peer group of Radford. The Compensation Committee reviewed Radford's assessmentspecific peers discussed below and the secondary data was broader, size-appropriate comparisons in connection with positioningthe high technology industry using Radford High Technology Survey Data. In 2018, the midpoint of the Company's target total cash compensation range was near the 65th percentile. An individual's actual compensation may fall below or above the target positions based on the individual's experience, seniority, skills, knowledge, performance, responsibilities and contributions as well as the Company's performance.percentile
These factors are weighed by the Compensation Committee in its judgment, and no single factor takes precedence over others 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 executives measured against a group of peer group. Based uponcompanies selected by the Compensation Committee. The peer companies are companies in the laser source and photonics industry, as well as a broader group of technology companies of comparable size and complexity with international scope that experience growth.
For 2018, the peer companies were:
| | | | | | | | | | | | | | |
Arista Networks, Inc. | | Barnes Group, Inc. | | Cognex Corporation |
Coherent, Inc. | | Dolby Laboratories, Inc. | | Donaldson Company, Inc. |
Entegris, Inc. | | FLIR Systems, Inc. | | Graco, Inc. |
IDEX Corporation | | II-VI Incorporated | | ITT, Inc. |
MKS Instruments, Inc. | | National Instruments, Inc. | | Nordson Corporation |
Teradyne, Inc. | | Trimble Navigation Limited | | Waters Corporation |
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 approved increasesconsiders 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 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, market capitalization, revenue and headcount. Radford also supplements its peer analysis with the data from a broader list of the Named Executive Officershigh-technology public company participants in the following manner: Dr. Gapontsev received an increase in base salary of 13% bringing his base salary in lineAON Radford Executive Technology Survey targeting technology companies with comparable revenue levels. Companies that are no longer publicly traded have been omitted from the market 65th percentile of our peer group, which also factored ingroup. Based upon the fact thatprocess and applying the criteria above, the Compensation Committee does not grant any equity awards(i) added Arista Networks, Inc., Donaldson Company, Inc. and Waters Corporation to Dr. Gapontsev. Likewise, the salary of Dr. Scherbakov increasedpeer group and (ii) removed Fabrinet and OSI Systems, Inc. from approximately $500,000 to $540,000 which also factored in his additional management responsibilities related to his appointment as Chief Operating Officer in February 2017. Finally,the peer group.
2019 Update. For 2019 compensation determinations, the Compensation Committee approved merit increasesapplied the methodology above and determined the historical peer group continues to be appropriate for 2019.
Other Factors Affecting Compensation
Tax Deductibility under Section 162(m). Section 162(m) of 5%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 "covered employees" as defined by Section 162(m) (generally, our current and former NEOs) to $1 million per executive (the "$1 million cap"). Prior to the enactment of the Tax Cuts and Jobs Act (“TCJA”), 8%Section 162(m) provided an exception from this deduction limitation for certain forms of “performance-based compensation,” which included annual incentive payments, the gain recognized by NEOs upon the exercise of stock options and 3%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 for tax years after 2017, unless certain limited transition relief is met. The Compensation Committee retains the discretion to grant or pay compensation that may exceed the $1 million cap or may not qualify for the base salariesperformance-based compensation exception to Section 162(m). The Compensation Committee believes it is appropriate to retain the flexibility to authorize payments of Messrs. Mammen, Ness and Lopresti.
Update 2018.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 2018,the past, the Compensation Committee approved increasesgenerally sought to eachstructure 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 the Named Executive Officers following an updated assessment of base salaries and total cashsuch compensation conducted by Radford. The CEO's base salary was increased by12% to $930,000. Also, the salary of Dr. Scherbakov increased from approximately $540,000 to $679,400. Finally, the Compensation Committee approved increases of 5%, 6% and 5% to the base salariesextent 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 Messrs. Mammen, Nessour executive compensation program. In addition, accounting treatment is just one of many factors impacting plan design and Lopresti, respectively.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.
Compensation Risk
2017 Cash Incentive Awards
To focus each executive officer on the importanceManagement conducts an annual risk assessment 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 tiedpolicies and practices for all employees, including non-executives, and reports its findings to the achievement of goals set by the Compensation Committee. Our Named Executive Officers participate in In 2018, management concluded that the Company's compensation policies and practices are balanced and do not motivate imprudent risk taking. Management believes that IPG’s compensation policies do not create risks that are reasonably likely to have a material adverse effect on IPG.
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;
•our Senior Executive Annual Incentive Plan (the "AIP") administered bysenior executives are subject to stock ownership guidelines, which we believe incentivize our executives to consider 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 percentagelong-term interests 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 RadfordCompany and the seniority level of the executive.
Consistent with prior years, in 2017 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 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.discourage excessive risk-taking that could negatively impact our stock price;
Under the 2017 AIP, the•our senior 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 stretch objectives, the incentive payments to the executive would increase as determined by linear interpolation,are subject to limits on maximum award payouts. Consistentcompensation recovery policy, which discourages excessive risk-taking that could negatively affect our stock price;
•our incentive compensation programs are designed with our pay-for-performance philosophy, no cash incentive payments would be made if the minimum financial objectives established by the Compensation Committee in 2017 werevesting terms that are relatively consistent, spread out over several years, and do 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 officerscontain steep payout "cliffs" that might encourage short-term business decisions in order to fostermeet a shared commitment among executives.vesting or payout threshold; and |
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Name | Target as % of Base Salary | Financial Performance Minimum | Financial Performance Maximum | Individual Performance Maximum | Maximum Award Payout (1) | Target Award ($)(2) | Actual Payout ($) |
Valentin P. Gapontsev, Ph.D. | 100% | 18.8% | 225.0% | 25.00% | 225% | 832,000 | 1,399,100 |
|
Eugene A. Scherbakov, Ph.D. | 75% | 14.0% | 225.0% | 19.00% | 225% | 405,000 | 769,300 |
|
Timothy P.V. Mammen | 75% | 14.0% | 225.0% | 19.00% | 225% | 344,000 | 577,000 |
|
Trevor D. Ness | 75% | 14.0% | 225.0% | 19.00% | 225% | 308,000 | 516,200 |
|
Angelo P. Lopresti | 75% | 14.0% | 225.0% | 19.00% | 225% | 316,000 | 530,000 |
|
| |
(1) | Maximum award payout is presented as a percentage of the target award. |
| |
(2) | Target award includes both financial and individual performance targets. |
•our senior executive incentive compensation program caps the amounts that may be paid for performance above target level.
While objectives were intendedOther 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 be achievable byour common stock. A director or officer of the Company a maximum bonus would require very high levels of Company performance. In 2017, the Compensation Committee adjusted the targets to reflect the acquisition of OptiGrate Corporation and Innovative Laser Technology, Inc. The adjusted target levels for net sales and Adjusted EBIT were $1,134 million and $422 million, respectively, representing 13% and 7% increases, respectively, from prior year levels. The Compensation Committee's adjusted minimum and stretch targets for net sales were $964 million and $1,304 million, and for Adjusted EBIT were $338 million and $507 million.
During 2017, the Company achieved net sales of $1,409 million and Adjusted EBIT of $593 million. These results represented a 40% increase in net sales and a 51% increase in Adjusted EBIT over 2016 levels. Despite exceeding the stretch targets in 2017, payouts weremay not limited by the plan maximums, which are set at 225% of the target award for financial and individual performance. The independent directors set
the individual goals and objectives for the Chief Executive Officer in 2017. In 2017, the independent directors also reviewed the Chief Executive Officer's attainment of goals and objectives and approved his payout under the 2017 AIP. As a result of this process, the independent directors awarded the Chief Executive Officer 25.0%pledge shares constituting more than 20% of his base salary for his individual performance during 2017. The Compensation Committee, with input from the Chief Executive Officer, awarded the other Named Executive Officers 19.0%or her total stock ownership. Pledges of their respective base salaries for their individual performances in 2017.
The Compensation Committee may award discretionary bonusesshares constituting 20% or less of total stock ownership are subject to executives for exceptional performance. For 2017, the Compensation Committee did not exercise this right.
certain conditions.
2018 Update.
In February 2018, the Committee approved annual targets and incentive payoutsStock Ownership Guidelines.The Board adopted stock ownership guidelines to the Named Executive Officers for fiscal year 2018 under the AIP, as set forth below. The awards noted below have financial and individual performance goals. The Compensation Committee approved the targets under the AIP to the Named Executive Officers in February 2018 in the following payout amounts:
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| | | | | | |
Name | | Target as % of Base Salary | Financial Performance Minimum | Financial Performance Maximum | Individual Performance Maximum | Maximum Award Payout (1) |
Valentin P. Gapontsev, Ph.D. | | 110% | 20.63% | 220.0% | 27.50% | 225% |
Eugene A. Scherbakov, Ph.D. | | 100% | 18.75% | 200.0% | 25.00% | 225% |
Timothy P.V. Mammen | | 80% | 15.00% | 160.0% | 20.00% | 225% |
Trevor D. Ness | | 80% | 15.00% | 160.0% | 20.00% | 225% |
Angelo P. Lopresti | | 80% | 15.00% | 160.0% | 20.00% | 225% |
(1) Maximum award payout is presented as a percentage of the target award.
Equity-Based Incentives Granted in 2017
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 incentivesclosely align the interests of our executives and stockholders by motivating executive officerswith those of our long-term stockholders. Under the guidelines, the CEO is expected to increase long-term stockholder value.
In 2017,maintain a minimum investment on 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%). The type and proportion of the equity grants reflected a 2017 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.
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. The Compensation Committee decided to measure performance of the Company's stock as compared to the Russell 3000 Index, which includes the Company. 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, 2020) against the comparable period from the beginning of the performance measurement period (March 1, 2017), the grant recipient would receive a 2% increase in the number of shares above target (upfive times his annual salary and other senior executives are expected 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). In addition, Name Executive Officers cannot receive a number of shares that exceeds 400% of the value of the target award on the date of grant. The vesting date is March 1, 2020, should any performance-based stock units vest at all.
In 2017, 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 and Monte Carlo simulations for performance-based stock units. 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 hadmaintain a minimum of two years' worth of annual award values in unvested equity value. Based upon this information, Radford advised the Compensation Committee thatinvestment on 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-basedcommon stock options, service-based restricted stock units and performance-based stock units to the Named Executive Officers in 2017. All awards in the table below vest on March 1, 2021, except for the performance-based stock units which vest on March 1, 2020.
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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. | | — | | — | | — | | — | | — |
Eugene A. Scherbakov, Ph.D. | | 10,367 | | 119.50 | | 3,388 | | 3,388 | | 0 - 6,776 |
Timothy P.V. Mammen | | 8,799 | | 119.50 | | 2,876 | | 2,876 | | 0 - 5,752 |
Trevor D. Ness | | 7,871 | | 119.50 | | 2,572 | | 2,572 | | 0 - 5,144 |
Angelo P. Lopresti | | 7,184 | | 119.50 | | 2,348 | | 2,348 | | 0 - 4,696 |
The Compensation Committee believes that vesting of awards of service-based options and restricted stock units 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 the performance-based stock units should vest over three years, instead of four years, because having a four year performance period would reduce the utility of the performance award and not properly align pay with performance. The service-based restricted stock units granted in 2017 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 do not vest until the performance-based stock units vest.
2018 Update. The Compensation Committee approved the grant of service-based stock options and restricted stock units and performance-based stock units to the Named Executive Officers in February 2018. All equity awards in the table below vest according to the vesting schedule approved by the Compensation Committee: service-based stock options and restricted stock units vest 25% on each anniversary of March 1, 2018 and performance-based stock units vest on March 1, 2021, the last day of the performance period which is three years after the start of the performance period on March 1, 2018.
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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. | | — | | — | | — | | — | | — |
Eugene A. Scherbakov, Ph.D. | | 13,744 | | 239.72 | | 4,014 | | 4,014 | | 0 - 8,028 |
Timothy P.V. Mammen | | 6,642 | | 239.72 | | 1,940 | | 1,940 | | 0 - 3,880 |
Trevor D. Ness | | 5,689 | | 239.72 | | 1,661 | | 1,661 | | 0 - 3,322 |
Angelo P. Lopresti | | 5,786 | | 239.72 | | 1,690 | | 1,690 | | 0 - 3,380 |
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 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 5,000 shares or one times their respective
annual salaries. All of our senior executives substantially exceed the fair market value atownership requirements under our stock ownership guidelines. These ownership levels are to be achieved no later than four years after the first dayelection 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 last dayvesting of restricted stock awards until the six month offering period, subjectminimum ownership levels are attained. For more information, see "Corporate Governance - Stock Ownership Guidelines."
Clawback Policies.In 2015, the Compensation Committee approved a compensation recovery policy that allows the Company to limitations onrecapture performance-based compensation from executives if the amount of shares. These plans generally are availablethe award was based upon achieving certain financial results that were later restated due to the participant's misconduct. In addition, all salariedequity awarded to employees and do not discriminatesince 2007 contain a provision under which employees may be required to forfeit equity awards or profit from equity awards if they engage in favor of executive officers. 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 policiescertain conduct, including competing against the 2017 peer group and made no changes. The Company, provides the use of a corporate aircraft to the Chief Executive Officer 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 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-rankingdisclosing confidential information, or soliciting its employees in Germany.or customers.
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 may delegate authority whenever it deems appropriate. In 2017,2018 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's policy is to set executive officer pay in accordance with the objectives of the Company's compensation programs as described above. In the Compensation Committee's view, the Company'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 annual 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 targets and payout levels for the other Named Executive Officers.NEOs. He assesses the performance of 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 in 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 2017.2018. The consultation included non-executive compensation data and valuation services for equity incentives. Radford’s parent company 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 2017.2018.
Pay Positioning Strategy
Consistent with prior years, the Compensation Committee in 2018 set the market 65th percentile as its target for base salary, target annual bonus, long-term incentives and total direct compensation (the sum of the three compensation elements). Also, competitive target ranges for the elements and target total direct compensation were established. Within the comparative framework, the primary data was the named peer group of specific peers discussed below and the secondary data was broader, size-appropriate comparisons in the high technology industry using Radford High Technology Survey Data. In 2017,2018, the midpoint of the Company's target total cash compensation range was adjusted to near the 65thpercentile. The Compensation Committee positioned our targeted total compensation competitively within our peer group. An individual's actual compensation may fall below or above the target positions based on the individual's experience, seniority, skills, knowledge, performance, responsibilities and contributions as well as the Company's performance.
These factors are weighed by the Compensation Committee in its judgment, and no single factor takes precedence over others 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 officersexecutives measured against a group of peer companies selected by the Compensation Committee. The peer companies are companies in the laser source and photonics industry, as well as a broader group of technology companies of comparable size and complexity with international scope that experience growth.
For 2017,2018, the peer companies were:
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Arista Networks, Inc. | | Barnes Group, Inc. | | Cognex Corporation | |
Coherent, Inc. |
| Dolby Laboratories, Inc. | | Donaldson Company, Inc. |
Entegris, Inc. | | Fabrinet |
FLIR Systems, Inc. | | Graco, Inc. | | II-VI Incorporated |
IDEX Corporation | | II-VI Incorporated | | ITT, Inc. | |
MKS Instruments, Inc. |
| National Instruments, Inc. | | Nordson Corporation | | OSI Systems, Inc.
|
Teradyne, Inc. | | Trimble Navigation Limited | | Waters Corporation |
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 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, 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 been omitted from the peer group. Based upon the process and applying the criteria above, the Compensation Committee (i) added Dolby Laboratories,Arista Networks, Inc., Fabrinet, IDEX Corporation, ITT,Donaldson Company, Inc. and Trimble Navigation LimitedWaters Corporation to the peer group and (ii) removed Analogic Corporation, Brooks Automation, Inc., Diodes, Inc., FEI CompanyFabrinet and Rofin-Sinar Technologies,OSI Systems, Inc. from the peer group.
20182019 Update. For 20182019 compensation determinations, the Compensation Committee applied the methodology above and removed Fabrinet and OSI Systems, Inc. because such peers fell belowdetermined the targeted scope of one or more of market value, revenue and headcount or were acquired. Additionally, the Compensation Committee added Arista Networks,Inc., Donaldson Company and Waters Corporation to thehistorical peer group continues to be appropriate for 2018.2019.
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 "covered employees" as defined by Section 162(m) (generally, our current and former NEOs) to $1 million per executive (the "$1 million cap"). DuePrior to the recently enacted U.S.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 payments, 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 for tax years after 2017, unless certain limited transition relief is met. The Compensation Committee retains the discretion to grant or pay compensation that may exceed 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.
Compensation Risk
Management conducts an annual risk assessment of the Company's compensation policies and practices for all employees, including non-executive officers,non-executives, and reports its findings to the Compensation Committee. In 2017,2018, management concluded that the Company's compensation policies and practices are balanced and do not motivate imprudent risk taking. Management believes that IPG’s compensation policies do not create risks that are reasonably likely to have a material adverse effect on IPG.
In reaching this conclusion, they considered the following factors:
our•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 and;
•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" 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, see "Corporate Governance - Stock Ownership Guidelines."
Clawback Policies. In 2015, the Compensation Committee approved a compensation recovery policy that allows the Company to recapture 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'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.
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 2019 annual meeting of stockholders and in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.
COMPENSATION COMMITTEE
Catherine P. Lego, Chair
Gregory P. Dougherty
Eric Meurice
John R. Peeler
March 19, 2019
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.
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:
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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, Ph.D. Chief Executive Officer and Chairman of the Board(4) | | 2018 | | 1,004,585 | | — | | — | | | — | | 568,000 | | | 81,411 | | | 1,653,996 |
| | 2017 | | 832,000 | | — | | — | | | — | | 1,399,100 | | | 53,583 | | | 2,284,683 |
| | 2016 | | 735,400 | | — | | — | | | — | | 709,044 | | | 36,953 | | | 1,481,397 |
Eugene Scherbakov, Ph.D., Chief Operating Officer, Managing Director of IPG Laser GmbH, Senior Vice President, Europe and Director(4) | | 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 |
| | 2016 | | 510,677 | | — | | 643,031 | | | 228,899 | | 361,928 | | | 30,138 | | | 1,774,672 |
Timothy P.V. Mammen, Chief Financial Officer and Senior Vice President | | 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 | | | 2,096,396 |
| | 2016 | | 436,025 | | — | | 643,031 | | | 228,899 | | 315,694 | | | 8,760 | | | 1,632,409 |
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Angelo P. Lopresti, Senior Vice President, General Counsel and Secretary | | 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 |
| | 2016 | | 408,256 | | — | | 496,333 | | | 176,709 | | 263,042 | | | 9,192 | | | 1,353,532 |
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Alexander Ovtchinnikov, Ph.D. Senior Vice President, Components | | 2018 | | 438,100 | | | | 873,928 | | | 685,669 | | 194,600 | | | 10,572 | | | 1,902,870 |
| | 2017 | | 417,200 | | — | | 617,553 | | | 233,503 | | 478,200 | | | 10,422 | | | 1,756,878 |
| | 2016 | | 396,868 | | — | | 541,562 | | | 192,799 | | 255,706 | | | 10,272 | | | 1,397,187 |
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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 of the Board (5) | | 2017 | | 832,000 | | — | | — | | — | | 1,399,100 | | 53,583 | | 2,284,683 |
2016 | | 735,400 | | — | | — | | — | | 709,044 | | 36,953 | | 1,481,397 |
2015 | | 687,981 | | — | | — | | — | | 713,582 | | 11,853 | | 1,413,416 |
Eugene A. Scherbakov, Ph.D. Chief Operating Officer, Managing Director of IPG Laser GmbH, Senior Vice President, Europe and Director(5) | | 2017 | | 510,000 | | — | | 899,514 | | 340,038 | | 769,300 | | 23,028 | | 2,541,880 |
2016 | | 510,677 | | — | | 643,031 | | 228,899 | | 361,928 | | 30,138 | | 1,774,672 |
2015 | | 450,449 | | — | | 636,664 | | 305,714 | | 363,675 | | 30,231 | | 1,973,841 |
Timothy P.V. Mammen, Chief Financial Officer and Senior Vice President | | 2017 | | 458,300 | | — | | 763,578 | | 288,607 | | 577,000 | | 8,910 | | 2,096,395 |
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 |
Trevor Ness, Senior Vice President, World Wide Sales and Marketing | | 2017 | | 410,000 | | — | | 682,866 | | 258,169 | | 516,200 | | 8,910 | | 1,876,145 |
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 |
Angelo P. Lopresti, Senior Vice President, General Counsel and Secretary | | 2017 | | 421,000 | | — | | 623,394 | | 235,635 | | 530,000 | | 9,342 | | 1,819,372 |
2016 | | 408,256 | | — | | 496,333 | | 176,709 | | 263,042 | | 9,192 | | 1,353,532 |
2015 | | 412,015 | | — | | 636,664 | | 236,234 | | 284,911 | | 9,240 | | 1,579,063 |
1.Valuation based on the fair value of such award as of the grant date determined pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 718 ("ASC Topic 718"). The assumptions that we used with respect to the valuation of service-based restricted stock units, performance-based stock units 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 27, 2019. The amounts in the Stock Awards column reflect service-based restricted stock units and performance-based stock units granted in 2018. The value of the performance-based stock units is based on the probable outcome of the performance conditions (at the grant date) in accordance with ASC Topic 718 assuming no forfeiture. The values of performance-based stock units at the grant date assuming the highest level of performance conditions will be achieved are $5,773,416, $2,790,341, $2,430,761 and $2,407,748 for Dr. Scherbakov, Messrs. Mammen and Lopresti and 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 restricted stock units vest over four years, beginning on the first anniversary of the award date. Stock option awards have a term of ten years. Performance-based stock units cliff vest after 3 years, if at all.
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(1) | Salaries for 2015 reflect 27 pay periods occurring in the year. |
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(2) | Valuation 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 service-based restricted stock unit, performance-based stock units 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 28, 2018. The amounts in the Stock Awards column reflect service-based restricted stock units and performance-based stock units granted in 2017. The value of the performance-based stock units is based on the probable outcome of the performance conditions (at the grant date) in accordance with ASC Topic 718 assuming no forfeiture. The values of performance-based stock units at the grant date assuming the highest level of performance conditions will be achieved are $1,619,464, $1,374,728, $1,229,416 and $1,122,344 for Dr. Scherbakov and Messrs Mammen, Ness and Lopresti, 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. |
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(3) | Represents amounts earned under our AIP for services rendered in 2017, 2016 and 2015, respectively. |
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(4) | The amount in 2017 for Dr. Gapontsev consists of premiums paid for group life insurance, the incremental cost for non-employee guests accompanying him on the Company's aircraft and the cost of a car and driver ($36,776) at the Company's headquarters. The amount in 2017 for Dr. Scherbakov is the expense of an automobile provided by us. |
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(5) | Portions of the amounts paid to Dr. Gapontsev and Dr. Scherbakov were denominated in Euros and Rubles. Dr. Scherbakov's salary is approved in US dollars and payments are converted to Euro at then prevailing Euro exchange rate. 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 2017, 2016 and 2015, for the Euro were 0.89, 0.90 and 0.90, respectively, and for the Ruble were 58.3, 67.0 and 61.2, 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. |
2.Represents amounts earned under our AIP for services rendered in 2018, 2017 and 2016, respectively.
3.The amount in 2018 for Dr. Gapontsev consists of premiums paid for group life insurance, the incremental cost for non-employee guests accompanying him on the Company's aircraft and the cost of a car and driver ($43,080) at the Company's headquarters. The amount in 2018 for Dr. Scherbakov is the expense of an automobile provided by us.
4.Portions of the amounts paid to Dr. Gapontsev and Dr. Scherbakov were denominated in Euros and Rubles. Dr. Scherbakov's 2018 salary was approved in 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 2018, 2017 and 2016, for the Euro were 0.84, 0.89 and 0.90, respectively, and for the Ruble were 62.69, 58.3.0 and 67.0, 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.
Employment Agreements
The Company has entered into employment agreements with each of the above-named executives, effective through December 31, 2018.2019. Upon expiration, the employment agreements will automatically renew for successive one year periods, unless the Company or a Named Executive Officer provides written notice of non-renewal at least six months prior to the end of the then 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, as noted in the above "Compensation Discussion and Analysis - 20172018 Base
Salaries" section. 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 with 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 his employment for any reason. Each 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 "Potential Payments upon Termination or Change in Control."
20172018 Grants of Plan-Based Awards |
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| | 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 | | 2/17/2017 | | 364,000 | | 832,000 | | 1,872,000 | | — | | — | | — | | — | | — | | — | | — |
Eugene A. Scherbakov | | 2/17/2017 | | 178,200 | | 405,000 | | 911,250 | | — | | — | | — | | — | | — | | — | | — |
| 2/17/2017 | | — | | — | | — | | 1,694 | | 3,388 | | 6,776 | | — | | — | | — | | 498,883 |
| 2/17/2017 | | — | | — | | — | | — | | — | | — | | 3,388 | | — | | — | | 400,631 |
| 2/17/2017 | | — | | — | | — | | — | | — | | — | | — | | 10,367 | | 119.50 | | 340,038 |
Timothy P.V. Mammen | | 2/17/2017 | | 151,239 | | 343,725 | | 773,381 | | — | | — | | — | | — | | — | | — | | — |
| 2/17/2017 | | — | | — | | — | | 1,438 | | 2,876 | | 5,752 | | — | | — | | — | | 423,491 |
| 2/17/2017 | | — | | — | | — | | — | | — | | — | | 2,876 | | — | | — | | 340,087 |
| 2/17/2017 | | — | | — | | — | | — | | — | | — | | — | | 8,799 | | 119.50 | | 288,607 |
Trevor D. Ness | | 2/17/2017 | | 135,300 | | 307,500 | | 691,875 | | — | | — | | — | | — | | — | | — | | — |
2/17/2017 | | — | | — | | — | | 1,286 | | 2,572 | | 5,144 | | — | | — | | — | | 378,727 |
2/17/2017 | | — | | — | | — | | — | | — | | — | | 2,572 | | — | | — | | 304,139 |
| 2/17/2017 | | — | | — | | — | | — | | — | | — | | — | | 7,871 | | 119.50 | | 258,169 |
Angelo P. Lopresti | | 2/17/2017 | | 138,930 | | 315,750 | | 710,438 | | — | | — | | — | | — | | — | | — | | — |
2/17/2017 | | — | | — | | — | | 1.694 | | 2.348 | | 4.696 | | — | | — | | — | | 345,743 |
2/17/2017 | | — | | — | | — | | — | | — | | — | | 2,348 | | — | | — | | 277,651 |
| 2/17/2017 | | — | | — | | — | | — | | — | | — | | — | | 7,184 | | 119.50 | | 235,635 |
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| | 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) |
Name | | | | Threshold | | Target | | Maximum | | Threshold | | Target | | Maximum | | | | | | | | |
Valentin P. Gapontsev | | 2/22/2018 | | 447,563 | | 1,023,000 | | 2,301,750 | | — | | — | | — | | — | | — | | — | | — |
Eugene Scherbakov | | 2/22/2018 | | 297,238 | | 679,400 | | 1,528,650 | | — | | — | | — | | — | | — | | — | | — |
| | 2/22/2018 | | — | | — | | — | | 2,007 | | 4,014 | | 8,028 | | — | | — | | — | | 1,143,107 |
| | 2/22/2018 | | — | | — | | — | | — | | — | | — | | 4,014 | | — | | — | | 952,442 |
| | 2/22/2018 | | — | | — | | — | | — | | — | | — | | — | | 13,744 | | 239.72 | | 924,421 |
Timothy P.V. Mammen | | 2/22/2018 | | 168,420 | | 384,960 | | 866,160 | | — | | — | | — | | — | | — | | — | | — |
| | 2/22/2018 | | — | | — | | — | | 970 | | 1,940 | | 3,880 | | — | | — | | — | | 552,473 |
| | 2/22/2018 | | — | | — | | — | | — | | — | | — | | 1,940 | | — | | — | | 460,323 |
| | 2/22/2018 | | — | | — | | — | | — | | — | | — | | — | | 6,642 | | 239.72 | | 446,741 |
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Angelo P. Lopresti | | 2/22/2018 | | 154,740 | | 353,680 | | 795,780 | | — | | — | | — | | — | | — | | — | | — |
| | 2/22/2018 | | — | | — | | — | | 845 | | 1,690 | | 3,380 | | — | | — | | — | | 481,278 |
| | 2/22/2018 | | — | | — | | — | | — | | — | | — | | 1,690 | | — | | — | | 401,003 |
| | 2/22/2018 | | — | | — | | — | | — | | — | | — | | — | | 5,786 | | 239.72 | | 389,166 |
Alexander Ovtchinnikov | | 2/22/2018 | | 153,340 | | 350,480 | | 788,580 | | — | | — | | — | | — | | — | | — | | — |
| | 2/22/2018 | | — | | — | | — | | 837 | | 1,674 | | 3,348 | | — | | — | | — | | 476,722 |
| | 2/22/2018 | | — | | — | | — | | — | | — | | — | | 1,670 | | — | | — | | 397,207 |
| | 2/22/2018 | | — | | — | | — | | — | | — | | — | | — | | 5,734 | | 239.72 | | 385,669 |
| |
(1) | Amounts shown include the payouts under the AIP for 2017 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 above Compensation Discussion and Analysis above. Actual amounts paid for 20171.Amounts shown include the payouts under the AIP for 2018 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 above Compensation Discussion and Analysis above. Actual amounts paid for 2018 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 2017.
|
| |
(3) | The amounts listed reflect service-based 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 28, 2018. 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 performance-based stock unit. For informational purposes, if the maximum level of performance was achieved for the performance-based stock units, the values as limited by the 400% value cap are $1,619,464, $1,374,728, $1,229,416 and $1,122,344 for Dr. Scherbakov and Messrs. Mammen, Ness and Lopresti, respectively. |
2.For a description of the performance-based stock units, see Compensation Discussion and Analysis-Equity-Based Incentives Granted in 2018.
3.The amounts listed reflect service-based 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 12 to our Consolidated Financial Statements in our Annual Report on Form 10-K filed with the SEC on February 27, 2019. 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 stock index on the measurement date with respect to the performance-based stock unit. For informational purposes, if the maximum level of performance were achieved for the performance-based stock units, the values as limited by the 600% value cap are $5,773,416, $2,790,341, $2,430,761 and $2,407,748 for Dr. Scherbakov, Messrs. Mammen and Lopresti and Dr. Ovtchinnikov, respectively.
20172018 Outstanding Equity Awards at Fiscal Year-End
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| | | | Option Awards (1) | | | | | | | | | | Stock Awards (1) | | | | | | | | | |
Name | | Year of Grant | | Securities Underlying Unexercised Options Exercisable (#) | | Securities Underlying Unexercised Options Unexercisable (#) | | | | Option Exercise Price ($)(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 | | 3,663 | | | | 414,981 | | 5,864 | | 664,330 | |
| | 2/18/2016 | | — | | 7,592 | | | | 81.89 | | 2/17/2026 | | 3,796 | | | | 430,049 | | 7,592 | | 1,243,420 | |
| | 2/17/2017 | | 2,592 | | 7,775 | | | | 119.50 | | 2/16/2027 | | 2,541 | | | | 287,870 | | 6,776 | | 1,619,460 | |
| | 2/22/2018 | | — | | 13,774 | | | | 239.72 | | 2/21/2028 | | 4,014 | | | | 454,746 | | 8,028 | | 5,773,416 | |
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 | | — | | 7,326 | | | | 97.65 | | 2/24/2025 | | 3,663 | | | | 414,981 | | 5,864 | | 664,330 | |
| | 2/18/2016 | | — | | 7,592 | | | | 81.89 | | 2/17/2026 | | 3,796 | | | | 430,049 | | 7,592 | | 1,243,420 | |
| | 2/17/2017 | | 2,200 | | 6,599 | | | | 119.50 | | 2/26/2027 | | 2,157 | | | | 244,367 | | 5,750 | | 1,374,728 | |
| | 2/22/2018 | | — | | 6,642 | | | | 239.72 | | 2/21/2028 | | 1,940 | | | | 219,783 | | 3,880 | | 2,790,341 | |
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 | | 2,831 | | | | 320,724 | | 4,532 | | 513,430 | |
| | 2/18/2016 | | — | | 5,861 | | | | 81.89 | | 2/17/2026 | | 2,930 | | | | 331,940 | | 5,860 | | 959,750 | |
| | 2/17/2017 | | 1,796 | | 5,388 | | | | 119.50 | | 2/16/2027 | | 1,761 | | | | 199,504 | | 4,696 | | 1,122,340 | |
| | 2/22/2018 | | — | | 5,786 | | | | 239.72 | | 2/21/2028 | | 1,690 | | | | 191,460 | | 3,380 | | 2,430,760 | |
Alexander Ovtchinnikov | | 2/28/2014 | | 12,000 | | — | | | | 71.77 | | 2/27/2024 | | — | | | | — | | — | | — | |
| | 2/25/2015 | | | | 6,161 | | | | 97.65 | | 2/24/2025 | | 3,080 | | | | 348,933 | | 4,931 | | 558,633 | |
| | 2/18/2016 | | | | 6,394 | | | | 81.89 | | 2/17/2026 | | 3,197 | | | | 632,188 | | 6,394 | | 1,047,209 | |
| | 2/17/2017 | | 1,780 | | 5,339 | | | | 119.50 | | 2/16/2027 | | 1,744 | | | | 197,578 | | 4,650 | | 1,111,830 | |
| | 2/22/2018 | | — | | 5,734 | | | | 239.72 | | 2/21/2028 | | 1,674 | | | | 189,647 | | 3,350 | | 2,407,750 | |
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| | | | 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 A. 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 |
| | 2,000 |
| | 428,620 |
| | — |
| | — |
|
| | 2/25/2015 |
| | — |
| | 7,326 |
| | 97.65 |
| | 2/24/2025 |
| | 3,663 |
| | 785,018 |
| | 7,326 |
| | 1,430,768 |
|
| | 2/18/2016 |
| | — |
| | 7,592 |
| | 81.89 |
| | 2/17/2026 |
| | 3,796 |
| | 813,521 |
| | 7,592 |
| | 1,243,418 |
|
| | 2/17/2017 |
| | — |
| | 10,367 |
| | 119.50 |
| | 2/16/2027 |
| | 3,388 |
| | 726,082 |
| | 6,776 |
| | 1,619,464 |
|
Timothy P.V. Mammen | | 2/14/2012 |
| | 10,000 |
| | — |
| | 58.65 |
| | 2/13/2022 |
| | — |
| | — |
| | — |
| | — |
|
| 3/1/2013 |
| | 15,000 |
| | — |
| | 60.11 |
| | 2/28/2023 |
| | — |
| | — |
| | — |
| | — |
|
| | 2/28/2014 |
| | — |
| | 14,200 |
| | 71.77 |
| | 2/27/2024 |
| | 2,200 |
| | 471,482 |
| | — |
| | — |
|
| | 2/25/2015 |
| | — |
| | 7,326 |
| | 97.65 |
| | 2/24/2025 |
| | 3,663 |
| | 785,018 |
| | 7,326 |
| | 1,430,768 |
|
| | 2/18/2016 |
| | — |
| | 7,592 |
| | 81.89 |
| | 2/17/2026 |
| | 3,796 |
| | 813,521 |
| | 7,592 |
| | 1,243,418 |
|
| | 2/17/2017 |
| | — |
| | 8,799 |
| | 119.50 |
| | 2/26/2027 |
| | 2,876 |
| | 616,356 |
| | 5,752 |
| | 1,374,728 |
|
Trevor D. Ness | | 2/14/2012 |
| | 4,000 |
| | — |
| | 58.65 |
| | 2/13/2022 |
| | — |
| | — |
| | — |
| | — |
|
| 3/1/2013 |
| | 2,000 |
| | — |
| | 60.11 |
| | 2/28/2023 |
| | — |
| | — |
| | — |
| | — |
|
| 2/28/2014 |
| | — |
| | 11,000 |
| | 71.77 |
| | 2/27/2024 |
| | 1,700 |
| | 364,327 |
| | — |
| | — |
|
| | 2/25/2015 |
| | — |
| | 5,994 |
| | 97.65 |
| | 2/24/2025 |
| | 2,997 |
| | 642,287 |
| | 5,994 |
| | 1,170,628 |
|
| | 2/18/2016 |
| | — |
| | 6,227 |
| | 81.89 |
| | 2/17/2026 |
| | 3,114 |
| | 667,361 |
| | 6,228 |
| | 1,020,022 |
|
| | 2/17/2017 |
| | — |
| | 7,871 |
| | 119.50 |
| | 2/16/2027 |
| | 2,572 |
| | 551,205 |
| | 5,144 |
| | 1,229,416 |
|
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 |
| | 1,800 |
| | 385,758 |
| | — |
| | — |
|
| | 2/25/2015 |
| | — |
| | 5,661 |
| | 97.65 |
| | 2/24/2025 |
| | 2,831 |
| | 606,712 |
| | 5,662 |
| | 1,105,789 |
|
| | 2/18/2016 |
| | — |
| | 5,861 |
| | 81.89 |
| | 2/17/2026 |
| | 2,930 |
| | 627,928 |
| | 5,860 |
| | 959,751 |
|
| | 2/17/2017 |
| | — |
| | 7,184 |
| | 119.50 |
| | 2/16/2027 |
| | 2,348 |
| | 503,200 |
| | 4,696 |
| | 1,122,344 |
|
1.The vesting dates assume the continued service of the Named Executive Officer. All awards granted in 2015 and 2016 vest in one installment on March 1, 2019 and 2020, respectively. Service-based stock options and restricted stock units granted in 2017 and 2018 vest in four annual installments commencing on March 1, 2018 and March 1, 2019, respectively. Performance-based stock units granted in 2017 and 2018 vest in one installment on March 1, 2020 and March 1, 2021, respectively. | |
(1) | The vesting dates assume the continued service of the Named Executive Officer. All awards granted in 2014, 2015 and 2016 vest in one installment on March 1, 2018, 2019 and 2020, respectively. Service-based stock options and restricted stock units granted in 2017 vest in four annual installments commencing on March 1, 2018 and performance-based stock units granted in 2017 vest in one installment on March 1, 2020. |
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(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, 2017, which was $214.31 per share. |
| |
(4) | The performance-based stock unit performance determination dates are March 1, 2018, 2019 and 2020 for units granted in 2015, 2016 and 2017, respectively. The numbers of unearned awards range from 0% to 200% based upon achievement of performance metrics and assumes attainment of the maximum performance levels not limited by dollar value cap. The dollar payout values represent estimated values assuming attainment of maximum performance levels as limited by the dollar value cap of 400% of target values on the dates of grant. |
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, 2018, which was $113.29 per share.
4.The performance-based stock unit performance determination dates are March 1, 2018, 2019, 2020 and 2021 for units granted in 2015, 2016, 2017 and 2018 respectively. The numbers of unearned awards range from 0% to 200% based upon achievement of performance metrics and assumes attainment of the maximum performance levels not limited by dollar value cap. The dollar payout values represent estimated values assuming attainment of maximum performance levels as limited by the dollar value cap of 400% of target values on the dates of grant for awards granted in 2015, 2016 and 2017, and 600% of target values on the date of grant for those awarded in 2018.
Option Exercises and Stock Vested in 20172018
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | | | Stock Awards | | |
Name | | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise ($)(1) | | Number of Shares Acquired on Vesting (#) | | Value Realized on Vesting ($)(2) |
Valentin P. Gapontsev | | — | | — | | — | | — |
Eugene A. Scherbakov | | 9,500 | | 1,933,301 | | 2,847 | | 694,554 |
Timothy P.V. Mammen | | 20,000 | | 3,774,835 | | 2,919 | | 712,119 |
Angelo P. Lopresti | | 9,500 | | 1,973,414 | | 2,387 | | 582,333 |
| | | | | | | | |
Alexander Ovtchinnikov | | — | | — | | 2,482 | | 605,509 |
1.The value realized is based on the difference between the reported closing common stock price on the date of exercise and the exercise price of the stock option.
|
| | | | | | | | |
| | Option Awards | | Stock Awards |
Name | | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise ($)(1) | | Number of Shares Acquired on Vesting (#) | | Value Realized on Vesting ($)(2) |
Valentin P. Gapontsev |
| — |
| — |
| — |
| — |
Eugene A. Scherbakov |
| 31,954 |
| 3,290,285 |
| 2,200 |
| 265,650 |
Timothy P.V. Mammen |
| 37,850 |
| 4,251,554 |
| 2,500 |
| 301,875 |
Trevor D. Ness |
| 25,000 |
| 2,435,923 |
| 1,900 |
| 229,425 |
Angelo P. Lopresti |
| 11,750 |
| 1,230,011 |
| 2,000 |
| 241,500 |
2.The value realized is based on the reported closing common stock prices on the vesting dates of the service-based restricted stock units.
| |
(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 Officers without cause (as defined in the respective employment agreements) or any of the Named Executive Officers terminates his employment for good reason (as defined in the respective employment agreements) ("cause" and "good reason" are referred to below as "Involuntary Terminations"), then the officer 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,
months;
(b) a portion of the annual 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 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's COBRA premiums for thirty-six-months; and
(d) accelerated vesting of equity compensation awards that otherwise would have vested within twelve months of termination of employment.
Upon an Involuntary Termination within twenty-four months following a change in control of the Company, the Named Executive Officer 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 Officer for the three full years preceding the year of termination. In the case of the Chief Executive Officer, 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 if a change in control occurs followed within two years by an Involuntary Termination. Upon a change in control, the officers' 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"), made to a Named Executive Officer following a change in control would result in an excise tax under the provisions of Internal Revenue Code Section 4999 (the "golden parachute 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 after-tax treatment").
If the employment period of any of the Named Executive Officers terminates and the Company does not offer such officer continued employment in the same or a substantially similar position or in a higher position than the officer'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 officer may resign from employment and would receive continuation of salary and health benefits for twelve months, except for the Chief Executive Officer who would receive the same for twenty-four months, plus a pro-rated bonus for the year of termination.
If a Named Executive Officer's employment is terminated by death or disability, the officer would receive a pro-rated bonus for the year of 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 executive not for
good reason. Additionally, if the officer's employment is terminated due to death, the non-vested portions of stock options, service-based restricted stock units and performance-based stock units would immediately vest.
Severance payments to the officers are conditioned upon the release of claims by the Named Executive Officer in favor of the Company. Each of the Named Executive Officers also has an agreement with the Company that prohibits him 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 his employment for any reason. Each of the Named Executive 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 termination of his employment.
The following table provides information regarding compensation and benefits that would be payable to our Named Executive Officers as of December 31, 2017,2018, 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 20172018 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 | | Salary Severance and Benefits Continuation | | 2,539,383 |
| | 2,539,383 |
| | — |
| | — |
| | 1,692,922 |
|
| | Incentive Plan Severance | | 1,399,100 |
| | 3,431,506 |
| | 1,399,100 |
| | 1,399,100 |
| | 1,399,100 |
|
| | Equity Acceleration | | — |
| | — |
| | — |
| | — |
| | — |
|
| | Total | | 3,938,483 |
| | 5,970,889 |
| | 1,399,100 |
| | 1,399,100 |
| | 3,092,022 |
|
Eugene A. Scherbakov | | Salary Severance and Benefits Continuation | | 816,921 |
| | 1,089,228 |
| | — |
| | — |
| | 544,614 |
|
| | Incentive Plan Severance | | 769,300 |
| | 1,473,816 |
| | 769,300 |
| | 769,300 |
| | 769,300 |
|
| | Equity Acceleration | | 2,324,502 |
| | 11,785,651 |
| | 11,785,651 |
| | — |
| | — |
|
| | Total | | 3,910,723 |
| | 14,348,695 |
| | 12,554,951 |
| | 769,300 |
| | 1,313,914 |
|
Timothy P.V. Mammen | | Salary Severance and Benefits Continuation | | 719,973 |
| | 959,963 |
| | — |
| | — |
| | 479,982 |
|
| | Incentive Plan Severance | | 577,000 |
| | 1,215,050 |
| | 577,000 |
| | 577,000 |
| | 577,000 |
|
| | Equity Acceleration | | 2,495,550 |
| | 11,453,574 |
| | 11,453,574 |
| | — |
| | — |
|
| | Total | | 3,792,523 |
| | 13,628,588 |
| | 12,030,574 |
| | 577,000 |
| | 1,056,982 |
|
Trevor D. Ness | | Salary Severance and Benefits Continuation | | 647,523 |
| | 863,363 |
| | — |
| | — |
| | 431,682 |
|
| Incentive Plan Severance | | 516,200 |
| | 1,068,970 |
| | 516,200 |
| | 516,200 |
| | 516,200 |
|
| Equity Acceleration | | 1,932,267 |
| | 9,483,276 |
| | 9,483,276 |
| | — |
| | — |
|
| Total | | 3,095,990 |
| | 11,415,609 |
| | 9,999,476 |
| | 516,200 |
| | 947,882 |
|
Angelo P. Lopresti | | Salary Severance and Benefits Continuation | | 664,023 |
| | 885,363 |
| | — |
| | — |
| | 442,682 |
|
| Incentive Plan Severance | | 530,000 |
| | 1,051,163 |
| | 530,000 |
| | 530,000 |
| | 530,000 |
|
| Equity Acceleration | | 1,953,698 |
| | 8,997,062 |
| | 8,997,062 |
| | — |
| | — |
|
| Total | | 3,147,721 |
| | 10,933,589 |
| | 9,527,062 |
| | 530,000 |
| | 972,682 |
|
| |
(1) | Equity acceleration is calculated using the full value of service-based restricted stock units and the maximum amount of shares for performance-based stock units based upon the closing sale price of our common stock on December 31, 2017 of $214.31 per share and the aggregate difference between the exercise prices of outstanding stock options and the closing sale price of our common stock on December 31, 2017. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name | | Benefit | | Termination Without Cause or For Good Reason ($) | | 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 | | 2,835,360 | | 2,539,380 | | — | | — | | 1,890,240 |
| | Incentive Plan Severance | | 1,399,100 | | 3,431,510 | | 568,000 | | 568,000 | | 568,000 |
| | Equity Acceleration | | — | | — | | — | | — | | — |
| | Total | | 3,938,480 | | 5,970,890 | | 568,000 | | 568,000 | | 2,458,240 |
Eugene A. Scherbakov | | Salary Severance and Benefits Continuation | | 958,080 | | 1,277,441 | | — | | — | | 638,720 |
| | Incentive Plan Severance | | 351,800 | | 1,340,485 | | 351,800 | | 351,800 | | 351,800 |
| | Equity Acceleration | | 1,403,536 | | 5,142,189 | | 5,142,189 | | — | | — |
| | Total | | 2,713,416 | | 7,760,115 | | 5,493,989 | | 351,800 | | 990,520 |
Timothy P.V. Mammen | | Salary Severance and Benefits Continuation | | 755,816 | | 1,007,755 | | — | | — | | 503,878 |
| | Incentive Plan Severance | | 213,700 | | 951,296 | | 213,700 | | 213,700 | | 213,700 |
| | Equity Acceleration | | 1,330,294 | | 4,277,560 | | 4,277,560 | | — | | — |
| | Total | | 2,299,810 | | 6,236,611 | | 4,491,260 | | 213,700 | | 990,520 |
Angelo P. Lopresti | | Salary Severance and Benefits Continuation | | 663,150 | | 884,200 | | — | | — | | 442,100 |
| | Incentive Plan Severance | | 196,400 | | 856,028 | | 196,400 | | 196,400 | | 196,400 |
| | Equity Acceleration | | 1,037,059 | | 3,408,441 | | 3,408,441 | | — | | — |
| | Total | | 1,896,609 | | 5,148,669 | | 3,604,841 | | 196,400 | | 638,500 |
Alexander Ovtchinnikov | | Salary Severance and Benefits Continuation | | 677,324 | | 903,009 | | — | | — | | 451,550 |
| | Incentive Plan Severance | | 194,600 | | 813,537 | | 194,600 | | 196,400 | | 194,600 |
| | Equity Acceleration | | 1,117,195 | | 3,584,805 | | 3,584,805 | | — | | — |
| | Total | | 1,989,120 | | 5,301,442 | | 3,779,405 | | 196,400 | | 646,149 |
451.Equity acceleration is calculated using the full value of service-based restricted stock units and the maximum amount of shares for performance-based stock units based upon the closing sale price of our common stock on December 31, 2018, of $113.29 per share and the aggregate difference between the exercise prices of outstanding stock options and the closing sale price of our common stock on December 31, 2018.
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 Chief Executive Officer. The pay ratio included in this information is a reasonable estimate calculated in a manner consistent with rules promulgated by the SEC.
Determining our Median Employee: As of December 31, 2017, the measurement date, we employed 5,389 employees, 63% of whom were located outside of the U.S.A. This includes all full-time, part-time, and temporary employees. It does not include independent contractors.
We have employees in nineteen countries. As permitted by the SEC rules, in identifying ourthe Company has determined to use the same median employee we excluded 158 workersin our pay ratio calculation as was used in the following jurisdictions (employees excludedproxy statement for the 2018 annual meeting of stockholder because there has been no change in parenthesis): Belarus (38), Korea (29), India (23), Turkey (15), Poland (13), United Kingdom (10), Brazil (7), France (6), Spain (5), Czech Republic (5), Mexico (5) and Russia (2). We also excluded approximately 107 employees who became our employees as a result of our 2017 acquisitions of OptiGrate Corporation, Innovative Laser Technology, LLC and Laser Depth Dynamics, Inc.
The SEC rules required usemployee population or employee compensation arrangements that we believe would significantly impact the pay ratio disclosure. Please see the description in the proxy statement for the 2018 annual meeting for additional information regarding the process the Company undertook to identify our median employee by use of a consistently applied compensation measure (“CACM”). We chose a CACM that closely approximates the annual total cash compensation of our employees. Specifically, we identified the median employee by looking at total wages and bonuses paid in 2017. After applying our CACM methodology and excluding the employees listed above, we identified the median employee.
Calculating the Pay Ratio: As required by the SEC rules, we then calculated our median employee’s total annual compensation in accordance 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 $32,676. Ourwas $49,703. Our CEO’s total compensation as reported in the Summary Compensation Table for 2018 was $2,231,100.$1,653,996. Therefore, our CEO to median employee pay ratio in 2018 was approximately 33.3:1.
The pay ratio included in this information is approximately 68.3:1.
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.
DIRECTOR COMPENSATION
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 2018, approximately 79% 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 incurred to attend Board and committee meetings and director education programs;
•Directors do not have a retirement plan but are afforded business travel; and
•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.
In 2017, the Compensation Committee engaged independent compensation consultant firm, 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 compensation our non-employee Directors received in 2018 reflects Radford’s recommendations and is provided in the table below.
2019 Update. The Compensation Committee engaged Radford for another comprehensive review of non-employee director compensation in 2019. Based upon its review, the Compensation Committee believed that the director compensation described below continues to be appropriate.
Cash Compensation. Our non-employee directors receive the following annual retainers 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 |
Equity Compensation. Each non-employee director continuing in office after the annual meeting of stockholders receives a dollar value annual grant of equity totaling $250,000 (determined pursuant to ASC Topic 718). Of this award, one-third is service-based stock options and two-thirds are service-based restricted stock units. The annual awards vest in a single installment on the earlier of the one-year 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) of $125,000 in stock options and $125,000 in restricted stock units vesting on the first anniversary of the date of grant subject to the director's continued service on the Board. The exercise price of each of the stock options is the closing market price of our common stock on the date of grant. Any director who retires after at least eight years of service on the Board will be entitled to full vesting of all options and restricted stock units then held by the director.
Director Compensation Table
The following table summarizes the compensation of each of our non-employee directors for 2018:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Name | | Fees Earned or Paid in Cash ($) | | Stock Awards ($)(1) | | Option Awards ($)(1) | | Total ($) |
| | | | | | | | |
| | | | | | | | |
Michael C. Child | | 47,500 | | 164,637 | | 87,539 | | 299,676 |
Henry E. Gauthier | | 52,500 | | 164,637 | | 87,539 | | 304,676 |
William S. Hurley (2) | | 26,042 | | — | | — | | 26,042 |
Catherine P. Lego | | 75,000 | | 164,637 | | 87,539 | | 327,176 |
Eric Meurice | | 67,500 | | 164,637 | | 87,539 | | 319,676 |
John R. Peeler | | 77,500 | | 164,637 | | 87,539 | | 329,676 |
Thomas J. Seifert | | 72,500 | | 164,637 | | 87,539 | | 324,676 |
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 2018. 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 27, 2019. On June 5, 2018, each continuing director serving on the Board was granted restricted stock units for 650 shares of common stock and options to purchase 1,113 shares of common stock at an exercise price of $256.25 per share. Both restricted stock units and options vest in a single installment on May 30, 2019.
2.Mr. Hurley served on the Board through June 5, 2018.
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, 2018:
| | | | | | | | | | | | | | | | | | | | |
Name | | Unvested Restricted Stock Units (#) | | Total Option Awards Held (#) | | Exercisable Option Awards (#) |
Michael C. Child | | 650 | | 48,377 | | 47,264 |
Henry E. Gauthier | | 650 | | 8,709 | | 7,596 |
William S. Hurley (1) | | — | | — | | — |
Catherine P. Lego | | 2,156 | | 11,960 | | 6,593 |
Eric Meurice | | 650 | | 18,132 | | 17,019 |
John R. Peeler | | 650 | | 21,709 | | 20,596 |
Thomas J. Seifert | | 650 | | 5,808 | | 4,695 |
1.Mr. Hurley served on the Board through June 5, 2018.
We also reimburse directors for all reasonable out-of-pocket expenses incurred for attending Board and committee meetings and director education programs. Non-employee 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.
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 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, 20172018 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. 16,1301, 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 firmDeloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu Limited, and their related entities and the Company and its affiliates or persons in financial reporting oversight roles at the Company and its affiliates 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-auditnon-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 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, 2017,2018, as filed with the SEC.
AUDIT COMMITTEE
Thomas J. Seifert, Chair
Gregory P. Dougherty
Henry E. Gauthier
Catherine P. Lego
March 19, 2019
The information in thisthe 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, 2018
PROPOSAL 2: RATIFY DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2019
Deloitte & Touche LLP currently serves as our independent registered public accounting firm and audited our consolidated financial statements for the year ended December 31, 2017.2018. Our Audit Committee has appointed Deloitte & Touche LLP to serve as our independent registered public accounting firm for 2018,2019, and to conduct an integrated audit of our consolidated financial statements for the year ending December 31, 20182019 and of our internal control over financial reporting as of December 31, 2018.2019. Deloitte & Touche LLP has served as the Company's auditor since 1999.
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'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's relationship and communications with Deloitte & Touche LLP. The Audit Committee considered, among other things, the knowledge and skills of Deloitte & Touche LLP'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's independent external auditor for 2018. 2019.
Lead and concurring audit partners are subject to rotationrotation 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 beis 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 from Deloitte & Touche LLP, 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 | | 2017 | | 2016 | Fee Category | | 2018 | | 2017 | |
Audit fees | | $ | 1,873,535 |
| | $ | 1,662,214 |
| Audit fees | | $ | 2,051,757 | | $ | 1,873,535 | |
Audit-related fees | | $ | 212,072 |
| | $ | 150,258 |
| Audit-related fees | | $ | 170,470 | | $ | 212,072 | |
Tax fees | | $ | 95,200 |
| | $ | 278,753 |
| Tax fees | | $ | 111,000 | | $ | 95,200 | |
All other fees | | $ | — |
| | $ | — |
| All other fees | | $ | — | | $ | — | |
Total Fees | | $ | 2,180,807 |
| | $ | 2,091,225 |
| Total Fees | | $ | 2,333,227 | | $ | 2,180,807 | |
Audit fees. These fees comprise fees for professional services rendered in connection with the audit of the Company'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 with the growth of the Company, 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's financial statements. The increase in audit-related fees in 2017 primarily relate to additional audit work required for acquisitions completed in 2017.
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 2017 and 2016 relate primarily to assistance with the analysis of research and development tax credits and incentives and assistance. The decrease in tax fees relates to one-time work for research and development tax incentives outside the United States in 2016.
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-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 & TOUCHE LLP AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2019
PROPOSAL 3: APPROVE THE IPG PHOTONICS CORPORATION 2008 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED AND RESTATED
Stockholders are being asked to approve the IPG Photonics Corporation 2008 Employee Stock Purchase Plan, as amended and restated effective December 1, 2018 (the "Stock Purchase Plan”). The Company originally established the Stock Purchase Plan in March 2008 and our stockholders approved the original Stock Purchase Plan in June 2008. The original Stock Purchase Plan had a term of ten years and expired in accordance with its terms in 2018. The Board determined that it is in our and our stockholders’ best interests to continue to have an employee stock purchase plan and adopted an amendment and restatement ofthe Stock Purchase Plan on October 24, 2018. In order to satisfy the requirements of Section 423 of the Internal Revenue Code, the reauthorization of the Stock Purchase Plan is subject to stockholder approval.
The Company is not requesting its stockholders to authorize additional new shares under the Stock Purchase Plan. By reauthorizing the Stock Purchase Plan, 397,062 shares would continue to be available for purchase under the Stock Purchase Plan. The Stock Purchase Plan will continue to include an annual increase provision that increases the number of shares available for purchase under the Stock Purchase Plan on the first day of each fiscal year, equal to the greater of (i) the number of shares of common stock available under the Stock Purchase Plan as of the last day of the immediately preceding fiscal year and (ii) the lesser of (A) 400,000 shares of common stock and (B) seventy-five hundredths of one percent (0.75%) of the outstanding shares of our common stock on the last day of the immediately preceding fiscal year.
Vote Required
In order to pass, this proposal must receive a “FOR” vote from the holders of a majority of the shares of our common stock present in person or represented by proxy and entitled to vote on this matter at the annual meeting. Abstentions will have the same effect as a vote “against” this proposal. Broker non-votes will have no effect on this proposal.
Description of the Stock Purchase Plan
The following is a summary of the principal features of the Stock Purchase Plan and its operation. The summary is qualified in its entirety by reference to the Stock Purchase Plan, a copy of which is attached as Appendix A to this proxy statement. The description herein is a summary and not intended to be a complete description of the Stock Purchase Plan. Please read the Stock Purchase Plan for more detailed information.
General. The purpose of the Stock Purchase Plan is to provide employees with an opportunity to purchase shares of our common stock through accumulated payroll deductions. The Stock Purchase Plan is intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code. The Stock Purchase Plan also includes a non-Code Section 423 component for our non-U.S. employees (the “Non-Section 423 Component”).
Administration. The Compensation Committee of the Board or any committee of independent directors appointed by the Board (referred to as the “Administrator”) administers the Stock Purchase Plan. The Administrator is authorized to adopt rules, procedures and sub-plans with respect to the Non-Section 423 Component of the ESPP and for the operation of the ESPP in jurisdictions outside of the U.S. as appropriate to conform with the applicable local laws, practices and procedures.
All questions of interpretation or application of the Stock Purchase Plan are determined by the Administrator and its decisions are final, conclusive and binding upon all participants.
Eligibility. Each of our employees or the employees of our subsidiaries who is an employee and whose customary employment with us or one of our subsidiaries is at least twenty hours per week and more than five months in a calendar year is eligible to participate in the Stock Purchase Plan, subject to the laws pursuant to which our subsidiaries operate.
In addition, an employee must be employed by us or by a designated subsidiary for at least six months to be eligible to participate in the Stock Purchase Plan. However, an employee cannot be granted any rights to purchase shares under the Stock Purchase Plan to the extent that (i) immediately after the grant, such employee would own 5% or more of the total combined voting power or value of all classes of our capital stock or the capital stock of one of our subsidiaries, or (ii) the employee’s rights to purchase stock under all of our employee stock purchase plans accrue at a rate that exceeds $25,000 worth of our stock (determined at the fair market value of the shares at the time such option is granted) for each calendar year in which such rights are outstanding. As of December 31, 2018, we and our subsidiaries had approximately 2,076 eligible employees in the U.S. and Germany.
Non-Section 423 Component. The Non-Section 423 Component of the Stock Purchase Plan authorizes the purchase of shares of our common stock, but is not intended to meet the requirements set forth Section 423(b) of the Internal Revenue Code. U.S. employees are not permitted to purchase shares of common stock under the Non-Section 423 Component. Any individual who is an employee of one of our subsidiaries that has elected to become a participating company in the Non-Section 423 Component may be a participant in the Stock Purchase Plan even if (i) he or she has not completed six or more months of service with a participating company and (ii) his or her customary employment is less than twenty hours per week, and less than five months in any calendar year, to the extend required by applicable local law.
Offering Period. Generally, the Stock Purchase Plan provides for consecutive, non-overlapping six-month offering periods. Unless the Administrator determines otherwise, the offering periods generally begin on the first trading day on or after January 1 and July 1 of each year, except thatthe first offering period under the Stock Purchase Plan if approved by our stockholders will commence on the first trading day on or after December 1, 2018, and end on the trading day coincident with or next preceding June 30, 2019 (the “First Offering Period”).
At the beginning of each offering period, each participant is deemed to have been granted an option to purchase shares of our common stock. The option is automatically exercised on the last trading day of the offering period and the amounts deducted and accumulated by the participant are used to purchase shares of our common stock.
Participation. To participate in the Stock Purchase Plan, an eligible employee must authorize payroll deductions pursuant to the Stock Purchase Plan. Such payroll deductions must be in whole percentages not to exceed 10% of a participant’s compensation during the offering period. Once an employee becomes a participant in the Stock Purchase Plan, the employee automatically will participate in each successive offering period until the employee’s employment with us and the designated subsidiaries terminates, or until the employee elects to terminate participation prior to and effective upon the next offering period.
Purchase Price. Shares of our common stock may be purchased under the Stock Purchase Plan at a purchase price equal to 85% of the lesser of the fair market value of the common stock on (i) the first trading day of the offering period or (ii) the last trading day of the offering period. The fair market value of our common stock on any relevant date will be the closing price per share as quoted on the Nasdaq and reported in The Wall Street Journal or such other source as the Administrator deems reliable.
Purchase of Shares. The number of shares of our common stock that a participant may purchase at the end of an offering period will be determined by dividing the total amount of payroll deductions withheld from the participant’s compensation during that offering period by the purchase price; provided, however, that a participant may not purchase more than a number of shares determined by dividing $12,500 by the fair market value of a share on the first trading day of the offering period. However, the maximum number of shares of our common stock that a participant may purchase with respect to the offering period beginning on the first trading day on or after December 1, 2018, will be the number of shares determined by dividing $25,000 by the fair market value of a share of our common stock on the first trading day for that offering period. During an offering period, a participant may not discontinue his or her participation in the Stock Purchase Plan and may not decrease or increase the rate of payroll deductions in an offering period.
All payroll deductions made for a participant are credited to the participant’s account under the Stock Purchase Plan and are included in our general funds. Funds received by us pursuant to exercises under the Stock Purchase Plan are also used for general corporate purposes. A participant may not make any additional payments into his or her account.
Withdrawal. Generally, a participant may not elect to withdraw from or change his or her payroll deduction election during an offering period.
Termination of Employment. Upon termination of a participant’s employment for any reason, including disability or death, the payroll deductions credited to the participant’s account (to the extent not used to make a
purchase of our common stock) will be returned to him or her or, in the case of death, to the person or persons entitled thereto as provided in the Stock Purchase Plan, and the participant’s option will automatically be terminated.
Adjustments; Change of Control. In the event that any change to the outstanding common stock occurs (whether by reason of any recapitalization, stock dividend, stock split, exchange or combination of shares or other change in corporate structure), the Administrator will make adjustments to preserve the benefits under the Plan. These may include appropriate adjustments to:
•the number and class of securities that may be issued or delivered under the Stock Purchase Plan;
•the number of securities purchasable per participant during any Stock Purchase Plan offering; and
•the purchase price per share.
It is intended that any adjustments will prevent any dilution or enlargement of rights under the Stock Purchase Plan. In the event of various corporate events such as our dissolution or liquidation, or a merger, or a sale of all or substantially all of our assets, the Stock Purchase Plan offering which would otherwise be in effect on the date of the event will accelerate and will end on the last pay day before the date of the event. On that date, all outstanding purchase rights will automatically be exercised.
Amendment and Termination of the Plan. The Board may, in its sole discretion, terminate or amend the Plan, but the amendment and termination of the Plan may not adversely affect outstanding purchase rights without the consent of the holders of those rights. The approval of the stockholders is required to alter the aggregate number of shares that may be issued under the Plan (except for the adjustments and annual increases provided for in the Plan) or the class of employees eligible to receive offerings of shares under the Plan. If we terminate the Stock Purchase Plan, we may end an offering period and accelerate the exercise date of all outstanding purchase rights. We will refund (without interest) any remaining payroll deductions after we terminate the Stock Purchase Plan.
Effective Date and Term. The Restated Plan will become effective as of December 1, 2018, subject to stockholder approval, and will continue in effect until the earlier of the date that (a) the shares of our common stock reserved for issuance have been depleted, and (b) the Stock Purchase Plan is terminated in accordance with its terms.
New Plan Benefits. Participation in the Stock Purchase Plan is voluntary and depends on each eligible employee’s election to participate and his or her determination as to the level of payroll deductions. Accordingly, future purchases under the employee stock purchase plan are not determinable. Non-employee directors are not eligible to participate in the Stock Purchase Plan. We cannot determine the benefits that our executive officers and other employees may receive under the Stock Purchase Plan. No purchases have been made under the Stock Purchase Plan since its adoption by the Board.
Federal Income Tax Considerations
The following summary of the effect of U.S. federal income taxation upon the participants and us with respect to the shares purchased under the Stock Purchase Plan does not purport to be complete, and does not discuss the tax consequences of a participant’s death or the income tax laws of any state, locality or foreign country in which the participant may reside. Therefore, this summary should not be relied upon for individual tax compliance, planning or decisions and participants of the Stock Purchase Plan should consult their own tax professionals for any such advice. Taxation of equity-based payments in countries other than the U.S. does not generally correspond to U.S. federal tax laws, and is not covered by the summary below.
The Stock Purchase Plan, and the right of participants to make purchases thereunder, are intended to qualify under the provisions of Sections 421 and 423 of the Internal Revenue Code.
Section 423 Plan Offerings. For options granted under the provisions of Section 423(b) of the Code, no income will be taxable to a participant until the shares the participant purchased under the Stock Purchase Plan are sold or otherwise disposed of. Upon sale or other disposition of the shares, the participant generally will be subject to tax in an amount that depends upon the holding period.
If the shares are sold or otherwise disposed of more than two years from the first trading day of the applicable offering period and one year from the applicable date of purchase, the participant will recognize ordinary income measured as the lesser of (i) the excess of the fair market value of the shares at the time of such sale or disposition over the purchase price or (ii) the excess of the fair market value of the shares on the first trading day of the applicable offering period over the purchase price. Any additional gain will be treated as long-term capital gain.
If the shares are sold or otherwise disposed of before the expiration of these holding periods, the participant will recognize ordinary income in the year of the disqualifying disposition generally measured as the excess of the fair market value of the shares on the date the shares are purchased over the purchase price. Any additional gain or loss on such sale or disposition will be long-term or short-term capital gain or loss, depending on how long the shares have been held from the date of purchase. We generally are not entitled to a deduction for amounts taxed as ordinary income or capital gain to a participant except to the extent of ordinary income recognized by participants upon a disqualifying disposition, that is, a sale or disposition of shares prior to the expiration of the holding periods described above.
Non-Section 423 Component Offerings. If the option is granted in an offering under the Non-Section 423 Component, the participant will recognize ordinary income generally measured as the excess of the fair market value of the shares on the date the shares are purchased over the purchase price. In such instances, the amount of recognized ordinary income will be added to the participant’s basis in the shares. Any additional gain or loss recognized upon the sale or disposition of shares will be treated as a capital gain or loss. A capital gain or loss will be long-term if the shares have been held for more than one year after the purchase date. We generally will not be entitled to a deduction except to the extent of ordinary income recognized by the participant upon a sale or disposition of shares, subject to the satisfaction of any tax-reporting obligations and applicable limitations under the Code.
Information Regarding Equity Compensation Plans
The following table sets forth information with respect to securities authorized for issuance under the Stock Purchase Plan as of December 31, 2018:
Equity Compensation Plan Information
| | | | | | | | | | | | | | | | | | | | |
Plan Category | | Number of Securities to be Issued upon Exercise of Outstanding Options, RSUs and PSUs (a) | | Weighted-Average Exercise Price of Outstanding Options, RSUs and PSUs (b) | | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) |
Employee Stock Purchase Plan Approved by Security Holders | | — | | — | | — |
Employee Stock Purchase Plan Not Approved by Security Holders (1) | | — | | | | 387,498 |
Total (2) | | — | | | | 387,498 |
1.As of December 31, 2018, there were 387,498 shares available for issuance under the employee stock purchase plan, including 45,184 shares subject to purchase during the current purchase period. Shares subject to purchase were calculated following plan guidelines using the December 31, 2018 closing stock price. Shares available for issuance including the shares subject to purchase, are subject to the stockholder approval requested herein.
2.For information regarding all of the Company's equity compensation plans, please see the Section entitled "Information Regarding Equity Compensation Plans" on page 35 of the Company Annual Report on Form 10-K filed with the SEC on February 27, 2019.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE APPROVAL OF THE IPG PHOTONICS CORPORATION
2008 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED AND RESTATED
OTHER MATTERS
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, and persons who beneficially own more than 10% of a registered class of our equity securities to file reports of ownership of, and transactions in, our securities with the SEC. These directors, executive officers and 10% stockholders are also required to furnish us with copies 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 delinquent withwith respect to their reporting obligations as set forth in Section 16(a) of the Exchange Act.Act, except as set forth below.
2019Following a change in responsibilities in which Thomas J. Burgomaster, Vice President, Corporate Controller, was designated as the Chief Accounting Officer of the Company (including Principal Accounting Officer) on February 25, 2014, the following forms were not timely filed with respect to Mr. Burgomaster: (i) an initial statement of beneficial ownership of securities on Form 3 within 10 days of such appointment, and (ii) thirty eight Form 4s to report transactions in the Company's securities occurring from February 25, 2014 through June 6, 2018. Promptly after the omission was discovered, Mr. Burgomaster filed a Form 3 as well as Form 4s on October 31, 2018 to report all such transactions.
A Form 4 was not timely filed with respect to Trevor Ness, Senior Vice President, World Wide Sales and Marketing, to report one transaction occurring on March 1, 2014. Promptly after the omission was discovered, Mr. Ness filed a Form 4 on May 11, 2018 to report such transaction.
A Form 4 was not timely filed with respect to Dr. Eugene Scherbakov, Chief Operating Officer, to report one transaction occurring on February 22, 2018. Promptly after the omission was discovered, Dr. Scherbakov filed a Form 4 on May 11, 2018 to report such transaction.
2020 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 2020 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 10,13, 2019.
Matters for Consideration at the 2020 Annual Meeting of Stockholders, but not for Inclusion in the Proxy Materials. If you would like to present a proposal at the 20192020 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 5,January 31, 2020 and not later than March 1, 2020.
Nominations of Individuals for Election as Directors at the 2020 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 13, 2019 and not later than December 13, 2019.
Nominations of Individuals for Election as Directors at the 2020 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 31, 2020 and not later than March 7, 2019.1, 2020.
Additional Requirements. Our by-lawsbylaws contain additional specific requirements regarding a stockholder'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'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 Committee or the Board determines that any nomination made by a stockholder was not made in accordance with the Company'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 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 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 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.
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” and can result in significant cost savings.savings and reduce the environmental impact. 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 agree to deliver promptly, upon written or oral request, 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. If you prefer to receive separate copies of the Notice, proxy statement or annual report, call 877-373-6374 if you are a stockholder of record, or 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.
APPENDIX A
IPG PHOTONICS CORPORATION
2008 EMPLOYEE STOCK PURCHASE PLAN
(As Amended and Restated Effective December 1, 2018)
ARTICLE I
INTRODUCTION
1.01 Purpose. IPG Photonics Corporation (the “Company”) established and maintains this IPG Photonics Corporation 2008 Employee Stock Purchase Plan, as amended from time to time (the “Plan”) to provide employees of IPG Photonics with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. The Company has amended and restated the Plan effective December 1, 2018 (the “Restatement Date,” and the Plan on and after the Restatement Date, the “Restated Plan”).
1.02 Operation. It is the intention of the Company to have the Plan qualify as an “employee stock purchase plan” under Code Section 423. Accordingly, the provisions of the Plan will be administered, interpreted and construed so as to extend and limit Plan participation in a manner consistent with the requirements of Code Section 423. However, the Company makes no undertaking or representation to maintain such qualification. In addition, the Plan authorizes the purchase of shares of Common Stock under a Non-Code Section 423(b) Component, pursuant to rules, procedures or sub-plans adopted by the Board and designed to achieve tax, securities law or other objective, provided, however, that U.S. Employees will not be permitted to purchase shares of Common Stock under the Non-Code Section 423(b) Component.
ARTICLE II
DEFINITIONS
2.01 “Administrator” means the Compensation Committee of the Board or any committee designated by the Board to administer the Plan pursuant to Article VII.
2.02 “Affiliate” means any entity, other than a Subsidiary, in which the Company has an equity or other ownership interest.
2.03 “Board” means the Board of Directors of the Company.
2.04 “Change in Control” means the occurrence of any of the following events:
(a) Any “person” (as such term is defined in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), including a “group” (as defined in Section 13(d)(3) of the Exchange Act), other than (i) the Company, (ii) any wholly-owned subsidiary of the Company, or (iii) any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliate, becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company having fifty percent (50%) or more of the combined voting power of the then-outstanding securities of the Company that may be cast for the election of directors of the Company (other than as a result of an issuance of securities initiated by the Company in the ordinary course of business) (the “Company Voting Securities”); provided, however, that the event described in this paragraph (a) shall not be deemed to be a Change in Control by virtue of any underwriter temporarily holding securities pursuant to an offering of such securities;
(b) During any period of two consecutive years, individuals who at the beginning of any such period constitute the Board (the “Incumbent Directors”) cease for any reason to
constitute at least a majority of the Board, unless the election, or the nomination for election by the stockholders of the Company, of each new director of the Company during such period was approved by a vote of at least two-thirds of the Incumbent Directors then still in office;
(c) As the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of all or substantially all of the assets or contested election, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then-outstanding securities of the Company or any successor corporation or entity entitled to vote generally in the election of the directors of the Company or such other corporation or entity after such transaction is held in the aggregate by the holders of the securities of the Company entitled to vote generally in the election of directors of the Company immediately prior to such transaction; or
(d) The stockholders of the Company approve a plan of complete liquidation of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any person acquires beneficial ownership of more than fifty percent (50%) of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company that reduces the number of Company Voting Securities outstanding; provided, however, that if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control transaction shall then occur.
2.05 “Code” means the U.S. Internal Revenue Code of 1986, as amended.
2.06 “Code Section 423(b) Component” means an employee stock purchase plan
that is designed to meet the requirements set forth in Code Section 423(b), as amended. The provisions of the Code Section 423(b) Component shall be construed, administered and enforced in accordance with Code Section 423(b).
2.07 “Common Stock” means the common stock of the Company.
2.08 “Company” means IPG Photonics Corporation, a Delaware corporation.
2.09 “Compensation” means (i) the base salary and wages paid in cash to a Participant by the Participating Company, plus (ii) any pre-tax contributions made by the Participant under Code Section 401(k) or 125. “Compensation” shall exclude variable compensation (including bonuses, incentive compensation, commissions, overtime pay and shift premiums), all non-cash items, moving or relocation allowances, cost-of-living equalization payments, car allowances, tuition reimbursements, imputed income attributable to cars or life insurance, severance pay, fringe benefits, contributions or benefits received under employee benefit plans, income attributable to the exercise of stock options, and similar items.
2.10 “Employee” means any individual who is a common law employee of a Participating Company for tax purposes whose customary employment with the Participating Company is at least twenty (20) hours per week and more than five (5) months in any calendar year; provided, however, that any individual who is an employee of a Participating Company in the Non-Code Section 423(b) Component may be an Employee for purposes of the Plan even if his or her customary employment is less than twenty (20) hours per week and less than five (5) months in any calendar year, to the extend required by applicable local law.
2.11 “Enrollment Date” means the first Trading Date of each Offering Period.
2.12 “Exchange Act” means the U.S. Securities Exchange Act of 1934, as
amended, including the rules and regulations promulgated thereunder.
2.13 “Exercise Date” means the last Trading Date of each Offering Period.
2.14 “Fair Market Value” means, as of any date, the value of a share of Common Stock determined as follows:
(a) If the Common Stock is listed on any established stock exchange or a national market system, its Fair Market Value will be the closing sales price for the Common Stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the date of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(b) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value will be the mean of the closing bid and asked prices for the Common Stock on the date of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or
(c) In the absence of an established market for the Common Stock, its Fair Market Value will be determined in good faith by the Administrator.
2.15 “Fiscal Year” means the 12-consecutive month period coinciding with the calendar year, which is the Company’s fiscal year.
2.16 “Non-Code Section 423(b) Component” means the grant of an option under the Plan that is not intended to meet the requirements set forth Code Section 423(b).
2.17 “Offering Period” means a period with respect to which the right to purchase Common Stock may be granted under the Plan, as determined pursuant to Section 3.03.
2.18 “Parent” means a “parent corporation” whether now or hereafter existing, as defined in Code Section 424(e).
2.19 “Participant” means an Employee who elects to participate in the Plan, as provided in Section 3.04.
2.20 “Participating Company” means the Company and each Related Company that has been designated by the Administrator from time to time in its sole discretion as eligible to participate in the Plan. For purposes of the Code Section 423(b) Component, only the Company, a Parent or a Subsidiary may be a Participating Company; provided, however, that, at any given time, a Subsidiary that is a Participating Company under the Code Section 423(b) Component will not be a Participating Company under the Non-Code Section 423(b) Component.
2.21 “Plan” and “Restated Plan” means the IPG Photonics Corporation 2008 Employee Stock Purchase Plan, as amended and restated effective December 1, 2018, which includes a Code Section 423(b) Component and a Non-Code Section 423(b) Component, as it may be amended from time to time.
2.22 “Purchase Price” means the price at which Participants may purchase Common Stock under the Plan, as determined pursuant to Section 5.02.
2.23 “Related Company” means any Parent, Subsidiary or Affiliate of the Company.
2.24 “Subsidiary” means a corporation, domestic or foreign, of which not less than fifty percent (50%) of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary.
2.25 “Trading Day” means a day on which the U.S. national stock exchanges are open for trading.
2.26 “U.S. Employee” means an Employee who (i) resides in the United States, and (ii) is employed by the Company or a Participating Company located in the United States.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.01 Eligibility. Subject to the requirements of Section 3.04, each Employee who has completed six (6) or more months of continuous service with a Participating Company on an Enrollment Date of an Offering Period shall be eligible to participate in such Offering Period; provided, however, that, for Employees participating in the Non-Code Section 423(b) Component, to the extent required by applicable local law, an Employee may be eligible to participate in an Offering Period, notwithstanding that he or she has not completed six (6) or more months of continuous service with a Participating Company on an Enrollment Date of an Offer Period.
3.02 Limitations. Notwithstanding any provisions of the Plan to the contrary, no Employee will be granted an option to purchase shares of Common Stock under the Plan (a) to the extent that, immediately after the grant, such Employee would own capital stock of the Company or any Related Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Related Company (for purposes of this subsection, the rules of Code Section 424(d) shall apply in determining stock ownership of any Employee), or (b) to the extent that such Employee’s rights to purchase stock under all employee stock purchase plans (as defined in Code Section 423) of the Company or any Related Company accrues at a rate that exceeds $25,000 of Fair Market Value of the stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time.
3.03 Offering Periods. The Offering Periods shall consist of approximately six (6) month periods commencing on the first Trading Day on or after January 1 and July 1 of each Fiscal Year and ending on the Trading Day coincident with or next preceding June 30 and December 31 of such Fiscal Year. Notwithstanding the foregoing, the first Offering Period hereunder shall commence on the first Trading Day on or after December 1, 2018, and shall end on the Trading Day coincident with or next preceding June 30, 2019 (the “First Offering Period”). The Administrator will have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without stockholder approval if such change is announced prior to the scheduled beginning of the first Offering Period to be affected thereafter.
3.04 Participation. An Employee may become a Participant in the Plan by (i) submitting to the Administrator (or its designee), on or before a dated prescribed by the Administrator prior to an applicable Enrollment Date, a properly completed authorization for payroll deductions in the form provided by the Administrator for such purposes or (ii) following an electronic or other enrollment procedure prescribed by the Administrator. To the extent required by applicable local law, the Administrator, in its sole discretion, may decide that an Eligible Employee may contribute to the Plan by means other than payroll deductions, provided, that after December 31, 2018, contributions other than payroll deductions will be permissible only for Employees participating in the Non-Code Section 423(b) Component.
ARTICLE IV
PAYROLL DEDUCTIONS
4.01 Amount of Deduction/Contribution. At the time a Participant enrolls in the Plan pursuant to Section 3.04, he or she will elect payroll deductions or contribution amounts (as applicable) of any whole percentage not exceeding ten percent (10%) of such Participant’s Compensation for each pay period during an Offering Period. Payroll deductions or contributions authorized by a Participant will commence on the first payday following the Enrollment Date. A Participant’s election shall remain in
effect for successive Offering Periods unless modified or suspended by the Participant in accordance with procedures established by the Administrator or terminated as provided in Section 4.07.
4.02 Participant’s Account. All of a Participant’s payroll deductions/contributions will be credited to an account established for such Participant under the Plan. Except as expressly provided herein, a Participant may not make any additional payments into such account.
4.03 Changes in Payroll Deductions/Contributions. Once enrolled for an Offering Period, a Participant may not change his or her payroll deduction/contribution election for that Offering Period, unless required by applicable local law.
4.04 Administrator’s Power to Suspend Deductions/Contributions. Notwithstanding the foregoing, to the extent necessary to comply with Code Section 423(b)(8) and Section 3.02 of the Plan, a Participant’s payroll deductions/contributions may be decreased at any time during an Offering Period. Subject to Code Section 423(b)(8) and Section 3.02 hereof, payroll deductions/ contributions will recommence at the rate elected by the Participant immediately prior to the suspension, effective as of the Enrollment Date of the first Offering Period in which the Participant’s payroll deductions/contributions will comply with Code Section 423(b)(8) and Section 3.02, unless terminated as provided in Section 4.07.
4.05 Interest. No interest will be paid, accrued, or allowed on the payroll deductions of a Participant in the Plan or any money paid into the Plan or credited to the account of or distributed to any Participant, unless required by applicable local law.
4.06 Withdrawal. No Participant in the Plan shall be entitled to withdraw any amount from the accumulated payroll deductions/contributions in his or her account, unless required by applicable local law; provided, however, that a Participant’s accumulated payroll deductions/contributions shall be refunded to the Participant as and to the extent specified in Section 4.07 below.
4.07 Termination of Employment. Notwithstanding anything in the Plan to the contrary, upon termination of a Participant’s employment with the Participating Companies for any reason, the Participant’s participation in the Plan shall be terminated and the payroll deductions/contributions credited to the Participant’s account during the Offering Period but not yet used to purchase shares of Common Stock under the Plan will be returned to the Participant or, in the case of the Participant’s death, to the Participant’s designated beneficiary. If no beneficiary is designated or if a beneficiary designation is not permitted by the Administrator, the amounts credited to the Participant’s account shall be paid to the Participant’s spouse, if any, and if none, to the Participant’s estate.
ARTICLE V
OPTION GRANTS AND EXERCISE
5.01 Grant of Option. On an Enrollment Date of each Offering Period, each Participant shall be deemed to have been granted an option to purchase on the Exercise Date of the Offering Period a number of shares of Common Stock determined by dividing the Participant’s accumulated payroll deductions/contributions as of the Exercise Date by the Purchase Price.
5.02 Purchase Price. The applicable Purchase Price shall be an amount equal to the lower of (a) eighty-five percent (85%) of the Fair Market Value of a share of Common Stock on the Enrollment Date or (b) eighty-five percent (85%) of the Fair Market Value of a share of Common Stock on the Exercise Date; provided, however, that the Purchase Price may be adjusted by the Administrator pursuant to Article VIII.
5.03 Limitation. Except as provided below or otherwise provided by the Administrator, the maximum number of shares of Common Stock that a Participant may purchase with respect to any Offering Period is the number of shares determined by dividing $12,500 by the Fair Market Value of a share of Common Stock on the Enrollment Date. Notwithstanding the preceding sentence, the maximum number of shares of Common Stock that a Participant may purchase with respect to the First Offering
Period shall be the number of shares determined by dividing $25,000 by the Fair Market Value of a share of Common Stock on the Enrollment Date for First Offering Period.
5.04 Option Exercise. Except as provided in Section 4.07, a Participant’s option for the purchase of shares of Common Stock will be exercised automatically on the Exercise Date, and the maximum number of full shares subject to an option will be purchased for such Participant at the applicable Purchase Price with the accumulated payroll deductions/contributions in the Participant’s account. During a Participant’s lifetime, the Participant’s option to purchase shares hereunder is exercisable only by him or her.
5.05 Fractional Shares. No fractional shares of Common Stock will be purchased; any payroll deductions/contributions accumulated in a Participant’s account that are not sufficient to purchase a full share of Common Stock will be retained in the Participant’s account for the subsequent Offering Period.
5.06 Purchase Reductions. Notwithstanding anything herein to the contrary, the Administrator shall have the discretion to reduce the number of shares of Common Stock to be purchased by Participants with respect to an Offering Period and to allocate such reduced number of shares among Participants in such Offering Period, so long as such reduction and allocation is done in a manner consistent with Code Section 423. Any payroll deductions not applied to the purchase of shares of Common Stock shall be promptly refunded to Participants after the Exercise Date of the Offering Period to which such reduction applies.
5.07 Delivery. After each Exercise Date on which a purchase of shares of Common Stock occurs, shares purchased upon exercise of the Participant’s option shall be held in such Participant’s account. As soon as administratively practicable after the Participant’s request, the Company will distribute to such Participant, as appropriate, the shares in each Participant’s account in a form determined by the Administrator (in its sole discretion) and pursuant to rules established by the Administrator. No Participant will have any voting, dividend, or other stockholder rights with respect to shares of Common Stock subject to any option granted under the Plan until such shares have been purchased and delivered to the Participant’s account.
ARTICLE VI
COMMON STOCK
6.01 Available Shares. Subject to Section 9.05, the maximum number of shares of Common Stock that will be made available for sale under the Restated Plan will be 400,000 shares of Common Stock, plus an annual increase, if any, to be added on the first day of each Fiscal Year so that the total number of shares of Common Stock available shall be equal to the greater of (i) the number of shares of Common Stock available under the Plan as of the last day of the immediately preceding Fiscal Year and (ii) the lesser of (A) 400,000 shares of Common Stock and (B) seventy-five hundredths of one percent (0.75%) of the outstanding shares of Common Stock on the last day of the immediately preceding Fiscal Year. Any or all shares of Common Stock may be granted under the Code Section 423(b) Component.
6.02 Registration. Shares of Common Stock purchased by a Participant under the Plan will be registered in the name of the Participant or, to the extent required or if the Participant so directs by written notice to the Administrator prior to the Exercise Date, in the name of the Participant and his or her spouse.
ARTICLE VII
ADMINISTRATION
7.01 Administration. The Administrator shall administer the Plan. The Administrator will have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility, to adjudicate all disputed claims filed under the Plan and to establish such
procedures that it deems necessary for administration of the Plan (including, without limitation, to adopt such rules, procedures and sub-plans as are necessary or appropriate to accommodate the specific requirements of applicable local laws to permit the participation in the Plan by Employees who are foreign nationals or employed outside of the United States). Every finding, decision and determination made by the Administrator shall, to the fullest extent permitted by law, be final and binding upon all parties.
7.02 Delegation. The Administrator, in its sole discretion and on such terms and conditions as it may provide, may delegate to one or more individuals all or any part of its authority and powers under the Plan.
7.03 Rules Governing the Administration of the Committee. The Board may from time to time appoint members of a committee to serve as the Administrator of the Plan. Such committee may select one of its members as its chairperson, shall hold meetings at such times and places as it shall deem advisable, and may hold telephonic meetings. All determinations of the committee shall be made by a majority of its members. A decision or determination reduced to writing and signed by a majority of the members of the committee shall be fully effective as if it had been made by a majority vote at a meeting duly called and held. The committee may appoint a secretary and shall make such rules and regulations for the conduct of its business as it shall deem advisable.
ARTICLE VIII
AMENDMENT AND TERMINATION
8.01 Amendment or Termination. The Board may at any time and for any reason suspend, terminate or amend the Plan; provided, however, that the Board shall not, without the approval of the stockholders of the Company, alter (a) the aggregate number of shares of Common Stock that may be issued under the Plan (except pursuant to Section 9.05), or (b) the class of Employees eligible to receive options under the Plan, other than to designate Participating Companies; and provided, further, that, subject to Section 8.02, no termination, modification, or amendment of the Plan may, without the consent of an Employee then having an option under the Plan to purchase shares of Common Stock, adversely affect the rights of such Employee under such option. In addition, and notwithstanding anything contained herein to the contrary, to the extent necessary under Code Section 423 (or any successor rule or provision or any applicable law or regulation), the Company shall obtain stockholder approval in such a manner and to such a degree as required.
8.02 Administrator Authority. Without stockholder consent, the Administrator shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company’s processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts withheld from the Participant’s Compensation or otherwise contributed by the Participant, and establish such other limitations or procedures as the Administrator determines in its sole discretion advisable that are consistent with the Plan, in each case so long as any such action is consistent with Code Section 423. None of the foregoing actions shall be considered to have adversely affected any right of any Participant.
8.03 Accounting Treatment. In the event the Administrator determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Administrator may, in its discretion and to the extent necessary or desirable, modify, amend or terminate the Plan to reduce or eliminate such accounting consequence including, but not limited to:
(a) altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price;
(b) shortening any Offering Period so that the Offering Period ends on a new Exercise Date, including an Offering Period underway at the time of such action;
(c) reducing the maximum percentage of Compensation that a Participant may elect to set aside as payroll deductions;
(d) reducing the maximum number of shares of Common Stock a Participant may purchase during any Offering Period; and
(e) allocating shares of Common Stock to Participant’s pursuant to
Section 5.06.
None of the foregoing actions shall require stockholder approval or shall be considered to have adversely affected any right of any Participant.
ARTICLE IX
MISCELLANEOUS
9.01 Transferability. Neither payroll deductions/contributions credited to a Participant’s account nor any option or other rights with regard to the exercise of an option to receive shares of Common Stock under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way by the Participant other than by will, the laws of descent and distribution, or as provided in Section 9.04.
9.02 Use of Funds. The Company may use all payroll deductions/contributions received or held by the Company under the Plan for any corporate purpose, and the Company will not be obligated to segregate such payroll deductions/contributions, unless otherwise required by applicable local law. Until shares of Common Stock are issued under the Plan (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), a Participant will only have the rights of an unsecured creditor with respect to such shares.
9.03 Reports. Individual accounts will be maintained for each Participant. Statements of account will be given to Participants at least annually, which statements will set forth the amounts of payroll deductions/contributions, the Purchase Price, the number of shares of Common Stock purchased and the remaining cash balance, if any.
9.04 Designation of Beneficiary.
(a) If permitted by the Administrator in its sole discretion, a Participant may designate a beneficiary who is to receive any shares of Common Stock and cash, if any, from the Participant’s account under the Plan in the event of such Participant’s death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such Participant of such shares and cash. In addition, if permitted by the Administrator in its sole discretion, a Participant may designate a beneficiary who is to receive any cash from the Participant’s account under the Plan in the event of such Participant’s death prior to exercise of the option. If a Participant is married and the designated beneficiary is not the spouse, spousal consent may be required by the Administrator in its sole discretion for such designation to be effective, unless otherwise required by applicable local law.
(b) If the Administrator in its sole discretion has permitted the Participant to make a beneficiary designation, the Participant may change such designation of beneficiary at any time by written notice. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant’s death, the Company will deliver such shares and/or cash to the Participant’s spouse, if any, and if none, to the Participant’s estate.
(c) All beneficiary designations permitted under this Section 9.04 will be made in such form and manner as the Administrator may prescribe from time to time.
9.05 Adjustment upon Changes in Capitalization; Change in Control.
(a) Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Common Stock or other securities of the Company, or other change in the corporate structure of the Company affecting the Common Stock such that adjustment is appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, the Administrator shall adjust the shares of Common Stock to preserve the benefits or potential benefits under the Plan. Action by the Administrator may include adjustment of: (i) the number and class of Common Stock that may be delivered under the Plan, (ii) the Purchase Price per share, (iii) the number of shares of Common Stock covered by each option under the Plan that has not yet been exercised, and (iv) the numerical limits of Section 6.01.
(b) Change in Control. In the event of a Change in Control, any Offering Period then in progress will be shortened by setting a new Exercise Date (the “New Exercise Date”) on the date of the Change in Control and will terminate on such date, unless provided otherwise by the Administrator. The Administrator will notify each Participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the Participant’s option has been changed to the New Exercise Date and that the Participant’s option will be exercised automatically on the New Exercise Date.
9.06 Notices. All notices or other communications by a Participant to the Company or the Administrator under or in connection with the Plan will be deemed to have been duly given when received in the form and manner specified by the Company or Administrator at the location, or by the person, designated by the Company or Administrator for the receipt thereof.
9.07 Conditions Upon Issuance of Shares.
(a) Shares of Common Stock will not be issued with respect to an option under the Plan unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, including the rules and regulations promulgated thereunder, the Exchange Act, and the requirements of any stock exchange upon which the shares may then be listed, and will further be subject to the approval of counsel for the Company with respect to such compliance. If, on the Exercise Date of any Offering Period, as delayed to the maximum extent permissible, the shares of Common Stock have not yet been issued, all payroll deductions/contributions accumulated during the Offering Period (reduced to the extent, if any, such deductions/contributions have been used to acquire shares of Common Stock) shall be distributed to Participants, without interest, unless otherwise required under applicable local law.
(b) As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.
9.08 Covenants of the Company. The Company shall seek to obtain from each federal, state, foreign or other regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of Common stock upon exercise. If, after commercially
reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority that counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell shares of Common Stock upon exercise unless and until such authority is obtained.
9.09 Effective Date. The Restated Plan shall become effective as of its adoption by the Board, subject to approval by the holders of a majority of the shares of Common Stock, and shall continue in effect until the earlier of the date that (a) the shares of Common Stock reserved for issuance have been depleted, and (b) the Restated Plan is terminated under Article VIII.
9.10 No Employment Rights. The Plan does not, directly or indirectly, create in any person any right with respect to employment or continuation of employment by the Company or any Related Company, and it shall not be deemed to interfere in any way with the Company’s or any Related Company’s right to terminate, or otherwise modify, any Employee’s employment at any time.
9.11 Severability. If any particular provision of the Plan is found to be invalid or otherwise unenforceable, such provision shall not affect the enforceability of the other provisions of the Plan, and the Plan shall be construed in all respects as if such invalid provision had been omitted.
9.12 Electronic Delivery of Plan Information and Electronic Signatures. To the extent permitted by applicable law, the Company may deliver by email or other electronic means (including posting on a web site maintained by the Company or by a third party under contract with the Company) all documents relating to the Plan (including without limitation, prospectuses required by applicable securities law) and all other documents that the Company is required to deliver to its security holders (including without limitation, annual reports and proxy statements). To the extent permitted by applicable law, a Participant may submit his or her payroll deduction election or other forms by electronic facsimile or other method of recording of the Participant’s election or signature in a manner that is acceptable to the Administrator.
9.13 Treatment of Non-U.S. Participants. Participants who are paid in foreign currency, and who contribute foreign currency to the Plan through contributions or payroll deductions will have such contributions converted to U.S. dollars. The exchange rate and method for such conversion will be determined as prescribed by the Administrator. Each Participant shall bear the risk of any currency exchange fluctuations (if applicable) between the date on which any Participant contributions are converted to U.S. dollars and the following Purchase Date.
9.14 Eligible Persons in Other Countries. Without amending the Plan, the Administrator may grant options or establish other procedures to provide benefits to Employees who are not U.S. Employees on such terms and conditions different from those specified in the Plan as may, in the judgment of the Administrator, be necessary or desirable to foster and promote achievement of the purposes of the Plan and shall have the authority to adopt such modifications, procedures, subplans and the like as may be necessary or desirable (a) to comply with provisions of the laws or regulations or conform to the requirements to operate the Plan in a qualified or tax or accounting advantageous manner in other countries or jurisdictions in which the Company or any Participating Company may operate or have employees, (b) to ensure the viability of the benefits from the Plan to Employees employed in such countries or jurisdictions and (c) to meet the objectives of the Plan.
9.15 Governing Law. Except to the extent superseded by the federal laws of the United States, the law of the State of Delaware, without regard to its conflict of laws provisions, will govern all matters relating to the Plan. Participants, the Company, a Participating Company, a Subsidiary, the Parent, and any Affiliate each submit and consent to the jurisdiction of the courts in the Commonwealth of Massachusetts, County of Worcester, including the Federal Courts located therein, should Federal jurisdiction requirements exist in any dispute or action brought to enforce (or otherwise relating to) the Plan.
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IMPORTANT ANNUAL MEETING INFORMATION | | | | |
Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. | | ý | | |
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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 5, 2018.May 30, 2019.
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
Ÿ Call toll free 1-800-652-VOTE (8683) within the
USA, US territories & Canada any time on a touch
tone 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 | | |
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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A | Proposals | | | | | | | | | |
| | Proposals — The Board of Directors for IPG Photonics Corporation unanimously recommends a vote FOR"FOR" all nominees listed below and Proposal 2. Proposals 2 and 3. | | | | | | | | | |
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1. | 1 | Election of Directors | For | Against | Abstain | | | | For | Against | Withhold | | | | For | | Withhold | | | | For | | Withhold | | + Abstain |
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| 01 - Valentin P. Gapontsev, Ph.D. | ¨ | ¨ | ¨ | | 2 | Ratify Deloitte & Touche LLP as IPG's independent registered public accounting firm for 2019 | ¨ | ¨ | ¨ |
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| 02 - Eugene A. Scherbakov, Ph.D. | ¨ | ¨ | | ¨ | | | | | | |
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| 03 - Igor Samartsev | | ¨ | ¨ | ¨ | | | | | | |
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| | 04 - Michael C. Child | | ¨ | ¨ | ¨ | | | | For | Against | Abstain |
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| 05 - Gregory P. Dougherty | ¨ | ¨ | ¨ | | 3 | Approval of the IPG Photonics Corporation 2008 Employee Stock Purchase Plan, as amended and restated | ¨ | ¨ | ¨ |
| 06 - Henry E. Gauthier | | ¨ | ¨ | ¨ | | 06
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| 07 - Catherine P. Lego | | ¨ | ¨ | ¨ | | | | | | |
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| | 0708 - Eric Meurice
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| 09 - John R. Peeler
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| 10 - Thomas J. Seifert | | ¨ | ¨ | ¨ | | | | | | |
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2. | | Ratify Deloitte & Touche LLP as IPG's independent registered public accounting firm for 2018 | | For | | Against | | Abstain | | |
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BNon-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 |
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C | | Authorized Signatures — This section must be completed for your vote to be counted. —Please Date and Sign Below Below. |
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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20182019 Annual Meeting Admission Ticket
20182019 Annual Meeting of ShareholdersStockholders
IPG Photonics Corporation
June 5, 2018May 30, 2019
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 shareholderstockholder 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 20182019 Annual Meeting of Stockholders
50 Old Webster Road, Oxford, MA 01540
Proxy Solicited by Board of Directors for Annual Meeting - June 5, 2018May 30, 2019
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 5, 2018May 30, 2019 or at any postponement or adjournment thereof.
Shares represented by this proxy will be voted by the stockholder.Proxies. If no such directions are indicated, the Proxies will have authority to vote FOR all nominees and Proposal 2.Proposals 2 and 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.)