filings.toolsItem 11. Executive Compensation
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Item 11. Executive Compensation
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis (“CD&A”)
In this section we provide an explanation and analysis of the material elements of the compensation provided to our Chief Executive Officer, persons who served as Chief Financial Officer during fiscal year 2021, and our other three most highly compensated executive officers who were serving as executive officers at the end of our fiscal year 2021 (collectively referred to as our “named executive officers”).
Our named executive officers and their positions at the end of fiscal year 2021 were:
| Charles Liang | President, Chief Executive Officer (“CEO”) and Chairman of the Board | ||||
| David Weigand(1) | Senior Vice President, Chief Financial Officer and Chief Compliance Officer | ||||
| Don Clegg | Senior Vice President, Worldwide Sales | ||||
| George Kao | Senior Vice President, Operations | ||||
| Alex Hsu(2) | Senior Chief Executive, Strategic Business | ||||
| Kevin Bauer(1) | Former Senior Vice President, Chief Financial Officer |
(1)Mr. Weigand (whose previous title was Senior Vice President, Chief Compliance Officer) assumed the role of Senior Vice President, Chief Financial Officer and Chief Compliance Officer following the resignation of Mr. Bauer in January 2021. However, information for Mr. Bauer is still presented in this Executive Compensation section as Mr. Bauer served as Chief Financial Officer during a portion of fiscal year 2021.
(2)Mr. Hsu served as Senior Vice President, Chief Operating Officer until March 2021. In March 2021, Mr. Hsu transitioned to the role of Senior Chief Executive, Strategic Business.
Overview of Compensation
(1) The chart presents the percentage compensation by compensation component received by the five presented non-CEO named executive officers together (aggregate compensation) as a group, as well as the split between cash and equity compensation for all such persons received in aggregate as a group.
Compensation Philosophy and Objectives—Our Move Toward Performance-Based Compensation Arrangements
Our executive compensation philosophy is to link compensation to corporate performance, particularly the compensation of Mr. Liang, our CEO. Starting in fiscal year 2018 (beginning July 1, 2017), we have moved toward an explicit linking of Mr. Liang’s compensation to performance goals. This movement began in August 2017, when approximately half of Mr. Liang’s equity awards for fiscal year 2018 were in the form of performance-based restricted stock units (“PRSUs”). This
trend was interrupted during the time when we were not current in filing our periodic reports with the SEC (September 2017 to January 2020). See our Annual Reports on Form 10-K for fiscal years 2019 and 2020 on file with the SEC for a description of the circumstances that led to us not being able to file our periodic reports during that time.
After we returned to being current in our SEC filings in December 2019, we continued to link more of Mr. Liang’s compensation to corporate performance, through granting him a special cash award opportunity in March 2020 tied to stock price and other metrics, and a short-term incentive award opportunity in May 2020 tied to corporate performance metrics for fiscal year 2020. This movement culminated in March 2021, when we changed Mr. Liang’s compensation to be almost completely performance-based. As discussed in more detail below, in March 2021, we converted nearly 100% of Mr. Liang’s compensation to performance-based compensation through the issuance of options (the “2021 CEO Performance Award”) to purchase 1,000,000 shares of our common stock at an exercise price of $45.00 per share, which was 32% higher than the market price of our common stock on the date of the award ($34.08). The option is comprised of five tranches, which vest only if the market price of our common stock reaches various prices (ranging from $45.00 to $120.00 per share) and we achieve certain specified revenue goals, all as described in greater detail below. In connection with the 2021 CEO Performance Award, Mr. Liang’s base salary was reduced to $1.00 per year (or, if required by law, the statutory minimum wage applicable in San Jose, California) and Mr. Liang agreed that he would not be eligible for any increase in base salary, or any other cash compensation, until June 30, 2026.
In summary, as of the end of fiscal year 2021, almost all of Mr. Liang’s compensation for the next five years is based upon us achieving the revenue goals described below and the market price of our common stock meeting the price targets described below. To fully achieve those goals and targets, our revenue must increase from $3.6 billion for fiscal year 2021 to $8 billion, and the market price of our common stock must reach $120, an increase of 252% from the market price on the day the stock options were awarded. See below for more details about the 2021 CEO Performance Award.
Through fiscal year 2021, we have utilized explicit linking of compensation to performance metrics less with our other NEOs than we have with Mr. Liang. The extent of such linking is described in greater detail below. During fiscal year 2022, the Compensation Committee intends to continue exploring (with Mr. Liang) the appropriate balance between performance-based equity awards like PRSUs and our traditional use of stock options and restricted stock units (“RSUs”) with time-based vesting for future long-term equity programs for other named executive officers. While PRSUs provide the recipient the 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 and have become increasingly common in compensation arrangements in the technology industry generally, we believe that our traditional approach to equity awards has served us well, both historically and in fiscal year 2021.
Process Overview
The Compensation Committee of the Board discharges the Board’s responsibilities relating to compensation of all of our executive officers. During fiscal year 2021, the Compensation Committee was comprised of three non-employee directors through May 28, 2021 and two non-employee directors for the remainder of the fiscal year through June 30, 2021 following the expiration of the term of office of Mr. Hwei-Ming (Fred) Chan as a director. All of the non-employee directors who served on the Compensation Committee during fiscal year 2021 were 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 and General Counsel. 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 and certain 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 2021, the Compensation Committee reviewed recommendations of our Chief Executive Officer, as well as publicly available peer group compensation data and data compiled by our independent compensation consultant.
During fiscal year 2021, the Compensation Committee considered various sources of information and comparative data when structuring the compensation awards issued and determining executive compensation levels, including information and compensation data assembled for the Compensation Committee by Radford, an Aon Hewitt company ("Radford"), from a sample of public companies selected by us.
For the 2021 CEO Performance Award, the Compensation Committee considered similar awards issued by technology companies consisting of Tesla, Axon Enterprise, RH Technologies, Dish Networks, Oracle, and Sorento Therapeutics. The Compensation Committee engaged Radford in designing, modeling, drafting and reviewing the 2021 CEO Performance Award.
In addition, for other fiscal year 2021 compensation decisions, the sample consisted of the following companies(1):
| Ciena Corporation | Infinera Corporation | ||||
| Cray Inc.(2) | Juniper Networks, Inc. | ||||
| Diebold Nixdorf, Incorporated | NetApp, Inc. | ||||
| Extreme Networks, Inc. | NETGEAR, Inc. | ||||
| F5 Networks, Inc. | Plexus Corp. |
(1)The same sample companies were used for fiscal year 2019, 2020 and 2021. In selecting the companies for inclusion in the sample, we considered whether the company may compete against us for executive talent.
(2)Although Cray Inc. was acquired by Hewlett Packard Enterprise Company in 2019, it remained included in the information regarding the sample public companies that was used for fiscal year 2021 purposes.
Other than with respect to the 2021 CEO Performance Award for which the independent consultant prepared a report in March 2021 at the request of the Compensation Committee, the Compensation Committee utilized for fiscal year 2021 the independent consultant report developed for fiscal year 2019 as it believed the report continued to be relevant. Recognizing that over-reliance on external comparisons can be of concern, the Compensation Committee used external comparisons as only one point of reference and is mindful of the value and limitations of comparative data.
Key Fiscal Year 2021 Executive Compensation Decisions and Actions
During fiscal years 2019 and 2020, the Compensation Committee generally refrained from compensation adjustments for named executive officers until after such time as we became current in our filings with the SEC (which occurred in December 2019) and our stock was re-listed on the Nasdaq Global Select Market (which occurred in January 2020), except in connection with out of the ordinary circumstances, such as a transition in executive officers. At the beginning of fiscal year 2021 (which began July 1, 2020), the Compensation Committee decided that, in light of (1) the recent increase during the fourth quarter of fiscal year 2020 in the base salaries of named executive officers, (2) the fiscal year 2020 incentive cash program tied to specific performance goals adopted during the fourth quarter of fiscal year 2020 in which each of our named executive officers participated, (3) approval during the third quarter of fiscal year 2020 of special performance-based cash incentive award opportunities linked to stock price to certain long-term employees (which included some of the named executive officers), and (4) special cash bonus payments made to certain of our employees (which included some of the named executive officers), all of which were discussed in the CD&A for fiscal year 2020 included in our most recent proxy statement (the “Prior Year CD&A”), it would generally not implement increases in base salaries or annual cash incentive opportunities for named executive officers, except in connection with out of the ordinary circumstances, such as a transition in executive officers.
In order to further incentivize Mr. Liang’s continued long-term performance as Chief Executive Officer, the Compensation Committee designed the 2021 CEO Performance Award to be a challenging long-term incentive for future performance. In connection with the issuance of such award in March 2021, the Compensation Committee noted in particular that the performance thresholds adopted were challenging and could take years to achieve. In addition, the Compensation Committee sought to help ensure that the 2021 CEO Performance Award would further align Mr. Liang’s interests with those of the Company’s stockholders over the long-term. In connection with the grant of the 2021 CEO Performance Award, it was also determined that Mr. Liang would receive a de minimis salary of $1 per annum (or such other non-waivable minimum wage requirement, if deemed advisable) and no cash bonuses through June 30, 2026. Mr. Liang must also remain as the Company’s Chief Executive Officer (or such other position with the Company as Mr. Liang and the Board may agree) at the time each goal set forth in the 2021 CEO Performance Award is met in order for the corresponding tranche to vest. This helps ensure Mr. Liang’s active leadership of the Company over the long-term.
As a result of our becoming current in our filings with the SEC in December 2019 and stockholder approval of the 2020 Equity and Incentive Compensation Plan at the annual meeting of stockholders held on June 5, 2020, we were in position to also re-commence the grant of equity incentives to our employees during fiscal year 2021, including our named executive officers. In addition to the special grant to Mr. Liang of the 2021 CEO Performance Award, during fiscal year 2021, we made grants under the 2020 Equity and Incentive Compensation Plan of equity incentives to each of Mr. Weigand, Mr. Clegg and Mr. Kao, which grants were consistent with our historical practice prior to the time we had ceased being current in our periodic filings with the SEC in 2017, all as discussed further below.
Additional Information on the Compensation Committee's Compensation Consultant
For fiscal year 2021, the Compensation Committee utilized information from Radford in making certain named executive officer compensation decisions. Previously, in fiscal year 2019, Radford had advised the Compensation Committee regarding executive officer compensation decisions and our management had commissioned Radford to provide additional services to management for similar compensation studies to evaluate components of total compensation for our employees generally. In making the adjustments to base salaries for our named executive officers in the fourth quarter of fiscal year 2020, the Compensation Committee relied on information that Radford had provided in both fiscal year 2020 and in fiscal year 2019. In addition, in connection with evaluating the 2021 CEO Performance Award in fiscal year 2021, the Compensation Committee considered information Radford had provided in March 2021 related to peer group chief executive officer compensation and pay-for-performance analyses, as described above.
In fiscal year 2019, before receiving Radford’s information and assistance, the Compensation Committee assessed the independence of Radford in the light of all relevant factors, including the additional services and other factors required by the SEC, that could give rise to a potential conflict of interest with respect to Radford. Based on these reviews and assessments, the Compensation Committee did not identify any conflicts of interest raised by the work performed by Radford. In each of fiscal years 2020 and 2021, the Compensation Committee updated its assessment of Radford’s independence and did not identify any conflicts of interest raised by additional work performed by Radford in such fiscal years.
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. As discussed in the Prior Year CD&A, feedback received from stockholders has included a desire that a more significant portion of executive compensation (including future equity awards made following the adoption of the 2020 Equity and Incentive Compensation Plan) be tied to performance based upon the achievement of pre-established goals. For fiscal year 2021, the Compensation Committee took such prior feedback into consideration when it developed, designed, and granted the 2021 CEO Performance Award. In addition, prior to granting such award in March 2021, the Compensation Committee (through management) solicited the views of several of our largest stockholders regarding the grants of large, long-term performance based equity incentives, including compensation philosophy embodied by these types of awards, potential size, appropriate performance metrics, the time periods within which such metrics should be achieved, and other terms.
Our last annual meeting of stockholders was held on May 28, 2021 (the "Fiscal Year 2020 Annual Meeting"), and we provided our stockholders the annual opportunity to vote to approve, on an advisory basis, the compensation of our named executive officers as disclosed in the proxy statement for such meeting. At the meeting, stockholders representing approximately 78% of the stock present and entitled to vote on this “say-on-pay” proposal approved the compensation of our named executive officers. Although the Fiscal Year 2020 Annual Meeting was held during the latter part of fiscal year 2021 when significant decisions affecting compensation matters for fiscal year 2021 for the named executives had already been made by the Compensation Committee and the say-on-pay vote was non-binding, the Compensation Committee expects to continue to consider the outcome of the vote when making future compensation decisions for our named executive officers.
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 year 2021, our Chief Executive Officer provided the Compensation Committee with his views on the merits of large, long-term performance based equity incentives while minimizing other typical compensation components, such as base salary and short-term cash and equity incentives. Mr. Liang was very willing to change his compensation arrangements so that almost all of his compensation for the next five years will depend on whether we achieve the difficult performance metrics embedded in the 2021 CEO Performance Award. Mr. Liang has expressed his view that this change in his compensation arrangements is evidence of his commitment to our Company and his confidence in our future.
Following stockholder approval of the 2020 Equity and Incentive Compensation Plan in June 2020 that had (among other things) refreshed the pool of equity awards available for grant, our Chief Executive Officer and Chief Financial Officer provided the Compensation Committee with their views on non-CEO named executive officer equity grants based on their view of investor expectations and our operating plans and financial goals. At the end of fiscal year 2021, 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 functional expertise and leadership. 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.
2021 CEO Performance Award Granted in March 2021
Terms of the 2021 CEO Performance Award
On March 2, 2021, the Compensation Committed granted to our Chief Executive Officer, Mr. Liang, a long-term performance-based option award to purchase up to 1,000,000 shares of the Company’s common stock which may vest in five equal tranches. Each of the five tranches vests if a specified revenue goal (each, a “Revenue Goal”) and a specified stock price goal (each, a “Stock Price Goal”) is achieved. Revenue Goals must be achieved by June 30, 2026 (the “Revenue Performance Period”) and Stock Price Goals must be achieved by September 30, 2026 (the “Stock Price Performance Period”). The 2021 CEO Performance Award was granted with an exercise price equal to $45.00 (the “Exercise Price”), representing a premium of approximately 32% to the closing stock price of $34.08 reported on NASDAQ on March 2, 2021. The 2021 CEO Performance Award will generally expire on March 2, 2031 and includes, among other terms and conditions, a restriction on the sale of any shares issued upon exercise of the 2021 CEO Performance Award until March 2, 2024, the third anniversary of the date of grant.
The Compensation Committee designed the 2021 CEO Performance Award to be a challenging long-term incentive for future performance, and the Compensation Committee noted in particular that the performance thresholds could take many years to achieve, if they can be achieved at all. In addition, the Compensation Committee intended that the 2021 CEO Performance Award would further align Mr. Liang’s interests with those of the Company’s stockholders over the long term. In connection with the grant of the 2021 CEO Performance Award, Mr. Liang will receive a de minimis salary of $1 per annum (or such other non-waivable minimum wage requirement, if deemed advisable) and no cash bonuses through June 30, 2026. Mr. Liang must also remain as the Company’s CEO (or such other position with the Company as Mr. Liang and the Board may agree) at the time each goal is met in order for the corresponding tranche to vest. This helps ensure Mr. Liang’s active leadership of the Company over the long term.
The following table sets forth the Revenue Goals which must be achieved by the end of the Revenue Performance Period of June 30, 2026:
| Revenue Goals**(1)** | Absolute Change From Revenue Reported for the Fiscal Year Ended June 30, 2020**(2)** | ||||
| $4.0 billion | 20% | ||||
| $4.8 billion | 44% | ||||
| $5.8 billion | 74% | ||||
| $6.8 billion | 104% | ||||
| $8.0 billion | 140% |
(1)Revenue means the Company’s total revenues, as reported by the Company in its financial statements on Forms 10-Q and 10-K filed with the SEC (but without giving effect to any rounding used in reporting the amounts in Form 10-Q and Form 10-K), for the previous four consecutive fiscal quarters of the Company.
(2)Revenue reported in the Company’s Form 10-K for the fiscal year ended June 30, 2020 was $3,339.3 million. Revenue reported in this report for the fiscal year ended June 30, 2021 was $3,557.4 million.
The following table sets forth the Stock Price Goals which must be achieved by September 30, 2026:
| Stock Price Goals**(1)** | Absolute Change in Stock Price from Grant Date Stock Price**(2)** | Absolute Change in Stock Price From $45 Exercise Price | ||||||
| $45 | 32% | 0% | ||||||
| $60 | 76% | 33% | ||||||
| $75 | 120% | 67% | ||||||
| $95 | 179% | 111% | ||||||
| $120 | 252% | 167% |
(1)Sustained stock price performance is required for each Stock Price Goal to be met, other than in connection with a change in control. For each Stock Price Goal to be met, the sixty trading day average stock price must equal or exceed the Stock Price Goal.
(2)Utilizes closing stock price on March 2, 2021 of $34.08 per share. The June 30, 2021 closing stock price was $35.18 per share.
Each of the five tranches vests only when both the applicable Revenue Goal and Stock Price Goal for such tranche are certified by the Compensation Committee as having been met.
A Revenue Goal and a Stock Price Goal that are matched together can be achieved at different points in time and vesting will occur at the later of the achievement certification dates for such Revenue Goal and Stock Price Goal. Subject to any applicable clawback provisions, policies or other forfeiture terms described in the 2021 CEO Performance Award, once a goal is achieved, it is forever deemed achieved for determining the vesting of a tranche.
There is no automatic acceleration of vesting of the 2021 CEO Performance Award upon a future “change in control”, but any tranches that are unvested as of the date of the change in control will vest upon the change in control if the Stock Price Goal related to that tranche is achieved (the Revenue Goals will be disregarded). For purposes of determining whether any Stock Price Goal has been achieved, the stock price shall equal the greater of (1) the most recent closing price per share immediately prior to the effective time of such change in control, or (2) the per share common stock price (plus the per share of common stock value of any other consideration) received by our stockholders in the change in control. To the extent any tranche of the 2021 CEO Performance Award has not vested prior to the change in control, and does not vest in connection with the change of control based on attainment of the relevant Stock Price Goal, as described above, such tranche under the 2021 CEO Performance Award will terminate as of the effective date of the change in control.
Reasons for the 2021 CEO Performance Award
The Compensation Committee’s primary objective in designing the 2021 CEO Performance Award was to help the Company continue to grow and achieve its mission, which would facilitate the creation of significant stockholder value.
Mr. Liang has been critical to fulfilling the Company’s mission to be the leading innovator in high-performance, high-efficiency server and storage technology while being committed to protect the environment through, and provide customers with, the most energy-efficient, environmentally-friendly solutions available on the market. Mr. Liang co-founded the Company, has been our Chief Executive Officer and Chairman since our inception, leads the overall management of the Company, and sets our strategic direction. His experience in running our business, and his continued personal involvement in key relationships with suppliers, customers and strategic partners and directing product innovations, will be extremely valuable to the Company as the Company looks to re-accelerate its growth and meet its bold vision to achieve the Revenue Goals and Stock Price Goals embedded in the 2021 CEO Performance Award.
Mr. Liang remains the Company's largest stockholder, and the Compensation Committee believes the 2021 CEO Performance Award helps ensure his commitment and focus on delivering on a long-term vision that can increase stockholder value.
Fiscal Year 2021 Named Executive Officer Compensation Components, Other than the 2021 CEO Performance Award
For fiscal year 2021, the principal components of compensation for our named executive officers (including for the Chief Executive Officer during fiscal year 2021 prior to the grant of the 2021 CEO Performance Award in March 2021) were some or all of the following:
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Base salary;
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Short-term bonuses, some of which are discretionary and some of which are guaranteed; and
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Equity-based incentive compensation consisting of grants of stock options and/or RSUs.
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 salary rates 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, typically 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 named executive officer. For the Chief Executive Officer, prior to the grant of the 2021 CEO Performance Award in March 2021, the Compensation Committee had considered substantially the same type of information, as well as our overall size in terms of annual revenue, scale and number of employees and the Chief Executive Officer’s overall stock ownership. In connection with the grant of the 2021 CEO Performance Award, Mr. Liang will receive a de minimis salary of $1 per annum (or such other non-waivable minimum wage requirement, if deemed advisable) and no cash bonuses through June 30, 2026.
Other than as discussed in the paragraphs above and below, the Compensation Committee held base salaries at the same annual rates as were in effect at the end of fiscal year 2020. As had been discussed in the Prior Year CD&A, in the fourth quarter of fiscal year 2020, the Compensation Committee had approved increases in base salary rates for the named executive officers, which ranged from approximately 8% to 43%, after we had again become current in filing our periodic reports with the SEC and our common stock was relisted on the Nasdaq Global Select Market.
In addition, following the assumption of the role of Senior Vice President, Chief Financial Officer and Chief Compliance Officer in February 2021 by Mr. Weigand, the Compensation Committee approved an adjustment to his base salary to $380,000 per annum, which was substantially identical to the annual base salary of his predecessor. Mr. Hsu’s base salary was also adjusted following a transition in his role (and a decrease in his responsibilities) as discussed in the table below.
| Principal Position During Fiscal Year 2021 | Fiscal Year 2020 Base Salary Rate | Fiscal Year 2021 Base Salary Rate**(1)** | Base Salary % Change | |||||||||||||||||||||||
| Charles Liang | President, Chief Executive Officer and Chairman of the Board | $ | 522,236 | $ | 1 | (100) | % | |||||||||||||||||||
| David Weigand | Senior Vice President, Chief Financial Officer and Chief Compliance Officer | $ | 337,716 | $ | 380,000 | 13 | % | |||||||||||||||||||
| Don Clegg | Senior Vice President, Worldwide Sales | $ | 352,000 | $ | 352,000 | — | % | |||||||||||||||||||
| George Kao | Senior Vice President, Operations | $ | 325,728 | $ | 325,728 | — | % | |||||||||||||||||||
| Alex Hsu | Senior Chief Executive, Strategic Business | $ | 378,000 | $ | 160,000 | (58) | % | |||||||||||||||||||
| Kevin Bauer | Former Senior Vice President, Chief Financial Officer | $ | 379,040 | $ | 379,040 | — | % |
(1)The base salary amounts actually paid to each named executive officer for fiscal year 2020 and 2021 are disclosed in the Summary Compensation Table. The fiscal year 2020 salary amounts disclosed in the Summary Compensation Table for each named executive officer are less than the amounts disclosed in the table above because each named executive officer was receiving his fiscal year 2019 base salary rate for a portion of fiscal year 2020. In addition:
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For Mr. Liang, the fiscal year 2021 salary amount disclosed in the Summary Compensation Table is higher than the amount disclosed in the table above because Mr. Liang commenced receiving his $1 de minimis base salary following the grant of the 2021 CEO Performance Award in March 2021;
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For Mr. Weigand, the fiscal year 2021 salary amount disclosed in the Summary Compensation Table is lower than the amount disclosed in the table above because Mr. Weigand only commenced receiving the amount set forth in the table following his appointment in February 2021 as Senior Vice President, Chief Financial Officer and Chief Compliance Officer;
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For Mr. Hsu, the fiscal year 2021 salary amount disclosed in the Summary Compensation Table is higher than the amount disclosed in the table above because for most of fiscal year 2021 Mr. Hsu served in the role of Chief Operating Officer at his fiscal year 2020 base salary rate. In March 2021, Mr. Hsu transitioned to the role of Senior Chief Executive, Strategic Business, a part-time position, from his prior role as Senior Vice President, Chief Operating Officer and ceased being an executive officer, and his base salary rate was adjusted to the fiscal year 2021 base salary rate in the table above. Such amount was determined primarily through discussions with the Chief Executive Officer; and
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For Mr. Bauer, the fiscal year 2021 salary amount disclosed in the Summary Compensation Table is lower than the amount disclosed in the table above because Mr. Bauer resigned as Senior Vice President, Chief Financial Officer in January 2021.
Short-Term Incentive Cash Compensation. In fiscal year 2021, the Compensation Committee did not utilize a uniform short-term incentive cash compensation program for the named executive officers. As discussed in the Prior Year CD&A, in the fourth quarter of fiscal year 2020 the Compensation Committee had implemented a short-term incentive cash compensation program for fiscal year 2020 with performance goals as part of its review of executive compensation following the re-listing of our common stock on the Nasdaq Global Select Market (which had occurred in January 2020) in order to support our overall business objectives by aligning short-term Company performance with the interests of investors and focusing attention on key measures of success. Following the completion of such short-term incentive cash program, the Compensation Committee did not believe it was necessary to renew a similar program for fiscal year 2021.
Other Short-Term Bonuses. During fiscal year 2021, we instead utilized individualized short-term cash bonus arrangements with various officers of the Company, including all of our named executive officers. In some cases these arrangements pre-date the time that these individuals became executive officers, in other cases the arrangements were negotiated at the time the individual was hired or was designated as an executive officer, and in still other cases the arrangements were new short-term bonus opportunities implemented for fiscal year 2021. These arrangements provide for fixed bonus payments, variable bonus payments, or a hybrid program. We award these short-term bonuses to the named executive officers for their continued achievements and contributions to the Company, as further described below. The table below summarizes the fiscal year 2021 arrangements for the named executive officers.
| Charles Liang | For a portion of fiscal year 2021, and spurred by the COVID-19 pandemic, we provided employees additional per day compensation for coming into the workplace. In the United States, both exempt and non-exempt employees were generally eligible for this program based upon the number of days on which they worked on-site, based on a standard rate for each of the exempt and non-exempt employees (the “Workplace Incentive”). Under the Workplace Incentive, Mr. Liang received $3,360. | ||||
| David Weigand | In connection with his appointment as Senior Vice President, Chief Financial Officer and Chief Compliance Officer in February 2021, Mr. Weigand received a fixed bonus, paid quarterly, at a rate of $80,000 per year. Due to the commencement of the award in February 2021, Mr. Weigand received only half of the annual amount for fiscal year 2021 ($40,000). This bonus amount is similar in both structure and amount to what was provided to Mr. Weigand’s predecessor upon his initial appointment to the position. Under the Workplace Incentive, Mr. Weigand received $3,360. | ||||
| Don Clegg | Mr. Clegg received a fixed bonus, paid monthly, at a rate of $84,000 per year. Due to the termination of this program after July 2020, however, Mr. Clegg received only 1/12th of the annual amount for fiscal year 2021 ($7,000). Under the Workplace Incentive, Mr. Clegg received $2,990. | ||||
| George Kao | Under the Workplace Incentive, Mr. Kao received $3,168. | ||||
| Alex Hsu | Under the Workplace Incentive, Mr. Hsu received $768. | ||||
| Kevin Bauer | Mr. Bauer received a fixed bonus, paid monthly, initially at a rate of $80,000 per year, then increased to a rate of $120,000 per year in September 2019. Due to the termination of this program after July 2020, however, Mr. Bauer received only 1/12th of the annual amount for fiscal year 2021 ($10,000). Under the Workplace Incentive, Mr. Bauer received $3,408. |
Equity-Based Incentive Compensation. Stock options and other equity-based awards are also an important component of the total compensation of our named executive officers. We believe that equity-based awards also 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. The 2020 Equity and Incentive Compensation Plan authorized 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, expected future performance 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 Form 10-K by its due date, the effectiveness of our registration statement on Form S-8 covering equity awards under our prior 2016 Equity Incentive Plan was suspended. It remained suspended until December 20, 2019, the date on which we had completed filing all of our delinquent quarterly and annual reports with the SEC. The effectiveness of our registration statement on Form S-8 for the prior 2016 Equity Incentive Plan was then revived. The Compensation Committee did not make equity awards to our named executive officers during the period of time when our registration statement on Form S-8 for the 2016 Equity Incentive Plan was not effective, except to persons who became named executive officers during this period. With the adoption of the 2020 Equity and Incentive Compensation Plan, and the effectiveness of a Form S-8 registration statement for that plan and awards granted under it on June 16, 2020, our Compensation Committee has granted, and expects that it will continue to grant, additional equity awards to our named executive officers that will reflect the lack of equity awards for the period of time during which the effectiveness of our registration statement on Form S-8 for our prior 2016 Equity Incentive Plan was suspended. We expect to make all future equity awards out of the 2020 Equity and Incentive Compensation Plan.
For fiscal year 2021, which commenced July 1, 2020, the Compensation Committee determined to provide the awards of performance-based stock options, service-based stock options and RSUs to named executive officers as outlined in the table below.
| Type of Award | Quantity (at Target) of Award | Rationale for Providing the Award | |||||||||||||||
| Charles Liang | Performance options | 1,000,000 | Long-term incentive(1) | ||||||||||||||
| David Weigand(2) | Stock options | 8,000 | Refresh grant | ||||||||||||||
| RSUs | 3,600 | Refresh grant | |||||||||||||||
| Don Clegg | Stock options | 7,500 | Refresh grant | ||||||||||||||
| RSUs | 3,380 | Refresh grant | |||||||||||||||
| George Kao | Stock options | 5,410 | Refresh grant | ||||||||||||||
| RSUs | 2,430 | Refresh grant | |||||||||||||||
| Alex Hsu(3) | N/A | N/A | N/A |
(1)See “2021 CEO Performance Award Granted in March 2021” above for additional information.
(2)Mr. Weigand assumed the role of Senior Vice President, Chief Financial Officer and Chief Compliance Officer following the resignation of Mr. Bauer in January 2021.
(3)Mr. Hsu served as Senior Vice President, Chief Operating Officer until March 2021. In March 2021, Mr. Hsu transitioned to the role of Senior Chief Executive, Strategic Business. Although Mr. Hsu did not receive any new grants of equity awards during fiscal year 2021, the original vesting schedules for his awards outstanding as of February 28, 2021 were continued despite his reduction in responsibilities effective March 1, 2021, and his awards were deemed modified for accounting purposes. For more information about modification fair value for Mr. Hsu’s awards relating to his transition, please see the “Fiscal Year 2021 Summary Compensation Table” and “Fiscal Year 2021 Grants of Plan-Based Awards Table” below.
Stock Options. In general, the Compensation Committee uses stock options to directly align the compensation interests of participating named executive officers with the investment interests of our stockholders. See “2021 CEO Performance Award Granted in March 2021” for additional information regarding the grant of the long-term performance-based option award to Mr. Liang. The stock options described above for each of Messrs. Weigand and Clegg were granted on August 4, 2020 with a 10-year term and an exercise price equal to the closing market price of our common stock on the grant date ($30.33 per share). Subject to the continued service of such named executive officers, these stock options vest and become exercisable at the rate of 25% of the shares on May 1, 2021, and 1/16th at the end of each successive calendar quarter thereafter. The Compensation Committee had approved utilizing May 1, 2021 as the first vesting date because (if not for the delay in the Company’s ability to issue equity incentive awards because it did not have an effective registration statement on Form S-8 covering equity awards under its equity incentive plans) such awards otherwise would have been made for these named executive officers on or prior to May 1, 2020 as part of their two-year award cycle. The stock options described above for Mr. Kao were granted on October 27, 2020 with a 10-year term and an exercise price equal to the closing market price of our common stock on the grant date ($23.74 per share). Subject to the continued service of such named executive officer, the grant is generally exercisable at the rate of 25% of the options granted on October 27, 2021, and then 1/16th at the end of each successive calendar quarter thereafter. The particular size of the stock option grants to each of these named executive officers was determined based upon the recommendation of Mr. Liang which was reviewed and approved by the Compensation Committee.
RSUs. In general, RSUs represent the right to receive a defined number of shares of our common stock subject to the continued employment through the vesting date. The RSUs described above for each of Messrs. Weigand and Clegg were granted on August 4, 2020. Subject to the continued service of such named executive officers, these RSUs vest at the rate of 25% of the total number of units on May 10, 2021, and 1/16th at the end of each successive calendar quarter thereafter. The Compensation Committee had approved utilizing May 10, 2021 as the first vesting date because (if not for the delay in the Company’s ability to issue equity incentive awards because it did not have an effective registration statement on Form S-8 covering equity awards under its equity incentive plans) such awards otherwise would have been made for these named executive officers on or prior to May 10, 2020 as part of their two-year award cycle. The RSUs described above for Mr. Kao were granted on October 27, 2020. Subject to the continued service of such named executive officer, these RSUs vest at the rate of 25% of the total number of units on November 10, 2021, and 1/16th at the end of each successive calendar quarter thereafter. The particular size of the RSU grants to each of these named executive officers was determined based upon the recommendation of Mr. Liang which was reviewed and approved by the Compensation Committee.
PRSUs. PRSUs represent the right to receive a defined number of shares of our common stock subject to the achievement of pre-established goals. Mr. Hsu received a grant of 30,000 in target PRSUs on March 27, 2020. In general, a total of 30,000 units were to vest based on service conditions only, with the first tranche of 15,000 vesting in May 2021 and 15,000 vesting in November 2021. Additional units could have been earned for each tranche if the Company’s revenue increased year-over-year (fiscal year 2020 compared to fiscal year 2019 for the first tranche and fiscal year 2021 compared to fiscal year 2020 for the second tranche).
With respect to the first tranche, the Company’s revenue for fiscal year 2020 ($3,339 million) did not exceed revenue for fiscal 2019 ($3,500 million), so no additional units were earned for the first tranche. With respect to the second tranche, if the Company’s revenue for fiscal year 2021 exceeded its revenue for fiscal year 2020, then a number of additional units would have been earned for the second tranche. The number of additional units was to be determined by multiplying the percentage growth in revenue by three, which amount would have then been a multiplier of the base number of 15,000 units. Based upon the Company’s revenue for fiscal year 2021 ($3,557 million) increased from revenue for fiscal year 2020, management has calculated that for the second tranche, approximately 2,939 additional units were earned, such that a total of 17,939 units will vest in November 2021. Such amount remains subject to final certification by the Compensation Committee.
Update on Special Performance-Based Cash Incentive Award Granted in March 2020
As discussed in the Prior Year CD&A, in March 2020, the Board, upon the recommendation of the Compensation Committee, approved special performance-based cash incentive award opportunities to certain long-term employees, including Mr. Liang, our Chief Executive Officer. This incentive for Mr. Liang was specifically linked to Company stock price performance. Mr. Liang’s award, for a cash incentive opportunity of up to $8,076,701 (the “Maximum Value”), was subject to the following conditions:
-
50% of the Maximum Value will be paid to Mr. Liang only if the average closing price for the Company’s common stock equals or exceeds $31.61 (representing a 15% premium over the average closing price of the Company’s common stock for the 20 consecutive trading days preceding the Board’s decision) for any period of 20 consecutive trading days prior to September 30, 2021 (the “First Price Target”), provided that Mr. Liang remains employed with the Company through the date that such common stock price goal is achieved; provided further that this payment shall be subject to reduction (including possibly a reduction to zero) at the sole discretion of the Board to the extent the Company has not made, in the Board’s determination, adequate progress in remediating its internal weaknesses in its internal control over financial reporting; and
-
50% of the Maximum Value will be paid to Mr. Liang only if the average closing price for the Company’s common stock equals or exceeds $32.99 (representing a 20% premium over the average closing price of the Company’s common stock for the 20 consecutive trading days preceding the Board’s decision) (the “Second Price Target”) for any period of 20 consecutive trading days prior to June 30, 2022, provided that Mr. Liang remains employed with the Company through the date that such common stock price goal is achieved.
The relevant stock price goals under Mr. Liang’s award were not met during fiscal year 2020, and no portion of these amounts were paid to Mr. Liang during fiscal year 2020. During fiscal year 2021, the First Price Target was achieved based upon stock price performance from December 22, 2020 through January 21, 2021. As of August 27, 2021, the Board has not yet determined whether to exercise any negative discretion with respect to the first 50% of the Maximum Value earned by Mr. Liang (as described in the first bullet point above), and no portion of the first 50% of the Maximum Value has yet been paid to Mr. Liang through such date. The Board is expected to make a final determination whether to exercise any negative discretion by October 31, 2021. However, due to the fact that we currently expect that the Board will determine that the Company has made adequate progress in remediating the Company’s material weaknesses in its internal control over financial reporting, we have chosen to disclose the first 50% of the Maximum Value as having been earned by Mr. Liang for fiscal year 2021, and are
disclosing it as an earned amount in the Summary Compensation Table below, all in advance of formal Board determination. Also during fiscal year 2021, the Second Price Target was achieved based upon stock price performance from February 8, 2021 through March 8, 2021. Payment of the 50% of the Maximum Value relating to the Second Price Target was made to Mr. Liang during the fourth quarter of fiscal year 2021. As a result of these activities and achievements, we currently consider 100% of the Maximum Value to have been earned by Mr. Liang for fiscal year 2021.
Former CFO Consulting Arrangement
Prior to ceasing employment with the Company as Chief Financial Officer, in February 2021 Mr. Bauer entered into a consulting arrangement with the Company related to reinforcing a smooth transition of his prior duties, and providing general consultation and advice services. The term of the arrangement is for one year with a monthly fee of $13,334 for services. As a result of the consulting service provided for in the consulting arrangement, Mr. Bauer's outstanding equity awards generally will continue to vest during the consulting period in accordance with their terms and the period Mr. Bauer was permitted to exercise his awards was extended until May 25, 2022. Assuming a stock price equal to $32.50 (our closing stock price on February 25, 2021, Mr. Bauer’s last day of employment), the intrinsic value of the unvested awards subject to such continued vesting was approximately $40,500 in stock options and $0 in RSUs.
On April 27, 2021, Mr. Bauer was also granted 10,000 stock options to compensate his consulting efforts in a smooth transition of his prior duties, and his provision of general consultation and advice services. Such stock options have a 10-year term and an exercise price equal to the closing market price of our common stock on the grant date ($38.50 per share). Subject to the continued provision of consulting services, these stock options vest and become exercisable at the rate of 100% of the shares on February 25, 2022. The number of shares subject to these stock options was determined primarily through discussions with the Chief Executive Officer.
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 have historically been sufficient to provide motivation and to align this group’s interests with those 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 plans for at least 36 months. Generally, 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. In addition, in connection with the 2021 CEO Performance Award granted to our Chief Executive Officer in March 2021, the Board required a restriction on the sale of any shares issued upon the exercise of the options associated with such award until March 2, 2024, the third anniversary of the grant date. See “2021 CEO Performance Award Granted in March 2021.”
Recoupment Policy
We established a recoupment policy that is applicable to our named executive officers (the “Recoupment Policy”). 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.
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 (we have entered into a consulting agreement with Mr. Bauer, which is further described above under “- Former CFO Consulting Arrangement”). Each of Messrs. Clegg, Hsu, 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. Prior to his departure in February 2021, Mr. Bauer had a substantially similar offer letter. We do not have any written employment arrangements with Mr. Liang. Other than as described in the following sentence, 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. See also “- Fiscal Year 2021 Potential Payments Upon Termination or Change of Control.” The 2021 CEO Performance Award has certain provisions related to the treatment of such award in the event of a change of control of our Company. See “2021 CEO Performance Award Granted in March 2021.”
Tax and Accounting Considerations. 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). We expect to 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, there can be no assurance that compensation intended to satisfy the requirements for deductibility under Section 162(m) 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 Compensation 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 Compensation 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 that the CD&A be included in this Annual Report.
This report has been furnished by the Compensation Committee.
Sherman Tuan, Chair
Saria Tseng
Fiscal Year 2021 Summary Compensation Table
The following table sets forth information concerning the reportable compensation for our named executive officers for the fiscal years ended 2021, 2020 and 2019, as applicable.
FISCAL YEAR 2021 SUMMARY COMPENSATION TABLE
| Name and Principal Position | Year | Salary ($)****(1) | Bonus ($)****(2) | Stock Awards ($)****(3) | Option Awards ($)****(4) | Non-Equity Incentive Plan Compensation ($)****(5) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Charles Liang | 2021 | 421,785 | 3,360 | — | 11,616,000 | 8,076,701 | — | 20,117,846 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| President, Chief Executive Officer and Chairman of the Board | 2020 | 423,346 | — | — | — | 875,635 | — | 1,298,981 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 386,212 | — | — | — | — | — | 386,212 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| David Weigand | 2021 | 367,709 | 43,360 | 109,188 | 113,280 | — | — | 633,537 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Senior Vice President, Chief Financial Officer and Chief Compliance Officer | 2020 | 300,347 | 222,107 | — | — | 78,970 | — | 601,424 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 270,000 | 48,921 | 221,000 | 215,600 | — | — | 755,521 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Don Clegg | 2021 | 362,140 | 9,990 | 102,515 | 106,200 | — | — | 580,845 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Senior Vice President, Worldwide Sales | 2020 | 348,459 | 108,970 | — | — | 290,581 | — | 748,010 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 336,910 | 146,419 | 132,600 | 215,600 | — | — | 831,529 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| George Kao | 2021 | 333,858 | 6,273 | 57,688 | 60,213 | — | — | 458,032 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Senior Vice President, Operations | 2020 | 324,807 | 4,524 | 68,851 | 15,288 | 152,333 | — | 565,803 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 305,060 | 4,262 | — | 39,323 | — | — | 348,645 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alex Hsu(6) | 2021 | 305,333 | 768 | 452,964 | 475,592 | — | — | 1,234,657 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Senior Chief Executive, Strategic Business | 2020 | 374,845 | 5,048 | 611,100 | 372,400 | 189,624 | — | 1,553,017 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 206,340 | 2,623 | 60,112 | 172,480 | — | — | 441,555 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Kevin Bauer(7) | 2021 | 294,575 | 13,408 | — | 426,500 | — | 53,336 | 787,819 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Former Senior Vice President, Chief Financial Officer | 2020 | 363,954 | 460,967 | — | — | 164,441 | — | 989,362 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 340,356 | 80,004 | — | — | — | — | 420,360 |
(1)Amounts disclosed under "Salary" for fiscal year 2021 include leave pay earned by the named executive officers.
(2)Amounts disclosed under “Bonus” for fiscal year 2021 reflect short-term bonuses earned by each of the named executive officers. See discussion under “Compensation Discussion and Analysis” for more information about these individualized programs.
(3)The amount disclosed for fiscal year 2021 represents the grant date fair value of the RSU award granted during the fiscal year to the named executive officer calculated in accordance with ASC Topic 718 (plus, for Mr. Hsu, the modification fair value for the continuation of the original vesting schedules for his awards outstanding as of February 28, 2021 despite his reduction in responsibilities effective March 1, 2021 (based on a deemed modification for accounting purposes)), in each case as further described in the Fiscal Year 2021 Grants of Plan-Based Awards table below. Assumptions used in the calculation of this amount are included in Part II, Item 8, “Financial Statement and Supplementary Data”, and Part II, Item 8, Note 14 “Stock-based Compensation and Stockholders’ Equity”, to our consolidated financial statements for fiscal year 2021 included in this Annual Report on Form 10-K.
(4)The amount disclosed for fiscal year 2021 represents the grant date fair value of the stock option award for each named executive officer calculated in accordance with ASC Topic 718, using the Black Scholes option-pricing model (plus (A) for Mr. Bauer, the modification fair value for a modification of the post-employment termination exercise period for 70,000 in vested stock options held by Mr. Bauer as of February 25, 2021, and (B) for Mr. Hsu the modification fair value for the continuation of the original vesting schedules for his awards outstanding as of February 28, 2021 despite his reduction in responsibilities effective March 1, 2021 (based on a deemed modification for accounting purposes)), in each case as further described in the Fiscal Year 2021 Grants of Plan-Based Awards table below. The amount set forth in the table above with respect to Mr. Liang’s award represents our determination of probable outcome of the performance conditions embedded in the 2021 CEO Performance Award as of the date of
grant. If the maximum level of performance is achieved with respect to this award (in other words, if we achieve the $8.0 billion revenue target and our common stock reaches the $120.00 per share price target, the grant date fair value of the award will be $13,882,000. These amounts do not necessarily correspond to the actual values that may be realized by the named executive officers, which depend, among other things, on the market value of our common stock appreciating from that on the grant dates of the options. This award was designed to be entirely an incentive for future performance that could take many years, if at all, to be achieved. Further, each of the stock price targets (starting at $45.00 and rising to $120.00) and revenue targets (starting at $4.0 billion and rising to $8.0 billion) was selected to be very difficult to achieve. If any options have not vested by the end of the term of the option award, they will be forfeited and Mr. Liang will not realize any value from such options. As of the date of this filing, none of the revenue or stock price goals has been achieved. Furthermore, the exercise price of $45.00 per share is 32% higher than the closing price of our common stock on the date the 2021 CEO Performance Award was granted AND exceeds the highest price at which our common stock has ever traded as of the date of this filing. Even if we achieve the first revenue goal of $4.0 billion and the first stock price goal of $45.00 is also met, so that the first tranche of the 2021 CEO Performance Award vests, Mr. Liang will realize no gain on the shares covered by the first tranche unless he exercises the option for the first tranche of shares and thereafter our common stock trades at a price higher than $45.00 per share. 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 14 “Stock-based Compensation and Stockholders’ Equity”, to our consolidated financial statements for fiscal year 2021 included in this Annual Report on Form 10-K.
(5)The amount disclosed in this column for fiscal year 2021 represents for Mr. Liang $8,076,701 in Maximum Value deemed earned under a special performance-based cash incentive award opportunity granted to Mr. Liang in March 2020. See “Update on Special Performance-Based Cash Incentive Award Granted in March 2020” above for more information about this award.
(6)Mr. Hsu served as Senior Vice President, Chief Operating Officer until March 2021. In March 2021, Mr. Hsu transitioned to the role of Senior Chief Executive, Strategic Business.
(7)Mr. Bauer resigned as our Chief Financial Officer in January 2021, and Mr. Weigand has assumed such role. Mr. Bauer served as consultant after his resignation from the Company and earned $53,336 in consulting fees for fiscal year 2021.
Fiscal Year 2021 Grants of Plan-Based Awards
The following table provides information concerning all plan-based awards granted during fiscal year 2021 to each of our named executive officers, which grants were made under the 2020 Equity and Incentive Compensation Plan.
FISCAL YEAR 2021 GRANTS OF PLAN-BASED AWARDS TABLE
| Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($)****(1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Name | Grant Date | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Charles Liang(2) | 3/2/2021 | 200,000 | 1,000,000 | 1,000,000 | — | — | $ | 45.00 | $ | 11,616,000 | (6) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| David Weigand | 8/4/2020 | — | — | — | — | 8,000 | 30.33 | 113,280 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 8/4/2020 | — | — | — | 3,600 | — | — | 109,188 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Don Clegg | 8/4/2020 | — | — | — | — | 7,500 | 30.33 | 106,200 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 8/4/2020 | — | — | — | 3,380 | — | — | 102,515 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| George Kao | 10/27/2020 | — | — | — | — | 5,410 | 23.74 | 60,213 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/27/2020 | — | — | — | 2,430 | — | — | 57,688 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alex Hsu | 3/1/2021 | — | (3) | — | (3) | — | — | 452,964 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/1/2021 | — | — | — | — | (4) | (4) | 475,592 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Kevin Bauer | 4/27/2021 | — | — | — | — | 10,000 | 38.50 | 183,600 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/25/2021 | — | — | — | — | (5) | (5) | 242,900 |
(1) Amounts disclosed in this column represent the fair value of the RSU and stock option awards as of the date of grant (for Mr. Liang’s stock option award, based upon the probable outcome of the performance conditions), computed in accordance with ASC Topic 718, excluding the effect of estimated forfeitures.
(2) These stock options are performance-based and shall vest and become exercisable depending upon the degree of satisfaction of both the Stock Price Goals and Revenue Goals discussed above in CD&A. The Stock Price Goals must be achieved on or prior to September 30, 2026 and the Revenue Goals must be achieved on or prior to June 30, 2026. The options may vest in tranches of 200,000 shares each only when coordinating Stock Price Goals and Revenue Goals, respectively, of $45.00 sixty-trading-day-average stock price and $4.0 billion in four-consecutive-fiscal-quarter revenue, $60.00 sixty-trading-day-average stock price and $4.8 billion four-consecutive-fiscal-quarter revenue, $75.00 sixty-trading-day-average stock price and $5.8 billion four-consecutive-fiscal-quarter revenue, $95.00 sixty-trading-day-average stock price and $6.8 billion four-consecutive-fiscal-quarter revenue, and $120.00 sixty-trading-day-average stock price and $8.0 billion four-consecutive-fiscal-quarter revenue, are achieved. The smallest
amount of these stock options (threshold) that can be earned based on performance is vested stock options for 200,000 shares for achieving a Stock Price Goal of $45.00 sixty-trading-day-average stock price and a Revenue Goal of $4.0 billion in four-consecutive-fiscal-quarter revenue. However, even if those goals are achieved, if the Company’s stock price remained at $45.00 per share, based on the $45.00 exercise price for these stock options, there would be no appreciation value in those stock options for Mr. Liang. For more information about the operation of this award, see “2021 CEO Performance Award Granted in March 2021” above.
(3) In connection with his change in role with us effective March 1, 2021, the remaining PRSUs and unvested RSUs held by Mr. Hsu as of March 1, 2021 were deemed modified for accounting purposes. The value disclosed in this row reflects the modification fair value for the modification of Mr. Hsu’s remaining PRSUs and unvested RSUs.
(4) In connection with his change in role with us effective March 1, 2021, the unvested stock options held by Mr. Hsu as of March 1, 2021 were deemed modified for accounting purposes. The value disclosed in this row reflects the modification fair value for the modification of Mr. Hsu’s unvested stock options.
(5) In connection with his termination of employment and consulting arrangement with us, the post-employment termination exercise period for 70,000 in vested stock options held by Mr. Bauer as of February 25, 2021 was extended to expire within three months of the end of his consulting period (which is currently expected to occur on February 25, 2022). These vested stock options consisted of 8,030 stock options, 21,970 stock options, 6,400 stock options and 33,600 stock options, each at an exercise price of $28.45 per share to expire on January 25, 2027. The value disclosed in this row reflects the modification fair value for the modification of the post-employment termination exercise period for Mr. Bauer’s stock options.
(6) Reflects the grant date fair value of the 2021 CEO Performance Award, calculated in accordance with ASC Topic 718, as described in footnote one. This amount does not necessarily correspond to the actual value that may be realized by Mr. Liang. The 2021 CEO Performance Award is intended to compensate Mr. Liang over its 10-year maximum term and will become vested as to all shares subject to it only if the market price of our common stock increases to $120.00 per share (determined on a sixty-trading-day average) and our revenue increases to $8.0 billion over four consecutive fiscal quarters, in each case during the applicable performance period. This award was designed to be entirely an incentive for future performance that could take many years, if at all, to be achieved. Further, each of the stock price targets (starting at $45.00 and rising to $120.00) and revenue targets (starting at $4.0 billion and rising to $8.0 billion) was selected to be very difficult to achieve. If any options have not vested by the end of the term of the option award, they will be forfeited and Mr. Liang will not realize any value from such options. As of the date of this filing, none of the revenue or stock price goals has been achieved. Furthermore, the exercise price of $45.00 per share is 32% higher than the closing price of our common stock on the date the 2021 CEO Performance Award was granted AND exceeds the highest price at which our common stock has ever traded as of the date of this filing. Even if we achieve the first revenue goal of $4.0 billion and the first stock price goal of $45.00 is also met, so that the first tranche of the 2021 CEO Performance Award vests, Mr. Liang will realize no gain on the shares covered by the first tranche unless he exercises the option for the first tranche of shares and thereafter our common stock trades at a price higher than $45.00 per share. See “Executive Compensation—Compensation Discussion and Analysis (“CD&A”)— Compensation Philosophy and Objectives—Our Move Toward Performance-Based Compensation Arrangements” and “Executive Compensation—Compensation Discussion and Analysis (“CD&A”)—2021 CEO Performance Award Granted in March 2021” above and Part II, Item 8, Note 14 “Stock-based Compensation and Stockholders’ Equity”, to our consolidated financial statements for fiscal year 2021 included in this Annual Report on Form 10-K.
Grants made in fiscal year 2021 are described more fully in the "Compensation Discussion and Analysis" section of this Annual Report. More information concerning the terms of the employment or consulting arrangements, if applicable, in effect with our named executive officers during fiscal year 2021 is provided under the "Employment Arrangements, Severance and Change of Control Benefits" under the “Compensation Discussion and Analysis”.
Outstanding Equity Awards at 2021 Fiscal Year-End
The following table provides information concerning the outstanding equity-based awards as of June 30, 2021, held by our named executive officers.
OUTSTANDING EQUITY AWARDS AT 2021 FISCAL YEAR-END TABLE
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | 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 ($)****(1) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Charles Liang | 231,260 | 20.70 | 1/21/2023 |
| 166,750 | 35.07 | 1/19/2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 130,000 | 26.95 | 8/2/2027 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | 1,000,000 | (2) | 45.00 | 3/2/2031 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| David Weigand | 11,310 | 4,762 | (3) | 22.10 | 7/31/2028 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3,690 | 238 | (3) | 22.10 | 7/31/2028 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | 4,475 | (4) | 30.33 | 8/4/2030 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2,000 | 1,525 | (4) | 30.33 | 8/4/2030 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2,500 | (5) | 87,950 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2,700 | (6) | 94,986 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Don Clegg | 6,800 | — | 12.50 | 8/6/2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 6,000 | — | 26.75 | 8/4/2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4,000 | — | 20.54 | 8/3/2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 9,917 | 4,762 | (7) | 22.10 | 7/31/2028 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5,083 | 238 | (7) | 22.10 | 7/31/2028 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | 4,288 | (4) | 30.33 | 8/4/2030 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1,875 | 1,337 | (4) | 30.33 | 8/4/2030 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1,500 | (5) | 52,770 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2,535 | (6) | 89,181 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| George Kao | 14,840 | — | 26.95 | 8/2/2027 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5,160 | — | 26.95 | 8/2/2027 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 744 | 2,228 | (8) | 13.00 | 10/30/2028 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2,968 | — | 13.00 | 10/30/2028 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 974 | 586 | (9) | 20.37 | 3/27/2030 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | 5,410 | (10) | 23.74 | 10/27/2030 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1,268 | (11) | 44,608 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2,430 | (12) | 85,487 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alex Hsu | 3,500 | — | 17.96 | 1/20/2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2,500 | — | 27.28 | 1/27/2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2,082 | 298 | (13) | 22.80 | 1/24/2028 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 9,005 | 3,956 | (7) | 22.10 | 7/31/2028 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2,995 | 44 | (7) | 22.10 | 7/31/2028 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 38,000 | — | 20.37 | 3/27/2030 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 134 | (14) | 4,714 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 680 | (15) | 23,922 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 17,939 | (16) | 631,094 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Kevin Bauer | 400 | 1,200 | (17) | 28.45 | 1/25/2027 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2,100 | 6,300 | (17) | 28.45 | 1/25/2027 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | 10,000 | (18) | 38.50 | 4/27/2031 |
(1)Represents the closing stock price per share of our common stock as of June 30, 2021 ($35.18) multiplied by the number of shares underlying RSUs that had not vested as of June 30, 2021 (or, for Mr. Hsu, PRSUs that had been earned based on performance through June 30, 2021 but that had not vested as of June 30, 2021).
(2) These stock options are performance-based and shall vest and become exercisable depending upon the degree of satisfaction of both the Stock Price Goals and Revenue Goals discussed above in CD&A. The Stock Price Goals must be achieved on or prior to September 30, 2026 and the Revenue Goals must be achieved on or prior to June 30, 2026. The options may vest in tranches of 200,000 shares each only when coordinating Stock Price Goals and Revenue Goals, respectively, of $45.00 sixty-trading-day-average stock price and $4.0 billion in four-consecutive-fiscal-quarter revenue, $60.00 sixty-trading-day-average stock price and $4.8 billion four-consecutive-fiscal-quarter revenue, $75.00 sixty-trading-day-average stock price and $5.8 billion four-consecutive-fiscal-quarter revenue, $95.00 sixty-trading-day-average stock price and $6.8 billion four-consecutive-fiscal-quarter revenue, and $120.00 sixty-trading-day-average stock price and $8.0 billion four-consecutive-fiscal-quarter revenue, are achieved. The smallest amount of these stock options (threshold) that can be earned based on performance is vested stock options for 200,000 shares for achieving a Stock Price Goal of $45.00 sixty-trading-day-average stock price and a Revenue Goal of $4.0 billion in four-consecutive-fiscal-quarter revenue. However, even if those goals are achieved, if the Company’s stock price remained at $45.00 per
share, based on the $45.00 exercise price for these stock options, there would be no appreciation value in those stock options for Mr. Liang. For more information about the operation of this award, see “2021 CEO Performance Award Granted in March 2021” above.
(3) These incentive and 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.
(4) These incentive and nonqualified stock options vested at the rate of 25% on May 1, 2021 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, 2024.
(5) 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.
(6) These RSUs vested at the rate of 25% on May 10, 2021 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 10, 2024.
(7) These incentive and 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.
(8) These incentive and nonqualified stock options vested at the rate of 25% on October 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 October 30, 2022.
(9) These nonqualified stock options vested at the rate of 56% on March 27, 2021 and vested (or generally will vest) at a rate of 6% per quarter thereafter, such that the granted options will be fully vested on December 27, 2022.
(10) These incentive stock options shall vest at the rate of 25% on October 27, 2021 and generally will vest at a rate of 1/16th per quarter thereafter, such that the granted options will be fully vested on October 27, 2024.
(11) These RSUs vested at the rate of 63% on May 10, 2021 and vested (or generally will vest) at a rate of 6% per quarter thereafter, such that the RSUs will be fully vested on November 10, 2022.
(12) These RSUs shall vest at the rate of 25% on November 10, 2021 and generally will vest at a rate of 1/16th per quarter thereafter, such that the RSUs will be fully vested on November 10, 2024.
(13) These incentive stock options vested at the rate of 25% on October 22, 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 October 22, 2021.
(14) These RSUs vested at the rate of 25% on November 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 November 16, 2021.
(15) These RSUs vested at the rate of 25% on May 10, 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 10, 2022.
(16) This amount reflects the service-based portion of the March 2020 PRSU grant to Mr. Hsu (15,000 units). In addition to the 15,000 units, based upon the Company’s revenue for fiscal year 2021 ($3,557 million), which increased from revenue for fiscal year 2020, management has calculated that 2,939 additional units were earned, such that a total of 17,939 units will vest in November 2021. Such amount remains subject to final certification by the Compensation Committee.
(17) These nonqualified stock options vested at the rate of 20% on January 11, 2018 and vested (or generally will vest) at a rate of 1/20th per quarter thereafter, such that the granted options will be fully vested on January 11, 2022.
(18) These nonqualified stock options shall vest at the rate of 100% on February 25, 2022.
Fiscal Year 2021 Option Exercises and Stock Vested
The following table sets forth the dollar amounts realized by each of our named executive officers pursuant to the exercise or vesting of equity-based awards during fiscal year 2021.
FISCAL YEAR 2021 OPTION EXERCISES AND STOCK VESTED TABLE
| Option Awards | Stock Awards | |||||||||||||||||||||||||
| Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($)****(1) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)****(2) | ||||||||||||||||||||||
| Charles Liang | 132,000 | $ | 2,601,009 | 12,000 | 348,360 | |||||||||||||||||||||
| David Weigand | — | — | 3,400 | 109,016 | ||||||||||||||||||||||
| Don Clegg | — | — | 2,345 | 76,136 | ||||||||||||||||||||||
| George Kao | — | — | 2,862 | 95,125 | ||||||||||||||||||||||
| Alex Hsu | — | — | 15,948 | 557,412 | ||||||||||||||||||||||
| Kevin Bauer | 70,000 | 640,821 | 2,813 | 82,064 |
(1)The value disclosed in this column is based on the difference between the price of our common stock at the time of exercise and the exercise price.
(2)The values disclosed in this column are based on the closing price of our common stock on the date of vesting, multiplied by the gross number of shares vested.
Fiscal Year 2021 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 2021 are omitted from this Annual Report.
Fiscal Year 2021 Potential Payments Upon Termination or Change of Control
Other than as set forth below or described elsewhere in this Item 11, “Executive Compensation,” we do not currently, and did not during fiscal year 2021 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.
Other than with respect to the 2021 CEO Performance Award, the Company’s stock option agreements generally provide for three months of exercise of vested options after termination of service, one year of exercise after disability, and one year of exercise after death. The 2021 CEO Performance Award has certain provisions related to the treatment of such award in the event of a change of control of our Company. See “2021 CEO Performance Award Granted in March 2021.” None of the tranches under the 2021 CEO Performance Award would have been earned thereunder for a change in control occurring on June 30, 2021 (based on the closing stock price of $35.18 on such date, plus a reasonable assumption that any aggregate consideration per share in a hypothetical change of control occurring on such date would have been less than $45), and therefore there is no change in control value attributed to the award for a hypothetical change of control situation.
Prior to ceasing employment with the Company as Chief Financial Officer, in February 2021 Mr. Bauer entered into a consulting arrangement with the Company, and the Company provided certain provisions with respect to his equity awards following the termination of his employment relationship with the Company. See “- Former CFO Consulting Arrangement.”
Fiscal Year 2021 Chief Executive Officer Pay Ratio
For fiscal year 2021, the ratio of the annual total compensation of Mr. Liang, our Chief Executive Officer (“2021 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 (“2021 Median Annual Compensation”), was 268 to 1. For purposes of this pay ratio disclosure, 2021 CEO Compensation was determined to be $20,127,913, which represents the total compensation reported for Mr. Liang under the “Fiscal Year 2021 Summary Compensation Table,” plus the Company’s contribution to certain non-discriminatory group health and welfare benefits provided to Mr. Liang. 2021 Median Annual Compensation for the identified median employee was determined to be $75,171, also including the Company’s contribution to the same non-discriminatory 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.
To identify the median employee, we examined our total employee population as of June 30, 2021 (the “Determination Date”). We included all 2,367 U.S. full-time, part-time, seasonal and temporary employees of the Company and our consolidated subsidiaries. We also included all 1,665 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 also excluded all our employees in European countries, which together represented approximately 1% of our total employees worldwide (4,155 individuals), which countries consisted of France (8 individuals), Germany (13 individuals), Italy (5 individuals), Spain (1 individual) and United Kingdom (15 individuals). We also excluded all our employees in China (46 individuals), Japan (30 individuals), and South Korea (5 individuals), which together represented an additional approximately 2% of our total employees worldwide. Our analysis identified 4,032 individuals who were not excluded.
To determine the median of the annual total compensation of all of such employees, other than Mr. Liang, we generally reviewed compensation for the period beginning on July 1, 2020 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 those purposes. 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.
Compensation Program Risk Assessment
We have assessed our compensation programs for fiscal year 2021 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 stockholders.
DIRECTOR COMPENSATION
2021 Director Compensation
Under our director compensation policy, we reimburse non-employee directors for reasonable expenses in connection with attendance at Board and committee meetings. Charles Liang and Sara Liu, who are employees and also serve as directors, do not receive any additional compensation from us specifically for their service as directors.
For their service during fiscal year 2021, 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 Governance Committee received an additional annual retainer of $20,000 and $15,000, respectively, in each case 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 Governance Committee received an additional annual retainer of $7,500, in each case 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 (“Excess Meetings”). During fiscal year 2021, Mr. Fairfax attended 14 Excess Meetings, Mr. Tsai attended 14 Excess Meetings, Mr. McAndrews attended 11 Excess Meetings, Ms. Tseng attended three Excess Meetings, and Mr. Liu attended 15 Excess Meetings. Mr. Tuan and Mr. Chan did not attend any Excess Meetings during fiscal year 2021.
As disclosed in our prior Annual Report on Form 10-K for the fiscal year ended June 30, 2020, in March 2020, the Board provided special performance-based cash incentive award opportunities to two non-employee directors, Mr. Sherman Tuan and Mr. Fred Tsai. These awards provided a cash incentive opportunity of up to $194,150 and $103,095, respectively, subject to the following conditions: (1) 50% of the opportunity will be earned if the average closing price for the Company’s common stock equals or exceeds $31.61 (representing a 15% premium over the average closing price of the Company’s common stock for the 20 consecutive trading days preceding March 4, 2020) for any period of 20 consecutive trading days prior to September 30, 2021 (the “First Price Target”); and (2) an additional 50% of the opportunity will be earned if the average closing price for the Company’s common stock equals or exceeds $32.99 (representing a 20% premium over the average closing price of the Company’s common stock for the 20 consecutive trading days preceding March 4, 2020) for any period of 20 consecutive trading days prior to June 30, 2022 (the “Second Price Target”). The relevant stock price goals were not met during fiscal year 2020, and no portion of these amounts were paid to Mr. Tuan or Mr. Tsai during fiscal year 2020, However, during fiscal year 2021, the First Price Target was achieved based upon stock price performance from December 22, 2020 through January 21, 2021, and the Second Price Target was achieved based upon stock price performance from February 8, 2021 through March 8, 2021. As a result, payment of the full amount of the cash incentive opportunities were made to each of Mr. Tuan and Mr. Tsai during fiscal year 2021.
Our director compensation policy also provides for annual RSU grants to the non-employee directors with a value equal to $220,000, with the ultimate number of RSUs granted based on our closing stock price on the date of grant. For fiscal year 2021, we made such grants for non-employee director service under our 2020 Equity and Incentive Compensation Plan on August 21, 2020 to such persons serving on such date, which grants had a vesting date of June 30, 2021. Two non-employee directors, Mr. Michael McAndrews and Mr. Fred Tsai, who served during fiscal year 2021 and received such grants, were not nominated for re-election at our annual general meeting of stockholders held on May 28, 2021 and ceased being directors on such date. Prior to the end of their service, the Compensation Committee exercised discretion to accelerate the vesting date of the awards granted to Mr. McAndrews and Mr. Tsai to May 28, 2021. Awards granted to the other non-employee directors vested on June 30, 2021.
Mr. Shiu Leung (Fred) Chan was appointed as a non-employee director on October 28, 2020. In connection with his appointment, Mr. Chan received during fiscal year 2021 a pro-rated portion of the annual non-employee director retainer and, on November 5, 2020, an RSU grant with a value equal to a pro-rated portion of $220,000 with a vesting date of June 30, 2021.
The following table shows for fiscal year 2021 certain information with respect to the compensation of all of our non-employee directors who served in such capacities during fiscal year 2021:
FISCAL YEAR 2021 DIRECTOR COMPENSATION
| Name | Fees Earned or Paid in Cash ($)****(3) | Stock Awards ($)****(4)(5) | Non-Equity Incentive Plan Compensation ($)****(6) | Total ($) | |||||||||||||||||||
| Daniel Fairfax | $ | 103,000 | $ | 219,990 | $ | — | $ | 322,990 | |||||||||||||||
| Hwei-Ming (Fred) Tsai(1) | 118,934 | 287,960 | 103,095 | 509,989 | |||||||||||||||||||
| Michael McAndrews(1) | 90,201 | 287,960 | — | 378,161 | |||||||||||||||||||
| Saria Tseng | 83,500 | 219,990 | — | 303,490 | |||||||||||||||||||
| Sherman Tuan | 87,500 | 219,990 | 194,150 | 501,640 | |||||||||||||||||||
| Shiu Leung (Fred) Chan(2) | 40,435 | 148,270 | — | 188,705 | |||||||||||||||||||
| Tally Liu | 120,000 | 219,990 | — | 339,990 |
(1)Each of Mr. Hwei-Ming (Fred) Tsai and Mr. Michael McAndrews served as a director until May 28, 2021.
(2) Mr. Shiu Leung (Fred) Chan was appointed to the Board in October 2020.
(3) This column consists of annual director fees, non-employee committee chairman fees, and other committee member fees, in each case earned for fiscal year 2021.
(4) The dollar amounts in this column represent the aggregate grant date fair values of the RSU awards granted during fiscal year 2021 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 14, “Stock-based Compensation and Stockholders’ Equity” to our consolidated financial statements for fiscal year 2021 included in this Annual Report on Form 10-K. Each grant of 8,289 RSUs to each of the directors other than Mr. Chan had a grant date fair value of $26.54 per share, and Mr. Chan’s grant of 5,168 RSUs had a grant date fair value of $28.69 per share.
(5) The value disclosed in this row under the “Stock Awards” column also reflects, for each of Messrs. Tsai and McAndrews, the modification fair value ($67,970) for the acceleration of the vesting date of his fiscal year 2021 RSU grant from June 30, 2021 to May 28, 2021. This acceleration was approved because each of these non-employee directors was not nominated for re-election at our annual general meeting of stockholders held on May 28, 2021 and ceased being directors on such date, as further described above.
(6) This column consists of, for Mr. Tsai and Mr. Tuan, amounts earned during fiscal year 2021 from special performance-based cash incentive award opportunities granted in March 2020 following the achievement of the performance conditions. Please see the discussion above for more information about these awards.
The table below sets forth the aggregate number of shares underlying stock and option awards held by our non-employee directors as of June 30, 2021.
| Name | Stock Awards | Option Awards | ||||||
| Daniel Fairfax | 8,289 | — | ||||||
| Saria Tseng | 8,289 | — | ||||||
| Sherman Tuan | 8,289 | — | ||||||
| Shiu Leung (Fred) Chan | 5,168 | — | ||||||
| Tally Liu | 8,289 | — |
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 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 fiscal year 2021, none of our executive officers served as a member of the compensation committee of the board of directors of any other entity that has one or more executive officers who served on our Compensation Committee of the Board. Hwei-Ming (Fred) Tsai, Saria Tseng and Sherman Tuan served on the Compensation Committee during fiscal year 2021, with Mr. Tsai’s service on such committee ending on May 28, 2021.
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