UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

(Amendment No.     )

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¨  Preliminary Proxy Statement  ¨  

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(as permitted by Rule 14a-6(e)(2))

x  Definitive Proxy Statement    
¨  Definitive Additional Materials    
¨  Soliciting Material Pursuant to §240.14a-12    

VARIAN MEDICAL SYSTEMS, INC.

(Name of Registrant as Specified In Its Charter)

 

  

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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LOGO

Varian Medical Systems, Inc.

3100 Hansen Way

Palo Alto, CA 94304

December 28, 201230, 2014

Dear Stockholder:

You are cordially invited to attend Varian Medical Systems, Inc.’s 20132015 Annual Meeting of Stockholders to be held on Thursday, February 14, 201312, 2015 at 4:30 p.m. Pacific Time at our headquarters at 3100 Hansen Way, Palo Alto, California 94304.

The Secretary’s formal notice of the meeting and the Proxy Statement appear on the following pages and describe the matters to be acted upon at the annual meeting. You also will have the opportunity to hear what has happened in our business in the past year.

We hope that you can join us. However, whether or not you plan to be there, please vote your shares as soon as possible so that your vote will be counted.

 

Sincerely,
Richard M. Levy

R. Andrew Eckert

Chairman of the Board


 

LOGO

Varian Medical Systems, Inc.

3100 Hansen Way

Palo Alto, CA 94304

December 28, 201230, 2014

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

AND PROXY STATEMENT

Varian Medical Systems, Inc. will hold its Annual Meeting of Stockholders on Thursday, February 14, 201312, 2015 at 4:30 p.m. Pacific Time at ourits headquarters at 3100 Hansen Way, Palo Alto, California 94304.

This annual meeting is being held for the following purposes:

 

to elect three directors to serve until the 20162018 Annual Meeting of Stockholders;

 

to provide an advisory vote on the compensation of our named executive officers as described in the accompanying Proxy Statement;

 

to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal year 2013;

to act upon a stockholder proposal, if properly presented at the annual meeting;2015; and

 

to transact any other business that properly comes before the annual meeting.

The Board of Directors has selected December 18, 201215, 2014 as the record date for determining stockholders entitled to vote at the annual meeting. A list of stockholders as of that date will be available for inspection during ordinary business hours at our principal executive offices at 3100 Hansen Way, Palo Alto, California 94304 for 10 days before the annual meeting.

Except for those stockholders that have already requested printed copies of our proxy materials, we are furnishing our proxy materials for this annual meeting to you through the Internet. On or about December 28, 2012,30, 2014, we mailed to stockholders on the record date a Notice of Internet Availability of Proxy Materials (the “Notice”). Certain stockholders who previously requested email notice in lieu of mail received the Notice by email. If you received a Notice by mail or email, you will not receive a printed copy of the proxy materials unless you specifically request one. Instead, the Notice instructs you on how to access and review all of the important information contained in our Proxy Statement and in our Annual Report on Form 10-K for the fiscal year ended September 28, 201226, 2014 (which we posted on the Internet on December 28, 2012)30, 2014), as well as how to submit your proxy over the Internet. We believe that mailing or emailing the Notice and posting other materials on the Internet allowallows us to provide you with the information you need while lowering the costs of delivery and reducing the environmental impact of the annual meeting. If you received the Notice and would still like to receive a printed copy of our proxy materials, you may request a printed copy of the proxy materials by any of the following methods: through the Internet at www.proxyvote.com; by telephone at 1-800-579-1639; or by sending an email tosendmaterial@proxyvote.com.

Whether or not you plan to attend the annual meeting, please vote your shares as soon as possible in accordance with the instructions provided to you to ensure that your vote is counted at the annual meeting.

 

By Order of the Board of Directors,

John W. Kuo

Corporate Secretary


TABLE OF CONTENTS

 

    Page 

GENERAL INFORMATIONPROXY SUMMARY

   1  

GENERAL INFORMATION

5

PROPOSAL ONE—ONE — ELECTION OF DIRECTORS

   610  

Our Board; Selection of Nominees

   610  

Nominees for Election for a Three-Year Term Ending with the 20162018 Annual Meeting

   711  

Directors Continuing in Office Until the 20142016 Annual Meeting

   812  

Directors Continuing in Office Until the 20152017 Annual Meeting

   913  

Governance of the CorporationDirector Qualifications Matrix

   1016  

Recommendation of the Board

   16  

Governance of the Corporation

16

PROPOSAL TWO—TWO — ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

   1723  

Background to the Advisory Vote

   1723  

Our Compensation Program

   1723  

Recommendation of the Board

   1824  

PROPOSAL THREE—THREE — RATIFICATION OF THE APPOINTMENT OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

   1925  

Selection of the Accounting Firm

   1925  

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

   1925  

Principal Accountant Fees and Services

   1925  

Recommendation of the Board

   2026  

AUDIT COMMITTEE REPORT

   2127  

STOCK OWNERSHIP

   2228  

Beneficial Ownership of Certain Stockholders, Directors and Executive Officers

   2228  

Section 16(a) Beneficial Ownership Reporting Compliance

   2329  

COMPENSATION OF THE NAMED EXECUTIVE OFFICERS AND DIRECTORS

   2430  

Compensation Discussion and Analysis

   2430  

Compensation and Management Development Committee Report

   4347  

Relationship between Compensation Plans and Risk

   4348  

Summary Compensation Table

   4549  

Grants of Plan-Based Awards for 20122014

   4752  

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

   4853  

Outstanding Equity Awards at Fiscal Year End

   5055  

Option Exercises and Stock Vested

   5157  

Nonqualified Deferred Compensation

   5257  

Potential Payments Upon Termination or Change in Control

   5358  

Compensation of Directors

   5661  

Compensation Committee Interlocks and Insider Participation

   5864  

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   5965  

Review, Approval or Ratification of Related Person Transactions

   5965  

Transactions with Related Persons

   59

PROPOSAL FOUR—STOCKHOLDER PROPOSAL

6065  

 

i


PROXY SUMMARY

This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information you should consider, and you should read the entire Proxy Statement carefully before voting.

Annual Meeting of StockholdersMeeting Agenda

Date:

Thursday, February 12, 2015

•   Election of three directors

•   Advisory vote on executive compensation

•   Ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal year 2015

•   Transact any other business that properly comes before the annual meeting

Time:

4:30 p.m. Pacific Time

Place:

3100 Hansen Way

Palo Alto, California 94304

Record date:

December 15, 2014

Voting:

Stockholders as of December 15, 2014 are entitled to vote. Each share of common stock is entitled to one vote for each director nominee and one vote for each of the proposals to be voted on.

Voting Matters and Vote Recommendation

Matter—Management proposalsBoard vote recommendation

1. Election of directors

For each director nominee

2. Advisory vote on executive compensation

For

3. Ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal year 2015

For

Our Director Nominees

See “Proposal One—Election of Directors” for more information.

The following table provides summary information about each director nominee and our other Board members.

Name  Age   

Director

since

   Occupation 

Other

public

boards

  Committee memberships 
        AC  EC  CC  NC  EX 
    

Nominees for Election for a Three-Year Term Ending with the 2018 Annual Meeting

  

   

Timothy E. Guertin

   65     2005    Former CEO, Varian Medical Systems, Inc.  2                      

David J. Illingworth (1)

   61     2011    Former CEO, Smith & Nephew plc  2    M    C              

Ruediger Naumann- Etienne (1) (2)

   68     2003    Managing Director, Intertec Group  2    C    M      M  

Directors Continuing in Office Until the 2016 Annual Meeting

  

     

R. Andrew Eckert (1) (2)

   53     2004    CEO, TriZetto Corporation  0    M        M        C  

Mark R. Laret (1)

   60     2007    CEO, UCSF Medical Center  1            M    C    M  

Erich R. Reinhardt (1)

   68     2012    Former President and CEO, Siemens Healthcare  0     M     M   

Directors Continuing in Office Until the 2017 Annual Meeting

  

     

Susan L. Bostrom (1)

   54     2004    Former EVP, Chief Marketing Officer, Cisco Systems, Inc.  4            C    M      

Regina E. Dugan (1)

   51     2013    SVP, Advanced Technology, Google, Inc.  1        M        M      

Venkatraman Thyagarajan (1)

   68     2008    Former SVP GlaxoSmithKline  1    M        M          

Dow R. Wilson

   55     2012    President and CEO, Varian Medical Systems, Inc.  1       

(1)

 Independent Director  (2) Financial Expert

AC

 Audit Committee  

NC

 

Nominating and Corporate Governance Committee

CC

 Compensation and Management Development Committee  EX Executive Committee

EC

 Ethics and Compliance Committee  C Chair
   M Member

Corporate Governance Highlights

We are committed to strong corporate governance and have adopted strong governance policies and practices that include:

The Board recently established an Ethics and Compliance Committee to oversee our ethical compliance programs and activities involving legal and ethical business conduct.

The Board has since August 2011 added three new directors to the Board.

We are in the process of declassifying our Board, commencing with the 2016 Annual Meeting of Stockholders.

In fiscal year 2014, the Board appointed an “independent” non-employee director as Chairman, and since 2006 has separated the roles of Chairman and Chief Executive Officer.

A majority of the Board members, and all members of our key Board committees, are independent.

Our Corporate Governance Guidelines include a majority voting policy.

The Board has adopted a guideline for director retirement and completes an annual assessment of the Board and its committees.

The Board has adopted stock ownership guidelines for our directors and executive officers.

The Board reviews at least annually the Company’s business strategy and enterprise risk.

Attendance

Each director nominee is a current director and all directors attended at least 75% of the aggregate of all fiscal year 2014 meetings of the Board and each committee on which he or she served.

Executive Compensation Matters

See “Proposal Two—Advisory Vote on the Compensation of Our Named Executive Officers” and “Compensation of the Named Executive Officers and Directors” for more information.

Executive compensation advisory vote

Our Board of Directors recommends that stockholders vote to approve, on an advisory basis, the compensation paid to our Named Executive Officers, as described in this Proxy Statement, for the following reasons:

Business results

Fiscal year 2014 revenues were $3.0 billion, up 4% from fiscal year 2013.

Net earnings per diluted share for fiscal year 2014 were $3.83.

Gross orders increased 5% in our Oncology Systems business and 8% in our Imaging Components business during fiscal year 2014 as compared to fiscal year 2013. We recorded gross orders of $120.4 million in the “Other” category in fiscal year 2014 as compared to $2.5 million in fiscal year 2013.

Our backlog at the end of fiscal year 2014 was 10% higher than at the end of fiscal year 2013.

Pay for performance

At the core of our executive compensation program is our pay-for-performance philosophy that links competitive levels of compensation to achievements of our overall strategy and business goals, as well as individual performance. We believe our compensation program is strongly aligned with the interests of our stockholders and sound corporate governance principles. See “Compensation of the Named Executive Officers and Directors—Compensation Discussion and Analysis.”

Sound program design

We designed our executive officer compensation programs to attract, reward, and retain the key executives who drive our business strategy; achieve our short- and long-term goals; and provide continued success for our customers, stockholders, employees and communities. We strive to pay competitively and appropriately based on Company, business unit and individual performance. We achieve our objectives through compensation that:

takes into account past performance, our growth targets and the high cost of living in the geographic location of our headquarters,

structures cash compensation for executives so that a significant portion is at-risk, with 80% of the potential payout based on Company and business unit financial performance measures and 20% based on other measures, including non-financial qualitative measures,

links a significant portion of total compensation to our stock performance so executives’ interests are closely aligned with those of our stockholders, and

provides incentives for our executives to work for long-term profitable growth that will ultimately enhance stockholder returns without exposing us to excessive risk.

Best practices in executive compensation

Our compensation programs for our Named Executive Officers incentivize superior individual and business performance and do not reward unnecessary or excessive risk taking. Our executive compensation program contains many features considered to be best practice, including:

an executive compensation recovery policy in the event that our financial statements require restatement as a result of executive misconduct,

executive stock ownership guidelines,

an insider trading policy prohibiting directors and executive officers from margining, pledging or hedging our common stock,

a requirement that executives enter into 10b5-1 trading plans in order to sell shares of our common stock,

limited executive perquisites and no tax gross-ups for imputed income on executive perquisites, and

an equity incentive plan that prohibits the repricing of stock options without stockholder approval.

Auditors

See “Proposal Three—Ratification of the Appointment of Our Independent Registered Public Accounting Firm” for more information.

We ask that our stockholders ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal year 2015. Below is summary information about PricewaterhouseCoopers LLP’s fees for services provided in fiscal years 2014 and 2013.

Fiscal Year

  2014   2013 

Audit fees

  $4,114,946    $3,843,365  

Audit related fees

   218,758     218,874  

Tax fees

   879,878     641,212  

All other fees

   15,800     22,740  
  

 

 

   

 

 

 

Total

  $5,229,382    $4,726,191  
  

 

 

   

 

 

 

2016 Annual Meeting

Stockholder proposals submitted for inclusion in our 2016 proxy statement pursuant to SEC Rule 14a-8 must be received by us no later than September 1, 2015.

Notice of stockholder proposals to be raised from the floor of the 2016 Annual Meeting of stockholders outside of SEC Rule 14a-8 must be delivered to us no earlier than October 15, 2015 and no later than November 14, 2015.

GENERAL INFORMATION

 

Q:Who is soliciting my proxy?

 

A:The Board of Directors (the “Board”) of Varian Medical Systems, Inc. (“we,” “us” or the “Company”) is sending you this Proxy Statement in connection with the Board’s solicitation of proxies for use at the 20132015 Annual Meeting of Stockholders or any adjournment or postponement thereof (the “Annual Meeting”). Certain of our directors, officers and employees also may solicit proxies on the Board’s behalf by mail, telephone, email or fax, or in person. We have hired Georgeson Inc., 199 Water Street,480 Washington Blvd., Jersey City, New York, New York 10038,Jersey 07310, to assist in soliciting proxies from brokers, bank nominees and other stockholders.

 

Q:Who is paying for this solicitation?

 

A:We will pay for the solicitation of proxies. Our directors, officers and employees will not receive additional remuneration. We expect that we will pay Georgeson Inc. not more than $10,000, plus reasonable out-of-pocket expenses, and also will reimburse banks, brokers, custodians, nominees and fiduciaries for their reasonable charges and expenses to forward our proxy materials to the beneficial owners of our common stock.

 

Q:What am I voting on?

 

A:You will be voting on up to fourthree proposals. Proposal One is for the election of R. Andrew Eckert, Mark R. LaretTimothy E. Guertin, David J. Illingworth and Erich R. ReinhardtRuediger Naumann-Etienne to the Board for three-year terms ending at the 20162018 Annual Meeting of Stockholders.

Proposal Two is an advisory vote on the compensation of the executive officers listed in the Summary Compensation Table (the “named executive officers”) as described in this Proxy Statement.

Proposal Three is the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal year 2013.

Proposal Four is a stockholder proposal as further described at page 61, which proposal will be voted upon only if properly presented at the Annual Meeting.2015.

 

Q:Who can vote?

 

A:Only our stockholders of record at the close of business on December 18, 201215, 2014 may vote. Each share of common stock outstanding on that date is entitled to one vote on all matters to come before the meeting, except that cumulative voting will apply in the election of directors. Under the cumulative voting method of election, the stockholder computes the number of votes available to the stockholder by multiplying the number of shares the stockholder owned on the record date by the number of directors to be elected, and may cast the votes all for a single nominee or may distribute them in any manner among the nominees.

 

Q:Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials this year instead of a full set of proxy materials?

 

A:Pursuant to rules adopted by the Securities and Exchange Commission (the “SEC”), we have elected to provide access to our proxy materials (consisting of the Notice of Annual Meeting, this Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended September 28, 2012,26, 2014, as filed with the SEC on November 21, 2012)24, 2014) over the Internet. Therefore, we are sending a Notice of Internet Availability of Proxy Materials (the “Notice”) to our stockholders. Starting on the date of distribution of the Notice, all stockholders will have the ability to access the proxy materials on the website referred to in the Notice or request to receive a printed set of the proxy materials. Instructions on how to access the proxy materials over the Internet or to request printed copies may be found in the Notice. If you request printed versions of the proxy materials by mail, the materials will also include a proxy card or other voting instruction form.

Q:Can I receive proxy materials for future annual meetings by email rather than receiving a paper copy of the Notice?

 

A:If you are a holder of record, you may elect to receive the Notice or other future proxy materials by email by logging intowww.proxyvote.com and entering your email address before you vote if you are voting by Internet or any time atwww.computershare.com/us/ecommsinvestor orhttp://enroll.icsdelivery.com/var. If your shares are registered in street name, please check with your broker, bank, or other nominee about how to receive future proxy materials by email, or enroll athttp://enroll.icsdelivery.com/var. If you choose to receive proxy materials by email, next year you will receive an email with instructions on how to view those materials and vote before the next annual meeting. Your choice to obtain documents by email will remain in effect until you notify us otherwise. Delivering future notices by email will help us further reduce the cost and environmental impact of our stockholder meetings.

 

Q:What is the difference between a stockholder of record and a “street name” holder?

 

A:If your shares are registered directly in your name with Computershare Trust Company, N.A., our stock transfer agent, you are considered the stockholder of record for those shares.

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of the shares and your shares are said to be held in “street name.” Street name holders generally cannot vote their shares directly and must instead instruct the broker, bank or other nominee how to vote their shares using the method described under “How do I vote and how do I revoke my proxy?” below.

 

Q:How do I vote and how do I revoke my proxy?

 

A:If you hold your shares in your own name as a stockholder of record, you may vote your shares either in person at the meeting or by proxy. To vote in person, please bring a form of identification, such as a valid driver’s license or passport, and proof that you were a stockholder as of December 18, 2012,15, 2014, and we will give you a ballot when you arrive. To vote by proxy, please vote in one of the following ways:

 

  

Via the InternetInternet.. You may vote through the Internet atwww.proxyvote.comby following the instructions provided in the Notice.

 

  

By TelephoneTelephone.. If you received your proxy materials or request printed copies by mail, stockholders located in the United States may vote by calling the toll-free number found on the proxy card.

 

  

By Mail. If you received your proxy materials or request printed copies by mail, you may vote by mail by marking, dating, signing and mailing the proxy card in the envelope provided.

Voting by proxy will not affect your right to vote your shares if you attend the Annual Meeting and want to vote in person—by voting in person you automatically revoke your proxy. You also may revoke your proxy at any time before the applicable voting deadline by giving our Secretary written notice of your revocation, by submitting a later-dated proxy card or by voting again using the telephone or Internet (your latest telephone or Internet proxy is the one that will be counted).

If you vote by proxy, the individuals named as proxyholders will vote your shares as you instruct, including with respect to cumulative voting for directors. If you vote your shares over the telephone, you must select a voting option (“For” or “Withhold” (for directors) and “For,” “Against” or “Abstain” (for Proposals Two Three and Four)Three)) in order for your proxy to be counted on that matter. If you validly vote your shares over the Internet or by mail but do not provide any voting instructions, the individuals named as proxyholders will vote your sharesFOR the election of the nominees for director,all directors andFOR approval of the compensation of our named executive officers as described in this Proxy Statement,FOR the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal year 2013 andAGAINST the stockholder proposal.all proposals. In that case, the proxyholders will have full discretion and authority to vote cumulatively in the election of directors and to allocate votes among any or all of the nominees for director in any order they determine.

If your shares are registered in street name, you must vote your shares in the manner prescribed by your broker, bank or other nominee. In most instances, you can do this over the telephone or Internet, or if you have received or request a hard copy of the proxy statement and accompanying voting instruction form, you may mark, sign, date and mail your voting instruction form in the envelope your broker, bank or other nominee provides. The materials that were sent to you have specific instructions for how to submit your vote and the deadline for doing so. If you would like to revoke your proxy, you must follow the broker, bank or other nominee’s instructions on how to do so. If you wish to vote in person at the Annual Meeting, you must obtain a legal proxy from the broker, bank or other nominee holding your shares.

 

Q:What is the deadline for submitting a proxy?

 

A:Telephone and Internet voting facilities for stockholders of record will be available 24 hours a day. In order to be counted, proxies submitted by telephone or the Internet must be received by 11:59 p.m. Eastern Time on February 13, 2013.11, 2015. Proxies submitted by mail must be received prior to the start of the Annual Meeting.

 

Q:What constitutes a quorum?

 

A:On the record date, we had109,174,978 100,184,990 shares of common stock, $1.00 par value, outstanding. Voting can take place at the Annual Meeting only if stockholders owning a majority of the issued and outstanding stock entitled to vote at the Annual Meeting are present in person or represented by proxy.

 

Q:What are abstentions and broker non-votes and how do they affect voting?

 

A:Abstentions—If you specify that you wish to “abstain” from voting on an item, your shares will not be voted on that particular item. Abstentions are counted toward establishing a quorum and included in the shares entitled to vote on Proposals Two Three and Four.Three. On Proposals Two Three and Four,Three, abstentions have the effect of a vote against the proposal.

Broker Non-Votes—Under the New York Stock Exchange (“NYSE”) rules, if your broker holds your shares in its name and does not receive voting instructions from you, your broker has discretion to vote these shares on certain “routine” matters, including the ratification of the appointment of the independent registered public accounting firm. However, on non-routine matters such as the election of directors, the advisory vote on executive compensation and the stockholder proposal,Proposal Two, your broker must receive voting instructions from you, as it does not have discretionary voting power for that particular item. So long as the broker has discretion to vote on at least one proposal, these “broker non-votes” are counted toward establishing a quorum. When voted on “routine” matters, broker non-votes are counted toward determining the outcome of that “routine” matter.

 

Q:What vote is needed?

 

A:For Proposal One, the election of directors, the three nominees receiving the highest number of votes of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on Proposal One will be elected as directors. As a result, if you withhold your authority to vote for any nominee, your vote will not affect the outcome of the election.

For ProposalProposals Two an affirmative vote of the majority of shares present in person or represented by proxy at the Annual Meeting and entitled to vote on Proposal Two is required to approve the compensation of our named executive officers as described in this Proxy Statement.

For Proposal Three, an affirmative vote of the majority of shares present in person or represented by proxy at the Annual Meeting and entitled to vote on Proposal Fourthe relevant proposal is required to approve the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm.

For Proposal Four, an affirmative vote of a majority of shares present in person or represented by proxy is required to approve the stockholder proposal.those proposals.

Because your vote on Proposal Two is advisory, it will not bind the Board or the Compensation Committee.and Management Development Committee (the “Compensation Committee”). However, the Board and the Compensation Committee will review the voting results and take the results into consideration in making future determinations on executive compensation. Proposal Four is similarly non-binding, but will be considered by the Board.

Q:What happens if a director receives a plurality, but not a majority, of votes cast at the Annual Meeting?

 

A:In an uncontested election, if a nominee for director who is an incumbent director is elected by a plurality of the votes cast but does not receive the vote of at least the majority of the votes cast (i.e., the number of shares voted “for” a director’s election does not exceed 50% of the total number of votes cast with respect to that director’s election, including votes to withhold authority), the director is deemed elected but is obligated to offer his or her resignation to the Board. Following submission of the offer of resignation, the Board, after considering relevant factors, including the recommendation of the Nominating and Corporate Governance Committee (the “Nominating Committee”), will decide whether or not to accept the offer of resignation and thereafter publicly disclose its decision. If a director’s offer of resignation is not accepted by the Board, the director will continue to serve until his or her successor is duly elected, or his or her earlier resignation or removal. If a director’s offer of resignation is accepted by the Board, then the Board, in its sole discretion, may fill any resulting vacancy or decrease the size of the Board pursuant to the provisions of our By-Laws.

 

Q:Can I vote on other matters?

 

A:You are entitled to vote on any other matters that are properly brought before the Annual Meeting. Our By-Laws limit the business conducted at any annual meeting to (1) business in the notice of the annual meeting, (2) business directed by the Board and (3) business brought by a stockholder of record entitled to vote at the meeting so long as the stockholder has met the requirements for submitting stockholder proposals provided in our By-Laws. Under our By-Laws, a stockholder must notify our Secretary in writing (at our Palo Alto, California headquarters) of the proposal not less than 90 days nor more than 120 days before the anniversary of the prior year’s annual meeting, which for the 20142016 Annual Meeting of Stockholders will be no earlier than October 17, 201315, 2015 and no later than November 16, 2013.14, 2015. The notice must give a brief description of the business to be brought before the annual meeting, the reasons for conducting the business and the text of the proposal, as well as the name and address of the stockholder giving the notice and the beneficial owner on whose behalf the proposal is made, the number of shares owned and information about that beneficial ownership, all as detailed in our By-Laws. The notice must also describe any material interest the stockholder or beneficial owner has in the business and arrangements between such stockholder or beneficial owner and any other person in connection with the proposal and must include certain representations, all as detailed in our By-Laws.

To have your stockholder proposal be considered for presentation in the proxy statement and proxy card for our 20142016 Annual Meeting of Stockholders, rather than just voted upon at the meeting without inclusion in the proxy statement and proxy card, a stockholder must submit to our Secretary (at our Palo Alto, California headquarters) a written proposal no later than August 30, 2013.September 1, 2015. The submission must contain the information required under Rule 14a-8 under the Securities Exchange Act of 1934 (the “Exchange Act”).

We do not expect any matters other than those listed in this Proxy Statement to come before the Annual Meeting. If any other matter is presented, your proxy gives the individuals named as proxyholders the authority to vote your shares to the extent authorized by Rule 14a-4(c) under the Exchange Act, which includes matters that the proxyholders did not know were to be presented at least 60 days before the anniversary of the mailing of last year’s proxy statement.

Q:How do I nominate someone to be a director?

 

A:A stockholder may nominate one or more persons for election as one of our directors at an annual meeting of stockholders by notifying our Secretary in writing (at our Palo Alto, California headquarters) not less than 90 days nor more than 120 days before the anniversary of the prior year’s annual meeting, which for the 20142016 Annual Meeting of Stockholders will be no earlier than October 17, 201315, 2015 and no later than November 16, 2013.14, 2015. The notice must include all information about the nominee that must be disclosed in proxy solicitations pursuant to Regulation 14A under the Exchange Act (including the nominee’s written consent to being named as a nominee and serving as a director) and a description of all material monetary agreements during the past three years and any other material relationships, between such stockholder and a beneficial owner on whose behalf the nomination is made and their affiliates and associates, or others acting in concert, on the one hand, and each proposed nominee, and his/her affiliates and associates, or others acting in concert, on the other hand, including all information that would be required to be disclosed pursuant to Item 404 under Regulation S-K if the stockholder were a “registrant,” all as described in our By-Laws. The notice must also include certain additional information about and representations by the stockholder and/or the beneficial owner, all as detailed in our By-Laws.

 

Q:How does the Board select nominees for the Board?

 

A:The Nominating Committee will consider potential candidates for directors submitted by stockholders, in addition to those suggested by other Board members and members of our management, and does not evaluate candidates differently based upon the source of the nominee. The Nominating Committee considers and evaluates each properly submitted potential candidate for director in an effort to achieve a balance of skills and characteristics on the Board, as well as to ensure that the composition of the Board at all times adheres to the independence requirements applicable to NYSE-listed companies and other regulatory requirements applicable to us. Please refer to “Proposal One—Election of Directors” and our Corporate Governance Guidelines for additional details on our policy, process and membership criteria. A stockholder may recommend potential candidates for director by notifying our Secretary in writing (at our Palo Alto, California headquarters). as detailed in the question and answer above.

 

Q:How may I communicate with the Board of Directors?

 

A:Stockholders and other interested parties may communicate directly with the Board, the Board’s “lead” non-employee directorChairman or any other director or with the independent directors as a group or any other group of directors through the Board’s lead directorChairman by sending an email tolead.director@varian.com.lead.director@varian.com. Messages received will be forwarded to the appropriate director or directors.

 

Q:When and where is the Annual Meeting being held?

 

A:The Annual Meeting will be held on Thursday, February 14, 201312, 2015 at 4:30 p.m. Pacific Time at our headquarters at 3100 Hansen Way, Palo Alto, California 94304. If you need directions to the Annual Meeting so that you may attend or vote in person, please contact our Investor Relations department atinvestors@varian.com.investors@varian.com.

 

Q:How can I find the results of the Annual Meeting?

 

A:Preliminary results will be announced at the Annual Meeting. Final results also will be published in a current report on Form 8-K to be filed with the SEC within four business days after the Annual Meeting. If the official results are not available at that time, we will provide preliminary voting results in the Form 8-K and will provide the final results in an amendment to the Form 8-K as soon as they become available.

PROPOSAL ONE

ELECTION OF DIRECTORS

Our Board; Selection of Nominees

Our Board is divided into three classes serving staggered three-year terms. At the Annual Meeting, you and the other stockholders will elect three individuals to serve as directors for three-year terms that end at the 2018 Annual Meeting of Stockholders. Commencing with the 2016 Annual Meeting of Stockholders, directors standing for election will be elected for one-year terms and stockholders will not be entitled to cumulative voting in elections of directors. Directors elected by stockholders prior to the 2016 Annual Meeting of Stockholders will serve out their three-year terms, and the entire Board will be elected annually commencing with the 2018 Annual Meeting of Stockholders.

Our Nominating Committee is charged with identifying, evaluating and recommending to the full Board director nominees. There are no minimum qualifications for director. The Nominating Committee generally seeks individuals with broad experience at the policy-making level in business, government, education, technology or public interest. While we do not have a formal diversity policy for Board membership, we look for potential candidates that help ensure that the Board has the benefit of a wide range of attributes, including cultural, gender, ethnic and age diversity; international business experience; and experience in industries beyond healthcare. We also look for financial oversight experience, financial community experience and a good reputation with the financial community; business management experience and the potential to succeed top management in the event Board intervention is necessary on an unexpected basis; business contacts, business knowledge and influence that may be useful to our businesses and product lines; and knowledge about our industries and technologies. We believe that all of our directors should be committed to enhancing stockholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to perform and carry out all director duties in a responsible manner. Each director must also represent the interests of all stockholders.

When seeking new director candidates, the Nominating Committee will consider potential candidates for directors submitted by Board members, members of our management and our stockholders, and does not evaluate candidates differently based upon the source of the nominee. The Nominating Committee has engaged Egon Zehnder International, an executive and director search firm, to help identify and evaluate potential candidates for additional members of the Board. In early 2012, Egon Zehnder provided the Nominating Committee with potential candidates that met guidelines established by the Board and assisted the Nominating Committee in assessing the qualifications of candidates. Mr. Reinhardt was one of the candidates identified by Egon Zehnder.

All of the nominees, R. Andrew Eckert, Mark R. LaretTimothy E. Guertin, David J. Illingworth and Erich R. Reinhardt,Ruediger Naumann-Etienne, are now members of the Board. In connection with the appointment of Mr. Reinhardt to the Board in August 2012, and Mr. Wilson to the Board in September 2012, the Board increased the size of the Board from nine to eleven directors. The term of John Seely Brown, who has been a director since 1998, will expire at the Annual Meeting and the Board has approved a reduction in the size of the Board from eleven to ten directors, to be effective immediately prior to the Annual Meeting.

The individuals named as proxyholders will vote your proxy for the election of the three nominees unless you direct them to withhold your vote. If any nominee becomes unable to serve as a director before the Annual Meeting (or decides not to serve), the individuals named as proxyholders may vote for a substitute.

Set forth below are the names and ages of these nominees and the other continuing directors, the years they became directors, their principal occupations or employment for at least the past five years, the names of other public companies for which they serve as a director or have served as a director during the past five years. Also set forth are the specific experience, qualifications, attributes or skills that led our Nominating Committee to conclude that each person should serve as a director. All of our directors have held high-level positions in companies and have experience in dealing with complex issues. We believe that each is an individual of high character and integrity and has the ability to exercise sound judgment.

Nominees for Election for a Three-Year Term Ending with the 20162018 Annual Meeting

 

•   R. Andrew EckertTimothy E. Guertin

Age: 65

Director Since: 2005

Vice Chairman Since: September 2012

  

Age 51, a director since 2004. Chief Executive Officer of CRC Health Corporation (a provider of substance abuse treatment and adolescent youth services) since January 2011. Previously, managing director of Symphony Technology Group (a private equity firm) from October 2009 to January 2011. From October 2005 to May 2009, Chief Executive Officer and President of Eclipsys Corporation (a healthcare information management software provider). From 2004 to 2005, Chief Executive Officer of SumTotal Systems, Inc. (an enterprise software provider). From 2002 to 2004, Chief Executive Officer of Docent Inc. (an enterprise software provider that was acquired by SumTotal Systems). Previously, Chairman and Chief Executive Officer of ADAC Laboratories (a medical imaging company) from 1997 to 2001. Mr. Eckert has served on the board of directors of Eclipsys Corporation in the past five years.

We believe Mr. Eckert’s qualifications to serve as a director include his extensive experience obtained over 15 years of serving as an executive officer of several public companies, including a medical imaging company and healthcare information management company, as well as his deep knowledge of operational, financial, strategic planning, product development and marketing matters. Mr. Eckert also brings to the Board his experience in serving on the board of directors of several public companies in the healthcare industry.

•  Mark R. Laret

Age 58, a director since 2007. Chief Executive Officer of University of California, San Francisco Medical Center since April 2000. Chief Executive Officer of University of California, Irvine Medical Center from 1995 to March 2000. Mr. Laret is on the board of directors of Nuance Communications, Inc. (a provider of voice and language solutions).

We believe Mr. Laret’s qualifications to serve as a director include his in-depth knowledge of the healthcare industry and hospital operations, and managed care industry. His service as chief executive officer of leading medical institutions has provided him with experience in strategic planning, finance, financial management of hospital and physician practice, medical education and clinical research, andPrincipal occupation, business turnaround. Mr. Laret also brings to the Board his experience in serving on the board of directors of another public company in the technology sector.

•  Erich R. Reinhardt

Age 66, a director since August 2012. Retired. Chairman of the Board of Directors of Medical Valley Europäische Metropolregion Nürnberg E.V., a national center of excellence for scientific medical technology in Germany. Former Advisor to the Chief Executive Officer of Siemens AG from May 2008 to March 2011 and President and Chief Executive Officer of Siemens Healthcare (formerly Siemens Medical Solutions, a supplier to the healthcare industry) from 1994 to April 2008.

We believe Mr. Reinhardt’s qualifications to serve as a director include his extensive experience in the medical device and healthcare industry. His service as a manager and executive in a leading international healthcare company has provided him with significant operational and international experience. Mr. Reinhardt also brings to the Board his experience in serving on the board of directors of a private healthcare company, a hospital and a research institute in Germany.

Directors Continuing in Office Until the 2014 Annual Meeting

•  Susan L. Bostrom

Age 52, a director since 2004. Former Executive Vice President, Chief Marketing Officer, Worldwide Government Affairs of Cisco Systems, Inc. (a networking equipment provider) from January 2006 to January 2011. From February 2000 to January 2006, Senior Vice President of Cisco Systems, taking on responsibility for Worldwide Government Affairs in October 2002 and becoming Chief Marketing Officer in January 2006. From 1998 to February 2000, Vice President of the Internet Business Solutions Group at Cisco Systems. Ms. Bostrom is a director of Cadence Design Systems, Inc. (an electronic design company).

We believe Ms. Bostrom’s qualifications to serve as a director include her extensive experience and leadership roles at one of the world’s leading technology companies, as well as her knowledge of marketing, government affairs, public policy, and developing trends in networking and new media such as virtual collaboration, social media and information exchanges. She also brings to the Board her experience in serving on the board of directors of a public technology company, a hospital, a university and a private company, as well as service on the advisory board for two educational institutions and a private company.directorships.

•   Richard M. Levy

Age 74, a director since 1999. Our Chairman of the Board since February 2003 and Chief Executive Officer from April 1999 to February 2006. Our President from April 1999 to August 2005. Previously, our Executive Vice President responsible for our medical systems business from 1990 to April 1999. Mr. LevyGuertin was a director of Pharmacyclics, Inc. during the past five years.

We believe Mr. Levy’s qualifications to serve as a director include the leadership and management experience he gained during more than 40 years as an employee, manager, officer, President and Chief Executive Officer and director of our Company. He has deep knowledge of our history, strategies, technologies and culture, and the medical industry in general. Mr. Levy also brings to the Board his experience in serving on the board of directors of several hospitals and another public company.

•  Venkatraman Thyagarajan

Age 66, a director since 2008. Retired. Former Senior Vice President and Area Director for GlaxoSmithKline Asia Pacific (a global pharmaceutical company) from January 2003 to April 2008. From January 2001 to December 2002, Vice President for South Asia for GlaxoSmithKline Asia Pacific and Managing Director of GlaxoSmithKline Pharmaceuticals Ltd. (an Indian pharmaceutical company). Mr. Thyagarajan is Vice Chairman of the Board of Directors of GlaxoSmithKline Pharmaceuticals Ltd. and a director of Tata Consultancy Services Ltd. (an Indian software company).

We believe Mr. Thyagarajan’s qualifications to serve as a director include his extensive knowledge of the global healthcare industry gained over four decades of working in different parts of the world, including Europe, Asia Pacific, India, the Middle East and Africa. He has significant operational, financial, marketing and senior management experience in one of the world’s leading pharmaceutical companies. Mr. Thyagarajan also brings to the Board his experience in serving on the board of directors and the audit committee and compensation committee of other public companies.

•  Dow R. Wilson

Age 53, a director since September 2012. Our President and Chief Executive Officer since September 2012. Our Corporate Executive Vice President and Chief Operating Officer from October 2011 through September 2012 and Corporate Executive Vice President and President, Oncology Systems from August 2005 through September 2011. Our Corporate Vice President and President, Oncology Systems from January 2005 to August 2005. Prior to joining our Company in January 2005, Mr. Wilson served in various senior management positions within General Electric (a diversified industrial company). Mr. Wilson is on the board of directors of Saba Software, Inc. (an e-learning software provider).

We believe Mr. Wilson’s qualifications to serve as a director include his deep knowledge of our business, strategy and technology, which he has gained through serving as President of our Oncology Systems business and Chief Operating Officer before becoming our President and Chief Executive Officer. Mr. Wilson had already gained significant knowledge of the medical and healthcare industries, both with the United States and internationally, while serving in management positions at General Electric. This combined executive management experience at two large, global organizations has provided him with critical insights to the operational requirements of a company with worldwide reach, knowledge of corporate and business unit strategies, and operational expertise. He also brings to the Board his experience serving on the board of directors and as the lead director of another public company.

Directors Continuing in Office Until the 2015 Annual Meeting

•   Timothy E. Guertin

Age 63, a director since 2005. Our Vice Chairman of the Board since September 2012. Our Chief Executive Officer from February 2006 through September 2012, andour President from August 2005 through September 2012. Our2012 and our Chief Operating Officer from October 2004 to February 2006. OurHe served as Corporate Executive Vice President from October 2002 to August 2005, and President of our Oncology Systems business unit from 1992 to January 2005. Our2005 and Corporate Vice President from 1992 to 2002. Mr. Guertin is on the board of directors of Teradyne, Inc. (a supplier of electronics test equipment) and Acelity L.P., Inc. (a wound care and regenerative medicine company). Mr. Guertin served on the board of Kinetic Concepts, Inc. (a medical technologywound care company that combined with LifeCell Corporation (a regenerative medicine company). and Systagenix (a wound care company) to form Acelity) in the past five years.

 

Experience, qualifications, attributes or skills supporting directorship.

We believe Mr. Guertin’s qualifications to serve as a director include his deep knowledge of our management structure, strategy and users of our technology, which he has gained over more than 30 years with ourthe Company. His service in various leadership roles, including President of our Oncology Systems business before becoming our President and Chief Executive Officer, has given Mr. Guertin extensive knowledge of radiation producing technologies, software controls and safety measures, as well as broad experience in product development, regulatory, marketing, financial and operational matters. Mr. Guertin also brings to the Board his experience in serving on the board of directors of a public company, a medical technology company, several medical, healthcare and technology industry organizations and as a former director and chairman of the board of directors of TechAmerica (a nationwide technology trade association). He also serves on the corporate councilboard of trustees of the American Society for Radiation Oncology (“ASTRO,”Institute (ROI, a professional society of radiation oncology clinicians)non-profit organization engaged in cancer treatment research).

•  David J. Illingworth

Age: 61

Director Since: August 2011

  

Age 59, a director since August 2011. Retired. FormerPrincipal occupation, business experience and directorships.

Mr. Illingworth is currently retired, and previously served as Chief Executive Officer of Smith & Nephew plc (a global medical devices company) from July 2007 until April 2011. From 2002 until July 2007, he was Chief Operating Officer and division president at Smith & Nephew. Prior to joining Smith & Nephew, Mr. Illingworth served in various senior management roles, including President of XL Vision, Inc., Chairman and Chief Executive Officer of VidaMed, Inc., President of Nellcor Puritan Bennett LLC, and Managing Director, Asia/Pacific for GE Medical Systems. Mr. Illingworth is on the board of directors of Domtar, Inc. (a manufacturer of fiber-based products) and Universal Hospital Services, Inc. (a provider of health care technology management and service solutions), and served as a director of Smith & Nephew in the past five years.

 

Experience, qualifications, attributes or skills supporting directorship.

We believe Mr. Illingworth’s qualifications to serve as a director include his in-depth knowledge of the medical technology industry. His service as an executive of various medical technology companies has provided him with extensive experience in sales, operations and general management not only in the United States but also in the United Kingdom and Asia. Mr. Illingworth also brings to the Board his experience in serving on the board of directors of another public medical device company.

•  Ruediger Naumann-Etienne

Age: 68

Director Since: 2003

  

Age 66, a director since 2003. OwnerPrincipal occupation, business experience and directorships.

Mr. Naumann-Etienne has been the owner and Managing Director of Intertec Group (an investment company specializing in the medical technology field) since 1989. He served as the Chairman of the Board of Directors of Cardiac Science Corporation (a provider of cardiology products) from 2006 to 2010, having previously been Vice-Chairman from 2005 to 2006 and Chairman of Quinton Cardiology Systems, one of its predecessor companies, from 2000 to 2005. From 1993 to 1999, Mr. Naumann-Etienne served as Chairman of the Board of Directors of OEC Medical Systems (a provider of interoperative imaging solutions, acquired by General Electric Company). Mr. Naumann-Etienne is a director of Encision Inc. (a provider of laparoscopic surgery instruments) and IRIDEX Corporation (a provider of light-based medical systems and delivery devices) and was a director of BioRad Laboratories, Inc. in the past five years.

 

Experience, qualifications, attributes or skills supporting directorship.

We believe Mr. Naumann-Etienne’s qualifications to serve as a director include experience working in the medical device business for nearly three decades, and working with a leading electronics company for a decade, in senior business and finance executive roles. Mr. Naumann-Etienne has extensive experience with finance and mergers and acquisitions, as well as international experience, having lived and worked in Europe and Latin America. He is fluent in four languages. Mr. Naumann-Etienne also brings to the Board his experience in serving as chief executive officer, Chairman or director, and a member of the audit, nominating and compensation committees, of a number of public medical device companies.

Directors Continuing in Office Until the 2016 Annual Meeting

R. Andrew Eckert

Age: 53

Director Since: 2004 Chairman Since: February 2014

Principal occupation, business experience and directorships.

Mr. Eckert has been the Chief Executive Officer of TriZetto Corporation (healthcare IT solutions) since March 2014. Previously, he served as Chief Executive Officer of CRC Health Corporation (a provider of substance abuse treatment and adolescent youth services) from January 2011 to March 2014, as managing director of Symphony Technology Group (a private equity firm) from October 2009 to January 2011, and as Chief Executive Officer and President of Eclipsys Corporation (a healthcare information management software provider) from October 2005 to May 2009. From 2004 to 2005, Mr. Eckert served as Chief Executive Officer of SumTotal Systems, Inc. (an enterprise software provider) and from 2002 to 2004, held the position of Chief Executive Officer of Docent Inc. (an enterprise software provider that was acquired by SumTotal Systems). He served as Chairman and Chief Executive Officer of ADAC Laboratories (a medical imaging company) from 1997 to 2001. Mr. Eckert has served on the board of directors of Eclipsys Corporation in the past five years.

Experience, qualifications, attributes or skills supporting directorship.

We believe Mr. Eckert’s qualifications to serve as a director include his extensive experience obtained over 15 years of serving as an executive officer of several public companies, including a medical imaging company and healthcare information management company, as well as his deep knowledge of operational, financial, strategic planning, product development and marketing matters. Mr. Eckert also brings to the Board his experience in serving on the board of directors of several public companies in the healthcare industry.

Mark R. Laret

Age: 60

Director Since: 2007

Principal occupation, business experience and directorships.

Mr. Laret has been the Chief Executive Officer of University of California, San Francisco Medical Center since April 2000. Previously, he served as the Chief Executive Officer of University of California, Irvine Medical Center from 1995 to March 2000. Mr. Laret is on the board of directors of Nuance Communications, Inc. (a provider of voice and language solutions).

Experience, qualifications, attributes or skills supporting directorship.

We believe Mr. Laret’s qualifications to serve as a director include his in-depth knowledge of the healthcare industry and hospital operations, and managed care industry. His service as chief executive officer of leading medical institutions has provided him with experience in strategic planning, finance, financial management of hospital and physician practice, medical education and clinical research, and business turnaround. Mr. Laret also brings to the Board his experience in serving on the board of directors of another public company in the technology sector.

Erich R. Reinhardt

Age: 68

Director Since: August 2012

Principal occupation, business experience and directorships.

Mr. Reinhardt is currently retired and serves as Chairman of the Board of Directors of Medical Valley Europäische Metropolregion Nürnberg E.V., a national center of excellence for scientific medical technology in Germany. Previously, from May 2008 to March 2011, he served as Advisor to the Chief Executive Officer of Siemens AG from May 2008 to March 2011 and as President and Chief Executive Officer of Siemens Healthcare (formerly Siemens Medical Solutions, a supplier to the healthcare industry) from 1994 to April 2008. Mr. Reinhardt also served as a member of the managing board of Siemens AG from 2001 to 2008.

Experience, qualifications, attributes or skills supporting directorship.

We believe Mr. Reinhardt’s qualifications to serve as a director include his extensive experience in the medical device and healthcare industry. His service as a manager and executive in a leading international healthcare company has provided him with significant operational and international experience. Mr. Reinhardt also brings to the Board his experience in serving on the board of directors of a private healthcare company, a hospital and a research institute in Germany.

Directors Continuing in Office Until the 2017 Annual Meeting

Susan L. Bostrom

Age: 54

Director Since: 2004

Principal occupation, business experience and directorships.

Ms. Bostrom served as the Executive Vice President, Chief Marketing Officer, Worldwide Government Affairs of Cisco Systems, Inc. (a networking equipment provider) from January 2006 to January 2011. Previously, she served as Cisco Systems’ Senior Vice President from February 2000 to January 2006, taking on responsibility for Worldwide Government Affairs in October 2002 and becoming Chief Marketing Officer in January 2006. From 1998 to February 2000, she served as Vice President of Cisco Systems’ Internet Business Solutions Group. Ms. Bostrom is a director of Cadence Design Systems, Inc. (an electronic design company), Marketo, Inc. (a marketing automation SaaS company), Rocket Fuel Inc. (a provider of artificial intelligence advertising solutions) and ServiceNow, Inc. (an enterprise IT cloud company).

Experience, qualifications, attributes or skills supporting directorship.

We believe Ms. Bostrom’s qualifications to serve as a director include her extensive experience and leadership roles at one of the world’s leading technology companies, as well as her knowledge of marketing, government affairs, public policy, and developing trends in networking and new media such as virtual collaboration, social media and information exchanges. She also brings to the Board her experience in serving on the board of directors of four public technology companies, a hospital, a university and a private company, as well as service on the advisory board for two educational institutions.

Regina E. Dugan

Age: 51

Director Since: December 2013

Principal occupation, business experience and directorships.

Ms. Dugan has been Vice President of Engineering at Google Inc. (a global technology leader) since February 2014, and in this capacity leads the Advanced Technology and Products group (a group charged with breakthrough innovations in mobile computing and accelerating the development of promising technologies to market). In March 2012, Ms. Dugan joined Google prior to its acquisition of Motorola Mobility LLC (a mobile technology company Google acquired in May 2012), where she served as Senior Vice President and a member of the senior leadership team until February 2014. Previously, Ms. Dugan was director of Defense Advanced Research Projects Agency (DARPA, a research and development organization of the U.S. Department of Defense) from July 2009 to March 2012. From 2005 to July 2009, she was co-founder, president and chief executive officer of RedXDefense LLC (a security solutions company) and from 2001 to July 2009 was co-founder, president and chief executive officer of Dugan Ventures (an investment firm), where Ms. Dugan still serves as a non-voting partner. Ms. Dugan is a director of Zynga Inc. (a social game developer).

Experience, qualifications, attributes or skills supporting directorship.

We believe Ms. Dugan’s qualifications to serve as a director include her experience leading DARPA, the principal agency within the U.S. Department of Defense for research, development, and demonstration of high-risk, high-payoff capabilities, her familiarity with defense and security, as well as commercial industries. She has expertise with a wide range of advanced technologies and a demonstrated track record in moving new technologies to use, from sensor systems to big data products. She brings to the Board years of serving in senior executive positions with responsibilities that included fostering innovation and developing strategic business relationships across diverse industries and commercial entities large and small, as well as her experience serving on the board of directors of another public company.

Venkatraman Thyagarajan

Age: 68

Director Since: 2008

Principal occupation, business experience and directorships.

Mr. Thyagarajan is currently retired, and previously served as Senior Vice President and Area Director for GlaxoSmithKline Asia Pacific (a global pharmaceutical company) from January 2003 to April 2008. From January 2001 to December 2002, he was Vice President for South Asia for GlaxoSmithKline Asia Pacific and Managing Director of GlaxoSmithKline Pharmaceuticals Ltd. (an Indian pharmaceutical company). Mr. Thyagarajan is Vice Chairman of the Board of Directors of GlaxoSmithKline Pharmaceuticals Ltd. and a director of Tata Consultancy Services Ltd. (an Indian software company).

Experience, qualifications, attributes or skills supporting directorship.

We believe Mr. Thyagarajan’s qualifications to serve as a director include his extensive knowledge of the global healthcare industry gained over four decades of working in different parts of the world, including Europe, Asia Pacific, India, the Middle East and Africa. He has significant operational, financial, marketing and senior management experience in one of the world’s leading pharmaceutical companies. Mr. Thyagarajan also brings to the Board his experience in serving on the board of directors and the audit committee and compensation committee of other public companies.

Dow R. Wilson

Age: 55

Director Since: September 2012

Principal occupation, business experience and directorships.

Mr. Wilson has served as our President and Chief Executive Officer since September 2012. Previously, he served as our Corporate Executive Vice President and Chief Operating Officer from October 2011 through September 2012; as our Corporate Executive Vice President and President, Oncology Systems from August 2005 through September 2011; and as our Corporate Vice President and President, Oncology Systems from January 2005 to August 2005. Prior to joining our Company in January 2005, Mr. Wilson served in various senior management positions within General Electric (a diversified industrial company). Mr. Wilson is on the board of directors of Saba Software, Inc. (an e-learning software provider) and in November 2014 was appointed to the U.S. President’s Advisory Council on Doing Business in Africa.

Experience, qualifications, attributes or skills supporting directorship.

We believe Mr. Wilson’s qualifications to serve as a director include his deep knowledge of our business, strategy and technology, which he has gained through serving as President of our Oncology Systems business and Chief Operating Officer before becoming our President and Chief Executive Officer. Mr. Wilson had already gained significant knowledge of the medical and healthcare industries, both in the United States and internationally, while serving in management positions at General Electric. This combined executive management experience at two large, global organizations has provided him with critical insights into the operational requirements of a company with worldwide reach, knowledge of corporate and business unit strategies, and operational expertise. He also brings to the Board his experience serving on the board of directors and as the lead director of another public company.

Director Qualifications Matrix

The following matrix is provided to illustrate the skills and qualifications of our Board, as tied to our corporate strategic objectives, and demonstrate our commitment to diversity.

Corporate GoalsDiversity

Director


Go
Global
Grow
Software and
Service


Innovate

Commercialize
Protons
Drive
Operational
Excellence

Gender/Ethnic
Diversity

International
Experience

Susan L. Bostrom

XXX

Regina E. Dugan

XXXX

R. Andrew Eckert

XXXX

Timothy E. Guertin

XXX

David J. Illingworth

XXX

Mark R. Laret

XX

Ruediger Naumann-Etienne

XXXXXX

Erich R. Reinhardt

XXXXX

Venkatraman Thyagarajan

XXXX

Dow R. Wilson

XXXXX

Recommendation of the Board

THE BOARD RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE ABOVE NOMINEES.

Governance of the Corporation

Corporate Governance

We are committed to strong corporate governance, and have adopted policies and practices that comply with or exceed the NYSE listing requirements and the Exchange Act. These policies and practices include:

 

The Board recently established an Ethics and Compliance Committee (the “Ethics Committee”) that is charged with overseeing our ethical compliance programs and compliance with requirements involving legal and ethical business conduct.

The Board has since August 2011 added three new directors to the Board, including most recently Ms. Dugan, and has a commitment to diversity.

We are in the process of declassifying our Board. Commencing with the 2016 Annual Meeting of Stockholders, directors standing for election will be elected for one-year terms and our entire Board will be elected annually commencing with the 2018 Annual Meeting of Stockholders.

The Board has adopted clear corporate governance policies articulated in our Corporate Governance Guidelines, which includes basic director duties and responsibilities.

In fiscal year 2014, the Board appointed an “independent” non-employee director as Chairman, and since 2006 we have separated the roles of Chairman and Chief Executive Officer. Mr. Eckert served in the capacity of lead independent director from February 2012 to February 2014 and has served as Chairman since February 2014.

 

  

A majority of the Board members are independent of the Company and our management. The definition of “independent” is included in our Corporate Governance Guidelines, which can be found through the “Corporate Governance” link on the Investors page on our website atwww.varian.com.

All members of our key Board committees—the Audit Committee, the Compensation and Management Development Committee, (the “Compensation Committee”)the Ethics Committee and the Nominating Committee—are independent.

 

The Board has appointed a “lead” non-employee director. As described below, Mr. Eckert has served in the capacity of lead director since February 2012.

The Board has adoptedOur Corporate Governance Guidelines include a policy under which an incumbent director in an uncontested election who is elected by a plurality but does not receive the majority of the votes cast is obligated to offer his or her resignation to the Board.

The Board has adopted a guideline for director retirement that provides that a director should not serve on the Board for more than 15 years or after a director reaches the age of about 75. This guideline may be adjusted as the Board deems appropriate.

Our Corporate Governance Guidelines state that the Nominating Committee should consider recommending a new member to each committee every three years.

 

The Board has also adopted a Code of Business EthicsConduct applicable to all of our employees, including the executive officers, and to our directors.

 

We have hotlines for employees to report concerns regarding ethics and financial matters, including accounting, internal controls and audit concerns, and the Audit Committee has established procedures for anonymous submission of these matters.

 

The Board has adopted a policy regarding conflicts of interest and “related-person transactions” under which potential conflicts of interest and related-person transactions must be reviewed and pre-approved by the Nominating Committee. The Nominating Committee has determined that certain categories of transactions are pre-approved under this policy. Please refer to the discussion under “Certain Relationships and Related Transactions” for more information on this policy and the related procedures.

 

The Board has adopted stock ownership guidelines for our directors and executive officers. For directors, the stock ownership guidelines are tied to a multiple of the directors’ annual retainer fee. In 2014 we shifted compensation away from equity compensation to cash compensation, which had the effect of increasing the minimum ownership threshold.

The Board has adopted a recoupment policy to recover certain incentive payments made to executives in the event of a restatement of our financial statements.

The Board conducts an annual self-assessment on its effectiveness and the effectiveness of each of its committees.

 

Directors are expected to attend all stockholder meetings, and all current directors except Mr. Reinhardt, who was not a director at the time, Ms. Bostrom and Mr. Brown attended our 20122014 Annual Meeting of Stockholders.

 

The Board has adopted a guidelinedetermined to eliminate the Executive Car Program perquisite for director retirement that provides that no director may serve on the Board for more than four consecutive three-year terms (starting with terms commencingexecutives during fiscal year 2015, as further described in the year 2000) or 12 years, whichever is longer. This limitation may be extended for one term upon approval by the Board.

Our Corporate Governance Guidelines state that the Nominating Committee should consider recommending a new member to each committee every three years.

The Board has adopted a recoupment policy to recover certain incentive payments made to executives in the event of a restatement of our financial statements.“Compensation Discussion and Analysis.”

 

We did not renew our stockholders’ rights plan when it expired in December 2008.

 

The Board encourages director continuing education through a mix of in-house and third-party presentations and programs. The Nominating Committee is charged with tracking director continuing education. We pay or reimburse directors for expenses associated with attending these continuing education events. A majority of our directors participated in in-house continuing director education in fiscal year 2012.

 

The annual cycle of agenda items for Board and committee meetings reflects Board and committee requests and changing business and legal issues. The Board receives regularly scheduled presentations from our finance and legal departments and major business units and operations.operations, and reviews enterprise risk at least annually. The Board’s and committees’ annual agenda includes, among other items, our long-term strategic plans, periodic reports on progress against long-term strategic plans, emerging and disruptive technologies, potential acquisition or investment targets, review of risks relevant to our business, capital projects and evaluation of the Chief Executive Officer and management and Board succession.

Director Independence

The Board has determined that Ms. Bostrom, Mr. Brown,Ms. Dugan, Mr. Eckert, Mr. Illingworth, Mr. Laret, Mr. Naumann-Etienne, Mr. Reinhardt and Mr. Thyagarajan are “independent” for purposes of the NYSE listing requirements and under our Corporate Governance Guidelines. Each of Mr. Levy, our Chairman of the Board, Mr. Guertin, our Vice Chairman, and Mr. Wilson, our President and Chief Executive Officer, is an employee and therefore not “independent.” Mr. Guertin, our Vice Chairman, was an employee until

February 2013, and is therefore not “independent.” The Board considered transactions and relationships, both direct and indirect, between each director (and his or her immediate family) and the Company and its subsidiaries and affirmatively determined that none of Ms. Bostrom, Mr. Brown,Ms. Dugan, Mr. Eckert, Mr. Illingworth, Mr. Laret, Mr. Naumann-Etienne, Mr. Reinhardt or Mr. Thyagarajan has any material relationship, either direct or indirect, with us other than as a director and stockholder.

Mr. Laret is employed as Chief Executive Officer ofAdditionally, in making its determination the Board analyzed the following relationships and has a relative that is also employed by UCSF Medical Center. In connection with a research agreement, we paid UCSF approximately $22,500 in fiscal year 2010. In addition, we paid to UCSF and one of its departments approximately $10,500 and $10,000 in matching charitable donations in fiscal years 2011 and 2010, respectively. The Board determined that these amounts are immaterial and that Mr. Laret does not have any relationship that is inconsistent with a determination that he is independent, and is therefore “independent” for purposes of the NYSE listing requirements and under our Corporate Governance Guidelines.

Additionally, Ms. Bostrom serves as an outside director of a hospital and a university, and Mr. Brown is a visiting scholar at a university, that are customers of ours. The Board has determined that these relationships are immaterial and are not inconsistent with a determination that these directors are “independent” for purposes of the NYSE listing requirements and under our Corporate Governance Guidelines.Guidelines:

Ms. Bostrom serves as an outside director of a hospital and a university that are customers of ours, and as an outside director of one of our service providers.

Mr. Eckert serves as an outside director of a company from whom we are licensing and with whom we are developing certain technology.

Mr. Laret is employed as the Chief Executive Officer of UCSF Medical Center, which is a customer of ours and with whom we have a research agreement. We have also made charitable donations to UCSF Medical Center and the Regents of the University of California in the past.

Board Meetings

The Board met sixfive times in fiscal year 2012.2014. Four of these Board meetings included executive sessions of either the independent directors or the non-management directors, or both, with Mr. Eckert or Mr. Richard M. Levy, our former Chairman of the Board, presiding at meetings of the non-management directors and Mr. Eckert presiding at meetings of the independent directors.such meetings. We have fourfive standing committees of the Board: the Audit Committee, the Compensation Committee, the Ethics Committee, the Nominating Committee and the Executive Committee. Each current director attended at least 75% of the total Board meetings and meetings of the committees on which they served that were held in fiscal year 20122014 during the time each served as a director. Directors are encouraged to attend meetings of committees on which they do not serve as members. However, each of the Audit Committee, the Compensation Committee, the Ethics Committee and the Nominating Committee regularly hold executive sessions of only the committee members or non-management directors.

Board Leadership Structure

The Board has adopted Corporate Governance Guidelines designed to promote the functioning of the Board and its committees. These Guidelines address Board composition, Board functions and responsibilities, qualifications, leadership structure, committees and meetings.

Our Corporate Governance Guidelines do not indicate a particular Board structure, and the Board is given the flexibility to select its Chairman and our Chief Executive Officer in the manner that it believes is in the best interests of our stockholders. Accordingly, the Chairman and the Chief Executive Officer may be filled by one individual or two. The Board has currently determined that having Mr. LevyEckert, who is “independent” within the meaning of the NYSE listing standards, serve as Chairman and Mr. Wilson serve as Chief Executive Officer is in the best interests of the stockholders. We currently separatehave separated the roles of Chief Executive Officer and Chairman in recognition of the differences between the two roles as they are presently defined. The Chief Executive Officer is responsible for setting our strategic direction and for our day-to-day leadership and performance, while the Chairman provides guidance to the Chief Executive Officer and leads the Board. In addition, because Mr. Levy is not “independent” within the meaning of the NYSE listing

standards, our Corporate Governance Guidelines call for one of the directors who is independent to serve as the “lead director.” The lead director is responsible for leading meetings of the independent directors, serves as a liaison between independent directors and the Chairman (and between the directors and the Chief Executive Officer), and has the prerogative of calling, with due notice, a meeting of the full Board and/or an executive session of the Board consisting exclusively of the non-management or independent directors. Our Board has designated Mr. Eckert as our lead independent director. Mr. Eckert has taken an active leadership role on our Board and has gained extensive knowledge of our business and history since becoming a director in 2004. The Board believes its administration of its risk oversight function has not affected the Board’s leadership structure.

Board Committees and Committee Meetings

Each of our standing committees has a written charter approved by the Board that clearly establishes the committee’s roles and responsibilities. Copies of the charters for the Audit Committee, the Compensation

Committee, the Ethics Committee, the Executive Committee and the Nominating Committee, as well as our Corporate Governance Guidelines and Code of Business Ethics,Conduct, can be found through the “Corporate Governance” link on the Investors page on our website atwww.varian.com. Please note that information on, or that can be accessed through, our website is not part of the proxy soliciting materials, is not deemed “filed” with the SEC and is not to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the ExchangetheExchange Act, and, except for information filed by the Company under the cover of Schedule 14A, is not deemed to be proxy soliciting materials.

Audit Committee:Committee: The Audit Committee performs the following principal functions:

 

Oversees our accounting and financial reporting process and audits of financial statements.

 

Assists the Board in oversight and monitoring of (i) the integrity of our financial statements, (ii) our compliance with legal and regulatory requirements, (iii) the independent registered public accounting firm’s qualifications and independence, (iv) the performance of our internal audit function and of the independent registered public accounting firm and (v) the principal risk exposures facing the corporation that are related to financial statements, legal, regulatory and other similar matters, as well as the corporation’s related mitigation efforts.

 

Prepares the Audit Committee Report included in our proxy statement.

 

Reviews and approves our foreign exchange exposure management policy, including but not limited to entering swaps thereunder and the exemption of swaps from any execution and clearing requirements.

 

Reports to the Board the results of its monitoring and recommendations.

 

Provides to the Board any additional information and materials as the committee may determine is necessary to make the Board aware of significant financial matters requiring the Board’s attention.

The members of the Audit Committee are Mr. Naumann-Etienne (Chair), Mr. Eckert, Mr. Illingworth Mr. Laret and Mr. Thyagarajan. The Audit Committee met 1214 times in fiscal year 2012.2014. Each member of the Audit Committee meets the additional requirements regarding independence for Audit Committee members under the NYSE listing requirements. The Board has determined that Mr. Naumann-Etienne is an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K under the Exchange Act based upon his experience as the chief financial officer and principal accounting officer of Diasonics, Inc. between 1984 and 1987 and as group controller for Texas Instruments Inc. between 1982 and 1984, and his formal education represented by his doctorate degree in international finance from the University of Michigan. The Board has determined that Mr. Eckert is also an “audit committee financial expert” based upon his experience as the chief executive officer of Eclipsys Corporation from 2005 to 2009, of SumTotal Systems Inc. from 2004 to 2005, of Docent, Inc. from 2002 to 2004, and of ADAC Laboratories from 1997 to 2001, as well as other business experience, and his formal education represented by his Masters in Business Administration from the Stanford Graduate School of Business. The Board has also determined that Mr. Illingworth Mr. Laret and

Mr. Thyagarajan are financially literate based upon each of their familiarity with financial statements and, for Mr. Laret, his experience as chief executive officer of UCSF Medical Center, and Mr. Illingworth, his experience as chief executive officer of Smith & Nephew plc.

Compensation and Management Development Committee:Committee: The Compensation Committee performs the following principal functions:

 

Discharges the Board’s responsibilities relating to compensation of our executive officers.

 

Evaluates our compensation plans, policies and programs for executive officers and recommends the establishment of policies dealing with various compensation and employee benefit plans.

 

Administers our stock and cash incentive plans.

 

Provides advice on management development matters that have major implications for the growth, development and depth of our management team, including reviewing succession plans.

Reviews and discusses with management and recommends to the Board whether the disclosures under “Compensation Discussion and Analysis” should be included in our proxy statement.

 

Assesses, at least annually, the risks associated with our compensation policies, and reports to the Board and the Audit Committee whether our compensation policies and practices create risks that are reasonably likely to have a material adverse effect on us.

The Compensation Committee determines all compensation for our executive group. Before making decisions on compensation for each of the executives other than the CEO,Chief Executive Officer (“CEO”), the Compensation Committee reviews with our CEO each individual’s performance and accomplishments over the prior year. Except for his own position, our CEO makes recommendations to the Compensation Committee about base salary increases, any changes to the incentive plan target awards and the amount of equity awards for each executive. However, the Compensation Committee retains and does not delegate any of its exclusive power to determine all matters of executive compensation and benefits. The Compensation Committee meets alone with its independent advisors to develop and establish a proposal for CEO pay. This proposal is also reviewed with the other independent members of the Board.

To independently assist and advise the Compensation Committee, the Compensation Committee has for a number of years retained Frederic W. Cook, & Co., Inc. (“FWC”). Additionally, beginning in February 2006,until November 2013, the Compensation Committee retained the services of Wilson Sonsini Goodrich & Rosati (“WSGR”) to provide independent legal guidance on executive compensation matters. The engagement of FWC is exclusively with the Compensation Committee, which has sole authority to retain and terminate any compensation consultant or other advisor that it uses. FWC has no relationship with the Company or management except as it may relate to performing services on behalf of the Compensation Committee. WSGR performsperformed limited legal services for the Company, and the amounts associated with these services are immaterial. The Compensation Committee has assessed the independence of these persons pursuant to SEC rules and concluded that no conflict of interest exists that would prevent them from independently representing the Compensation Committee.

Typically, on an annual basis, FWC reviews and analyzes our executive compensation programs, compensation strategy and effectiveness of pay delivery. FWC provides market information on compensation trends and practices and makes recommendations to the Compensation Committee based on competitive data. FWC advises the Compensation Committee chair on agenda items for Compensation Committee meetings, reviews management proposals and is available to perform special projects at the Compensation Committee chair’s request. FWC and WSGR also periodically provideprovides the Compensation Committee with updates on regulatory and legislative developments pertaining to executive compensation and compensation committee governance. FWC provides analyses and recommendations that inform the Compensation Committee’s decisions, but does not decide or approve any compensation actions. As needed, the Compensation Committee also consults with FWC and WSGR on program design changes.

The members of the Compensation Committee are Ms. Bostrom (Chair), Mr. Eckert, Mr. IllingworthLaret and Mr. Naumann-Etienne.Thyagarajan. The Compensation Committee met eightsix times in fiscal year 2012.2014. In addition to being independent, each member of the Compensation Committee is a “non-employee director” for purposes of the Exchange Act and is an “outside director” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).

Ethics and Compliance Committee: The Ethics Committee performs the following principal functions:

Oversees compliance with legal and regulatory requirements, and the compliance program(s) designed to foster legal and ethical business conduct, related to business ethical conduct and interactions with government officials, as well as interactions with healthcare providers.

The members of the Ethics Committee are Mr. Illingworth (Chair), Ms. Dugan, Mr. Naumann-Etienne and Mr. Reinhardt. Formed in February 2014, the Ethics Committee met two times in fiscal year 2014.

Nominating and Corporate Governance Committee:Committee: The Nominating Committee performs the following principal functions:

 

Develops and recommends to the Board corporate governance principles, including our Corporate Governance Guidelines, Code of Business EthicsConduct and policy regarding conflicts of interest and related person transactions.

 

Identifies and recommends to the Board potential nominees to the Board, including stockholder suggestions.

 

Reviews with the Board annually the independence, skills and characteristics of all individual members and the skills and characteristics of the Board as a whole in determining whether to recommend incumbent directors for re-election.

 

Evaluates and makes recommendations to the Board concerning the size of the Board, the appointment of directors to Board committees, the qualifications of committee members and the selection of Board committee chairs.

 

Oversees the annual review of director independence and evaluation of the Board’s performance.

The members of the Nominating Committee are Mr. Laret (Chair), Mr. BrownMs. Bostrom, Ms. Dugan and Mr. Thyagarajan.Reinhardt. The Nominating Committee met four times in fiscal year 2012.2014.

Executive Committee:Committee: The Executive Committee performs the following principal functions:

 

Acts on matters when a meeting of the full Board is impracticable.

 

Has all the powers of the Board except those powers reserved by law to the full Board.

The members of the Executive Committee are Mr. LevyEckert (Chair), Mr. EckertLaret and Mr. Naumann-Etienne. The Executive Committee did not meet in fiscal year 2012.2014.

Director Stock Ownership Guidelines

To align the Board’s interests with the interests of our stockholders, the Board has adopted stock ownership guidelines for its members. The guidelines state that each director should own shares of common stock (including Deferred Stock Units) with a value at least equal to five times his or her applicable annual retainer fee. Directors who were first appointed or elected to the Board after February 2004 must achieve the guideline within five years after such appointment or election. At the end of fiscal year 2012,2014, all directors met the guidelines or were within the allowed time frame for meeting the guidelines. Under our insider trading policy, purchases on margin and the buying and selling of puts and calls of Company securities while not legally prohibited, are discouraged and require advance consultation with our legal department.prohibited.

The Board’s Role in Risk Oversight

Our Company faces a number of risks, including operational, economic, financial, legal, regulatory and competitive risks. Our management is responsible for the day-to-day management of the risks we face. While our Board, as a whole, has ultimate responsibility for the oversight of risk management, it administers its risk oversight role in part through the Board committee structure, with the Audit Committee, Compensation Committee, the Ethics Committee and Nominating Committee responsible for monitoring and reporting on the material risks associated with their respective subject matter areas.

The Board’s role in our risk oversight process includes receiving regular reports from members of senior management, as well as external advisors such as FWC WSGR and PricewaterhouseCoopers LLP, on areas of material risk to us, including operational, economic, financial, legal, regulatory and competitive risks. The full Board (or the appropriate committee in the case of risks that are reviewed by a particular committee) receives these reports from those responsible for the relevant risk in order to enable it to understand our risk exposures and the steps

that management has taken to monitor and control these exposures. When a committee receives the report, the Chairman of the relevant committee generally provides a summary to the full Board at the next Board meeting. This enables the Board and its committees to coordinate the risk oversight role. The Audit Committee assists the Board in oversight and monitoring of principal risk exposures related to financial statements, legal, regulatory and other matters, as well as related mitigation efforts. The Compensation Committee assesses, at least annually, the risks associated with our compensation policies. See also “Compensation of the Named Executive Officers and Directors—Relationship Between Compensation Plans and Risk.” The Ethics Committee assists the Board in oversight and monitoring of principal risks related to ethical compliance matters, such as compliance with anti-corruption and anti-bribery laws, as well as related mitigation efforts. The Nominating and Corporate Governance Committee assists the Board in oversight of risks that we have relative to compliance with corporate governance standards.

Recommendation of the BoardPROPOSAL TWO

THE BOARD RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE ABOVE NOMINEES.

PROPOSAL TWO

ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

Background to the Advisory Vote

Under an amendment to the Exchange Act adopted by Congress as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), stockholders are able to vote to approve, on an advisory (non-binding) basis no less frequently than once every three years, the compensation of the named executive officers (an “Advisory Vote on Compensation”). We submitted both our first Advisory Vote on Compensation and an advisory vote on how frequently such a vote would occur to our stockholders at our 2011 Annual Meeting of Stockholders. At that meeting, stockholders showed significant support for an annual vote. As a result, our Compensation Committee and Board have submitted an Advisory Vote on Compensation at the 2012each Annual Meeting of Stockholders since 2011 and are again submitting for the vote of stockholders at the 2015 Annual Meeting an Advisory Vote on Compensation in connection with the executive officers named in this Proxy Statement (the “NEOs”). In botheach of the prior votes, stockholders holding in excess of 90% of the shares that voted cast their votes for approval of the compensation. As described more fully in the “Compensation of the Named Executive Officers and Directors” section of this Proxy Statement, including the “Compensation Discussion and Analysis” and the related tables and narrative, we design our executive compensation program to reward, retain and attract executives in order to supportdrive our business strategy; achieve our short and long-term goals; and provide continued success for our customers, stockholders, employees and communities. At the core of our executive compensation program is our pay-for-performance philosophy that links competitive levels of compensation to achievements of our overall strategy and business goals, as well as individual performance. We believe our compensation program is strongly aligned with the interests of our stockholders and sound corporate governance principles.

Our Compensation Program

We urge you to read the “Compensation of the Named Executive Officers and Directors—Compensation Discussion and Analysis” section of this Proxy Statement and the tables and narrative for the details on our executive compensation, including the fiscal year 20122014 compensation of our NEOs. Highlights of our executive compensation programs include the following:

 

We target total compensation (consisting of base salary, annual cash incentives and long-term incentive grant values) for executives, taking into account our past performance and future growth targets, between the median and 75th percentile of our competitive peer group.

 

A significant portion of our executives’ total compensation is considered by us to be “at risk.”risk” where actual pay directly depends upon achieving both financial and individual performance goals and/or stock price appreciation.

 

NEOs may receive long-term equity awards subject to long-term vesting requirements. We believe these awards ensure that a significant portion of the executives’ compensation is tied to long-term stock price performance and therefore align our executives’ interests with those of our stockholders. Our long-term incentive awards compriseare comprised of a balance of stock options, restricted stock units and performance-based units which we describe in further details later in this proposal.units.

 

Executive perquisites are limited, and we do not provide tax gross-ups for imputed income on executive perquisites.

 

The Compensation Committee has adopted guidelines under which officers are expected to hold a significant amount of our common stock to align their interests with thosediscourage them from taking a short-term view of our stockholders.performance or exposing us to excessive risk.

 

Each of our executive officers is employed at will and is expectedwithout contractual severance protection other than pursuant to demonstrate exceptional personal performance in order to continue serving as a member of the executive team.change-in-control agreements described below.

We believe the compensation program for theour NEOs has been instrumental in helping us achieve strongsolid financial performance despite demanding circumstances in a challenging global economy.year of investment. Our revenues for fiscal year 20122014 were $2.8$3.0 billion, up 8%4% from fiscal year 2011.2013. Net earnings per diluted share from continuing

operations(“EPS”) for fiscal year 2012 climbed to $3.76, up 9% from $3.44 in fiscal year 2011. Net2014 were $3.83. Our gross orders in fiscal year 20122014 increased over9% as compared to fiscal year 2011 in our Oncology Systems, X-ray Products2013, and Varian Particle Therapy businesses. Wewe ended fiscal year 20122014 with a $2.8$3.2 billion backlog, a 12% increaseup slightly from the end of fiscal year 2011.2013.

Our fiscal year 20122014 financial performance, along with the individual performance of our executive officers, were key factors in determining variable compensation for fiscal year 2012,2014, including the following:

 

  

Earnings before interest and taxes (“EBIT”), net orders and revenues arewere the key financial performance measures in determining our NEO’s annual cash incentives. These measures provide a balance between a “top line” (e.g., in using net orders and revenues – an example of financial measures before costs and expenses are considered) and “bottom line” (e.g., in using EBIT – an example of a financial measure that incorporates “top line” results plus costs and expenses) approach to measuring our annual performance. During fiscal year 2012, net2014 and after adjusting for exchange rate variances, gross orders andgrew 9%, revenues grew 6%4%, and 8%, respectively,EBIT declined in fiscal year 2014 over fiscal year 2011, and EBIT from continuing operations grew 1% in fiscal year 2012 over fiscal year 2011. Despite solid top line financial performance in fiscal year 2012, our achievement fell below2013. Achievement against our pre-established financial performance targets for the year, and thereforewhen combined with individual performance, resulted in the payment of annual cash incentive awards belowbetween 98% and 105% of target levels for our NEOs.

 

Base salaries: Base salaries were adjusted modestlyfor our NEOs increased an average of 4%, reflecting each NEO’s performance, experience, and internal equity considerations. As with all of our NEOs, we evaluate each individual’s compensation by three percent in fiscal year 2012looking at pay for Mr. Guertin, Ms. Finneysimilar positions within our peer group and Mr. Kluge to keep such base salariesexternal competitive with external peers. Mr. Wilson, who was promoted to Corporate Executive Vice President and Chief Operating Officer, received a 10% raise, and Ms. Kennedy, who was promoted to Corporate Senior Vice President and President, Oncology Systems, received a 25% raise. The promotional increases for Mr. Wilson and Ms. Kennedy were intended to bring the compensation of each to a level that was considered appropriate for their new roles.market pay data.

 

  

In early fiscal year 2012, the Compensation Committee implemented performance-basedPerformance-based equity awards asare an integral part of our long-term incentive program. The new performance-based awards vest at the end of a three-year period based primarily on growth in averagefully diluted earnings per share (“EPS”)EPS from continuing operations, as adjusted to reflect our total stockholder return relative to our peer group.the companies in the U.S. Dow Jones Medical Equipment Index. By linking our long-term incentives to these important Company and market metrics, we hopeseek to more closely align our NEO’s incentives with the long-term interests of our stockholders. The equity awards that were made to NEOs in November 2011 consistfiscal year 2014 consisted of approximately one-third each in value of stock options, full-value shares (i.e., restricted stock units) and performance-based units.

The Compensation Committee will continue to analyze our executive compensation policies and practices and adjust them as appropriate to reflect our performance and competitive needs.

Based on the above, we request that you indicate your support for our executive compensation philosophy and practices, by voting in favor of the following resolution:

RESOLVED, that the compensation paid to the Company’s named executive officers as disclosed pursuant to Item 402 of Regulation S-K, including the “Compensation Discussion and Analysis,” the compensation tables and narrative discussion, is hereby APPROVED.

As an advisory vote, the vote on Proposal Two is not binding upon us.binding. Nonetheless, the Compensation Committee, which is responsible for designing and administering our executive compensation program, and the Board value the opinions expressed by stockholders, and will consider the outcome of the vote when making future compensation decisions for our named executive officers.NEOs.

Recommendation of the Board

THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE COMPENSATION OF OUR NEOS AS DESCRIBED IN THIS PROXY STATEMENT.

PROPOSAL THREE

RATIFICATION OF THE APPOINTMENT OF OUR INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

Selection of the Accounting Firm

The Audit Committee has appointed PricewaterhouseCoopers LLP (“PwC”) as our independent registered public accounting firm to perform the audit of our financial statements for fiscal year 2013,2014, and we are asking you and other stockholders to ratify this appointment. Since 1962, PwC or its predecessors has been our independent accounting firm, first as Lybrand, Ross Bros. & Montgomery from 1962 until 1972, then as Coopers & Lybrand from 1972 to 1997, and subsequently as PwC from 1998 to the present.

The Audit Committee annually reviews the independent registered public accounting firm’s independence, including reviewing all relationships between the independent registered public accounting firm and us and any disclosed relationships or services that may impact the objectivity and independence of the independent registered public accounting firm, and the independent registered public accounting firm’s performance. Additionally, the Audit Committee also noted that our PwC engagement audit partner is subject to regular rotation and the most recent rotation occurred in fiscal year 2013. As a matter of good corporate governance, the Board, upon recommendation of the Audit Committee, has determined to submit to stockholders for ratification the appointment of PwC. In the event that a majority of the shares of common stock present in person or represented by proxy at the Annual Meeting and entitled to vote on Proposal FourThree does not ratify this appointment of PwC, the Audit Committee will review its future appointment of PwC.

We expect that a representative of PwC will be present at the Annual Meeting and that representative will have an opportunity to make a statement if he or she desires and will be available to respond to appropriate questions.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

The Audit Committee must pre-approve all audit and permissible non-audit services to be provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally requested annually and any pre-approval is detailed as to the particular service, which must be classified in one of the four categories of services. The Audit Committee may also, on a case-by-case basis, pre-approve particular services that are not contained in the annual pre-approval request. In connection with this pre-approval policy, the Audit Committee also considers whether the categories of pre-approved services are consistent with the rules on accountant independence of the SEC.

Principal Accountant Fees and Services

The following is a summary of the fees billed or to be billed to us by PwC for professional services rendered for the fiscal years ended September 28, 201226, 2014 and September 30, 2011:27, 2013:

 

Fee Category

  Fiscal Year 2012   Fiscal Year 2011   Fiscal Year 2014   Fiscal Year 2013 

Audit Fees

  $3,446,259    $3,256,389    $4,114,946    $3,843,365  

Audit-Related Fees

   346,821     215,759     218,758     218,874  

Tax Fees

   801,888     738,032     879,878     641,212  

All Other Fees

   27,400     29,160     15,800     22,740  
  

 

   

 

   

 

   

 

 

Total Fees

  $4,622,368    $4,239,340    $5,229,382    $4,726,191  
  

 

   

 

   

 

   

 

 

Audit FeesFees..     Consist of fees billed or to be billed for professional services rendered for the annual audit of our consolidated financial statements (as well as the related attestation report on the Company’s internal control over

over financial reporting) and review of the interim consolidated financial statements included in our Form 10-Q Quarterly Reports and services that PwC normally provides in connection with statutory and regulatory filings or engagements.

Audit-Related FeesFees..Consist of fees billed or to be billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees.” These services include consultations concerning financial accounting and reporting standards and accounting consultations in connection with acquisitions.

Tax FeesFees..    Consist of fees billed or to be billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and international tax compliance, assistance with tax reporting requirements and audit compliance, tax planning, consulting and assistance on business restructuring and tax advice on mergers and acquisitions. Tax compliance fees were approximately $342,000$373,500 and $302,000$492,000 in fiscal years 20122014 and 2011,2013, respectively. All other tax fees were approximately $460,000$506,000 and $436,000$149,000 in fiscal years 20122014 and 2011,2013, respectively.

All Other FeesFees..Consist of fees for products and services other than the services reported above. All Other Fees for fiscal years 20122014 and 20112013 were primarily related to (1) attestations to ensure regulatory compliance and (2) the application of financial accounting and reporting standards to specific operational matters and (2) other attestations to ensure regulatory compliance.matters.

The Audit Committee determined that PwC’s provision of these services, and the fees that we paid for these services, are compatible with maintaining the independence of the independent registered public accounting firm. The Audit Committee pre-approved all services that PwC provided in fiscal years 20122014 and 20112013 in accordance with the pre-approval policy discussed above.

Recommendation of the Board

THE BOARD RECOMMENDS THAT YOU VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2013.2015.

AUDIT COMMITTEE REPORT

The Audit Committee of the Board of Directors (the “Audit Committee”) consists of the fivefour directors whose names appear below. Each member of the Audit Committee meets the definition of “independent director” and otherwise qualifies to be a member of the Audit Committee under the New York Stock Exchange listing requirements.

The Audit Committee’s general role is to assist the Board in monitoring the Company’s financial reporting process and related matters. Its specific responsibilities are set forth in its charter. The Audit Committee reviews its charter at least annually, and did so in the November 2012August 2014 Audit Committee meeting.

As required by the charter, the Audit Committee reviewed the Company’s financial statements for fiscal year 20122014 and met with management, as well as with representatives of PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm, to discuss the financial statements. The Audit Committee also discussed with members of PricewaterhouseCoopers LLP the matters required to be discussed by the Statement on Auditing Standards 61,Communication with Audit Committees, as amended (AICPA,Professional Standards, Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T.

In addition, the Audit Committee received the written disclosures and letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding PricewaterhouseCoopers LLP’s communications with the Audit Committee concerning independence and discussed with members of PricewaterhouseCoopers LLP its independence from management and the Company.

Based on these discussions, the financial statement review and other matters it deemed relevant, the Audit Committee recommended to the Board that the Company’s audited financial statements for fiscal year 20122014 be included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 28, 2012.26, 2014.

Furthermore, in connection with the standards for independence promulgated by the Securities and Exchange Commission, the Audit Committee reviewed the services provided by PricewaterhouseCoopers LLP, the fees the Company paid for these services, and whether the provision of the services is compatible with maintaining the independence of the independent registered public accounting firm. The Audit Committee deemed that the provision of the services is compatible with maintaining that independence.

The Audit Committee has selected PricewaterhouseCoopers LLP to be the Company’s independent registered public accounting firm for fiscal year 2013.2015. In doing so, the Audit Committee considered the results from its review of PricewaterhouseCoopers LLP’s independence, including (a) all relationships between PricewaterhouseCoopers LLP and the Company and any disclosed relationships or services that may impact their objectivity and independence, (b) theirPricewaterhouseCoopers LLP’s performance and qualification as an independent registered public accounting firm and (c) the fact that the PricewaterhouseCoopers LLP engagement audit partner is rotated on a regular basis as required by applicable laws and regulations. As a matter of good corporate governance, the Audit Committee has determined to submit its appointment of PricewaterhouseCoopers LLP to the stockholders for ratification. In the event that a majority of the shares of common stock present or represented at the Annual Meeting and entitled to vote on the matter dodoes not ratify this appointment, the Audit Committee will review its future appointment of PricewaterhouseCoopers LLP.

Ruediger Naumann-Etienne (Chair)

R. Andrew Eckert

David J. Illingworth

Mark R. Laret

Venkatraman Thyagarajan

STOCK OWNERSHIP

Beneficial Ownership of Certain Stockholders, Directors and Executive Officers

This table shows as of December 1, 2012:2014: (1) the beneficial owners of more than five percent of our common stock and the number of shares they beneficially owned based on information provided in their most recent filings with the SEC; and (2) the number of shares each director, each nominee for director, each named executive officer and all directors, nominees for director and executive officers as a group beneficially owned, as reported by each person. Except as otherwise indicated, the address of each is 3100 Hansen Way, Palo Alto, California 94304. Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. Except as noted, each person has sole voting and investment power over the shares shown in this table. For each individual and group included in the table below, the percentage ownership is calculated by dividing the number of shares beneficially owned by the person or group, which includes the number of shares of common stock that the person or group had the right to acquire on or within 60 days after December 1, 2014 by the sum of the 108,999,524100,181,320 shares of common stock outstanding on December 1, 20122014, plus the number of shares of common stock that the person or group had the right to acquire on or within 60 days after December 1, 2012.2014.

 

  Amount and Nature of
Common Stock
Beneficially Owned
   Amount and Nature of
Common Stock
Beneficially Owned
 
  Number of Shares
Beneficially Owned
   Percent
of Class
   Number of Shares
Beneficially Owned
   Percent
of Class
 

Stockholders

        

The Vanguard Group, Inc. (1)

   6,174,445     5.66

Blackrock, Inc. (1)

   5,182,746     5.1%

40 East 52nd Street

    

New York, NY 10022

    

The Vanguard Group, Inc. (2)

   7,126,127     7.1

100 Vanguard Blvd.

        

Malvern, PA 19355

        

Harris Associates L.P. (2)

   5,911,600     5.42

(Harris Associates, Inc.)

    

Two North La Salle Street, Suite 500

    

Chicago, IL 60602-3790

    

Directors, Nominees for Director and Executive Officers

        

Susan L. Bostrom (3)

   17,322     *     6,671     *  

John Seely Brown (4)

   34,263     *  

Regina E. Dugan (4)

   1,434     *  

R. Andrew Eckert (5)

   33,817     *     28,505     *  

Timothy E. Guertin (6)

   1,013,517     *     481,234     *  

David J. Illingworth (7)

   6,158     *     14,407     *  

Mark R. Laret (8)

   29,671     *     29,407     *  

Richard M. Levy (9)

   315,907     *  

Ruediger Naumann-Etienne (10)

   22,671     *  

Erich R. Reinhardt

   —       *  

Ruediger Naumann-Etienne (9)

   14,407     *  

Erich R. Reinhardt (10)

   7,862     *  

Venkatraman Thyagarajan (11)

   21,555     *     19,149     *  

Dow R. Wilson (12)

   453,020     *     477,569     *  

Elisha W. Finney (13)

   384,771     *     103,224     *  

Kolleen Kennedy (14)

   15,116     *  

Robert H. Kluge (15)

   217,600     *  

All directors, nominees for director and executive officers
as a group (16 persons) (16)

   2,611,670     2.35

John W. Kuo (14)

   23,173     *  

Kolleen T. Kennedy (15)

   14,206     *  

Sunny S. Sanyal

   314     *  

All directors, nominees for director and executive officers as a group (15 persons) (16)

   1,239,687     1.23

 

*The percentage of shares of common stock beneficially owned does not exceed one percent of the shares of common stock outstanding at December 1, 2012.2014.

 

(1)Based on a Schedule 13G/A filed February 10, 2012, The Vanguard Group,January 31, 2014, Blackrock, Inc. has sole power to vote 161,2405,182,746 of these shares and sole power to dispose of 6,013,2056,172,320 of these shares and shared power to dispose of 161,240 shares.

(2)Based on a Schedule 13G/A filed February 14, 2012, Harris Associates L.P. and its General Partner, Harris Associates,12, 2014, The Vanguard Group, Inc., have has sole power to vote and175,127 of these shares, sole power to dispose of all6,962,100 of these shares and shared power to dispose of 164,027 shares.

 

(3)Amount shown includes 10,000 shares that may be acquired under exercisable stock options. Also includes 4, 6714,407 Deferred Stock Units that have vested but that are subject to deferred distribution.

 

(4)Amount shown includes 18,000 shares that may be acquired under exercisable stock options. Also includes 4, 6711,434 Deferred Stock Units that have vested but that are subject to deferred distribution.

 

(5)Amount shown includes 23,00018,000 shares that may be acquired under exercisable stock options. Also includes 4, 6714,407 Deferred Stock Units that have vested but that are subject to deferred distribution.

 

(6)Amount shown includes 891,665360,000 shares that may be acquired under exercisable stock options exercisable on or within 60 days of December 1, 2012.options. Also includes 83,3322,862 Deferred Stock Units that have vested but that are subject to deferred distribution and 59,332 shares held in a trust of which Mr. Guertin is the trustee.

 

(7)Amount shown includes 5,00010,000 shares that may be acquired under exercisable stock options. Also includes 1,1584,407 Deferred Stock Units that have vested but that are subject to deferred distribution.

 

(8)Amount shown includes 25,000 shares that may be acquired under exercisable stock options. Also includes 4, 6714,407 Deferred Stock Units that have vested but that are subject to deferred distribution.

 

(9)Amount shown includes 265,000 shares that may be acquired under stock options exercisable on or within 60 days of December 1, 2012. Also includes 50,907 shares held in a trust of which Mr. Levy is co-trustee with his wife, as to which voting and investment powers are shared with Mr. Levy’s wife.

(10)Amount shown includes 18,00010,000 shares that may be acquired under exercisable stock options. Also includes 4, 6714,407 Deferred Stock Units that have vested but that are subject to deferred distribution.

(10)Amount shown includes 5,000 shares that may be acquired under exercisable stock options. Also includes 2,862 Deferred Stock Units that have vested but that are subject to deferred distribution.

 

(11)Amount shown includes 15,00010,000 shares that may be acquired under exercisable stock options. Also includes 4, 6714,407 Deferred Stock Units that have vested but that are subject to deferred distribution.

 

(12)Amount shown includes 412,318415,864 shares that may be acquired under exercisable stock options exercisable on or within 60 days of December 1, 2012.options.

 

(13)Amount shown includes 348,22276,427 shares that may be acquired under exercisable stock options exercisable on or within 60 days of December 1, 2012.options. Also includes 22,126 shares held in a trust of which Ms. Finney is co-trustee with her husband, as to which voting and investment powers are shared with Ms. Finney’s husband.

 

(14)Amount shown includes 3,1893,490 shares that may be acquired under exercisable stock options exercisable on or within 60 days of December 1, 2012.options.

 

(15)Amount shown includes 189,3891,551 shares that may be acquired under exercisable stock options exercisable on or within 60 days of December 1, 2012.options.

 

(16)Amount shown includes 2,257,816950,373 shares that may be acquired under exercisable stock options exercisable on or within 60 days of December 1, 2012 and 157,79383,076 shares held in trusts, including those described in footnotes 6 9 and 13.

Section 16(a) Beneficial Ownership Reporting Compliance

Under U.S. securities laws, directors, certain executive officers and persons holding more than 10% of our common stock must report their initial ownership of the common stock and any changes in that ownership to the SEC. The SEC has designated specific due dates for these reports and we must identify in this Proxy Statement those persons who did not file these reports when due. Based solely on our review of copies of the reports filed with the SEC and written representations of our directors and executive officers, we believe that alleach person who at any time during the 2014 fiscal year was a director or an executive officer or persons subject to reportingholding more than 10% of our common stock filed the required reports on time in fiscal year 2012.2014, except that Kolleen Kennedy, Senior Vice President and President, Oncology Systems, filed a late Form 4 for a transaction occurring in April 2013.

COMPENSATION OF THE NAMED EXECUTIVE OFFICERS AND DIRECTORS

Compensation Discussion and Analysis

This Compensation Discussion and Analysis (“CD&A”) provides information about the fiscal year 20122014 compensation program of our named executive officers (“NEOs”), which include the Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and the three other most highly compensated executive officers in a particular year.NEOs. For fiscal year 2012,2014, our NEOs were:

 

Timothy E. Guertin,Dow R. Wilson, President and CEO

 

Elisha W. Finney, Corporate Executive Vice President, Finance and CFO

Dow R. Wilson, Corporate Executive Vice President and Chief OperatingFinancial Officer (“CFO”)

 

Kolleen T. Kennedy, Corporate Senior Vice President and President, Oncology Systems

 

Robert H. Kluge,John W. Kuo, Senior Vice President, General Counsel and Corporate Secretary

Sunny S. Sanyal, Senior Vice President and President, X-ray ProductsImaging Components Business

EffectiveMr. Sanyal joined the Company on February 3, 2014 as Senior Vice President and President of our Imaging Components Business. He replaced Robert H. Kluge who retired from the Company on February 7, 2014. Ms. Kennedy was promoted to Executive Vice President and President, Oncology Systems, effective September 27, 2014.

Executive Summary

Fiscal Year 2014 Financial Performance

Fiscal year 2014 was a year of investment aimed to stimulate long-term top line growth for the Company. Our revenues for fiscal year 2014 were $3.0 billion, up 4% from fiscal year 2013. Our net earnings per diluted share for fiscal year 2014 were $3.83. In fiscal year 2014, compared to fiscal year 2013, our operating expenses increased in part as a result of increased investments in research and development and expansion of our global infrastructure, plus the settlement of a patent litigation case and impairment of a portion of an investment, and our effective tax rate increased.

Gross orders increased 5% in our Oncology Systems business and 8% in our Imaging Components business during fiscal year 2014 as compared to fiscal year 2013. We recorded gross orders of $120.4 million in the “Other” category in fiscal year 2014 as compared to $2.5 million in fiscal year 2013. Our backlog at the end of fiscal year 2012, Mr. Guertin stepped down as our President and CEO and Mr. Wilson assumed both titles. Mr. Guertin has continued as a non-executive employee and has become Vice Chairman of our Board. See “Compensation of Directors” for a description of Mr. Guertin’s compensation as a non-executive employee.

Executive Summary

Fiscal Year 2012 Financial Performance

We finished fiscal year 2012 on a strong note despite demanding circumstances in a challenging global economy. Our revenues for fiscal year 2012 were $2.8 billion, up 8% from fiscal year 2011. Net earnings per diluted share from continuing operations for fiscal year 2012 climbed to $3.76, up 9% from $3.44 in fiscal year 2011. Net orders in fiscal year 2012 increased over fiscal year 2011 in our Oncology Systems, X-ray Products and Varian Particle Therapy businesses. We ended fiscal year 2012 with a $2.8 billion backlog, a 12% increase from2014 was 10% higher than at the end of fiscal year 2011.2013. Below are some keyselect financial highlights forfrom the year:

 

In our Oncology Systems business, net orders in fiscal year 2012 increased 7% over fiscal year 2011 and revenues in fiscal year 2012 rose 8% over fiscal year 2011. Our TrueBeam platform for radiotherapy and radiosurgery has continued to be a major driver for our growth in markets around the globe. Through the end of fiscal year 2012, we had received orders for more than 645 TrueBeam systems since its introduction in the second quarter of fiscal year 2010 and had approximately 330 systems installed or in progress.

In our X-Ray Products business, in fiscal year 2012 both net orders and revenues increased by 5% over fiscal year 2011. Our X-Ray Products business saw new products introduced in the second half of fiscal year 2012 begin to contribute to growth in net orders and revenues in the fourth quarter of fiscal year 2012.

In our “Other” category, which is comprised of our Security and Inspection Products business, the Varian Particle Therapy business and the Ginzton Technology Center, net orders for fiscal year 2012 rose 7% over fiscal year 2011 to $216 million, including two proton therapy system orders totaling over $120 million. Other category revenues for fiscal year 2012 increased 18% over fiscal year 2011.

Revenues & Gross Orders

(dollars in millions)

Earnings

(dollars in millions)

LOGO

LOGO

Fiscal Year 20122014 Executive Compensation Relative to Company Performance

Our fiscal year 20122014 financial performance, along with the individual performance of our executive officers, were key factors in determining executive compensation for fiscal year 2012, including2014. Their total direct compensation

(“TDC”) contains three main components: base salary, annual cash incentives and long-term incentives. Mr. Sanyal, who joined the following:company in February 2014, is not included in the year-over-year compensation tables and footnotes that compare compensation in fiscal year 2014 to fiscal year 2013. We design our compensation programs such that base salaries are a lesser proportion of the TDC than targeted at-risk compensation (annual and long-term cash incentives), which we believe are more closely aligned with our financial performance and our stockholders’ interests.

 

Compensation of our NEOs

(dollars in millions)

 Stockholder Return

EBIT, net orders and revenues are the key financial performance measures in determining our NEO’s annual cash incentives. These measures provide a balance between a “top line” (e.g., in using net orders and revenues—an example of financial measures before costs and expenses are considered) and “bottom line” (e.g., in using EBIT—an example of a financial measure that incorporates “top line” results plus costs and expenses) approach to measuring our annual performance. During fiscal year 2012, net orders and revenues grew 6% and 8%, respectively, over fiscal year 2011, and EBIT from continuing operations grew 1% in fiscal year 2012 over fiscal year 2011. Despite solid top line financial performance in fiscal year 2012, our achievement fell below our pre-established performance targets for the year and therefore resulted in the payment of annual cash incentive awards below target levels for our NEOs.LOGO

 

Base salaries were adjusted modestly by three percent in fiscal year 2012 for Mr. Guertin, Ms. Finney and Mr. Kluge to keep such base salaries competitive with external peers. Mr. Wilson, who was promoted to Corporate Executive Vice President and Chief Operating Officer, received a 10% raise, and Ms. Kennedy, who was promoted to Corporate Senior Vice President and President, Oncology Systems, received a 25% raise. The promotionalSalaries: Salary increases for Mr. Wilsonour NEOs averaged 4.0% reflecting each NEO’s performance and Ms. Kennedy were intended to bringexperience, as well as internal equity considerations and market competitive considerations.

Annual Cash Incentives: Achievement against our pre-established financial performance targets for the compensationyear, when combined with individual performance, resulted in the payment of each to a level that was considered appropriateannual cash incentive awards between 98% and 105% of target for their new roles.our NEOs.

 

  

In early fiscal year 2012, the Compensation Committee implemented performance-based equity awards as part ofLong-term Incentives: We continued to grant our long-term incentive program. The new performance-based awards vest at the end of a three-year period based on long-term growth in EPS as adjusted for the performance of our common stock against the total stockholder return (“TSR”) of our peer group. By linking ourNEOs long-term incentives, which make up approximately 60% to these important Company and market metrics, we hope to more closely align our NEOs’67% of their total compensation. Long-term incentives with the long-term interests of our stockholders. The equity awards that were made to NEOs in November 2011 consist of approximately one-third each in value of stock options, full-value shares (i.e., restricted stock units)units (“RSUs”)) and performance-based units.units (“PSUs”) that vest based on long-term growth in EPS and performance of our common stock against the Dow Jones U.S. Medical Equipment Index. We believe our emphasis on long-term incentives results in a healthy alignment between our NEOs’ pay and our stockholders’ realized returns.

In aggregate, TDC for our NEOs in fiscal year 2014 increased modestly from fiscal year 2013, which is consistent with our pay philosophy and aligned with our financial and stock performance.

Executive Compensation PracticesProgram Design

OurThe remaining sections of this CD&A provide details about our executive compensation program contains many features considered best practices, including:as follows:

 

executive officers are employed at will without contractual severance protection other than pursuant to the change-in-control agreements described below;Compensation Philosophy and Practices

 

a significant portionRole of our executive compensation is considered pay “at-risk” as it directly depends upon the achievement of both financialCompensation and individual performance goals and/or stock price appreciation;Management Development Committee

 

executive perquisites are limited and we do not provide tax gross-ups for imputed income on executive perquisites;Compensation Committee Advisor Independence

 

under our stock ownership guidelines, officers are expected to hold a significant amountElements of our common stock to discourage them from taking a short-term view of performance or exposing us to excessive risk;Our Executive Compensation Program

 

our equity incentive plan prohibits the repricing of stock options without stockholder approval;Determining Executive Compensation

 

incentive compensation paid to executives is subject to clawback in the event that our financial statements require restatement as a result of executive misconduct;Fiscal Year 2014 Salary, Annual Cash Incentives and Long-Term Incentive Decisions

 

our succession plans are reviewed and actively discussed at least annually; and

we assess the risks associated with our compensation policies and programs annually.Other Elements of Our Executive Compensation Program

Compensation Philosophy and Practices

We design our executive compensation program to reward, retain and attract executives in order to supportdrive our business strategy, achieve our shortshort- and long-term goals, and provide continued success for our customers, stockholders, employees and communities. We strive to pay competitively and appropriately based on individual performanceCompany, business unit and overall Companyindividual performance.

We provide competitive base salaries to our executives in recognition of their job responsibilities and consider individual work experience, knowledge, and internal parity among peers when setting salary levels.

We target total direct compensation (“TDC”)position TDC (consisting of base salary, annual cash incentives and long-term incentive grant values) for executives between the median and 75th percentile of our competitive peer group to reflect our executives’taking into account past performance, our growth targets and the high cost of living in the geographic location of our headquarters.headquarters, with resulting amounts that are generally between the median and 75th percentile of our peer group.

The Compensation Committee structures cash compensation for executives so that a significant portion is at-risk under the MIP, which is our annual cash incentive plan also known as the Management Incentive Plan (“MIP”).for executives. The 20122014 MIP pool available for senior executives was based on fiscal year 2012 EBIT,2014 Earnings Before Interest and Taxes (“EBIT”), with 80% of the potential payout based on total-CompanyCompany and business unit financial performance measures and 20% based on other measures, including non-financial qualitative measures. For our NEOs in fiscal year 2012,2014, target bonus opportunities under the MIP ranged from 65%68% to 115%120% of annual base salary at target achievement.salary.

Moreover, weWe believe that a significant portion of TDC should be tied to our stock performance so executives’ interests are closely aligned with those of our stockholders. This provides incentives for our executives to work for long-term profitable growth that will ultimately enhance stockholder returns without exposing us to excessive risk. Accordingly, each executive is expected to own a substantial number of shares of our common stock. In prior years,As further described below, our equity compensation program for fiscal year 2014 consisted of stock optionoptions, RSUs and restricted stock unit (“RSU”) grants vesting over three-or-more years. In fiscal year 2012, we introduced a performance-based unit (“PSU”) awardPSUs.

Our executive compensation program contains many features considered to be best practice, including:

Executive officers are employed at will without contractual severance protection other than pursuant to the mixchange-in-control agreements described below.

A significant portion of equity-based awards.our executive compensation is “at-risk,” where actual earn-outs or pay directly depends upon achieving both financial and individual performance goals and/or stock price appreciation.

Executive perquisites are limited and we do not provide tax gross-ups for imputed income on executive perquisites.

Under our stock ownership guidelines, officers are expected to hold a significant amount of our common stock to discourage them from taking a short-term view of performance or exposing us to excessive risk.

We require our executives to enter into 10b5-1 trading plans in order to sell their Company stock.

Our insider trading policy prohibits directors and executive officers from engaging in any margining, pledging or hedging activity involving our common stock.

Our equity incentive plan prohibits the repricing of stock options without stockholder approval.

Incentive compensation paid to executives is subject to clawback in the event that our financial statements require restatement as a result of executive misconduct.

Our succession plans are reviewed and actively discussed at least annually.

We annually assess the risks associated with our compensation policies and programs.

Committee independence and advisor independence are reviewed annually.

Role of the Compensation and Management Development Committee

The Compensation Committee oversees developingthe development and administeringadministration of our executive compensation program, including the underlying philosophy and related policies, and provides advice to the Board on matters related to executive development, including leading the Board’s evaluation of CEO performance and approving succession plans for the CEO and other select executives.

The Compensation Committee determines all compensation for our executive group, which for fiscal year 20122014 was comprised of our executive officers (as defined in the Exchange Act rules), all other corporate officers and other executive-level employees who directly report to the CEO, and the CEO’s direct executive staff whose baseannual salaries exceeds $400,000 annually.exceed $400,000. In fiscal year 2012,2014, this group was comprised of 2013 individuals. Additionally, the Compensation Committee may choose to review compensation for other executive-level employees as it deems appropriate. The Compensation Committee’s responsibilities include reviewing and establishing base salaries and incentive opportunities, equity compensation, executive perquisites and any other form of compensation. The Compensation Committee also reviews our CEO’s compensation with the other independent directors.

Compensation Committee Advisor Independence

The Compensation Committee retainshas retained Frederic W. Cook & Co., Inc. (“FWC”), an independent outside compensation consulting firm, to advise the Compensation Committee on all matters related to executive officer compensation. Additionally, the Compensation Committee retained the services of Wilson Sonsini Goodrich & Rosati (“WSGR”) to provide independent legal guidance on executive compensation matters through the regularly scheduled Compensation Committee meeting on November 13, 2013. After this meeting, WSGR’s representative to our Compensation Committee retired and doesthe Committee did not delegateengage WSGR’s services. The aggregate fees paid to FWC in fiscal year 2014 were approximately $122,465 and the aggregate fees paid to WSGR were approximately $11,550.

The Compensation Committee adopted enhanced independence standards for outside advisors that mirror the NYSE listing standards. This policy established an assessment framework to confirm and report on an advisor’s independence. It also requires advisors to confirm their independent status according to the Compensation Committee’s standard. The Compensation Committee reviews and confirms the independence of its outside advisors on an annual basis.

In May 2014, the Compensation Committee evaluated the independence of its advisors. In connection with this process, the Compensation Committee reviewed, among other items, a letter from each independent advisor addressing its independence and the members of the consulting team serving the Compensation Committee, including the following six factors: (1) other services provided by the advisor’s firm; (2) fees as a percent of the advisor’s firm’s total revenues; (3) policies and procedures of the advisor’s firm to prevent conflicts of interest; (4) any business or personal relationships between the advisor and any member of the Compensation Committee; (5) whether any of its exclusive power to determine all matters of executive compensationour stock is owned by the advisor or the advisor’s firm; and benefits.

Both an external, independent legal(6) any business or personal relationships between the advisor and an external, independent compensation consultant have been retainedany of our executive officers. The Compensation Committee concluded that the work performed by the Compensation Committee.advisors did not raise any conflict of interest.

Elements of Our Executive Compensation Program

The direct compensation of our executives is comprised of three principal elements: (1) base salary, (2) annual cash incentives and (3) long-term incentives, including equity and equity-based awards.incentives. We also

provide perquisites of relatively limited value for the convenience of our executives so that their time can be most effectively directed toward Company matters. The Compensation Committee, as part of its evaluation of the overall compensation of each NEO, reviews these elements individually and total compensation as a whole and compares each against competitive compensation data.

Base Salaries:Salaries: Base salaries for our executives are determined by the Compensation Committee based upon the following qualitative and quantitative factors:

factors such as: job level, responsibilities and experience,

individual performance,

and competitive benchmarking and internal equitability, and

the objective of targetingequity. Our intent is to objectively position TDC for our executives in an appropriate competitive range that is generally between the median and 75th percentile.percentile for fully experienced and fully competent performers.

Base salaries are designed to be a lesser proportion of TDC than our executives’ targeted at-risk compensation (i.e., annual cash incentive and equity or equity-based pay). The proportion of at-risk compensation rises as an employee’s level of responsibility and influence on business-related outcomes increases. Annual base salary increases, for all executives, are based on the analysis provided by the Compensation Committee’s independent consultant and, except in the case of the CEO, recommendations by the CEO to the Compensation Committee. Please refer to the discussion under “—Determining Executive Compensation—Fiscal Year 2014 Salary, Annual Incentive and Long-Term Incentive Decisions—Base Salary”Salaries” below for more information. The effective date of any increase in an executive’s base salary is generally on or about January 1 of each year.

Annual Cash Incentives: The MIP provides an opportunity to earn annual performance-based cash incentives to reward the achievement of corporatetotal-Company and/or specific business unit financial and non-financial goals. The Compensation Committee, working with management, establishes performance goals for the MIP in the first quarter of the fiscal year.

Long-term Incentives Including Equity Awards: Equity and equity-based awards are provided to our executives under the stockholder-approved Varian Medical Systems, Inc. Third Amended and Restated 2005 Omnibus Stock Plan (the “Third Amended Stock Plan”) and predecessor plans. Such long-term incentive awards are designed to reward stockholder value creation, align executives’ interests with those of the stockholders and retain outstanding talent, all at a reasonable cost to stockholders. Prior to fiscal year 2012, long-term incentives for executives have been primarily awarded in the form of stock options and full-value awards (e.g., RSUs), in the ratio of three options to one full value share. In fiscal year 2012, the Compensation Committee implemented PSU awards as part of the long-term incentive program. The PSU awards vest at the end of a three-year period based on long-term growth in EPS as adjusted for the performance of our common stock against the TSR of our peer group. The fiscal year 20122014 awards to NEOs consisted of approximately one-third each in value of stock options, RSUs and PSUs.

Other Compensation and Perquisites: Our executives are eligible to participate in our nonqualified Deferred Compensation Plan (“DCP”). In addition to allowing our NEOs to defer portions of their compensation, the DCP allows us to make discretionary supplemental retirement contributions (“Company Supplemental Contributions”) beyond what we can contribute to participants’ 401(k) retirement accounts due to Internal Revenue Code limitations. Please refer to the narrative discussion following the Nonqualified Deferred Compensation Table in this Proxy Statement for more information about the DCP. The DCP is intended to promote retention by providing both for Company Supplemental Contributions and a tax-efficient long-term savings opportunity.

Our use of perquisites is limited. The perquisitesPerquisites include: use of a Company-leased vehicle;vehicle through the Executive Car Program; reimbursement of expenses for financial and tax planning up to $6,500 per year (except for the CEO, who has no limit)whose financial and tax planning expenses are not capped); and reimbursement for annual medical examinations up to $4,000 per year. We believe that these limited benefits generally allow our executives to work more efficiently and, in the case of financial and tax planning services,

help them optimize the value received from our compensation and benefitsbenefit programs. The costs of these perquisites constitute only a small percentagewere approximately one percent of the executives’ overall compensation (amounting to approximately 2.4 percentTDC for the NEOs as a group in fiscal year 2012).2014. The Board has determined to eliminate the Executive Car Program and will no longer include as a perquisite use of a Company leased vehicle after December 2014.

In addition, we allow and include in thean executive’s compensation, as applicable, aircraft use attributable to permitted spousal use of thetravel on our fractionally owned aircraft for business purposes and spousal travelor on commercial airplanes deemedwhen that travel is determined to be valuable and appropriate for business purposes.purpose. We do not permit our executives to use the Company’sour fractionally owned aircraft for purely personal trips. There was no spousal travel in fiscal year 2014.

We permit executivesThe NEOs are eligible to participate in compensationour health and benefitwelfare programs, generally available to all other U.S. employees, such as:

Employee Incentive Plan (“EIP”). The EIP is a Company-wide incentive plan through which eligible employees may receive award payouts denominated in number of hours—from 0 hours to 120 hours (based on a 40-hour work week), with 60 hours being the annual target achievement level (please refer to the discussion under “—Non-Equity Incentive Plan Compensation” after the Grants of Plan-Based Awards Table). The performance targets under the EIP are the same as the corporate financial goals under the MIP;

Employee Stock Purchase Plan;

Plan, 401(k) Retirement Program;retirement program, matching charitable gifts program and

Medical, dental, supplemental life other broad-based benefit and disability insurance programs.

Total Direct Compensation: When we evaluateprograms on the elements of compensation of our executives in light of the competitive data, we group the elements into two categories:same basis as other employees.

Annual base salary plus non-equity incentive compensation (i.e., MIP and EIP, based on target participation levels for the fiscal year), the sum of which we call total cash compensation (“TCC”).

TCC plus grant date fair values of long-term equity awards (e.g., stock options and full-value stock awards), the sum of which we call TDC. Other elements of NEO compensation (such as perquisites) are not included in our TDC formula but are reviewed and approved by the Compensation Committee.

Determining Executive Compensation

In determining executive compensation for fiscal year 2012,2014, the Compensation Committee assessed our overall performance against pre-defined financial metrics, our stock-price performance, achievement of non-financialnon-

financial qualitative goals and peer and market performance during the same period. The Compensation Committee also reviewed management’s business plans and financial budgets and projections, including analyzing the difficulty of achieving them. Our executive compensation philosophy has historically based a substantial portion of executive compensation on achieving financial performance and business goals to align executives’ interests with those of stockholders as described in more detail below.

Before making decisions on compensation for each of the executives, the Compensation Committee reviews each NEO’s business (or functional area) and individual performance for the fiscal year with our CEO each individual’s performance and accomplishments during the prior year.CEO. Except for his own position, the CEO makes recommendations to the Compensation Committee about base salary increases, any changes to the incentive planMIP target awards and, if equity or equity-based awards are to be made, the amountvalue of such awards for each executive. The Compensation Committee takes into account the CEO’s recommendations, external market data and each executive’s performance, as reviewed with the CEO, as well as internal equity within the Company. Additionally, the Compensation Committee considers the retention value of any existing unvested equity awards that each executive has prior to determining annual equity grants. The

In addition, the Compensation Committee meets in executive session with its independent advisors to develop and establish a proposal for CEO pay. This proposal is also reviewed with the other independent directors.

The In connection with this process, the Compensation Committee annually evaluates our CEO’s performance. In doing so, our Compensation Committee chair gathers evaluations from the Chairman of the Board, other independent directors, certain members of the CEO’s direct reports and a self assessmentself-assessment by the CEO. The resulting information is reviewed by the full Board (exclusive of the CEO) in executive session to provide a basis for determining CEO compensation as well as for providing constructive feedback to the CEO.

To independently assist and advise the Compensation Committee, the Compensation Committee retains FWC as its independent compensation consultant. Additionally, the Compensation Committee retains the services of WSGR to provide independent legal guidance on executive compensation matters. The Compensation Committee conducts a formal evaluation of its legal advisor and compensation consultant annually.

Generally, on an annual basis, FWCannually reviews and analyzes our executive compensation program, compensation strategy and effectiveness of pay delivery. FWC provides market information on compensation trends and practices and makes recommendations to the Compensation Committee based on competitive data. FWC advises the Compensation Committee chair on agenda items for Compensation Committee meetings, reviews management proposals and performs special projects at the Compensation Committee chair’s request. FWC and WSGR also periodically provideregularly update the Compensation Committee with updates on regulatory and legislative developments pertaining to executive compensation and compensation committee governance. FWC provides analyses and recommendations that assist the Compensation Committee in making decisions, but does not decide or approve any compensation actions. As needed, the Compensation Committee also consults with FWC and WSGR on program design changes.

Competitive Benchmarks: Typically, FWC annually evaluates and makes recommendations regarding the peer companies that we use for competitive comparisons of our executive and non-employee director compensation. InBased on that recommendation for fiscal year 2012,2014, our peer group remained the samewas adjusted and expanded to 20 companies as compared to 13 companies in fiscal year 2011. It consisted of 15 other medical, healthcare or scientific equipment manufacturing companies selected from our SIC industry classification, the common stock of which was publicly traded. In selecting our peer group from major labor and/or capital competitors,2013. The following criteria were used by the Compensation Committee looks for companies that have (1)to select our updated peer group:

Companies in the same or related industry group as identified by Global Industry Classification Standard (GICS) codes

Generally comparable revenues and market-capitalization values that arewere roughly no more than four times and no less than one-third of ours;Varian’s

Based on the criteria described above, Hospira, Inc. and (2) roughly similar growth and performance potential, as measured byThermo Fisher Scientific, Inc. were removed from our peer group because they no longer fit the revenue, market capitalization or related industry group criteria.

Additionally, the following metrics (computed over one-yearnine companies were added to our peer group because they fit our selection criteria: Agilent Technologies, Inc., Bio-Rad Laboratories, Inc., Boston Scientific, CareFusion Corporation, DENTSPLY International, Life Technologies Corporation, Mettler-Toledo International, Inc., PerkinElmer, Inc. and three-year periods): diluted earnings per share growth, EBIT growth, revenue growth and TSR.Waters Corporation.

The

Our peer group companies arefor fiscal year 2014 were as follows:

 

Beckman Coulter,Agilent Technologies, Inc.  Hospira,DENTSPLY InternationalPerkinElmer Inc.
Alere, Inc.Edwards Life Sciences LLC  ResMed Inc.
Becton Dickinson and Company  IDEXX Laboratories,Hologic Inc.  St. Jude Medical, Inc.
C.R. Bard,Bio-Rad Laboratories, Inc.IDEXX Laboratories, Inc.Stryker Corporation
Boston Scientific Corporation  Intuitive Surgical, Inc.  StrykerWaters Corporation
Edwards Life Sciences LLCAlere,C.R. Bard, Inc.  Thermo Fisher Scientific Inc.
Hologic Inc.Kinetic Concepts, Inc.Life Technologies Corporation  Zimmer, Inc.
CareFusion CorporationMettler-Toledo International, Inc.

Because both Beckman Coulter, Inc.Life Technologies Corporation was acquired by Thermo Fisher Scientific in February 2014 and Kinetic Concepts, Inc. were recently acquired, they will not be included as peer companies inis no longer a part of the future.Peer Group.

Internal Pay Equity: The Compensation Committee considers internal pay equity when determining our CEO’s compensation. The following metrics were noted for fiscal years 2012, 20112014 and 2010. Only TCC is shown for fiscal year 2011 as we did not make equity or equity-based awards to our NEOs in fiscal year 2011.2013:

 

   Using “Target” Non-Equity Incentive Compensation Data 
   Total Cash Compensation (1)   Total Direct Compensation (4) 

Fiscal Year

  CEO vs. Second
Highest Paid
Executive (2)
   CEO vs. Average
NEO (3)
   CEO vs. Second
Highest Paid
Executive (2)
   CEO vs. Average
NEO (3)
 

2012

   1.60     2.11     1.75     2.52  

2011

   1.75     2.32     —       —    

2010

   1.68     2.24     1.97     2.70  
   Using “Actual” Non-Equity Incentive Compensation Data 
   Total Cash Compensation (5)   Total Direct Compensation (6) 

Fiscal Year

  CEO vs. Second
Highest Paid
Executive (2)
   CEO vs. Average
NEO (3)
   CEO vs. Second
Highest Paid
Executive (2)
   CEO vs. Average
NEO (3)
 

2012

   1.53     2.03     1.74     2.52  

2011

   1.74     2.55     —       —    

2010

   1.73     2.31     1.97     2.70  
   Using “Target” Non-Equity Incentive Compensation Data 
   Total Cash Compensation (1)   Total Direct Compensation (4) 

Fiscal Year

  CEO vs. Second
Highest Paid
Executive (2)
   CEO vs. Average
NEO (3)
   CEO vs. Second
Highest Paid
Executive (2)
   CEO vs. Average
NEO (3)
 

2014

   1.95     2.27     2.33     2.59  

2013

   1.83     2.08     2.33     2.60  

 

(1)TCC = Salary (reported in the Summary Compensation Table) + Non-equity Incentive Compensation (i.e.,plus MIP and EIP, based on target participation levels for the stated fiscal year).year.

 

(2)The “Second Highest Paid Executive” in fiscal years 2012, 2011year 2013 and 20102014 was Mr. Wilson. The analyses excluded the special cash payments made to Mr. Wilson in fiscal year 2010 as part of a $1.6 million total cash payment pursuant to his offer letter dated September 17, 2004 (reported in the “Bonus” column of the Summary Compensation Table).Ms. Finney.

 

(3)“Average NEO” represents relevant compensation of the NEOs, excluding the CEO.

 

(4)TDC = TCC (as described in footnote 1) and the grant date fair value of equity and equity-based awards (reported in the “Stock Awards” and “Option Awards” columns of the Summary Compensation Table).

(5)TCC = Salary (reported in the Summary Compensation Table) + Non-equity Incentive Plan Compensation (i.e., MIP and EIP based on actual amounts earned using data from the Summary Compensation Table).

(6)TDC = TCC (as described in footnote 5) andplus the grant date fair value of equity and equity-based awards (reported in the “Stock Awards” and “Option Awards” columns of the Summary Compensation Table).

Compensation At-Risk and Focus on Long-Term PerformanceAt-Risk Performance-Based Rewards

: We believe that there should be a strong relationship between pay and performance (both financial results and stock price), and our executive compensation program reflects this belief.relationship. In particular, MIP and equity or equity-based awards typically represent a significant portion of our executive compensation program and this variable compensation is considered “at-risk”at-risk because it directly depends upon the achievement of pre-established financial and qualitative goals primarily financial, but also qualitative, and upon stock price appreciation:stockholder value creation:

 

Annual cash incentives—paid under the MIP and EIP—incentives are intended to link executive rewards to total-Company and business unit performance upon achieving pre-determined short-term financial targets and individual goals.

 

The exercise price of stock options granted under our equity incentive plans is equal to the fair market value of our common stock on the date of grant, so the options will yield value to the executive only if the stock price appreciates.

New PSU awards are tied to long-term growth in EPS, as adjusted for the performance of our common stock against the TSR of our peer group,companies in the Dow Jones U.S. Medical Equipment Index over a three-year period, so that our executives’ reward isrewards are tied to both absolute performance and our performance relative to our peer group.

 

Full-value awards (in the form of RSUs)RSUs remain a component of the executive’s equity awards, equating to approximately one-third of the value of each NEO’s equity awards. The Compensation Committee believes that this element provides a strong retention component to our overall compensation program.

The following chart illustrates forshows each NEO theNEO’s allocation of fiscal year 20122014 target TDC between base salary, cash incentives and equity compensation elements. Additionally, the chart shows for each NEO theNEO’s allocation between long-term incentives—stock options, RSUs and PSUs—and short-term components—base salary MIP and EIP.MIP. All elements, except base salary, are considered at risk:

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(1)At-risk compensation.

 

(2)Data from the “Stock Awards” and “Option Awards” columns of the Summary Compensation Table.

 

(3)MIP and EIP areis based on target participation levels for fiscal year 2012.2014.

We believe that the long-term performance is the most important measure of our success, as we manage our operations and business affairs for the long-term benefit of our stockholders. Accordingly, not only is our executive compensation program weighted towards variable, at-risk pay, but we also emphasize incentives that are dependent upon long-term corporate performance and stock price appreciation.

(4)Mr. Sanyal was hired on February 3, 2014, and was not yet an employee at the time of the November 20, 2013 PSU grant.

Fiscal Year 20122014 Salary, Annual Incentive and Long-Term Incentive DecisionDecisions

Base Salaries and Total Cash Compensation:Salaries:The Compensation Committee annually reviews the base salaries of the executive group in the context of the competitive median and 75th percentile of our peer group and target and actual TCC. The Compensation Committee considers a number of factors when reviewing and setting base salaries for the NEOs, including individual performance, level of responsibility, experience, the relationship between base salaries paid to other executives and competitive market data. The Compensation Committee approved the following 2012 base salary increases:

Name

  2011 Base Salary
(effective December 25, 2010
to December 23, 2011)
   2012 Base Salary
(effective December 24 2011)
   % Increase 

Timothy E. Guertin

  $924,963    $952,711     3

Elisha W. Finney

  $540,800    $557,024     3

Dow R. Wilson

  $630,240    $693,264     10

Kolleen T. Kennedy

  $400,408    $500,000     25

Robert H. Kluge

  $424,360    $437,091     3

Theincreases for our NEOs which averaged 4.0%, excluding Mr. Sanyal whose base salary reflects his new hire starting salary effective February 3, 2014. In determining base salary increases for the NEOs, the Compensation Committee approved a 10% promotional increase, effective October 1, 2011,considered individual performance and experience as well as internal equity considerations. The resulting target TCC for Mr. Wilson in connection with his promotion to Corporate Executive Vice President and Chief Operating Officer.

The Compensation Committee approved a 25% promotional increase, effective October 1, 2011, for Ms. Kennedy in connection with her promotion to Corporate Senior Vice President and President, Oncology Systems.

These increases and the increases of the other NEOs and the resulting total target cash compensation placed the compensation of each NEO was between the median and the 75th75th percentile of the competitive data.

Name

  2013 Base  Salary
(effective December 22, 2012
to December 20, 2013)
   2014 Base  Salary
(effective December 21, 2013)
   % Increase 

Dow R. Wilson

  $900,000    $945,000     5.0

Elisha W. Finney

  $573,735    $590,947     3.0

Kolleen T. Kennedy

  $550,066    $572,069     4.0

John W. Kuo

  $417,027    $433,708     4.0

Sunny S. Sanyal

   —      $480,000     —    

Annual Cash Incentives: On November 15, 2011,14, 2013, the Compensation Committee set the performance goals for fiscal year 20122014 performance goals under the MIP for the NEOs and certain other executives. The annual cash incentives under the MIP for our executive officers (including the NEOs) are intended to comply with the exception for performance-based compensation under Section 162(m) of the Internal Revenue Code. For fiscal year 2012,2014, the Compensation Committee established a pool of funds equal to 1.25% of our fiscal year 20122014 EBIT results (the “MIP Bonus Pool”) to be available for annual cash incentives under the MIP to the executive officers. The Compensation Committee retained negative discretion to pay each of these executives less than their

corresponding maximum share of the MIP Bonus Pool. The maximum amount for each executive officer was the lesser of two times the target participation level of each executive under the MIP or a specified percentage of the MIP Bonus Pool (as listed below)later).

For fiscal year 2012,2014, the Compensation Committee determined to basebased 80% of each MIP award on achievement of total-Company and business unit financial performance and 20% on other measures, including non-financial, qualitative measures generally unique to each NEO. As the financial performance measures, the Compensation Committee selected growth in EBIT (40% weight), international net orders (20% weight) and revenues (20% weight). EBIT growth is a traditional measure of “bottom line” growth that has been used with the MIP andwe believe is closely followed by our investors. The other two measures are “top-line”international net orders growth measures (i.e., financial measures before any costs and expenses are considered) that we have also used previously.measure was a new measure in fiscal year 2014. The Compensation Committee felt thatbelieved it was important for us to continueemphasize obtaining orders in selected emerging and global markets. Revenue continued as a measure as we believed it was important to focus on profit“top-line” growth. In addition to the financial and earnings, but thatqualitative measures of the remaining emphasis shouldMIP, an additional incentive based on proton therapy system net orders was included in the plan. Specifically, for each order for a proton therapy system booked in fiscal year 2014, a 3% incentive (the “PT Incentive”) would be obtainingadded to the overall bonus score (for example, three proton therapy system orders for and completingwould add 9% to the sale ofbonus score). This incentive was implemented to focus company-wide efforts on commercializing our products.proton therapy business. In connection with establishing performance goals for fiscal year 2012,2014, the Compensation Committee first reviewed and discussed with both management and the full Board our business plan and its key underlying assumptions, expectations and uncertainties under existing and anticipated market conditions, and the opportunity to generate stockholder value. The Compensation Committee attempted to set goals for fiscal year 2012 which,2014 that, in the opinion of the Compensation Committee, were relatively difficultchallenging and required a performance level that was better than the prior year.year to attain payout at the target level.

EBIT, revenues and net orders were calculated for purposes of the MIP in accordance with pre-established rules that were generally in accordance with the determinations of these measures in our SEC filings. The Compensation Committee did, however, exclude the following itemsapproved a list of measures that could be excluded from the calculation of EBIT for purposes of establishing the fiscal year 2014 MIP Bonus Pool and for calculating the three financial performance measures:

Resultsmeasures. The measures excluded in calculating the fiscal year 2014 MIP Bonus Pool included results from acquisitions made during the fiscal year, if any;

Performance associated with discontinued operations;performance period and

The following one-time non-recurring charges towhich for fiscal year 2014 included the extent each individual item is greater than 1%settlement of pre-tax operating income: any single legal contingent liability or settlement with third parties, restructuring charges relating to acquisitions made during the prior year, reverse divestures, all (externala patent litigation case and incremental) transaction costs associated with acquisitions during the performance period, new accounting pronouncements requiring companies to restate prior and/or current year financial statements, impairment charges associated with goodwill, long-lived assets and investments, and costs (net of savings) associated with unplanned reductions in force.a portion of an investment.

In addition, givenour financial performance for the unique structurepurpose of MIP was calculated using the budgeted exchange rate for the Euro and valuethe Japanese Yen established for fiscal year 2014 in accordance with accounting principles generally accepted in the United States (“GAAP”) to eliminate any unintended effects of each order for a proton therapy system, the Compensation Committee excluded Varian Particle Therapy business net orders from the calculation of net orders growth, but provided that each such order booked would contribute 5% to the actual net orders achievement percentage. So, for example, if the net order growth percentage had been 5%, which resulted in an achievement percentage of 60% against this metric, and we had booked two proton therapy system orders, the adjusted achievement percentage would be 70% (60% plus 5% for each of the two proton therapy system orders).currency fluctuations.

There iswas no payout for achievement below or at threshold performance. Payout would begin at 1% above threshold performance. At target performance the payout percentage iswas 100% of target payout and at maximum the payout percentage is 200% ofwas double the payout percentage for target performance.payout. The payout percentage for the financial performance goals werewas not linear from threshold-to-target levels and from target-to-maximum levels. The slopes of each curve and the placements of the inflection points were uniquely designed to take into account the varying degrees of difficulty to achieve the results. In order to attain any payout under the MIP in fiscal year 2012, with the exception of the threshold level for growth in total Company EBIT, we had to achieve growth over fiscal year 2011. Payouts with respect to the 90%100% to 100%110% achievement range were designed to broadly align to the range of our fiscal year 20122014 financial outlook that we provided in our October 27, 201123, 2013 earnings press release. Payouts with respect to the 0% to 85% achievement range and above the 120% to 200% achievement range115% level generally carried a steeper slope than payouts with respect to the 85% to 120%115% achievement range. The steeper slope in the 0% to 85% achievement range was intended to drive performance above the 85% level and to meet or exceed our financial outlook. The steeper slope in the 120%115% to 200% achievement range was intended to reward for performance that was considered difficult to very difficult to achieve.

The remaining 20% of each potential MIP award related to that NEO’s achievement of qualitative goals, which varied by individual. There was no weighting assigned to achieving or failing to achieve any of such goals, with theThe determination of any payment for an individual’s performance versus such goalsgoal achievement was left to the discretion of the Compensation Committee. The Compensation Committee took into consideration

the CEO’s assessments of and recommendations from the CEO relative to achievingthe other NEOs’ achievement of the pre-defined qualitative goals by the NEOs (with the exception of the CEO himself).goals. The maximum individual actual awards for the NEOs arewere capped at the lower of 200% of the target award or a specified percentage of the MIP Bonus Pool (as listed below)described later).

As described above, the PT Incentive provided additional bonus incentive opportunity for Proton Therapy net orders booked in fiscal year 2014.

The weighting of total-Company and individual business units’ financial performance and individual non-financial qualitative performance under the MIP for fiscal year 20122014 was as follows:

 

Name

  Total Company
Financial Goals
 Oncology
Systems
Financial Goals
(business unit)
 X-ray Products
Financial Goals
(business unit)
 Individual
Non-Financial
(Qualitative)
Performance
   Total Company
Financial Goals
 Oncology
Systems
Financial Goals
(business unit)
 Imaging
Components
Financial Goals
(business unit)
 Individual
Non-
Financial
(Qualitative)
Performance
 

Timothy E. Guertin

   80    20

Dow R. Wilson

   80    20

Elisha W. Finney

   80    20   80    20

Dow R. Wilson

   80    20

Kolleen T. Kennedy

   40  40   20   40  40   20

Robert H. Kluge

   40   40  20

John W. Kuo

   80    20

Sunny S. Sanyal

   40   40  20

The Compensation Committee assigned each of our executives a target and maximum payout at the beginning of the fiscal year, expressed as a percentage of his or her base salary as of fiscal year end, as well as a maximum expressed as a percentage of the MIP Bonus Pool. The target incentives werefor NEOs are established after evaluating job responsibilities, pay equity among the executive group and competitive market data of TCC.data. Based on these considerations, the Compensation Committee determined thatset the existing target percentage participation levels under the MIP continued to be appropriate for Mr.��Guertin, Ms. Finney and Mr. Kluge and therefore no changes were made. In connection with their promotions, the NEOs as follows:

The Compensation Committee increased Mr. Wilson’s target percentage from 80%113% to 85%120% to better align his total target cash positioning with CEOs in our peer group.

Ms. Finney, Ms. Kennedy, Mr. Sanyal and Ms. Kennedy’sMr. Kuo’s target percentage from 50%percentages were set at 83%, 83%, 75% and 68%, respectively. No adjustments were made to 75%.their targets as they were appropriately set and aligned with their respective competitive benchmarks.

 

   Target  Maximum (the lesser of
the following)
 

Name

  As a % of
base salary
  As a % of
base salary
  As a % of MIP
Bonus Pool
 

Timothy E. Guertin

   115  230  34

Elisha W. Finney

   80  160  14

Dow R. Wilson

   85  170  18

Kolleen T. Kennedy

   75  150  12

Robert H. Kluge

   65  130  9

The Compensation Committee’s applicationIn accordance with the terms of negative discretionhis new hire offer letter, Mr. Sanyal’s bonus for fiscal year 2014 was calculated using the same financial and non-financial performance measures used for the other NEOs, except that his bonus was subject to a minimum payout of $360,000 which was exceeded based on the following:achievement of such measures.

 

   Target  Maximum (the lesser of
the following)
 

Name

  As a % of
base salary
  As a % of
base salary
  As a % of MIP
Bonus Pool
 

Dow R. Wilson

   120  240  41

Elisha W. Finney

   83  166  18

Kolleen T. Kennedy

   83  166  17

Sunny S. Sanyal

   75  150  13

John W. Kuo

   68  136  11

Annualized base salary as of fiscal year-endtimes the annual target participation level (expressed as a % of base salary)times the sum of the (weight of each performance goaltimes achievement against that performance goal).

The fiscal year 20122014 financial performance goals for the MIP and the actual results are shown below:

 

Total Company

  Threshold
(or Minimum
Performance (1)
  Target (100%
Achievement) (2)
  Maximum
Performance
  Fiscal Year
2012 Results
 

EBIT Growth

   (0.7%)   11.8  21.7  1.5

Revenue Growth

   1.7  11.3  17.6  7.9

Net Orders Growth

   0.9  9.0  15.3  5.2%(3) 

Oncology Systems

     

EBIT Growth (4)

   2.0  9.7  16.2  1.2

Revenue Growth

   2.0  9.1  14.7  8.3

Net Orders Growth

   2.0  9.0  14.0  6.7

X-Ray Products

     

EBIT Growth (4)

   3.0  11.2  20.5  9.8

Revenue Growth

   3.5  11.3  19.0  3.6

Net Orders Growth

   4.0  12.9  23.0  3.2

Metric

  Threshold
Performance (1)
  Target (100%
Achievement) (2)
  Maximum
Performance
  Fiscal Year
2014 Results
 

Total Company (3)

     

EBIT Growth/(Decline)

   (2.4%)   6.8  14.0  0.1

Revenue Growth

   (1.4%)   6.0  11.0  3.7

Orders Growth/(Decline) (4)

   (2.5%)   7.2  15.0  12.8

Oncology Systems (5)

     

EBIT Growth/(Decline) (6)

   (2.0%)   2.0  5.0  (0.9%) 

Revenue Growth

   (2.0%)   2.6  6.0  4.1

Orders Growth/(Decline) (4)

   0.0  9.9  18.0  22.1

Imaging Components Business (7)

     

EBIT Growth/(Decline) (6)

   (2.4%)   5.5  14.2  3.5

Revenue Growth

   (0.3%)   10.5  17.8  3.7

Orders Growth/(Decline) (4)

   (3.3%)   5.1  11.7  4.7

 

(1)Any achievement at or below threshold performance would result in zero MIP payout for that element.

(2)Target growth rates for EBIT and revenue were generally in line withset at the lower end of the growth range of the fiscal year 20122014 financial outlook.

 

(3)As discussed earlier,The impact from using the Compensation Committee excluded Varian Particle Therapy business net orders frombudgeted exchange rate for the calculationEuro and the Japanese Yen established for fiscal year 2014 added $2 million and $2 million to EBIT and revenue, respectively, for the purpose of net order growth, but provided that each such order booked would contribute 5%MIP calculation. The impact of the approved exclusions increased EBIT by $36 million and decreased revenue by $2 million. The PT Incentive added 6% to the actual netbonus score as a result of two Proton Therapy system orders achievement percentage in increments of 5%. The effect of the inclusion of $124 million of orders to equip two proton therapy centers—one in Russia and the other in Saudi Arabia—increased the MIP payouts to the NEOs by approximately 2%. Including the financial impact of these orders, our total-Company net ordersbooked in fiscal year 2012 grew 6% over fiscal year 2011.2014.

 

(4)Orders Growth for total Company is comprised of Oncology Systems net orders in emerging markets and worldwide net orders in our Imaging Components business.

(5)The impact from using the budgeted exchange rate for the Euro and the Japanese Yen established for fiscal year 2014 added $2 million and $3 million to EBIT and revenue, respectively, for the purpose of MIP calculation. The impact of the approved exclusions increased EBIT by $3 million and decreased revenue by $2 million.

(6)Performance targets excluded allocation of corporate expenses to better reflect true business results. Allocation of corporate expense for each business unit is generally determined based on a fixed percent of the business unit sales revenue.

(7)Our Imaging Components Business includes our X-ray imaging tubes and flat panel products (previously referred to as “X-Ray Products”), as well as our security and inspection products (previously referred to as “Security and Inspection Products”) and the fiscal year 2014 results are based on a pro-rated combination of the two businesses.

The remaining 20% of each potentialthe fiscal year 20122014 MIP award was determined based on individual, non-financial qualitative performance. Although Mr. GuertinWilson submitted recommendations with respect to each of the other NEOs, the determination of the amount of this component of the MIP was left to the discretion of the Compensation Committee. The achievement of qualitative performance goals by each NEO included the following:

Mr. Guertin,Wilson, President and CEO and Mr. Wilson, Corporate Executive Vice President and Chief Operating Officer:

 

Provided leadership and focus that resulted in strong orders performance, resulting in gross orders up 9% for the year, particularly in BRICA countries which were up 25% year over year. Grew total-Company revenuetotal Company backlog by 8% and EPS by 12%.10% to $3.2 Billion. Revenue was up 4% over the previous year.

 

Strengthened presenceAchieved positive progress in Brazil, Russia, Indiaall areas of our strategic initiatives—global growth, innovation, software and China (BRIC countries), including adding distribution channelsservice, commercializing protons and new leadership.operational excellence, as further explained below.

 

Entered into a strategic global partnership with Siemens Healthcare to advance clinical capabilities and offeringsCompleted installation of first ProBeam™ Proton system at the Scripps Proton Center in radiotherapy and radiosurgery.San Diego.

 

Booked two proton therapy system orders, totaling $124 million.Hired Mr. Sanyal as President of the Imaging Components Business and orchestrated smooth transition of leadership team.

 

Restructured several partsSuccessfully completed FDA inspections in four of the Company to support long-term functional growth.

Continued our focus on compliance, including faster response time to customers.global manufacturing facilities with no significant observations of conditions or practices in violation of FDA requirements that required further regulatory actions.

Ms. Finney, Corporate Executive Vice President, Finance and CFO:CFO

 

Issued timelyReorganized Financial Planning and accurate financial statements, with strong internal controls over financial reporting.Analysis organization and introduced an improved strategic planning process.

 

Continued our focus on operational excellence by implementing financialExecuted capital structure plan with $500 million debt facility and other enterprise systems aroundshare repurchase program. Advocated increase in international stock ownership, which was greater than 33.3% as of the world to maximize efficiency and enhance compliance.end of fiscal year 2014.

 

Successfully restructured global finance team and transitioned in new leaders as partSyndicated $45 million of succession planning.

Published the Company’s first Corporate Social Responsibility report, detailing the Company’s policies and achievements in extending care, protecting resources and helpingour Scripps Proton Center loan commitment to save lives.J.P. Morgan Chase Bank, N.A.

Ms. Kennedy, Corporate Senior Vice President and President, Oncology Systems:Systems

 

DroveGrew Oncology Systems gross orders 5.1% compared to fiscal year 2013. Increased revenue $91.5 million or 4.1% compared to fiscal year 2013, with increases in all regions. Increased gross margin 30 basis points (43.6%).

Received large tender wins in Brazil and revenue growth of 7% and 8%, respectively,Algeria, along with significant share gain in India, which contributed to the greater than 25% BRICA gross orders performance.

Reorganized the Oncology Systems business.business by geography to place stronger customer and profit and loss emphasis under local control and hired and promoted leadership for the three major geographies.

Expanded our software offerings through the launch of our RapidPlan™ knowledge-based treatment planning tool, InSightive™ analytics and Qumulate QA, a cloud based quality assurance platform, as well as integrating technology acquired from Velocity Medical Solutions LLC and Transpire, Inc.

Grew the service business gross orders 12.3% and revenues 12.1% over fiscal year 2013, achieving 54.4% gross margin.

Mr. Kuo, Senior Vice President, General Counsel and Corporate Secretary

Streamlined contracting and legal processes for greater business partnering and enhanced regional legal support to better support our global business growth.

Assumed the role of our Chief Compliance Office and provided leadership on our ethical compliance program, including regionalizing training.

Provided leadership in establishing trade and customs programs that offered substantial benefit for our customers and created competitive advantages for the Company and its products.

 

Successfully implemented several product quality improvementmanaged and cost reduction initiativesresolved key legal matters, including litigation cases, and maintained strong corporate governance and legal risk management to drive operational excellence.the high confidence of the Board.

Strengthened Oncology Systems management team succession planning. Restructured several key functional organizations.

Enhanced our product innovation pipeline.

Mr. Kluge, CorporateSanyal, Senior Vice President and President, X-ray Products:Imaging Components Business

 

Drove growth in both orders and revenue by 5%, primarily attributable to growth internationally,Joined the Company in the X-ray Products business.second quarter of our 2014 fiscal year and quickly established a strong leadership presence and solid financial results for the year.

 

Increased X-Ray ProductsAchieved a record $723 million in gross margins by 10% (or 1.9 percentage points) overorders during fiscal year 2011, partially due to improved quality costs for the flat panel products.2014, representing 8% year-over-year growth.

 

EnhancedAchieved a reduction in cost of quality and continued to drive product and technology roadmap and strategycost management which produced higher operating income.

Achieved LEAN certification of over 50% of production staff, exceeding the goals that we had set for X-ray Products.the year.

In fiscal year 2012,2014, target, maximum and actual payouts, based on the total-Company financial performance, business unit financial performance (if applicable), PT Incentive and individual performance including the Compensation Committee’s discretionary adjustment under the MIP for our NEOs were as follows:

 

Name

  Target
Participation
Level (% of
Base Salary)
 Threshold
Payout
   Maximum
Payout—200%
target (1)
   Target Payment
(if 100% target
performance
achieved)
   Fiscal Year 2012
Payment (based
on actual
performance)
   Target
Participation
Level (% of
Base Salary)
 Target Payment
(if 100% target
performance
achieved)
   Maximum
Payout—2 times
target
   Fiscal Year 2014
Payment (based
on actual
performance)
 

Timothy E. Guertin

   115 $0    $2,191,235    $1,095,618    $717,019  

Dow R. Wilson

   120 $1,134,000    $2,268,000     99

Elisha W. Finney

   80 $0    $891,238    $445,619    $273,807     83 $490,486    $980,972     99

Dow R. Wilson

   85 $0    $1,178,549    $589,274    $403,325  

Kolleen T. Kennedy

   75 $0    $750,000    $375,000    $257,599     83 $474,817    $949,635     98

Robert H. Kluge

   65 $0    $568,218    $284,109    $164,818  

John W. Kuo

   68 $294,921    $589,843     105

Sunny S. Sanyal (1)

   75 $360,000    $720,000     101

 

(1)Based on maximum for each NEO, calculated as twice their target participation level, which amountIn accordance with the terms of his new hire offer letter, Mr. Sanyal’s bonus for fiscal year 20122014 was lower than each NEO’s specified percentagecalculated using the same financial and non-financial performance measures used for the other NEOs, except that his bonus is subject to a minimum payout of the MIP Bonus Pool.$360,000 which was exceeded based on achievement of such measures.

For comparison purposes, the following table shows the historical pattern of MIP targets and payouts over the last five years.

Achievement against
Target Levels
(expressed in %):

 FY 2008  FY 2009  1st-Half of
FY 2010 (1)
  2nd-Half of
FY 2010 (1)
  FY 2011 (1)  FY 2012  Blended
(last 5 years)
 

Total-Company

   195   76   166   113   107   49  114
  Target  Achieved  Target  Achieved  Target  Achieved  Target  Achieved  Target  Achieved  Target  Achieved    

EBIT Growth:

  13.4  24.0  11.6  13.1  2.6  15.2  7.9  10.5  9.3  10.3  11.8  1.5 

Revenue Growth:

  10.5  17.9  11.4  7.0    9.7  6.8  10.5  10.2  11.3  7.9 

Net Orders Growth:

  9.1  14.5  12.4  3.4    8.5  13.2  8.3  11.2  9.0  5.2 

Return on Sales (2):

      20.8  22.6       

Oncology Systems

   200   122   193   82   86   44  118
  Target  Achieved  Target  Achieved  Target  Achieved  Target  Achieved  Target  Achieved  Target  Achieved    

EBIT Growth:

  10.2  21.0  10.2  17.1  4.6  18.6  3.2  0.4  11.9  9.8  9.7  1.2 

Revenue Growth:

  7.7  16.1  9.8  7.5    5.0  1.3  10.4  8.6  9.1  8.3 

Net Orders Growth:

  8.0  14.3  9.0  1.1    6.0  13.1  7.0  8.3  9.0  6.7 

Return on Sales (2):

      22.7  24.9       

X-Ray Products

   144   42   127   189   164   47  111
  Target  Achieved  Target  Achieved  Target  Achieved  Target  Achieved  Target  Achieved  Target  Achieved    

EBIT Growth:

  15.2  20.7  18.8  11.3  13.4  28.5  15.0  53.4  6.1  20.3  11.2  9.8 

Revenue Growth:

  14.0  18.6  16.4  8.7    19.0  31.2  11.1  16.4  11.3  3.6 

Net Orders Growth:

  13.7  23.5  12.8  0.7    10.2  20.0  11.0  15.3  12.9  3.2 

Return on Sales (2):

      23.0  24.0       

(1)Fiscal year 2010 and fiscal year 2011 Oncology Systems and X-Ray Products EBIT growth included an allocation of corporate expenses. Excluding the corporation expenses, EBIT growth rate would have been higher.

(2)Performance goal for first-half fiscal year 2010 only.

Our performance targets in fiscal year 2012 were challenging (particularly given how the market and economic conditions developed during the year). Despite our strong financial results for fiscal year 2012, our achievement fell below our pre-established performance targets and therefore resulted in below target level payout for fiscal year 2012. However, our overall performance over the last five years is still above target levels, as illustrated in the table above.

The following graph shows the correlation between total-Company achievement against MIP targets (expressed as a percentage of the target payouts) for each of the last five fiscal years and our stock price at the end of the fiscal year:

LOGO

Long-Term Incentives: Annually, the Compensation Committee reviews the prevalence of the different grant types and equity award mixes among our peers, and the number of shares that areremain available for grant under our the Varian Medical Systems, Inc. Third Amended and Restated 2005 Omnibus Stock Plan (“Third Amended Stock Plan and predecessor plans.Plan”).

In determining the appropriate equity grants, the Compensation Committee reviews our share usage based on several methodologies: (1) the annual share usage, both gross and net of forfeitures (“run rate”), (2) potential dilution as a percentage of fully diluted shares outstanding (“overhang”), and (3) the aggregate expense of grants as a percent of total-Company market capitalization, both gross and net of forfeitures—the Stockholder Value Transfer Rate (“SVT”). The Compensation Committee compares all three of these rates to competitive practices of our peer group. Although the Compensation Committee mainly relies on SVT-related analyses in connection with examining prior year grant levels (in terms of the raw number of shares granted) to determine overall grant size, it continues to review our share usage relative to run rate and overhang of peers. While it is difficult to make precise comparisons of equity grants practices among companies because of their different capital structures and different business particulars, the Compensation Committee believes that these measurements need to be taken into account in order to ensure that our equity grant practices remain competitive with our peer group. Our most recent information from FWC indicated that through calendar year 2012, our gross share usage was approximately at the median level of our

peer group. Our gross SVT was at the 75th percentile in calendar year 2012 because the peer levels had been declining year-over-year. As of June 29, 2012, our overhang from outstanding grants was below the 25th percentile of our peer group.

In addition, the Compensation Committee reviewsreviewed the competitive three-year average allocation of SVT to each peer’s top-five NEOs at the median and 75th percentile. The Compensation Committee used this data,percentiles, then current competitive grant values, relative pay equity considerations against other senior positions within the Company and individual performance, to determine the value of the equity grants the Compensation Committeeit made to both executive and non-executive employees on November 11, 2011. Evidencing its commitment to move even more compensation at the senior levels to at-risk, performance-based compensation, PSUs were introduced in fiscal year 2012 as part of the grant mix.2014.

The Compensation Committee’s practice is to make periodic grants of equity awards to eligible employees (including executive officers), which over the past three to fourfive years have been in approximately 15-12- to 18-months18-month intervals. We did not make any equity awards in

In fiscal year 2011, but made awards2014 the Compensation Committee granted long-term equity compensation to our NEOs and other senior officers of the Company in the form of PSUs, stock options and RSUs. The PSUs were granted on November 20, 2013 and the stock options and RSUs and PSUs in early fiscal year 2012, at the November 2011 meeting of the Compensation Committee.were granted on February 21, 2014.

Set forth below are the number of stock options, RSUs and PSUs (at threshold, target and maximum levels) stock options and RSUs awarded to the NEOs on November 11, 2011:the respective grant dates:

 

  Option Awards   RSUs   Performance Units       Option Awards   RSUs   PSUs 

Name

  #   #   Threshold (#)   Target (#)   Maximum (#)   (#)   (#)   Threshold (#)   Target (#)   Maximum (#) 

Timothy E. Guertin

   100,000     30,416     0     27,883     41,824  

Dow R. Wilson

   82,324     17,921     0     19,355     29,033  

Elisha W. Finney

   33,334     10,139     0     9,295     13,942     29,271     6,372     0     6,882     10,323  

Dow R. Wilson

   53,293     16,209     0     14,859     22,288  

Kolleen T. Kennedy

   23,056     7,013     0     6,429     9,643  

Robert H. Kluge

   33,334     10,139     0     9,295     13,942  

Kolleen Kennedy

   30,185     6,571     0     7,097     10,646  

John W. Kuo

   24,697     5,376     0     5,161     7,742  

Sunny S. Sanyal (1)

   53,511     5,795     —       —       —    

(1)Mr. Sanyal was hired on February 3, 2014, and was not yet an employee at the time of the November 20, 2013 PSU grant. In connection with his new hire offer, Mr. Sanyal received an equity award with an aggregate value of $1,460,000, consisting of two-thirds stock options and one-third RSUs. The stock options equated to a value of $1,055,089, and converted to 53,511 stock options based on the Black Scholes value of $19.73 on the grant date. The first one-third of the stock options vest 12 months from the grant date of February 21, 2014 and the remainder vest in equal monthly installments during the following 24-month period. The RSUs equated to a value of $485,042 and converted to 5,795 RSUs based on the fair market value of our common stock of $83.70 per share on the grant date. The RSUs vest and are settled in equal amount of shares of our common stock on the first, second and third anniversaries of the date of grant.

The first 33 1/3% of the stock options granted in November 2011February 2014 vest 12 months from the grant date and the remainder vest in equal monthly installments during the following 24-month period. The RSUs vest and are settled in equal amounts of shares of our common stock on November 21st of the first, second and third anniversaries of the date of grant. In both cases, a recipient must be employed by us throughout the vesting period for full vesting to occur, except in cases involving retirement, death or a change in control, where full or partial payoutsvesting are made depending on various circumstances.

The PSUs awarded on November 11, 201120, 2013 to the NEOs and certain other executives consist of the right to receive shares of common stock, based upon performance against pre-established performance metrics during a three-year performance period that ends at the end of fiscal year 2014.2016. Target and maximum PSUs are provided, with the number of shares earned on account of performance at the end of the three-year performance period between threshold and target or between target and maximum determined in accordance with specified performance curves. There is no payout at or below threshold. The number of shares to be awarded increases linearly from threshold to maximum level. The maximum is limited to 150% of the target PSUs. The PSUs will cliff-vest (i.e., 100% vests at one time) at the end of the three-year performance period provided the recipient is employed by us throughout the vesting period, except in cases involving retirement, death or change in control, where full or partial payouts are made depending on various circumstances.

The primary performance metric used to determine if and how many shares of our common stock are received pursuant to the PSUs is growth in fully diluted EPS from continuing operations, which is measured annually and averaged over the three fiscal years in the performance period. The secondary performance metric, which is applied as a modifier, is our relative TSR versus our peer group,the Dow Jones U.S. Medical Equipment Index. The index currently consists of approximately 40 companies including us. TSR is measured annually using a 90-calendar90

calendar day stock price average before the beginning and end of the three-year performance period. This modifier is limited to adjusting upward and downward the shares earned based on achievement against the primary performance metric by 25%, and is determined based on our percentile placement in the index. Based on market survey information, EPS (net income) and TSR were the most common performance metrics used in performance-based equity-based awards in the past few years. The Compensation Committee believed the advantages of selecting EPS

growth included that it was a highly visible indicator of performance and it was already tracked by investment analysts as a measure of corporateour performance. The Compensation Committee also believed pairing EPS with TSR supplied an external focus that complemented the internally focused EPS metric, directly aligning the executive’s interests with those of itsour stockholders (e.g.,stock price return).

The Compensation Committee will exclude the following items in calculating fully diluted EPS from continuing operations:operations applicable to the fiscal year 2014 PSU award:

 

Material change (defined as an impact of greater than or equal to three cents per share to EPS) in existing and/or new tax laws, unless the Company is required to restate a prior period included in the three-year performance period;

 

Any extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30 and/or in Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in our quarterly and annual reports for the applicable year;

 

The effect of any changes in accounting principles affecting the Company’s or a business unit’s reported results;

 

For any companies acquired during the three-year performance period, the impact is limited to 100% of the one-time acquisition costs and amortization expense of intangible assets in the entire three-year period, but only if the impact to earnings after taxes exceeds $1 million in any one year during the three-year performance period; and

 

Unplanned tax and legal settlements if the impact to EPS is greater than or equal to three cents per share.

The Compensation Committee will also excludestock options granted to NEOs on February 21, 2014 vest as to 33 1/3% of the shares covered by the option 12 months from the TSR calculation anydate of grant and the remainder vest in equal monthly installments during the following 24-month period. The RSUs vest and are settled in equal amounts of shares of our common stock on the first, second and third anniversaries of the companiesgrant date. In both cases, a recipient must be employed by us throughout the vesting period for full vesting to occur, except in the peer group thatcases involving retirement, death or a change in control, where full or partial vesting are not publicly traded at the end of the three-year performance period as a result of being acquired (including through a going-private transaction).made depending on various circumstances.

In determining the appropriate level of equity awards, the Compensation Committee compares the relative positioning of the NEOs against competitive benchmarking data. Given our unique equity grant cycle (approximately 15- to 18-month intervals in the past three to four years), both annualized and annual long-term incentive values were considered in the comparison.

The equity awards granted inon November 201120, 2013 for Mr. Guertin,Wilson, Ms. Finney, and Ms. Kennedy and Mr. Kuo positioned them between the median and the 75th percentile of the competitive data for long-term incentive award value. Although awards

Performance Stock Units Awarded Prior to 2014 and Earned in 2014

The three-year performance cycle for annual Performance Stock Units that were granted in our 2012 fiscal year ended on September 26, 2014. These PSUs vested based upon two performance criteria: (1) average EPS growth over the three-year period, and (2) our total shareholder return (TSR) relative to Mr. Wilson and Mr. Kluge positioned them abovea comparator group of 14 peer companies, including Varian. The average EPS growth over the 75ththree-year period was achieved at 6.4% versus the target of 12.5%, resulting in an initial payout 51% of target shares. This initial payout was then modified by a multiplier based on Varian’s TSR performance. Varian’s TSR for the three year period was at the 31st percentile of the competitive data for long-term incentive award value, the Compensation Committee considered that appropriate given each of their experience and contributions(+43% as compared to the successcomparator group median of their respective business units.+56%), which resulted in a modifier of 81%. Multiplying the 51% initial payout by the 81% modifier resulted in the PSUs being earned at approximately 41.3% of target.

Other Elements of Executive Compensation Program

Supplemental Retirement Contributions: In order to make retirement contributions that we cannotcould not contribute to eligible participants’ qualified 401(k) retirement accounts due to Internal Revenue Code limitations, we make contributions to the DCP for our executives, including the NEOs, and other highly compensated U.S. employees. Contributions are calculated based on a pre-established formula. Please refer to the narrative discussion following the Nonqualified Deferred Compensation Table in this Proxy Statement for more information about these contributions. We believe this to be a competitive benefit and necessary to attract and retain high-quality executives. Because an element of these DCP contributions reflects cash incentive compensation (i.e., actual awards under the MIP and EIP)MIP), these contributions partially reflect the individuals’ achievement of performance goals.

Stock Ownership Guidelines: In May 2000, the Compensation Committee adopted the Varian Medical Systems Executive Stock Ownership Program (the “Stock Ownership Program”) to further align the interests of

our officers with those of our other stockholders. The stock ownership guideline levels are based on the value of our common stock as multiples of base pay (i.e., number of shares multiplied by price per share divided by base salary) and have been revised upward since initial adoption. The multiples are set based upon each officer’s position, as follows:

 

Position

  Stock Ownership as a
Multiple of

Current Base Salary
 

CEO

   6x  

Next four most highly compensated executive officers

   3x  

Other corporate officers

   2x  

Under this program, stock ownership includes stock owned by the officers, unvested restricted stock and RSUs, as well as stock they individually hold in their 401(k) retirement accounts. Unexercised stock options and unvested PSUs are not included for purposes of determining stock ownership under this program.

Ownership levels are expected to be achieved within the later of: (i) five years of first becoming an officer, (ii) three years of an amendment increasing ownership levels with respect to any increase (our last amendment occurred in August 2010 for the CEO), or (iii) three years of the date that the new ownership levels apply to such individual due to a change in position or becoming an NEO. One-third of the ownership level is expected to be achieved within two-and-one-half years after an individual becomes subject to the ownership level.guidelines. Officers who have not yet reached their guideline levels are encouraged but not required, to retain 25%a portion of the net after-tax shares obtained from stock option exercises until the ownership guideline levels are met. Other than this, we currently do not require our officers to hold the stock obtained from exercising stock options, upon vesting of their restricted stockRSUs or settlement of other equity-based awards. As of the date of this Proxy Statement, all of the NEOs met the guidelines and/or are within the prescribed timeframe to meet these guidelines as set forth in the Stock Ownership Program.

Insider Trading Policy:Under our In February 2013, the Board approved revising the corporate insider trading policy purchasesto prohibit officers and directors from purchasing Company securities on margin and borrowing against Company securities, and prohibit officers, directors and other employees subject to the buyingquarterly blackout period from engaging in transactions in puts, calls, other derivatives and selling of puts and calls of VMS securities, while not legally prohibited, are discouraged and require advance consultation with our legal department.hedging transactions.

Tax Deductibility:Section 162(m) of the Internal Revenue Code does not let us deduct from our federal taxable income certain compensation paid to the CEO and the next three most highly compensated executive officers (other than our CFO) that is not performance-based to the extent it exceeds $1 million. Awards under the MIP and certain awards under the Third Amended Stock Plan and predecessor plans are intended to be fully deductible performance-based compensation under Section 162(m). However, because of the fact-based nature of the performance-based compensation exception and the limited binding guidance thereunder we cannot guarantee

that any compensation intended to qualify as deductible performance-based compensation under Code Section 162(m) so qualifies. The Compensation Committee believes that our interests are best served in certain circumstances by providing compensation that is not performance-based (such as salary, RSUs, perquisites and special cash incentives), which may be subject to this $1 million annual deductibility limitation under U.S. tax law.

Equity Grant Practices: The Compensation Committee typically approves grants of equity awards to selected newly hired individuals on the date of the first regularly scheduled quarterly meeting of the Compensation Committee following their date of hire. Special grants to continuing employees, such as for promotions or retention purposes, are grantedtypically approved on the date of the first regularly scheduled quarterly meeting of the Compensation Committee following the date on which the related event occurred. Regularly scheduled quarterly Compensation Committee meetings are typicallyusually held on the second FridayThursday of November February and May, and on the first Fridaythird Thursday of February and August, and are generally scheduled at least a year in advance. Scheduling decisions are made without regard to anticipated earnings or the release of other material non-public information by us. The date of grant of an equity award is the date of approval by the Compensation Committee. However, if on any date of grant our trading “blackout” is in effect or if our management knows of material, non-public information about us, any equity awards to be made will be granted effective as of the close of the business day after the

“blackout” “blackout” expires, or the close of the second business day after the public release of the material, non-public information, as applicable. Our “blackout” period lasts approximately nine weeks for each quarter and typically begins on the first business day of the third month of each fiscal quarter and ends two full business days after our quarterly earnings press release.

The exercise price of our stock options is the closing price of our common stock on the NYSE on the date of grant. If the date of grant falls on a day upon which the NYSE is closed, then the exercise price is the closing price of our common stock on the next trading date. Our Third Amended Stock Plan explicitly prohibits the re-pricingrepricing of stock options without prior stockholder approval.

Recoupment or Clawback of Certain Payments: In November 2008, the Board adopted a formal policy to recover certain incentive payments if we are required to restate our financial statements as a result of an executive officer engaging in misconduct or other violations of our Code of Business EthicsConduct that caused or partially caused the restatement. In the event of a restatement, the Board will review the conduct of the executive officer in relation to the restatement. If the Board determines that an executive officer has engaged in misconduct or other violations of our Code of Business Ethics,Conduct, the Board can, in its discretion, take appropriate action, to the extent not prohibited by applicable law, to remedy the misconduct, including, without limitation, seeking reimbursement of any portion of performance-based or incentive compensation paid or awarded to the executive that is greater than would have been paid or awarded if calculated based on the restated financial results. The policy uses the definition of “executive officer” set forth in Exchange Act regulations. Such action by the Board would be in addition to any other actions the Board or we may take under our other policies, as modified from time to time, or any actions imposed by law enforcement, regulators or other authorities. This recoupment policy is incorporated into the provisions of our MIP EIP and Third Amended Stock Plan.

Under our current stock option agreements, in the event an employee commences employment with a company that competes with us in any of our businesses, we may, in our sole discretion, terminate the stock option agreement, including the vesting of any options or other grants which remain unvested as of the date the employee commences employment with the competitor.

Change-in-Control Agreements

As explained in greater detail under “—Potential Payments upon Termination or Change in Control,” we currently have change-in-control agreements with 1210 executives, including our NEOs (excluding Mr. Guertin, whose change-in-control agreement terminated when he stepped down as President and CEO).NEOs. We entered into these agreements in order to attract and retain high-quality executives and to ensure that executives who might be involved in acquisition or merger discussions with another entity make the best decisions for us and our stockholders and are not unduly biased by the impact of such a transaction on their personal situations. These agreements do not influencefactor into our decisions surrounding the executive’s cash and equity compensation.

The change-in-control agreements are intended to provide an appropriate level of compensation for a specified time interval for executives who would likely be involved in activities regarding a change in control and are personally at risk for job loss in the event of a change in control. Our change-in-control agreements are “double-trigger” agreements, meaning that there must be a change in control event and to receive benefits under the agreement,agreements there must be a change-in-control event, the executive: (1) must be terminated by us or the successor company without cause within a specified time interval following a change in control, or (2) the executive must terminate employment for good reason, as defined in the agreements, within a specified time interval following a change in control. For more information about the agreements as well as a tabular summary of the potential payments that may be made to our NEOs, please refer to “—Potential Payments upon Termination or Change in Control.”

In fiscal year 2010, the Compensation Committee approved for future use new forms of change-in-control agreements that eliminate tax gross-up payments for excise taxes imposed by Section 280G of the Internal Revenue Code. The agreements incorporate a “best results” provision whereby the executive’s actual

change-in-control payment will be reduced to $1 below the threshold imposed under Section 280G (i.e., thereby not triggering excise tax) if the change-in-control payment after the imposition of the excise tax would otherwise result in a lesser amount. The new forms of change-in-control agreement will beare provided to the appropriate newly hired, appointed, promoted or demoted executives. When Mr. Wilson was promoted to Chief Operating Officer (and later when he was promoted to President and CEO)CEO at the beginning of fiscal year 2013 and Ms. Kennedy to the President of Oncology Systems position at the beginning of fiscal year 2012, they entered into the new form of change-in-control agreement applicable to his or hertheir respective position.

Stockholder Voting on Executive Compensation Practices

At our 2011 Annual Meeting of Stockholders, we conducted our first advisory vote on the compensation of our NEOs. Since stockholders owning more than 75% of the shares voting on the frequency of holding such votes indicated their preference that we hold such a vote annually, we have implemented such an annual vote.

Stockholders owning more than 90% of the shares voting at our 20122014 Annual Meeting of Stockholders voted to approve the compensation of our NEOs, which we have interpreted as encouraging us to maintain our current compensation philosophy. Should future voting outcomes vary, thephilosophy and practices. The Compensation Committee will consider thosethe result of future votes in making compensation decisions for the NEOs.

Compensation and Management Development Committee Report

The Compensation and Management Development Committee (the “Compensation Committee”) of the Board of Directors (the “Board”) of Varian Medical Systems, Inc. (the “Company”) has reviewed and discussed with management the “Compensation Discussion and Analysis” section of the Proxy Statement for the 20132015 Annual Meeting of Stockholders. Based on its review and discussions with management, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Company’sour Proxy Statement for the 20132015 Annual Meeting of Stockholders and Annual Report on Form 10-K.

Susan L. Bostrom (Chair)

R. Andrew Eckert

David IllingworthMark R. Laret

Ruediger Naumann-EtienneVenkatraman Thyagarajan

Relationship between Compensation Plans and Risk

In fiscal year 2012,2014, the Compensation Committee and management again conducted a comprehensiveits annual review of our compensation programs, including executive compensation and major broad-based compensation programs in which employees at various levels of the organization participate. The goal of this review was to assess whether any of our compensation programs, either individually or in the aggregate, would encourage executives or employees to undertake unnecessary or excessive risks that were reasonably likely to have a material adverse effect on us.the company.

The Compensation Committee and management reviewed an inventory of all of our variable pay and sales commission plans and considered the number of participants in each plan, the participant’s level within the organization, the target and maximum payment potential, the performance metrics under each plan and associated targets, and the type and mechanics of the plan and its purpose. The Compensation Committee concluded that none of the broad-based programs (base salary, spot bonuses, traditional sales commission or variable incentive arrangements) that extend to regular employees would likely encourage unnecessary or excessive risks.

The Compensation Committee and management also assessed the risks in those plans that were identified as having the potential to deliver a material amount of compensation to the executives, which were the annual and long-term incentive plans—the MIP the Second Amended and Restated 2005 Omnibus Stock Plan (the “Second Amended Stock Plan”) and the Third Amended Stock Plan—that are described earlier in “—Compensation Discussion and Analysis.” The risk assessment included, but was not limited to, analyzing the following items:

 

  

Whether there was effective balance in the plans (e.g., cash and equity mix, short- and long-term performance focus, etc.);.

 

Whether the performance goals contained in the plans were balanced (e.g., between corporate and business unit goals, between financial and qualitative goals) and potential payments were reasonable based on potential achievement of those goals at the threshold, target and maximum levels;

Whether the performance goals contained in the plans were balanced (e.g., between total-Company and business unit goals, between financial and qualitative goals) and potential payments were reasonable based on potential achievement of those goals at the threshold, target, and maximum levels.

 

When applicable, whether the relationship between performance objectives under the MIP and the performance-based stock awards were consistent with our stockholders’ interests as well as the objectives of our long-term incentives;

 

Whether the plans contained appropriate caps on individual awards and aggregate payments;payments.

 

Whether we had adopted meaningful risk mitigation, including stock ownership guidelines, clawbacks, and independent Compensation Committee oversight, relative to the plans; andplans.

In the case of the proton therapy system orders that we largely financed and then recorded in fiscal year 2012, whether or not the orders were appropriately included in the calculation of the MIP payout.

The Compensation Committee concluded that none of these plans would likely encourage unnecessary or excessive risks. The Compensation Committee and management also concluded that our executive compensation risk profile was reasonable, and that our strategy and programs do not pose a material risk due to a variety of mitigating factors. These factors include:

 

The Compensation Committee’s sole power to set short-term performance objectives for our annual incentive plans—MIP and EIP. The majority of the MIP objectives (representing 80% weight) included EBIT and other financial goals that the Compensation Committee believes are appropriately correlated with stockholder value;value.

 

The use of equity awards to foster employee retention and align our executive’s interests with those of our stockholders;stockholders.

 

Our practice of having a greater portion of incentive awards as long-term rather than short-term creates a greater focus on sustained company performance over time;time.

The use of several distinct long-term incentive vehicles—RSUs, stock options, and now PSUs that vest over a number of years (and in the case of PSUs, are tied to EPS and TSR), thereby providing strong incentives for sustained operational and financial performance balanced with growing total stockholder return;return.

 

Capping potential payouts under the annual incentive plans—MIP and EIP—in order to eliminate the potential for any windfalls;windfalls.

 

Compensation Committee discretion to adjust downward payouts under the MIP to reflect the core operating performance of our business;business.

 

A recoupment policy that allows us to recover cash and equity compensation of senior executives in the case of a material restatement of financial results due to the individual’s engaging in misconduct or other violations of our Code of Business EthicsConduct that caused or partially caused the restatement;restatement.

 

Stock ownership guidelines designed to align officer and stockholder interests over the long term.

As a result of this review, both the Compensation Committee and management concluded that our compensation policies and practices for our employees are structured so as not to encourage excessive risk-taking and do not create risks that are reasonably likely to have a material adverse effect on us.

Summary Compensation Table

The following table sets forth, together with certain other information, the compensation earned during fiscal years 2012, 20112014, 2013 and 20102012 by our NEOs and the principal position held by each during fiscal year 2012.2014.

 

Name and Principal Position

 Fiscal
Year
  Salary
($)
  Bonus
($)
  Stock
Awards ($)
(1)
  Option
Awards ($)
(2)
  Non-Equity
Incentive Plan
Compensation
($) (3)
  Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
  All Other
Compensation
($) (4)
  Total
($)
 

Timothy E. Guertin

  2012   $956,956    —     $  3,522,177   $  1,775,800   $733,508    —     $  131,316   $  7,119,757  

President and Chief

Executive Officer

  2011   $911,512    —      —      —     $  1,110,788    —     $155,778   $2,178,078  
  2010   $875,005    —     $1,761,035   $3,522,200   $1,379,077    —     $165,556   $7,702,872  

Elisha W. Finney

  2012   $557,704    —     $1,174,120   $647,520   $283,448    —     $84,344   $2,747,136  

Corporate Executive Vice President, Finance and Chief Financial Officer

  2011   $535,200    —      —      —     $456,877    —     $96,340   $1,088,418  
  2010   $520,000    —     $587,047   $1,278,393   $601,759    —     $102,749   $3,089,948  
         

Dow R. Wilson

  2012   $690,840    —     $1,876,996   $1,035,227   $415,324    —     $100,031   $4,118,418  

Corporate Executive Vice President and Chief Operating Officer

  2011   $623,716    —      —      —     $535,846    —     $96,341   $1,255,903  
  2010   $606,008   $106,696   $918,661   $1,597,996   $696,190    —     $101,105   $4,026,656  
         

Kolleen T. Kennedy

  2012   $505,770    —     $812,108   $447,867   $266,253    —     $66,247   $2,098,245  

Corporate Senior Vice President and President, Oncology Systems

         

Robert H. Kluge

  2012   $433,664    —     $1,174,120   $591,945   $172,383    —     $65,835   $2,437,947  

Corporate Senior Vice President and President, X-ray Products

  2011   $421,045    —      —      —     $367,910    —     $76,035   $864,991  
  2010   $412,048    —     $587,047   $1,174,073   $384,797    —     $74,448   $2,632,412  
         

Name and Principal Position

 Fiscal
Year
  Salary
($)
  Bonus
($)
(1)
  Stock
Awards ($)
(2)
  Option
Awards ($)
(3)
  Non-Equity
Incentive Plan
Compensation
($) (4)
  Change in
Pensions
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
  All Other
Compensation
($) (5)
  Total
($)
 

Dow R. Wilson

  2014   $934,616    —     $3,000,000   $1,230,250   $1,117,965    —     $161,167   $6,443,998  

President and Chief

  2013   $892,048    —     $3,000,035   $1,499,999   $792,446    —     $133,976   $6,318,505  

Executive Officer

  2012   $690,840    —     $1,876,996   $1,035,227   $415,324    —     $100,031   $4,118,418  

Elisha W. Finney

  2014   $586,975    —     $1,066,691   $577,537   $483,550    —     $101,658   $2,816,413  

Executive Vice

  2013   $569,235    —     $1,133,341   $566,659   $337,721    —     $89,562   $2,696,517  

President, Finance and

Chief Financial Officer

  2012   $557,704    —     $1,174,120   $647,520   $283,448    —     $84,344   $2,747,136  

Kolleen T. Kennedy

  2014   $566,991    —     $1,100,010   $451,085   $466,840    —     $87,710   $2,672,636  

Senior Vice President

  2013   $536,586    —     $1,066,630   $533,329   $383,552    —     $83,706   $2,603,803  

and President,

Oncology Systems (6)

  2012   $505,770    —     $812,108   $447,867   $266,253    —     $66,247   $2,098,245  

John W. Kuo

  2014   $429,858    —     $849,949   $487,289   $308,446    —     $73,422   $2,148,964  

Senior Vice President,

  2013   $412,708    —     $800,064   $399,992   $215,293    —     $78,238   $1,906,296  

General Counsel and

Corporate Secretary

  2012   $394,876    —     $383,917   $423,469   $157,177    —     $75,415   $1,434,854  

Sunny S. Sanyal

  2014   $313,846   $200,000   $485,042   $1,055,809   $365,127    —     $78,205   $2,498,029  

Senior Vice President

and President, Imaging

Components Business

         

 

(1)Mr. Sanyal received a bonus of $200,000 in connection with his joining the company.

(2)

This column represents the aggregate grant date fair value of RSU and PSU awards made to the NEO during fiscal yearyears 2014, 2013 and 2012, and the RSU award made in fiscal year 2010, computed in accordance with Accounting Standards Codification (“ASC”) 718, “Compensation—“Compensation—Stock Compensation” (“ASC 718”). The fair value for RSU awards was determined using the closing price of our common stock on the grant date multiplied by the number of

shares subject to the award. The fair value for PSU awards was based on the probable outcome of the performance conditions using the Monte Carlo simulation model on the date of grant with assumptions as set forth in Note 13 to the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal yearyears ended September 28, 2012, September 27, 2013 and September 26, 2014, excluding the effect of forfeitures. No such

The table below sets forth components of the fair value of the stock awards were made to our NEOs in fiscal year 2011.2014. The value of the PSU awards at grant date, assuming that the highest level of performance conditions will be achieved is also included. These amounts reflect our calculation of the value of these awards, and do not necessarily correspond to the actual value that may ultimately be realized by the NEOs.

The table below sets forth the components of the fair value of the stock awards made in fiscal year 2012. The value of the PSU awards at grant date, assuming that the highest level of performance conditions will be achieved is also included. These amounts reflect our calculation of the value of these awards, and do not necessarily correspond to the actual value that may ultimately be realized by the NEOs.

   Components of Stock Awards   PSU Fair  Value
at Highest Level
 

Name

  RSU Fair Value   PSU Fair Value   

Dow R. Wilson

  $1,499,988    $1,500,013    $2,250,019  

Elisha W. Finney

  $533,336    $533,355    $800,033  

Kolleen T. Kennedy

  $549,993    $550,018    $825,026  

John W. Kuo

  $449,971    $399,978    $599,966  

Sunny S. Sanyal

  $485,041     —       —    

 

   Components of Stock Awards   PSU Fair  Value
at Highest Level
 

Name

  RSU Fair Value   PSU Fair��Value   

Timothy E. Guertin

  $1,761,086    $1,761,090    $2,641,604  

Elisha W. Finney

  $587,048    $587,072    $880,577  

Dow R. Wilson

  $938,501    $938,494    $1,407,710  

Kolleen T. Kennedy

  $406,053    $406,056    $609,052  

Robert H. Kluge

  $587,048    $587,072    $880,577  

(2)(3)This column represents the aggregate grant date fair value of stock option awards granted to the NEO during each fiscal year 2014, computed in accordance with ASC 718, using the assumptions listed below for the applicable fiscal year. No such stock options were granted to our NEOs in fiscal year 2011.below.

 

For Mr. Guertin and Mr. Kluge:

  2012  2010 

Expected term (in years)

   4.26    4.38  

Risk-free interest rate

   0.7  1.8

Expected volatility

   37.0  37.7

Expected dividend yield

   —      —    

Weighted average fair value at grant date

  $17.76   $17.61  

For Ms. Finney, Mr. Wilson and Ms. Kennedy:

  2012  2010 

Expected term (in years)

   5.02    5.19  

Risk-free interest rate

   0.9%  2.1

Expected volatility

   37.0%  36.9

Expected dividend yield

   —      —    

Weighted average fair value at grant date

  $19.43   $19.18  

For more information on the determination of valuation assumptions we used with respect to stock option awards, please refer to the note on Employee Stock Plans in the notes to consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year in which the stock option was awarded. These amounts reflect our calculation of the value of these awards, and do not necessarily correspond to the actual value that may ultimately be realized by the NEOs.

For Ms. Finney, Mr. Sanyal and Mr. Kuo:

  2014 

Expected term (in years)

   4.52  

Risk-free interest rate

   1.36

Expected volatility

   25.07

Expected dividend yield

   —    

Weighted average fair value at grant date

  $19.73  

For Mr. Wilson and Ms. Kennedy:

  2014 

Expected term (in years)

   3.24  

Risk-free interest rate

   0.88

Expected volatility

   23.42

Expected dividend yield

   —    

Weighted average fair value at grant date

  $14.94  

 

(3)For more information on the determination of valuation assumptions we used with respect to stock option awards, please refer to the note on Employee Stock Plans in the notes to consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year in which the stock option was awarded. These amounts reflect our calculation of the value of these awards, and do not necessarily correspond to the actual value that may ultimately be realized by the NEOs.

(4)This column represents annual cash incentives paid under the MIPMIP. Amounts include the incentive payments deferred under the DCP. Please refer to the Grant of Plan-Based Awards Table and EIP. For fiscal year 2012, amounts paid were as follows:the Nonqualified Deferred Compensation Table below for more information.

 

Name

  MIP   EIP   MIP 

Timothy E. Guertin

  $717,019    $16,489  

Dow R. Wilson

  $1,117,965  

Elisha W. Finney

  $273,807    $9,641    $483,550  

Dow R. Wilson

  $403,325    $11,999  

Kolleen T. Kennedy

  $257,599    $8,654    $466,840  

Robert H. Kluge

  $164,818    $7,565  

John W. Kuo

  $308,446  

Sunny S. Sanyal

  $365,127  

Amounts include the incentive payments deferred under the DCP. Please refer to the Grant of Plan-Based Awards Table and the Nonqualified Deferred Compensation Table below for more information.

In accordance with the terms of his new hire offer letter, Mr. Sanyal’s cash incentive was subject to a minimum payout of $360,000, which was exceed based on achievement against the actual performance.

 

(4)(5)Set forth in the table below are the material components of the “All Other Compensation” column for fiscal year 2012.2014.

 

Name

 Company
Contributions
to 401(k)
 Company
Supplemental
Contributions Under
the Deferred
Compensation Plan
(A)
 Car Usage and
Related Expenses
 Company Match of
Charitable
Contributions
 Other
(B)
  Company
Contributions
to 401(k)
 Company
Supplemental
Contributions Under
the Deferred
Compensation Plan
(A)
 Car Usage and
Related  Expenses
 Company Match  of
Charitable
Contributions
 Other
(B)
 

Timothy E. Guertin

 $15,000   $85,883   $27,454   $2,500   $480  

Dow R. Wilson

 $15,600   $107,099   $21,313   $3,500   $13,655  

Elisha W. Finney

 $15,000   $35,192   $23,826   $6,846   $3,480   $15,600   $48,403   $23,913   $6,000   $7,742  

Dow R. Wilson

 $15,000   $54,340   $23,038    —     $7,653  

Kolleen T. Kennedy

 $14,816   $31,060   $16,202   $1,000   $3,168   $15,600   $46,359   $22,676    —     $3,076  

Robert H. Kluge

 $15,000   $22,005   $23,974   $2,000   $2,856  

John W. Kuo

 $14,911   $27,587   $26,855   $2,500   $1,569  

Sunny S. Sanyal

  —     $34,800    —      —     $43,405  

 (A)Amounts represent an estimate of the Company Supplemental Contributions under the DCP for 2012,2014, which will be made in January 2013.2015. The estimate is calculated based on the portion of the executive’s eligible cash compensation (determined by the sum of his or her calendar year 20122014 base salary through December 31, 20122014 and the actual fiscal year 20122014 cash incentive payout under the MIP and EIP)MIP) that exceeded the compensation limit imposed by Section 401(a)(17) of the Internal Revenue Code ($250,000260,000 for 2012)2014).

 (B)For Mr. Guertin,Wilson, the amount representsconsists of reimbursement for fitness training.of financial counseling, medical and life insurance. For Ms. Finney, the amount consists of reimbursement of financial counseling, annual medical examexamination, medical and gift card from participating in our wellness program.life insurance. For Ms. Kennedy, the amount represents medical and life insurance. For Mr. Wilson,Kuo, the amount represents reimbursement of financial counseling and life insurance. For Mr. Sanyal, the amount consists of reimbursement of financial counseling, annual medical exam and business meal reimbursement. For life insurance and relocation benefits of $32,284.

(6)Ms. Kennedy the amount represents reimbursement of financial counseling. For Mr. Kluge, the amount consists of reimbursement of financial counseling, business meal reimbursementwas promoted to Executive Vice President and gift card from participating in our wellness program. Reimbursement for fitness training and gift cards from participating in our wellness program are also available to all other U.S. employees.President, Oncology Systems, effective September 27, 2014.

Grants of Plan-Based Awards for 20122014

The following table provides information on plan-based awards made in fiscal year 20122014 to each of our NEOs.NEOs:

 

   Estimated Future 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)
  All Other
Option
Awards:
Number of
Securities
Underlying
Options (#)
(4)
  Exercise
or Base
Price of
Option
Awards
($/Sh)
  Grant
Date Fair
Value of
Stock and
Option
Awards
(5)
    Estimated Future Payouts
UnderNon-Equity Incentive

Plan Awards (1)
 Estimated Future Payouts
Under Equity Incentive

Plan Awards (2)
 All Other
Stock
Awards:
Number of
Shares of
Restricted
Stock
Units (#)
(3)
  All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#) (4)
  Exercise
or Base
Price of
Option
Awards
($/Sh)
  Grant
Date Fair
Value of

Stock and
Option
Awards
(5)
 

Name

 Grant
Date/Plan
 Threshold
($)
 Target ($) Maximum
($)
 Threshold
(#)
 Target
(#)
 Maximum
(#)
  Grant
Date/Plan
 Threshold
($)
 Target
($)
 Maximum
($)
 Threshold
(#)
 Target
(#)
 Maximum
(#)
 

Timothy E. Guertin

  MIP   $0   $1,095,618   $2,191,235    —      —      —      —      —      —      —    
  EIP   $0   $27,482   $54,964    —      —      —      —      —      —      —    

Dow R. Wilson

  MIP   $0   $1,134,000   $2,268,000    —     —      —     —     —     —     —   
  11/11/2011    —      —      —      0    27,883    41,824    —      —      —     $1,761,090    11/20/2013    —     —     —     0    19,355    29,033    —     —     —    $1,500,013  
  11/11/2011    —      —      —      —      —      —      30,416    —      —     $1,761,086    2/21/2014    —     —     —     —     —     —     17,921    —     —    $1,499,988  
  11/11/2011    —      —      —      —      —      —      —      100,000   $57.90   $1,775,800    2/21/2014    —     —     —     —     —     —     —     82,324   $83.70   $1,230,250  

Elisha W. Finney

  MIP   $0   $445,619   $891,238    —      —      —      —      —      —      —      MIP   $0   $490,486   $980,972    —     —     —     —     —     —     —   
  EIP   $0   $16,068   $32,136    —      —      —      —      —      —      —      11/20/2013    —     —     —     0    6,882    10,323    —     —     —    $533,355  
  11/11/2011    —      —      —      0    9,295    13,942    —      —      —     $587,072    2/21/2014    —     —     —     —     —     —     6,372    —     —    $533,336  
  11/11/2011    —      —      —      —      —      —      10,139    —      —     $587,048    2/21/2014    —     —     —     —     —     —     —     29,271   $83.70   $577,537  
  11/11/2011    —      —      —      —      —      —      —      33,334   $57.90   $647,520  

Dow R. Wilson

  MIP   $0   $589,274   $1,178,549    —      —      —      —      —      —      —    
  EIP   $0   $19,998   $39,996    —      —      —      —      —     ��—      —    
  11/11/2011    —      —      —      0    14,859    22,288    —      —      —     $938,494  
  11/11/2011    —      —      —      —      —      —      16,209    —      —     $938,501  
  11/11/2011    —      —      —      —      —      —      —      53,293   $57.90   $1,035,227  

Kolleen T. Kennedy

  MIP   $0   $375,000   $750,000    —      —      —      —      —      —      —      MIP   $0   $474,817   $949,635    —     —     —     —     —     —     —   
  EIP   $0   $14,423   $28,846    —      —      —      —      —      —      —      11/20/2013    —     —     —     0    7,097    10,646    —     —     —    $550,018  
  11/11/2011    —      —      —      0    6,429    9,643    —      —      —     $406,056    2/21/2014    —     —     —     —     —     —     6,571    —     —    $549,993  
  11/11/2011    —      —      —      —      —      —      7,013    —      —     $406,053    2/21/2014    —     —     —     —     —     —     —     30,185   $83.70   $51,085  
  11/11/2011    —      —      —      —      —      —      —      23,056   $57.90   $447,867  

Robert H. Kluge

  MIP   $0   $284,109   $568,218    —      —      —      —      —      —      —    

John W. Kuo

  MIP   $0   $294,921   $589,843    —     —     —     —     —     —     —   
  EIP   $0   $12,608   $25,217    —      —      —      —      —      —      —      11/20/2013    —     —     —     0    5,161    7,742    —     —     —    $399,978  
  11/11/2011    —      —      —      0    9,295    13,942    —      —      —     $587,072    2/21/2014    —     —     —     —     —     —     5,376    —     —    $449,971  
  11/11/2011    —      —      —      —      —      —      10,139    —      —     $587,048    2/21/2014    —     —     —     —     —     —     —     24,697   $83.70   $$487,289  

Sunny Sanyal

  MIP   $0   $360,000   $720,000    —     —     —     —     —     —     —   
  11/11/2011    —      —      —      —      —      —      —      33,334   $57.90   $591,945    2/21/2014    —     —     —     —     —     —     5,795    —     —    $485,042  
  2/21/2014    —     —     —     —     —     —     —     53,511   $83.70   $1,055,809  

 

(1)These columns show the potential value of the payout for each NEO under the MIP and EIP if the threshold, target or maximum goals were satisfied for all performance measures. The potential payouts are performance-driven and therefore completely at-risk. The performance goals and target percentages (as a percentage of base salary) for determining the payout under the MIP for each NEO are described in the Compensation Discussion and Analysis, and the performance goals for determining the payout under the EIP mirror the Company-level goals under the MIP.Analysis. Actual payouts are set forth in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table and in footnote 3 to that table.

 

(2)Consists of a single PSU grant to each NEO under the SecondThird Amended Stock Plan. Each PSU represents a right to one share of our common stock. The actual number of shares earned will be based upon actual performance against pre-established performance metrics during the three-year performance period that ends at the end of fiscal year 2014.2016. The maximum is limited to 150% of the target units. The PSU award cliff-vests (i.e.,100% vests at one time) at the end of a three-year performance period, provided the NEO is employed by us throughout the vesting period, except in cases involving retirement, death or change in control, where full or partial payments are made depending on various circumstances.

(3)

Consists of a single RSU grant to each NEO under the SecondThird Amended Stock Plan. Each RSU represents a right to one share of our common stock. The RSUs vest and are settled over a three-year period in equal increments on November 21February 15stth of each year thereafter, provided the NEO is employed by us throughout the vesting period, except in cases involving retirement, death or change in control, where full or partial payments are made depending on various circumstances.

 

(4)Consists of a single stock option grant to each NEO under the SecondThird Amended Stock Plan at an exercise price equal to the fair market value (i.e., closing price) of the underlying shares on the grant date and expiring seven years from the grant date. One-third of the award vests one year after the grant date and the remainder then vests monthly during the following 24-month period, provided the NEO is employed by us throughout the vesting period, except in cases involving retirement, death or change in control, where full or partial payments are made depending on various circumstances.

 

(5)Grant date fair value is computed in accordance with ASC 718.

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

Salary. During fiscal year 2012,2014, none of the NEOs had a written employment agreement with us, but were and remain “at-will” employees. The salaries for the NEOs in effect as of the beginning of calendar year 20122014 were as follows: Mr. Guertin, $952,711;Wilson, $945,000; Ms. Finney, $557,024; Mr. Wilson, $693,264; Mr. Kluge, $437,091; and$590,947; Ms. Kennedy, $500,000.$572,069; and Mr. Kuo, $433,708. Mr. Sanyal was hired on February 3, 2014 with a base salary of $480,000.

Bonus. For Mr. Wilson,None of the amountNEOs received a bonus (other than as set forth below under “—Non-Equity Incentive Plan Compensation”) in the “Bonus” columnfiscal years 2012 and 2013. In 2014, Mr. Sanyal received a sign-on bonus of the Summary Compensation Table represents a cash payment of $106,696 (in fiscal year 2010) as part of a $1.6 million total cash payment pursuant to Mr. Wilson’s offer letter dated September 17, 2004. The bonus was provided to partially offset certain payments that Mr. Wilson would have otherwise been eligible to receive from his former employer. The final payment was made in January 2010.$200,000.

Non-Equity Incentive Plan Compensation. The amounts in the “Estimated Future Payouts Under Non-Equity Incentive Plan” columns of the Grants of Plan-Based Awards Table represent the potential awards under the MIP, and the EIP, while the amounts in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table and in footnote 3 to that table represent the actual awards earned by the NEOs under the MIP and the EIP.MIP. As further discussed in “—Compensation Discussion and Analysis—Compensation At RiskFiscal year 2014 Salary, Annual Cash Incentive and Focus on Long-Term Performance—Long-term Incentive Discussions—Annual Cash Incentives,” for fiscal year 2012,2014, the Compensation Committee established a MIP Bonus Pool equal to 1.25% of the Company’s fiscal year 20122014 EBIT and fixed the following financial performance goals: growth in EBIT (40% weight), growth in revenue (20% weight) and growth in net orders (20% weight) on which 80% of the potential MIP amount was based. For each of the above performance measures, specific targets were set at the total-Company level and at our two largest business units, Oncology Systems andX-ray Products. In addition, 20% of the potential MIP amount was based on achievement of individual non-financial qualitative performance, with the achievement and payout determined inat the discretion of the Compensation Committee. Based on achievement of the applicable performance measures and the Compensation Committee’s determination of each NEO’s achievement of his or her qualitative goals, the actual payouts as a percentage of the target payout (or 100%) under the MIP were as follows:

 

Name

  MIP Payout as a  %
of Target (Fiscal
Year 2012)
2014)
 

Timothy E. GuertinDow R. Wilson

   65.499

Elisha W. Finney

   61.4

Dow R. Wilson

68.499

Kolleen T. Kennedy

   68.798

Robert H. KlugeJohn W. Kuo

   58.0105

Sunny S. Sanyal

101

See “—Compensation Discussion and Analysis—Compensation at RiskFiscal year 2014 Salary, Annual Cash Incentive and Focus on Long-Term Performance—Long-term Incentive Discussions—Annual Cash Incentives” for more information regarding the calculation.

The EIP is a Company-wide incentive plan through which eligible employees may receive award payouts denominated in numbers of hours. For each eligible employee, including the NEOs, base salary was converted to an hourly rate. Payout ranged from 0 hours to 120 hours (based on a 40-hour work week), with 60 hours being the target achievement level. The EIP performance goals were the same as the financial performance goals for the MIP at the total-Company level, but because there were no individual goals, the weightings were: growth in EBIT (50% weight), growth in revenues (25% weight) and growth in net orders (25% weight). The actual EIP payouts in fiscal year 2012 were 36 hours for each NEO. There is no payout at or below threshold. The maximum is limited to 200% of the target awards.

Stock and Option Awards. The awards of RSUs, PSUs and stock options are intended to motivate our executives relative to long-term performance as further described in “—Compensation Discussion and Analysis.”

All Other Compensation, Including Perquisites. The NEOs have also been extended certain perquisites, as follows:

 

Use of a leased automobile under our Executive Car Program. Under the Executive Car Program, we provide a leased vehicle costing up to $82,000 for the Chief Executive Officer and leased vehicles costing up to $68,000 for the other executives. Insurance, maintenance expenses and fuel costs are also included in the Executive Car Program. Participants have an option to purchase the vehicle at the end of its three-year lease period or upon retirement at the lower of its depreciated book value or its fair market value (based on the Kelley Blue Book Auto Market Report wholesale value). We will eliminate the Executive Car Program effective January 1, 2015.

Company Supplemental Contributions representing retirement contributions which could not be contributed by the Company to the executives’ qualified 401(k) retirement accounts due to Internal Revenue Code limitations, as further discussed under “—Nonqualified Deferred Compensation.”

 

Reimbursement for financial planning, estate planning, tax planning, tax return preparation and financial counseling services (to a maximum of $6,500 per year and unlimited for the Chief Executive Officer). We also reimburse certain individuals, including all executive officers and non-executive officers, for annual medical examinations (up to a maximum of $4,000 per year).

We do not permit our executives to use our fractionally owned aircraft for purely personal trips. However, we allow and include in the executive’s compensation, as applicable, aircraft use attributable to accompanying spousal aircraft travel when it is deemed valuable and appropriate for business purposes. In fiscal year 2014, there was no spousal travel.

Outstanding Equity Awards at Fiscal Year End

The following table sets forth the outstanding equity awards of the NEOs as of the end of fiscal year 2012:2014:

 

 Option Awards (1) (2) Stock Awards  Option Awards (1) (2) Stock Award (2) 

Name

 Option
Grant Date
 Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
 Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
 Option
Exercise
Price ($)
 Option
Expiration
Date
 Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
 Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($) (7)
 Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested ($)
 Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
($) (8)
  Option
Grant Date
 Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
 Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
 Option
Exercise
Price ($)
 Option
Expiration
Date
 Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
 Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($)
(10)
 Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
rights That
Have Not
Vested ($)
 Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested ($)
(10)
 

Timothy E. Guertin

  11/17/2005    50,000    —     $49.88    11/17/2015      

Dow R. Wilson

  11/17/2005    97,519    —     $49.88    11/17/2015      
  11/21/2006    125,000    —     $50.66    11/21/2016      
  11/21/2006    300,000    —     $50.66    11/21/2016        05/14/2010    83,334    —     $52.83    05/14/2017      
  2/15/2008    225,000    —     $52.61    2/15/2015        11/11/2011    50,332    2,961   $57.90    11/11/2018      
  2/13/2009    200,000    —     $37.17    2/13/2016        11/09/2012    47,992    30,542   $68.84    11/09/2019      
  5/14/2010    155,555    44,445   $52.83    5/14/2017        02/21/2014    —      82,324   $83.70    02/21/2021      
  11/11/2011    —      100,000   $57.90    11/11/2018             29,579(9)  $2,392,941    
       11,112(3)  $670,276           5,403(3)  $437,103    14,859(6)  $1,202,093  
       30,416(4)  $1,834,693           14,527(4)  $1,175,234    18,816(7)  $1,522,214  
         27,883(5)  $1,681,903         17,921(5)  $1,449,809    19,355(8)  $1,565,820  
  

 

  

 

    

 

  

 

  

 

  

 

   

 

  

 

    

 

  

 

  

 

  

 

 

Total

   930,555    144,445      41,528   $2,504,969    27,883   $1,681,903     404,177    115,827      67,430   $5,455,088    53,030   $4,290,128  
  

 

  

 

    

 

  

 

  

 

  

 

   

 

  

 

    

 

  

 

  

 

  

 

 

Elisha W. Finney

  11/17/2005    100,000    —     $49.88    11/17/2015        11/21/2006    41,000    —     $50.66    11/21/2016      
  11/21/2006    100,000    —     $50.66    11/21/2016        05/14/2010    51,667    —     $52.83    05/14/2017      
  2/15/2008    76,000    —     $52.61    2/15/2015        11/11/2011    31,482    1,852   $57.90    11/11/2018      
  2/13/2009    34,667    —     $37.17    2/13/2016        11/09/2012    18,130    11,538   $68.84    11/09/2019      
  5/14/2010    51,852    14,815   $52.83    5/14/2017        02/21/2014    —      29,271   $83.70    02/21/2021      
  11/11/2011    —      33,334   $57.90    11/11/2018             3,380(3)  $273,442    9,295(6)  $751,966  
       3,704(3)  $223,425           5,488(4)  $443,979    7,108(7)  $575,037  
       10,139(4)  $611,584           6,372(5)  $515,495    6,882(8)  $556,754  
         9,295(5)  $560,674    

 

  

 

    

 

  

 

  

 

  

 

 
  

 

  

 

    

 

  

 

  

 

  

 

 

Total

   362,519    48,149      13,843   $835,010    9,295   $560,674  
  

 

  

 

    

 

  

 

  

 

  

 

 

Dow R. Wilson

  11/17/2005    125,000    —     $49.88    11/17/2015      
  11/21/2006    125,000    —     $50.66    11/21/2016      
  2/15/2008    95,000    —     $52.61    2/15/2015      
  2/13/2009    8,519    —     $37.17    2/13/2016      
  5/14/2010    64,815    18,519   $52.83    5/14/2017      
  11/11/2011    —      53,293   $57.90    11/11/2018      
       29,579(6)  $1,784,205    
       5,797(3)  $349,675    
       16,209(4)  $977,727    
         14,859(5)  $896,295  
  

 

  

 

    

 

  

 

  

 

  

 

 

Total

   418,334    71,812      22,006   $1,327,403    14,859   $896,296     142,279    42,661      15,240   $1,232,916    23,285   $1,883,757  
  

 

  

 

    

 

  

 

  

 

  

 

   

 

  

 

    

 

  

 

  

 

  

 

 

Kolleen T. Kennedy

  2/15/2008    3,501    —     $52.61    2/15/2015        11/11/2011    —      1,281   $57.90    11/11/2018      
  2/13/2009    5,508    —     $37.17    2/13/2016        11/09/2012    —      10,859   $68.84    11/09/2019      
  5/14/2010    26,704    7,630   $52.83    5/14/2017        02/21/2014    —      30,185   $83.70    02/21/2021      
  11/11/2011    —      23,056   $57.90    11/11/2018             2,338(3)  $189,144    6,429(6)  $520,106  
       1,908(3)  $115,091           
5,165
(4) 
 $417,849    6,690(7)  $541,221  
       7,013(4)  $423,024           6,571(5)  $531,594    7,097(8)  $574,147  
         6,429(5)  $387,797    

 

  

 

    

 

  

 

  

 

  

 

 
  

 

  

 

    

 

  

 

  

 

  

 

 

Total

   35,713    30,686      8,921   $538,115    6,429   $387,797     —      42,325      14,074   $1,138,587    20,216   $1,635,474  
  

 

  

 

    

 

  

 

  

 

  

 

   

 

  

 

    

 

  

 

  

 

  

 

 

Robert H. Kluge

  11/21/2006    20,000    —     $50.66    11/21/2016      
  2/15/2008    30,500    —     $52.61    2/15/2015      
  2/13/2009    66,667    —     $37.17    2/13/2016      

John W. Kuo

  11/11/2011    —      1,212   $57.90    11/11/2018      
  5/14/2010    51,852    14,815   $52.83    5/14/2017        11/09/2012    1,163    8,145   $68.84    11/09/2019      
  11/11/2011    —      33,334   $57.90    11/11/2018        02/21/2014    —      24,697   $83.70    02/21/2021      
       3,704(3)  $223,425           2,211   $178,870    6,079   $491,791  
       10,139(4)  $611,584           3,874   $313,407    5,018   $405,956  
         9,295(5)  $560,674         5,376   $434,918    5,161   $417,525  
  

 

  

 

    

 

  

 

  

 

  

 

   

 

  

 

    

 

  

 

  

 

  

 

 

Total

   169,019    48,149      13,843   $835,010    9,295   $560,674     1,163    34,054      11,461   $927,195    16,258   $1,315,272  
  

 

  

 

    

 

  

 

  

 

  

 

   

 

  

 

    

 

  

 

  

 

  

 

 

Sunny S. Sanyal

  02/21/2014    —      53,511   $83.70    02/21/2021      
       5,795(5)  $468,816    —      —    
  

 

  

 

    

 

  

 

  

 

  

 

 

Total

   —      53,511      5,795   $468,816    —      —    
  

 

  

 

    

 

  

 

  

 

  

 

 

 

(1)All options are granted at an exercise price equal to the fair market value (i.e.(i.e., the closing price) of the underlying shares of our common stock on the date of grant. The following table sets forth the vesting dates for the outstanding unvested option awards:

 

Grant Date  General Vesting Schedule (based on originaloutstanding option awards)

5/14/2010

33-1/3% vested on 5/14/2011; pro-rata monthly thereafter until fully vested on 5/14/2013

11/11/2011

  33-1/3% vested on 11/11/2012; pro-rata monthly thereafter until fully vested on 11/11/2014

11/9/2012

33-1/3% vested on 11/9/2013; pro-rata monthly thereafter until fully vested on 11/11/2015

2/21/2014

33-1/3% vested on 2/21/2015; pro-rata monthly thereafter until fully vested on 2/21/2017

 

(2)Vesting will occur only if the NEO is employed by us throughout the vesting period, except in cases involving retirement, death or change in control, where full or partial payments are made depending on various circumstances. In particular, because each of Mr. GuertinWilson and Mr. Kluge isMs. Kennedy are eligible for retirement, certain unvested options, and unvested RSUs and PSUs,stock awards would continue to vest according to the original vesting schedule even if the services of either were terminated for any reason. See “—Potential Payments Upon Termination or Change in Control.”

 

(3)Grant Date    Vesting Schedule (based on outstanding awards)

5/14/2010

100%on 5/18/2013

(4)Grant DateVesting Schedule (based on outstanding awards)total RSU awards granted)

 

11/11/2011

  

33%-1/3%on 11/21/2012; 33%-1/3% on 11/21/2013 and 33-1/3% on 11/21/2014

(4)Grant DateVesting Schedule (based on total RSU awards granted)

11/9/2012

33%-1/3%on 11/21/2014 and 33-1/3% on 11/21/2015

 

(5)Grant Date    Vesting Schedule (based on outstanding RSU awards)

 

11/11/2011

2/21/14
  100%

33%-1/3%on 11/11/2014, subject to actual performance2/15/2015; 33%-1/3% on 2/15/2016 and continued service or retirement. The aggregate market value showed in the table is based33-1/3% on target performance since actual performance in fiscal year 2012 exceeded threshold performance.2/15/2017

 

(6)Grant Date    Vesting Schedule (based on outstanding PSU awards)

 

11/11/2011100% on 11/11/2014. The aggregate market value in the table represents shares earned under the fiscal year 2012 PSU awards based on the Company’s performance through the end of the three-year performance period. These shares vested on 11/11/2014 upon certification of the performance goals by the Compensation Committee.

(7)Grant DateVesting Schedule (based on outstanding PSU awards)

11/9/2012100% on 11/9/2015, subject to actual performance and continued service or retirement. The aggregate market value in the table is based on target performance since actual performance in fiscal years 2014 and 2013 exceeded threshold performance.

(8)Grant Date    Vesting Schedule (based on outstanding PSU awards)

11/20/13100% on 11/20/2016, subject to actual performance and continued service or retirement. The aggregate market value in the table is based on target performance since actual performance in fiscal year 2014 exceeded threshold performance.

(9)Grant DateVesting Schedule (based on outstanding Restricted Stock awards)

1/10/2005

  50% on 1/10/2015 and 50% on 1/10/2020

 

(7)(10)Based on the closing price of our common stock as of September 28, 201226, 2014 ($60.32)80.90).

Option Exercises and Stock Vested

The following table sets forth the number of shares acquired on stock option exercises and vesting of RSUs by each of the NEOs during fiscal year 2012.2014. The table also presents the value realized upon such exercises and vesting, as calculated, in the case of stock options, based on the difference between the market price of our common stock at exercise and the option exercise price and, in the case of restricted stock and RSUs, based on the closing price per share of common stock on the NYSE on the vesting date. Amounts presented in the “Valued Realized on Vesting” column under “Stock Awards” do not necessarily mean that the NEO has actually sold the vested shares for cash.

 

   Option Awards   Stock Awards 

Name

  Number of Shares
Acquired on
Exercise (#)
   Value Realized Upon
Exercise ($)
   Number of Shares
Acquired on
Vesting (#)
   Value Realized
on Vesting ($)
 

Timothy E. Guertin

   150,000    $2,689,405     22,223    $1,415,830  

Elisha W. Finney

   85,000    $2,125,690     16,208    $972,244  

Dow R. Wilson

   10,000    $322,529     10,426    $661,419  

Kolleen T. Kennedy

   1,900    $50,977     6,960    $421,334  

Robert H. Kluge

   —       —       11,008    $676,624  

   Option Awards   Stock Awards 

Name

  Number of Shares
Acquired on
Exercise (#)
   Value Realized Upon
Exercise ($)
   Number of Shares
Acquired on
Vesting (#)
   Value Realized
on Vesting ($)
 

Dow R. Wilson

   95,000    $2,515,667     12,666    $952,483  

Elisha W. Finney

   160,000    $4,658,648     6,124    $460,525  

Kolleen T. Kennedy

   24,750    $373,765     4,920    $369,984  

John W. Kuo

   20,111    $382,521     4,147    $311,854  

Sunny S. Sanyal

   —       —       —       —    

Nonqualified Deferred Compensation

The following table sets forth contributions, earnings and distributions during fiscal year 2012,2014, and account balances as of September 28, 201226, 2014 for each of the NEOs, under our nonqualified DCP:

 

Name

  Executive
Contributions
in Last Fiscal
Year
 Registrant
Contributions
in Last Fiscal
Year (2)
   Aggregate
Earnings
in Last Fiscal
Year (3)
   Aggregate
Withdrawals/
Distributions
   Aggregate
Balance at
Last Fiscal
Year End (4)
   Executive
Contributions
in Last Fiscal
Year
 Registrant
Contributions
in Last Fiscal
Year (2)
   Aggregate
Earnings
in Last Fiscal
Year (3)
   Aggregate
Withdrawals/
Distributions
   Aggregate
Balance at
Last Fiscal
Year End (4)
 

Timothy E. Guertin

   —     $107,445    $1,169     —      $865,393  

Dow R. Wilson

     $86,247    $7,539        $480,585  

Elisha W. Finney

  $104,307(1)  $45,161    $391,794     —      $2,452,032    $84,430(1)  $39,387    $387,836        $3,610,566  

Dow R. Wilson

   —     $56,138    $5,213     —      $330,160  

Kolleen T. Kennedy

  $208,446(1)  $23,480    $415,257     —      $2,809,881    $369,636(1)  $40,716    $338,324        $4,233,970  

Robert H. Kluge

   —     $32,836    $805,007     —      $5,201,900  

John W. Kuo

  $107,646(1)  $9,721    $119,604        $1,546,121  

Sunny S. Sanyal

                   

 

(1)These amounts represent a portion of the fiscal year 20112013 MIP and EIP payments paid in November 2011the first fiscal quarter of fiscal year 2014 that was deferred by the NEO into the DCP.

 

(2)These amounts represent Company Supplemental ContributionsCjontributions (as described below) attributable to fiscalcalendar year 20112013 made by the Company in January 2012.2014.

 

(3)None of the earnings in this column are included in the Summary Compensation Table because they were not preferential or above market.

 

(4)Balance at last fiscal year end includes the following amounts reported as compensation to the NEOs in the Summary Compensation Table for previous years: Mr. Guertin, $663,629;Wilson, $386,800; Ms. Finney, $1,295,249; Mr. Wilson, $263,218;$3,098,912; Ms. Kennedy, $3,485,294; and Mr. Kluge, $1,382,072.Kuo, $1,309,150.

Our DCP is an unfunded and unsecured deferred compensation arrangement that is designed to allow directors, executive officers and certain other management and highly compensated employees to forego current compensation and defer a specified percentage of their base salaries (up to 50%), cash incentive payments (up to 100%) and director fees (applicable only to our non-employee directors) in a manner similar to the way in which our 401(k) plan operates, but without regard to the maximum deferral limitations imposed on 401(k) plans by the Internal Revenue Code. Deferred amounts are our general unsecured obligations and are subject to claims by our creditors. Our general assets or assets in an existing rabbi trust may be used to fund our payment obligations and

pay DCP benefits. The Compensation Committee administers the DCP. Additionally, in order to make retirement contributions that we could not contribute to eligible participants’ qualified 401(k) retirement accounts due to Internal Revenue Code limitations, in fiscal year 2012,2014, we made Company Supplemental Contributions equal to the product of (a) the excess of the participant’s base annual salary and any applicable incentive payments for fiscal year 20112014 over the compensation limit imposed by Section 401(a)(17) of the Internal Revenue Code ($245,000)260,000); and (b) our matching contribution rate under the 401(k) (6%). Further, we may, on a discretionary basis, credit additional amounts on behalf of the DCP’s participants (these discretionary contributions, together with the Company Supplemental Contributions, are referred to as “Company Contributions”).

Amounts deferred by a participant and Company Contributions are credited to a bookkeeping account maintained on behalf of each participant. These bookkeeping accounts are utilized solely as a device for measuring and determining amounts to be paid to a participant, or his or her designated beneficiary, pursuant to the terms of the DCP. Amounts credited to each participant under the DCP are periodically adjusted for earnings and/or losses at a rate that is equal to the various investment funds (also referred to as measurement funds) selected by the Compensation Committee, as elected by the participant. The Compensation Committee may, in its sole discretion, discontinue, substitute or add a measurement fund. Participants may reallocate previously invested money among each of the available measurement funds on a daily basis. Under the DCP, a participant may make separate distribution elections with respect to each year’s deferrals. These distribution elections include the ability to elect a single lump-sum payment or installment payments for up to 15 years for employees who retire from the Company. Deferrals also may be paid out prior to separation from service in the event of a financial hardship or if the participant makes a “short-term distribution election.” A “short-term distribution election” must be made at the time

the participant makes his or her initial deferral elections. Under the DCP, amounts credited as Company Supplemental Contributions are generally paid in the form of a lump sum following a participant’s separation from service (except for those Company Supplemental Contributions made prior to December 31, 2004, which may still be paid in installments upon an employee’s retirement). Non-retirement separations from service generally will result in payments being made in the form of single lump sums.

We may terminate the DCP by action of the Board, in which event benefits will be distributed as soon as the plan and Section 409A of the Internal Revenue Code permit.

Potential Payments upon Termination or Change in Control

The tables below show certain potential payments that would have been made to an NEO had the termination hypothetically occurred on the last business day of fiscal year 20122014 (i.e., September 28, 2012)26, 2014) under various scenarios, including a change in control. The potential payments were determined under the terms of our plans and arrangements in effect on September 28, 2012.26, 2014. The tables do not include the nonqualified deferred compensation that would be paid to an NEO, which is set forth in the Nonqualified Deferred Compensation Table above, which each such NEO would receive in the event of any termination. In addition, the tables do not include the value of vested but unexercised stock options as of September 28, 201226, 2014 which could generally be exercised in the event of any termination.

The footnotes to the tables describe the assumptions used in estimating the amounts set forth in the tables, which in all cases do not give effect to the exercise of our recoupment policy. Because the payments to be made to an NEO depend on several factors, the actual amounts to be paid out upon an NEO’s termination of employment can only be determined at the time of the NEO’s separation from us.

An outline of the various termination scenarios and the potential payments that are made to the NEOs in each scenario (under the terms of our plans and arrangements in effect on September 28, 2012)26, 2014) appears after the tables and footnotes. Mr. Guertin’s change-in-control agreement terminated when he stepped down as our President and CEO as of September 28, 2012.

 

 Potential Payments Upon Termination of Employment/CIC as of 9/28/12 - Timothy E. Guertin  Potential Payments Upon Termination of Employment/CIC as of 9/26/14—Dow R. Wilson 
     Intrinsic Value of
Accelerated Equity
Awards (2)
          Intrinsic Value of
Accelerated Equity
Awards (3)
       

Termination Scenario

 Cash
Severance (1)
 Benefit
Continuation
 Options Restricted
Stock and
RSUs
 PSUs 280G Excise
Tax  Gross

Up
 Total  Cash
Severance (1)
 Benefit
Continuation (2)
 Options Restricted
Stock and
RSUs
 PSUs (4) 280G Excise
Tax Gross
Up
 Total 

Death

 $0   $0   $574,893(3)  $2,504,969(3)  $1,681,903(3)  —   $4,761,765   $0   $0   $436,440   $5,455,088   $3,088,034    —    $8,979,560  

Change in Control Termination (4)

 $6,144,988(5)  $192,754(6)  $574,893   $2,504,969   $1,681,903   —   $11,099,507   $6,010,455(5)  $66,626   $436,440   $5,455,088   $3,088,034    —    $15,056,642  

Termination with Cause

 $0   $0    —      —      —     —   $0   $0   $0    —     —     —     —    $0  

All Other

 $0   $0   $574,893(7)  $2,504,969(7)  $1,681,903(7)  —   $4,761,765   $0   $0    —     —     —     —    $0  
 Potential Payments Upon Termination of Employment/CIC as of 9/28/12 - Elisha W. Finney  Potential Payments Upon Termination of Employment/CIC as of 9/26/14—Elisha W. Finney 
     Intrinsic Value of
Accelerated Equity
Awards (2)
          Intrinsic Value of
Accelerated Equity
Awards (3)
       

Termination Scenario

 Cash
Severance (1)
 Benefit
Continuation
 Options Restricted
Stock and
RSUs
 PSUs 280G Excise
Tax Gross
Up
 Total  Cash
Severance (1)
 Benefit
Continuation (2)
 Options Restricted
Stock and
RSUs
 PSUs (4) 280G Excise
Tax Gross
Up
 Total 

Death

 $0   $0   $191,633(3)  $835,010(3)  $560,674(3)  —   $1,587,317   $0   $0   $534,753   $1,232,916   $1,131,791    —    $2,899,460  

Change in Control Termination (4)

 $2,548,719(5)  $133,078(6)  $191,633   $835,010   $560,674   —   $4,269,113   $2,703,583   $109,111   $534,753   $1,232,916   $1,131,791    —    $5,712,152  

Termination with Cause

 $0   $0    —      —      —     —   $0   $0   $0    —     —     —     —    $0  

All Other

 $0   $0    —      —      —     —   $0   $0   $0    —     —     —     —    $0  
 Potential Payments Upon Termination of Employment/CIC as of  9/26/14—Kolleen T. Kennedy 
     Intrinsic Value of
Accelerated Equity
Awards (3)
       

Termination Scenario

 Cash
Severance (1)
 Benefit
Continuation (2)
 Options Restricted
Stock and
RSUs
 PSUs (4) 280G Excise
Tax Gross
Up
 Total 

Death

 $0   $0   $160,423   $1,138,587   $1,115,368    —    $2,414,377  

Change in Control Termination (4)

 $2,617,214   $29,905   $160,423   $1,138,587   $1,115,368    —    $5,061,496  

Termination with Cause

 $0   $0    —     —     —     —    $0  

All Other

 $0   $0    —     —     —     —    $0  
 Potential Payments Upon Termination of Employment/CIC as of 9/26/14—John W. Kuo 
     Intrinsic Value of
Accelerated Equity
Awards (3)
       

Termination Scenario

 Cash
Severance (1)
 Benefit
Continuation (2)
 Options Restricted
Stock and
RSUs
 PSUs (4) 280G Excise
Tax Gross
Up
 Total 

Death

 $0   $0   $126,105   $927,195   $823,481    —    $1,876,781  

Change in Control Termination (4)

 $1,821,573   $58,809   $126,105   $927,195   $823,481    —    $3,757,262  

Termination with Cause

 $0   $0    —     —     —     —    $0  

All Other

 $0   $0    —     —     —     —    $0  

 Potential Payments Upon Termination of Employment/CIC as of 9/28/12 - Dow R. Wilson  Potential Payments Upon Termination of Employment/CIC as of 9/26/14—Sunny S. Sanyal 
     Intrinsic Value of
Accelerated Equity
Awards (2)
          Intrinsic Value of
Accelerated Equity
Awards (3)
     

Termination Scenario

 Cash
Severance (1)
 Benefit
Continuation
 Options Restricted
Stock and
RSUs
 PSUs 280G Excise
Tax Gross
Up
 Total  Cash
Severance (1)
 Benefit
Continuation (2)
 Options Restricted
Stock and
RSUs
 PSUs (4) 280G Excise
Tax Gross
Up
 Total 

Death

 $0   $0   $267,676(3)  $1,327,402(3)  $896,295(3)  —   $2,491,373   $0   $0    —    $468,816   $0    —    $468,816  

Change in Control Termination (4)

 $3,206,346(5)  $97,844(6)  $267,676   $3,111,607   $896,295   —   $7,579,768   $1,813,838(6)  $57,143    —    $468,816   $0    —    $2,339,797  

Termination with Cause

 $0   $0    —      —      —     —   $0   $0   $0    —     —     —     —    $0  

All Other

 $0   $0    —      —      —     —   $0   $0   $0    —     —     —     —    $0  
 Potential Payments Upon Termination of Employment/CIC as of 9/28/12 - Kolleen T. Kennedy 
     Intrinsic Value of
Accelerated Equity
Awards (2)
     

Termination Scenario

 Cash
Severance (1)
 Benefit
Continuation
 Options Restricted
Stock and
RSUs
 PSUs 280G Excise
Tax Gross
Up
 Total 

Death

 $0   $0   $112,944(3)  $538,115(3)  $387,797(3)  —   $1,038,856  

Change in Control Termination (4)

 $2,187,763(5)  $60,167(6)  $112,944   $538,115   $387,797   —   $3,286,786  

Termination with Cause

 $0   $0    —      —      —     —   $0  

All Other

 $0   $0    —      —      —     —   $0  
 Potential Payments Upon Termination of Employment/CIC as of 9/28/12 - Robert H. Kluge 
     Intrinsic Value of
Accelerated Equity
Awards (2)
     

Termination Scenario

 Cash
Severance (1)
 Benefit
Continuation
 Options Restricted
Stock  and
RSUs
 PSUs 280G Excise
Tax  Gross

Up
 Total 

Death

 $0   $0   $191,633(3)  $835,010(3)  $560,674(3)  —   $1,587,317  

Change in Control Termination (4)

 $1,849,636(5)  $76,281(6)  $191,633   $835,010   $560,674   —   $3,513,234  

Termination with Cause

 $0   $0    —      —      —     —   $0  

All Other

 $0   $0   $191,633(7)  $835,010(7)  $560,674(7)  —   $1,587,317  

 

(1)In all cases, if termination of an NEO occurred on the last business day of fiscal year 2012, he or she would receive salary through that date and a full year payout under the MIP and EIP against targets set for fiscal year 2012. The actual payments under the MIP and EIP made for fiscal year 2012 are reported in footnote 3 to the Summary Compensation Table.

(2)Based on the closing stock price as of September 30, 2012 ($60.32).

(3)In the event of death, unexercisable options become fully exercisable, and unvested RSUs and unvested PSUs become fully vested.

(4)In the event of termination by the Company without cause or by the NEO for good reason following a “change in control,” the NEO is entitled to the payments set forth in the columns and notes labeled (5) and (6), and all unexercised options become fully exercisable and unvested RSUs and PSUs become fully vested. PSUs also become fully vested at the target level (i.e., the performance conditions no longer apply). Delivery of the shares underlying the RSUs and PSUs is deferred to the original vesting date.

(5)Cash severance equal to 2.5 times (3.0 times for Mr. Guertin)Wilson) the sum of (i) annual base salary rateplus (ii) the greater of (a) the most recently established target annual bonus or (b) average annual bonus paid over the prior three fiscal years. Does not include bonus for year of termination which would be payable in connection with termination in all events as described under “—Other Potential Post- Employment Payments.”

 

(6)(2)Value of payment assumes the costs to the Company from the following:

 

 a)a.Medical, dental and vision insurance (assuming that the executives’ pay employee’sexecutive pays employee contribution rates for continuing these coverage for 24 months).

 

 b)b.

Life insurance cost is calculated based on the cost of converting basic life insurance coverage into an individual policy and “porting” the supplemental life insurance coverage (maximum amount that can be

“ported” is $1 million, with any excess eligible for conversion). The actual conversion rates are subject to change when/if conversion actually takes place.

coverage.

 

 c)c.Basic Accidental Death and& Dismemberment cost is calculated based on the cost of converting to an individual policy (maximum amount that can be converted is $250,000).policy.

 

 d)d.Financial/tax counseling of $6,500 per year.

Amount assumes 24 months of benefits continuation at calendar year 2012 costs for 3 months and calendar year 2013 rates for the additional 21 months. Because costs vary depending upon circumstances and eligibility, amount does not include coverage under the Varian Medical Systems, Inc. Disability Plan.

(3)Based on the closing stock price as of September 26, 2014 ($80.90).

 

(7)(4)RepresentsExcludes value of unvested stock options and unvested RSUs and PSUs earned for fiscal year 2014 performance.

(5)Includes a $226,545 cutback in cash severance that would continueoccur to vest accordingavoid triggering the 280G excise tax, because doing so would leave Mr. Wilson in a better after tax position.

(6)Includes a $286,162 cutback in cash severance that would occur to avoid triggering the original vesting schedule280G excise tax, because the individual is retirement eligible.doing so would leave Mr. Sanyal in a better after tax position.

In general, a “change in control” occurs when (a) a person or entity becomes the beneficial owner of 30% or more of our voting power, (b) “continuing directors”—generally those already on the Board or nominated by those on the Board—are no longer a majority of the Board’s directors, (c) we engage in a merger or similar transaction after which our stockholders do not hold more than 50% of the resulting company or (d) we dissolve, liquidate or sell all or substantially all of our assets. The officers agree not to voluntarily leave us when we are faced with a transaction that might result in a change in control.

Under change-in-control agreements with senior executives, including the NEOs, we will pay to any of these executives who are terminated other than for death, “disability,” “retirement,” or “cause” or who resign due to “good reason” (as each of those terms are defined in the agreements) within 18 months after a change in control (as defined in the agreements), a lump sum severance amount equal to 3.0 (in the case of the CEO), 2.5 (in the case of our other NEOs) or 2.0 (in the case of other key employees) times the sum of the individual’s then-current annual base salary, plus the greater of (a) the individual’s most recently established target annual bonus, or (b) the average annual bonus that was paid to the individual in the three fiscal years (or lesser number of full fiscal years completed by the individual) ending before the termination date. The termination payments and benefits under the agreements may also be triggered under certain circumstances following a change in control (as defined in the agreements), as determined under the agreements. “Cause” includes, generally, willful failure to perform one’s duties, fraud and certain wrongful acts, felony convictions and court or regulatory orders requiring termination. “Good reason” includes, generally, a material change in duties or material reduction in

authority or responsibility, a reduction in total compensation except when an equivalent reduction occurs for the entire class of other similar executives, a material change in employee benefits, relocation and certain breaches of the agreement by us.

In addition, under the agreements, if an individual is terminated under the circumstances described above, then unvested stock options and RSUs will fully vest as of the individual’s termination date. The individual will become eligible for the full target award provided under the PSU (i.e., the performance conditions of the performance award will no longer apply), but the individual must wait until the time at which vesting would normally occur (i.e., at the end of the three-year performance period from the original grant date) to obtain delivery of the shares. While the RSUs will fully vest as of the individual’s termination date, the individual must also wait until the original vesting date to obtain delivery of the shares. In addition, we will continue certain insurance and other benefits of the individual under the then-existing terms for up to 24 months (or, if earlier, the start of full-time employment with a new employer), pay the individual a lump sum pro-rata bonus at target for the applicable performance period(s) in which the termination occurs, and provide the individual an election to purchase the automobile leased under the Executive Car Program, if any.

The agreements also provide for certain death and long-term disability benefits in the event of an individual’s death or disability within 18 months after a change in control. Payments and benefits may be delayed six months following separation from service in order to comply with Section 409A of the Internal Revenue Code.

Under our existing change-in-control agreements with NEOs other than Mr. Wilson and Ms. Kennedy, if any payments or benefits (including those under these agreements) would result in the imposition of an excise tax imposed

by Section 280G of the Internal Revenue Code and the amount of such payments and benefits exceeds the threshold limit imposed by 280G by 10% or more, then the individual will receive an additional payment in an amount that will place the individual in the same after-tax economic position that the individual would have been in but for the imposition of the excise tax. If the amount of such payments and benefits exceeds the threshold limit by less than 10%, then the amount received by the individual will instead be reduced so that the aggregate payments and benefits to be received by the individual will be $1 less than the threshold imposed under Section 280G. Mr. Guertin’s change-in-control agreement terminated when he stepped down as President and CEO at the end of fiscal year 2012.

In fiscal year 2010, the Compensation Committee approved for future use new forms of change-in-control agreements that eliminated the additional associated with excise tax imposed by Section 280G of the Internal Revenue Code. The new forms of agreement contain a “better of” provision whereby the executive’s actual change-in-control payment will be reduced to $1 below the threshold imposed under Section 280G (i.e., thereby not triggering excise tax) if the change-in-control payment after the imposition of the excise tax would otherwise result in a lesser amount. The Compensation Committee did not amend the existing change-in-control agreements with executives at that time, but provided that if any of them get promoted or demoted into a position eligible for a change-in-control agreement, the new form of change-in-control agreement would replace the existing one. When Mr. Wilson and Ms. Kennedy were promoted to Chief Operating OfficerPresident and CEO and President of Oncology Systems, respectively, at the beginning of fiscal year 2012, they both entered into this new form of change-in-control agreement. Mr. Wilson also entered into a new change-in-control agreement when he became President and CEO on September 29, 2012.

Compensation of Directors

The compensation of directors is determined by the full Board. The currentDirectors who are employees (i.e., Mr. Wilson) receive no compensation program for non-employee directors has been in place since 2008.their services as directors. The Compensation Committee typically reviewsperiodically initiates a review of the non-employee director compensation (including cash retainer cashand meeting fees and equity awards) on an annual basis and recommends to the full Board for adoption any changes to their compensation. Changes to non-employee director compensation if needed. Our goal isare generally made to keepensure that their compensation levels are market-competitive and that the compensation levels of such directors market-competitive and have a compensation structure that supports our business objectives, aligns with the directors’ interests with thosethe interests of the stockholders, reflects competitive best practicespractice and is cost-cost-and-tax-effective. In fiscal year 2013, at the request of the Compensation Committee, FWC performed a review of non-employee director compensation. Based on FWC’s review, which included a competitive benchmark analysis of the non-

employee director compensation at our peer companies, the Board effected certain changes to our directors’ retainer fees, meeting fees and tax-effective.equity compensation that began on February 21, 2014 and which are discussed below.

Based on the FWC review, it was determined that, in keeping with best market practices, it was prudent to reduce the volatility of the compensation that included a fixed number of stock options, which vary on an annual basis based on Black-Scholes valuation versus the trend toward all full-value shares granted for fixed-value amounts. Therefore, it was determined to transition more of the director compensation to cash and fixed-value equity while still maintaining a similar overall competitive annual total value. Previously, there were fixed-share equity grants, where the annual grant value and related Company expense varied with our stock price and make it difficult to consistently maintain our competitive objective. A description of the current program follows:

Annual Cash Compensation. For fiscal year 2012, each non-employee director received an annual retainer of $45,000 (or apro rata portion in the case of our new director Erich Reinhardt), except that the lead director received an annual retainer of $60,000. The chairmen of the Compensation Committee and the Nominating Committee received an additional $10,000 annual retainer for servingBoard service was increased from $45,000 (as set in these positions,2008) to $100,000. Additional annual retainers for special roles were set as follows: $100,000 for the newly established Non-Executive Board Chair; $15,000 for the Compensation and Management Development Committee Chair (increased from $10,000); $12,000 for the chairman ofNominating and Corporate Governance Committee Chair (increased from $10,000); $20,000 for the Audit Committee receivedChair (increased from $15,000); and $12,000 for the newly established Ethics Committee Chair.

Attending Board meetings is considered an additional $15,000. Each non-employee director also receivedexpected part of Board service. Therefore, meeting fees for attending scheduled in-person or telephonic Board meetings were eliminated (previously $2,000 per Board meeting), as were meeting fees for eachtelephonic attendance at scheduled in-person Board meeting attended ($1,000 if themeetings (previously $1,000 per Board meeting was an in-person meeting and the director attended by telephone or video conference), andmeeting).

Meeting fees for attending Committee meetings remained unchanged at $1,500 for each scheduled committee meeting attended ($750in person or telephonically, and $750 if the committee meeting was an in-person meeting and the director attended by telephone or video conference). conference. This was to provide flexibility in making Committee assignments that might require more or fewer meetings and preparation time.

Non-employee directors may elect to receive thistheir cash compensation as full-value shares of our common stock, at a value equal to the fair market value of our common stock on the date that the foregone cash compensation otherwise would have been paid. DirectorsThey may alternatively elect to defer their retainerretainers and/or meeting fees under our DCP, subject to the restrictions of applicable tax law. Please refer to the discussion under “—Nonqualified Deferred Compensation” for more information. Directors who are employees (i.e., Mr. Guertin Mr. Levy and Mr. Wilson) receive no compensation for their services in their capacities as directors. The cash compensation reported below for Mr. Levy is for his service as our employee. All directors, however, receive reimbursement for out-of-pocket expenses of the directors associated with attending Board and committee meetings and for expenses related to directors’ continuing education programs.

Equity Compensation. The Third Amended Stock Plan provides for the discretionary grantgrants of non-qualified stock options and Deferred Stock Units (“DSUs”) to non-employee directors. Under this plan, each

continuingBeginning on February 21, 2014, we began making annual grants to non-employee director currently receives an annual grant of a non-qualified stock option to purchase 5,000 shares of our common stock at an exercise price equal to the fair market value (i.e., the closing price) of the underlying shares of our common stock on the date of grant, typically the day after the annual meeting, and an annual grantdirectors of DSUs havingwith a grant-date fair market value on the date of grant of $100,000. Stock options granted are immediately exercisable and expire seven years after the date of grant unless terminated earlier.$160,000. The DSUs generally vest quarterly over a period of one year from the date of grant. Unless otherwise provided in the grant agreement as determined by the Board, payment of DSUs will be made in shares of our common stock, with one share of our common stock issued for each DSU, upon the earlier of three years after the date of the DSU grant or upon departure from the Board (e.g., upon retirement or resignation). Previously, equity compensation for our non-employee directors was in the form of annual grants of non-qualified stock options on 5,000 shares of common stock (which in August, 2013, when the FWC analysis was provided, had a grant-date fair value of approximately $96,500), plus DSUs with a grant-date fair value of $100,000.

We also have stock ownership guidelines for our non-executive directors. Under these guidelines, each non-employee director is expected to own shares valued at five times the annual Board service retainer fess. Ownership levels are to be achieved within five years from the date upon which an individual becomes a non-employee Director, within three years of the amendment to the ownership levels described above, or within three years of an amendment to non-employee Director compensation that increases the annual retainer fees payable to

non-employee Directors by 25% or greater, whichever is later. One third of the guideline must be achieved within the first two and a half years after an individual becomes subject to the Program.

The following table sets forth the compensation received by each non-employee director (other than Mr. Guertin and Mr. Wilson, whose compensation is set forth under the Summary Compensation Table above) during fiscal year 2012:2014 (note that all directors are reimbursed for out-of-pocket expenses associated with attending Board and committee meetings, and for expenses related to attending continuing directors’ education programs):

 

Name

 Fees
Earned
or Paid in
Cash (2)
 Stock
Awards
(3)
 Option
Awards
(4)
 Non-Equity
Incentive Plan
Compensation
(5)
 Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
 All Other
Compensation
(6)
 Total ($)   Fees
Earned
or Paid in
Cash
   Stock
Awards
(1)
   Option
Awards
(2)
   Non-Equity
Incentive Plan
Compensation
   Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
   All Other
Compensation
   Total ($) 

Susan L. Bostrom

 $79,000   $100,008   $100,208    —      —     $5,000   $284,216    $130,000    $160,034                        $290,034  

John Seely Brown

 $61,000   $100,008   $100,208    —      —      —     $261,216  

Andrew R. Eckert

 $100,500   $100,008   $100,208    —      —     $5,000   $305,716  

Regina Dugan

  $105,000    $160,034                        $265,034  

R. Andrew Eckert

  $228,000    $160,034                        $388,034  

Timothy E. Guertin

  $106,000    $160,034                        $266,034  

David J. Illingworth

 $72,000   $100,008   $100,208    —      —      —     $272,216    $141,500    $160,034                        $301,534  

Mark R. Laret

 $90,250    $100,008    $100,208    —      —      —     $290,466    $134,500    $160,034                        $294,534  

Richard M. Levy (1)

  —      —      —     $2,777(5)   —     $169,604   $172,381  

Ruediger Naumann-Etienne

 $100,500   $100,008   $100,208    —      —     $5,000   $305,716    $153,000    $160,034                        $313,034  

Erich R. Reinhardt

 $24,500    —      —      —      —      —     $24,500    $124,000    $160,034                        $284,034  

Venkatraman Thyagarajan

 $79,500   $100,008   $100,208    —      —     $2,000   $281,716    $130,000    $160,034                        $290,034  

 

(1)Mr. Levy is compensated as an employee as described below.

(2)Mr. Brown elected to defer his respective annual retainer and meeting fees into our DCP.

(3)This column represents the aggregate grant date fair value of DSUs granted in fiscal year 2012,2014, computed in accordance with ASC 718. The fair value is determined using the closing price on the grant date multiplied by the number of shares subject to the award. These amounts reflect our calculation of the value of these awards, and do not necessarily correspond to the actual value that may ultimately be realized by the directors.

 

(4)(2)This column represents the grant date fair value of stock option awards granted inBeginning fiscal year 2012, computed in accordance with ASC 718, using the assumptions listed below:2014, stock options are no longer a part of Director Compensation.

Expected term (in years)

   4.69  

Risk-free interest rate

   0.7

Expected volatility

   35.4

Expected dividend yield

   —    

Weighted average fair value at grant date

  $20.04  

These amounts reflect our calculation of the value of these awards, and do not necessarily correspond to the actual value that may ultimately be realized by the directors.

(5)Amount represents Mr. Levy’s award as a participant in the EIP.

(6)For Mr. Levy, amount includes salary ($160,004) and Company contributions to his 401(k) retirement account ($9,600). For the other directors, the amount represents Company match of charitable contributions made by the director.

The following table sets forth the aggregate number of outstanding DSUs and stock options held by each non-employee director listed as of the end of fiscal year 2012:2014:

 

Name

  DSUs
Outstanding
   Options
Outstanding
   DSUs
Outstanding
   Options
Outstanding
 

Susan L. Bostrom

   5,058     23,000     4,885     —   

John Seely Brown

   5,058     18,000  

Andrew R. Eckert

   5,058     23,000  

Regina Dugan

   1,912     —   

R. Andrew Eckert

   4,885     23,000  

Timothy E. Guertin

   3,340     5,000  

David J. Illingworth

   1,545     5,000     4,885     10,000  

Mark R. Laret

   5,058     41,000     4,885     25,000  

Ruediger Naumann-Etienne

   5,058     23,000     4,885     15,000  

Erich R. Reinhardt

   —       —       3,340     5,000  

Venkatraman Thyagarajan

   5,058     15,000     4,885     10,000  

Effective as of the close of business on February 17, 2006, Mr. Levy stepped down as our Chief Executive Officer while remaining as Chairman of the Board and a non-executive employee.employee until his retirement in February 2013. In his role as a non-executive employee, Mr. Levy providesprovided ongoing advice and counsel to management on strategic business and technological matters, and iswas involved with investor groups and key customers. The full Board determinesdetermined Mr. Levy’s compensation, upon the recommendation of the Compensation Committee. During fiscal year 2014, Mr. Levy currently receives an annualreceived $76,925 in base salary of $160,000.salary. We also provideprovided him with leased offsite office space

and an administrator. In addition, Mr. Levy iswas eligible to receive our non-executive employee health and welfare benefits, subject to his election and contributions towards those benefit plans. He doesdid not receive any separate compensation for his duties serving on the Board. Mr. Levy iswas not eligible to participate in the MIP or in other executive perquisite programs. Mr. Levy, however, iswas eligible to participate in our EIP and he also receivesreceived the same reimbursement of expenses as do all other employees.

Effective at the end of fiscal year 2012, Mr. Guertin stepped down as our President and CEO. He became our Vice Chairman, effective as of September 29, 2012. Mr. Guertin will continue as a non-executive employee of the Company until his retirement in February 2013. In his new role as a non-executive employee of the Company (and in addition to his responsibilities as Vice Chairman of the Board), Mr. Guertin will provide on-going advice and counsel to our management on strategic business and technological matters, will continue to be involved with industry and investor groups and key customers, and will provide transitional support. As a non-executive employee, Mr. Guertin will receive a base salary of $952,711 per year. He will also participate in the MIP at a “target” participation level of 115% of annual salaryemployees (which in fiscal year 2013 and in the EIP, with any payouts based on fiscal year 2013 results and2014 amounted to be prorated up to Mr. Guertin’s retirement date. He will further be entitled to participate in the DCP, including being eligible to receive Company Supplemental Contributions. In addition he will receive the following perquisites: (a) reimbursement for up to $4,000 for annual medical examinations in January and February 2013 (plus up to $4,000 not to date reimbursed in calendar year 2012); (b) reimbursement for financial planning advice, estate planning advice, tax planning advice and/or tax return preparation (no dollar limit); and (c) benefits equivalent to those offered under our Executive Car Program (subject to a vehicle purchase price limit of $82,000 and including the option to purchase the vehicle following his retirement)$5,575). We will also provide him with leased offsite office space at a fair market value not to exceed $7,000 per month and a part-time administrator. Mr. Guertin will also be eligible to participate in compensation and benefit programs generally available to all other U.S. employees, 401(k) retirement plan and medical, dental, supplemental life and disability insurance programs, subject to his election and contributions towards those benefit programs, and he also receives the same reimbursement of expenses as do all other employees. Mr. Guertin will not be eligible for the grant of equity awards in his capacity as an employee in fiscal year 2013. Mr. Guertin does not receive any separate compensation for his duties serving on the Board. After Mr. Guertin retires, he will receive the same compensation as our other non-employee directors.

Compensation Committee Interlocks and Insider Participation

None of our executive officers currently serves, or in the past has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on the Board or the Compensation Committee.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Review, Approval or Ratification of Related Person Transactions

The Nominating Committee is responsible for the review, approval or ratification of “related-person transactions” between the Company or its subsidiaries and related persons. Under SEC rules, a related person is a director, nominee for director or executive officer since the beginning of the last fiscal year, or a more than five percent stockholder, and their immediate family members. Such transactions may include employment or consulting relationships with a related person or contracts under which we receive goods or services from (or provide goods and services to) a related person or a company for which the related person is an employee or otherwise affiliated. The Board has adopted written policies and procedures that apply to any transaction or series of transactions in which the Company or one of its subsidiaries is a participant and a related person has a direct or indirect material interest. Generally for a transaction to be approved, the Nominating Committee must be informed or have knowledge of (i) the related person’s relationship to the Company and interest in the transaction; (ii) the material facts of the proposed transaction, including a description of the nature and potential aggregate value of the proposed transaction; (iii) the benefits, if any, to the Company of the proposed transaction; (iv) if applicable, the availability of other sources of comparable products or services; and (v) an assessment of whether the proposed transaction or situation is on terms that are comparable to the terms available to an unrelated third party or to employees generally.

The Nominating Committee has, however, determined that a related person does not have a direct or indirect material interest in the following categories of transactions:

 

any transaction with another company for which a related person’s only relationship is as an employee (other than an executive officer), director, or beneficial owner of less than 10% of that company’s shares, if the amount involved does not exceed the greater of $1 million, or 2% of that company’s total annual revenue, and the related person is not involved in the decision-making process for such transaction;

 

any charitable contribution, grant, or endowment by the Company to a charitable organization, foundation, or university for which a related person’s only relationship is as an employee (other than an executive officer) or a director, if the amount involved does not exceed the lesser of $1 million, or 2% of the charitable organization’s total annual receipts, and the related person is not involved in the decision-making process for such transaction;

 

compensation to executive officers determined by the Compensation Committee;

 

compensation to directors determined by the Board; and

 

transactions in which all security holders receive proportional benefits.

Transactions involving related persons that are not included in one of the above categories are forwarded to our legal department to determine whether the related person could have a direct or indirect material interest in the transaction, and any such transaction is forwarded to the Nominating Committee for review. The Nominating Committee determines whether the related person has a material interest in a transaction and may approve, ratify, terminate, or take other action with respect to the transaction in its discretion.

Transactions with Related Persons

All potential related party transactions during fiscal year 20122014 were included in one of the above categories.

PROPOSAL FOURLOGO

STOCKHOLDER PROPOSALVARIAN

Pension Reserves Investment Management Trust Fund, located at 84 State Street, Boston, MA 02109 and the holder of 62,864 shares of Company common stock, has given notice of its intention to present the following proposal for action at the Annual Meeting.

PROPOSAL TO REPEAL CLASSIFIED BOARD

RESOLVED, that shareholders of Varian Medical Systems, Inc. urge the Board of Directors to take all necessary steps (other than any steps that must be taken by shareholders) to eliminate the classification of the Board of Directors and to require that all directors elected at or after the annual meeting held in 2014 be elected on an annual basis. Implementation of this proposal should not prevent any director elected prior to the annual meeting held in 2014 from completing the term for which such director was elected.

SUPPORTING STATEMENT

This resolution was submitted on behalf of the Pension Reserves Investment Trust Fund by its trustee, the Pension Reserves Investment Management Board. The Shareholder Rights Project represented and advised the Pension Reserves Investment Management Board in connection with this resolution.

The resolution urges the board of directors to facilitate a declassification of the board. Such a change would enable shareholders to register their views on the performance of all directors at each annual meeting. Having directors stand for elections annually makes directors more accountable to shareholders, and could thereby contribute to improving performance and increasing firm value.

According to data from FactSet Research Systems, the number of S&P 500 companies with classified boards declined by more than 60% since 2000, and the average percentage of votes cast in favor of shareholder proposals to declassify the boards of S&P 500 companies during 2010 and 2011 exceeded 75%.

The significant shareholder support for declassification proposals is consistent with empirical studies reporting that:

Classified boards are associated with lower firm valuation (Bebchuk and Cohen, 2005; confirmed by Faleye (2007) and Frakes (2007));

Takeover targets with classified boards are associated with lower gains to shareholders (Bebchuk, Coates, and Subramanian, 2002);

Firms with classified boards are more likely to be associated with value-decreasing acquisition decisions (Masulis, Wang, and Xie, 2007); and

Classified boards are associated with lower sensitivity of compensation to performance and lower sensitivity of CEO turnover to firm performance (Faleye, 2007).

Although one study (Bates, Becher and Lemmon, 2008) reports that classified boards are associated with higher takeover premiums, this study also reports that classified boards are associated with a lower likelihood of an acquisition and that classified boards are associated with lower firm valuation.

Please vote for this proposal to make directors more accountable to shareholders.

BOARD RECOMMENDATION

Our Board has carefully considered this Proposal and believes it is not in the best interest of the Company or its stockholders. Consequently, the Board unanimously recommends that stockholders vote “AGAINST” this Proposal.

Stability, Continuity and Experience

Under our Amended and Restated Certificate of Incorporation, as amended, the Board is divided into three classes, each serving a staggered three-year term. This structure provides the Board stability, continuity and independence. This structure also enhances long-term planning and ensures that, at any given time, the Board is comprised of directors who are intimately familiar with our business and strategic goals. A classified board also benefits the Company and its stockholders because it helps attract and retain director candidates who are willing to make long-term commitments of their time and energy. This commitment is critical to achieve our goals and one that will best be fulfilled by a stable and continuous Board. We design and manufacture products that are technologically complex and operate in very specialized industries and markets. Becoming familiar with our technologies and business requires significant time and effort on the part of a director, often spanning more than a one-year term. Directors with three-year terms are able to better develop a deeper understanding of our business and affairs and to use this understanding in making long-term strategic decisions that are in the best interests of the Company and its stockholders.

Independence

The Board believes that the longer assured term of office provided by three-year terms, rather than one-year terms, increases the independence of our non-employee directors. With one-year terms, directors are less insulated from management or special interest groups who may have an agenda that is not aligned with the long-term interests of all stockholders. Independence may also be enhanced when directors are not concerned about being re-nominated by our other directors every year. The classified current board structure permits our directors to act independently and to focus on the long-term interests of the Company and its stockholders.

Accountability to Stockholders

The Board also believes that annual elections for each director are not necessary to promote accountability. Directors elected to three-year terms are required to uphold the same fiduciary duties to the Company and its stockholders, and are equally accountable to stockholders, as directors elected annually. Accountability depends on the selection of responsible and experienced individuals, not on whether they serve terms of one year or three years. Our majority director voting policy, set forth in our Corporate Governance Guidelines, promotes further director accountability to stockholders. This policy provides that in any uncontested election of directors, any director nominee who receives a greater number of votes “against” his or her election than votes “for” such election will tender his or her resignation to the Board. The Nominating Committee will consider the resignation and recommend to the Board whether or not to accept the resignation. The Board will then make a decision regarding the resignation and we will publicly disclose their decision. This majority voting policy gives stockholders a meaningful role in the election of directors and acts as a vehicle for holding directors accountable for their actions or failure to act.

In addition, the Board has adopted a guideline for director retirement that provides that no director may serve on the Board for more than four consecutive three-year terms (starting with terms commencing in the year 2000) or 12 years, whichever is longer. This limitation is designed to keep members of the Board from becoming entrenched with management and ensure that the Board remains accountable to stockholders.

Moreover, even with a classified Board, a proxy advisory firm rates the Company of “low concern” when it comes to governance matters involving stockholder rights. Therefore, declassifying the Board is a change that is not necessary to improve governance or make directors more accountable to stockholders.

Protection against Takeoversmedical systems

A classified Board structure enhances the Board’s ability to negotiate the best resultspartner for stockholders in a potential takeover situation by safeguarding against the replacement of a majority of our directors with hostile nominees at a single annual meeting, which would allow an acquirer to gain control of the Company and its assets without paying fair market value to our stockholders. A classified board does not preclude a takeover, but rather provides the Board the time and flexibility necessary to evaluate the adequacy and fairness of any takeover proposal, negotiate on behalf of all stockholders and weigh alternative methods of maximizing stockholder value for all stockholders, without the threat of imminent removal of a majority of directors.life

Recommendation OnlyVARIAN MEDICAL SYSTEMS, INC.

This stockholder proposal is a request that the Board take steps necessary to eliminate the classified board structure. Approval of this proposal by stockholders would not in itself effectuate the changes contemplated by the proposal. Further action by stockholders and the Board would be required to further amend our Amended and Restated Certificate of Incorporation.3100 HANSEN WAY

THE BOARD RECOMMENDS THAT YOU VOTE “AGAINST” THIS STOCKHOLDER PROPOSAL.

PALO ALTO, CA 94304

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Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. VARIAN MEDICAL SYSTEMS, INC. 3100 HANSEN WAY PALO ALTO, CA 94304

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M80018-P57975

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VARIAN MEDICAL SYSTEMS, INC.

For All

Withhold All

For All Except

To withhold authority to vote for any individual The Board of Directors recommends a vote All All Except nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below.

The Board of Directors recommends a vote FOR all the nominees listed in Proposal 1 and FOR number(s) of the nominee(s) on the line below. Proposals 2 and 3 and AGAINST Proposal 4. ! ! ! all Proposals.

1. To elect the following nominees for a term ending at the 20162018 Annual Meeting of Stockholders:

Nominees:

01) R. Andrew Eckert Timothy E. Guertin

02) Mark R. Laret David J. Illingworth

03) Erich R. Reinhardt Ruediger Naumann-Etienne

For Against Abstain For Against Abstain

2. To approve the compensation of the Varian Medical ! ! ! 4. To vote on, if properly presented at the Annual Meeting, ! ! ! Systems, Inc. named executive officers as described in a stockholder proposal recommending that the the Proxy Statement. Board

3. To ratify the appointment of Directors take action to declassify the Board. For Against Abstain PricewaterhouseCoopers LLP as Varian Medical Systems, Inc.’s independent registered public accounting firm for fiscal year 2015.

The proxyholders are authorized to vote on any other business 3. To ratify the appointment of PricewaterhouseCoopers LLP ! ! ! as is properly brought before the Annual Meeting for action as Varian Medical Systems, Inc.’s independent registered in accordance with their judgment as to the best interests of public accounting firm for fiscal year 2013. Varian Medical Systems, Inc.

For address changes and/or comments, please check this box and write them ! on the back where indicated.

Please indicate if you plan to attend this meeting. ! !

Yes No

NOTE: Please sign exactly as name appears on your stock certificate. If the stock is registered in the name of two or more persons, each should sign. Executors, administrators, trustees, guardians, attorneys and corporate officers should insert their names.

Signature [PLEASE SIGN WITHIN BOX] Date

Signature (Joint Owners) Date VARIAN MEDICAL MEDICAL SYSTEMS, INC.


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VARIAN MEDICAL SYSTEMS, INC.

Proxy for Annual Meeting of Stockholders - February 14, 2013 12, 2015

This Proxy is Solicited on Behalf of the Board of Directors

The undersigned stockholder of Varian Medical Systems, Inc. (the “Company”) hereby constitutes and appoints DOW R. WILSON and JOHN W. KUO, and each of them, proxies and attorneys-in-fact of the undersigned, with full power of substitution, to vote all the shares of Common Stock of Varian Medical Systems, Inc. standing in the name of the undersigned, at the Annual Meeting of Stockholders to be held at the Company’s headquarters at 3100 Hansen Way, Palo Alto, California 94304, on February 14, 2013,12, 2015, at 4:30 p.m., Pacific Time, and at any adjournment(s) or postponement(s) thereof (the “Annual Meeting”). If you need directions to the Annual Meeting so that you may attend and vote in person, please contact our Investor Relations department at investors@varian.com.

Unless a contrary direction is indicated, the proxyholders will vote the undersigned’s shares FOR the election of the nominees for director, FOR approval of the compensation of the Company’s named executive officers as described in the Proxy Statement, FOR the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for fiscal year 2013 and AGAINST Proposal 42015 and, in accordance with the judgment of the proxyholder as to the best interests of the Company, upon any other business as may properly come before the meeting or any adjournment or postponement thereof. With respect to the election of directors, the proxyholders shall have full discretion and authority to vote cumulatively and to allocate votes among any or all of the nominees of the Board of Directors in any order as they may determine. If specific instructions are indicated, including with respect to cumulative voting for directors, this Proxy will be voted in accordance therewith.

Address Changes/Comments: (If

(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)

IF YOU ELECT TO VOTE BY MAIL, PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE

If you vote by telephone or the Internet, please DO NOT mail back this proxy card. (Continued

(Continued and to be signed on reverse side)