UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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IDEXX Laboratories, Inc. |
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March 24, 2016 |
Jonathan W. Ayers President, Chief Executive Officer and |
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Dear Fellow Stockholders,
It was an exciting and busy 2015 for all of us at IDEXX. During the year, we stayed true to our core values and extended our track record of organic growth and sound financial performance through disciplined product innovation and strategic geographic expansion.
Throughout the year, we continued to execute our strategy and create value for our stockholders by:
Last year, we worked toward promoting and sustaining long-term growth in the pet healthcare market and in the other markets we serve through intelligent, disciplined innovation. We also significantly strengthened our commercial presence, both in the U.S. and abroad.
Enhancing the Health and Well-Being of Pets through Innovative Diagnostic and Software Technologies We believe that our innovative diagnostic and software technology products and services enhance the health and well-being of pets by elevating the standard of care that veterinary healthcare providers can deliver. Additionally, we believe that our software solutions improve the efficiency, management and performance of veterinary practice operations. Through our diagnostic innovations such as IDEXX SDMA™, which detects the irreversible progression of kidney disease months to years earlier than traditional methods, we are transforming the standard of care that veterinarians can utilize to help prevent and treat diseases. Through our software offerings, we help veterinarians improve the management of their practices, thereby increasing staff productivity, improving access to diagnostic and medical information, and improving practice economics. Elevating the standard of care and supporting a veterinary practice’s medical and business processes allows us to grow our business while also assisting in the growth of the veterinary diagnostic segment of the pet healthcare market. |
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Pet Healthcare Market Although we serve a number of markets, pet healthcare is our primary market, representing 85% of our total revenues in 2015. The long-term growth of the pet healthcare market is driven by:
The long-term growth of the veterinary diagnostic segment of the pet health market is driven by:
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Increasing our Enduring, Profitable Recurring Revenue Streams
Because many of the products and services in our Companion Animal Group (or CAG) business (which represented 85% of our total 2015 revenue), including instrument consumables, test kits and reference lab services, generate revenue each time they are used, they represent recurring revenue streams. Recurring diagnostic revenue (which represented 72% of our total 2015 revenue) is profitable, scalable, and reduces the risk of stagnant or declining revenues. Given these growing revenue streams, an expanding pet healthcare market and broader adoption of our products and services, we have the opportunity to continue to deliver strong value for stockholders as we grow and scale the business.
2016 Proxy Statement | 1
We believe that developing and maintaining strong relationships with our veterinarian customers drives broader adoption of our products and services and maintains a high level of customer loyalty. To foster strong, personal relationships with the veterinarians we serve, we transitioned to an all-direct sales strategy in the U.S. on January 1, 2015, and have launched similar all-direct strategies in various international markets in the past few years. We believe that these transitions have positioned us well for sustained growth of our CAG revenues in both the near- and long-term.
While we faced some industry headwinds in early 2015 during the transition to our all-direct domestic strategy, we successfully implemented our new sales strategy, which is already generating strong results. In 2015, we placed 4,944 Catalyst® analyzers globally, an increase of 59% year over year and more than double the number of placements two years ago. In addition, the all-direct domestic strategy, and the resulting increase in our commercial presence with veterinarians, helped drive a successful launch of the IDEXX SDMA test, resulting in 1.6 million tests run in the U.S. in 2015.
We also continued to expand our global footprint to capitalize on the opportunity to enhance pet healthcare worldwide. While there are a growing number of pets outside the U.S., international companion animal diagnostics markets are typically much smaller in proportion to their respective number of pets than the U.S. market. As a result, we believe that investing in our international businesses to support the expansion of those markets will be an important driver of long-term value creation for IDEXX stockholders.
Growing and Creating New Product Markets through Investing in Innovation
We believe that intelligent, disciplined innovation, fostered by a culture that supports and rewards an entrepreneurial spirit, is fundamental to our success. Through our close connections to our veterinarian customers, and our significant, industry-leading, annual investments in research and development (R&D), we are able to offer innovative solutions that enable veterinary care providers to practice advanced medical care, demonstrate the value of diagnostics to pet owners and better manage their veterinary practices.
This significant investment in research and development led to the introduction of several innovative CAG products that we hope will continue to grow our profitable recurring diagnostic revenues for many years:
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detect kidney disease much earlier, veterinarians have more options to treat and manage the illness. We believe the IDEXX SDMA test highly differentiates IDEXX’s diagnostic offering, and will generate above-market growth for our CAG Diagnostics recurring revenues for many years to come.
In addition, our focus on innovation has allowed us to respond quickly when immediate needs arise in the veterinarian community. For example, in response to the H3N2 virus outbreak in dogs in Chicago early in 2015, our scientists rapidly developed a test for the virus, which we added to our relevant canine respiratory disease panel at no additional charge. This allowed for rapid, reliable and specific testing for a disease which can present in a variety of ways, helping veterinarians contain the highly contagious virus.
Each of these innovations, along with our many other 2015 advancements in diagnostics and veterinary software applications, elevates our integrated portfolio and differentiates our products and services from those of our competitors.
Expanding our Profits and Cash Flow, Supported by Disciplined Capital Allocation
Our continued focus on investing to grow our attractive, core businesses has enabled us to consistently drive high growth in earnings per share and strong free cash flow. Despite facing challenging headwinds from the strengthening of the U.S. dollar, we increased diluted earnings per share by approximately 14.5% in 2015.1 Solid profit growth, cash flow generation and optimization of our capital structure supported an allocation of $400 million to share repurchases. Over the last three years, we have advanced investment in our high-return core businesses, while at the same time returning approximately $1.4 billion to stockholders through our share repurchase program, supporting a 16% compounded annual increase in our stock price despite the significant strengthening of the U.S. dollar in 2015.2
A full review of our 2015 financial performance can be found in the financial statements contained in our 2015 Annual Report on
Form 10-K, which is accessible on our company’s website (www.idexx.com) and has been filed with the SEC.
Governance and Executive Compensation Practices
We believe our strong governance and executive compensation practices support long-term stockholder value. A more comprehensive discussion of our governance and executive compensation practices can be found beginning on pages 21 and 42, respectively.
Looking Ahead
2015 was a significant year of accomplishment for IDEXX, which should position us for sustained revenue growth and continued profitability in the years to come. We launched several key innovations and significantly advanced our sales model and commercial presence in the U.S. and in international markets. We enter 2016 extraordinarily well-positioned to continue our innovative approach to the veterinary diagnostic market.
All of us at IDEXX remain committed to our Purpose: To be a great company that creates exceptional long term value for our customers, employees and shareholders by enhancing the health and well-being of pets, people and livestock.
Sincerely,
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1 |
This increase in our diluted earnings per share reflects the effect of the two-for-one split of our common stock effected in the form of a common stock dividend paid on June 15, 2015 (the “Stock Split”). |
2 |
This increase in our stock price has been adjusted for the effect of the Stock Split on share price.
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2016 Proxy Statement | 3
Table of Contents
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PROXY SUMMARY |
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NOTICE OF 2016 ANNUAL MEETING OF STOCKHOLDERS |
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CORPORATE GOVERNANCE |
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Proposal One - Election of Directors |
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Director Nomination Process |
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Director Nominees and Board Biographies |
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Corporate Governance at a Glance |
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Director Independence |
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Related Person Transactions |
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Lead Director |
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Annual Board Self-Assessment |
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Talent Management and Succession Planning |
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Board’s Role in Risk Oversight |
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Board Committees |
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Corporate Governance Guidelines and Code of Ethics |
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Anti-Hedging and Short Sale and Anti-Pledging Policies |
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Communications from Stockholders |
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Director Compensation |
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STOCK OWNERSHIP INFORMATION |
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Stock Ownership of Directors and Officers |
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Director and Officer Stock Ownership Guidelines |
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Stock Ownership of Certain Beneficial Owners |
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Section 16(a) Beneficial Ownership Reporting Compliance |
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AUDIT COMMITTEE MATTERS |
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Proposal Two - Ratification of Appointment of Independent Registered Public Accounting Firm |
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Audit Committee Report |
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Independent Auditors’ Fees |
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Audit Committee Pre-Approval Policy |
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EXECUTIVE COMPENSATION |
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Proposal Three - Advisory Vote to Approve Executive Compensation |
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Executive Officers |
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Compensation Discussion and Analysis |
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Executive Summary and Overview |
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Elements of Executive Compensation Program |
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2015 Executive Compensation Determinations |
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Compensation Committee Report |
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Executive Compensation Tables |
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Equity Compensation Plan Information |
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Stock Incentive Plans |
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Executive Bonus Recovery Policy |
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Potential Payments Upon Termination or Change-in-Control |
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GENERAL INFORMATION ABOUT THE 2016 ANNUAL MEETING AND VOTING |
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The Proxy Statement and How Proxies Work |
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Who Can Vote |
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Notice of Internet Availability (Notice and Access) |
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How to Vote |
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Conduct of the 2016 Annual Meeting |
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Webcast of the 2016 Annual Meeting |
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Voting on Other Matters |
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Solicitation of Proxies |
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Householding of Annual Meeting Materials |
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REQUIREMENTS FOR SUBMISSION OF PROXY PROPOSALS, NOMINATION OF DIRECTORS AND OTHER BUSINESS OF STOCKHOLDERS |
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FORWARD LOOKING STATEMENTS AND OTHER MATTERS |
* * * *
BASIS OF PRESENTATION
IDEXX Laboratories, Inc. is a Delaware corporation incorporated in 1983 with principal executive offices located at One IDEXX Drive, Westbrook, Maine 04092. Unless the context indicates otherwise, references in this Proxy Statement to “we”, “us”, “our”, the “Company” or “IDEXX” refer to IDEXX Laboratories, Inc. and its consolidated subsidiaries. Our website is located at
www.idexx.com. References to our website in this Proxy Statement are inactive textual references only and the contents of our website are not incorporated by reference into this Proxy Statement for any purpose.
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Proxy Summary
This summary highlights selected information that is contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider prior to voting your shares. You should carefully read both the entire Proxy Statement and our 2015 Annual Report on Form 10-K filed with the SEC on February 17, 2016 before voting.
2016 Annual Meeting Information
Date and Time: Wednesday, May 4, 2016, 10:00 a.m., Eastern time
Location: Portland Marriott Hotel, 200 Sable Oaks Drive, South Portland, Maine 04106
Webcast: Available on our website www.idexx.com.
Stockholder Voting Matters Summary
Proposal |
Board Vote Recommendation |
Page Number for More Information |
Proposal One – Election of Directors |
FOR each nominee |
14 |
Proposal Two – Ratification of Appointment of Independent Registered Public Accounting Firm |
FOR |
37 |
Proposal Three – Advisory Vote to Approve Executive Compensation |
FOR |
40 |
How to Vote
It is important that your shares be represented and voted at the 2016 Annual Meeting. You cannot vote your shares via the webcast described above, and even if you plan to attend the 2016 Annual Meeting in person, please vote early. You can submit a proxy by telephone or Internet. Alternatively, you may request a paper proxy card by calling the appropriate number set forth below, which you may complete, sign and return by mail.
For registered holders: |
For beneficial owners: |
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(Your shares are registered in your name with our transfer agent American Stock Transfer & Trust Company) |
(You hold your shares in a brokerage account or by a bank or other holder of record (that is, in “street name”)) |
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BY TELEPHONE |
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BY TELEPHONE |
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Outside the U.S., you can vote your shares by calling 1-718-921-8500.* Standard rates apply. |
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BY INTERNET www.voteproxy.com.* |
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BY INTERNET www.proxyvote.com.** |
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BY MAIL |
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BY MAIL |
* You will need your 11-digit control number available from the Notice sent to you from American Stock Transfer & Trust Company. |
** You will need your 12-digit control number available from the Notice sent to you from Broadridge. |
If you plan to attend the 2016 Annual Meeting in person, you must bring photo identification to be admitted. If you are a beneficial owner, you also must bring a letter from your nominee confirming your beneficial ownership of your shares and, if you intend to
vote the shares, a proxy permitting you to vote them. To request a proxy, follow the instructions at www.proxyvote.com.
2016 Proxy Statement | 5
Proxy Summary
Proposal One |
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Election of Directors |
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The Board has nominated Mr. Jonathan W. Ayers, Dr. Barry C. Johnson and Ms. M. Anne Szostak to serve as Class III Directors with a term expiring at the 2019 Annual Meeting. |
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Name |
Age |
Director Since |
Independent |
Committees |
Other Current Public |
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Jonathan W. Ayers |
59 |
January 2002 |
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Barry C. Johnson, PhD |
72 |
March 2006 |
✓ |
Finance (Chair) |
- |
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M. Anne Szostak |
65 |
July 2012 |
✓ |
Audit Compensation (Chair) |
Dr. Pepper Snapple Group, Inc. Tupperware Brands Corporation |
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The Board of Directors recommends a vote FOR the three director nominees up for election |
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>> See page 16 for further information about our director nominees |
Notable Corporate Governance Highlights
We believe that a commitment to high ethical standards and good governance practices contributes to increasing stockholder value by:
Our engaged, diverse and independent Board has implemented and maintained strong corporate governance policies, including prohibitions on pledging, hedging and short sales and in 2015 adopted a majority-voting standard in uncontested elections. We believe that our strong corporate governance policies and practices are an important component of our continued success in driving stockholder value.
For more information about our corporate governance policies and practices, please see the Corporate Governance section of this Proxy Statement beginning on page 14.
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Proxy Summary
Proposal Two |
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Ratification of Appointment of Independent Registered Public Accounting firm |
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PricewaterhouseCoopers LLP (“PwC”) has been appointed to serve as our independent registered public accounting firm for 2016, and while not required by law, the Board believes that it is advisable to give stockholders an opportunity to ratify this selection. The following table summarizes the fees for services provided by PwC during 2015 and 2014. |
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Fiscal Years Ended |
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2015 |
2014 |
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Audit fees |
$ | 1,914,115 | $ | 1,854,306 | ||
Audit-related fees |
– | – | ||||
Tax fees |
454,052 | 358,755 | ||||
All other fees |
– | 10,000 | ||||
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$ | 2,368,167 | $ | 2,223,061 | ||
The Board of Directors recommends a vote FOR this item |
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>> See page 37 for further information about our independent auditors |
2016 Proxy Statement | 7
Proxy Summary
Proposal Three |
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Advisory Vote to Approve Executive Compensation (“say-on-pay”) |
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We are asking our stockholders to approve, on an advisory (non-binding) basis, the compensation of our named executive officers as disclosed herein. At our 2015 Annual Meeting, our stockholders voted 99.14% in favor of approving the compensation of our named executive officers, which approval percentage is the highest among the peer group of companies utilized by the Compensation Committee for competitive benchmarking purposes. |
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The Board of Directors recommends a vote FOR this item |
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>> See below and page 40 for further information about our executive compensation program |
2015 Financial Performance Highlights
The following is an overview of our 2015 financial performance highlights and our Total Stockholder Return since 2010. For more complete information, please review our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on February 17, 2016. The Total Stockholder Return graph compares our total stockholder returns, the Standard & Poor’s (“S&P”) MidCap 400 Index, the S&P MidCap 400 Health Care Index and the Total Return Index for the NASDAQ Stock Market (U.S. Companies) prepared by the Center for Research in Security Prices (the “NASDAQ Index”). This graph assumes the investment of $100 on December 31, 2010 in IDEXX’s common stock, the S&P MidCap 400 Index, the S&P MidCap 400 Health Care Index and the NASDAQ Index and assumes dividends, if any, are reinvested.
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Total Stockholder Return is defined as: (adjusted close share price end of period – adjusted close share price start of period) / share price start of period. Measurement points are the last trading days of the years ended December 2010, 2011, 2012, 2013, 2014 and 2015. |
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Proxy Summary
Executive Compensation Highlights
These executive compensation highlights should be read in connection with the Executive Compensation section of this Proxy Statement, including the Compensation Discussion and Analysis section, for additional information about our executive compensation philosophy and program and the compensation awarded to each of our named executive officers, beginning on page 42.
Our Executive Compensation Philosophy and Program
Our executive compensation philosophy is simple – we want to attract, motivate and retain talented executives who are aligned with and passionate about our purpose: to be a great company that creates exceptional long-term value for our customers, employees and stockholders by enhancing the health and well-being of pets, people and livestock.
We believe that executing this philosophy through our executive compensation program and practices, including a strong focus on pay-for-performance based compensation elements, will support long-term stockholder value creation through driving our strategy of innovation, continued revenue growth, margin improvement and efficient capital allocation.
Key Elements of Our Executive Compensation Program
Our executive compensation program consists of three key elements, which in total are targeted at the median of our competitive market. Because it relates most directly to the creation of stockholder value over time, variable compensation is a higher percentage of total compensation for our named executive officers than for our other employees.
Executive Compensation Mix
The total 2015 direct compensation mix for our Chief Executive Officer and our other named executive officers is:
2016 Proxy Statement | 9
Proxy Summary
Performance-Based Cash Bonus
The target amount of the performance-based cash bonus award for each named executive officer is a percentage of his or her annual base salary, and the award amount is capped at 200% of this target.
Performance-based cash bonuses are calculated based on the achievement of both financial and non-financial performance goals.
In 2015, the overall performance-based award factor was calculated as 95% based on achievement of the financial and non-financial performance metrics. Accordingly, performance-based cash bonus payment to the named executive officers equaled 95% of their target bonus amounts.
Our equity-based long-term incentives consist of stock options and restricted stock units. These equity incentives have a five-year vesting schedule, which is longer than typical market practice, and are more heavily weighted in the form of stock options for our senior executives. We believe that these types of equity incentives drive closer alignment with our stockholders’ long-term interests.
Starting in 2016, we are adding performance-based restricted stock units to our long-term equity incentive program. These performance-based restricted stock units are intended to be eligible to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code. The vesting of all restricted stock units granted to our named executive officers in February 2016 is subject to the achievement of a 2016 financial performance target. If this target is not met in 2016, then these awards will be forfeited.
CEO Compensation and Equity Ownership
Component |
Description |
Chief Executive Officer’s 2015 Total Direct Compensation |
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Chief Executive Officer’s Beneficial Stock Ownership |
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1 Includes 906,902 shares of common stock that may be acquired within 60 days after March 1, 2016 upon the exercise of stock options.
2 Based on the closing price of $75.48 per share of our common stock on March 1, 2016.
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Proxy Summary
Executive Compensation Program at a Glance
In addition to the key elements described above, our executive compensation program includes the following objectives, practices and policies:
“Pay-for-Performance” Executive Compensation Program Design |
Approximately 74% of 2015 target total direct compensation for our CEO and other named executive officers is in the form of annual performance-based cash bonuses and long-term equity incentives. The value of these forms of compensation is variable and directly tied to our performance. In 2016, performance-based restricted stock units, instead of solely time-based restricted stock units, were granted to each of our named executive officers other than our CEO, who received only stock options. |
Diversity |
We actively seek highly qualified diverse candidates (including gender and ethnically diverse candidates) to include in the pool for potential senior management. |
Rigorous, Annual Benchmarking of Executive Compensation |
We review our designated proxy peer group on an annual basis to ensure that our compensation program is properly benchmarked against our market peers. We annually assess our total executive compensation against peer group and other market data to determine whether it is competitive and appropriate. |
Stock Ownership Guidelines |
We require our CEO and other named executive officers to satisfy strict and meaningful stock ownership guidelines. |
“Clawback” Policy |
Our compensation recoupment policy allows us to recover both incentive and equity compensation from our executive officers under certain circumstances if we are required to restate our financial results, other than a restatement due to changes in accounting principles or applicable law. |
Anti-Hedging and Short Sale Policy |
Our executives and other employees are prohibited from engaging in any short sale of common stock, any transaction that results in profits from short-term speculative swings in the value of our securities or purchases of financial instruments that are designed to hedge or offset any decrease in the market value of our securities. |
Anti-Pledging Policy |
In December 2015, we adopted a policy prohibiting our senior executives from pledging or otherwise encumbering equity securities they own in our Company as collateral for indebtedness, including holding shares in a margin or similar account. |
Modest Perquisites |
We offer only limited benefits and perquisites to our named executive officers that are not otherwise made available to our other salaried employees. |
No Tax Gross Ups |
We do not administer tax gross ups with respect to perquisites to our named executive officers (except in the case of overseas assignments), or with respect to excise taxes related to “parachute payments” under Section 280G of the Internal Revenue Code. |
Compensation Program Risk Assessment |
Our Compensation Committee annually reviews our compensation programs to determine whether our programs subject us to risks that may have a material adverse effect on our Company. |
Favorable Annual “Say-On-Pay” Votes Since 2011 |
Favorable “say-on-pay” votes each year since 2011:
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2016 Proxy Statement | 11
One IDEXX Drive
Westbrook, Maine 04092
Notice of 2016 Annual Meeting of Stockholders
NOTICE IS HEREBY GIVEN that the 2016 annual meeting of stockholders (“2016 Annual Meeting”) of IDEXX Laboratories, Inc. will be held:
DATE AND TIME
Wednesday, May 4, 2016, 10:00 a.m., Eastern time
LOCATION
Portland Marriott Hotel
200 Sable Oaks Drive
South Portland, Maine 04106
PURPOSE OF 2016 ANNUAL MEETING
1. |
Election of Directors. To elect the three Class III Directors listed in the attached proxy statement for three-year terms (Proposal One); |
2. |
Ratification of Appointment of Independent Registered Public Accounting Firm. To ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the current fiscal year (Proposal Two); |
3. |
Advisory Vote to Approve Executive Compensation. To approve a nonbinding advisory resolution on the Company’s executive compensation (Proposal Three); and |
4. |
Other Business. To conduct such other business as may properly come before the 2016 Annual Meeting or any adjournments thereof, including approving any such adjournment, if necessary. |
RECORD DATE
The Company’s Board of Directors has fixed the close of business on March 8, 2016 as the record date for the determination of stockholders entitled to notice of and to vote at the 2016 Annual Meeting.
By order of the Board of Directors,
Jacqueline L. Studer
Corporate Vice President,
General Counsel and Corporate Secretary
Westbrook, Maine
March 24, 2016
2016 Proxy Statement | 13
Corporate Governance
Proposal One – Election of Directors
Our Board of Directors is divided into three classes, and members of each class hold office for three-year terms:
Upon recommendation of the Nominating and Governance Committee, the Board has nominated Mr. Jonathan W. Ayers, Dr. Barry C. Johnson and Ms. M. Anne Szostak – our current Class III Directors – to be Class III Directors, and stockholders are being asked to elect them for three-year terms expiring at the 2019 Annual Meeting.
This section includes additional information about the Director nomination process, including requisite criteria, experiences, qualification and skills, as well as the Class III Director nominees and the Board.
Recommendation of the Board of Directors |
The Board of Directors recommends that you vote “FOR” the election of Mr. Ayers, Dr. Johnson and Ms. Szostak. |
Director Nomination Process
The Nominating and Governance Committee identifies, evaluates, recruits and makes recommendations to the Board regarding candidates to fill vacancies on the Board using the criteria described below. The process followed by the Nominating and Governance Committee includes:
In addition, the Nominating and Governance Committee, in some instances, will engage an executive search firm to assist in recruiting candidates. In such cases, the search firm assists the Nominating and Governance Committee in:
Criteria and Experiences, Qualifications and Skills
To be considered for nomination to the Board a candidate must meet the following minimum criteria:
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Corporate Governance
The Nominating and Governance Committee and the Board are also focused on ensuring that a wide range of backgrounds and experiences are represented on our Board and consider the value of diversity of all types in the Director nomination process. For more information, please see the discussion under “Diversity” on page 25.
In addition, in evaluating potential candidates, the Nominating and Governance Committee considers other applicable requirements under the Corporate Governance Guidelines, including the Director independence requirements described under “Director Independence” beginning on page 22 and the maximum number of directorships generally permitted for our Directors. The Corporate Governance Guidelines provide that, unless an exception has been granted by the Board:
Stockholder Recommendation and Nomination of Directors
Stockholders who want to recommend a nominee for Director should submit the name of the nominee to our Corporate Vice President, General Counsel and Corporate Secretary at our principal executive offices, together with biographical information and background material sufficient for the Nominating and Governance Committee to evaluate the recommended candidate based on its selection criteria, and a statement as to whether the stockholder or group of stockholders making the recommendation has beneficially owned more than 5% of our common stock for at least a year as of the date the recommendation is made.
Assuming that appropriate biographical and background material has been provided on a timely basis, the Nominating and Governance Committee will apply the same criteria, and follow substantially the same process, in considering each qualifying stockholder recommendation as it does in considering other candidates. Stockholders also have the right under our Amended and Restated By-Laws to nominate Director candidates directly, without any action or recommendation on the part of the Nominating and Governance Committee or the Board, by following the procedures described under “Requirements for Submission of Proxy Proposals, Nomination of Directors and Other Business of Stockholders” beginning on page 70.
If the Board determines to nominate a stockholder-recommended candidate and recommends his or her election, then his or her name will be included on the proxy card for our next Annual Meeting. Candidates nominated by stockholders in accordance with the procedures set forth in our Amended and Restated By-Laws will not be included on our proxy card for the next Annual Meeting, but may be included on proxies the nominating stockholders seek independently.
Majority Voting and Director Resignation
Our Amended and Restated By-Laws provide that, in an election of Directors where the number of nominees does not exceed the number of Directors to be elected, a nominee who does not receive a majority of votes cast with respect to his or her election will not be elected.
Pursuant to our Director Resignation Policy included in our Corporate Governance Guidelines, a Director who is not re-elected is required to promptly tender his or her resignation, and the Nominating and Governance Committee would make a recommendation to the Board as to whether to accept the resignation. Following the Nominating and Governance Committee’s recommendation, the Board would determine whether or not to accept that Director’s resignation, considering any factors it deems relevant. Under this policy, the Board is required to act on the recommendation of the Nominating and Governance Committee within 90 days of the certification of the stockholder vote.
2016 Proxy Statement | 15
Corporate Governance
Director Nominees and Board Biographies
Upon recommendation of the Nominating and Governance Committee, the Board has nominated Mr. Jonathan W. Ayers, Dr. Barry C. Johnson and Ms. M. Anne Szostak – our current Class III Directors – to be Class III Directors, and stockholders are being asked to elect them for three-year terms expiring at the 2019 Annual Meeting. Each of the nominees, other than Mr. Ayers, who is our Chief Executive Officer, meets NASDAQ independence requirements.
Each of Mr. Ayers, Dr. Johnson and Ms. Szostak has indicated a willingness to serve, if elected. If any of the Director nominees becomes unable to serve, proxies can be voted for a substitute nominee, or the Board may choose to reduce the number of Directors on the Board. Dr. Johnson will reach the age of 73 in 2016, and under our Corporate Governance Guidelines, when a Director reaches the age of 73, he or she is expected to retire at the next Annual Meeting. Accordingly, if our stockholders elect Dr. Johnson as a Class III Director at the 2016 Annual Meeting, he is expected to retire at the conclusion of the 2017 Annual Meeting.
In February 2016, the Nominating and Governance Committee reviewed the experience, qualifications, attributes and skills of each of the current Directors and the Class III Director nominees and concluded that each Class III Director nominee has the requisite background, qualifications and personal characteristics to serve as a Director in light of the Company’s business and structure.
In support of this conclusion, the Nominating and Governance Committee believes that:
There are no family relationships among the executive officers or Directors of IDEXX.
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Corporate Governance
Class III Director Nominees Whose Terms Would Expire in 2019
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Jonathan W. Ayers Chairman of the Board, President Age: 59 Director since: January 2002 |
Committees: None |
Mr. Ayers has been the Chairman of the Board, President and Chief Executive Officer of IDEXX since January 2002. Before joining IDEXX, Mr. Ayers held various positions at United Technologies Corporation and its business unit Carrier Corporation, including serving as President of Carrier Corporation from 1999 to 2001, President of Carrier’s Asia Pacific Operations from 1997 to 1999, and Vice President, Strategic Planning at United Technologies from 1995 to 1997. Prior to joining United Technologies, from 1986 to 1995, Mr. Ayers held various positions at Morgan Stanley & Co. in mergers and acquisitions and corporate finance. Mr. Ayers holds an undergraduate degree in molecular biophysics and biochemistry from Yale University and graduated from Harvard Business School in 1983 with high distinction. We value Mr. Ayers’s successful leadership since arriving at IDEXX in 2002, consistently generating exceptional, above-market returns for our stockholders during this extended period. We also value Mr. Ayers’s significant and diverse experience in many relevant areas including global business management, finance and strategic planning, business development, marketing, product development, software technology and managing international operations. |
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Barry C. Johnson, PhD Independent Director Age: 72 Director since: March 2006 |
Committees: Finance (Chair) Former public company director service:
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Dr. Johnson served as Dean, College of Engineering, Villanova University from August 2002 until his retirement in May 2006. Before joining Villanova University, Dr. Johnson served as Senior Vice President and Chief Technology Officer of Honeywell International, Inc. from July 2000 to April 2002. Before joining Honeywell, from 1976 to 2000, Dr. Johnson served in several roles at Motorola, Inc., including Corporate Vice President and Chief Technology Officer for that company’s Semiconductor Product Sector. Dr. Johnson holds an undergraduate degree in Mechanical Engineering from Villanova University and a Ph.D. and M.S. in metallurgical engineering and materials science from Carnegie-Mellon University. We value Dr. Johnson’s substantial experience as a senior executive for, and director of, various technology companies and for his expertise in scientific research and product development. |
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M. Anne Szostak Independent Director Age: 65 Director since: July 2012 |
Committees: Audit Compensation (Chair) Other current public company director service:
Former public company director service:
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Ms. Szostak founded Szostak Partners, LLC, an executive coaching and human resources consulting firm, in 2004, and she has served as its Chief Executive Officer since 2004. Before founding Szostak Partners, Ms. Szostak had a 31-year career with Fleet/Boston Financial Group (now Bank of America), a diversified financial services company, including serving as Chairman and Chief Executive Officer of Fleet Bank-Rhode Island from 2001 to 2003, Chairman, President and Chief Executive Officer of Fleet-Maine from 1991 to 1994, and Corporate Executive Vice President and Chief Human Resources Officer of FleetBoston Financial Group from 1998 to 2004. Ms. Szostak holds an undergraduate degree from Colby College, and she has completed several executive education programs at Harvard Business School. We value Ms. Szostak’s significant background in management, finance and human resources, as well as her extensive public company board experience. |
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Corporate Governance
Class II Directors Whose Terms Expire in 2017
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Thomas Craig Independent Director Age: 61 Director since: December 1999 |
Committees: Audit Compensation Former public company director service:
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Mr. Craig has been Chairman and Chief Executive Officer of Shockwave International, a firm whose mission is to work with principal investors and startup companies to help create competitive advantage by combining ideas, human assets, capital, networks and asymmetric intelligence, since 2012. Before joining Shockwave International, Mr. Craig co-founded Monitor Group (formerly Monitor Company), a global management consulting firm, in 1983, and he was a Director/Partner at Monitor Group from 1983 to 2012. Mr. Craig received his undergraduate degree from Princeton University and an M.B.A., with high distinction, from Harvard Business School. We value Mr. Craig’s extensive experience in impartial counseling, leadership and human asset development, global enterprise, growth strategies, and entrepreneurial endeavors. |
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Rebecca M. Henderson, PhD Independent Director Age: 55 Director since: July 2003 |
Committees: Finance Nominating and Governance (Chair) Other current public company director service:
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Dr. Henderson has been the John and Natty McArthur University Professor at Harvard University since 2011 and is the Co-Director of the Business and Environment Initiative at Harvard Business School. From 2009 to 2011, Dr. Henderson served as the Senator John Heinz Professor of Environmental Management at Harvard Business School. Before joining Harvard’s faculty, Dr. Henderson served as the Eastman Kodak Professor of Management, Sloan School of the Massachusetts Institute of Technology from 1998 to 2009. Since 1995, Dr. Henderson has also been a research fellow at the National Bureau of Economic Research. Dr. Henderson holds an undergraduate degree from the Massachusetts Institute of Technology and a Ph.D. in business economics from Harvard University. We value Dr. Henderson’s substantial experience in corporate strategy and governance with a focus on high-technology businesses. |
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Sophie V. Vandebroek, PhD Independent Director Age: 54 Director since: July 2013 |
Committees: Finance Nominating and Governance Former public company director service:
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Dr. Vandebroek has been an executive with Xerox Corporation since 2002, and she has served as Chief Technology Officer and Corporate Vice President of Xerox Corporation, and President of the Xerox Innovation Group, since 2006. Dr. Vandebroek is responsible for overseeing Xerox’s research centers in Europe, Asia, Canada and the U.S., including the Palo Alto Research Center, for which she has served as sole director since 2008. Before her current positions, Dr. Vandebroek was Chief Engineer and Vice President of Xerox and Vice President of the Xerox Engineering Center from 2002 to 2005. Dr. Vandebroek has been a Fellow of the Institute of Electrical & Electronics Engineers since 2005 and a Fulbright Fellow and a Fellow of the Belgian-American Educational Foundation since 1986. Dr. Vandebroek holds an undergraduate degree in engineering and a master’s degree in electro-mechanical engineering from Katholieke Universiteit Leuven, Leuven, Belgium, and a Ph.D. in electrical engineering from Cornell University. We value Dr. Vandebroek’s depth of knowledge and experience in technology and business processes, as well as her track record of innovation and managing balanced research and development portfolios for large global enterprises. |
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Corporate Governance
Class I Directors Whose Terms Expire in 2018
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Bruce L. Claflin Independent Director Age: 64 Director since: July 2015 |
Committees: Audit Nominating and Governance Other current public company director service:
Former public company director service:
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Mr. Claflin has served as a member of the board of directors of Advanced Micro Devices, Inc. since 2003, including as Chairman of the Board since 2009. Mr. Claflin served as President, Chief Executive Officer and a member of the board of directors of 3Com Corporation from January 2001 until his retirement in 2006, and he served as President and Chief Operating Officer of 3Com from August 1998 to January 2001. Before joining 3Com, Mr. Claflin worked at Digital Equipment Corporation as Senior Vice President, Sales and Marketing from 1997 to 1998 and as Vice President and General Manager of the PC Business Unit from 1995 to 1997. Before joining Digital Equipment Corporation, Mr. Claflin also worked at International Business Machines Corporation (IBM) for 22 years, where he held various senior management positions in sales, marketing, research and development and manufacturing. Mr. Claflin holds an undergraduate degree in Political Science from Pennsylvania State University. We value Mr. Claflin’s extensive management and oversight experience especially relating to manufacturing, operations and international business transactions and his extensive public company board experience. |
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William T. End Independent Lead Director Age: 68 Director since: July 2000 |
Committees: Compensation Nominating and Governance Former public company director service:
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Mr. End was Chairman and Chief Executive Officer of Cornerstone Brands, Inc., a privately-held catalog retailer, from 1995 to 2001, and Executive Chairman of that company from 2001 until his retirement in 2002. Before joining Cornerstone, Mr. End held various positions at Land’s End, Inc., including President and Chief Executive Officer from 1993 to 1995, President and Chief Operating Officer from 1992 to 1993 and Executive Vice President of Marketing and Corporate Planning from 1991 to 1992. From 1975 to 1991, Mr. End held various positions at L.L. Bean, Inc., including Executive Vice President and Chief Marketing Officer. He also has been a director of several non-public companies. Mr. End holds an undergraduate degree from Boston College and an MBA from Harvard Business School. We value Mr. End’s extensive management and oversight experience, particularly in public and private company board service and his general management experience in sales and marketing. |
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Daniel M. Junius Independent Director Age: 63 Director since: March 2014 |
Committees: Audit (Chair) Finance Other current public company director service:
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Mr. Junius has been President and Chief Executive Officer of ImmunoGen, Inc. since 2009. Before that, he served as President and Chief Operating Officer and Acting Chief Financial Officer of ImmunoGen from July 2008 to December 2008, Executive Vice President and Chief Financial Officer from 2006 to July 2008 and Senior Vice President and Chief Financial Officer from 2005 to 2006. Before joining ImmunoGen, Mr. Junius was Executive Vice President and Chief Financial Officer of New England Business Service, Inc. from 2002 until its acquisition by Deluxe Corporation in 2004 and Senior Vice President and Chief Financial Officer of New England Business Services from 1998 to 2002. Before joining New England Business Services, Mr. Junius was Vice President and Chief Financial Officer of Nashua Corporation from 1996 to 1998. Mr. Junius joined Nashua Corporation in 1984 and held various financial management positions of increasing responsibility before becoming Chief Financial Officer of Nashua Corporation in 1996. Mr. Junius holds an undergraduate degree in Political Science from Boston College and a Masters in Management from Northwestern University’s Kellogg School of Management. We value Mr. Junius’s depth of executive leadership, strategic thinking and financial expertise, as well as his extensive experience in the biotechnology field. |
2016 Proxy Statement | 19
Corporate Governance
Our Corporate Governance Framework
We are proud of our commitment to sound corporate governance and high ethical standards, and we believe that this commitment has contributed to our success in building long-term value for our stockholders.
Our corporate governance framework includes our corporate governance policies and practices and provides the structure that enables our Board to provide effective oversight and counsel for IDEXX.
Please visit the Corporate Governance section of our website www.idexx.com to learn more about, and access copies of, our corporate documents and corporate governance policies, including:
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Hard copies of these documents may be obtained upon request by contacting our Corporate Vice President, General Counsel and Corporate Secretary at IDEXX Laboratories, Inc., One IDEXX Drive, Westbrook, Maine 04092. Information on our website does not constitute part of this Proxy Statement. |
Corporate Governance at a Glance
Independence |
8 of 9 of our Directors are independent. Our Board Committees are composed exclusively of independent Directors. |
Executive Sessions |
Our independent Directors held executive sessions at every Board and Committee meeting in 2015. |
Board Accountability |
Majority voting for Directors in uncontested elections. Rigorous annual self-assessment of the Board, its Committees and the Directors conducted. Robust Director nominee selection process. Director retirement at the next Annual Meeting after reaching age 73, absent certain circumstances approved by the Board. |
Diversity |
Actively seek highly-qualified diverse candidates (including gender and ethnically diverse candidates) to include in the pool of potential Board nominees. |
Independent Lead Director |
A lead independent Director selected annually by the other independent Directors. |
Risk Management, Strategy and CEO Succession Planning |
Risk oversight by the Board and its Committees. Annual corporate strategy review by the Board. Active Board participation in CEO succession planning. |
Stock Ownership Guidelines |
The target ownership level for our:
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Additional Policies that Promote Alignment with Interests of Stockholders |
Anti-Hedging and Short Sale policy for Directors and employees. Recently adopted Anti-Pledging policy for Directors and executive officers. Clawback policy tied to incentive compensation. |
2016 Proxy Statement | 21
Corporate Governance
Board of Directors
Our Board currently has nine members. The Board meets throughout the year on a set schedule, and also holds special meetings and acts by written consent from time to time as appropriate. The Board has delegated various responsibilities and authority to its four standing Committees: the Audit Committee, the Compensation Committee, the Nominating and Governance Committee and the Finance Committee. For more information regarding the Board Committees, see the discussion under “Board Committees” beginning on page 26.
The Board is responsible for monitoring the overall performance of IDEXX. Among other things, the Board, directly and through its Committees:
In accordance with general corporate legal principles applicable to corporations organized under the laws of Delaware, the Board does not manage the day-to-day operations of IDEXX.
Board Meetings and Attendance
Directors are responsible for attending Board and Committee meetings and for devoting the time needed to discharge their responsibilities properly. The Board held six meetings in 2015, and the Committees held a total of 22 meetings in 2015.
Each of our Directors attended at least seventy-five percent of the meetings of the Board and Committees on which he or she served in 2015. It is our policy to schedule Board and Committee meetings to coincide with the Annual Meeting, and Directors are expected to attend the 2016 Annual Meeting. Last year, all of the individuals then serving as Directors attended our 2015 Annual Meeting.
Director Independence
Under our Corporate Governance Guidelines, a majority of our Directors must be “independent” as defined by the rules of the NASDAQ Stock Market (“NASDAQ”). Each Committee’s charter requires its members to be independent as defined by NASDAQ rules.
The Board, in consultation with the Nominating and Governance Committee, determines the independence of each Director. In February 2016, the Board determined that:
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Corporate Governance
In determining Dr. Vandebroek’s independence, the Nominating and Governance Committee considered Dr. Vandebroek’s position as an executive officer of Xerox Corporation (“Xerox”), a provider of office technology equipment and other related services for the Company. The Nominating and Governance Committee considered several factors including, among other things:
Based on the factors considered by the Nominating and Governance Committee, it concluded that these transactions would not affect Dr. Vandebroek’s independence.
Related Person Transactions
Our Board has adopted a written Related Person Transaction Policy under which the Audit Committee is required to review and approve any transaction involving more than $120,000 in which the Company is a participant and in which any related person has or will have a direct or indirect material interest. The Audit Committee may approve any such transaction only if it determines that, under all of the circumstances, the transaction is not inconsistent with the best interests of the Company.
A related person under this policy is:
The policy provides that a “direct or indirect material interest” does not arise solely from the related person’s position as an executive officer of another entity involved in a transaction with the Company, where:
Since January 1, 2015, there have been no related person transactions requiring review and approval by the Audit Committee under the Related Person Transaction Policy.
Board Leadership Structure
The Board is led by Mr. Ayers, who serves as the Chairman of the Board, and by Mr. End, an independent Director, who serves as the Lead Director. Mr. Ayers has been the Chairman of the Board since joining the Company as Chief Executive Officer in 2002. Under our Corporate Governance Guidelines, when the Chairman of the Board is not an independent Director, the independent Directors annually elect a Lead Director from among the independent Directors.
The Chairman of the Board has no greater nor lesser vote on matters considered by the Board than any other Director. All Directors, including the Chairman, are bound by fiduciary obligations imposed by law. As discussed above under “Director Independence,” each Director other than Mr. Ayers is an independent director under NASDAQ rules, and every member of each standing Committee is also independent under those rules.
The Board is free to select the Chairman of the Board and the Chief Executive Officer in any way it deems best for our stockholders at any point in time, and the Board does not have a predetermined policy as to whether or not the roles of Chairman of the Board and Chief Executive Officer should be combined or separate. Pursuant to our Corporate Governance Guidelines, the Nominating and Governance Committee annually assesses the Board’s leadership structure, including
2016 Proxy Statement | 23
Corporate Governance
whether the offices of Chairman of the Board and Chief Executive Officer should be combined or separate and why the Board’s leadership structure is appropriate given the specific characteristics or circumstances of the Company.
In February 2016, the Nominating and Governance Committee assessed the Board’s leadership structure and determined that a combined full-time Chairman of the Board and Chief Executive Officer, subject to oversight by the Company’s independent Directors, including an independent Lead Director, is appropriate for the following reasons:
the Board believes that the Chief Executive Officer is best positioned to develop the agenda for the Board supported by regular consultation and input from the Lead Director, and to lead discussions at Board meetings regarding the Company’s strategy, operations and results;
Lead Director
The position of Lead Director has significant authority and responsibilities under the Corporate Governance Guidelines, including:
Board Meetings and Executive Sessions |
Scheduling executive sessions of the independent Directors. Chairing the executive sessions of the independent Directors, which occur at each regularly scheduled Board meeting to discuss, among other things, the performance of the Chief Executive Officer. |
Communications with Management |
Facilitating communications between Board members and the Chairman of the Board and/or Chief Executive Officer (although any Director is free to communicate directly with the Chairman of the Board and Chief Executive Officer). |
Agendas |
Working with the Chairman of the Board and the Chief Executive Officer in preparing the agenda for each Board meeting. |
Corporate Governance |
Consulting with and advising the Chairman of the Board and/or the Chief Executive Officer on matters relating to corporate governance and Board functions. |
Annual Board Self-Assessment
The Nominating and Governance Committee is responsible for evaluating the performance of the Board, its Committees and each of the Directors. The purpose of this evaluation is to identify ways to enhance the effectiveness of the Board, its Committees and the Directors.
The evaluation process includes completion of questionnaires and interviews with each Director to solicit candid feedback and gather additional suggestions for improvement. The responses and comments of the Directors are then compiled and presented by the Lead Director to the Nominating and Governance Committee and the Board for discussion and action.
Talent Management and Succession Planning
Succession planning and talent development are an integral part of our long-term strategy for sustained stockholder value creation. The Nominating and Governance Committee is responsible for annually reviewing succession plans for the Chief Executive Officer. In addition, the Board is responsible for ensuring the existence of appropriate succession plans for all our executive officers.
The Chief Executive Officer is responsible for preparing an annual report to the Board regarding succession planning for himself, and as part of this annual report, our Chief Executive Officer provides his evaluations and recommendation of potential future candidates for the position of Chief Executive Officer, including possible timing. In addition, the Board, both directly and through the Compensation Committee, also
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Corporate Governance
reviews plans for identifying and developing potential future candidates for other senior leadership roles, and the Board members interact with many of these candidates in formal and informal settings during the year.
Diversity |
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We believe that diversity among our employees and senior management including, but not limited to, gender and ethnic diversity helps drive both innovation and a better understanding of our increasingly global customer base. Throughout our Company, we seek to employ a broad representation of gender, ethnic, and racial backgrounds in all levels of management and on the Board. We believe that senior management and Directors with a variety of backgrounds, experiences, education, skills and business |
knowledge will contribute to our Company’s effectiveness and, thus, we are focused on ensuring that a wide range of backgrounds and experiences are represented in our Company and on our Board. We actively seek out highly qualified diverse candidates (including gender and ethnically diverse candidates) to include in each pool of potential senior management and Board nominees, and we consider the value of diversity of all types when evaluating nominees and assessing our Board members and senior-level management. |
Board’s Role in Risk Oversight
Management is responsible for risk management on a day-to-day basis. The Board oversees the risk management activities of management directly and through its Committees by discussing with management the policies and practices they utilize in assessing and managing risks and providing input on those policies and practices.
In general, the Board oversees risk management activities relating to business strategy, acquisitions, capital allocation and structure, legal, compliance and regulatory risk, and operational risks. The Committees oversee certain areas of risk management too, including:
Each Committee reports to the full Board on a regular basis, including with respect to its risk oversight activities as appropriate.
We conduct an annual enterprise risk assessment as part of our annual strategic planning process. The risk assessment process involves an identification and assessment by senior line of business and functional leaders of the particular risks relevant to their lines of business and functional areas, the materiality of those risks and plans to mitigate them to the extent prudent and feasible. The identified risks are ranked based on probability of occurrence and severity of impact. Management shares the result of this annual risk assessment with the full Board in conjunction with the Board’s discussion of the Company’s annual strategic plan. Certain risks and related mitigation plans are also reviewed throughout the year either by the Board or its Committees.
We also conduct a compliance risk assessment, the results of which are shared by management with the Audit Committee. This risk assessment involves an identification and assessment by functional leaders of the particular legal and regulatory compliance risks relevant to their areas of responsibility. The risks are ranked based on materiality and maturity of controls by functional leaders. Plans to mitigate the top risks are also shared and discussed with the full Board at various times of the year as part of normal business discussions.
The Audit Committee reviews linkages between the critical risk findings, management preparedness or plans to address those risks, and internal audit’s tests of those plans. The Audit Committee seeks to ensure that the internal audit department can perform its function by reviewing the charter, plans, activities, staffing and organizational structure of the internal audit department, and approving the appointment, replacement, reassignment or dismissal of the Director of Internal Audit.
The Audit Committee also provides an open channel of communication between internal audit and the Board; meets independently with the Company’s internal auditors, independent auditors and management; and discusses with management the Company’s major policies with respect to risk assessment and risk management, including an annual review of the Company’s insurance coverage.
2016 Proxy Statement | 25
Corporate Governance
Board Committees
The Board has established four standing committees - an Audit Committee, a Compensation Committee, a Nominating and Governance Committee and a Finance Committee, each of which is described briefly below. Each Committee acts pursuant to a written charter that is approved by the Board and reviewed annually by the applicable Committee, the Nominating and Governance Committee and the Board. Current copies of each Committee’s charter can be accessed on the Corporate
Governance section of our website www.idexx.com or by contacting our Corporate Vice President, General Counsel and Corporate Secretary at the Company’s principal executive offices.
Members of the Committees, as of March 1, 2016, are named below:
Board Member |
Audit |
Compensation |
Nominating & Governance |
Finance |
Jonathan W. Ayers |
- |
- |
- |
- |
Bruce L. Claflin (2) |
✓ |
- |
✓ |
- |
Thomas Craig |
✓ |
✓ |
- |
- |
William T. End (1) |
- |
✓ |
✓ |
- |
Rebecca M. Henderson, PhD |
- |
- |
(Chair) |
✓ |
Barry C. Johnson, PhD |
- |
- |
- |
(Chair) |
Daniel M. Junius (2) |
(Chair) |
- |
- |
✓ |
M. Anne Szostak (2) |
✓ |
(Chair) |
- |
- |
Sophie V. Vandebroek, PhD |
- |
- |
✓ |
✓ |
Number of meetings in 2015 |
9 |
5 |
6 |
2 |
(1) Lead Director
(2) Audit Committee Financial Expert as defined under SEC rules.
Audit Committee
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Members Meetings held in 2015 - 9 |
Committee Responsibilities The Nominating and Governance Committee has determined that each Audit Committee member is financially literate and that Mr. Junius, Mr. Claflin and Ms. Szostak are each an Audit Committee Financial Expert as defined under the SEC rules. Each of the Audit Committee members is independent as defined by NASDAQ rules. The Audit Committee has established policies and procedures for the pre-approval of all services provided by the independent auditors, which are described on page 39. The Audit Committee has also adopted procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission of any concerns regarding questionable accounting or auditing matters. The Audit Committee may retain independent counsel, accountants, or others to assist it in the conduct of any investigation, and the Company will provide appropriate funding for payment of such services, as determined by the Audit Committee. |
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The Audit Committee Report is included on page 38.
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Corporate Governance
Compensation Committee
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Members Meetings held in 2015 - 5 |
Committee Responsibilities
The Compensation Committee charter does not provide for any delegation of these duties except to a sub-committee or individual members of the Committee as the Compensation Committee may determine. The Compensation Committee has delegated to its chair the authority to grant equity awards to new officers of the Company between scheduled meetings of the Committee, following consultation with our Chief Executive Officer. Each of the Compensation Committee members is independent as defined by NASDAQ rules. The Compensation Committee reviews Director compensation periodically and makes a recommendation to the Board. The Chief Executive Officer; the Corporate Vice President, General Counsel and Corporate Secretary; the Corporate Vice President and Chief Human Resources Officer and the Committee’s outside compensation consultant assist the Compensation Committee in its review of Director compensation by providing information and preparing meeting materials. Other than the Chief Executive Officer; the Corporate Vice President, General Counsel and Corporate Secretary; and the Corporate Vice President and Chief Human Resources Officer, no executive officer is involved in the Board’s review and determination of Director compensation. |
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The Compensation Committee Report is included on page 53.
Committee Procedures. Compensation Committee meetings are scheduled and agendas determined through consultation among our Chief Executive Officer; our Corporate Vice President, General Counsel and Corporate Secretary; our Corporate Vice President and Chief Human Resources Officer, and the Compensation Committee chair.
In February of each year, the Compensation Committee meets to:
The Compensation Committee meets at other times during the year as needed to review executive compensation and otherwise to perform the duties described in its charter.
Use of Compensation Consultants. The Compensation Committee has the authority to engage advisers to support its work at the Company’s expense, taking into consideration the applicable factors affecting the independence of such advisers that are required by SEC and NASDAQ rules. The Compensation Committee has engaged Frederic W. Cook & Co., Inc. (“FW Cook”) to serve as a consultant, with the following duties generally:
2016 Proxy Statement | 27
Corporate Governance
During 2015, the Compensation Committee engaged FW Cook to, among other things:
FW Cook provides no services to us other than those provided to the Compensation Committee. The chair of the Compensation Committee reviews and approves all invoices pertaining to services provided by FW Cook. Members of management work with FW Cook only to the extent necessary to provide FW Cook with information necessary for its consulting work and to prepare materials for Committee and Board review.
In February 2016, the Compensation Committee considered whether its work with FW Cook raised any conflicts of interest in light of the factors regarding a compensation adviser’s independence described in SEC and NASDAQ rules. Based on these factors, the Compensation Committee determined that the work of FW Cook and the individual compensation advisors employed by FW Cook who provided services to the Compensation Committee have not created any conflict of interest.
Analysis of Risk Associated with Compensation Practices. The Compensation Committee engaged FW Cook to conduct an analysis of our compensation practices in order to assist the Compensation Committee in determining whether those practices created risks that were reasonably likely to have a material adverse effect on the Company. The results of this analysis were presented by FW Cook to the Compensation Committee in December 2015. Based on this analysis, the Compensation Committee determined that our compensation practices were not reasonably likely to have a material adverse effect on the Company.
Role of Company Executives. As provided by the Compensation Committee charter, the Chief Executive Officer is responsible for recommending to the Compensation Committee annual compensation for the rest of the executive officers. The Compensation Committee approves compensation for these executive officers and may make such changes as it deems appropriate. The Compensation Committee charter also provides that the Compensation Committee determines the Chief Executive Officer’s annual compensation and meets without the presence of any executive officers of the Company when approving or deliberating on Chief Executive Officer compensation.
In addition to the Chief Executive Officer, our Corporate Vice President, General Counsel and Corporate Secretary and our Corporate Vice President and Chief Human Resources Officer also work with the Compensation Committee chair to set agendas, prepare materials for Compensation Committee meetings, and generally attend meetings and prepare meeting minutes. However, members of management, including the Chief Executive Officer, are not present in Compensation Committee meetings when matters related to their individual compensation are under discussion. No other executive officer is involved in supporting Compensation Committee activities or executive compensation recommendations.
Compensation Committee Interlocks and Insider Participation. Ms. Szostak (chair), Mr. Craig and Mr. End served on the Compensation Committee during 2015. There were no Compensation Committee interlocks or insider (employee) participation during 2015.
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Corporate Governance
Nominating and Governance Committee
|
|
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Members Meetings held in 2015 - 6 |
Committee Responsibilities The Nominating and Governance Committee identifies, evaluates, recruits and makes recommendations to the Board regarding candidates to fill vacancies on the Board as described on pages 14 and 15. The Nominating and Governance Committee annually reviews the performance of the Board, its Committees and each of the Directors, as described under “Annual Board Self-Assessment” on page 24. The Nominating and Governance Committee is also responsible for annually reviewing with the Board the requisite skills and criteria for all Board members, as well as the composition of the Board as a whole, and annually assessing, for each Director or person nominated to become a Director, the specific experience, qualifications, attributes and skills, including described on pages 17 to 20, that lead the Nominating and Governance Committee to conclude that such Director or nominee should serve as a Director in light of our business and structure.
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Finance Committee
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Members Meetings held in 2015 - 2 |
Committee Responsibilities In addition, the Finance Committee monitors our liquidity and financial condition, oversees our financial risk management activities (including foreign currency hedging and transactions involving derivatives), reviews and approves proposed acquisitions and divestitures requiring Board approval and having values up to $40 million and reviews and approves non-budgeted capital expenditures in excess of $5 million.
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Corporate Governance Guidelines and Code of Ethics
The Board has adopted Corporate Governance Guidelines and a Code of Ethics, both which can be accessed on the
Corporate Governance section of our website www.idexx.com. Hard copies may be obtained by contacting our Corporate Vice President, General Counsel and Corporate Secretary at the Company’s principal executive offices.
2016 Proxy Statement | 29
Corporate Governance
The Code of Ethics applies to all of our employees, officers and Directors. In addition, we intend to post on our website all disclosures that are required by law or NASDAQ listing standards concerning any amendments to, or waivers from, any provision of the Code of Ethics.
Anti-Hedging and Short Sale and Anti-Pledging Policies
The Board has adopted a Policy on Short Sales, Derivative Transactions and Hedging. This anti-hedging and short sale policy generally prohibits any Director, officer or employee, or any family member or affiliate of any of the foregoing, from engaging in (i) any short sales of the Company’s securities, (ii)purchases or sales of puts, calls or other derivative securities based upon the Company’s securities, or (iii) purchases of financial instruments that are designed to hedge or offset any decrease in the market value of the Company’s securities.
In December 2015, the Board adopted a Policy on Pledging of Company Stock that prohibits our Directors and executive officers from pledging or otherwise encumbering the equity securities they own in our Company as collateral for indebtedness, including holding shares in a margin or similar account that would subject our equity securities to margin calls.
Communications from Stockholders
Written communications to any individual Director, the Lead Director or the full Board may be submitted by electronic mail to contactdirectors@idexx.com or by writing to the Office of the Corporate Secretary at One IDEXX Drive, Westbrook, Maine 04092. The Chair of the Nominating and Governance Committee will review all such communications.
Director Compensation
Non-Employee Director Compensation
Our non-employee Directors are annually compensated for their Board service as described in the chart below:
Compensation Element |
Non-Employee Director Compensation Program |
Cash compensation (1) |
|
Annual Retainer |
$65,000 |
Committee Chair Retainer |
$15,000 for the Audit Committee |
|
$15,000 for the Compensation Committee |
|
$10,000 for the Finance Committee |
|
$10,000 for the Nominating and Governance Committee |
Audit Committee Member Retainer |
$5,000 |
Lead Director Retainer |
$25,000 |
Meeting Fees |
Not applicable; no fees are paid for meeting attendance |
Equity compensation (2) |
|
Deferred stock units |
$43,750 in target value (3) |
Non-qualified stock options |
$131,250 in value (4) |
Total |
$175,000 |
Director stock ownership guidelines (5) |
Target ownership of our common stock (including vested deferred stock units credited to a Director’s investment account) equal to six times the Annual Retainer |
(1) All retainers are paid in quarterly installments, and each non-employee Director may, at his or her option, defer all or any portion of any retainer in the form of fully vested deferred stock units under our Director Deferred Compensation Plan (the“ Director Plan”).
(2) We annually grant deferred stock units and non-qualified stock options to each non-employee Director on the date of the Annual Meeting. A non-employee Director who joins the Board after the date of an Annual Meeting receives a pro rata grant based on the number of months remaining until the next year’s grant.
| 30
Corporate Governance
(3) The number of deferred stock units granted equals the target value, divided by the price of our common stock on the grant date, rounded to the nearest whole share. Any non-employee Director who meets the target ownership under the stock ownership guidelines at the time of the annual grant may elect to receive restricted stock units (“RSUs”), in lieu of deferred stock units. The number of RSUs granted is calculated in the same manner as deferred stock units granted. For more information regarding RSUs, please see the discussion under “Compensation Discussion and Analysis” beginning on page 42.
(4) The value of the granted non-qualified stock options is calculated using the Black-Scholes-Merton option pricing model. This model is consistent with the valuation approach used to value executive awards.
(5) All non-employee Directors complied with the stock ownership guidelines as of December 31, 2015.
Equity Compensation
Deferred stock units and non-qualified stock options are granted to non-employee Directors annually on the date of the Annual Meeting. The most recent grant date was May 6, 2015, and the next grant date is scheduled to be on May 4, 2016, the date of the 2016 Annual Meeting.
In May 2015, the Board, on the recommendation of the Compensation Committee, modified the non-employee Director compensation program to increase the total annual equity award from $150,000 to $175,000, with 25% of the annual equity award in the form of a deferred stock unit grant and 75% in the form of a non-qualified stock option grant.
Deferred Stock Units. Deferred stock units granted on the date of the Annual Meeting are issued under the Director Plan and fully vest on the earlier of one year from the date of grant or the date of the next Annual Meeting. These vested deferred stock units are credited to a hypothetical investment account established in the non-employee Director’s name and will be distributed as an equal number of shares of our common stock one year following the termination of the non-employee Director’s Board service. For more information regarding the deferred stock units and the Director Plan, please see the discussion below under “Director Plan.”
If a non-employee Director is eligible to elect to receive RSUs in lieu of deferred stock units and makes this election, then he or she will receive RSUs that fully vest on the earlier of one year from the date of grant or the date of the next Annual Meeting.
Non-Qualified Stock Options. Non-qualified stock options are granted under our 2009 Stock Incentive Plan (the“2009 Plan”) and have the following terms:
Each non-employee Director may defer all or any portion of any cash compensation in the form of fully vested deferred stock units, which are issued under the Director Plan and are subject to the terms of the 2009 Plan. The payment of cash compensation in the form of deferred stock units is considered deferred compensation for federal income tax purposes.
A hypothetical investment account is established in the name of each non-employee Director, and vested deferred stock units are credited as follows:
Director Plan account balances are not subject to any interest or other investment returns, other than returns produced by fluctuations in the price of a share of common stock affecting the value of the deferred stock units in the account.
Deferred stock units are distributed in the form of an equal number of shares of our common stock as follows:
2016 Proxy Statement | 31
Corporate Governance
Unvested deferred stock units will vest immediately under the following circumstances:
shares of common stock in a Director’s account will be distributed in a single lump sum as soon as practicable after a change in control.
A change in control under the Director Plan occurs when: |
|
|
|
All Directors are reimbursed for reasonable travel expenses incurred in connection with Board and committee meetings. We also extend coverage to them under our directors’ and officers’ indemnity insurance policies. We do not provide any other benefits, including retirement benefits or perquisites, to our non-employee Directors.
Our stock ownership guidelines set a target level of ownership of our common stock for each non-employee Director equal to six times the annual retainer, which is $390,000 in stock value, at the end of each calendar year.
Shares that are owned by, or held in trust for the benefit of, a non-employee Director or immediate family members residing in the same household and vested deferred stock units credited to his or her investment account are included in calculating stock ownership.
Until the value of a non-employee Director’s common stock exceeds this target level at the end of a calendar year, he or she must retain:
| 32
Corporate Governance
A non-employee Director complies with these stock ownership guidelines if his or her stock ownership equals or exceeds the target level at the end of the year or if he or she has complied with the applicable retention requirements under the stock ownership guidelines.
2015 Non-Employee Director Compensation Table
The table below shows compensation for each of our non-employee Directors. Mr. Ayers, who is an employee, receives no additional compensation for his Board service. For information regarding Mr. Ayers’s compensation, please see the discussion under “Executive Compensation Tables” beginning on page 54.
Name |
Fees Earned Or |
Stock Awards $ (1) |
Option Awards $ (2) |
Total |
||||||||
Bruce L. Claflin (3) |
$ | 35,527 | $ | 35,482 | (4) |
$ | 106,350 | (4) |
$ | 177,358 | ||
Thomas Craig |
70,000 | (5) |
43,742 | 131,104 | 244,846 | |||||||
William T. End |
90,000 | 43,742 | 131,104 | 264,846 | ||||||||
Rebecca M. Henderson, PhD |
75,000 | 43,742 | 131,104 | 249,846 | ||||||||
Barry C. Johnson, PhD |
75,000 | 43,742 | 131,104 | 249,846 | ||||||||
Daniel M. Junius |
80,000 | (6) |
43,742 | 131,104 | 254,846 | |||||||
M. Anne Szostak |
85,000 | 43,742 | 131,104 | 259,846 | ||||||||
Sophie V. Vandebroek, PhD |
65,000 | 43,742 | 131,104 | 239,846 |
(1) Stock awards to non-employee Directors are issued as deferred stock units (“DSUs”) pursuant to the Company’s Director Plan. The amount shown excludes DSUs received in lieu of deferred compensation as described in footnotes 5 and 6 and reflects the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 (calculated by rounding $43,750 to the nearest share on the date of deferral). See Note 4 in the notes to the consolidated financial statements included in our 2015 Annual Report on Form 10-K for the relevant assumptions used to determine the valuation of our stock awards. As discussed under “Equity Compensation” above on page 31, non-employee Directors receive only one DSU and option grant during the fiscal year. As of December 31, 2015, the following are the aggregate number of DSUs accumulated in each non-employee Director’s deferral account for all years of service as a Director, including DSUs issued for deferred fees as well as DSUs issued as annual grants to non-employee Directors: Mr. Claflin, 503, Mr. Craig, 36,198; Mr. End, 19,476; Dr. Henderson, 30,986; Dr. Johnson, 19,246; Mr. Junius, 1,561; Ms. Szostak, 2,690 and Dr. Vandebroek, 1,916.
(2) Reflects the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. See Note 4 in the notes to consolidated financial statements included in our 2015 Annual Report on Form 10-K for the relevant assumptions used to determine the valuation of our option awards. As of December 31, 2015, each non-employee Director had the following number of stock options outstanding: Mr. Claflin, 5,629; Mr. Craig, 48,570; Mr. End, 46,516; Dr. Henderson, 46,516; Dr. Johnson, 55,570; Mr. Junius, 14,594; Ms. Szostak 28,392 and Dr. Vandebroek, 16,648.
(3) Mr. Claflin was appointed to the Board effective July 14, 2015.
(4) Consists of a prorated equity grant made to Mr. Claflin with respect to the period from his election to the Board on July 14, 2015 to May 4, 2016, the scheduled date of the next annual equity grant to be made to all non-employee Directors, consisting of DSUs having a grant date fair value of $35,482 and nonqualified stock options having a grant date fair value of $106,350.
(5) Includes compensation in the amount of $70,000 deferred and issued as 1,000 DSUs pursuant to the Director Plan.
(6) Includes compensation in the amount of $15,000 deferred and issued as 223 DSUs pursuant to the Director Plan.
2016 Proxy Statement | 33
Stock Ownership Information
Stock Ownership of Directors and Officers
The table below shows the number of shares of our common stock beneficially owned as of March 1, 2016 by each of our Directors, each of our named executive officers named in the Summary Compensation Table and all of our Directors and executive officers as a group. The table below also includes information about stock options and vesting restricted stock units granted to our Directors and executive officers. Unless otherwise indicated, each person listed below has sole voting and investment power with respect to the shares and other securities listed.
Beneficial Owner |
Shares |
Options |
Total Number of |
Percentage of |
||||||||
Jonathan W. Ayers |
1,006,461 | (4) |
906,902 | 1,913,363 | 2.14 | % |
||||||
Bruce L. Claflin (5) |
– | – | – |
| * |
|||||||
Thomas Craig |
2,140 | 38,794 | 40,934 |
| * |
|||||||
William T. End |
50,468 | 38,794 | 89,262 |
| * |
|||||||
Rebecca M. Henderson, PhD |
6,754 | 38,794 | 45,548 |
| * |
|||||||
Barry C. Johnson, PhD |
– | 38,794 | 38,794 |
| * |
|||||||
Daniel M. Junius |
2,000 | 6,872 | 8,872 |
| * |
|||||||
M. Anne Szostak |
16,000 | (6) |
20,670 | 36,670 |
| * |
||||||
Sophie V. Vandebroek, PhD |
6,000 | 8,926 | 14,926 |
| * |
|||||||
Brian P. McKeon |
13,629 | 70,291 | 83,920 |
| * |
|||||||
Jay Mazelsky |
10,911 | 56,416 | 67,327 |
| * |
|||||||
Jacqueline L. Studer (8) |
1,208 | 4,122 | 5,330 |
| * |
|||||||
Michael J. Williams, PhD |
27,021 | 129,056 | 156,077 |
| * |
|||||||
All Directors and executive officers as of March 1, 2016 as a group (13 persons) |
1,142,592 | 1,358,431 | 2,501,023 | 2.79 | % |
* Less than 1%
We also grant deferred stock units to our non-employee Directors as annual equity grants or voluntary deferrals of annual fees. Deferred stock units are not included in the table above because they do not represent a right to acquire shares of our common stock within 60 days after March 1, 2016. Although deferred stock units carry no voting rights and individuals holding fully vested deferred stock units are at risk as to the price of our common stock in their investment accounts, vested deferred stock units are included for purposes of determining satisfaction of target stock ownership levels under our stock ownership guidelines. Accordingly, the table below shows the total numbers of shares and fully vested deferred stock units owned as of March 1, 2016 by each of our Directors, each of our named executive officers and all our Directors and executive officers as a group.
| 34
Stock Ownership Information
Beneficial Owner |
Shares |
DSUs (7) |
Total Number |
||||||
Jonathan W. Ayers |
1,006,461 | (4) |
59,164 | 1,065,525 | |||||
Bruce L. Claflin (5) |
– | – | – | ||||||
Thomas Craig |
2,140 | 35,764 | 37,904 | ||||||
William T. End |
50,468 | 18,792 | 69,260 | ||||||
Rebecca M. Henderson, PhD |
6,754 | 30,302 | 37,056 | ||||||
Barry C. Johnson, PhD |
– | 18,562 | 18,562 | ||||||
Daniel M. Junius |
2,000 | 948 | 2,948 | ||||||
M. Anne Szostak |
16,000 | (6) |
2,006 | 18,006 | |||||
Sophie V. Vandebroek, PhD |
6,000 | 1,232 | 7,232 | ||||||
Brian P. McKeon |
13,629 | 34,708 | 48,337 | ||||||
Jay Mazelsky |
10,911 | – | 10,911 | ||||||
Jacqueline L. Studer (8) |
1,208 | – | 1,208 | ||||||
Michael J. Williams, PhD |
27,021 | 12,990 | 40,011 | ||||||
All Directors and executive officers as of March 1, 2016 as a group (13 persons) |
1,142,592 | 214,468 | 1,357,060 |
(1) Consists of options to purchase shares of common stock exercisable, and RSUs vesting, on or within 60 days after March 1, 2016.
(2) The number of shares beneficially owned by each person or group as of March 1, 2016 includes shares of common stock that such person or group had the right to acquire on or within 60 days after March 1, 2016, including but not limited to, upon the exercise of stock options or vesting of RSUs, but excluding DSUs.
(3) For each individual and group included in the table, percentage of ownership is calculated by dividing the number of shares beneficially owned by such person or group as described above by the sum of 89,603,657 shares of common stock outstanding on March 1, 2016 and the number of shares of common stock that such person or group had the right to acquire on or within 60 days after March 1, 2016, including but not limited to, upon the exercise of stock options or vesting of RSUs, but excluding DSUs.
(4) Includes 98,000 shares held by the Ayers Family Trust.
(5) Mr. Claflin was appointed to the Board effective July 14, 2015.
(6) Includes 6,600 shares held by the 2014 Szostak IDEXX GRAT and 8,816 shares held by the M. Anne Szostak Trust.
(7) Consists of DSUs that are vested as of March 1, 2016.
(8) Ms. Studer was appointed Corporate Vice President, General Counsel and Corporate Secretary effective September 1, 2014.
Director and Officer Stock Ownership Guidelines
We maintain stock ownership guidelines for our Directors and executives, including our executive officers. For more information regarding our Director stock ownership guidelines, please see the discussion under “Director Stock Ownership Guidelines” on page 32, and for more information regarding our executive stock ownership guidelines, please see the discussion under “Compensation Policies and Practices” beginning on page 46.
2016 Proxy Statement | 35
Stock Ownership Information
Stock Ownership of Certain Beneficial Owners
Based solely on our review of filings made under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, the only persons or entities known to us to beneficially own more than 5% of our common stock as of December 31, 2015 were:
Beneficial Owner |
Number of Shares |
Percentage of Common Stock |
||||
T. Rowe Price Associates, Inc. (2) |
8,226,897 | 9.18 | % |
|||
Ruane, Cunniff & Goldfarb Inc. (3) |
8,027,368 | 8.96 | % |
|||
Baron Capital Group, Inc. (4) |
6,891,469 | 7.69 | % |
|||
BlackRock, Inc. (5) |
6,560,868 | 7.32 | % |
|||
The Vanguard Group (6) |
6,331,556 | 7.06 | % |
(1) For each group included in the table, percentage ownership is calculated by dividing the number of shares beneficially owned by such group on December 31, 2015, as reflected in the most recent filing by such group of statements of beneficial ownership with the SEC, by the 89,603,657 shares of common stock outstanding on March 1, 2016. Therefore, the percentage ownership may differ from the percentage ownership reported in such statements of beneficial ownership, which reflect ownership as of an earlier date.
(2) Based solely upon information derived from a Schedule 13G/A filed by T. Rowe Price Associates, Inc. (“T. Rowe Price”) with the SEC on February 11, 2016, it has the sole power to vote 2,139,941 shares and sole power to dispose of 8,226,897 shares. These shares are owned by various individual and institutional investors for which T. Rowe Price serves as investment adviser with power to direct investments and/or sole power to vote the shares. For purposes of reporting requirements of the Securities Exchange Act of 1934, T. Rowe Price is deemed to be a beneficial owner of such securities; however T. Rowe Price expressly denies that it is, in fact, the beneficial owner of such securities.
(3) Based solely upon information derived from a Schedule 13G/A filed by Ruane, Cunniff & Goldfarb Inc. with the SEC on February 16, 2016, it has sole voting power and sole dispositive power of 8,027,368 shares.
(4) Based solely upon information derived from a Schedule 13G/A filed with the SEC on February 16, 2016 by Baron Capital Group, Inc., BAMCO, Inc., a subsidiary of Baron Capital Group, Inc., Baron Capital Management, Inc., a subsidiary of Baron Capital Group, Inc., and Ronald Baron, who owns a controlling interest in Baron Capital Group, Inc., (i) Baron Capital Group, Inc. reported that it has shared voting power of 6,547,069 shares and shared dispositive power of 6,891,469 shares; (ii) BAMCO, Inc. reported that it had shared voting power of 6,123,319 shares and shared dispositive power of 6,467,619 shares; (iii) Baron Capital Management, Inc. reported that it has shared voting power and shared dispositive power of 423,850 shares; and (iv) Mr. Baron reported that he has shared voting power of 6,547,069 shares and shared dispositive power of 6,891,469 shares.
(5) Based solely upon information derived from a Schedule 13G/A filed by BlackRock, Inc. with the SEC on January 22, 2016, it has sole power to vote 6,238,494 shares and sole power to dispose of 6,560,868 shares.
(6) Based solely upon information derived from a Schedule 13G/A filed by The Vanguard Group with the SEC on February 11, 2016, it has the sole power to vote 67,542 shares, sole power to dispose of 6,264,414 shares and shared power to dispose of 67,142 shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities Exchange Act of 1934, our Directors, executive officers and any person holding more than 10% of our outstanding common stock are required to report their initial ownership of Common Stock and any subsequent changes in their ownership to the SEC. We are not aware of any person holding more than 10% of our outstanding common stock.
Based solely on our review of copies of Section 16(a) reporting forms that we received from reporting persons for transactions occurring during our 2015 fiscal year and written representations from our Directors and executive officers, we believe that no reporting person failed to timely file any report required by Section 16(a) during the 2015 fiscal year.
| 36
Audit Committee Matters
Proposal Two - Ratification of Appointment of Independent Registered Public Accounting Firm
The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the Company’s independent registered public accounting firm. The Audit Committee has appointed PricewaterhouseCoopers LLP (“PwC”) to serve as our independent registered public accounting firm for 2016, subject to ratification by stockholders.
In taking this action, the Audit Committee considered carefully PwC’s performance as the Company’s independent registered public accounting firm, its independence with respect to the services to be performed and its general reputation for adherence to professional auditing standards. A new lead audit partner has been designated, and in conjunction with the mandated rotation of the lead audit partner, the Audit Committee and its Chair were directly involved in this selection.
The Audit Committee and the Board believe that the continued retention of PwC as our independent registered public accounting firm is in the best interests of the Company and our stockholders.
Because the members of the Audit Committee value the views of our stockholders on our independent auditors, even though ratification is not required by law, stockholders will have an opportunity to ratify this selection at the 2016 Annual Meeting. Representatives of PwC will be present at the 2016 Annual Meeting, will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions. If this proposal is not approved at the 2016 Annual Meeting, the Audit Committee may reconsider its selection of PwC. Even if the appointment is ratified, the Audit Committee, in its discretion, can direct the appointment of a different firm at any time during the year if the Audit Committee determines that such a change would be in the Company’s and our stockholders’ best interests.
Recommendation of the Board of Directors |
The Board of Directors recommends that you vote “FOR” the ratification of PwC as our independent registered public accounting firm for 2016. |
2016 Proxy Statement | 37
Audit Committee Matters
Audit Committee Report
The Audit Committee is responsible for overseeing the accounting, internal control and financial reporting processes and the audit processes of the Company. As set forth in the Audit Committee’s charter, which is available at the Company’s
website at https://www.idexx.com/corporate/corporate-governance.html, the Company’s management is responsible for the preparation, presentation and integrity of the Company’s financial statements, the Company’s accounting and financial reporting principles, and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The Company has a full-time internal audit department that reports to the Audit Committee and management and is responsible for, among other things, objectively reviewing and assessing the adequacy and effectiveness of the Company’s internal controls and procedures.
At each of its nine regularly scheduled meetings in 2015, the Audit Committee met as a group with the Company’s management, the Company’s independent registered public accounting firm PwC and internal audit. In addition, in performing its oversight function, the Audit Committee held separate private sessions with senior management, the independent auditors and internal audit to assure that all were carrying out their respective responsibilities. Both PwC and the Director of Internal Audit had full access to the Audit Committee, including regular meetings during which members of management were not present.
In addition, the Audit Committee:
Based on the review and discussion referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements referred to above be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 for filing with the Securities and Exchange Commission.
Audit Committee
Daniel M. Junius, Chair
Bruce L. Claflin
Thomas Craig
M. Anne Szostak
Independent Auditors’ Fees
The following table summarizes the fees of PwC billed to us for each of the last two fiscal years for audit services, and billed to us in each of the last two fiscal years for other services. For fiscal year 2015, audit fees also include an estimate of amounts not yet billed.
|
Fiscal Years Ended |
|||||
|
2015 |
2014 |
||||
Audit fees |
$ | 1,914,115 | $ | 1,854,306 | ||
Audit-related fees |
– | – | ||||
Tax fees |
454,052 | 358,755 | ||||
All other fees |
– | 10,000 | ||||
|
$ | 2,368,167 | $ | 2,223,061 |
| 38
Audit Committee Matters
Audit Fees. Consists of fees billed for professional services rendered for the audit of our annual financial statements and review of the interim financial statements included in quarterly reports; the audit of the effectiveness of our internal controls over financial reporting; statutory audits or financial audits for our subsidiaries or affiliates; services associated with periodic reports and other documents filed with the SEC; consultation concerning accounting or disclosure treatment of transactions or events and actual or potential impact of final or proposed rules, standards or interpretations by the SEC, the Financial Accounting Standards Board or other regulatory or standard setting bodies; and assistance with and review of documents provided to the SEC in responding to SEC comments.
Audit-Related Fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include due diligence services pertaining to potential acquisitions.
Tax Fees. Consists of tax compliance fees ($75,031 and $144,549 in 2015 and 2014, respectively), and tax advice and tax planning fees ($379,021 and $214,206 in 2015 and 2014, respectively). These services included U.S. federal, state and local tax planning and compliance advice; international tax planning, structure and compliance advice; and review of federal, state, local and international income, franchise and other tax returns.
All Other Fees. Consists of fees billed for services rendered in connection with an audit and certification of reporting to a third party vendor during 2014.
Out-of-Pocket Expenses and Value-Added Taxes. Included in the fee schedule above as components of each of Audit Fees, Tax Fees and All Other Fees are amounts billed by the independent auditors for out-of-pocket expenses ($91,014 and $83,829 in 2015 and 2014, respectively) and value-added taxes ($62,846 and $57,443 in 2015 and 2014, respectively).
Audit Committee Pre-Approval Policy
The Audit Committee has adopted a policy for the pre-approval of audit and non-audit services performed by our independent auditor, and the fees paid by us for such services, in order to assure that the provision of such services does not impair the auditor’s independence. Under the policy, at the beginning of the fiscal year, the Audit Committee pre-approves the engagement terms and fees for the annual audit. Certain types of other audit services, audit-related services and tax services have been pre-approved by the Audit Committee under the policy. Any services that have not been pre-approved by the Audit Committee as previously described must be separately approved by the Audit Committee prior to the performance of such services.
Pre-approved fee levels for all pre-approved services are established periodically by the Audit Committee. The Audit Committee then periodically reviews actual and anticipated fees for the pre-approved services against the pre-approved fee levels. Any anticipated fees exceeding the pre-approved fee levels require further pre-approval by the Audit Committee. With respect to each service for which separate pre-approval is proposed, the independent auditor will provide a detailed description of the services to permit the Audit Committee to assess the impact of the services on the independence of the independent auditor.
The Audit Committee may delegate pre-approval authority to one or more of its members and has delegated such authority to its chair. The Audit Committee member to whom such authority is delegated must report any pre-approval decisions to the Audit Committee at the next scheduled meeting. The Audit Committee does not delegate its pre-approval responsibilities to management.
During the last two fiscal years, no services were provided by PwC that were approved by the Audit Committee pursuant to the de minimis exception to pre-approval contained in the SEC’s rules.
2016 Proxy Statement | 39
Executive Compensation
Proposal Three - Advisory Vote to Approve Executive Compensation
We are asking our stockholders to approve, on an advisory, non-binding basis, the compensation of our named executive officers as described in this Proxy Statement at the 2016 Annual Meeting. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this Proxy Statement. This proposal is commonly referred to as “say-on-pay.”
At the 2011 Annual Meeting, more than 93% of the votes cast by our stockholders were in favor of an annual advisory “say-on-pay” vote. Accordingly, since the 2011 Annual Meeting, we have annually submitted a “say-on-pay” proposal to our stockholders and received overwhelming stockholder support each year. At the 2015 Annual Meeting, our “say-on-pay” proposal was approved by our stockholders with 99.14% of the votes cast in favor of approving the compensation of our named executive officers, which is the highest among our peer group. The Board believes that this vote affirmed our stockholders’ support of our executive compensation program.
In deciding how to vote on this proposal, our stockholders are encouraged to read the Executive Compensation section of this Proxy Statement, including the Compensation Discussion and Analysis section, which discusses in detail our executive compensation program and how it implements our executive compensation philosophy, how our executive compensation program helps drive our business and other corporate strategies, the compensation decisions the Compensation Committee has made under our executive compensation program and some recent changes made to our compensation program.
Our Board recommends that our stockholders approve the following resolution:
RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed in this Proxy Statement for the 2016 Annual Meeting pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby approved on an advisory basis.
As an advisory vote, it will not binding. However, our Compensation Committee and Board of Directors value the opinions expressed by our stockholders in their vote on this proposal and will consider the outcome of this vote when making future compensation decisions for our named executive officers.
Recommendation of the Board of Directors |
The Board of Directors recommends that you vote “FOR” the approval of the advisory resolution on executive compensation. |
| 40
Executive Compensation
Executive Officers
Set forth below are the names, ages, and current positions of our executive officers as of March 24, 2016 other than Mr. Ayers whose biographical information is located under “Proposal One – Election of Directors” on page 14:
Name |
Age |
Title |
Jonathan W. Ayers |
59 |
Chairman of the Board of Directors, President and Chief Executive Officer |
Brian P. McKeon |
53 |
Executive Vice President, Chief Financial Officer and Treasurer |
Jay Mazelsky |
55 |
Executive Vice President |
Jacqueline L. Studer |
57 |
Corporate Vice President, General Counsel and Corporate Secretary |
Michael J. Williams, PhD |
48 |
Executive Vice President |
Brian P. McKeon. Mr. McKeon has been Executive Vice President, Chief Financial Officer and Treasurer since January 2014. He leads our finance, business development and worldwide operations functions. Mr. McKeon served as a Director of IDEXX from July 2003 through December 2013, including serving as Chair of the Audit Committee and as a member of the Compensation Committee. Mr. McKeon served as Executive Vice President of Iron Mountain Incorporated from April 2007 to December 2013 and Chief Financial Officer of Iron Mountain from April 2007 to October 2013. Mr. McKeon was also Executive Vice President and Chief Financial Officer of The Timberland Company from March 2000 to April 2007. From 1991 to 2000, Mr. McKeon held several finance and strategic planning positions with PepsiCo Inc., serving most recently as Vice President, Finance at Pepsi-Cola, North America. Mr. McKeon holds a bachelor’s degree from the University of Connecticut and an MBA with high distinction from Harvard University.
Jay Mazelsky. Mr. Mazelsky has been an Executive Vice President since joining us in August 2012. He oversees our Companion Animal Group Commercial Organization, which includes our IDEXX VetLab® in-house diagnostics, U.S. Diagnostic Imaging, Information Management, BioResearch and Telemedicine lines of business. Previously, Mr. Mazelsky was a Senior Vice President and General Manager from 2010 to 2012 of Computed Tomography, Nuclear Medicine and Radiation Therapy Planning at Philips Healthcare, a subsidiary of Royal Philips Electronics. Previously he held a series of other leadership roles with increasing responsibilities during his tenure at Philips beginning in 2001. Prior to joining Philips, Mr. Mazelsky was at Agilent Technologies, where he was an Executive in Charge from 2000 to 2002, leading the integration of Agilent’s Healthcare Group into Philips. He also served as a General Manager of the Medical Consumables Business Unit from 1997 to 2000 at Agilent Technologies. From 1988 to 1996, he was in a number of roles at Hewlett Packard in finance, marketing and business planning. Mr. Mazelsky holds a bachelor’s degree in mathematics from the University of Rochester and an M.B.A. from the University of Chicago.
Jacqueline L. Studer. Ms. Studer has been Corporate Vice President, General Counsel and Corporate Secretary since September 2014. She leads the Company’s legal, compliance, regulatory affairs and quality assurance groups. Before joining the Company, Ms. Studer was Vice President, General Counsel and Secretary of Blue Health Intelligence, a healthcare data and analytics company. Prior to that, from June 2011 to October 2012, Ms. Studer served as Executive Vice President and General Counsel of Allscripts Healthcare Solutions. From December 2002 to June 2011, Ms. Studer held various leadership positions at GE Healthcare, a medical technology company, including General Counsel of the GE Healthcare IT & Performance Solutions division. Ms. Studer has also held leadership roles in entrepreneurial organizations and with The Dow Chemical Company earlier in her career. Ms. Studer holds a bachelor’s degree in management from Purdue University and a J.D. from Columbia University School of Law.
Michael J. Williams, PhD. Dr. Williams has been an Executive Vice President since July 2012. He is responsible for oversight of our international operations as well as the Livestock, Poultry and Dairy and the Water segments and, since January 2007, our OPTI Medical Systems line of business. He was previously Corporate Vice President of our IDEXX VetLab® in-house diagnostics line of business from September 2006 to July 2012 and General Manager of that line of business from 2004 to 2012. From 2003 to 2004, Dr. Williams was Vice President and General Manager of our chemistry instruments and consumables business. Prior to joining us in 2003, Dr. Williams was a healthcare strategy consultant at McKinsey & Company from 1995 to 2002, and a senior research associate at the Scripps Research Institute from 1992 to 1995. Dr. Williams holds a bachelor’s degree in biochemistry from the University of Bristol, United Kingdom and a Ph.D. in biochemistry from the University of Oxford, United Kingdom.
2016 Proxy Statement | 41
Executive Compensation
Compensation Discussion and Analysis
This discussion, together with the other compensation information (including the Executive Compensation Tables) and the information regarding the Compensation Committee contained elsewhere in this Proxy Statement, explains the Company’s executive compensation program with respect to fiscal year 2015 for our Chief Executive Officer, Chief Financial Officer, and the three other most highly compensated executives (collectively, our “named executive officers”):
Name |
Position |
Jonathan W. Ayers |
Chairman, President and Chief Executive Officer |
Brian P. McKeon |
Executive Vice President, Chief Financial Officer and Treasurer |
Jay Mazelsky |
Executive Vice President |
Jacqueline L. Studer |
Corporate Vice President, General Counsel and Corporate Secretary |
Michael J. Williams, PhD |
Executive Vice President |
Executive Summary and Overview
The Company’s executive compensation philosophy is to attract, motivate and retain talented executives who are aligned and passionate about the Company’s purpose: to be a great company that creates exceptional long-term value for our customers, employees and stockholders by enhancing the health and well-being of pets, people and livestock. |
In furtherance of this philosophy, our executive compensation program is based on a pay-for-performance philosophy designed to achieve three key objectives:
|
Attract, motivate and retain highly skilled executives; |
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Create alignment between management and stockholder interests by establishing a strong connection between compensation, stock ownership and creation of stockholder value; and |
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Reward executives for building a highly engaged, high-performance culture that corresponds with our Company’s guiding principles of:
|
| 42
Executive Compensation
Overview of Our Executive Compensation Program
We highlight below some of the key principles and objectives of our executive compensation program, as well as the compensation practices we have not implemented because we believe that they would not serve the long-term interests of our stockholders.
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|
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What We Do
|
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What We Don’t Do
|
2016 Proxy Statement | 43
Executive Compensation
We encourage you to read this Compensation Discussion and Analysis in its entirety, along with other information contained in this Proxy Statement regarding our Compensation Committee and executive compensation, for a detailed discussion and analysis of our executive compensation program and the 2015 compensation of the named executive officers.
Elements of Executive Compensation Program
In support of our executive compensation philosophy and objectives, our executive compensation program consists of the following three key elements, which in total are targeted at the median of our competitive market:
Compensation Key Elements |
Objective |
Base salary |
To provide a fixed amount of compensation which is positioned generally at the median of the competitive market for similar positions as well as individual skills, abilities and performance, which supports our compensation philosophy of attracting and retaining talented individuals. |
Performance-Based Cash Bonus |
To motivate executives to achieve annual corporate financial goals as well as other annual senior executive team goals that strengthen the business and position the Company for longer term performance. Target bonus percentages are positioned at the median of the competitive market for similar positions. |
Equity-Based Long-Term |
To motivate long-term performance and align the interests of management and stockholders, which supports our compensation philosophy of rewarding long-term performance and sustained stockholder value creation in a way that attracts and retains talented executives. In general, long-term incentive opportunities vest over five years and are targeted so that when combined with salary and target bonus opportunity, total direct compensation is approximately at the median of the market. |
For senior executives, including the named executive officers, the Company believes that variable compensation, such as performance-based cash bonuses and equity-based compensation, should be a higher percentage of total compensation than for other employees. The Company also believes that variable compensation relates most directly to the creation of stockholder value over time by providing strong incentives to achieve strategic and financial objectives, as well as serving as a form of compensation that will motivate and retain executives. In general, the total direct compensation mix for our Chief Executive Officer and our other named executive officers for 2015 is as follows:
| 44
Executive Compensation
In making decisions with respect to each element of an executive’s compensation, the Compensation Committee also considers the total compensation that may be awarded to the executive. Overall, the Compensation Committee’s goal is to award compensation that corresponds with the Company’s compensation philosophy and objectives when all the elements of the compensation program are considered individually and in total.
2015 “Say-on-Pay” Advisory Vote on Executive Compensation
At our 2015 Annual Meeting, our stockholders voted 99.14% (represented by 39,718,557 votes) in favor of approving the compensation of our named executive officers and 0.86% (represented by 344,080 votes) against. This approval percentage is the highest among the peer group of companies utilized by the Compensation Committee for competitive benchmarking purposes when it made executive compensation determinations for 2015. The Compensation Committee considered these results in determining compensation policies and decisions and concluded that the compensation paid to our named executive officers and the Company’s overall pay practices are strongly supported by our stockholders.
Competitive Benchmarking of Compensation
The Compensation Committee believes that market data is essential to determining compensation targets and the actual awards for executives in an effort to attract and retain highly talented senior executives. Market data is used to assess the competitiveness of the Company’s compensation packages relative to similar companies and to ensure that the Company’s compensation program is consistent with its compensation philosophy. The Compensation Committee’s objective is to provide executives with target total direct compensation that generally corresponds with the market median.
On an annual basis, the Compensation Committee engages FW Cook, an independent executive compensation consulting firm, to conduct a market benchmarking study for our senior executives, including the named executive officers. FW Cook does not provide any services to management and has received no compensation from the Company, other than for the services to the Compensation Committee. For more information regarding the Compensation Committee’s engagement of FW Cook, see the discussion under “Use of Compensation Consultants” on page 27.
The Company’s executive compensation program is benchmarked against a group of medical device, technology and healthcare services companies that are similar to the Company in size as measured by revenues, net income, market capitalization, price to earnings multiple and number of employees. In February 2015, when the Compensation Committee set 2015 base salaries and made 2015 equity awards, the companies in the market competitive analysis included the following firms.
IDEXX Proxy Peer Group |
|
Alere, Inc. |
Hologic Inc. |
Align Technology Inc. |
ResMed Inc. |
Bio-Rad Laboratories Inc. |
Sirona Dental Systems, Inc. |
Charles River Labs International, Inc |
Stericycle, Inc. |
The Cooper Companies Inc. |
STERIS Corporation |
C.R. Bard |
Teleflex Incorporated |
DENTSPLY International Inc. |
Varian Medical Systems, Inc. |
Edwards Lifesciences Corporation |
VCA Inc. |
Haemonetics Corporation |
Waters Corporation |
Hill-Rom Holdings, Inc. |
West Pharmaceutical Services, Inc. |
This peer group did not change from the peer group that the Compensation Committee referenced when it determined 2014 compensation.
2016 Proxy Statement | 45
Executive Compensation
Certain information regarding the size and value of the peer group companies relative to the Company as of October 2014 (which is when the peer group was selected by the Compensation Committee) is set forth below.
Peer Group Comparisons* |
|||||||||||||||
|
Revenue (1) |
Market |
Net |
P/E Ratio (4) |
Employees (5) |
||||||||||
Peer Group 75th Percentile |
$ | 2,458 | $ | 8,105 | $ | 328 | 30.3 | 11,175 | |||||||
Peer Group Median |
1,844 | 4,632 | 159 | 26.8 | 7,300 | ||||||||||
Peer Group 25th Percentile |
1,537 | 3,552 | 107 | 21.4 | 5,878 | ||||||||||
IDEXX Laboratories, Inc. |
1,488 | 6,838 | 199 | 34.3 | 5,700 |
* All data in this table, including with respect to the Company, was compiled by FW Cook from Standard & Poor’s Compustat database.
(1) Most recently reported four quarters publicly available as of October 31, 2014.
(2) As of October 31, 2014. Calculated using the most recently reported shares outstanding and stock price publicly available as of October 31, 2014.
(3) Excludes extraordinary items.
(4) Calculated by dividing the market capitalization as of October 31, 2014 by net income for the most recently reported four quarters publicly available as of October 31, 2014, excluding extraordinary items.
(5) Fiscal year employee number based upon the most recently filed Annual Report on Form 10-K as of October 31, 2014.
The composition of the peer group is based on recommendations by FW Cook and is reassessed annually, and the Compensation Committee approves all changes to the group. We supplement the peer group data with national survey data gathered from the Towers Watson General Industry and the Radford Global Life Sciences surveys. The survey data is blended to recognize the manufacturing aspects of our business and the fact that many companies in the Radford Life Sciences Survey have different business models.
Compensation Policies and Practices
The following table summarizes certain policies and practices utilized by the Company in connection with its executive compensation program.
|
Summary |
Executive Stock Ownership and Retention |
The Company maintains stock ownership guidelines intended to ensure that the interests of executives are economically aligned with those of our stockholders. These guidelines establish target levels of ownership of the Company’s common stock that is calculated based on the following multiples of annual base salary:
The Compensation Committee believes that the higher target multiples applicable to the Chief Executive Officer and our Executive Vice Presidents are appropriate given the greater relative scope of responsibilities relating to long-term stockholder value creation associated with those positions. These target levels determine whether the executive must retain additional stock acquired upon the vesting and release of restricted stock units (“RSUs”), deferred stock units (“DSUs”) or the exercise of options. Specifically, unless and until the value of the Company’s common stock held by an executive equals or exceeds his or her target level at the end of a calendar year, this executive must retain:
The Company does not apply the value of stock options or unvested RSUs towards satisfying these guidelines, as the Compensation Committee believes that these guidelines are meant to encourage outright ownership of the Company’s common stock. An executive is in compliance with these guidelines if the value of the shares of common stock held by the executive (including shares of common stock underlying vested DSUs and shares owned outright by, or held in trust for the benefit of, the executive or his or her immediate family members residing in the same household) equals or exceeds his or her target level at the end of the year, or if he or she has complied with the applicable retention requirements under the guidelines during the year. Each executive’s compliance with the guidelines is measured annually as of December 31 and reviewed by the Compensation Committee. All named executive officers were in compliance with the guidelines as of December 31, 2015. |
| 46
Executive Compensation
|
Summary |
Recovery of Incentive Compensation (Clawback Policy) |
Under the Company’s Policy of Recovery of Incentive Compensation, or “clawback” policy, the Company may seek to recover certain annual performance-based incentive compensation granted to executives in the event the Company is required to restate its financial results for any of the three most recent fiscal years completed after March 3, 2010, other than a restatement due to changes in accounting principles or applicable law. In March 2014, the clawback policy was amended to include all incentive-based equity compensation granted after the date of the amendment. |
Policy on Short Sales, Derivatives and Hedging |
Pursuant to our Policy on Short Sales, Derivative Transactions and Hedging, no employee of the Company may engage in short sales of Company securities, purchases or sales of puts, calls or other derivative securities based on Company securities, or purchases of financial instruments that are designed to hedge or offset any decrease in the market value of Company securities. |
Anti-Pledging Policy |
In December 2015, we adopted a Policy on Pledging of Company Stock that prohibits our Directors and senior executives from pledging or otherwise encumbering our equity securities as collateral for indebtedness, including holding shares in a margin or similar account that would subject our equity securities to margin calls. |
CEO Employment Agreement |
Our Chief Executive Officer has an employment agreement that stipulates severance terms if he were to be terminated by the Company other than for cause. Cause is defined in the employment agreement as willful, material misconduct, gross negligence in the performance of his duties on behalf of the Company, or a breach of his invention and non-disclosure agreement or non-compete agreement with the Company. |
Change in Control Agreements |
Each of the named executive officers and certain other executives has a change in control agreement with the Company. The purpose of these agreements is to ensure that these executives act in the best interest of stockholders before, during and after any change in control transaction by providing them with security in the event their employment is terminated or materially changed following a change in control. The agreements generally provide a lump sum payment of salary and bonus, and the payment of benefits for two years (or three years in the case of the Chief Executive Officer), following a qualifying termination. The agreements also provide for immediate vesting of equity awards in the event of a change in control followed by a qualifying termination. The change in control agreements renew annually unless the Company provides notice of its intent not to renew. The Compensation Committee believes these terms are reasonable and consistent with market practice. The Compensation Committee periodically reviews the change in control agreements and obtains updated industry benchmarking advice from FW Cook to assist in determining whether any modifications to the agreements are necessary or whether the Company should permit renewal. |
Determination of Executive Compensation
The Compensation Committee determines the compensation of the Chief Executive Officer and, in consultation with the Chief Executive Officer, approves the compensation for each of the other named executive officers. The Chief Executive Officer does not participate in the Compensation Committee’s deliberations or decisions with regard to his compensation. All three Compensation Committee members are independent directors of the Company. The Compensation Committee reviews, at least annually, the base salary, annual cash performance-based bonus, long-term equity awards and other material benefits, direct and indirect, of the named executive officers. These responsibilities are identified in the Compensation Committee charter.
In making compensation determinations with respect to the named executive officers, the Compensation Committee gives primary consideration to the named executive officer’s impact on the Company’s results and scope of responsibility, in addition to past accomplishments, prior experience and other factors, including data on prevailing compensation levels. Considerable weight is also given to the Chief Executive Officer’s evaluation of the other named executive officers because of his direct knowledge of each named executive officer’s performance, responsibilities and contributions. For each named executive officer, the Compensation Committee determines each component of compensation based on the Company’s overall achievement of its financial and non-financial performance goals.
2016 Proxy Statement | 47
Executive Compensation
Base Salary
Base salary levels are reviewed and approved by the Compensation Committee annually, typically in the first fiscal quarter, as part of the Company’s compensation planning process. The Compensation Committee targets base salary toward the median for the peer group proxy data and survey compensation data. Individual executive base salary levels may vary on either side of the median when factoring in the Company’s overall financial performance and an individual’s strengths, level and scope of responsibilities, skills, experience, past performance and potential.
For detail regarding the base salary paid to each of our named executive officers for fiscal year 2015, see the discussion under “2015 Base Salary” on page 51.
Bonuses for the Chief Executive Officer and the other named executive officers are paid pursuant to the Company’s Senior Executive Team Incentive Plan (the “SET Incentive Plan”). Each named executive officer has a target annual performance-based cash bonus opportunity, which is determined annually by the Compensation Committee and based on a percentage of the executive’s base salary, with a maximum payout of 200% of the target. These target percentages are intended to provide an appropriate mix of fixed and variable compensation and to maintain an appropriate weighting of annual versus longer-term incentives consistent with the Company’s compensation philosophy.
As depicted in the following table, the annual performance-based cash bonus paid pursuant to the SET Incentive Plan is calculated using two equally weighted factors: (i) the Company’s financial performance measured against specific metrics selected by the Compensation Committee, and (ii) achievement of non-financial performance goals focused on strengthening and positioning the Company for sustained future growth and profitability:
The financial goals used to calculate the financial performance factor are established annually by the Compensation Committee. The non-financial performance factor is determined by the Compensation Committee by measuring achievement of annual goals approved by the Board. The establishment of these goals is intended to support the achievement of near-term performance of the Company’s long-term business objectives.
The mechanics of the SET Incentive Plan informed the Compensation Committee’s exercise of its “negative discretion” in reducing the maximum cash performance bonus amount payable to our named executive officers under our 2014 Incentive Compensation Plan (the “2014 Plan”) for 2015. For detail regarding the calculation of performance-based cash bonuses paid to each of our named executive officers for fiscal year 2015 under the SET Incentive Plan, see the discussion under “2015 Annual Performance-Based Cash Bonus” on page 51.
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Executive Compensation
Long-Term Equity Incentive Compensation
The Company believes that granting equity-based awards provides a strong financial incentive to maximize stockholder returns over the long term. The Company also believes that the practice of granting equity-based awards is important in recruiting and retaining the key talent necessary to ensure the Company’s continued success. The following table summarizes the key aspects of the Company’s equity compensation awards:
Aspect of Equity Awards |
Description |
Types of Equity Awards Granted |
The Company’s equity awards may include:
|
Mix of Equity Incentive Compensation |
Annual equity awards may consist of stock options, restricted stock units (“RSUs”) or a combination of both. Because stock options have value only to the extent the Company’s stock price increases in comparison to the stock price on the date of the grant, and generally vest ratably over five years with seven or ten year terms, they directly reward creation of long-term stockholder value after the grant date. RSUs vary in value depending on the stock price of our common stock prior to vesting, but generally will have some value in the long term, which encourages retention and rewards the creation of stockholder value over time. Given the different risk/reward characteristics of these two types of awards and our executive compensation philosophy, the Compensation Committee believes that the equity awards granted to executives should have a greater proportion of stock options relative to RSUs. Executives have the most direct impact on Company performance and should bear the highest risk, and realize the highest potential reward, associated with that performance. Accordingly, executives (other than the Chief Executive Officer) generally receive 75% of their equity award value in the form of stock options and 25% of their award value in the form of RSUs and, since 2015, the Chief Executive Officer has received 100% of his annual equity award in the form of stock options. |
Vesting and Expiration |
All equity awards generally have a five-year vesting schedule. The Compensation Committee believes that a five-year vesting schedule for both options and RSUs, which is longer than typical market practice, further aligns the interests of our executives with the long-term interest of stockholders while also providing a retention benefit for the Company. Depending on the grant date, stock option awards expire on the seventh or tenth anniversary of their grant date. Annual stock option awards granted between 2006 and the date of our 2013 Annual Meeting generally expire on the day immediately prior to the seventh anniversary of their grant date. Annual stock option awards granted on or after the date of our 2013 Annual Meeting generally expire on the day immediately prior to the tenth anniversary of their grant date. |
Equity Hiring Awards |
Hiring awards are granted in certain cases in order to attract highly talented individuals to the Company. Hiring awards typically consist of RSUs, but may also include a combination of RSUs and stock options. Generally, hiring awards for newly-hired executive officers are granted on one of four established grant dates annually, and vest proportionally in annual increments over a five-year period. |
Equity Grant Procedures |
The Board has adopted an equity award granting process that determines when and how equity awards are granted by the Compensation Committee. This methodology provides for fixed award dates that occur outside the quarterly quiet periods during which the Company’s executives and Directors are precluded from trading in the Company’s securities. Most equity awards, including all annual awards to the named executive officers, are made on or about February 14 of each year, which shortly follows the February Compensation Committee meeting at which prior year performance-based cash bonuses and current year salary determinations are made, as well as the Company’s earnings announcement for the fourth quarter of the prior year. All annual equity awards to our named executive officers require the approval of the Compensation Committee. All other equity grants are typically authorized by the Compensation Committee, but for certain new hire equity awards such authority may be delegated to the Chief Executive Officer. In determining the size of equity awards to each named executive officer, the Compensation Committee begins with a competitive assessment based upon the proxy peer group and market data. The determination of the equity award is based on the responsibilities of each named executive officer’s position and, relative to cash compensation, is intended to support the Company’s philosophy that variable pay should constitute a significant portion of total compensation. The size of annual award value is determined based on the executive’s job scope, long-term leadership potential, the size of prior awards, total compensation relative to median total compensation for market comparable positions, and the impact of the equity award values in total on stockholder dilution and stockholder value transfer in relation to the average of such totals for the proxy peer group. The exercise price of all stock options granted by the Compensation Committee equals the closing sale price of the common stock on the date of grant and in any case will not be less than such price. The number of stock options granted is determined based on the Black-Scholes value of an option with respect to our common stock on the applicable grant date. The number of RSUs granted is determined based on the closing price of our common stock on the applicable grant date. |
For detail regarding the long-term equity incentive compensation granted to each of our named executive officers for fiscal year 2015, see the discussion under “2015 Long-Term Equity Incentive Awards” on page 53.
2016 Proxy Statement | 49
Executive Compensation
Benefits and Perquisites
The Company provides health and welfare benefits to its salaried employees, including the named executive officers, including healthcare, life and disability insurance. In addition, the Company offers all full-time employees of the Company and its domestic subsidiaries that have been employed for at least one month an opportunity to participate in our 1997 Employee Stock Purchase Plan, pursuant to which such employees can purchase shares of common stock through payroll deductions.
In 2015, the only benefits available exclusively to executives were Company-funded, elective supplemental disability coverage and annual executive physical exams and wellness coaching, which have a combined value of under $10,000 per executive. The supplemental disability coverage is provided for additional financial security in the case of disability. Annual physical exams and wellness coaching are provided because the health of the Company’s executives is critical to their performance. In addition, in 2015 the Company reimbursed the Chief Executive Officer and each of the other named executive officers for tax return preparation and planning services in an amount that that did not exceed $6,000. The tax preparation and planning service is provided to the Chief Executive Officer and other senior executives to maximize the amount of time that they are able to spend on Company business rather than personal financial matters. We do not gross up executives' perquisites and benefits to compensate for any taxes due on the value of these perquisites and benefits, with the exception of executives on expatriate assignments, as detailed below.
In 2013, in furtherance of our goal to expand the Company’s international footprint, the Company requested that Dr. Williams and his family relocate to the Netherlands office on an expatriate assignment. As a result of this expatriate assignment, Dr. Williams received certain allowances in 2015 that are consistent with allowances typically afforded by the Company to expatriate employees and their families, such as housing, tuition and car allowances. The Company also provided tax equalization benefits to Dr. Williams due to increased taxes and imputed income from his overseas assignment, including gross-ups of such amounts, which is also consistent with the Company’s common practice for expatriates.
Section 162(m) of the Code disallows a tax deduction to public companies for certain compensation in excess of $1 million paid to a company’s Chief Executive Officer and three other officers (other than the Chief Financial Officer) whose compensation is required to be reported to our stockholders pursuant to the Securities Exchange Act of 1934. Pursuant to Section 162(m), certain “qualified performance-based compensation” that is approved by our stockholders and otherwise satisfies the requirements of Section 162(m) is not subject to the deduction limit. The Compensation Committee believes it is in the best interest of the Company and its stockholders for the Company to provide annual, performance-based compensation to executives that preserves the flexibility to grant awards intended to be deductible by the Company for federal income tax purposes.
Accordingly, annual cash bonuses for our named executive officers are typically awarded pursuant to the Company’s 2014 Plan, with the intent that these bonuses will qualify as performance-based compensation under Section 162(m). In addition, in February 2016 the Compensation Committee added a performance component to the RSUs awarded to our senior executives as part of their annual equity incentive awards for fiscal year 2016. This new feature is intended to allow the awards to be eligible to qualify as performance-based compensation pursuant to Section 162(m), as contemplated under our 2009 Stock Incentive Plan. Specifically, these RSUs will vest and become payable only if the Compensation Committee certifies that the Company achieves consolidated operating income, as adjusted to eliminate the effects of discrete items such as acquisition- and litigation-related expenses and restructuring charges, for fiscal year 2016 that is at least 55% of this metric in the Company’s approved 2016 budget. In the event the Compensation Committee certifies that this performance goal is achieved for fiscal year 2016, these RSUs will vest ratably over five years, with one-fifth of the shares underlying the RSU award vesting in February of each year beginning in 2017. If the performance goal is not met in fiscal year 2016, the RSUs will be forfeited, and the recipients will not be eligible for replacement awards in connection with such forfeiture.
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Executive Compensation
The rules and regulations relating to Section 162(m) are complicated and may change from time to time, sometimes impacting prior awards. There can therefore be no guarantee that any award intended to qualify as “qualified performance-based compensation” within the meaning of Section 162(m) will in fact qualify. In addition, the Compensation Committee reserves the flexibility to grant cash bonuses, RSUs and other awards that would not qualify as performance-based compensation if the Compensation Committee determines it is appropriate to do so.
2015 Executive Compensation Determinations
The following is a discussion of the determinations of base salary, annual performance-based cash bonus and long-term equity awards for the named executive officers for fiscal year 2015 and the specific factors considered in making such determinations.
The table below provides an overview of total direct compensation paid to our named executive officers for fiscal year 2015, including a breakdown of each of the three key elements of total direct compensation and with respect to performance based cash bonus comparing the 2015 target against the actual amount of compensation.
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|
Performance Based |
Long Term |
Total Direct |
|||||||||||
|
Base Pay |
Target |
Actual |
Actual (1) |
Actual |
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Jonathan W. Ayers |
$ | 800,000 | $ | 1,000,000 | $ | 950,000 | $ | 2,996,921 | $ | 4,746,921 | |||||
Brian P. McKeon |
$ | 520,000 | $ | 390,000 | $ | 370,500 | $ | 999,304 | $ | 1,889,804 | |||||
Jay Mazelsky |
$ | 436,800 | $ | 305,760 | $ | 290,500 | $ | 749,478 | $ | 1,476,778 | |||||
Jacqueline L. Studer |
$ | 364,000 | $ | 218,400 | $ | 207,500 | $ | 549,530 | $ | 1,121,030 | |||||
Michael J. Williams, PhD |
$ | 436,800 | $ | 305,760 | $ | 290,500 | $ | 749,478 | $ | 1,476,778 |
(1) Represents actual grant date fair value computed in accordance with FASB ASC Topic 718.
Mr. Ayers’s 2015 base salary was $800,000, which is the same base salary paid to Mr. Ayers in 2014. The Compensation Committee approved base salary increases of 4% in 2015 for each of the other named executive officers to more closely align the base salaries to the median of the proxy peer group and market survey data for these positions.
In February 2015, the Compensation Committee selected each of the named executive officers as participants in the 2014 Plan for the 2015 fiscal year, with the intent to make cash bonuses payable to the named executive officers for fiscal year 2015 eligible to qualify as “performance-based compensation” under Section 162(m). The Compensation Committee established operating income, as adjusted to eliminate the effects of differences between actual and budgeted foreign currency exchange rates in 2015 and to eliminate the effects of discrete items such as acquisition- and litigation-related expenses and restructuring charges, as the performance goal applicable to the participants in the 2014 Plan. The Committee then fixed the maximum amount payable to Mr. Ayers for fiscal year 2015 as 1.5% of operating income (as adjusted), and fixed the maximum amount payable to each of the other named executive officers for fiscal year 2015 as 0.75% of operating income (as adjusted), subject in each case to the limitations under the 2014 Plan and to an overall cap equal to 200% of each named executive officer’s target bonus. In the event the Company did not achieve positive operating income (adjusted as described above) for fiscal year 2015, the selected participants would not be eligible to receive an annual, performance-based cash bonus for fiscal year 2015 under the 2014 Plan.
In February 2016, the Compensation Committee certified that 1.5% of the Company’s operating income for fiscal year 2015, as adjusted, equaled $4,824,000 and that 0.75% of the Company’s operating income for fiscal year 2015, as adjusted, equaled $2,412,000. The Compensation Committee then exercised its “negative discretion”, as permitted under Section 162(m), to determine the actual annual performance-based cash bonuses awarded to each of the named executive officers for performance during 2015, using the guidelines and performance criteria set forth in the SET Incentive Plan.
2016 Proxy Statement | 51
Executive Compensation
Pursuant to the SET Incentive Plan parameters for 2015, 50% of the annual performance-based cash bonus for the named executive officers is based on an equal weighting of three financial metrics selected by the Compensation Committee, and 50% is determined by the Compensation Committee based on the achievement of non-financial performance goals approved by the Board, as described above under “Annual Performance-Based Cash Bonus” on page 48.
For the financial performance goals in 2015, the SET Incentive Plan included three equally-weighted factors: normalized organic revenue growth, operating profit, and earnings per share, as depicted below:
Each of the three Company financial performance metrics that comprise the financial performance factor is subject to a rating calculated on a sliding scale, ranging from 50% to 180%, using the approved budget goal for the applicable factor as 100% of target payout.
The Company’s performance versus adjusted budget with respect to each financial metric selected by the Compensation Committee for the SET Incentive Plan for 2015, and the resulting calculation of the financial performance factor, is illustrated in the table below:
|
2015 Actual |
2015 |
Variance |
Payout |
Weighting |
Weighted |
||||||||||||
Normalized Organic Revenue Growth (3) |
11.3 | % |
13.5 | % |
( | 2.2 | %) |
69.2 | % |
33 | % |
22.8 | % |
|||||
Operating Profit |
$ | 299.9 | $ | 306.1 | ( | $6.2 | ) |
84.5 | % |
33 | % |
27.9 | % |
|||||
Earnings per Share (Diluted) |
$ | 2.05 | $ | 2.08 | ( | $0.03 | ) |
88.7 | % |
33 | % |
29.3 | % |
|||||
2015 Financial Performance Factor (%) |
|
|
|
|
| 80.0 | % |
(1) In evaluating financial performance, the Compensation Committee reviewed the 2015 budget as adjusted to eliminate the effects of changes in foreign currency exchange rates during 2015, as compared to the rates assumed in the budget, as adjusted for the impact of acquisitions, a non-recurring impairment charge and certain restructuring costs which were not assumed in the budget.
(2) Achievement of the Company’s approved budget for each of the financial metrics equates to 100% payout, with separate pre-defined performance scales for each financial metric resulting in an increase or decrease in the percentage payout.
(3) Normalized organic revenue growth is not a measure defined by generally accepted accounting principles in the United States of America (“GAAP”), otherwise referred to herein as a non-GAAP financial measure. In calculating normalized organic revenue growth, we exclude the effect of changes in foreign currency exchange rates because changes in foreign currency exchange rates are not under management’s control, are subject to volatility and can obscure underlying business trends. We also exclude the effect of acquisitions because the nature, size and number of acquisitions can vary dramatically from period to period and therefore can also obscure underlying business trends. We also exclude the effect of changes in our significant distributors’ inventory levels which may not be directly related to underlying end-user demand for our products.
The non-financial goals for 2015 for the SET Incentive Plan covered the following objectives:
With respect to the non-financial performance factor, the Compensation Committee considered exceptional performance with respect to the non-financial goals applicable to the SET Incentive Plan and determined a non-financial performance factor of 110% of target which, taken together with the financial performance factor, resulted in an overall performance-based factor of 95% of target for each of the named executive officers. The Compensation Committee believes this overall performance-based factor is appropriate due to the Company’s strong performance in 2015 against the financial and non-financial performance goals described above. With respect to the named executive officers other than Mr. Ayers, the
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Executive Compensation
Compensation Committee also consulted with the Chief Executive Officer regarding his performance assessment of these named executive officers.
The following table provides greater detail regarding the performance-based cash bonus awarded to each named executive officer for fiscal year 2015:
Named Executive Officer |
Target Bonus |
Target Bonus ($) |
Overall |
Actual |
||||||||
Jonathan W. Ayers |
125 | % |
$ | 1,000,000 | 95 | % |
$ | 950,000 | ||||
Brian P. McKeon |
75 | % |
$ | 390,000 | 95 | % |
$ | 370,500 | ||||
Jay Mazelsky |
70 | % |
$ | 305,760 | 95 | % |
$ | 290,500 | ||||
Jacqueline L. Studer |
60 | % |
$ | 218,400 | 95 | % |
$ | 207,500 | ||||
Michael J. Williams, PhD |
70 | % |
$ | 305,760 | 95 | % |
$ | 290,500 |
(1) Determined based upon a combination of the three financial performance metrics (measured against adjusted budget) and non-financial performance ratings applicable to the SET Incentive Plan for fiscal year 2015.
In February 2015, the Compensation Committee granted Mr. Ayers’s stock options with an aggregate grant value of approximately $3,000,000 that vest ratably over five years. Although the Compensation Committee considered the peer group proxy and market data in making this equity award, the committee did not target any particular percentage of the median total direct compensation and determined the amount of the award in its discretion.
In February 2015, the Compensation Committee granted stock options and RSUs with an aggregate grant value of approximately $1,000,000 to Mr. McKeon, $750,000 to each of Mr. Mazelsky and Dr. Williams and $550,000 to Ms. Studer in each case, that vest ratably over five years. In determining the size of equity awards granted to these named executive officers in 2015, the Compensation Committee reviewed compensation summaries for each that summarized the value of outstanding vested and unvested stock options and vesting of RSUs and the cumulative value realized by the executives upon exercise of stock options and vesting of RSUs since commencement of employment. As with the determination of Mr. Ayers’s equity award, the Compensation Committee considered the peer group proxy and market data in making these equity awards, but did not target any particular percentage of the median total direct compensation and determined the amounts of the awards in its discretion.
The Compensation Committee also reviewed an analysis of the Company’s aggregate share usage and aggregate fair value of equity compensation awarded, relative to the Company’s prior levels and in relation to the peer group. The aggregate fair value of equity compensation awarded in 2015 was below the median of the latest year of peer group data and below the median for the average of the past three years. The Compensation Committee considered this information as well as Mr. Ayers’s advice and recommendation regarding the prospects for long-term contribution by each of the named executive officers, other than Mr. Ayers, in making these 2015 equity awards.
Compensation Committee Report
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis set forth in this Proxy Statement for the year ended December 31, 2015. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors, and the Board of Directors has approved, the inclusion of the Compensation Discussion and Analysis in this Proxy Statement.
Compensation Committee
M. Anne Szostak, Chair
Thomas Craig
William T. End
2016 Proxy Statement | 53