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
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¨ | Definitive Proxy Statement |
¨ | Definitive Additional Materials |
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Illumina, 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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April , 2016
Notice of Annual Meeting and Proxy Statement
April , 2014
Date: | May 18, 2016 | |
Time: | 10:00 a.m. (Pacific time) |
The Annual Meeting of Stockholders of Illumina, Inc. will be held on Wednesday, May 28, 2014, at 10:00 a.m. Pacific Time.As we have done for previous meetings, thisThis year’s annual meeting will be a completely virtual meeting of stockholders.
To participate, vote, or submit questions during the annual meeting via live webcast, please visit:www.virtualshareholdermeeting.com/
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The agenda for this year’s annual meeting includes the following items:
1. | Elect |
2. | Ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending | January 1, 2017; |
3. | Hold an advisory vote to approve the compensation of the “named executive officers” as disclosed in the | proxy statement; |
4. | bylaws; and |
5. | Transact such other business as may properly come before the meeting and any adjournment or postponement. |
Stockholders as of the record date of April 1, 2014,March 21, 2016, are entitled to notice of and to vote on the matters listed in the Proxy Statement.proxy statement.
By Order of the Board of Directors,
CHARLESCHARLES E. DADSWELLDADSWELL
Senior Vice President, General Counsel and Secretary
You can vote in one of three ways prior to the meeting: | ||
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VIA THE INTERNET. You may vote atwww.proxyvote.com, 24 hours a day, seven days a week, prior to 11:59 p.m. | |
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BY TELEPHONE. | |
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BY MAIL.
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Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be held on May 28, 2014:18, 2016: The Proxy Statementproxy statement and Annual Reportannual report to Stockholders are available atwww.proxyvote.com.
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PROPOSAL 2: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 12 | |||
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PROPOSAL 3: ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS | ||||
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This summary highlights information contained elsewhere in this Proxy Statement.proxy statement. This summary does not contain all of the information you should consider. You should read the entire Proxy Statementproxy statement carefully before voting.
GENERAL INFORMATION (see pages 2 to 9)
Meeting: Annual Meeting of Stockholders Date: Wednesday, May Time: 10:00 a.m. Location: Internet webcast only at: www.virtualshareholdermeeting.com/
Record Date:
Stock Symbol: ILMN Exchange: The NASDAQ Global Select Market Common Stock Outstanding: Registrar & Transfer Agent: Computershare State of Incorporation: Delaware Year of Incorporation: 1998 in California; reincorporated in Delaware in 2000 Public Company Since: 2000
Corporate Headquarters: 5200 Illumina Way, San Diego, California 92122 Corporate Website:www.illumina.com Investor Relations Website:investor.illumina.com
EXECUTIVE COMPENSATION (see pages
CEO: Jay T. Flatley (age CEO • Salary: • Annual Performance • Long-Term Incentives: CEO Employment Agreement: No Change-in-Control Agreement: Yes (double trigger) Stock Ownership Guidelines: Yes Hedging Policy: Yes | CORPORATE GOVERNANCE (see pages
Director Nominees: • • Francis A. deSouza •
Director Term: Three years Director Election Standard: Board Meetings in All Directors Attended at Least 75% of Board and Committee Meetings: Yes
Standing Board Committees • Audit • Compensation • Nominating/Corporate Governance
All Standing Board Committees Comprised Entirely of Independent Directors: Yes
Stockholder Rights Plan: No
OTHER ITEMS TO BE VOTED ON (see pages 12 to
Ratification of
Advisory
Advisory
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Illumina, Inc. 20142016 Proxy Statement • 1
This Proxy Statementproxy statement is furnished in connection with the solicitation of proxies by our Board of Directors for the Annual Meeting of Stockholders. This Proxy Statementproxy statement and accompanying proxy are being mailed to our stockholders on or about April , 2014,2016, concurrently with the mailing of our 2013 Annual Reportannual report on Form 10-K.10-K for the fiscal year ended January 3, 2016.
Can I attend the annual meeting? | We will be hosting the
Any stockholder can listen to and participate in the annual meeting live via the Internet atwww.virtualshareholdermeeting.com/
Stockholders may vote and submit questions while connected to the annual meeting on the Internet. | |
What do I need in order to be able to participate in the annual meeting online? | You will need the 12-digit control number included on your Notice of Internet Availability of Proxy Materials or your proxy card (if you received a printed copy of the proxy materials) in order to be able to vote your shares or submit questions during the meeting.
Instructions on how to connect and participate via the Internet, including how to demonstrate proof of stock ownership, are posted atwww.virtualshareholdermeeting.com/
If you do not have your 12-digit control number, you will be able to listen to the meeting only — you will not be able to vote or submit questions during the meeting.
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What is the purpose of the annual meeting? | At our annual meeting, stockholders will act upon the matters described in this proxy statement. In addition, following the meeting, management will report on the performance of Illumina and respond to questions from stockholders.
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What am I voting on at the annual meeting? | Stockholders will be asked to vote on four proposals. The proposals are to:
1. Elect as Directors the three nominees named in this proxy statement to hold office for three years until the
2. Ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending
3. Hold an advisory vote to approve
4.
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Illumina, Inc. 20142016 Proxy Statement • 2
Could other matters be decided at the annual meeting? | Our bylaws require that we receive advance notice of any proposal to be brought before the annual meeting by our stockholders, and we have not received notice of any such proposals. If any other matter were to come before the annual meeting, the proxy holders appointed by the Board of Directors will have the discretion to vote on those matters for you.
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What is the recommendation of the Board on each of the matters scheduled to be voted on at the annual meeting? | The Board of Directors recommends that you vote:
• FOR each of the nominees to the Board of Directors (Proposal 1); • FOR • FOR • FOR
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Who can vote at the annual meeting? | Only holders of our common stock as of
At the close of business on the record date, there were shares of common stock outstanding and entitled to vote.
You have one vote for each share of common stock that you hold. A list of stockholders entitled to vote at the annual meeting will be available for examination at our principal executive offices at the address listed above for a period of 10 days prior to the annual meeting, and during the annual meeting such list will be available for examination atwww.virtualshareholdermeeting.com/
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What is the difference between holding shares as a stockholder of record and as a beneficial owner? | Stockholders of Record. You are a stockholder of record if at the close of business on the record date your shares were registered directly in your name with our transfer agent, Computershare Trust Company, N.A.
Beneficial Owner. You are a beneficial owner if at the close of business on the record date your shares were held by a brokerage firm or other nominee and not in your name. Being a beneficial owner means that, like many of our stockholders, your shares are held in “street name.” As the beneficial owner, you have the right to direct your broker or other nominee how to vote your shares by following the voting instructions your broker or other nominee provides. If you do not provide your broker or other nominee with instructions on how to vote your shares, your broker or other nominee may be able to vote your shares with respect to some of the proposals, but not all. Please see “What will happen if I do not vote my shares?” below for additional information.
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How do I vote and what are the voting deadlines? | Stockholders of Record. If you are a stockholder of record, there are several ways for you to vote your shares. | |||
Via the Internet. You may vote atwww.proxyvote.com, 24 hours a day, seven days a week. You will need the 12-digit control number included on your Notice of Internet Availability of Proxy Materials or your proxy card (if you received a printed copy of the proxy materials). Votes submitted through the Internet must be received by 11:59 p.m. | ||||
By Telephone. You may vote using a touch-tone telephone by calling1-800-690-6903, 24 hours a day, seven days a week. You will need the12-digit control number included on your Notice of Internet Availability of Proxy Materials or your proxy card (if you received a printed copy of the proxy materials). Votes submitted by telephone must be received by 11:59 p.m. | ||||
By Mail. If you received printed proxy materials, you may submit your vote by completing, signing, and dating each proxy card received and returning it in the prepaid envelope. Sign your name exactly as it appears on the proxy card. Proxy cards submitted by mail must be received no later than May | ||||
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If you vote via the Internet or by telephone, your electronic vote authorizes the named proxies in the same manner as if you signed, dated, and returned your proxy card.If you vote via the Internet or by telephone, do not return your proxy card. | ||||
Beneficial | ||||
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Illumina, Inc. 20142016 Proxy Statement • 4
Can I revoke or change my vote after I submit my proxy? | Stockholders of Record. If you are a stockholder of record, you may revoke or change your vote at any time before the final vote at the annual meeting by:
• signing and returning a new proxy card with a later date;
• submitting a later-dated vote by telephone or via the Internet — only your latest Internet or telephone proxy received by 11:59 p.m.
• participating in the annual meeting live via the Internet and voting again; or
• delivering a written revocation to our Corporate Secretary at Illumina, Inc., 5200 Illumina Way, San Diego, California 92122, to be received no later than May
Beneficial Owners. If you are a beneficial owner of your shares, you must contact the broker or other nominee holding your shares and follow their instructions for revoking or changing your vote.
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What will happen if I do not vote my shares? | Stockholders of Record. If you are the stockholder of record and you do not vote by proxy card, by telephone, via the Internet before the annual meeting, or during the annual meeting via live webcast, your shares will not be voted at the annual meeting.
Beneficial Owners. If you are the beneficial owner of your shares, your broker or nominee may vote your shares only on those matters on which it has discretion to vote. Under the rules of the New York Stock Exchange, or NYSE, your broker or nominee does not have discretion to vote your shares on non-routine matters such as Proposals 1, 3, and 4. However, your broker or nominee does have discretion to vote your shares on routine matters such as Proposal 2. The broker’s inability to vote on non-discretionary matters for which the broker has not received instructions from the beneficial owner is referred to as a “broker non-vote.” Please see “What is a ‘broker non-vote’?” below for more information.
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What is a “broker non-vote”? | The NYSE has rules that govern brokers who have record ownership of listed company stock (including stock such as ours that is listed on The NASDAQ Global Select Market) held in brokerage accounts for their clients who beneficially own the shares. Under these rules, brokers who do not receive voting instructions from their clients have the discretion to vote uninstructed shares on certain matters (“discretionary matters”) but do not have discretion to vote uninstructed shares as to certain other matters (“non-discretionary matters”). A broker may return a proxy card on behalf of a beneficial owner from whom the broker has not received instructions that casts a vote with regard to discretionary matters but expressly states that the broker is not voting as to non-discretionary matters. Under current NYSE interpretations, Proposals 1, 3, and 4 are considered non-discretionary matters and Proposal 2 is considered a discretionary matter. | |
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What is the effect of a broker non-vote? | Broker non-votes will be counted for purposes of calculating whether a quorum is present at the annual meeting but will not be counted for purposes of determining the number of votes present in person or represented by proxy and entitled to vote with respect to a particular proposal. Thus, a broker non-vote will not impact our ability to obtain a quorum and will not otherwise affect the outcome of the vote on
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Why did I receive a Notice of Internet Availability of Proxy Materials in the mail regarding the Internet availability of proxy materials instead of a full set of printed proxy materials? | Pursuant to rules adopted by the Securities and Exchange Commission, or the SEC, we are making this proxy statement available to our stockholders electronically via the Internet. On or about April ,
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What does it mean if I receive more than one proxy card or Notice of Internet Availability of Proxy Materials? | If you receive more than one proxy card or Notice of Internet Availability of Proxy Materials, your shares are registered in more than one name or are registered in different accounts. To make certain all of your shares are voted, please follow the instructions included on the Notice of Internet Availability of Proxy Materials on how to access each proxy card and vote each proxy card over the Internet or by telephone. If you received paper proxy materials by mail, please complete, sign, and return each proxy card to ensure that all of your shares are voted.
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Can I vote my shares by filling out and returning the Notice of Internet Availability of Proxy Materials? | No. The Notice of Internet Availability of Proxy Materials only identifies the items to be voted on at the annual meeting. You cannot vote by marking the Notice of Internet Availability of Proxy Materials and returning it. The Notice of Internet Availability of Proxy Materials provides instructions on how to cast your vote. For additional information please see “How do I vote and what are the voting deadlines?” above.
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Illumina, Inc. 20142016 Proxy Statement • 6
How is a quorum obtained, and why is a quorum required? | We will hold the annual meeting if a quorum is present. A quorum will be present if holders of a majority of the outstanding shares of common stock entitled to vote on a matter at the annual meeting are present or represented by proxy at the meeting. As of the close of business on the record date, we had shares of common stock outstanding and entitled to vote at the annual meeting, meaning that shares of common stock must be represented in person or by proxy to have a quorum. If a quorum is not present at the annual meeting, the meeting may be adjourned from time to time until a quorum is obtained. If you are a stockholder of record and submit a proxy, your shares will be counted to determine whether we have a quorum even if you abstain or fail to provide voting instructions on any of the proposals described in this proxy statement and listed on the proxy card. If your shares are held in the name of your broker or other nominee, and you do not tell your broker or other nominee how to vote your shares, these shares will be counted for purposes of determining the presence or absence of a quorum for the transaction of business.
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How many votes are required to | ||||||
Proposal
| Vote Required
| Votes that May be Cast
| Board of Directors’
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Proposal 1 — Election of |
| FOR
A ABSTAIN, each nominee Shares voted “ABSTAIN” will have
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Proposal 2 — Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending | Majority of the shares present in person or represented by proxy and entitled to vote on the proposal must vote FOR in order for this proposal to pass | FOR
AGAINST
ABSTAIN
If you abstain from voting on this proposal, the abstention will have the same effect as an “AGAINST” vote
| FOR | |||
Proposal 3 — Advisory vote to approve the compensation of the “named executive officers” as disclosed in this proxy statement | Majority of the shares present in person or represented by proxy and entitled to vote on the proposal must vote FOR in order for this proposal to pass | FOR
AGAINST
ABSTAIN
If you abstain from voting on this proposal, the abstention will have the same effect as an “AGAINST” vote
| FOR | |||
Proposal 4 | Majority of the shares present in person or represented by proxy and entitled to vote on the proposal must vote FOR in order for this proposal to pass | FOR
AGAINST
ABSTAIN
If you abstain from voting on this proposal, the abstention will have the same effect as an “AGAINST” vote
| FOR | |||
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Illumina, Inc. 20142016 Proxy Statement • 8
How can I find the voting results of the annual meeting? | 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.
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Who is conducting this proxy solicitation? | Illumina’s Board of Directors is soliciting your vote for matters being submitted for stockholder approval at the annual meeting. Solicitation may be made by our Directors, officers, and
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Illumina, Inc. 20142016 Proxy Statement • 9
General
Our certificate of incorporation and bylaws provide for a classified Board of Directors consisting of three classes of Directors with staggered three-year terms. The Board of Directors currently consists of the following tennine Directors, having terms expiring at the respective annual meetings of stockholders noted below:
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Francis A. deSouza David R. Walt, Ph.D.* | Daniel M. Bradbury Robert S. Epstein, M.D. Roy A. Whitfield | A. Blaine Bowman Karin Eastham, Jay T.
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* | Dr. Walt will retire from the Board of Directors, effective immediately before this year’s annual meeting. In light of Dr. Walt’s decision to retire from the Board, the Board of Directors intends to reduce the number of authorized directors of the Company from nine to eight, effective as of immediately prior to the annual meeting. |
| ** | Ms. Eastham will stand for election at the annual meeting, to serve for a three year term, instead of standing for election at the 2018 annual meeting of stockholders. |
*** | Mr. Flatley will become Executive Chairman of the Board of Directors, effective July 5, 2016, in connection with his retirement as the Company’s CEO. |
Election of Three Directors to Hold Office for Three Years until the 20172019 Annual Meeting of Stockholders
Upon the recommendation of the Nominating/Corporate Governance Committee, the Board of Directors has nominated for election at the annual meeting the following slate of three nominees to hold office for three years until the annual meeting of stockholders in the year 20172019 and until their successors are duly elected and qualified:
Name | Age | Director Since | Principal Occupation | |||
Frances Arnold, Ph.D. | 59 | 2016 | Dick and Barbara Dickinson Professor of Chemical Engineering, Bioengineering and Biochemistry at the California Institute of Technology and Director of the Donna and Benjamin M. Rosen Bioengineering Center | |||
Francis A. deSouza | 45 | 2014 | President | |||
Karin Eastham, CPA | 66 | 2004 | Former Executive Vice President and Chief Operating Officer, and member of the Board of Trustees, of Burnham Institute for Medical Research |
Election of One Director to Hold Office for Two Years until the 2016 Annual Meeting of Stockholders
Upon the recommendation of the Nominating/Corporate Governance Committee, the Board of Directors has nominated for election at the annual meeting the following nominee to hold office for two years until the annual meeting of stockholders in the year 2016 and until his successor is duly elected and qualified:
Mr. deSouzaDr. Arnold was appointed to the Board of Directors in January 20142016 to fill a newly created position. In accordance with our Corporate Governance Guidelines, any new Directordirector appointed to fill a newly created position on the Board of Directors will stand for election at the first annual meeting of stockholders following such appointment. In accordance with our certificate of incorporation and bylaws, each director is to be elected for a term expiring at the third succeeding annual meeting of
Illumina, Inc. 2016 Proxy Statement • 10
stockholders after such election. Accordingly, any new director appointed to fill a newly created position on the Board of Directors is assigned to a particularthe class of Directors and is required tothat will stand for election by our stockholders at the first annual meeting of stockholders following such appointment, whether or not the other members of the class of Directors to which he or she was appointed are otherwise standing for election at such annual meeting. At the time of his appointment,appointment.
Illumina, Inc. 2014 Proxy Statement • 10
Mr. deSouza was assigned to the same class of Directors composed of Drs. Möller and Walt. Accordingly, Mr. deSouza is standing for election at the annual meeting to hold office for two years until the annual meeting of stockholders in the year 2016 and until his successor is duly elected and qualified.
Additional Information
For more information about each nominee and each of the other Directors serving on our Board of Directors, please see “Information about Directors” in this proxy statement. Each of the Board of Directordirector nominees is currently serving as a Director.director. These nominees have agreed to serve if elected, and management has no reason to believe that such nominees will be unable to serve. In the event any of these nominees is unable or declines to serve as a Directordirector at the time of the annual meeting, the proxies will be voted for any nominees who may be designated by the present Board of Directors to fill the vacancy. The persons designated as proxies on the form of proxy card attached to this proxy statement intend to vote such proxyFOR the election of each of the fourthree nominees named above, unless the stockholder validly indicates otherwise on the proxy that the vote should be withheld from any or all of these nominees.proxy.
Vote Required for Approval
A pluralityOur bylaws require that a director nominee will be elected only if he or she receives a majority of the votes ofcast with respect to his or her election in an uncontested election (that is, the shares present in person or represented by proxy at the annual meeting and entitled to vote on the election of Directors is required for the election of Directors. The four nominees receiving the highest number of affirmativeshares voted “FOR” that nominee exceeds the number of votes cast “AGAINST” that nominee). Each of the shares entitled to vote at the annual meeting will be elected toour director nominees currently serves on the Board of Directors. YouIf a nominee who currently serves as a director is not re-elected, Delaware law provides that the director would continue to serve on the Board as a “holdover director.” Under our Corporate Governance Guidelines, each director submits an advance, contingent, irrevocable resignation that the Board may accept if stockholders do not vote for more individuals thanre-elect that director. In that situation, our Nominating/Corporate Governance Committee would make a recommendation to the number nominated. In addition, stockholders may not cumulate votes inBoard about whether to accept or reject the election of Directors.resignation, or whether to take other action.
Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH OF THE DIRECTOR NOMINEES SET FORTH ABOVE
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Illumina, Inc. 20142016 Proxy Statement • 11
The Audit Committee has selected Ernst & Young LLP as our independent registered public accounting firm to audit our consolidated financial statements for the fiscal year ending December 28, 2014,January 1, 2017, and the Board of Directors has determined that it would be desirable to request that the stockholders ratify such appointment. Before selecting Ernst & Young LLP, the Audit Committee considered the firm’s qualifications as independent registered public accountants and concluded that, based on Ernst & Young LLP’s prior performance and its reputation for integrity and competence, it was qualified. The Audit Committee also considered whether any non-audit services performed for us by Ernst & Young LLP would impair Ernst & Young LLP’s independence and concluded that they did not. Even if the selection is ratified, the Audit Committee, in its sole discretion, may change the appointment at any time during the fiscal year if it determines that such a change would be in our best interests and that of our stockholders.
A representative of Ernst & Young LLP is expected to be present at the annual meeting, will have an opportunity to make a statement if he or she desires to do so, and is expected to be available to respond to appropriate questions.
Fees Paid to Ernst & Young LLP
During the fiscal years ended January 3, 2016, and December 28, 2014, the aggregate fees billed or accrued by Ernst & Young LLP for professional services were as follows:
Year Ended | ||||||||
January 3, 2016 ($) | December 28, 2014 ($) | |||||||
Audit Fees | 3,590,500 | 2,505,648 | ||||||
Audit-Related Fees | 6,338 | 112,895 | ||||||
Tax Fees | 390,543 | 74,500 | ||||||
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Total | 3,987,381 | 2,693,043 | ||||||
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Audit fees consist of amounts for professional services rendered in connection with the integrated audit of our consolidated financial statements and related schedule and internal control over financial reporting, review of the interim condensed consolidated financial statements included in quarterly reports, and statutory audits required internationally. For the fiscal years ended January 3, 2016, and December 28, 2014, audit-related fees were primarily incurred for accounting consultations. Tax fees for the fiscal years ended January 3, 2016, and December 28, 2014, related to services rendered for the preparation of foreign tax filings. For the fiscal years ended January 3, 2016, and December 28, 2014, Ernst & Young LLP did not perform any professional services other than as stated under the captions Audit Fees, Audit-Related Fees, and Tax Fees.
Pre-Approval Policies and Procedures
The Audit Committee, as required by the Securities Exchange Act of 1934 (the “Exchange Act”), requires advance approval of all audit services and permitted non-audit services to be provided by our
Illumina, Inc. 2016 Proxy Statement • 12
independent registered public accounting firm. The Audit Committee must approve the permitted service before the independent registered public accounting firm is engaged to perform it. The services listed as Audit Fees, Audit-Related Fees, and Tax Fees in the table above were pre-approved by our Audit Committee in accordance with this policy.
Vote Required for Approval
Stockholder ratification is not required for making such appointmentto appoint Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 28, 2014,January 1, 2017, because the Audit Committee has responsibility for the appointment of our independent registered public accounting firm. The appointmentNevertheless, our Board of Directors is being submitted for ratificationsubmitting this matter to stockholders in conformance with a view toward soliciting the opinion of stockholders, which opinion will be taken into consideration in future deliberations.good corporate governance practices. No determination has been made as to what action the Board of Directors or the Audit Committee would take if stockholders do not approve the appointment of Ernst & Young LLP. Even if the appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent audit firm at any time during the year if it is determined that such a change would be in the best interests of the Company and its stockholders. Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm requires the affirmative “FOR” vote of a majority of the shares present in person or represented by proxy and entitled to vote on the proposal.
Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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Illumina, Inc. 20142016 Proxy Statement • 1213
As required by Section 14A of the Securities Exchange Act, of 1934, we are seeking an advisory vote to approve the compensation of the named executive officers as disclosed in the section of this proxy statement titled “Executive Compensation.” Following the 2011 annual meeting of stockholders, and consistent with results of the advisory vote on executive compensation taken by our stockholders at that meeting, the Board of Directors adopted a policy to submit this advisory vote to the stockholders on an annual basis. Accordingly, stockholders are being asked to vote on the following advisory resolution:
RESOLVED, that the compensation paid to Illumina’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables, and narrative discussion, is hereby APPROVED.
We urge stockholders to read the “Compensation Discussion and Analysis” beginning on page 39 of this proxy statement, which describes in more detail how our executive compensation policies and procedures operate and are designed to achieve our compensationHR and talent objectives, as well as the Summary Compensation Table and other related compensation tables and narrative, appearing on pages 5458 through 57,61, which provide detailed information on the compensation of our named executive officers. The Board of Directors and the Compensation Committee believe that the policies and procedures articulated in the “Compensation Discussion and Analysis” are effective in achieving our goals and that the compensation of our named executive officers reported in this proxy statement has contributed to our recent and long-term success.
Vote Required for Approval
The advisory resolution set forth above, commonly referred to as a “say-on-pay” resolution, is not binding on the Board of Directors. Although not binding, the Board of Directors and the Compensation Committee will review and consider the voting results when making future decisions regarding executive compensation. Approval of the advisory resolution set forth above requires the affirmative “FOR” vote of a majority of the shares present in person or represented by proxy and entitled to vote on the proposal.
Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE FOREGOING RESOLUTION TO APPROVE, ON AN ADVISORY BASIS, THE COMPENSATION OF ILLUMINA’S NAMED EXECUTIVE OFFICERS
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Illumina, Inc. 2014 Proxy Statement • 13
Our Board of Directors is recommending to the stockholders for their approval a proposal to amend our Bylaws to designate Delaware as the exclusive forum for the adjudication of certain disputes. This proposed bylaw would provide as follows:
FORUM FOR ADJUDICATION OF DISPUTES
Unless the Board of Directors of the corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another state court located within the State of Delaware or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the corporation; (ii) any action asserting a claim for breach of a fiduciary duty owed by any director, officer, employee or agent of the corporation to the corporation or the corporation’s stockholders; (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, the certificate of incorporation of the corporation or these bylaws (as any such may be amended from time to time); or (iv) any action asserting a claim governed by the internal affairs doctrine, in each case subject to said court having personal jurisdiction over the indispensable parties named as defendants therein.
The proposed bylaw is intended to assist the Company in avoiding multiple lawsuits in multiple jurisdictions on matters relating to the corporate law of Delaware, our state of incorporation. The proposed bylaw will only regulate the forum where our stockholders may file claims relating to the specified intra-corporate disputes. The proposed bylaw does not restrict the ability of our stockholders to bring such claims, nor the remedies available if such claims are ultimately successful.
Although the Board of Directors believes that the designation of the Delaware Court of Chancery as the exclusive forum for intra-corporate disputes serves the best interests of the Company and our stockholders as a whole, the Board of Directors also believes that we should retain the ability to consent to an alternative forum on a case-by-case basis. Specifically, where the Board of Directors determines that the Company’s interests and those of our stockholders are best served by permitting a dispute to proceed in a forum other than the Delaware Court of Chancery, the proposed bylaw permits the corporation to consent to the selection of such alternative forum.
The Board of Directors believes that our stockholders will benefit from having intra-corporate disputes litigated in the Delaware Court of Chancery. Although some plaintiffs might prefer to litigate such matters in a forum outside of Delaware because they perceive another court as more convenient or more favorable to their claims (among other reasons), the Board of Directors believes that the substantial benefits to us and our stockholders as a whole from designating the Delaware Court of Chancery as the exclusive forum for intra-corporate disputes outweigh these concerns. The Delaware Court of Chancery is widely regarded as the preeminent court for the determination of disputes
Illumina, Inc. 20142016 Proxy Statement • 14
involvingProposal 4: Advisory Vote to Ratify Certain Supermajority Voting Provisions in our Certificate of Incorporation and Bylaws
Introduction
The Board of Directors is seeking stockholder ratification of the retention of certain provisions of the Company’s certificate of incorporation and bylaws that require a corporation’s internal affairsvote of 66 2/3% of the Company’s outstanding stock in termsorder to take certain actions (the “Supermajority Provisions”). The following is a summary of precedent, experience and focus. the Supermajority Provisions:
• | Article IX of the certificate of incorporation, which relates to cumulative voting, the number and classes of directors, and the requirement of written ballots to elect directors; |
• | Article X of the certificate of incorporation, which relates to the power of the Board of Directors to amend or repeal the bylaws; |
• | Article XII of the certificate of incorporation, which relates to the ability of the Company to convene stockholder meetings outside of Delaware and to keep the books of the corporation outside of Delaware; |
• | Section 2.3 of the bylaws, which gives the Board of Directors the ability to call special meetings of the stockholders at any time and for any purpose; |
• | Section 2.4 of the bylaws, which sets out specific procedures for the provision of notice of meetings of stockholders; |
• | Section 2.8 of the bylaws, which relates to the ability of stockholders to vote, including by proxy; |
• | Section 2.10 of the bylaws, which establishes procedures for setting a record date and providing a default record date, including with respect to stockholders acting by written consent; and |
• | Section 3.2 of the bylaws, which relates to setting the number of directors, the size and term of the classes of directors, and defining each directors’ term of office. |
The Court’s considerable expertise has ledBoard of Directors is submitting these provisions to the developmentstockholders for ratification at the annual meeting.
Purpose of the Supermajority Provisions
Require Broad Stockholder Support for Key Actions
The existing requirements are sound corporate governance principles as they require that any significant changes on the topics listed above are made with broad stockholder support. With respect to the most fundamental aspects of the Company, these requirements ensure stockholders are not subject to the whims of a substantialfew large stockholders. Indeed, by requiring the support of a supermajority
Illumina, Inc. 2016 Proxy Statement • 15
in order to take these actions, we ensure that changes to our corporate structure truly reflect the stockholders as a group.
This prudent approach to stockholder votes on significant corporate changes is common – many publicly-traded companies also require supermajority votes to take crucial actions.
Protect Minority Stockholders
Simple majority votes allow relatively few, large stockholders to dominate more numerous but smaller stockholders. Those large stockholders could act either unwisely or in outright self-interest if they go unchecked by higher vote requirements. Supermajority requirements demand consensus across many stockholders and influential bodyprotect small stockholders from being overwhelmed by large stockholders.
Furthermore, our bylaws require only that the holders of case law interpreting Delaware’sa majority of stock be present at a meeting in order to transact the business of the Company — without these provisions, a simple majority ofthat majority (i.e., 25.1% of all outstanding shares) could impose radical changes on our corporate law. This provides usstructure and our stockholders with more predictability regarding the outcome of intra-corporate disputes. In addition, the Delaware Court of Chancery has developed streamlined procedures and processes that help provide relatively quick decisions for litigating parties. This accelerated schedule can limit the time, cost, and uncertainty of litigation for all parties.functionality.
The selectionBoard of Directors has a fiduciary duty to pursue the Delaware Courtbest interests of Chancery as the exclusive forumall stockholders. By reserving certain fundamental functions for intra-corporate disputes would reduce the risks that we could be forced to waste resources defending against duplicative suits and that the outcomesupermajority votes, these provisions insulate us from self-interested or misguided votes by a minority of cases in multiple jurisdictions could be inconsistent, even though each forum purports to follow Delaware law. We experienced firsthand the inefficiencies involved in duplicative litigation across multiple jurisdictions during the tender offer by Roche for our outstanding common stock in 2012. Following the announcementstockholders holding a majority of the tender offer, lawsuits were filed in three jurisdictions, in addition to in the Delaware Court of Chancery, all relating to similar facts and claims. Had these lawsuits not been dismissed shortly after Roche terminated its tender offer, the simultaneous defense of these actions would have not only been expensive, but also would have required a significant amount of management time and attention. Accordingly,shares present.
Promote Long-Term Corporate Management
Robust vote requirements enable stockholders, the Board of Directors, recommendsand third parties to make long-term plans and investments in the Company. Although changes to these provisions may be appropriate over time, by requiring a supermajority to make changes we ensure that such changes will not be sudden, nor will they be quickly reversed. Although this permanence is not necessary for all aspects of our structure and governance, it is beneficial and appropriate for these elements.
Limited Scope
The Board of Directors recognizes that a simple majority vote is appropriate for many stockholder actions. We do not require more than a simple majority unless it is appropriate and necessary to protect the interests of small stockholders. By requiring a supermajority vote only in these limited circumstances, we can empower stockholders approveto take many actions by a simple majority while ensuring that changes to certain sensitive provisions occur if and only if there is a broad consensus among stockholders that such changes are beneficial. The existing provisions allow stockholders the proposed exclusive forum bylaw set forth above.power to make changes to our governing documents without concentrating that power in the hands of only the largest stockholders.
The Board of Directors regularly considers corporate governance developments and best practices, and discusses whether any changes are appropriate.
Illumina, Inc. 2016 Proxy Statement • 16
Vote Required for Approval
Stockholder approval is not required for Board of Directors to amend our bylaws; however, the Board of Directors believes that stockholder support of the proposed bylaw is important. Approval of the bylaw amendmentadvisory resolution set forth above requires the affirmative “FOR” vote of a majority of the shares present in person or represented by proxy and entitled to vote on the proposal. Although not binding, the Board of Directors will review and consider the voting results when making future decisions regarding our corporate governance practices, including with respect to our certificate of incorporation and bylaws.
Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE FOREGOING RESOLUTION TO APPROVE AN AMENDMENT TORATIFICATION OF THE SUPERMAJORITY VOTING PROVISIONS IN OUR BYLAWS ESTABLISHING DELAWARE AS THE EXCLUSIVE FORUM FOR ADJUDICATIONCERTIFICATE OF CERTAIN DISPUTES
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]INCORPORATION AND BYLAWS
Illumina, Inc. 20142016 Proxy Statement • 1517
The following table sets forth the names, ages, committee assignments, and positions of our Directors as of April , 2014.2016. Our Directors’ respective backgrounds and a discussion of the specific experience, qualifications, attributes, or skills of our Directors that led the Board of Directors to conclude that each such person should serve as Directora director are described following the table.
Name | Age | Position with the Company | Audit Committee | Compensation Committee | Nominating/ Corporate Governance Committee | Diagnostics Advisory Committee | Age | Position with the Company | Audit Committee | Compensation Committee | Nominating/ Corporate | |||||||||||||||||||
William H. Rastetter, Ph.D. | 65 | Chairman | ||||||||||||||||||||||||||||
Jay T. Flatley | 61 | CEO | ||||||||||||||||||||||||||||
Jay T. Flatley(1) | 63 | Chairman and CEO | ||||||||||||||||||||||||||||
A. Blaine Bowman | 69 | Lead Independent Director | ||||||||||||||||||||||||||||
Francis A. deSouza | 43 | President | 45 | President | ||||||||||||||||||||||||||
A. Blaine Bowman | 67 | Director | ||||||||||||||||||||||||||||
Frances Arnold, Ph.D. | 59 | Director | ||||||||||||||||||||||||||||
Daniel M. Bradbury | 52 | Director | 54 | Director | ||||||||||||||||||||||||||
Karin Eastham, CPA | 64 | Director | 66 | Director | ||||||||||||||||||||||||||
Robert S. Epstein, M.D. | 58 | Director | 60 | Director | ||||||||||||||||||||||||||
Gerald Möller, Ph.D. | 70 | Director | ||||||||||||||||||||||||||||
David R. Walt, Ph.D. | 61 | Director | ||||||||||||||||||||||||||||
David R. Walt, Ph.D.(2) | 63 | Director | ||||||||||||||||||||||||||||
Roy A. Whitfield | 60 | Director | 62 | Director | ||||||||||||||||||||||||||
Number of Meetings in 2013 | 8 | 6 | 6 | 4 | ||||||||||||||||||||||||||
Number of Meetings in 2015 | 11 | 7 | 4 |
Chair Member Audit Committee Financial Expert (for purposes of Section 407 of Sarbanes-Oxley Act)
(1) | Mr. Flatley will become Executive Chairman of the Board of Directors, effective July 5, 2016, in connection with his retirement as the Company’s CEO. |
(2) | Dr. Walt will retire from the Board of Directors, effective immediately before this year’s annual meeting. In connection with Dr. Walt’s retirement, the Board of Directors intends to reduce the number of authorized directors of the Company from nine to eight, effective as of immediately prior to the annual meeting. |
Director since:
Chairman
Management: Chief Executive Officer |
Illumina, Inc. 20142016 Proxy Statement • 1618
Other Public Company Board Service:
In selecting
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A. Blaine Bowman
Director since: 2007
Lead Independent Director since: 2016 Independent | Mr. Bowman has been a director since January 2007 and has served as our Lead Independent Director since
Other Public Company Board Service: None Past Public Company Board Service (since 2011):Altera Corporation (2012 to
In selecting Mr. Bowman as a past nominee for election to the Board of Directors, the Board considered, among other things, Mr. Bowman’s understanding of highly technical manufacturing processes associated with scientific instruments, his business leadership experience, and his deep understanding of operational financial issues. We design and manufacture our products, many of which are sophisticated scientific |
Illumina, Inc. 2014 Proxy Statement • 17
instruments used by scientists and researchers. The Board of Directors believes that Mr. Bowman contributes to the Board’s understanding of the needs of our customers and the risks associated with our manufacturing processes. In addition, Mr. Bowman’s experience as a management consultant and |
Illumina, Inc. 2016 Proxy Statement • 19
Frances Arnold, Ph.D. Director since: 2016 Independent | Dr. Arnold has been a director since 2016. Dr. Arnold manages a research group at the California Institute of Technology and is the Dick and Barbara Dickinson Professor of Chemical Engineering, Bioengineering and Biochemistry at the California Institute of Technology and Director of the Donna and Benjamin M. Rosen Bioengineering Center. She joined the California Institute of Technology in 1986 and has served as a Visiting Associate, Assistant Professor, Professor, and Director. Dr. Arnold’s laboratory focuses on protein engineering by directed evolution, with applications in alternative energy, chemicals, and medicine. She is the recipient of numerous honors, including induction into the National Inventors Hall of Fame, Fellow of the National Academy of Inventors, the ENI Prize in Renewable and Nonconventional Energy, the U.S. National Medal of Technology and Innovation, and the Charles Stark Draper Prize of the U.S. National Academy of Engineering. Dr. Arnold is an elected member of all three U.S. National Academics of Science, Medicine, and Engineering, as well as the American Academy of Arts and Sciences. Dr. Arnold received a B.S. in mechanical and aerospace engineering from Princeton University and a Ph.D. in chemical engineering from the University of California, Berkeley. Other Public Company Board Service: None In selecting Dr. Arnold as a nominee for election to the Board of Directors, the Board considered, among other things, Dr. Arnold’s scientific and technical expertise in biological engineering. Our continued growth is dependent on scientific and technical advances, and the Board believes that Dr. Arnold offers both strategic and technical insight into the risks and opportunities associated with our business. In addition, Dr. Arnold’s academic and research experience provides the Board of Directors with valuable insight into the needs of our customers, many of which are scientific research institutions, and the opportunities associated with serving the research market.
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Daniel M. Bradbury
Director since: 2004
Independent | Mr. Bradbury has been a |
Illumina, Inc. 2016 Proxy Statement • 20
below, Mr. Bradbury serves as a director
Other Public Company Board Service:
Past Public Company Board Service (since
In selecting Mr. Bradbury as a past nominee for election to the Board of Directors, the Board considered, among other things, Mr. Bradbury’s management and governance experience in the biopharmaceutical industry gained primarily through his involvement in leading the rapid |
Illumina, Inc. 2014 Proxy Statement • 18
growth and development of Amylin. The Board of Directors believes that Mr. Bradbury contributes to the Board’s understanding of the risks and opportunities faced by a rapidly growing global business. In addition, Mr. Bradbury’s experience successfully commercializing pharmaceutical products contributes to the Board’s understanding of the risks and opportunities associated with new product development in an industry regulated by the U.S. Food and Drug Administration.
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Francis A. deSouza
Director since: 2014
Management: President | Mr. deSouza has served as President since December 2013 and as a
Other Public Company Board Service: |
Illumina, Inc. 2016 Proxy Statement • 21
In selecting Mr. deSouza as a nominee for election to the Board of Directors, the Board considered, among other things, Mr. deSouza’s extensive experience with entrepreneurial companies experiencing rapid growth and maturation. The Board of Directors believes thatMr. deSouza’s experience directly managing a growing portfolio of products and services contributes to the Board’s understanding of the risks and opportunities faced by a rapidly growing global business, such as Illumina, as it develops and introduces an increasing number of products and services.
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Karin Eastham, CPA
Director since: 2004
Independent | Ms. Eastham has been a |
Illumina, Inc. 2014 Proxy Statement • 19
Corporation, a biopharmaceutical company, from 1976 to 1988.
Other Public Company Board Service: Geron Corporation (2009 to present); MorphoSys AG (2012 to present, Frankfurt Stock Exchange-listed); Veracyte, Inc. (2012 to present)
Past Public Company Board Service (since
In selecting Ms. Eastham as a
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Robert S. Epstein, M.D.
Director since: 2012
Independent | Dr. Epstein has been a Director since November 2012. Dr. Epstein is an epidemiologist who worked in public health and academia before joining the private sector. From 2010 to 2012, Dr. Epstein was Chief R&D Officer and President of Medco-UBC, a 2,400 person global research organization focused on conducting personalized medicine, health economics, drug safety, outcomes, and comparative effectiveness research on behalf of the biopharmaceutical, medical |
Illumina, Inc. 2016 Proxy Statement • 22
device, and diagnostics industries. Prior to this role, Dr. Epstein was Medco’s Chief Medical Officer for 13 years, where he led formulary development, clinical guideline development, drug information services, personalized medicine program development, and client analytics and reporting. Dr. Epstein is also the former President of the International Society of Pharmacoeconomics and Outcomes Research (ISPOR), and has served on the |
Illumina, Inc. 2014 Proxy Statement • 20
Other Public Company Board Service: Fate Therapeutics, Inc. (2014 to present); Veracyte, Inc. (2015 to present) Past Public Company Board Service (since 2011): AVEO Pharmaceuticals, Inc. (2012 to present)
In selecting Dr. Epstein as a past nominee for election to the Board of Directors, the Board considered, among other things, Dr. Epstein’s in-depth experience and practical knowledge of how molecular diagnostic tests are reimbursed and the issues raised by payors and other evidentiary authorities. As our technology and products are increasingly utilized in molecular diagnostics and clinical settings, Dr. Epstein’s experience will contribute to the Board’s understanding of these markets and the risks and opportunities associated with operating in markets regulated by the U.S. Food and Drug Administration.
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Illumina, Inc. 2014 Proxy Statement • 22
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Roy A. Whitfield
Director since: 2007
Independent | Mr. Whitfield has been a |
Illumina, Inc. 2016 Proxy Statement • 23
Mathematics from Oxford University and an M.B.A. from Stanford University.
Other Public Company Board Service:Incyte Corporation (1991 to present); Nektar Therapeutics (2000 to present)
In selecting Mr. Whitfield as a past nominee for election to the Board of Directors, the Board considered, among other things, Mr. Whitfield’s management and governance experience in the biotechnology and genomics industries gained primarily through his involvement in leading the growth and development of Incyte Corporation. The Board of Directors believes that Mr. Whitfield contributes to the Board’s understanding of the risks and opportunities faced by a rapidly growing global business. In addition, Mr. Whitfield’s experience as a management consultant contributes to the Board’s strategic understanding and review of our business opportunities. Mr. Whitfield also served as a director of Solexa, Inc. at the time we acquired Solexa, and through this position he gained an understanding of the DNA sequencing market and associated product development issues.
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Illumina, Inc. 20142016 Proxy Statement • 2324
Our business is managed under the direction of the Board of Directors. Our certificate of incorporation and bylaws provide for a classified Board of Directors consisting of three classes of Directors with staggered three-year terms. The Board has determined that a majority of the members of the Board, specifically Dr. Arnold, Mr. Bradbury, Mr. Bowman, Ms. Eastham, Dr. Epstein, Dr. Möller, Dr. Rastetter, Dr. Walt, and Mr. Whitfield, are independent Directors under the rules of The NASDAQ Global Select Market.
The Board of Directors intends to hold executive sessions of the non-management Directors following each regularly scheduled in-person meeting of the Board of Directors. Executive sessions do not include any employee Directors of the Company. At its meetings during the fiscal year ended December 29, 2013January 3, 2016 (“fiscal 2013”2015”), the Board of Directors regularly met in executive sessions of non-employee Directors.
The Board of Directors has adopted Corporate Governance Guidelines outlining its duties. These guidelines can be viewed on our website atwww.illumina.com by clicking on “Company,” then “Investor Relations,” and then onunder “Corporate Governance.” The Board of Directors meets regularly to review significant developments affecting the Company and to act on matters requiring Board of Directors’ approval. The Board of Directors held 10eight formal meetings during fiscal 2013 and acted two times by written consent.2015. Board members are requested to make attendance at Board and Board committee meetings a priority, to come to meetings prepared, having read any materials provided to the Board of Directors prior to the meeting, and to participate actively in the meetings.
During fiscal 2013,2015, each Directordirector attended, in person or by telephone, at least 75% of the total number of meetings of both the Board of Directors and Board committees on which such Directordirector served during the period. Board members are invited to attend our annual meetings of stockholders, but they are not required to do so. We reimburse the travel expenses of any Directordirector who travels to attend the annual meetings. SixTwo members of the Board of Directors attended our 20132015 annual meeting of stockholders.
The Board of Directors and our management believe that good corporate governance is an important component in enhancing investor confidence in the Company and increasing stockholder value. The imperative to continue to develop and implement best practices throughout our corporate governance structure is fundamental to our strategy to enhance performance by creating an environment that increases operational efficiency and ensures long-term productivity and growth. Sound corporate governance practices also ensure alignment with stockholder interests by promoting fairness, transparency, and accountability in business activities among employees, management, and the Board of Directors.
Illumina, Inc. 20142016 Proxy Statement • 2425
We maintain a corporate governance page on our website that includes key information about our corporate governance initiatives, including our Corporate Governance Guidelines, Code of Ethics, and charters for each of the committees of the Board of Directors, including the Audit Committee, the Compensation Committee, and the Nominating/Corporate Governance Committee, and the Diagnostics Advisory Committee. The corporate governance page can be found on our website atwww.illumina.com by clicking on “Company,” then “Investor Relations,” and then onunder “Corporate Governance.”
We separate the positionsCurrently, our Board leadership structure consists of Chief Executive Officera Lead Independent Director, a Chairman (who is also our CEO), and Chairman of the Board in recognition of the differences between the two roles. Our Chief Executive Officer is responsiblestrong committee chairs. This structure allows one person to speak for setting the strategic direction forand lead both the Company and its day-to-daythe Board, while also providing for effective independent board oversight through an independent lead director. At a Company growing as rapidly as Illumina and serving increasingly diverse markets, we believe the CEO is in the best position to focus the independent directors’ attention on the issues of greatest importance to the Company and our stockholders. We also believe that our structure provides independent Board leadership and performance,engagement while providing the Chairmanbenefit of having our CEO, the Board provides guidance toindividual with primary responsibility for managing the Chief Executive Officer, reviews the schedules and agendas forCompany’s day-to-day operations, chair regular Board meetings as key business and presides over meetings of the full Board. The Board of Directors believes that this leadership structure is best for the Company at the current time, as it appropriately balances the need for the Chief Executive Officer to run the Company on a day-to-day basis with significant involvement and authority vested in an outside independent board member. In addition, the Board of Directors believes that therestrategic issues are advantages to having an independent Chairman for matters such as communications and relations between the Board, the Chief Executive Officer, and other members of senior management; in assisting the Board in reaching consensus on particular strategies and policies; and in facilitating robust Director, Board, and Chief Executive Officer evaluation processes. Under our Corporate Governance Guidelines, our independent Chairman is responsible for:
In performing the duties described above, our independent Chairman is expected to consult with the Chairs of the appropriate Board committees and solicit their participation in order to avoid diluting the authority and responsibilities of such Committee Chairs.discussed.
Board’s Role in Risk Oversight
Risk Oversight Generally
The Board of Directors is responsible for overseeing our risk management. To assist its oversight function, the Board has delegated many risk oversight functions to the Audit Committee. Under its charter, the Audit Committee is responsible for providing advice to the Board with respect to our risk evaluation and mitigation processes, including, in particular, the processes utilized by management for identifying, evaluating, and mitigating strategic, financial, operational, regulatory, and external
Illumina, Inc. 2014 Proxy Statement • 25
risks inherent in our business. The Audit Committee also oversees our internal audit function. In addition to the Audit Committee’s work in overseeing risk management, our full Board regularly engages in discussions of the most significant risks that we face and how these risks are being managed, and the Board receives reports on risk management from our senior officers and outside consultants engaged to provide an enterprise-level review of the risks facing the Company.
Our senior executives provide the Board of Directors and its committees with regular updates about our strategies and objectives and the risks inherent within them at Board and committee meetings and in regular reports. Board and committee meetings also provide a venue for Directors to discuss issues of concern with management. The Board of Directors and committees call special meetings when necessary to address specific issues or matters that should be addressed before the next regularly scheduled meeting. In addition, our Directors have access to our management at all levels to discuss any matters of interest, including those related to risk. Those members of management most knowledgeable about the applicable issues attend Board meetings to provide additional insight into items being discussed, including exposures and mitigation strategies with respect to various risks. In addition, the Company’s General Counsel and the Company’s Chief Financial Officer report directly to our Chief Executive Officer, providing him with visibility to our risk profile. The Board of Directors believes that the work undertaken by the Audit Committee, together with the work of the full Board and the Chief Executive Officer,CEO, enables the Board to effectively oversee our risk management function.
Illumina, Inc. 2016 Proxy Statement • 26
Compensation Programs
The Compensation Committee, together with senior management, reviews compensation programs and benefits plans affecting employees generally (in addition to those applicable to our executive officers), and we have concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. We also believe that our incentive compensation arrangements provide incentives that do not encourage risk-taking beyond our ability to effectively identify and manage significant risks; are compatible with effective internal controls and our risk management practices; and are supported by the oversight and administration of the Compensation Committee with regard to executive compensation programs.
Committees of the Board of Directors
The Board of Directors has fourthree standing committees to facilitate and assist the Board in the execution of its responsibilities. These committees are currently the Audit Committee, the Compensation Committee, and the Nominating/Corporate Governance Committee, and the Diagnostics Advisory Committee. In accordance with The NASDAQ Global Select Market listing standards, allAll of the committees are composed solely of non-employee, independent Directors. Charters for each committee are available on our website atwww.illumina.com by first clicking on “Company,under “Committee Composition.” then “Investor Relations,” and then on “Corporate Governance.” The charter of each committee is also available in print to any stockholder who requests it.
Illumina, Inc. 2014 Proxy Statement • 26
Audit Committee
The Audit Committee represents and assists the Board by providing oversight of the Company’s accounting and financial reporting processes and audits of its financial statements on behalf of the Board of Directors and provides advice with respect to the Company’s risk evaluation and mitigation processes. The Audit Committee’s duties and responsibilities under its charter include monitoring and advising the Board on:
• | the integrity of the Company’s financial statements and disclosures; |
• | the independent auditor’s qualifications and independence; |
• | the performance of the Company’s internal audit function and independent registered public accounting firm; |
• | the adequacy and effectiveness of the Company’s internal controls; |
• | the Company’s compliance with legal and regulatory requirements; and |
• | the processes utilized by management for identifying, evaluating, and mitigating strategic, financial, operational, regulatory, and external risks inherent in the Company’s business. |
The Board of Directors has unanimously determined that all Audit Committee members are financially literate under current NASDAQ listing standards, and at least one member has financial sophistication under NASDAQ listing standards. In addition, the Board of Directors has unanimously determined that all Audit Committee members qualify as an “audit committee financial expert” under SEC rules and regulations. Designation as an “audit committee financial expert” is an SEC disclosure requirement and does not impose any additional duties, obligations, or liability on any person so designated.
Illumina, Inc. 2016 Proxy Statement • 27
Compensation Committee
The primary function of the Compensation Committee is to discharge the Board’s duties and responsibilities relating to compensation of our non-employee Directors and executive officers, and oversee the design and management of our equity and other compensation plans. The Compensation Committee’s duties and responsibilities under its charter with respect to the compensation of our Directors and executive officers include:
• |
• |
• |
The Compensation Committee’s primary goal under its charter is to align closely the interests of our executive officers with those of our stockholders by its efforts to:
• | offer compensation opportunities that attract and retain executives whose abilities are critical to the long term success of the Company; |
• | motivate executives to perform to their highest level and reward outstanding achievement; |
Illumina, Inc. 2014 Proxy Statement • 27
• | maintain appropriate levels of risk and reward, assessed on a relative basis at all levels within the Company in proportion to individual contribution and performance and tied to achievement of financial, organizational, and management performance |
• | encourage executives to manage from the perspective of owners with an equity stake in the Company. |
The Chief Executive OfficerCEO may not participate in or be present during any deliberations or determinations of the Compensation Committee regarding his compensation or individual compensation objectives.
Mr. Flatley, our Chief Executive Officer,The CEO has been delegated limited authority to grant stock options and restricted stock units to any employee who has a title of or below the rank of “Vice President,” who is not designated as a “Section 16 Officer,” and who does not report directly to him. Mr. FlatleyThe CEO may exercise this authority without any further action required by the Compensation Committee; however, the Compensation Committee approves grant ranges based on employee job levels to guide Mr. Flatleythe CEO in the exercise of his authority and sets a maximum number of sharesindividual award values that may be granted under this authority. The purpose of this delegation of authority is to enhance the flexibility of equity administration and to facilitate the timely grant of equity awards to non-management employees, particularly new employees, within the specified limits approved by the Compensation Committee. At least annually, Mr. Flatleythe Compensation Committee reviews this authority and grant guidelines to ensure alignment with market and good governance practices. The CEO reports at least annually to the Compensation Committee on his exercise of this delegated authority duringauthority. In addition, the preceding 12 months.Compensation Committee reviews our equity award usage forecast on a quarterly basis as part of its administration duties within our stockholder-approved 2015 Stock and Incentive Plan.
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Nominating/Corporate Governance Committee
The Nominating/Corporate Governance Committee is responsible for overseeing matters of corporate governance, including the evaluation of the performance and practices of the Board of Directors. In particular, the Nominating/Corporate Governance Committee’s duties and responsibilities under its charter include:
identifying individuals qualified to serve as members |
Diagnostics Advisory Committee
The purpose of the Diagnostics Advisory Committee isBoard of the Company;
Illumina, Inc. 2014 Proxy Statement • 28
Compensation Committee Interlocks and Insider Participation
Our executive compensation program has been administered byNo member of the Compensation Committee of our Board of Directors. None of the members of the Compensation Committeeis, or ever has been, an officer or employee of ours. Nonethe Company. Furthermore, during fiscal 2015, none of our current executive officers has ever served as a member of a board of directors or compensation committee (or other board committee performing equivalent functions) of any otheranother entity that has or has had one or morewhere an executive officers servingofficer of such entity served as a member of our Board of Directors or Compensation Committee during fiscal 2013.Committee.
We have adopted a code of ethics that applies to all of our Directors, officers, and employees, including our principal executive officer and principal financial officer. This code of ethics is reviewed by the Nominating/Corporate Governance Committee of our Board of Directors on an annual basis and modified as deemed necessary. Our code of ethics is available for download from our website,www.illumina.com, by first clicking on “Company,” then “Investor Relations,” and then on under “Corporate Governance.” A copy of the Code of Ethics may also be obtained free of charge, from us upon a request directed to Illumina, Inc., 5200 Illumina Way, San Diego, California 92122, Attention: Investor Relations. We will disclose within four business days any substantive changes in or waivers of the Code of Ethics granted to our principal executive officer, principal financial officer, principal accounting officer, or controller, or persons performing similar functions, by posting such information on our website as set forth above rather than by filing a Form 8-K with the SEC.
The Board of Directors has delegated to the Nominating/Corporate Governance Committee the responsibility for reviewing and recommending to the Board nominees for Director.Board membership. In accordance with our Corporate Governance Guidelines, the Nominating/Corporate Governance Committee, in evaluating Board candidates, considers factors such as depth and breadth of
Illumina, Inc. 2016 Proxy Statement • 29
experience, wisdom, integrity, ability to make independent analytical inquiries, understanding of our business environment, and willingness to devote adequate time to Board duties, all in the context of an assessment of the needs of the Board at the time. The Nominating/Corporate Governance Committee seeks to ensure that at least a majority of Directors are independent under the rules of The NASDAQ Global Select Market, that members of our Audit Committee meet the financial literacy and sophistication requirements under the rules of The NASDAQ Global Select Market, and at least one of them qualifies as an “audit committee financial expert” under the rules of the SEC.
The Nominating/Corporate Governance Committee’s objective is to maintain a board of individuals of the highest personal character, integrity, and ethical standards, and that reflects a range of professional backgrounds and skills relevant to our business. For each of the nominees to the Board, the biographies shown above highlight the experiences and qualifications that were viewed as being among the most important by the Nominating/Corporate Governance Committee in concluding that
Illumina, Inc. 2014 Proxy Statement • 29
the nominee should serve as a Directordirector of the Company. The Nominating/Corporate Governance Committee considers diversity as one of many, but not dispositive, factors in identifying nominees for Director,director, including personal characteristics such as race and gender, as well as diversity in the experience and skills that contribute to the Board’s performance of its responsibilities in the oversight of a complex and highly-competitive global business. The Nominating/Corporate Governance Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees.
Process for Identifying and Evaluating Nominees
The Nominating/Corporate Governance Committee believes we are well-served by our current Directors. In the ordinary course, absent special circumstances or a material change in the criteria for Board membership, the Nominating/Corporate Governance Committee will re-nominate incumbent Directors who continue to be qualified for Board service and are willing to continue as Directors. If an incumbent Directordirector is not standing for re-election, or if a vacancy on the Board occurs between annual stockholder meetings, the Nominating/Corporate Governance Committee will seek out potential candidates for Board appointment who meet the criteria for selection as a nominee and have the specific qualities or skills being sought. In addition, from time to time the Board may seek to expand its ranks to bring in new Board members with special skills and/or experience relevant and useful to us at our particular stage of development. Director candidates will be selected based on input from members of our Board of Directors, our senior management, and, if the Nominating/Corporate Governance Committee deems appropriate, a third-party search firm. The Nominating/Corporate Governance Committee will evaluate each candidate’s qualifications and check relevant references; in addition, such candidates will be interviewed by at least one member of the Nominating/Corporate Governance Committee. Candidates meriting serious consideration will meet with all members of the Board of Directors. Based on this input, the Nominating/Corporate Governance Committee will evaluate which of the prospective candidates is qualified to serve as a Directordirector and whether the committee should recommend to the Board that this candidate be appointed to fill a current vacancy on the Board or presented for the approval of the stockholders, as appropriate.
Illumina, Inc. 2016 Proxy Statement • 30
The Nominating/Corporate Governance Committee will consider written proposals from stockholders for nominees for Directordirector under the same criteria described above but, based on those criteria, may not necessarily recommend those nominees to the Board of Directors. Any such nominations should be submitted to the Nominating/Corporate Governance Committee, via the attention of our Secretary, and should include the following information:
• | all information relating to such nominee that is required to be disclosed pursuant to the |
• | the names and addresses of the stockholder(s) making the nomination and the number of shares of our common stock that are owned beneficially and of record by such stockholder(s); and |
Illumina, Inc. 2014 Proxy Statement • 30
• | appropriate biographical information and a statement as to the qualification of the nominee, including the specific experience, qualifications, attributes, or skills of the nominee, demonstrating the relevance and usefulness to our company of such experience, qualifications, attributes, |
Nominations should be submitted in the timeframe described in our bylaws and under the caption “Stockholder Proposals for our 20152017 Annual Meeting” below.
From time to time, we have retained and may in the future retain the services of an independent third-party search firm to assist the Nominating/Corporate Governance Committee in identifying and evaluating potential candidates.
All interested parties who wish to communicate with the Board of Directors or any of the non-management Directors may do so by sending a letter to the Corporate Secretary, Illumina, Inc., 5200 Illumina Way, San Diego, California 92122, and should specify the intended recipient or recipients. All such communications will be forwarded to the appropriate Directordirector or Directorsdirectors for review, except for spam, junk mail, mass mailings, product complaints or inquiries, job inquiries, surveys, business solicitations or advertisements, or patently offensive or otherwise inappropriate material.
In addition, you may send, in an envelope marked “Confidential,” a written communication to the Chair of the Audit Committee, via the attention of our Corporate Secretary, at Illumina, Inc., 5200 Illumina Way, San Diego, California 92122. All such envelopes will be delivered unopened to the Chair of our Audit Committee.
The Board of Directors, acting on the recommendation of the Compensation Committee, has adopted stock ownership guidelines that are applicable to each of our non-employee Directors, each of our executive officers who is subject to the restrictions of Section 16 of the Securities Exchange Act, of 1934, and each of our officers having a title of “Senior Vice President” or above. Under the ownership guidelines each individual subject to the guidelines is expected to own and hold shares of our common stock having an aggregate value at least equal to:
Title | Multiple |
Non-employee director | |||
Chief Executive Officer | 5x base salary | ||
President | 3x base salary | ||
Executive Vice President | 2x base salary | ||
Senior Vice President | 1x base salary | ||
Section 16 officer, if not covered above | 1x base salary |
Illumina, Inc. 2014 Proxy Statement • 31
Under the ownership guidelines, each individual subject to the guidelines is required to achieve compliance with the applicable ownership levels set forth above within three years from the date such individual Directordirector or officer first became subject to the guidelines, which is typically from the latereither as a result of when such individual joined the Companya new hire or March 8, 2010 (the effective date of the ownership guidelines).promotion.
Unvested shares of restricted stock, unvested restricted stock units (“RSUs”), unvested performance stock units (“PSUs”), and unvested stock options do not count towards satisfaction of the ownership guidelines. Because we do not count such unvested awards, even if such awards are time-vesting-only, we believe that our ownership policy is more robust than ownership policies adopted by other companies that may have higher ownership thresholds but count unvested awards if the passage of time is the only vesting requirement.
During such time as a covered officer or Directordirector is not in compliance with his or her applicable ownership guidelines, such officer or Director:director:
• | is required to retain an amount equal to 100% of the net shares of common stock received as a result of the vesting of restricted stock or |
• | may not establish a qualified trading plan (i.e., a Rule 10b5-1 trading program) or modify an existing qualified trading plan to increase the number of shares of our common stock to be sold under such plan (under our Insider Trading Policy our Directors, executive officers, and each of our officers having a title of “Senior Vice President” or above may only sell shares of our common stock pursuant to a qualified trading plan). |
Our Directors play a critical role in guiding our strategic direction and overseeing the management of the Company. Ongoing developments in corporate governance and financial reporting have resulted in an increased demand for such highly qualified and productive public company directors. The many responsibilities and risks and the substantial time commitment of being a director of a public
Illumina, Inc. 2016 Proxy Statement • 32
company require that we provide adequate incentives for our Directors’ continued performance by paying compensation commensurate with our Directors’ workload. Our non-employee Directors are compensated based upon their respective levels of Board participation and responsibilities, including service on Board committees. Directors who are our employees, such as Messrs. Flatley and deSouza, receive no separate compensation for their services as Directors.
Our Directordirector compensation is overseen by the Compensation Committee of our Board of Directors, which makes recommendations to the Board of Directors on the appropriate amount and structure of our programs in light of then-current competitive practice. The Compensation Committee typically receives advice and recommendations from an independent compensation consultant with respect to its determination on Directordirector compensation matters.
Illumina, Inc. 2014 Proxy Statement • 32
We use a combination of cash and stock-based compensation to attract and retain qualified candidates to serve on the Board of Directors.
Annual Retainer
During fiscal 2013,2015, each of our non-employee Directors was eligible to receive an annual cash retainer of $50,000,$55,000, and the Chairman of the Board, if not an employee of the Company, was eligible to receive an additional $50,000 (increased from $20,000 effective immediately following the 2013 annual meeting of stockholders on May 29, 2013). The Board of Directors approved this increase, in part, because the Board determined that effective immediately following the 2013 annual meeting of stockholders the Chairman would be limited to serving on no more than one Board committee of the Chairman’s choosing and as a non-voting, ex officio member of all other Board committees. The Board of Directors has determined not to make any changes to the amount of the annual retainers for the fiscal year ending on December 28, 2014.$50,000.
Committee Fees
In addition, during fiscal 20132015 each of our non-employee Directors serving on one or more Board committees was eligible to receive the applicable fees set forth below.
Fiscal 2013 Board Committee Fees ($) | ||||||||
Audit Committee | Compensation Committee | Nominating/Corporate Governance Committee | Diagnostics Advisory Committee | |||||
Chairperson | 25,000 | 25,000 | 12,500 | 12,500 | ||||
Member | 15,000 | 15,000 | 7,000 | 7,000 |
The Board of Directors has determined not to make any changes to the foregoing applicable fees for the fiscal year ending on December 28, 2014.
Fiscal 2015 Board Committee Fees ($) | ||||||
Audit Committee | Compensation Committee | Nominating/Corporate Governance Committee | ||||
Chairperson | 25,000 | 25,000 | 15,000 | |||
Member | 15,000 | 15,000 | 10,000 |
Stock in Lieu of Cash Compensation
Non-employee Directors may elect to receive shares of our common stock in lieu of all, but not less than all, cash retainers and Board committee fees (discussed above) otherwise payable by the Company to such Directordirector in a given calendar year. Shares issued to an eligible Directordirector electing to receive cash compensation in the form of shares will not be subject to vesting or forfeiture restrictions and will be issued on a quarterly basis. The number of shares issued to an eligible Directordirector electing to receive shares in lieu of cash will equal the amount of cash compensation otherwise payable by the Company to such Directordirector for the immediately preceding calendar quarter, divided by the weighted average closing price of our common stock during the immediately preceding calendar quarter (calculated by reference to each trading day during such quarter). No fractional shares will be issued, and in lieu of fractional shares, the Company will pay to such electing Directordirector an amount of cash equal to any such fractional share multiplied by the weighted average closing price of our common stock during the immediately preceding calendar quarter (calculated by reference to each trading day during such quarter).
Illumina, Inc. 20142016 Proxy Statement • 33
Annual Awards
In connection with our 2013 annual meeting of stockholders, each of our non-employee Directors received a stock option grant of 7,600 shares and an award of 2,500 RSUs, in each case granted under our Amended and Restated 2005 Stock and Incentive Plan. Each stock option grant has an exercise price equal to the fair market value of our common stock on the grant date, May 29, 2013, which was the date of our 2013 annual meeting of stockholders. Both the stock options and the RSUs vest on the earlier of (i) the one year anniversary of the grant date of the option or award and (ii) the date immediately preceding the date of the annual meeting of our stockholders for the year following the year of grant of the option or award.
In January 2014, the Board of Directors, acting on the recommendation of the Compensation Committee, determined to adopt a value-based approach to awarding annual equity grants pursuant to which the number of shares to be granted will be determined by reference to a target value divided by the closing price of our common stock on the date of grant. For the fiscal year ending on December 28, 2014, each of our non-employee Directors will beis eligible to receive a RSUrestricted stock unit (RSU) award having an award value of $400,000 (as determined based on the fair market value of the Company’s common stock on the date of grant), which award is to be made automatically on the date of the 2014such annual meeting of stockholders. Such annual RSU awards will vest on the earlier of the first anniversary of the grant date or the day prior to the annual meeting of stockholders immediately following the annual meeting at which the award is granted, in both cases subject to continued service as a board member through the vesting date.date
Accordingly, in connection with our 2015 annual meeting of stockholders, on May 27, 2015, each of our non-employee Directors who were serving at the time of the 2015 annual meeting received an award of 1,910 RSUs (having an award value of $400,088 based on the closing price of our common stock on May 27, 2015, of $209.47). The RSUs will vest on the earlier of (i) the one year anniversary of the grant date of the award and (ii) the date immediately preceding the date of the 2016 annual meeting of stockholders.
Awards Upon First Joining the Board of Directors
In January 2014, the Board of Directors, acting on the recommendation of the Compensation Committee, determined that for theDuring fiscal year ending on December 29, 2013,2015 each non-employee director upon first joining the Board, of Directors, each non-employee Director iswhether through election by our stockholders or appointment by our Board to fill a vacancy, was eligible to receive a one-time RSU award having an award value of $1,070,000 (as determined based on the fair market value of the Company’s common stock on the date of grant), which will become effective on the date on which such person becomes a non-employee Director, whether through election by our stockholders or appointment by our Board of Directors to fill a vacancy.. An employee Directordirector who ceases to be an employee but remains a Directordirector will not receive this initial RSU award. Such initial RSU award will vest over a four-year period, with 25% of the RSU vesting on each of the first four anniversaries of the grant.
In January 2016, the Board of Directors, acting on the recommendation of the Compensation Committee, determined that each non-employee director upon first joining the Board after January 28, 2016, whether through election by our stockholders or appointment by our Board to fill a vacancy, would be eligible to receive a one-time RSU award having an award value of two times the annual RSU award (currently $800,000 based on an annual award value of $400,000), as determined based on the fair market value of the Company’s common stock on the date of grant.
Directors who receive RSUs are given the opportunity, at the time they execute award agreements providing for the RSU grant, to elect to receive, at the time the RSU vests, a portion of the award in cash rather than in shares in order to enable the Directordirector to satisfy his or her obligation to pay the federal income tax that becomes due at the time of such vesting.
In addition to the cash and equity compensation described above, we reimburse our non-employee Directors for their expenses incurred in connection with attending Board and committee meetings. We do not provide Directors with additional compensation for attending Board or committee meetings.
Illumina, Inc. 20142016 Proxy Statement • 34
Non-Employee Director Compensation
The following table summarizes the total compensation paid by the Company to theour non-employee Directors for the fiscal 2013.2015.
Name(1) | Fees Earned or Paid in Cash ($)(2) | Stock Awards ($)(3)(4) | Option Awards ($)(3)(5) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation ($) | Total ($) | Fees Earned or Paid in Cash ($)(2) | Stock Awards ($)(3)(4) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation ($) | Total ($) | ||||||||||||||||||
William H. Rastetter | 128,654 | 177,725 | 224,305 | — | — | — | 530,684 | 120,000 | 400,088 | — | — | — | — | 520,088 | ||||||||||||||||||
A. Blaine Bowman | 83,769 | 177,725 | 224,305 | — | — | — | 485,799 | 95,000 | 400,088 | — | — | — | — | 495,088 | ||||||||||||||||||
Daniel M. Bradbury | 78,538 | 177,725 | 224,305 | — | — | — | 480,568 | 87,500 | 400,088 | — | — | — | — | 487,588 | ||||||||||||||||||
Karin Eastham | 80,131 | 177,725 | 224,305 | — | — | — | 482,161 | 91,250 | 400,088 | — | — | — | — | 491,338 | ||||||||||||||||||
Robert S. Epstein | 61,092 | 177,725 | 224,305 | — | — | — | 463,122 | 73,462 | 400,088 | — | — | — | — | 473,550 | ||||||||||||||||||
Gerald Möller | 62,500 | 177,725 | 224,305 | — | — | — | 464,530 | |||||||||||||||||||||||||
Jeffrey T. Huber(6) | 55,000 | 400,088 | — | — | — | — | 455,088 | |||||||||||||||||||||||||
Gerald Möller(7) | 31,577 | — | — | — | — | — | 31,577 | |||||||||||||||||||||||||
David R. Walt | 57,000 | 177,725 | 224,305 | — | — | — | 459,030 | 66,250 | 400,088 | — | — | — | — | 466,338 | ||||||||||||||||||
Roy A. Whitfield | 77,923 | 177,725 | 224,305 | — | — | — | 479,953 | 85,000 | 400,088 | — | — | — | — | 485,088 |
(1) | Mr. Flatley, our Chief Executive Officer, and Mr. deSouza, our President, are not included in this table as both are employees and receive no additional compensation for service as a |
(2) | Includes the following number of shares received in lieu of cash payments: (a) |
(3) | This reflects the grant date fair value of awards granted during fiscal |
(4) | Each of the then-serving Directors received an award of |
(5) |
(6) | Mr. Huber retired from the |
(7) | Dr. Möller retired from the Board effective as of May |
The following table shows the total number of unvested RSUs and total stock options held by each of our non-employee Directors as of December 29, 2013:January 3, 2016:
Name | Unvested RSUs Outstanding | Vested Stock Options Outstanding | Unvested Stock Options Outstanding | Unvested RSUs Outstanding | Vested Stock Options Outstanding | Unvested Stock Options Outstanding | ||||||||||||
William H. Rastetter | 2,500 | 117,100 | 7,600 | 1,910 | 108,700 | — | ||||||||||||
A. Blaine Bowman | 2,500 | 119,556 | 7,600 | 1,910 | 57,700 | — | ||||||||||||
Daniel M. Bradbury | 2,500 | 63,100 | 7,600 | 1,910 | 12,200 | — | ||||||||||||
Karin Eastham | 2,500 | 71,100 | 7,600 | 1,910 | 23,400 | — | ||||||||||||
Robert S. Epstein | 5,500 | 7,583 | 28,017 | 2,910 | 17,183 | 6,417 | ||||||||||||
Gerald Möller | 3,500 | 45,516 | 11,684 | |||||||||||||||
Jeffrey T. Huber(2) | 6,773 | — | — | |||||||||||||||
Gerald Möller(3) | — | — | — | |||||||||||||||
David R. Walt | 2,500 | 137,100 | 7,600 | 1,910 | 108,700 | — | ||||||||||||
Roy A. Whitfield | 2,500 | 88,300 | 7,600 | 1,910 | 46,450 | — |
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(1) | Dr. Rastetter retired from the Board effective as of January 28, 2016. |
(2) | Mr. Huber retired from the Board effective as of February 7, 2016. |
(3) | Dr. Möller retired from the Board effective as of May 27, 2015. |
Illumina, Inc. 20142016 Proxy Statement • 35
The following table sets forth the number of shares of our common stock beneficially owned by each of our Directorsdirectors and Directordirector nominees and each executive officer named in the Summary Compensation Table (the “named executive officers”), and by all of our Directors, Directordirectors, director nominees, and executive officers as a group.
The information set forth below is as of February 28, 2014,2016, and is based upon information supplied or confirmed by the named individuals. The address of each person named in the table below is c/o Illumina, Inc., 5200 Illumina Way, San Diego, California 92122.
Name | Common Stock Beneficially Owned (Excluding Stock Options)(1) | Stock Options Exercisable Within 60 Days of February 28, 2014(2) | Total Common Stock Beneficially Owned(1)(2) | Percent of Common Stock(3) | Common Stock Beneficially Owned (Excluding Stock Options)(1) | Stock Options Exercisable Within 60 Days of February 28, 2016(2) | Total Common Stock Beneficially Owned(1)(2) | Percent of Common Stock(3) | ||||||||||||||||||||||
Jay T. Flatley(4) | 324,204 | 1,508,125 | 1,832,329 | 1.4% | 470,726 | 390,000 | 860,726 | * | ||||||||||||||||||||||
Francis A. deSouza | 54,464 | — | 54,464 | * | ||||||||||||||||||||||||||
Marc A. Stapley | 2,934 | 14,220 | 17,154 | * | 33,483 | 46,297 | 79,780 | * | ||||||||||||||||||||||
Francis A. deSouza | - | - | - | * | ||||||||||||||||||||||||||
Charles E. Dadswell | 1,926 | - | 1,926 | * | ||||||||||||||||||||||||||
Christian O. Henry | 18,621 | 135,416 | 154,037 | * | 44,190 | 18,000 | 62,190 | * | ||||||||||||||||||||||
William H. Rastetter | 88,644 | 117,100 | 205,744 | * | ||||||||||||||||||||||||||
Tristan B. Orpin | 79,344 | 40,000 | 119,344 | * | ||||||||||||||||||||||||||
Frances Arnold | 200 | — | 200 | * | ||||||||||||||||||||||||||
A. Blaine Bowman | 9,548 | 119,556 | 129,104 | * | 12,573 | 57,700 | 70,273 | * | ||||||||||||||||||||||
Daniel M. Bradbury | 7,424 | 63,100 | 70,524 | * | 12,466 | 8,800 | 21,266 | * | ||||||||||||||||||||||
Karin Eastham | 5,784 | 61,100 | 66,884 | * | 8,425 | 23,400 | 31,825 | * | ||||||||||||||||||||||
Robert S. Epstein | 1,000 | 9,916 | 10,916 | * | 4,025 | 20,516 | 24,541 | * | ||||||||||||||||||||||
Gerald Möller | 11,120 | 47,850 | 58,970 | * | ||||||||||||||||||||||||||
David R. Walt(5) | 956,948 | 137,100 | 1,094,048 | * | 666,890 | 108,700 | 775,590 | * | ||||||||||||||||||||||
Roy A. Whitfield | 6,696 | 86,300 | 92,996 | * | 11,738 | 42,700 | 54,438 | * | ||||||||||||||||||||||
All Directors, Director nominees, and executive officers as a group (17 persons, including those Directors and executive officers named above) | 1,467,834 | 2,626,729 | 4,094,563 | 3.2% | ||||||||||||||||||||||||||
All directors, director nominees, and executive officers as a group (17 persons, including those directors and executive officers named above) | 1,578,798 | 911,653 | 2,490,451 | 1.7 | % |
* | Represents beneficial ownership of less than one percent (1%) of the issued and outstanding shares of common stock. |
(1) | Includes shares of stock beneficially owned as of February 28, |
(2) | Includes stock options that are exercisable as of February 28, |
(3) | Percentage ownership is based on |
(4) | Includes 6,000 shares owned by Mr. Flatley’s minor children. |
(5) | Includes |
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Illumina, Inc. 20142016 Proxy Statement • 36
As of February 28, 2014,2016, the following are the only persons known to us to be the beneficial owner of more than five percent of our common stock:
Name and Address of Beneficial Owner | Common Stock Beneficially Owned | Percent of Common Stock(1) | ||
FMR LLC(2) 245 Summer Street Boston, MA 02210 | 16,050,772 | 12.5% | ||
Baillie Gifford & Co.(3) Calton Square, 1 Greenside Row Edinburgh EH1 3AN Scotland UK | 15,281,229 | 11.9% | ||
Capital Research Global Investors(4) 333 South Hope Street, 55th floor Los Angeles, CA 90071 | 11,928,587 | 9.3% | ||
Morgan Stanley(5) 1585 Broadway New York, NY 10036 | 9,568,586 | 7.4% | ||
Prudential Financial, Inc.(6) 751 Broad Street Newark, NJ 07102 | 8,507,400 | 6.6% | ||
Jennison Associates LLC(7) 466 Lexington Avenue New York, NY 10017 | 8,499,055 | 6.6% | ||
BlackRock Inc.(8) 40 East 52nd Street New York, NY 10022 | 7,801,002 | 6.1% | ||
The Vanguard Group(9) 100 Vanguard Blvd. Malvern, PA 19355 | 6,795,804 | 5.3% |
Name and Address of Beneficial Owner | Common Stock Beneficially Owned | Percent of Common Stock(1) | ||
Baillie Gifford & Co.(2) Calton Square, 1 Greenside Row Edinburgh EH1 3AN Scotland UK | 17,495,160 | 11.9% | ||
Capital Research Global Investors(3) 333 South Hope Street, 55th floor Los Angeles, CA 90071 | 11,828,195 | 8.0% | ||
BlackRock, Inc.(4) 55 East 52nd Street New York, NY 10022 | 9,909,750 | 6.7% | ||
The Vanguard Group(5) 100 Vanguard Blvd. Malvern, PA 19355 | 8,555,575 | 5.8% |
(1) | Percentage ownership is based on |
(2) | This information is based on a Schedule 13G/A filed with the SEC on February |
(3) | This information is based on a Schedule 13G/A filed with the SEC on |
(4) | This information is based on a Schedule 13G/A filed with the SEC on February |
This information is based on a Schedule 13G filed with the SEC on February 11, |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of a registered class of the our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Executive officers, directors, and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms that they file.
To the our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended January 3, 2016, all Section 16(a) filing requirements applicable to our executive officers, directors, and greater than 10% beneficial owners were complied with, except the following:
• | A late Form 3 report was filed for Omead Ostadan on May 21, 2015, to report initial statement of holdings upon Mr. Ostadan becoming a Section 16(a) officer effective April 30, 2015. |
• | A late Form 4 report was filed for Roy Whitfield on September 9, 2015, to report stock options exercised on August 5, 2015. |
• | A late Form 4 report was filed for Tristan Orpin on December 14, 2015, to report awards granted on December 8, 2015. Mr. Orpin became a Section 16(a) officer effective December 7, 2015. |
• | A late Form 4 report was filed for Michel Bouchard on March 31, 2015, to report sale of shares on March 12, 2015, and a Form 5 was filed on February 17, 2016 reporting late sales of shares on March 19, 2015 and August 5, 2015. |
Illumina, Inc. 20142016 Proxy Statement • 37
The following table sets forth the names, ages, positions, and business experience during the past five years of our executive officers as of April 1, 2014:February 28, 2016:
|
|
Name | Age | Position | Year Joined Illumina | Recent Business Experience | ||||||||
Jay T. Flatley | 63 | Chairman and CEO | 1999 | 2016 – present: Chairman and CEO 2013 – 2016: CEO 1999 – 2013: President and CEO | ||||||||
Paul L. Bianchi | 54 | Senior Vice President, Human Resources | 2012 | 2012 – present: present position 2009 – 2012: senior vice president human resources at Risk Management Solutions, Inc. | ||||||||
Charles E. Dadswell | 57 | Senior Vice President, General Counsel & Secretary | 2013 | 2013 – present: present position 2011 – 2013: vice president, general counsel for North and Latin America, and corporate director of global intellectual property at bioMerieux | ||||||||
Francis A. deSouza | 45 | President | 2013 | 2013 – present: present position 2011 – 2013: group president, enterprise products and services for Symantec Corporation 2009 – 2011: senior vice president, enterprise security group at Symantec Corporation | ||||||||
Christian O. Henry | 48 | Executive Vice President & Chief Commercial Officer | 2005 | 2015 – present: present position 2014 – 2015: Senior Vice President & Chief Commercial Officer 2012 – 2014: Senior Vice President & General Manager, Genomic Solutions 2010 – 2012: Senior Vice President, Chief Financial Officer & General Manager, Life Sciences | ||||||||
Nicholas J. Naclerio, Ph.D. | 54 | Senior Vice President, Corporate and Venture Development | 2010 | 2015 – present: present position 2014 – 2015 : Senior Vice President, Corporate Development & General Manager, Enterprise Informatics 2010 – 2014: Senior Vice President, Corporate and Venture Development | ||||||||
Tristan B. Orpin | 50 | Executive Vice President, Clinical Genomics | 2002 | 2015 – present: present position 2014 – 2015: Senior Vice President & General Manager, Reproductive and Genetic Health 2010 – 2014: Senior Vice President & Chief Commercial Officer | ||||||||
Omead Ostadan | 44 | Executive Vice President, Operations, Products and Strategy | 2007 | 2015 – present: present position 2015 – 2015: Senior Vice President, Operations and Development 2011 – 2015: Senior Vice President, Product Development | ||||||||
Mostafa Ronaghi, Ph.D. | 47 | Senior Vice President & Chief Technology Officer | 2008 | 2008 – present: present position | ||||||||
Marc A. Stapley | 46 | Executive Vice President, Chief Administrative Officer & CFO | 2012 | 2015 – present: present position 2012 – 2015: Senior Vice President & CFO 2009 – 2012: senior vice president, finance at Pfizer, Inc. |
Illumina, Inc. 20142016 Proxy Statement • 38
The Compensation Committee of the Board of Directors determines the compensation for our executive officers. The Compensation Committee considers, adopts, reviews, and revises executive officer compensation plans, programs, and guidelines, and reviews and determines all components of each executive officer’s compensation. Compensation programs, and the compensation components, for the Chief Executive OfficerCEO are, additionally, subject to approval by the Board of Directors. The Compensation Committee also consults with management and Illumina’s employee compensation and benefits group regarding both executive and non-executive employee compensation plans and programs, including administering our equity incentive plans.
This section of the proxy statement explains how our executive compensation programs are designed and operate with respect to Illumina’s “named executive officers,” who are the CEO, CFO, and the three other most highly compensated executive officers in a particular year. For fiscal 2013,2015, our named executive officers are:
Named Executive Officer | Position | |
Jay T. Flatley |
CEO | |||
Francis A. deSouza | President | ||
Marc A. Stapley | Executive Vice President, Chief Administrative Officer & | CFO |
Christian O. Henry |
Tristan B. Orpin | Executive Vice President, Clinical Genomics |
In May 2013,2015, we held a stockholder advisory vote to approve the compensation of our named executive officers, commonly referred to as a “say-on-pay” vote. We received favorable consideration, with over 82%96% of stockholder votes cast approving the proposal. As a result, the Compensation Committee decided to retain our general approach in the 20142015 fiscal year. The Compensation Committee will consider the outcome of the annual say-on-pay votes when making future compensation decisions.
Compensation Philosophy and Objectives
Our executive compensation and benefit programs aim to encourage our executive officers to continually pursue strategic opportunities, while effectively managing our day-to-day operations. Specifically, we have created a compensation package that combines short- and long-term components (cash and equity, respectively) at the levels we believe are most appropriate to motivate and reward our executive officers. The Compensation Committee and our management believe that the proportion of at-risk, performance-based compensation should rise as an employee’s level of responsibility increases.
Our executive compensation program is designed to achieve four primary objectives:
• | attract, retain, and reward executives who contribute to our success; |
• | provide economic incentives for executives to achieve business objectives by linking executive compensation with our overall performance; |
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• | strengthen the relationship between executive pay and stockholder value through the use of long-term compensation; and |
• | reward individuals for their specific contributions to our success. |
Use of Market Data and Benchmarking
We strive to set executive compensation at competitive levels. This involves, among other things, establishing compensation levels that are generally consistent with levels at other companies with which we compete for talent.
During fiscal 2013,2015, the Compensation Committee retained an independent compensation consultant from Radford, an Aon Hewitt Company, as the Compensation Committee’s advisor reporting directly to the Chairperson. After considering all of the factors required by applicable NASDAQ rules, the Compensation Committee is satisfied with Radford’s independence.has concluded that no conflict of interest exists that would prevent Radford from serving as an independent consultant to the Compensation Committee. The Compensation Committee maintains sole authority to retain and determine the work to be performed by Radford. DuringWith respect to fiscal 2013,2015 compensation, the Compensation Committee directed Radford to conduct a comprehensive formal review and analysis of our executive compensation and incentive programs relative to competitive benchmarks. This review consisted of a benchmarking analysis of our executive compensation philosophy and practices against prevailing market practices of identified peer group companies and broader industry trends. The analysis included the review of the total direct compensation (inclusive of salary, cash bonuses,incentives, and equity awards) of our executive officers. It was based on an assessment of market trends covering available public information in addition to proprietary data provided by Radford. The
As our product and industry roadmap evolves and diversifies, we compete increasingly with technology sector companies for talent with the experience of integrating hardware, software, and science. This trend led the Compensation Committee to consider broadening the Company’s peer group was developed consideringto include companies withinwhose talent reflect the next generation of leaders required to support the transformation, at the clinician level, in genomics cloud computing and real-time data. Also, in light of our significantly increased market capitalization, accelerating growth rate, and evolving business characteristics, the Compensation Committee asked Radford to conduct an analysis to inform the Committee’s consideration of including relevant, high-growth companies as input for the compensation peer group for fiscal 2015.
The criteria used in the review included taking a broader industry that have similar business challengesview as well as emphasizing revenue growth, actual revenue (0.5x to 4x Illumina), market capitalization (0.5x to 4x Illumina), total shareholder return, and complexities where we might recruitresearch and lose executive talent.
development investment as a percentage of revenues. The Compensation Committee considered a numberalso considers criteria applied by corporate governance groups. The revised criteria resulted in Illumina’s placement between the 25th and 75th percentiles of factorspeer group companies for both revenue and market capitalization, whereas the previous peer group resulted in definingIllumina being at the 25th percentile for revenue growth and above the market 75th for market capitalization. Radford compiled relevant companies from the Pharmaceutical, Biotech and Tools; Technology Hardware and Equipment; Semiconductor and Semiconductor Equipment; and Software and Software Services sectors. The result was 13 new additions to the peer group includingfor fiscal 2015, with
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four of these companies being outside our traditional industry competitors ofgroup but whose executive officers manage similar revenue range, market capitalization,strategic and organization complexity, that we believe reflects the market for talent and stockholder investment.operating complexities. Many of companies comprising the industry competitorsupdated peer group are located in geographic areas in which we compete for talent, which reflectsincludes high cost-of-living areas and therefore impacts rates of pay.
The following companies made up theCompensation Committee reviews compensation practices and program design at peer group for fiscal 2013:companies to inform its decision-making process so it can set total compensation levels that it believes are commensurate with the Company’s scope and performance. The Compensation Committee believes that market data is one factor, and its executive compensation determinations are the result of many factors, including the Compensation Committee’s business judgment, which is informed by the experiences of the members of the Compensation Committee as well as input from, and peer group data provided by, the Compensation Committee’s independent compensation consultant.
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** In February 2014, Life Technologies Corporation was acquired by Thermo Fisher Scientific Inc.
WeGenerally, we target our total direct compensation, when you considerconsidering base salary and shortshort- and long-term incentives, for executive officers between the 60th and 75th percentiles of compensation paid to executives within our compensation peer group. The Compensation Committee reviews on an annual basis each pay element, and total direct compensation, in a range between the 25th and 75th percentiles. This provides the Compensation Committee with an understanding of the distribution of pay in the market assuming similar levels of experience, as well as individual and company performance. We aim to deliver total direct compensation between the 60th and 75th percentiles assuming achievement of our business goals and performance under our long-term incentive plan. We have set this target above the 50th percentile as a reflection of the level of stretch in the business plan as approved by our Board of Directors. Our focus on pay for performance ensures that we then only provide above market pay if we outperform the market.
The largest component of total direct compensation is delivered through equity-based awards, which, at greater than 75%, represents a larger percentage
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of total direct compensation than that of our peer group and serves to retain our executives and align their interests with those of our stockholders such that higher compensation is realized only for exceptional performance. We believe that our targeted compensation percentiles range appropriately reflectsreflect our position and historical and anticipated growth rates, in each case relative to those in our peer group. We may deviate from these general target levels to reflect the executive’s experience, the executive’s sustained performance level, and market factors as deemed appropriate by the Compensation Committee. The Compensation Committee reviews the information prepared by management from the Radford assessment, reviews each component of an executive’s compensation during the current year and prior years, and considers an executive’s contribution to the achievement of our strategic goals and objectives, the executive’s overall compensation, and other factors to determine the appropriate level and mix of compensation. An executive’s compensation is not determined by formula but, instead, in comparison to the market and within our companyIllumina to positions with similar responsibility and impact on operations.
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Fiscal 2015 Compensation Peer Group
The following companies made up the compensation peer group for fiscal 2015:
Alexion Pharmaceuticals, Inc. | IDEXX Laboratories, Inc. | salesforce.com, inc.(a) | ||
Biogen Inc. | Intuitive Surgical, Inc. | Thermo Fisher Scientific Inc. | ||
C. R. Bard, Inc. | Jazz Pharmaceuticals plc | Varian Medical Systems, Inc. | ||
CareFusion Corporation* | Juniper Networks, Inc.(a) | VMware, Inc.(a) | ||
Celgene Corporation | QIAGEN N.V. | Waters Corporation | ||
The Cooper Companies, Inc. | Regeneron Pharmaceuticals, Inc. | Workday, Inc.(a) | ||
Edwards Lifesciences Corporation | ResMed Inc. |
* | In March 2015, CareFusion Corporation was acquired by Becton, Dickinson and Company. |
(a) | Companies that are outside of our traditional industry group but whose executive officers manage similar strategic and operating complexities |
The following 11 companies were removed from our prior compensation peer group for fiscal 2015:
Affymetrix, Inc.* | Cepheid | National Instruments Corporation | ||
Alere Inc. | Covance, Inc. | NuVasive, Inc. | ||
Bio-Rad Laboratories, Inc. | Hologic, Inc. | PerkinElmer, Inc. | ||
Bruker Corporation | Life Technologies Corporation** |
* | In January 2016, Affymetrix announced that it had entered into an agreement to be acquired by Thermo Fisher Scientific Inc. |
** | In February 2014, Life Technologies was acquired by Thermo Fisher Scientific Inc. |
The following 13 companies were added to our compensation peer group for fiscal 2015:
Alexion Pharmaceuticals, Inc. | Jazz Pharmaceuticals plc | Thermo Fisher Scientific Inc. | ||
Biogen Inc. | Juniper Networks, Inc.(a) | Varian Medical Systems, Inc. | ||
C. R. Bard, Inc. | Regeneron Pharmaceuticals, Inc. | VMware, Inc.(a) | ||
CareFusion Corporation* | salesforce.com, inc.(a) | Workday, Inc.(a) | ||
Celgene Corporation |
* | In March 2015, CareFusion Corporation was acquired by Becton, Dickinson and Company. |
(a) | Companies that are outside of our traditional industry group but whose executive officers manage similar strategic and operating complexities |
Role of the Compensation Committee
The Compensation Committee has overall responsibility for approving and evaluating our executive officer compensation plans, policies, and programs. The Board of Directors has determined that each member of the Compensation Committee is independent within the meaning, and meets the requirements, of Rule 16b-3 of the Securities Exchange Act of 1934 and the rules of The NASDAQ Global Select Market. The Compensation Committee functions under a written charter, which was adopted by the Board of Directors. The charter is reviewed annually and updated as appropriate. A copy of the charter is available on our website atwww.illumina.com by clicking on “Company,” then “Investor Relations,” and then on “Corporate Governance. under “Committee Composition.”
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The primary responsibilities of the Compensation Committee are to:
• | recommend to the Board of Directors the amount and form of compensation to be paid to our |
• | review and approve the amount and form of compensation to be paid to our other executive officers and senior, non-executive employees; |
• | exercise oversight of our compensation practices for all other non-executive employees; |
• | administer our equity compensation plans; and |
• | review and make initial (in the case of new hires) and periodic (in the case of then-current Company employees) determinations with respect to who is (i) an “executive officer” of the Company with reference to Rule 3b-7 of the |
The Compensation Committee meets as often as it considers necessary to perform its duties and responsibilities. The Compensation Committee held sixfive meetings during fiscal 2013,2015, and it has held one meetingtwo meetings so far in 20142016 to review and finalize compensation elements related to fiscal 2013.2015. The Chairperson works with the Chief Executive OfficerCEO and the Senior Vice Presidenthead of Human Resources
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our human resources department to establish the meeting agenda in advance of each meeting. The Compensation Committee typically meets with the Chief Executive Officer, Chief Financial Officer,CEO, CFO, General Counsel, Senior Vice Presidenthead of Human Resources,our human resources department, our external counsel, and, on occasion, with an independent compensation consultant retained by the Compensation Committee. When appropriate, such as when the Compensation Committee is discussing or evaluating compensation for the Chief Executive Officer,CEO, the Compensation Committee meets in executive session without management. The Compensation Committee receives and reviews materials in advance of each meeting. These materials include information that the independent compensation consultant and management believe will be helpful to the Compensation Committee, as well as materials that the Compensation Committee has specifically requested, including benchmark information, historical compensation data, performance metrics and criteria, the Board of Directors’ assessment of our performance against our goals, and the Chief Executive Officer’sCEO’s assessment of each executive’s performance against pre-determined, individual objectives.
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Components and Analysis of Fiscal 20132015 Executive Compensation
For fiscal 2013,2015, the principal elements of our executive compensation program are summarized in the following table and described in more detail below.
Compensation Element | Objective | Designed to Reward | Key Features
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Base Salary | To provide a competitive, fixed level of cash compensation for the executive officers | Experience, expertise, knowledge of the industry, duties, scope of responsibility, and sustained (and expected) performance | Adjustments are based on an individual’s current (and expected) future performance, base salary relative to our compensation peer group, and internal equity | |||
Performance-Based Cash Compensation | To encourage and reward executive officers’ contributions in achieving strong financial and operational results by meeting or exceeding established goals | Success in achieving annual results | Annual performance-based cash compensation is based on a formula that includes achievement of corporate revenue and operating income goals and achievement of individual performance goals | |||
Long-Term Equity Compensation | To retain executive officers and to align their interests with those of our stockholders in order to increase overall stockholder value | Success in achieving long-term results | Grants typically consist of both restricted stock units (RSUs) and performance stock units (PSUs)
RSUs typically vest over a four-year period, with 25% of the RSU vesting
PSUs vest at the end of a three-year performance period based on the achievement of
Given our rapid growth and continued high growth profile, a majority of our executive officers’ compensation has been delivered, and is expected to be delivered, through long-term equity awards, with PSUs representing |
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Compensation Mix
The following charts show the mix of base salary, cash incentives, and long-term equity compensation for each of our CEO and our other named executive officers (NEOs) for fiscal 2015:
The following charts show the mix of performance-based compensation (cash incentives and PSUs) and non-performance based compensation (base salary and RSUs) for each of our CEO and our other named executive officers (NEO) for fiscal 2015:
Base Salary
Base salary is the primary fixed component of our executive compensation program. In general, executive officers with the highest level of responsibility have a lower percentage of their compensation fixed as base salary and a higher percentage of their compensation at risk.at-risk, being tied to performance. Base salary represented a relatively small percentage of total compensation (13%(14% in 2013)2015) for the named executive officers, as set forth under “Compensation Mix” on page 49.officers.
Salary levels are considered as part of our annual executive performance review process, as well as upon promotion or other material change in job responsibility. The Chief Executive OfficerOur CEO makes recommendations to the Compensation Committee for base salary changes for executive officers (excluding himself) based on performance and current pay relative to market practices for executive officers, other than himself. The Compensation Committee reviews these recommendations, makes any adjustments it considers necessary, and then approves the salary changes. The Compensation Committee
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recommends to the Board of Directors the base salary for our Chief Executive OfficerCEO based on performance and his current pay relative to other chief executives in our peer group. The Compensation Committee believes that increases to base salary should reflect the executive’s performance for the preceding year and pay level relative to similar positions in our peer group. Base salary increases also reflect anticipated future contributions of the executive.
Fiscal 20132015 Base Salaries
The average salary increase for all named executive officers in fiscal 2013 was 2.7%, which is consistent with the actions that were taken more broadly for employee compensation, generally, in the Company.
Named Executive Officer | Position | 2012 Base Salary ($) | 2013 Base Salary ($) | % Increase | ||||
Jay T. Flatley | Chief Executive Officer | 803,400 | 830,000 | 3% | ||||
Marc A. Stapley | Senior Vice President & Chief Financial Officer | 435,000 | 448,100 | 3% | ||||
Francis A. deSouza(1) | President | — | 700,000 | — | ||||
Charles E. Dadswell(2) | Senior Vice President, General Counsel & Secretary | — | 350,000 | — | ||||
Christian O. Henry | Senior Vice President & Chief Commercial Officer | 450,000 | 459,000 | 2% |
Named Executive Officer | Position | 2014 Base Salary ($) | 2015 Base Salary ($) | % Increase | ||||
Jay T. Flatley | Chief Executive Officer | 860,000 | 1,000,000 | 16% | ||||
Francis A. deSouza | President | 700,000 | 750,000 | 7% | ||||
Marc A. Stapley(1) | Executive Vice President, Chief Administrative Officer & CFO | 463,700 | 500,000 | 8% | ||||
Christian O. Henry(1) | Executive Vice President & Chief Commercial Officer | 475,100 | 500,000 | 5% | ||||
Tristan B. Orpin(1) | Executive Vice President, Clinical Genomics | 440,900 | 461,000 | 5% |
(1) |
The increase in fiscal 2015 salaries reflects strong operational and financial performance during the prior fiscal year overseen by our executive management team. In addition, the increase in Mr. Flatley’s and Mr. Stapley’s salaries reflects the positioning of our CEO and CFO compensation, respectively, relative to market and the updated compensation peer group for fiscal 2015. The increase in Mr. deSouza’s salary also reflects additional responsibilities assumed by Mr. deSouza with respect to our commercial operations during fiscal 2015.
Performance-Based Cash Compensation
Overview
In general, annualthe first quarter of 2015, the Compensation Committee approved a performance-based cash bonusescompensation funding mechanism for our executive officers are paid outthat operates under our Executive Variable Compensationthe terms of the Illumina, Inc. 2015 Stock and Incentive Plan, or eVCP. The eVCP is an “at-risk” bonus compensation program designedapproved by stockholders in May 2015, pursuant to foster a performance-oriented culture, where individual performance is aligned with organizational objectives. The eVCP provides guidelines for the calculation of annual non-equity, incentive-based compensation, subject towhich the Compensation Committee’s oversight and modification. Any executive officer that is hired duringCommittee sets pre-established financial performance goals at the year on or prior to October 1st is eligible to participate inbeginning of the eVCP for thatfiscal year. Any bonus received by such executive is proratedThe Compensation Committee then determines whether a cash incentive opportunity has been earned based on achievement of the amountpre-established performance goals following the filing of timethe applicable annual report on Form 10-K. This funding mechanism is intended to qualify cash incentive payments as performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986; however, the Company makes no assurances regarding final determinations under Section 162(m).
For fiscal year 2015, the Compensation Committee approved a funding mechanism goal for the executive officer served duringcash incentive program of at least $719,000,000 in non-GAAP operating income. Additionally, the plan year.Compensation Committee approved financial performance goals of at least $2,115,000,000 in revenue and $719,000,000 in non-GAAP operating income for our variable compensation program, which is the non-executive officer bonus program for eligible employees. The initial payout recommendations for the executive officer cash incentive program are based on the
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Target Amounts and Weighted Components
Formetrics of the non-executive officer bonus program. However, in no event would the actual payout recommendations exceed the maximum funded amounts as determined under the executive officer funding mechanism. Following the Compensation Committee’s determination of achievement of the pre-established financial performance goal of non-GAAP operating income for fiscal 2013,2015 under the executive officer cash incentive program, the Compensation Committee establishedfunded a maximum of $3,000,000 for the CEO and a maximum of $1,500,000 for each other named executive officer. The Compensation Committee then applied negative discretion to determine final payments considering such factors as (i) achievement of the financial performance goals set forth in the variable compensation program, (ii) the executive officer’s target cash bonus amounts under the eVCP,incentive amount, calculated as a percentage of each executive officer’s base salary. For our Chief Executive Officer, Mr. Flatley,salary, and (iii) the target cash bonus amount as a percentage of his base salary was 100%, which remained unchanged for fiscal 2013 as compared to fiscal 2012. For each of our named executive officers, other than Messrs. Flatleyofficer’s individual performance, contribution, and deSouza, the target cash bonus amount as a percentage of base salary was 55%, which also remained unchanged for fiscal 2013 as compared to fiscal 2012. Mr. deSouza was not eligible for a bonus under the eVCP plan for fiscal 2013 because he joined Illumina after the eVCP eligibility cut-off date of October 1, 2013.impact.
Under the eVCP, the target cash bonus amount is divided into three separate components with the following weighting (as a % of the target