filings.toolsItem 11. Executive Compensation
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Item 11. Executive Compensation
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
In this section we provide an explanation and analysis of the material elements of the compensation provided to our Chief Executive Officer, Chief Financial Officer and other three most highly compensated executive officers who were serving as executive officers at the end of our fiscal years 2019 and 2018 (collectively referred to as our “named executive officers”).
Our named executive officers and their positions during fiscal year 2019 were:
| Charles Liang | President, Chief Executive Officer and Chairman of the Board |
| Kevin Bauer | Senior Vice President, Chief Financial Officer |
| Don Clegg | Senior Vice President, Worldwide Sales |
| George Kao | Senior Vice President, Operations |
| David Weigand | Senior Vice President, Chief Compliance Officer |
Our named executive officers and their positions during fiscal year 2018 were:
| Charles Liang | President, Chief Executive Officer and Chairman of the Board |
| Kevin Bauer | Senior Vice President, Chief Financial Officer |
| Howard Hideshima (1) | Former Senior Vice President, Chief Financial Officer |
| Sara Liu | Senior Vice President |
| Phidias Chou (1) | Former Senior Vice President, Worldwide Sales |
| Wally Liaw (1) | Former Senior Vice President, International Sales |
| (1) | Messrs. Hideshima, Chou and Liaw resigned effective January 30, 2018. None of them received any severance or other enhanced benefits in connection with their termination of employment. |
Process Overview
The Compensation Committee of the Board discharges the Board’s responsibilities relating to compensation of all of our executive officers. During both fiscal year 2019 and 2018, the Compensation Committee was comprised of three non-employee directors, all of whom are independent pursuant to the applicable listing rules of NASDAQ and Rule 16b-3 under the Exchange Act.
The agenda for meetings is determined by the Chair of the Compensation Committee with the assistance of our Chief Financial Officer. Committee meetings are regularly attended by our Chief Financial Officer and our General Counsel. However, neither our Chief Financial Officer nor our General Counsel attends the portion of meetings during which his own performance or compensation is being discussed. Our Chief Financial Officer and General Counsel support the Compensation Committee in its work by providing information relating to our financial plans, performance assessments of our executive officers and other personnel-related data. In addition, the Compensation Committee has the authority under its charter to hire, terminate and approve fees for advisors, consultants and agents as it deems necessary to assist in the fulfillment of its responsibilities. As part of making an overall assessment of each named executive officer’s role and performance, and structuring our compensation programs for fiscal year 2019 and 2018, respectively, the Compensation Committee reviewed recommendations of our Chief Executive Officer, as well as publicly available peer group compensation data.
Compensation Philosophy and Objectives
Our executive compensation philosophy is to link the named executive officers’ compensation to, and reward, corporate performance. The base salaries, quarterly bonuses and equity award grants for the named executive officers are determined in part by the Compensation Committee reviewing data on prevailing compensation practices of comparable technology companies with whom we compete for executive talent, and generally evaluating such information in connection with our corporate goals and compensation practices, all as further described below. In general, our compensation philosophy has been unchanged over the last several years.
During fiscal year 2018, however, in order to take another step in linking executive pay to performance, our Compensation Committee decided that a significant portion of our Chief Executive Officer’s periodic long-term equity award should be in the form of performance-based restricted stock units (“PRSUs”). In general, PRSUs represent an opportunity to earn a defined number of shares of our common stock if we and/or the recipient achieve pre-set performance goals over time. PRSUs generally encourage long-term commitment to the company and commitment to performance that is designed to boost long-term company results. Mr. Liang received two PRSU grants in fiscal year 2018 that are further described below: one grant with a performance period of one year, running from July 1, 2017 to June 30, 2018; and a second grant with a performance period of two years, running from July 1, 2017 to June 30, 2019. The Compensation Committee currently plans to expand its use of performance-based equity awards like PRSUs in future long-term equity awards to named executive officers in order to more tightly link the investment interests of our stockholders to the compensation interests of our senior executive leaders.
The Compensation Committee considers various sources of comparative data when determining executive compensation levels, including compensation data from a sample of public companies assembled for the Compensation Committee by Radford, an Aon Hewitt company ("Radford"). For fiscal years 2019 and 2018 compensation decisions, the sample public companies consisted of the following:
| Ciena Corp | Infinera Corporation |
| Cray, Inc. | Juniper Networks, Inc. |
| Diebold Nixdorf, Inc. | NetApp, Inc. |
| Extreme Networks, Inc. | NETGEAR, Inc. |
| F5 Networks, Inc. | Plexus Corp. |
In selecting the companies for inclusion in the sample, the following factors were considered: industry comparability, net revenues, operating income, market capitalization and whether the company may compete against us for executive talent. These companies ranged in annual revenue from approximately $455.9 million to $6.1 billion for fiscal year 2019 and from approximately $392.5 million to $5.9 billion for fiscal year 2018. These companies also ranged in operating income (loss) from approximately $1.2 billion to $(362.9) million for fiscal year 2019 and from approximately $1.2 billion to approximately $(183.1) million for fiscal year 2018. For fiscal years 2019 and 2018, our net sales were $3.5 billion and $3.4 billion, respectively, and our operating income was $97.2 million and $94.7 million, respectively.
The Compensation Committee does not benchmark compensation based upon the sample companies reviewed nor does the Compensation Committee employ any other formulaic process in making compensation decisions. Rather, the Compensation Committee uses its subjective judgment based upon a review of all information, including an annual review for each officer of his or her level of responsibility, contributions to our financial results and our overall performance. The Compensation Committee's generalized assessment of these factors influences named executive officer compensation, and this information is not weighted in any specific manner. The Compensation Committee then uses comparative compensation data as a market check on its compensation decisions. Recognizing that over-reliance on external comparisons can be of concern, the Compensation Committee uses external comparisons as only one point of reference and is mindful of the value and limitations of comparative data.
For both fiscal years 2019 and 2018, the compensation paid to several of our named executive officers, including our Chief Executive Officer, was significantly below median compensation levels for similar positions at comparable companies. The Compensation Committee was comfortable with this outcome in light of the level of stock ownership held by such persons, particularly our CEO. Recently, to induce new executives to join our company, we have utilized fixed bonuses until such time as we establish a more formal short-term bonus program. In the future, we may need to increase our recruiting of new executives from outside of our company. This in turn may require us to pay higher or different forms of compensation.
Finally, we believe that creating stockholder value requires not only managerial talent but active and unified participation by all employees. In recognition of this belief, we try to minimize the number of compensation arrangements that are distinct or exclusive to one or more of our named executive officers. We currently provide base salary, quarterly bonus opportunities and long-term equity incentive compensation to a considerable number of our domestic and international employees, in addition to our named executive officers.
Additional Information on the Compensation Committee's Compensation Consultant
For both fiscal years 2019 and 2018, the Compensation Committee directly engaged Radford to assist it in obtaining and reviewing information relevant to named executive officer compensation decisions. The independence and performance of Radford are of the utmost importance to the Compensation Committee. In fiscal year 2019, after Radford had advised the Compensation Committee regarding executive officer compensation decisions, our management commissioned Radford to provide additional services to management for similar compensation studies to evaluate certain components of total compensation for our employees generally. The Compensation Committee has assessed the independence of Radford in the light of all relevant factors, including the additional services and other factors required by the Securities and Exchange Commission, that could give rise to a potential conflict of interest with respect to Radford during fiscal years 2019 and 2018. Based on these reviews and assessments, the Compensation Committee did not identify any conflicts of interest raised by the work performed by Radford.
The Role of the Most Recent Stockholder Say-on-Pay Vote
The Compensation Committee, with the entire Board, and our management value the opinions of our stockholders. At our last annual meeting of stockholders, which was held on March 1, 2017 (the "Fiscal Year 2016 Annual Meeting"), we provided our stockholders the opportunity to vote to approve, on an annual advisory basis, the compensation of our named executive officers as disclosed in the proxy statement for our Fiscal Year 2016 Annual Meeting. At the meeting, over 99% of the stockholders who were present and entitled to vote on this “say-on-pay” proposal approved the compensation of our named executive officers. Although the say-on-pay vote was non-binding, the Compensation Committee has considered, and expects to continue to consider, the outcome of the vote when making future compensation decisions for our named executive officers. In determining named executive officer compensation for both fiscal years 2019 and 2018, our Compensation Committee specifically considered the strong support expressed by our stockholders at the Fiscal Year 2016 Annual Meeting in the say-on-pay vote as one factor in deciding that our compensation policies and procedures for fiscal years 2019 and 2018 should largely remain consistent with our policies and procedures in prior years.
Role of Executive Officers in the Compensation Process
Each year, management provides recommendations to the Compensation Committee regarding compensation program design and evaluations of executive and company performance. In particular, in fiscal years 2019 and 2018, our Chief Executive Officer and Chief Financial Officer provided the Compensation Committee with their views on the appropriate company performance considerations for use in our short-term and long-term incentive programs. Management's input was provided based on its view of investor expectations and our operating plans and financial goals. At the end of fiscal years 2019 and 2018, our Chief Executive Officer provided the Compensation Committee with his views of the nature and extent of our performance against expectations. Finally, our Chief Executive Officer also provided the Compensation Committee with regular performance evaluations of the other named executive officers, including his views as to their impact on strategic initiatives and organizational goals, as well as their leadership behaviors. In fiscal years 2019 and 2018, the Compensation Committee also had access to the comparative compensation data discussed above, which had been furnished by Radford. While the Compensation Committee carefully considers all recommendations made by members of management, ultimate authority for all compensation decisions regarding our named executive officers rests with the Compensation Committee and the Board.
Fiscal Year 2019 and 2018 Named Executive Officer Compensation Components
For fiscal years 2019 and 2018, the principal components of compensation for our named executive officers were:
| • | Base salary; |
| • | Bonuses; and |
| • | Equity-based incentive compensation consisting of grants of: (1) for fiscal year 2019, stock options and/or time-based restricted stock units (“RSUs”) to certain named executive officers; and (2) for fiscal year 2018, stock options, time-based RSUs and/or PRSUs to certain named executive officers. |
Base Salary. We pay base salaries to our named executive officers to provide them with a base level of fixed income for services rendered to us. Base salaries for our named executive officers other than the Chief Executive Officer are determined annually by the Compensation Committee based upon recommendations by our Chief Executive Officer, taking into account factors such as salary norms in comparable companies and publicly available data regarding compensation increases in our industry, subjective assessments of the nature of the officers' positions and an annual review of the contribution and experience of each executive officer. For the Chief Executive Officer, the Compensation Committee considers substantially the same type of information, as well as our overall size in terms of annual revenue and number of employees and the Chief Executive Officer’s overall stock ownership.
In determining base salaries for fiscal year 2019, the Compensation Committee decided to maintain all named executive officer base salaries at fiscal year 2018 levels because the Compensation Committee believed it was not appropriate to increase base salaries at a time when we were still in the process of completing our review and analysis of the matters that led to the delay filing the 2017 10-K.
| Principal Position During Fiscal Year 2019 | Fiscal Year 2018 Base Salary Rate | Fiscal Year 2019 Base Salary Rate | Base Salary % Change | |||||||||
| Charles Liang | President, Chief Executive Officer and Chairman of the Board | $ | 365,160 | $ | 365,160 | — | % | |||||
| Kevin Bauer | Senior Vice President, Chief Financial Officer | $ | 329,600 | $ | 329,600 | — | % | |||||
| Don Clegg | Senior Vice President, Worldwide Sales | $ | 320,000 | $ | 320,000 | — | % | |||||
| George Kao | Senior Vice President, Operations | $ | 301,600 | $ | 301,600 | — | % | |||||
| David Weigand | Senior Vice President, Chief Compliance Officer | $ | 270,000 | $ | 270,000 | — | % |
In determining base salaries for fiscal year 2018, the Compensation Committee decided to maintain most named executive officer base salaries at fiscal year 2017 levels, except we increased the annual base salary rate for Mr. Bauer by 3.0% in the first quarter of fiscal year 2018 as an annual merit increase, prior to the time that Mr. Bauer was a named executive officer. The Compensation Committee determined to maintain the other named executive officers’ base salary rates at fiscal year 2017 levels in light of the matters that led to the delay in the company filing the 2017 10-K.
| Principal Position During Fiscal Year 2018 | Fiscal Year 2017 Base Salary Rate | Fiscal Year 2018 Base Salary Rate | Base Salary % Change | |||||||||
| Charles Liang | President, Chief Executive Officer and Chairman of the Board | $ | 365,160 | $ | 365,160 | — | % | |||||
| Kevin Bauer | Senior Vice President, Chief Financial Officer | $ | 320,000 | $ | 329,600 | 3.0 | % | |||||
| Howard Hideshima (1) | Former Senior Vice President, Chief Financial Officer | $ | 322,023 | $ | 322,023 | — | % | |||||
| Sara Liu | Senior Vice President | $ | 238,156 | $ | 238,156 | — | % | |||||
| Phidias Chou (1) | Former Senior Vice President, Worldwide Sales | $ | 287,317 | $ | 287,317 | — | % | |||||
| Wally Liaw (1) | Former Senior Vice President, International Sales | $ | 233,327 | $ | 233,327 | — | % |
| (1) | Mr. Hideshima, Mr. Chou and Mr. Liaw resigned effective January 30, 2018. |
Short-term bonuses. We did not pay short-term bonuses to our Chief Executive Officer or to our Senior Vice President and Co-Founder in either fiscal year 2018 or fiscal year 2019. With respect to our other named executive officers, we have individualized short-term cash bonus arrangements. In some cases, these arrangements pre-date the time that these individuals became named executive officers, and in other cases, the arrangements were negotiated at the time the individual was hired or was designated as named executive officer. In some cases, these arrangements provide for fixed bonus payments and in other cases these arrangements provide for variable bonus payments or a hybrid thereof.
Equity-Based Incentive Compensation. Stock options and other equity-based awards are an important component of the total compensation of our named executive officers. We believe that equity-based awards align the interests of each named executive officer with those of our stockholders. They also provide named executive officers a significant, long-term interest in our success and help retain key named executive officers in a competitive market for executive talent. Our 2016 Equity Incentive Plan authorizes the Compensation Committee to grant stock options and other equity-based awards to eligible named executive officers. The number of shares owned by, or subject to equity-based awards held by, each named executive officer is periodically reviewed and additional awards are considered based upon a generalized assessment of past performance of the executive and the relative holdings of other executive officers. The Compensation Committee has historically granted equity awards to employees on a two-year cycle.
Due to the fact that we failed to file our 2017 10-K by its due date, the effectiveness of our registration statement on Form S-8 covering equity awards under our 2016 Equity Incentive Plan was suspended. It has remained suspended since that time, and the effectiveness of this registration statement on Form S-8 will not be revived until we are able to file all our delinquent quarterly and annual reports with the SEC. On advice of counsel, the Compensation Committee has refrained from making equity awards to our named executive officers during the period of time when our registration statement on Form S-8 was not effective. The equity grants to named executive officers described below were all made either (i) at a time when our registration statement on Form S-8 was still effective or (ii) to individuals who had not been designated by the Board as executive officers at the time of grant, but who were, later in the same fiscal year, designated as executive officers by the Board. Once we are again current in our SEC filings and the effectiveness of our registration statement on Form S-8 is revived, our Compensation Committee expects that
it will grant additional equity awards to our named executive officers that will reflect the lack of equity awards since the effectiveness of our registration statement on Form S-8 was suspended.
Fiscal Year 2019 Grants. For fiscal year 2019, the Compensation Committee determined to provide certain named executive officers with grants of stock options and/or time-based RSUs. In particular, the Compensation Committee determined to provide the following awards:
| Type of Award | Quantity (at Target) of Award | Rationale for Providing (or Not Providing) the Award | |||
| Charles Liang | · N/A | · N/A | · Registration statement on Form S-8 not effective | ||
| Kevin Bauer | · N/A | · N/A | · Registration statement on Form S-8 not effective | ||
| Don Clegg | · Stock options · RSUs | · 20,000 · 6,000 | · Normal refresh grant when not an executive officer · Normal refresh grant when not an executive officer | ||
| George Kao | · Stock options | · 5,940 | · Normal refresh grant when not an executive officer | ||
| David Weigand | · Stock options · RSUs | · 20,000 · 10,000 | · Initial hire grant; not yet an executive officer · Initial hire grant; not yet an executive officer |
Stock Options. In general, for fiscal year 2019, the Compensation Committee used stock options to directly align the compensation interests of participating named executive officers with the investment interests of our stockholders. The stock options described above for Messrs. Clegg and Weigand were granted on July 31, 2018 with a 10-year term and an exercise price equal to the closing market price of our common stock on the grant date ($22.10 per share). The stock options described above for Mr. Kao were granted on October 30, 2018 with a 10-year term and an exercise price equal to the closing market price of our common stock on the grant date ($13.00 per share). These stock options vested as to 25% of the award on May 1, 2019, October 30, 2019 and April 30, 2019 for Messrs. Clegg, Kao and Weigand, respectively, and generally vested (or vest) as to 1/16th of the award per quarter after the first vesting date (fully vested by May 1, 2022, April 30, 2022 and October 30, 2022, respectively). The Compensation Committee provided for these vesting schedules in accordance with our company’s standard practice, which the Compensation Committee believes is common among the companies with whom we compete for talent. The Compensation Committee determined the particular size of the stock option grants for these named executive officers based on our company’s normal refresh grant practices (for Messrs. Clegg and Kao) or the amounts agreed upon at the time of hire (for Mr. Weigand).
RSUs. In general, for fiscal year 2019, RSUs represented the right to receive a defined number of shares of our common stock after completing a period of service established at the grant date, and encourage long-term commitment to the company. Messrs. Clegg and Weigand’s RSUs vested as to 25% of the award on May 16, 2019 and generally vested (or vest) as to 1/16th of the award per quarter after the first vesting date (fully vested by May 16, 2022). The Compensation Committee determined the particular size of the RSU awards for these individuals based on our company’s normal refresh grant practices (for Messrs. Clegg and Kao) or the amounts agreed upon at the time of hire (for Mr. Weigand).
Fiscal Year 2018 Grants. For fiscal year 2018, the Compensation Committee determined to provide certain named executive officers with grants of stock options, time-based RSUs and/or PRSUs. In particular, the Compensation Committee determined to provide the following awards:
| Type of Award | Quantity (at Target) of Award | Rationale for Providing (or Not Providing) the Award | |||
| Charles Liang | · Stock options · PRSUs (one-year performance period) · PRSUs (two-year performance period) | · 130,000 · 60,000 at target · 60,000 at target | · Refresh grant, registration statement on Form S-8 effective at time of grant · Refresh grant, adding performance element, registration statement on Form S-8 effective at time of grant · Refresh grant, adding different performance element, registration statement on Form S-8 effective at time of grant | ||
| Kevin Bauer | · N/A | · N/A | · Registration statement on Form S-8 not effective when became named executive officer | ||
| Howard Hideshima | · N/A | · N/A | · Not on schedule for refresh grant | ||
| Sara Liu | · N/A | · N/A | · Registration statement on Form S-8 not effective when scheduled for refresh grant | ||
| Phidias Chou | · N/A | · N/A | · Not on schedule for refresh grant | ||
| Wally Liaw | · N/A | · N/A | · Not on schedule for refresh grant |
Stock Options. In general, the Compensation Committee used stock options to directly align the compensation interests of the participating named executive officer with the investment interests of our stockholders. The stock options described above were granted on August 2, 2017 with a 10-year term and an exercise price equal to the closing market price of our common stock on the grant date ($26.95 per share). Mr. Liang’s stock options vested immediately as to 12.5% of the award and generally vested (or vest) as to 1/36th of the award per month after the first vesting date (fully vested by August 2, 2020). The Compensation Committee determined the particular size of the stock option grant for Mr. Liang based on its subjective judgment of the appropriate size of this option grant, when coupled with the PRSU grants discussed below, to provide appropriate incentive for Mr. Liang to continue to lead the company into the future.
PRSUs. In general, PRSUs represent an opportunity to earn a defined number of shares of our common stock if we and/or the recipient achieve pre-set performance goals over time. PRSUs generally encourage long-term commitment to the company and commitment to performance that is designed to boost long-term company results. Mr. Liang received two PRSU grants in fiscal year 2018: one grant with a performance period of one year, running from July 1, 2017 to June 30, 2018; and a second grant with a performance period of two years, running from July 1, 2017 to June 30, 2019. The rationale for the two separate grants was to have two different performance metrics on which Mr. Liang should focus: revenue growth in fiscal year 2018 (for the first PRSU) and non-GAAP operating margin for fiscal years 2018 and 2019 (for the second PRSU).
The first PRSU provided for 60,000 RSUs at target, with the opportunity to earn from zero to as many as 120,000 RSUs based on revenue growth in fiscal year 2018 over fiscal year 2017, as reflected in our audited financial statements; provided that if non-GAAP operating margin was not at least 3.5%, no RSUs would be earned, regardless of growth. Our company exceeded the revenue growth target for earning the maximum number of units for fiscal year 2018, so that Mr. Liang earned 120,000 RSUs. The second PRSU also provided for 60,000 RSUs at target (specified average non-GAAP operating margin over the two-year period comprised of fiscal years 2018 and 2019), as reflected in our audited financial statements and a defined calculation of adjustments from the GAAP financial statement to reach the non-GAAP operating margin. 60,000 units was the maximum number that could be earned under the second PRSU. Our company did not achieve the minimum average non-GAAP operating margin specified for fiscal years 2018 and 2019, so none of the units under the second PRSU were earned, and the PRSU expired. The Compensation Committee did not apply any discretion in determining whether the performance metrics had been met, nor did it adjust the metrics after they had been established.
In addition to their performance-based conditions, the PRSUs were subject to service-based vesting as follows: one-half of each earned award was to vest on the final day of its performance period; the remaining portion of the one-year PRSUs then vested on the last day of each of the company’s next 10 fiscal quarters; and the remaining portion of the two-year PRSUs would have then vested (or vest) on the last day of each of the company’s next six fiscal quarters (but no PRSUs were earned based on our company’s performance).
The Compensation Committee determined the particular size of PRSU grants for Mr. Liang based on its subjective judgment of the appropriate size for these PRSU grants when coupled with the option grant discussed above needed to provide appropriate incentive for Mr. Liang to continue to lead the company into the future and to focus on the specific performance metrics associated with each PRSU grant.
Stock Ownership Guidelines
Other than as discussed below under “Stock Retention Policy,” we currently do not require our directors or executive officers to own a particular amount of our common stock. The Compensation Committee is satisfied that stock and option holdings among our directors and named executive officers has historically been sufficient to provide motivation and to align this group’s interests with those of our stockholders. We have not been able to make equity awards to our Board members since the effectiveness of our registration statement on Form S-8 was suspended in October 2017. The Compensation Committee believes that, once we are again able to make such equity awards to our Board members, their stock and stock option holdings will again align their interests with the interests of our stockholders. Our insider trading policy prohibits any of our directors, executive officers, employees or contractors from engaging in any transactions in publicly-traded options, such as puts and calls, and other derivative securities, including any hedging or similar transaction, with respect to our common stock.
Stock Retention Policy
We have adopted a stock retention policy which requires that our Chief Executive Officer hold a significant portion of the shares of our common stock acquired under our equity incentive plan for at least 36 months. Under the policy, the Chief Executive Officer must retain at least 50% of all “net” shares received (“net” shares means those shares remaining after the sale or withholding of shares in payment of the exercise price, if applicable, and withholding taxes) for at least 36 months following the date on which an equity award is vested, settled or exercised, as applicable.
Recoupment Policy
We established a Recoupment Policy that is applicable to our named executive officers. Under the Recoupment Policy, if we are required to prepare an accounting restatement due to material noncompliance with the financial reporting requirements under United States securities laws, the Compensation Committee shall be entitled to recover from any current or former executive officer any excess incentive-based compensation received by such person during the three-year period prior to the date on which we are required to prepare the restatement. This Recoupment Policy applies to both equity-based and cash-based incentive compensation awards. The “excess incentive-based compensation” is the difference between the actual amount that was paid, and the amount that would have been paid under the restated financial results.
As indicated in the Explanatory Note, certain consolidated financial statements included in our 2017 10-K were restated. Our Compensation Committee has reviewed whether any of our executive officers or former executive officers received excess incentive-based compensation. The committee concluded that no executive officer or former executive officer received excess incentive-based compensation and, accordingly, determined not to pursue any potential recoupment from any executive officer or former executive officer.
Other Benefits
Health and Welfare Benefits
Our named executive officers receive the same health and welfare benefits as are offered to our other employees, including medical, dental, vision, life, accidental death and dismemberment and disability insurance coverage, flexible spending account participation and holiday pay. The same contribution amounts, percentages and plan design provisions are applicable to all employees. We offer these health and welfare benefits generally to help provide a competitive compensation package to employees to assist with the attraction, hiring and retention of employees.
Retirement Program
Our named executive officers may participate in the same tax-qualified, employee-funded 401(k) plan that is offered to all our other employees. We do not maintain a supplemental executive retirement plan, nor do we offer any defined benefit retirement plans or other defined contribution plans to our named executive officers. We offer these retirement program benefits generally to help provide a competitive compensation package to employees to assist with the attraction, hiring and retention of employees.
Perquisites
We do not provide perquisites or personal benefits to any of our named executive officers.
Employment Arrangements, Severance and Change of Control Benefits
We have not entered into employment agreements with any of our named executive officers. Mr. Hideshima had, and each of Messrs. Bauer, Clegg, Kao and Weigand currently has, a signed offer letter which provides for at-will employment. Each such offer letter provides for an initial base salary rate, an initial stock option grant and rights to participate in our employee benefit plans as described above. We do not have any written employment arrangements with Mr. Liang. We do not have any arrangements with any of our named executive officers that provide for any severance or other benefits in the event of termination or change of control of our company.
Tax and Accounting Treatment of Compensation
In our review and establishment of named executive officer compensation programs and payments, we consider, but do not place substantial emphasis on, the anticipated accounting and tax treatment of our compensation programs to us and our named executive officers. Among other factors that receive greater consideration are the net costs to us and our ability to effectively administer executive compensation in the short and long-term interests of stockholders.
Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), generally limits a company’s ability to deduct for tax purposes compensation in excess of $1.0 million paid in any single tax year to certain executive officers (and, beginning in 2018, certain former executive officers). Prior to 2017 tax reform legislation, compensation deemed to be performance-based in accordance with Section 162(m) could be exempt from this $1.0 million limitation, and compensation paid
to the Chief Financial Officer was not subject to the deductibility limitation of Section 162(m). After the 2017 tax reform legislation, performance-based exception no longer applies, except for the performance-based compensation that is grandfathered; and compensation paid to the Chief Financial Officer is subject to the deductibility limitation of Section 162(m). This legislation change does not have material impact to the Company for fiscal year 2019. The future impact is dependent on the future stock value of the Company. We continue to evaluate the impact of the 2017 tax reform legislation and related guidance and regulations for their potential impact on our company. Regardless of that impact, however, we will continue to design and maintain executive compensation arrangements that we believe will attract and retain the executive talent that we need to compete successfully, even if in certain cases such compensation is not deductible for federal income tax purposes. In addition, because of the uncertainties associated with the application and interpretation of Section 162(m) and the regulations issued thereunder, there can be no assurance that compensation intended to satisfy the requirements for deductibility under Section 162(m), as in effect prior to 2018, will in fact be deductible.
We account for equity compensation paid to our employees in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Stock-Compensation (“ASC Topic 718”), which requires us to estimate and record expenses for each award of equity compensation over the service period of the award.
We intend that our plans, arrangements and agreements will be structured and administered in a manner that complies with (or is exempt from) the requirements of Section 409A of the Code. Participation in, and compensation paid under, our plans, arrangements and agreements may, in certain instances, result in the deferral of compensation that is subject to the requirements of Section 409A. If our plans, arrangements and agreements as administered fail to meet certain requirements under or exemptions from Section 409A, compensation earned thereunder may be subject to immediate taxation and tax penalties.
Summary
The Committee believes that our compensation philosophy and programs are designed to foster a performance-oriented culture that aligns our named executive officers’ interests with those of our stockholders. The Committee also believes that the compensation of our named executive officers is both appropriate and responsive to the goal of building stockholder value.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis (“CD&A”) with our management. Based on this review and these discussions, the Compensation Committee recommended to the Board of Directors that the CD&A be included in this Annual Report.
This report has been furnished by the Compensation Committee.
Sherman Tuan, Chair
Hwei-Ming (Fred) Tsai
Saria Tseng
Fiscal Year 2019 Summary Compensation Table
The following table sets forth information concerning the reportable compensation for our 2019 named executive officers for the fiscal years ended 2019, 2018 and 2017, as applicable.
FISCAL YEAR 2019 SUMMARY COMPENSATION TABLE
| Name and Principal Position | Year | Salary ($)(1) | Bonus ($)(2) | Stock Awards ($)(3) | Option Awards ($)(4) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||
| Charles Liang | 2019 | $ | 386,212 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 386,212 | |||||||||||||||||
| President, Chief Executive Officer and Chairman of the Board | 2018 | 386,212 | — | 3,252,000 | 1,644,005 | — | — | — | 5,282,217 | |||||||||||||||||||||||||
| 2017 | 386,212 | 650 | — | — | — | — | — | 386,862 | ||||||||||||||||||||||||||
| Kevin Bauer | 2019 | 340,356 | 80,004 | — | — | — | — | — | 420,360 | |||||||||||||||||||||||||
| Senior Vice President and Chief Financial Officer | 2018 | 328,000 | 80,304 | — | — | — | — | — | 408,304 | |||||||||||||||||||||||||
| 2017 | 150,360 | 40,002 | 426,750 | 1,045,600 | — | — | — | 1,662,712 | ||||||||||||||||||||||||||
| Don Clegg | 2019 | 336,910 | 146,419 | 132,600 | 215,600 | — | — | — | 831,529 | |||||||||||||||||||||||||
| Senior Vice President | 2018 | 279,041 | 17,275 | — | — | — | — | 296,316 | ||||||||||||||||||||||||||
| 2017 | 264,062 | 7,123 | 19,924 | 37,150 | — | — | — | 328,259 | ||||||||||||||||||||||||||
| George Kao | 2019 | 305,060 | 4,262 | — | 39,323 | — | — | — | 348,645 | |||||||||||||||||||||||||
| Senior Vice President, Operations | 2018 | 299,667 | 3,016 | 161,700 | 252,924 | — | — | — | 717,307 | |||||||||||||||||||||||||
| 2017 | 208,763 | 20,650 | — | — | — | — | — | 229,413 | ||||||||||||||||||||||||||
| David Weigand | 2019 | 270,000 | 48,921 | 221,000 | 215,600 | — | — | — | 755,521 | |||||||||||||||||||||||||
| Senior Vice President, Chief Compliance Officer | 2018 | 46,038 | 15,000 | — | — | — | — | — | 61,038 | |||||||||||||||||||||||||
| 2017 | — | — | — | — | — | — | — | — |
| (1) | Amounts disclosed under "Salary" for fiscal year 2019 includes leave pay earned by the named executive officers for fiscal year 2019. |
| (2) | Amounts disclosed under “Bonus” for fiscal year 2019 reflect primarily fixed amounts per the terms of employment offer letters or upon promotion, quarterly profit sharing and/or our sales bonus program. |
| (3) | Amounts disclosed for fiscal year 2019 represent the grant date fair value of RSU awards granted during fiscal year 2019 calculated in accordance with ASC Topic 718 and are based on the closing market price of our common stock on the date of grant. |
| (4) | Amounts disclosed for fiscal year 2019 represent the grant date fair value of each stock option award granted during fiscal year 2019 calculated in accordance with ASC Topic 718, using the Black Scholes option-pricing model. Assumptions used in the calculation of these amounts are included in Part II, Item 8, "Financial Statements and Supplementary Data", and Part II, Item 8, Note 13 “Stock-based Compensation and Stockholders’ Equity”, to our consolidated financial statements for fiscal year 2019 included in this Annual Report. |
Fiscal Year 2019 Grants of Plan-Based Awards
The following table provides information concerning all plan-based awards granted during fiscal year 2019 to each of our named executive officers.
FISCAL YEAR 2019 GRANTS OF PLAN-BASED AWARDS TABLE
| Name | Grant Date | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($)(1) | ||||||||||||||
| Charles Liang | — | — | — | $ | — | $ | — | ||||||||||||
| Kevin Bauer | — | — | — | — | — | ||||||||||||||
| Don Clegg | 7/31/2018 | 6,000 | (2) | — | — | 132,600 | |||||||||||||
| 7/31/2018 | — | 20,000 | (3) | 22.10 | 215,600 | ||||||||||||||
| George Kao | 10/30/2018 | — | 5,940 | (4) | 13.00 | 39,323 | |||||||||||||
| David Weigand | 7/31/2018 | — | 20,000 | (5) | 22.10 | 215,600 | |||||||||||||
| 7/31/2018 | 10,000 | (6) | — | — | 221,000 |
| (1) | Represents the fair value of the stock options and RSU awards as of the date of grant, computed in accordance with ASC Topic 718. |
| (2) | This RSU award vested at the rate of 25% on May 16, 2019 and generally vested (or will vest) at a rate of 1/16th per quarter thereafter, such that the RSUs will be fully vested on May 16, 2022. |
| (3) | This stock option grant vested at the rate of 25% on May 1, 2019 and generally vested (or will vest) at a rate of 1/16th per quarter thereafter, such that the granted options will be fully vested on May 1, 2022. |
| (4) | This stock option grant vested at the rate of 25% on October 30, 2019 and generally will vest at a rate of 1/16th per quarter thereafter, such that the granted options will be fully vested on October 30, 2022. |
| (5) | This stock option grant vested at the rate of 25% on April 30, 2019 and generally vested (or will vest) at a rate of 1/16th per quarter thereafter, such that the granted options will be fully vested on April 30, 2022. |
| (6) | This RSU award vested at the rate of 25% on May 16, 2019 and generally vested (or will vest) at a rate of 1/16th per quarter thereafter, such that the RSUs will be fully vested on May 16, 2022. |
Grants made in fiscal year 2019 are described more fully in the "Compensation Discussion and Analysis" section of this Annual Report. More information concerning the terms of the employment arrangements, if applicable, and the amounts payable pursuant to the employment arrangements, in effect with our named executive officers during fiscal year 2019 is provided under the "Employment Arrangements, Severance and Change of Control Benefits" section of this Annual Report.
Outstanding Equity Awards at 2019 Fiscal Year-End
The following table provides information concerning the outstanding equity-based awards as of June 30, 2019, held by our 2019 named executive officers.
OUTSTANDING EQUITY AWARDS AT 2019 FISCAL YEAR-END TABLE
| Option Awards | Stock Awards | |||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(1) | ||||||||||||||||
| Charles Liang | 132,000 | — | $ | 18.59 | 4/25/2021 | |||||||||||||||||
| 231,260 | — | 20.70 | 1/21/2023 | |||||||||||||||||||
| 166,750 | — | 35.07 | 1/19/2025 | |||||||||||||||||||
| 85,763 | (2) | 44,237 | (2) | 26.95 | 8/2/2027 | |||||||||||||||||
| 36,000 | (3) | $ | 696,600 | |||||||||||||||||||
| Kevin Bauer | 4,516 | (4) | 3,514 | (4) | 28.45 | 1/25/2027 | ||||||||||||||||
| 12,357 | (5) | 9,613 | (5) | 28.45 | 1/25/2027 | |||||||||||||||||
| 3,600 | (6) | 4,400 | (6) | 28.45 | 1/25/2027 | |||||||||||||||||
| 18,900 | (7) | 23,100 | (7) | 28.45 | 1/25/2027 | |||||||||||||||||
| 6,563 | (8) | $ | 126,994 | |||||||||||||||||||
| Don Clegg | 14,970 | — | 13.61 | 8/2/2020 | ||||||||||||||||||
| 6,800 | — | 12.50 | 8/6/2022 | |||||||||||||||||||
| 6,000 | — | 26.75 | 8/4/2024 | |||||||||||||||||||
| 3,000 | (9) | 1,000 | (9) | 20.54 | 8/3/2026 | |||||||||||||||||
| 2,396 | (10) | 12,283 | (10) | 22.10 | 7/31/2028 | |||||||||||||||||
| 2,604 | (11) | 2,717 | (11) | 22.10 | 7/31/2028 | |||||||||||||||||
| 243 | (12) | $ | 4,702 | |||||||||||||||||||
| 4,500 | (13) | $ | 87,075 | |||||||||||||||||||
| George Kao | 9,275 | 5,565 | (14) | 26.95 | 8/2/2027 | |||||||||||||||||
| 3,225 | 1,935 | (15) | 26.95 | 8/2/2027 | ||||||||||||||||||
| — | 2,972 | (16) | 13.00 | 10/30/2028 | ||||||||||||||||||
| — | 2,968 | (17) | 13.00 | 10/30/2028 | ||||||||||||||||||
| 2,250 | (18) | $ | 43,538 | |||||||||||||||||||
| David Weigand | 3,016 | 13,056 | (19) | 22.10 | 7/31/2028 | |||||||||||||||||
| 1,984 | 1,944 | (20) | 22.10 | 7/31/2028 | ||||||||||||||||||
| 7,500 | (21) | $ | 145,125 |
| (1) | Represents the closing stock price per share of our common stock as of June 30, 2019 ($19.35) multiplied by the number of shares underlying RSUs that had not vested or that were unearned as of June 30, 2019. |
| (2) | These nonqualified stock options vested at the rate of 12.5% on August 2, 2017 and generally vested (or will vest) at a rate of 1/36th per month thereafter, such that the granted options will be fully vested on August 2, 2020. |
| (3) | These RSUs were originally granted as PRSUs and were earned based on performance during fiscal year 2018 at a rate of 200% of the target number of PRSUs (a total of 120,000 PRSUs for this award). 50% of the earned PRSUs (60,000) vested on June 30, 2018 and the remainder of the earned PRSUs (60,000) will vest ratably over the following ten fiscal quarters based on Mr. Liang’s continued employment with the Company. As of June 30, 2019, an additional 24,000 PRSUs had vested, leaving 36,000 unvested PRSUs. |
| (4) | These incentive stock options vested at the rate of 25% on January 11, 2018 and vested (or generally will vest) at a rate of 1/16th per quarter thereafter, such that the granted options will be fully vested on January 11, 2021. |
| (5) | These nonqualified stock options vested at the rate of 25% on January 11, 2018 and vested (or generally will vest) at a rate of 1/16th per quarter thereafter, such that the granted options will be fully vested on January 11, 2021. |
| (6) | These nonqualified stock options vested at the rate of 20% on January 11, 2018 and vested (or generally will vest) at a rate of 1/20th per quarter thereafter, such that the granted options will be fully vested on January 11, 2022. |
| (7) | These nonqualified stock options vested at the rate of 20% on January 11, 2018 and vested (or generally will vest) at a rate of 1/20th per quarter thereafter, such that the granted options will be fully vested on January 11, 2022. |
| (8) | These RSUs vested at the rate of 25% on February 16, 2018 and vested (or generally will vest) at a rate of 1/16th per quarter thereafter, such that the RSUs will be fully vested on February 16, 2021. |
| (9) | These incentive stock options vested at the rate of 25% on April 17, 2017 and vested (or generally will vest) at a rate of 1/16th per quarter thereafter, such that the granted options will be fully vested on April 17, 2020. |
| (10) | These incentive stock options vested at the rate of 25% on May 1, 2019 and vested (or generally will vest) at a rate of 1/16th per quarter thereafter, such that the granted options will be fully vested on May 1, 2022. |
| (11) | These nonqualified stock options vested at the rate of 25% on May 1, 2019 and vested (or generally will vest) at a rate of 1/16th per quarter thereafter, such that the granted options will be fully vested on May 1, 2022. |
| (12) | These RSUs vested at the rate of 25% on May 16, 2017 and vested (or generally will vest) at a rate of 1/16th per quarter thereafter, such that the RSUs will be fully vested on May 16, 2020. |
| (13) | These RSUs vested at the rate of 25% on May 16, 2019 and vested (or generally will vest) at a rate of 1/16th per quarter thereafter, such that the RSUs will be fully vested on May 16, 2022. |
| (14) | These incentive stock options vested at the rate of 25% on October 12, 2017 and vested (or generally will vest) at a rate of 1/16th per quarter thereafter, such that the granted options will be fully vested on October 12, 2020. |
| (15) | These nonqualified stock options vested at the rate of 25% on October 12, 2017 and vested (or generally will vest) at a rate of 1/16th per quarter thereafter, such that the granted options will be fully vested on October 12, 2020. |
| (16) | These incentive stock options vested at the rate of 25% on October 30, 2019 and generally will vest at a rate of 1/16th per quarter thereafter, such that the granted options will be fully vested on October 30, 2022. |
| (17) | These nonqualified stock options vested at the rate of 25% on October 30, 2019 and generally will vest at a rate of 1/16th per quarter thereafter, such that the granted options will be fully vested on October 30, 2022. |
| (18) | These RSUs vested at the rate of 25% on November 16, 2017 and vested (or generally will vest) at a rate of 1/16th per quarter thereafter, such that the RSUs will be fully vested on November 16, 2020. |
| (19) | These incentive stock options vested at the rate of 25% on April 30, 2019 and vested (or generally will vest) at a rate of 1/16th per quarter thereafter, such that the granted options will be fully vested on April 30, 2022. |
| (20) | These nonqualified stock options vested at the rate of 25% on April 30, 2019 and vested (or generally will vest) at a rate of 1/16th per quarter thereafter, such that the granted options will be fully vested on April 30, 2022. |
| (21) | These RSUs vested at the rate of 25% on May 16, 2019 and vested (or generally will vest) at a rate of 1/16th per quarter thereafter, such that the RSUs will be fully vested on May 16, 2022. |
Fiscal Year 2019 Option Exercises and Stock Vested
The following table sets forth the dollar amounts realized by each of our 2019 named executive officers pursuant to the exercise or vesting of equity-based awards during fiscal year 2019.
FISCAL YEAR 2019 OPTION EXERCISES AND STOCK VESTED TABLE
| Option Awards | Stock Awards | |||||||||||||
| Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(1) | ||||||||||
| Charles Liang | — | $ | — | 24,000 | $ | 464,400 | ||||||||
| Kevin Bauer | — | $ | — | 3,750 | $ | 68,655 | ||||||||
| Don Clegg | — | $ | — | 243 | $ | 4,448 | ||||||||
| George Kao | — | $ | — | 1,500 | $ | 27,461 | ||||||||
| David Weigand | — | $ | — | — | $ | — |
| (1) | The value is the closing price of our common stock on the date of vesting, multiplied by the number of shares vested, , except that in Mr. Liang’s case, the value is the closing price of our common stock on the June 30, 2019 ($23.65), which is the date the shares vested. Since our registration statement on Form S-8 was not effective, those vested shares for Mr. Liang have not been released. |
Fiscal Year 2019 Pension Benefits and Nonqualified Deferred Compensation
We do not provide any nonqualified deferred compensation arrangements or pension plans. As such, the Pension Benefits disclosure and Nonqualified Deferred Compensation disclosure for fiscal year 2019 are omitted from this Annual Report.
Fiscal Year 2019 Potential Payments Upon Termination or Change of Control
We do not currently, and did not during fiscal year 2019 have, any arrangements with any of our named executive officers that provide for any additional or enhanced severance or other compensation or benefits in the event of termination or change of control of our company.
Fiscal Year 2018 Summary Compensation Table
The following table sets forth information concerning the reportable compensation for our 2018 named executive officers for the fiscal years ended 2018, 2017 and 2016, as applicable.
FISCAL YEAR 2018 SUMMARY COMPENSATION TABLE
| Name and Principal Position | Year | Salary ($) (1) | Bonus ($)(2) | Stock Awards ($)(3) | Option Awards ($)(4) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Non-qualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||
| Charles Liang | 2018 | $ | 386,212 | $ | — | $ | 3,252,000 | $ | 1,644,005 | $ | — | $ | — | $ | — | $ | 5,282,217 | |||||||||||||||||
| President, Chief Executive Officer and Chairman of the Board | 2017 | 386,212 | 650 | — | — | — | — | — | 386,862 | |||||||||||||||||||||||||
| 2016 | 363,776 | — | — | — | — | — | — | 363,776 | ||||||||||||||||||||||||||
| Kevin Bauer | 2018 | 328,000 | 80,304 | — | — | — | — | — | 408,304 | |||||||||||||||||||||||||
| Senior Vice President and Chief Financial Officer | 2017 | 150,360 | 40,002 | 426,750 | 1,045,600 | — | — | — | 1,662,712 | |||||||||||||||||||||||||
| 2016 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Howard Hideshima | 2018 | 213,439 | — | — | — | — | — | — | 213,439 | |||||||||||||||||||||||||
| Former Senior Vice President and Chief Financial Officer | 2017 | 330,681 | 650 | 115,640 | 116,092 | — | — | 1,500 | 564,563 | |||||||||||||||||||||||||
| 2016 | 322,646 | — | — | — | — | — | — | 322,646 | ||||||||||||||||||||||||||
| Sara Liu | 2018 | 243,642 | — | — | — | — | — | — | 243,642 | |||||||||||||||||||||||||
| Senior Vice President | 2017 | 244,558 | 650 | — | — | — | — | — | 245,208 | |||||||||||||||||||||||||
| 2016 | 237,253 | — | 110,484 | 113,961 | — | — | — | 461,698 | ||||||||||||||||||||||||||
| Phidias Chou | 2018 | 193,799 | 300 | — | — | — | — | — | 194,099 | |||||||||||||||||||||||||
| Former Senior Vice President, Worldwide Sales | 2017 | 299,461 | 10,650 | — | — | — | — | — | 310,111 | |||||||||||||||||||||||||
| 2016 | 286,747 | 3,416 | 137,160 | 138,000 | — | — | — | 565,323 | ||||||||||||||||||||||||||
| Wally Liaw | 2018 | 162,990 | — | — | — | — | — | — | 162,990 | |||||||||||||||||||||||||
| Former Senior Vice President, International Sales | 2017 | 246,105 | 650 | — | — | — | — | — | 246,755 | |||||||||||||||||||||||||
| 2016 | 232,864 | — | 109,959 | 105,089 | — | — | — | 447,912 |
| (1) | Amounts disclosed under "Salary" for fiscal year 2018 include leave pay earned by the named executive officers for fiscal year 2018. |
| (2) | Amounts disclosed under “Bonus” for fiscal year 2018 reflect fixed bonuses per the terms of an employment offer letter and our profit sharing program. |
| (3) | Amounts disclosed for fiscal year 2018 represent the grant date fair value of RSU or PRSU awards granted during fiscal year 2018 calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 ("ASC Topic 718"), and are based on the closing market price of our common stock on the date of grant. Assuming the highest level of performance is achieved for the PRSUs granted in fiscal year 2018, the grant date fair value of the PRSU awards would have been $3,252,000 for Mr. Liang’s one-year PRSUs and $1,626,000 for Mr. Liang’s two-year PRSUs. |
| (4) | Amounts disclosed for fiscal year 2018 represent the grant date fair value of each stock option award calculated in accordance with ASC Topic 718, using the Black Scholes option-pricing model. Assumptions used in the calculation of these amounts are included in Part II, Item 8, "Financial Statements and Supplementary Data", and Part II, Item 8, Note 13 “Stock-based Compensation and Stockholders’ Equity,” to our consolidated financial statements for fiscal year 2018 included in this Annual Report. |
Fiscal Year 2018 Grants of Plan-Based Awards
The following table provides information concerning all plan-based awards granted during fiscal year 2018 to each of our 2018 named executive officers.
FISCAL YEAR 2018 GRANTS OF PLAN-BASED AWARDS TABLE
| Name | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($)(1) | |||||||||||||||||||||||
| Grant Date | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||||||
| Charles Liang | 8/2/2017 | — | — | — | — | 130,000 | (2) | $ | 26.95 | $ | 1,644,005 | |||||||||||||||||
| 8/4/2017 | (3) | — | 60,000 | 120,000 | — | — | — | 1,626,000 | ||||||||||||||||||||
| 8/4/2017 | (4) | — | 60,000 | 60,000 | — | — | — | 1,626,000 | ||||||||||||||||||||
| Kevin Bauer | — | — | — | — | — | — | — | — | ||||||||||||||||||||
| Howard Hideshima | — | — | — | — | — | — | — | — | ||||||||||||||||||||
| Sara Liu | — | — | — | — | — | — | — | — | ||||||||||||||||||||
| Phideas Chou | — | — | — | — | — | — | — | — | ||||||||||||||||||||
| Wally Liaw | — | — | — | — | — | — | — | — |
| (1) | Represents the fair value of the stock options and RSU and PRSU awards as of the date of grant, computed in accordance with ASC Topic 718. |
| (2) | This stock option grant vested at the rate of 12.5% on August 2, 2017 and then generally vested (or vests) at a rate of 1/36th per month thereafter, such that the granted options will be fully vested on August 2, 2020. |
| (3) | This PRSU grant has a target opportunity of 60,000 PRSUs and a maximum opportunity of 200% of the target depending on revenue growth and minimum operating profit for fiscal year 2018. Of the PRSUs earned based on performance, 50% vested as of June 30, 2018 and the remainder of the earned PRSUs vested (or will vest) ratably over the following 10 fiscal quarters based on Mr. Liang’s continued employment with the Company. The Company’s performance for fiscal 2018 resulted in 120,000 PRSUs being earned under this award. |
| (4) | This PRSU grant has a target opportunity of 60,000 PRSUs and a maximum opportunity of 100% of the target depending on average non-GAAP operating margin over a two-year period consisting of fiscal year 2018 and fiscal year 2019. Non-GAAP operating margin is defined as net income from operations, less stock-based compensation expense, divided by net sales (all as shown on the Company’s audited financial statements for such fiscal years). PRSUs earned based on performance, if any, would be 50% vested as of June 30, 2019, with the remainder vesting ratably over the following six fiscal quarters based on Mr. Liang’s continued employment with the Company. As of June 30, 2018, the performance period for this PRSU had not been completed, and it was not then determinable whether any of such PRSUs would be earned and/or vested. |
Grants made in fiscal year 2018 are described more fully in the "Compensation Discussion and Analysis" section of this Annual Report. More information concerning the terms of the employment arrangements, if applicable, and the amounts payable pursuant to the employment arrangements, in effect during fiscal year 2018 with our named executive officers is provided under the "Employment Arrangements, Severance and Change of Control Benefits" section of this Annual Report.
Outstanding Equity Awards at 2018 Fiscal Year-End
The following table provides information concerning the outstanding equity-based awards as of June 30, 2018, held by our 2018 named executive officers.
OUTSTANDING EQUITY AWARDS AT 2018 FISCAL YEAR-END TABLE
| Option Awards | Stock Awards | ||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(1) | |||||||||||||||
| Charles Liang | 720,000 | — | $ | 10.66 | 3/4/2019 | ||||||||||||||||
| 132,000 | — | 18.59 | 4/25/2021 | ||||||||||||||||||
| 231,260 | — | 20.70 | 1/21/2023 | ||||||||||||||||||
| 145,906 | (2) | 20,844 | (2) | 35.07 | 1/19/2025 | ||||||||||||||||
| 47,847 | (3) | 82,153 | (3) | 26.95 | 8/2/2027 | ||||||||||||||||
| 60,000 | (4) | $ | 1,419,000 |
| 60,000 | (5) | 1,419,000 | |||||||||||||||||||
| Kevin Bauer | 2,508 | (6) | 5,522 | (6) | 28.45 | 1/25/2027 | |||||||||||||||
| 6,865 | (7) | 15,105 | (7) | 28.45 | 1/25/2027 | ||||||||||||||||
| 2,000 | (8) | 6,000 | (8) | 28.45 | 1/25/2027 | ||||||||||||||||
| 10,500 | (9) | 31,500 | (9) | 28.45 | 1/25/2027 | ||||||||||||||||
| 10,313 | (10) | 243,902 | |||||||||||||||||||
| Sara Liu | 19,615 | — | 11.81 | 1/25/2020 | |||||||||||||||||
| 16,285 | — | 11.81 | 1/25/2020 | ||||||||||||||||||
| 29,000 | — | 17.09 | 1/23/2022 | ||||||||||||||||||
| 23,000 | — | 17.96 | 1/20/2024 | ||||||||||||||||||
| 5,625 | 3,375 | (11) | 27.28 | 1/27/2026 | |||||||||||||||||
| 1,773 | (12) | 41,931 | |||||||||||||||||||
| Howard Hideshima | 2,182 | — | 20.54 | 8/3/2026 | |||||||||||||||||
| 2,504 | — | 20.54 | 8/3/2026 | ||||||||||||||||||
| 6,352 | — | 26.75 | 8/4/2024 | ||||||||||||||||||
| 8,690 | — | 12.50 | 8/6/2022 | ||||||||||||||||||
| 10,886 | — | 13.61 | 8/2/2020 | ||||||||||||||||||
| 23,397 | — | 26.75 | 8/4/2024 | ||||||||||||||||||
| 37,810 | — | 12.50 | 8/6/2022 | ||||||||||||||||||
| 56,614 | — | 13.61 | 8/2/2020 | ||||||||||||||||||
| Phidias Chou | 2,738 | — | 25.40 | 10/21/2025 | |||||||||||||||||
| 4,009 | — | 25.40 | 10/21/2025 | ||||||||||||||||||
| 6,150 | — | 15.22 | 10/24/2021 | ||||||||||||||||||
| 6,500 | — | 5.53 | 4/29/2019 | ||||||||||||||||||
| 16,773 | — | 14.23 | 10/21/2023 | ||||||||||||||||||
| 17,227 | — | 14.23 | 10/21/2023 | ||||||||||||||||||
| 18,970 | — | 8.36 | 10/26/2019 | ||||||||||||||||||
| 31,030 | — | 8.36 | 10/26/2019 | ||||||||||||||||||
| 32,850 | — | 15.22 | 10/24/2021 | ||||||||||||||||||
| Wally Liaw | 1,482 | — | 28.71 | 4/27/2026 | |||||||||||||||||
| 2,234 | — | 28.71 | 4/27/2026 | ||||||||||||||||||
| 7,070 | — | 18.93 | 4/21/2024 | ||||||||||||||||||
| 7,671 | — | 13.61 | 8/2/2020 | ||||||||||||||||||
| 8,687 | — | 17.29 | 4/23/2022 | ||||||||||||||||||
| 10,079 | — | 13.61 | 8/2/2020 | ||||||||||||||||||
| 14,491 | — | 18.93 | 4/21/2024 | ||||||||||||||||||
| 18,313 | — | 17.29 | 4/23/2022 |
| (1) | Represents the closing stock price per share of our common stock as of June 30, 2018 ($23.65) multiplied by the number of shares underlying RSUs that had not vested or that were unearned as of June 30, 2018. |
| (2) | These nonqualified stock options vested at the rate of 25% on November 1, 2015 and at a rate of 1/16th per quarter thereafter, such that the granted options were fully vested on November 1, 2018. |
| (3) | These nonqualified stock options vested at the rate of 12.5% on August 2, 2017 and generally vested (or vest) at a rate of 1/36th per month thereafter, such that the granted options will be fully vested on August 2, 2020. |
| (4) | This PRSU grant has a target opportunity of 60,000 PRSUs and a maximum opportunity of 200% of the target depending on revenue growth and minimum operating profit for fiscal year 2018, as shown in the Company’s audited financial statements. Of the PRSUs earned based on performance, 50% vested as of June 30, 2018 and the remainder of the earned PRSUs vested (or will vest) ratably over the following 10 fiscal quarters based on Mr. Liang’s continued |
employment with the Company. The Company’s performance for fiscal 2018 resulted in 120,000 PRSUs being earned under this award.
| (5) | This PRSU grant has a target opportunity of 60,000 PRSUs and a maximum opportunity of 100% of the target generally depending on performance during the performance period of July 1, 2017 to June 30, 2019. In addition, 50% of the award vested on June 30, 2019 and the remainder of the award generally vested (or will vest), depending on final performance, at a rate of quarterly over the following six Company fiscal quarters. The performance achievement determination and number of PRSUs actually earned are based on the audited financial statements of the Company for the fiscal years ended June 30, 2019 and 2018, but was not determinable as of June 30, 2018. These PRSUs were not earned as of June 30, 2019. |
| (6) | These incentive stock options vested at the rate of 25% on January 11, 2018 and generally vested (or vest) at a rate of 1/16th per quarter thereafter, such that the granted options will be fully vested on January 11, 2021. |
| (7) | These nonqualified stock options vested at the rate of 25% on January 11, 2018 and generally vested (or vest) at a rate of 1/16th per quarter thereafter, such that the granted options will be fully vested on January 11, 2021. |
| (8) | These nonqualified stock options vested at the rate of 20% on January 11, 2018 and generally vested (or vest) at a rate of 1/20th per quarter thereafter, such that the granted options will be fully vested on January 11, 2022. |
| (9) | These nonqualified stock options vested at the rate of 20% on January 11, 2018 and generally vested (or vest) at a rate of 1/20th per quarter thereafter, such that the granted options will be fully vested on January 11, 2022. |
| (10) | These RSUs vested at the rate of 25% on February 16, 2018 and generally vested (or vest) at a rate of 1/16th per quarter thereafter, such that the RSUs will be fully vested on February 16, 2021. |
| (11) | These nonqualified stock options vested at the rate of 25% on December 12, 2016 and at a rate of 1/16th per quarter thereafter, such that the granted options were fully vested on December 12, 2019. |
| (12) | These RSUs vested at the rate of 25% on February 10, 2017 and generally vested (or vest) at a rate of 1/16th per quarter thereafter, such that the RSUs will be fully vested on February 10, 2020. |
Fiscal Year 2018 Option Exercises and Stock Vested
The following table sets forth the dollar amounts realized by each of our 2018 named executive officers pursuant to the exercise or vesting of equity-based awards during fiscal year 2018.
2018 FISCAL YEAR OPTION EXERCISES AND STOCK VESTED TABLE
| Option Awards | Stock Awards | |||||||||||||
| Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(1) | ||||||||||
| Charles Liang | — | $ | — | 60,000 | $ | 1,419,000 | ||||||||
| Kevin Bauer | — | — | 4,687 | 94,019 | ||||||||||
| Howard Hideshima | — | — | 703 | 16,852 | ||||||||||
| Sara Liu | — | — | 1,012 | 22,568 | ||||||||||
| Phidias Chou | — | — | 675 | 15,707 | ||||||||||
| Wally Liaw | — | — | — | — |
| (1) | The value is the closing price of our common stock on the date the vested shares are released, except in Mr. Liang’s case, the value is the closing price of our common stock on the June 30, 2018 ($23.65), which is the date the shares vested. Since our registration statement on Form S-8 was not effective, those vested shares for Mr. Liang have not been released. |
Fiscal Year 2018 Pension Benefits and Nonqualified Deferred Compensation
We do not provide any nonqualified deferred compensation arrangements or pension plans. As such, the Pension Benefits disclosure and Nonqualified Deferred Compensation disclosure for fiscal year 2018 are omitted from this Annual Report.
Fiscal Year 2018 Potential Payments Upon Termination or Change of Control
We do not currently, and did not during fiscal year 2018 have, any arrangements with any of our named executive officers that provide for any additional or enhanced severance or other compensation or benefits in the event of termination or change of control of our company.
Fiscal Year 2018 Chief Executive Officer Pay Ratio
For fiscal year 2018, the ratio of the annual total compensation of Mr. Liang, our Chief Executive Officer (“2018 CEO Compensation”), to the median of the annual total compensation of all of our employees and those of our consolidated subsidiaries other than Mr. Liang (“2018 Median Annual Compensation”), was 75.8 to 1. For purposes of this pay ratio disclosure, 2018 CEO Compensation was determined to be $5,290,701, which represents the total compensation reported for Mr. Liang under the “Fiscal Year 2018 Summary Compensation Table", plus the Company’s contribution to group health and welfare benefits provided to Mr. Liang. 2018 Median Annual Compensation for the identified median employee was determined to be $69,796, also including the Company’s contribution to group health and welfare benefits provided to the median employee.
To identify the median employee, we examined our total employee population as of June 30, 2018 (the “2018 Determination Date”). We included all 2,090 U.S. full-time, part-time, seasonal and temporary employees of the Company and our consolidated subsidiaries. We also included all 1,115 full-time, part-time, seasonal and temporary employees of the Company and our consolidated subsidiaries in The Netherlands and Taiwan. We excluded independent contractors and “leased” workers. We excluded all our employees in China (47 individuals) and Japan (14 individuals), which together represented approximately 1.9% of our total employees worldwide (3,266 individuals). Our analysis identified 3,205 individuals who were not excluded.
To determine 2018 Median Annual Compensation, we generally reviewed compensation for the period beginning on July 1, 2017 and ending on the Determination Date. We totaled, for each included employee other than Mr. Liang, base earnings (salary, hourly wages and overtime, as applicable) and cash bonuses paid during the measurement period, plus the Company’s contribution to group health and welfare benefits. We did not use any statistical sampling or cost-of-living adjustments for purposes of this pay ratio disclosure. A portion of our employee workforce (full-time and part-time) worked for less than the full fiscal year (due to mid-measurement period start dates, disability status or similar factors, etc.). In determining the median employee, we generally annualized the total compensation for such individuals other than temporary or seasonal employees (but avoided creating full-time equivalencies) based on reasonable assumptions and estimates relating to our employee compensation program. Due to our permitted use of reasonable estimates and assumptions in preparing this pay ratio disclosure, the disclosure may involve a degree of imprecision, and thus this pay ratio disclosure is a reasonable estimate.
Fiscal Year 2019 Chief Executive Officer Pay Ratio
For fiscal year 2019, the ratio of the annual total compensation of Mr. Liang, our Chief Executive Officer (“2019 CEO Compensation”), to the median of the annual total compensation of all of our employees and those of our consolidated subsidiaries other than Mr. Liang (“2019 Median Annual Compensation”), was 4.74 to 1. For purposes of this pay ratio disclosure, 2019 CEO Compensation was determined to be $395,302, which represents the total compensation reported for Mr. Liang under the “Fiscal Year 2019 Summary Compensation Table,” plus the Company’s contribution to group health and welfare benefits provided to Mr. Liang. 2019 Median Annual Compensation for the identified median employee was determined to be $83,467, also including the Company’s contribution to group health and welfare benefits provided to the median employee. Due to our permitted use of reasonable estimates and assumptions in preparing this pay ratio disclosure, the disclosure may involve a degree of imprecision, and thus this pay ratio disclosure is a reasonable estimate.
In calculating our Chief Executive Officer pay ratio for fiscal year 2019, we used the same median employee as was used to calculate the Chief Executive Officer pay ratio for fiscal year 2018. This is because we believe that there has been no change in our employee population or employee compensation arrangements during fiscal year 2019 that would result in a significant change to our Chief Executive Officer pay ratio disclosure for fiscal year 2019.
2019 Director Compensation
Under our director compensation policy in effect for fiscal year 2019, we reimbursed non-employee directors for reasonable expenses in connection with attendance at Board and committee meetings. Our non-employee directors received an annual retainer of $60,000, payable quarterly in cash. In addition, the Chairperson of our Audit Committee received an additional annual retainer of $30,000 and the Chairperson of each of our Compensation Committee and our Nominating and Corporate Governance Committee received an additional annual retainer of $20,000 and $15,000, respectively, payable quarterly in cash. Each director serving in a non-chairperson capacity on our Audit Committee received an additional annual retainer of $15,000, each director serving in a non-chairperson capacity on our Compensation Committee received an additional annual retainer of $10,000 and each director serving in a non-chairperson capacity on our Nominating and Corporate Governance Committee received an additional annual retainer of $7,500, payable quarterly, in cash. Finally, non-employee directors were entitled to $2,000 per meeting for each meeting attended in excess of (1) the regular meetings of the Board and (2) up to 10 additional meetings beyond such regular meetings, provided that notice of the meeting was properly given, a quorum was present and the meeting was recorded.
Non-employee directors also were eligible to receive equity grants under our 2016 Equity Incentive Plan. Under our Board policy, non-employee directors were entitled to an annual grant of RSUs equal to $220,000. Initial grants upon election as a director were to be prorated based on the grant date relative to our annual stockholders' meeting. Generally, RSUs granted to non-employee directors were to vest on the earlier of the day prior to our next annual stockholders' meeting and the one-year anniversary of the grant date.
Since the effectiveness of our registration statement on Form S-8 was suspended when we became delinquent in filing our 2017 10-K, none of the equity grants to our non-employee directors contemplated by our policy were granted. We anticipate that, at such time as we are current in our SEC filings, and the effectiveness of our registration statement on Form S-8 is revived, we will grant additional equity awards to our non-employee directors in amounts that reflect the grants that would have been made to them had the effectiveness of our registration statement on Form S-8 not been suspended.
The following table shows for fiscal year 2019 certain information with respect to the compensation of all of our non-employee directors who served in such capacities during fiscal year 2019:
FISCAL YEAR 2019 DIRECTOR COMPENSATION
| Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | Option Awards ($) | Total ($) | |||||||||||
| Laura Black (3) | $ | 91,333 | $ | — | $ | — | $ | 91,333 | |||||||
| Michael McAndrews | 71,333 | — | — | 71,333 | |||||||||||
| Tally Liu | 28,542 | — | — | 28,542 | |||||||||||
| Hwei-Ming (Fred) Tsai | 86,667 | — | — | 86,667 | |||||||||||
| Saria Tseng | 63,833 | — | — | 63,833 | |||||||||||
| Sherman Tuan | 60,833 | — | — | 60,833 |
| (1) | This column consists of annual director fees, non-employee committee chairman fees and other committee member fees earned for fiscal year 2019. |
| (2) | The dollar amounts in this column represent the aggregate grant date fair values of the awards granted during fiscal year 2019 calculated in accordance with ASC Topic 718. Assumptions used in the calculation of the grant date fair value amounts are included in Part II, Item 8, "Financial Statements and Supplementary Data", and Item II, Part 8, Note 13, “Stock-based Compensation and Stockholders’ Equity” to our consolidated financial statements for fiscal year 2019 included in this Annual Report. |
| (3) | Laura Black resigned from the Board on June 26, 2019 |
The table below sets forth the aggregate number of shares underlying option awards held by our non-employee directors as of June 30, 2019.
| Name | Option Awards | |
| Laura Black | 31,500 | |
| Michael McAndrews | 27,000 | |
| Hwei-Ming (Fred) Tsai | 40,000 | |
| Saria Tseng | 22,500 | |
| Sherman Tuan | 40,000 |
2018 Director Compensation
Under our director compensation policy in effect for fiscal year 2018, we reimbursed non-employee directors for reasonable expenses in connection with attendance at Board and committee meetings. Our non-employee directors received an annual retainer of $40,000, payable quarterly in cash. In addition, the Chairperson of our Audit Committee received an additional annual retainer of $25,000, the Chairperson of each of our Compensation Committee and Nominating and Corporate Governance Committee received an additional annual retainer of $5,000 and each director serving in a non-chairperson capacity on our standing Board committees received an additional annual retainer of $2,500 per committee, payable quarterly in cash.
Our policy also provided that non-employee directors were eligible to receive stock options under our 2016 Equity Incentive Plan. Under our policy, non-employee directors were granted an initial stock option award to purchase 18,000 shares upon first becoming a member of our Board. A non-employee director serving as Chairperson of the Audit Committee was to receive an additional initial grant of stock options to purchase 12,000 shares. Non-employee directors serving as Chairperson of the Compensation or Nominating and Corporate Governance Committees were to receive an additional initial grant of stock options to purchase 2,000 shares. Each of these initial stock option grants generally would have vested and become exercisable over four years, with the first 25% of the award generally vesting on the first anniversary of the date of grant and the remainder generally vesting quarterly after the first vesting date. Immediately after each of our annual meetings of stockholders, each non-employee director was to be granted stock options to purchase 4,500 shares of our common stock, the Audit Committee Chairperson was to be granted additional stock options to purchase 3,000 shares of our common stock and the Chairperson of each of the Compensation and Nominating and Corporate Governance Committees was to be granted additional stock options to purchase 500 shares of our common stock. These stock options were to vest and become exercisable generally on the first anniversary of the date of grant or immediately prior to our next annual meeting of stockholders, if earlier.
The policy provided that stock options granted to non-employee directors during fiscal year 2018 would have a per share exercise price equal to 100% of the fair market value of the underlying shares on the date of grant, and will become fully vested if we undergo a change of control. Annual grants were reduced proportionally if the person did not serve for the full year after the annual grant.
As with the equity grants that would have been made in fiscal 2019 under our policy, no grants to non-employee directors were made during fiscal 2018, in light of the suspension of the effectiveness of our registration statement on Form S-8. We anticipate that, at such time as we are current in our SEC filings, and the effectiveness of our registration statement on Form S-8 is revived, we will grant additional equity awards to our non-employee directors in amounts that reflect the grants that would have been made to them had the effectiveness of our registration statement on Form S-8 not been suspended.
The following table shows for fiscal year 2018 certain information with respect to the compensation of all of our non-employee directors who served in such capacities during fiscal year 2018:
FISCAL YEAR 2018 DIRECTOR COMPENSATION
| Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($) | Option Awards ($)(2) | Total ($) | |||||||||||
| Laura Black | $ | 123,000 | $ | — | $ | — | $ | 123,000 | |||||||
| Michael McAndrews | 100,500 | — | — | 100,500 | |||||||||||
| Hwei-Ming (Fred) Tsai | 110,000 | — | — | 110,000 | |||||||||||
| Saria Tseng | 45,000 | — | — | 45,000 | |||||||||||
| Sherman Tuan | 47,500 | — | — | 47,500 |
| (1) | This column consists of annual director fees, non-employee committee chairman fees and other committee member fees earned for fiscal year 2018. |
| (2) | The dollar amounts in this column represent the aggregate grant date fair values of the awards granted during fiscal year 2018 calculated in accordance with ASC Topic 718, using the Black Scholes option-pricing model. Assumptions used in the calculation of the grant date fair value amounts are included in Part II, Item 8, "Financial Statements and Supplementary Data", and Item II, Part 8, Note 13, “Stock-based Compensation and Stockholders’ Equity” to our consolidated financial statements for fiscal year 2018 included in this Annual Report. |
The table below sets forth the aggregate number of shares underlying stock option awards held by our non-employee directors as of June 30, 2018. None of the non-employee directors held any unvested stock awards as of June 30, 2018.
| Name | Option Awards | |
| Laura Black | 31,500 | |
| Michael McAndrews | 27,000 | |
| Hwei-Ming (Fred) Tsai | 45,000 | |
| Saria Tseng | 22,500 | |
| Sherman Tuan | 45,000 |
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee is a current or former officer or employee of our company or had any relationship with our company requiring disclosure, except for Saria Tseng, who serves as Vice President of Strategic Corporate Development, General Counsel and Secretary of Monolithic Power Systems, Inc., a fabless manufacturer of high-performance analog and mixed-signal semiconductors (“MPS”), with which we have engaged in certain transactions. See “Part III. Item 13. Certain Relationships and Related Transactions and Director Independence-Transactions with Monolithic Power Systems.” In addition, during each of fiscal years 2019 and 2018, none of our executive officers served as a member of the Board of Directors of Compensation Committee of any other entity that has one or more executive officers who served on our Board of Directors of Compensation Committee. Saria Tseng, Hweng (Fred) Tsai and Sherman Tuan served on the Compensation Committee during each of fiscal years 2019 and 2018.
Compensation Program Risk Assessment
We have assessed our compensation programs for both fiscal years 2019 and 2018 and have concluded that risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on us. We concluded that our compensation policies and practices do not encourage excessive or inappropriate risk-taking. We believe our programs are appropriately designed to encourage our employees to make decisions that result in positive short-term and long-term results for our business and our shareholders.
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