DEF 14A of Viavi Solutions Inc.
Filed Sep 29, 2023 · FY20230000912093-23-000046
Richard E. Belluzzo
Richard E. Belluzzo Age 69 Director Since: February 2005 Chair of the Board Since: November 2012 Experience: Mr. Belluzzo served as interim Chief Executive Officer of VIAVI from August 2015 through February 2016. Mr. Belluzzo has served as US Partner of Innogest SGR SpA, a European Venture Fund since February 2015. From April 2011 to August 2012, he served as Executive Chair of Quantum Corporation, a provider of backup, recovery and archive products and services. From 2002 to 2011, he was Chair and Chief Executive Officer of Quantum Corporation. Prior to that, Mr. Belluzzo was President and Chief Operating Officer of Microsoft Corporation. Prior to becoming its President and Chief Operating Officer, Mr. Belluzzo served as Microsoft’s Group Vice President of the Personal Services and Devices Group and was Group Vice President for the Consumer Group. Prior to Microsoft, Mr. Belluzzo was Chief Executive Officer of Silicon Graphics Inc. Before Silicon Graphics, Mr. Belluzzo held a series of increasingly senior roles at Hewlett Packard Company, culminating in his service as Executive Vice President of the Computer Products Organization. Qualifications: Mr. Belluzzo’s background and experience as the Chief Executive Officer of public companies, as well as his deep knowledge of the technology industry, senior leadership roles and service on the boards of other prominent public companies allow him to contribute significantly to the Board as its independent Chair and to its Compensation and Governance Committee.
Keith Barnes
Keith Barnes Age 72 Director Since: October 2011 Experience: Mr. Barnes served as Chief Executive Officer of Verigy Ltd, a semiconductor automatic test equipment company, from 2006 through 2010 and as Chair of the Board of Verigy from 2008 through 2011. Prior to that he was Chair and Chief Executive Officer of Electroglas, Inc. from 2003 through 2006 and Chair and Chief Executive Officer of Integrated Measurement Systems, Inc. from 1995 through 2001. Mr. Barnes is currently a member of the Board of Directors, Chair of the Compensation Committee, and member of the Governance and Nominating Committee of Knowles Corporation. Mr. Barnes is a member of the Board of Directors, Chair of the Compensation Committee and member of the Governance and Nominating committees of Rogers Corporation. Within the past five years, Mr. Barnes also served on the Board of Director of Mentor Graphics. Mr. Barnes’ extensive management experience as Chief Executive Officer of several technology companies, test and measurement industry background, and international sales and marketing knowledge, along with his experience as a board member for several public technology companies, provide important perspective and expertise as a Director and Chair of the Compensation Committee and a member of the Audit and Governance Committee.
Laura Black
Laura Black Age 62 Director Since: February 2018 Experience: Ms. Black has served as a Managing Director of Needham & Company, LLC, a full-service investment banking firm since 1999. At Needham, she has raised public and private equity capital for numerous technology companies and served as strategic financial advisor on multiple mergers and acquisitions transactions. From July 1995 to February 1999, she served as a Managing Director of Corporate Finance at Black & Company, a regional investment bank subsequently acquired by Wells Fargo Van Kasper. From July 1993 to June 1995, Ms. Black served as a Director for TRW Avionics & Surveillance Group where she evaluated acquisition candidates, managed direct investments and raised venture capital to back spin- off companies. From August 1983 to August 1992, she worked at TRW as an electrical engineer designing spread spectrum communication systems. Ms. Black is currently a member of the Board of Directors, Chair of the Nominating and Governance Committee and member of the Audit Committee of Ichor Holdings, Ltd. Ms. Black is also currently a member of the Board of Directors and Interim Chair of the Audit Committee of Sakuu Corporation. Within the last five years, Ms. Black also served as Chair on the Audit Committee of Super Micro Computer, Inc. Qualifications: Ms. Black’s investment banking background and substantial experience with mergers and acquisitions and technology- focused firms as well as her experience as a public company audit committee chair, bring important perspective and expertise to the Board and its Corporate Development Committee and assist the Board in evaluating strategic opportunities.
Tor Braham
Tor Braham Age 66 Director Since: October 2015 Experience: Mr. Braham served as Managing Director and Global Head, Technology, Mergers and Acquisitions for Deutsche Bank Securities from 2004 until 2012. From 2000 to 2004, he served as Managing Director and Co-head, West Coast U.S. Technology, Mergers and Acquisitions for Credit Suisse First Boston. Prior to that, Mr. Braham was an investment banker with UBS Securities and a lawyer at a prominent Silicon Valley law firm. Mr. Braham currently serves as a member of the Board of Directors, Chairman of the Audit Committee and a member of the Compensation Committee of A10 Networks, a networking and security company. Within the last five years, Mr. Braham also served as member of the Board of Directors and Audit Committee of Altaba, Inc, (formerly Yahoo, Inc.) and and Live Oak Capital, Inc. Mr. Braham is also Of Counsel to the law firm King, Holmes, Paterno and Soriano. Mr. Braham’s substantial mergers and acquisitions experience assist the Board in evaluating the Company’s strategic opportunities and bring important perspective and expertise to the Board and its Corporate Development Committee.
Donald Colvin
Donald Colvin Age 70 Director Since: October 2015 Experience: Mr. Colvin was the Interim Chief Financial Officer of Isola Group Ltd. from June 2015 to July 2016. Mr. Colvin previously served as Chief Financial Officer of Caesars Entertainment Corporation from November 2012 to January 2015 and before that was Executive Vice President and Chief Financial Officer of ON Semiconductor Corp. from April 2003 to October 2012. Prior to joining ON Semiconductor, he held a number of financial leadership positions, including Vice President of Finance and Chief Financial Officer of Atmel Corporation, Chief Financial Officer of European Silicon Structures as well as several financial roles at Motorola Inc. Mr. Colvin recently joined the Board of Directors of Maxeon Solar Technologies and is the board chairman, member of the Audit Committee and Chair of the Compensation Committee and member of the Nominating and Governance Committee. Mr. Colvin currently serves as a member of the board of Directors and Chair of the Audit Committee of Agilysys, Inc. and was previously a Director of Applied Micro Circuits Corp. Qualifications: Mr. Colvin’s financial expertise and service on several public company boards of Directors provide valuable perspective on the Company’s operations and opportunities and provide valuable perspective and expertise as a Director and Chair of the Audit Committee and member of the Corporate Development Committee.
Douglas Gilstrap
Douglas Gilstrap
Age 59
Age 59 Director Since: November 2022 Experience: Douglas Gilstrap is a board member and investor of various global, privately-held telecommunications and technology companies. From 2014 to 2023, Mr. Gilstrap served as Senior Industrial Advisor and Venture Partner at EQT and TCV. From 2009 to 2014, Mr Gilstrap served as global Chief Strategy Officer at Ericsson.From 2003 to 2006 he was Head of Strategy at Cable and Wireless. Prior to that, from 2000 to 2003 he served as CEO of Radianz, a global financial enterprise data network. Before that, from 1995 to 2000 he was COO of Equant Networks, a public global data network services company. Mr. Gilstrap started his career as a CPA for Arthur Andersen in 1985. Mr. Gilstrap has had chairman and board roles as well as global C-level, finance, strategy, sales and transactional background in telecommunication and technology companies. He has extensive IPO and public equity experience with companies based in France, US, Netherlands, UK and Sweden. His global technology and telecommunication experience allows him to contribute to the board from a market and strategy perspective
Masood A. Jabbar
Masood A. Jabbar Age 73 Director Since: March 2006 Experience: Mr. Jabbar served as Lead Independent Director from November 2015 to February 2016. Mr. Jabbar was Chief Executive Officer of XDS Inc. from 2004 to 2006. Prior to that, he worked at Sun Microsystems Inc. (“Sun”) from 1986 to 2003, where he served in a series of progressively responsible roles including President of the Computer Systems Division, Chief Financial Officer of Sun Microsystems Computer Corporation, and Executive Vice President of Global Sales Operations. Mr. Jabbar’s career at Sun culminated as Executive Vice President and Advisor to the Chief Executive Officer, where he was responsible for advising the CEO on critical strategic issues. Prior to joining Sun, Mr. Jabbar spent ten years in finance and accounting at Xerox Corporation, and two years at IBM Corporation. Mr. Jabbar is a member of the board of Directors, and Chair of the board of Directors of Trice Imaging, Inc. Qualifications: Mr. Jabbar brings significant mergers and acquisitions, global sales and marketing and operational expertise gained from his experience in executive roles at Sun Microsystems, Inc. In addition, Mr. Jabbar’s experiences at Xerox and IBM and as a senior executive of Sun Microsystems provide the Board with valuable accounting and financial reporting expertise particularly relevant to his service on the Company’s Audit Committee. Finally, Mr. Jabbar’s service on the boards of several other technology companies provides him with valuable perspective as a Director and Chair of the Company’s Corporate Development Committee and as a member of the Audit Committee.
Oleg Khaykin
Oleg Khaykin Age 58 Director Since: February 2016 Experience: Mr. Khaykin joined VIAVI in February 2016 as President and Chief Executive Officer. Prior to joining the Company, Mr. Khaykin was a Senior Advisor with Silver Lake Partners from February 2015 to February 2016. Before that, he was President and Chief Executive Officer of International Rectifier from 2008 until its acquisition by Infineon AG in January of 2015. He has also served as Chief Operating Officer of Amkor Technology and Vice President of Strategy & Business Development at Conexant Systems. Earlier in his career he spent eight years with The Boston Consulting Group and prior to that, he was an engineer at Motorola, Inc. Mr. Khaykin is currently a member of the board of Directors of Avnet, Inc. where Mr. Khaykin serves on the Audit Committee and chairs the Finance Committee. Within the past five years, Mr. Khaykin also served as member of the Executive Compensation Committee and Chair of the Nominating and Governance Committee at Marvell Technology Group. Mr. Khaykin’s hands on experience leading the Company provides him with day-to-day knowledge of the Company’s operations. Additionally, Mr. Khaykin’s extensive operational and strategic experience at other technology companies adds substantial value to the Board and the Company.
Joanne Solomon
Joanne Solomon Age: 57 Director Since: February 2022 Experience: Joanne Solomon served as Chief Financial Officer of Maxeon Solar Technologies Ltd. from January 2020 to March 2021. From July 2017 to September 2019, she served as Chief Financial Officer at Katerra Inc. Prior to that, she worked for sixteen years at Amkor Technology, Inc., one of the world's largest providers of semiconductor packaging and test services, in various roles including CFO. Solomon began her career at Price Waterhouse. Ms. Solomon's financial expertise and service provide valuable perspective to the Board and as a member of the Audit Committee. She brings extensive leadership experience and deep technology industry knowledge. Director Compensation Director Compensation Highlights ▪Emphasis on equity in the overall compensation mix. ▪Equity grants under a fixed-value annual grant policy with one-year vesting. ▪No performance-based equity awards. ▪Stock ownership guidelines set at three times the annual retainer to support stockholder alignment. ▪Policies prohibiting hedging, pledging and insider trading by our Directors. ▪No per-meeting fees. ▪Deferral provisions to facilitate stock ownership. ▪An annual limit on total Director compensation. Purpose Our Director compensation program is designed to attract and retain highly qualified non-employee Directors and to address the time, effort, expertise, and accountability required of active board membership. Our Compensation Committee believes that annual compensation for non- employee Directors should consist of both cash to compensate members for their services on the Board and its committees, and equity to align the interest of Directors and stockholders. Process for Determining Non- Employee Director Compensation Decisions regarding our non-employee Director compensation program are approved by the full Board based on recommendations by the Compensation Committee. In making such recommendations, the Compensation Committee takes into consideration the Director compensation practices of peer companies, the current and expected level of service of Directors, and whether such recommendations align with the interests of our stockholders. Like the compensation of our executive officers, the Compensation Committee reviews the total compensation of our non-employee Directors and each element of our Director compensation program annually. At the direction of the Compensation Committee, Compensia, the Compensation Committee’s independent consultant, annually analyzes the competitive position of the Company’s Director compensation program against the peer group used for executive compensation purposes. Changes to Non-Employee Director Compensation for FY23 In August 2022, Compensia reviewed the competitive position of the compensation for non-employee directors and did not recommend making any changes given the Company’s competitive positioning relative to its peers and its program adjustments made in the prior year. As a result, our director compensation program remained unchanged for fiscal year 2023. Director Compensation Governance Our stockholder-approved Amended and Restated 2003 Equity Incentive Plan provides that the aggregate value of all compensation paid or granted, as applicable, to any non-employee Director with respect to any fiscal year, including awards granted under the Amended 2003 Plan and cash fees paid by us to such non-employee Director, will not exceed $1,000,000 in total value. Our non-employee Directors are subject to Director stock ownership guidelines and prohibitions on hedging, pledging and insider trading. Please see our Compensation Discussion and Analysis below for more information. As of September 21, 2023, our Directors have either satisfied their stock ownership requirement or have time to satisfy the requirement. FY23 Director Compensation Program Our FY23 non-employee Director compensation is described in its entirety in the table below:
Joanne Solomon
| Compensation Element for Role | Board Compensation | | General Board Service – Cash | | | Annual Retainer | $70,000, paid in quarterly installments | | General Board Service – Equity | | | Annual RSU Grant | Grant Value of $210,000; made under the Amended and Restated 2003 Equity Incentive Plan | | Vesting Schedule | Vest on the first anniversary of the grant date | | | Number of shares determined using 30 calendar day average stock price prior to date of grant |
Joanne Solomon
| | | Chair | Member | | Committee Service Annual Retainer | Audit | $32,000 | $15,000 | | | Compensation | $24,000 | $10,000 | | | Governance/Corporate Development/ Cyber Risk | $15,000 | $7,500 | | Non-Employee Board Chair | | | | | Additional Board Retainer | $75,000 | | |
Joanne Solomon
Non-employee Directors are also reimbursed for travel and other out-of-pocket expenses in connection with their attendance at Board and committee meetings. 2023 Director Compensation Table This table below describes the compensation earned by each non-employee Director who served in FY23. Mr. Khaykin received no compensation as a Director.
Joanne Solomon
| DIRECTOR COMPENSATION |
Joanne Solomon
| Name (1) | Fees Earned or Paid in Cash ($) | Stock Awards ($) (2) | Total ($) | | Keith Barnes | 116,500 | 170,986 | 287,486 | | Richard E. Belluzzo | 170,000 | 170,986 | 340,986 | | Laura Black | 106,247 | 170,986 | 277,233 | | Tor Braham | 77,500 | 170,986 | 248,486 | | Timothy Campos(3) | 67,500 | 170,986 | 238,486 | | Donald Colvin | 109,500 | 170,986 | 280,486 | | Douglas Gilstrap | 70,720 | 169,752 | 240,472 | | Masood A. Jabbar | 92,500 | 170,986 | 263,486 | | Joanne Solomon | 90,247 | 170,986 | 261,233 |
THE BOARD OF DIRECTORS RECOMMENDS A VOTE, ON AN ADVISORY BASIS, TO HOLD FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION EVERY “ONE YEAR.”
| Proposal 5 | Amendment and Restatement of 2003 Equity Incentive Plan |
THE BOARD OF DIRECTORS RECOMMENDS A VOTE, ON AN ADVISORY BASIS, TO HOLD FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION EVERY “ONE YEAR.”
We are asking our stockholders to approve the amendment and restatement of our 2003 Equity Incentive Plan (the “2003 Plan”), as amended and restated by our Board on September 19, 2023, to, among other things, (i) increase the number of shares of common stock reserved for issuance under the 2003 Plan by 10,000,000 shares, (ii) eliminate the term of the 2003 Plan, and (iii) make certain other best practice and administrative changes to the 2003 Plan (the 2003 Plan, as amended and restated, the “Amended 2003 Plan”). The approval of the Amended 2003 Plan by our stockholders is important because the number of shares currently authorized for issuance under our 2003 Plan is not expected to be sufficient to meet our needs over the next year. If our stockholders do not approve this proposal, then the Amended 2003 Plan, including an increase in the number of shares available for issuance, the elimination of the plan term and the other amendments described in this proposal, will not become effective. Reasons to Approve the Amended 2003 Plan The Board recommends a vote in favor of the Amended 2003 Plan because the Board believes the Amended 2003 Plan is in the best interests of the Company and our stockholders for the following reasons: •Aligns non-employee director, employee, and stockholder interests. We currently provide RSUs to a broad-based group of our employee population as well as our non-employee directors. We also provide RSUs with service- and performance-based vesting conditions to our executive officers. We believe that our stock-based compensation programs, along with our stock ownership guidelines for our non-employee directors and executives, help align the interests of our non-employee directors, executives, and employees with the interests of our stockholders by giving them a sense of ownership and long-term personal involvement in and accountability for the development and financial success of the Company. If the Amended 2003 Plan is approved, we will be able to continue to use equity to align the interests of our non-employee directors, executives, and employees with the interests of our stockholders. •Attracts and retains talent. Talented, motivated, and effective executive officers and employees are essential to execute our business strategies and propelling our business forward. Stock-based compensation has been a critical component of total compensation at the Company for many years because this type of compensation enables the Company to effectively recruit and retain executive officers and other employees in a competitive market for talent while encouraging them to act and think like owners of the Company. If the Amended 2003 Plan is approved, we believe we will maintain our ability to offer competitive compensation packages to both retain our best performers and attract new talent. •Supports our pay-for-performance philosophy. A significant portion of total compensation for our executive officers is equity-based incentive compensation tied to the achievement of our stock price performance. We use incentive compensation to help reinforce desired business results and to motivate executives to make decisions to produce those results. If the Amended 2003 Plan is approved, it will continue to support our pay-for-performance philosophy. •Avoids disruption in our compensation programs and mitigates the need for significant cash compensation. We consider equity compensation to be a vital element of our employee compensation programs. We believe that, if stockholders approve the Amended 2003 Plan, the additional shares reserved under the Amended 2003 Plan will be sufficient to enable us to grant stock awards under the 2003 Plan for approximately the next three years, based on historical grant and forfeiture levels, the recent market prices of our common stock, and the anticipated use of stock awards as an incentive and retention tool. If the Amended 2003 Plan is not approved, we would need to replace components of compensation previously awarded in equity with cash or with other instruments that may not necessarily support our goals of strengthening longer-term retention and aligning employee interests with those of our stockholders. Additionally, replacing equity with cash would increase our cash compensation expense and significantly deplete cash that could be better utilized for other strategic purposes or returned to stockholders. •Balances appropriately our need to attract and retain talent with stockholder interests regarding dilution. We recognize the dilutive impact of our equity compensation programs on our stockholders, and we continuously strive to balance this concern with the competition for talent, competitive compensation practices, and the need to attract and retain talent. As described in more detail below under the heading “Dilution, Overhang and Burn Rate,” we believe the Amended 2003 Plan is not excessively dilutive to our stockholders given our overhang and that our three-year average annual gross burn rate is 1.5% and our three-year average net burn rate is 1.3%. •Protects stockholder interests and embraces sound stock-based compensation practices. As described in more detail below under the heading “The Amended 2003 Plan Reflects Governance Best Practices,” the Amended 2003 Plan includes features that are consistent with the interests of our stockholders (and their advisors) and sound corporate governance practices. Summary of Material Changes to the Amended 2003 Plan The Amended 2003 Plan is being amended to provide, among other things, for the following: •Increase Share Reserve. Increase the number of shares reserved for issuance under the 2003 Plan by 10,000,000 shares to allow VIAVI to continue to make equity grants. •Eliminate Term and Provide for Incentive Stock Option Limit. Eliminate the term of the Amended 2003 Plan and specify that incentive stock options may not be granted without stockholder approval following the ten-year anniversary of the Board’s approval of the Amended 2003 Plan. •Clarify Definition of “Cause”. Revise the definition of “Cause” to be consistent with the definition of “Cause” in the Company’s Section 16 Officer Incentive Plan. •Clarify Minimum Vesting Requirement for Non-Employee Director Grants. Revise the existing one-year minimum vesting requirements in the 2003 Plan to clarify that any awards assumed or substituted in connection with an acquisition and awards to non-employee directors that vest on the earlier of the one-year anniversary of the date of grant or the next annual meeting of stockholders (that is at least 50 weeks after the immediately preceding year’s annual meeting of stockholders) will not be subject to the minimum vesting requirement. •Remove Section 162(m) References. Remove certain references to Section 162(m) of the Internal Revenue Code of 1986, as amended and restated (the Code”) in connection with recent amendments to Section 162(m) of the Code, while retaining certain best practice performance-based award provisions. •Expand List of Performance Criteria. Expand the list of possible performance criteria that performance goals for performance-based awards may be based on. •Explicitly Prohibit Loans. Provide that no participant will be permitted to purchase shares (in full or in part) via a promissory note. •Provide for Additional Requirements on Vesting and Transferability of Awards. Clarify that (i) in no event may any stock award be transferred for consideration to a third-party financial institution, and (ii) we have the authority to reduce or extend the vesting of awards in the event a participant has a change in status from a full-time employee to a part-time employee or takes an extended leave of absence. •Clarify Beneficiary Designation. Clarify the circumstances in which a participant may designate a beneficiary.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE, ON AN ADVISORY BASIS, TO HOLD FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION EVERY “ONE YEAR.”
•Clarify Vesting of Performance-based Awards in the Event of a Corporate Transaction. Clarify that performance-based awards will vest at target if not assumed. •Provide that Awards are Subject to Compliance Requirements. Provide that each participant must comply with applicable law, the Company’s Code of Business Conduct, and the Company’s corporate policies, as applicable, including but not limited to the Company’s Clawback Policy, and such compliance is necessary to earn an award under the Amended 2003 Plan. •Provide the Plan is Subject to Delaware Law. Provide that the Amended 2003 Plan is to be construed in accordance with and governed by the internal laws of the State of Delaware. Stockholder approval of the Amended 2003 Plan will also enable the Company to grant, in accordance with a French subplan, RSUs to its French employees that will qualify for specific employer/employee tax and social treatment under French Finance Law for 2018 no. 2017-1837 of December 30, 2017 as amended, should the Company in its discretion decide to grant such awards to employees in France who are eligible to participate in the Amended 2003 Plan. The Amended 2003 Plan Reflects Governance Best Practices Our Amended 2003 Plan include additional provisions that are designed to protect our stockholders’ interests and to reflect corporate governance best practices, including: •No Repricing or Buyout of Underwater Options or Stock Appreciation Rights. Prohibits stock option and stock appreciation right (“SAR”) repricing or other exchanges for cash or equity compensation without stockholder consent. •No Discounted Options and Stock Appreciation Rights. Requires stock options and SARs to be granted with an exercise price equal to at least the fair market value of our common stock on the date the award is granted. •Minimum Vesting Period. Requires awards to have a minimum vesting of at least one year from the date of grant, subject to certain limited exceptions. •No Evergreen Provision. Avoids the use of “evergreen” share reserve increases and instead requires stockholder approval to increase the share reserve. •No Liberal Share Counting. Prohibits the reuse of shares withheld or delivered to satisfy the exercise price of an option or SAR, or to satisfy tax withholding requirements with respect to awards. •No Single Trigger and Specific Disclosure of Equity Award Vesting upon a Corporate Transaction. Awards do not accelerate upon a corporate transaction unless the acquiring company does not assume or replace the awards, with performance-based equity awards vesting at target. •Prohibition on Payment of Dividends and Dividend Equivalents on Unvested Awards. Prohibits the payment or settlement of dividends or dividend equivalents with respect to any award until the underlying shares or units vest. •Limit on non-employee director awards. The aggregate value of all compensation paid or granted, as applicable, to any individual for service as a non-employee director of our Board with respect to any fiscal year, including awards granted under the 2003 Plan and cash fees paid by us to such non-employee director, will not exceed $1,000,000 in total value. •No Automatic Grants. The Amended 2003 Plan does not provide for automatic grants to any participant. •No Tax Gross-ups. The Amended 2003 Plan does not provide for any tax gross-ups. •Maximum Term of Options/SARs. The maximum term for options and SARs issued under the 2003 Plan is 8 years. •No Transferability. Awards generally may not be transferred, except by will or the laws of descent and distribution, unless approved by the 2003 Plan administrator, and in no event may any stock award be transferred for consideration to a third-party financial institution. •No Reload Grants. Reload grants, or the granting of stock options conditioned upon delivery of shares to satisfy the exercise price and/or tax withholding obligation under another employee stock option are not permitted. Dilution, Overhang and Burn Rate While the use of long-term incentives in the form of equity awards is an important part of our compensation program, we recognize that stock awards dilute existing stockholders and are mindful of our responsibility to our stockholders to exercise judgment in the granting of equity awards. Our Compensation Committee regularly reviews our long-term incentive compensation program to ensure that we balance our employee compensation objectives with our stockholders’ interest in limiting dilution from stock awards. The following table sets forth information regarding (i) outstanding grants as of August 31, 2023 under the 2003 Plan and (ii) an outstanding inducement stock option which was granted to our CEO on February 15, 2016, in connection with his appointment as CEO, which remains outstanding. As of August 31, 2023, we had 223,126,190 shares of common stock issued and outstanding. The market value of one share of our common stock on August 31, 2023, as determined based on the closing price per share of our common stock as reported on the Nasdaq was $10.45.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE, ON AN ADVISORY BASIS, TO HOLD FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION EVERY “ONE YEAR.”
| Equity Plan | Stock Options (# of shares) | Weighted-Average Exercise Price Per Share ($) | Weighted-Average Remaining Contractual Term (In Years) | Full Value Awards (# of shares)(1) | Shares Available for Future Grant (# of shares) | | 2003 Plan | - | - | - | 9,155,667 | 3,829,361 | | CEO Inducement Option(2) | 1,180,257 | $5.95 | 0.42 | - | - | | Total | 1,180,257 | $5.95 | 0.42 | 9,155,667 | 3,829,361 |
THE BOARD OF DIRECTORS RECOMMENDS A VOTE, ON AN ADVISORY BASIS, TO HOLD FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION EVERY “ONE YEAR.”
(1)Service-vesting RSUs and performance-vesting RSUs are referred to as “Full Value Awards.” (2)On February 15, 2016, in connection with his appointment as CEO, Mr. Khaykin was granted compensatory options, which were not made pursuant to any stockholder-approved equity plan, as an inducement for Mr. Khaykin to join the Company. The Compensation Committee also regularly reviews our historical equity award granting practices, including our share usage rate (commonly referred to as “burn rate”) and equity overhang activity. The following table provides detailed information regarding our burn rate and equity overhang activity (based on total potential award shares) under the 2003 Plan for the last three fiscal years. The effects of our stock repurchase program are included in these calculations. During the last three fiscal years, no awards were issued under any equity plan other than the 2003 Plan and our 1998 Employee Stock Purchase Plan and no inducement awards were made outside of a stockholder-approved equity plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE, ON AN ADVISORY BASIS, TO HOLD FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION EVERY “ONE YEAR.”
(1)Gross Burn Rate is calculated as (a) the number of new RSU stock awards granted under the 2003 Plan plus the number of PSU awards earned in the fiscal year, divided by (b) the weighted average common shares outstanding of the Company at the end of the fiscal year. (2)Net Burn Rate is calculated as (a) the number of new RSU stock awards granted under the 2003 Plan plus the number of PSU awards earned in fiscal year, net of stock awards cancelled and forfeited under the 2003 Plan, divided by (b) the weighted average common shares outstanding of the Company at the end of the fiscal year. (3)Equity Overhang is calculated as (a) the number of shares subject to outstanding stock awards plus the number of shares available for grant under the 2003 Plan, divided by (b) the number of shares subject to outstanding stock awards, plus the number of shares available for grant under the 2003 Plan, plus the weighted average common shares outstanding of the Company at the end of the fiscal year. The table below shows the number of options and full value awards granted under the 2003 Plan in each of the last three years as well as the number of performance-based awards that were earned each year.
Prohibition of Repricing without Stockholder Approval
Prohibition of Repricing without Stockholder Approval The Amended 2003 Plan expressly provides that, without the approval of the Company’s stockholders, the Company may not reduce the exercise price of any option or SAR granted under the Amended 2003 Plan or cancel an outstanding option or SAR having an exercise price that exceeds the fair market value of the underlying shares in exchange for cash, another option, SAR, restricted stock, RSUs or other award, unless the exchange occurs in connection with a corporate transaction, as described below.
Terms and Conditions of Awards
Terms and Conditions of Awards The Amended 2003 Plan provides for the grant of awards in the form of stock options, SARs, restricted stock, RSUs, performance shares, performance units, and dividend equivalent rights. Stock options granted under the Amended 2003 Plan may be either incentive stock options complying with Section 422 of the Code or nonqualified stock options. Incentive stock options may be granted only to employees. Each award must be evidenced by an award agreement designating the type of award granted. Stock options must be designated as either incentive stock options or nonqualified stock options. However, to the extent that the aggregate fair market value of shares of common stock subject to options designated as incentive stock options which become exercisable by an employee for the first time during any calendar year exceeds $100,000, such excess options are treated as nonqualified stock options. The term of any award granted under the Amended 2003 Plan may not exceed eight years, provided that the term of an incentive stock option granted to an employee who owns stock representing more than 10% of the combined voting power of the Company or any parent or subsidiary of the Company may not exceed five years. Awards may be granted with such vesting conditions, including satisfaction of performance criteria, as are determined by the 2003 Plan Administrator. The Amended 2003 Plan establishes the following business criteria upon which the 2003 Plan Administrator may base such performance goals for purposes of qualifying the award as performance-based: (1) increase in share price, (2) earnings per share, (3) total stockholder return, (4) operating margin, (5) gross margin, (6) return on equity, (7) return on assets, (8) return on investment and/or return on invested capital, (9) operating income, (10) net income, (11) net operating income, (12) pre-tax profit, (13) cash flow, (14) free cash flow; (15) revenue, (16) net revenue, (17) expenses, (18) earnings before income taxes, interest, depreciation and/or amortization, (19) economic value added, (20) market share, (21) personal management objectives, (22) debt and/or debt-to-equity; (23) bookings; (24) sales; (25) annual recurring revenue; (26) liquidity; (27) intellectual property (e.g., patents)/product development; (28) mergers, acquisitions, divestitures or other strategic transactions; (29) individual business and/or management objectives; (30) cost per order dollar; (31) design or design wins; (32) operational metrics, key performance indicators or strategic goals; (33) environmental, social and governance goals; and (34) other measures of performance selected by the 2003 Plan Administrator. As determined by the 2003 Plan Administrator, any criteria used may be measured, as applicable, (i) in absolute terms, (ii) in relative terms, including, but not limited, passage of time (such as year over year growth) and/or against another company, a comparison group of companies or index designated by the 2003 Plan Administrator, (iii) on a per-share basis, (iv) against the performance of the Company as a whole or one or more identifiable business units, divisions, products, lines of business or segments of the Company, (v) on a pre-tax or after-tax basis, and/or (vi) on a GAAP or non-GAAP basis. The Amended 2003 Plan also provides that the 2003 Plan Administrator may provide at the time of grant for the adjustment of the performance goals to include or exclude any objectively determinable components of any performance measure.
Exercise Price of Options and SARs
Exercise Price of Options and SARs Stock options and SARs must have an exercise price per share that is not less than 100% of the fair market value of a share of common stock on the date the option is granted, except that in the case of incentive stock options granted to an employee who owns stock representing more than 10% of the combined voting power of the Company or any parent or subsidiary of the Company such exercise price may not be less than 110% of the fair market value of a share of common stock on the date the option is granted. The exercise price is generally payable in cash, by check, through the surrender of shares of common stock or, in the case of options, by means of a broker-assisted sale and remittance procedure.
Minimum Vesting
Minimum Vesting All awards granted under the Amended 2003 Plan after the plan becomes effective will have a minimum vesting period of one-year measured from the date of grant; provided, however, that up to 5% of the shares available for future distribution under the Amended 2003 Plan on the date the plan becomes effective may be granted without such minimum vesting requirement. Further, this minimum vesting requirement will not limit (i) the Company’s ability to grant awards that contain rights to accelerated vesting on a termination of employment or service (or to otherwise accelerate vesting), or (ii) any rights to accelerated vesting in connection with a change of control. In addition, any awards assumed or substituted in connection with an acquisition and awards to non-employee directors that vest on the earlier of the one-year anniversary of the date of grant or the next annual meeting of stockholders (which is at least 50 weeks after the immediately preceding year’s annual meeting of stockholders) will not be subject to this minimum vesting requirement.
Termination of Service
Termination of Service A participant in the Amended 2003 Plan whose service with the Company terminates may exercise an award only to the extent and only within the time period provided in the award agreement. Any award designated as an incentive stock option not exercised within the time permitted by Section 422 of the Code following the participant’s termination of employment will be treated as a nonqualified stock option.
Corporate Transactions
Corporate Transactions Outstanding awards will terminate upon the consummation of a corporate transaction (as described below) except to the extent that they are continued by the Company or assumed by the successor entity or its parent. Except as otherwise provided by the award agreement, the vesting of an outstanding award will be accelerated in full if it is not continued by the Company or assumed or replaced by the successor entity or its parent in connection with a corporate transaction (with awards that vest based on performance-criteria, vesting at target). The Amended 2003 Plan provides that a corporate transaction includes (i) the sale of all or substantially all of the Company’s assets, (ii) the complete dissolution or liquidation of the Company, (iii) a merger or consolidation in which the Company is not the surviving entity, (iv) any reverse merger in which the Company is the surviving entity but in which securities possessing more than 40% of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger, or (v) the acquisition in a single or series of related transactions by any person or related group of persons of beneficial ownership of securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities.
Compliance with Applicable Law and Company Policies; Compensation Recovery
Compliance with Applicable Law and Company Policies; Compensation Recovery The Amended 2003 Plan provides that each participant must comply with applicable law, the Company’s Code of Business Conduct, and the Company’s corporate policies, as applicable, including without limitation the Company’s Clawback Policy, and that (i) compliance with applicable law, the Company’s Code of Business Conduct, and the Company’s corporate policies, as applicable, will be a pre-condition to earning, or vesting in, any award and (ii) any awards which are subject to the Company’s Clawback Policy will not be earned or vested, even if already granted, paid or settled, until the Company’s Clawback Policy ceases to apply to such awards and any other vesting conditions applicable to such awards are satisfied.
Amendment, Suspension or Termination of the Amended 2003 Plan
Amendment, Suspension or Termination of the Amended 2003 Plan The Board may at any time amend, suspend or terminate the Amended 2003 Plan. The plan, as amended and restated, shall become effective upon its approval by the stockholders of the Company. No incentive stock options may be granted after the ten-year anniversary of the date of approval by the Board. Future incentive stock options may be granted pursuant to Board and stockholder approval after such date. To the extent necessary to comply with applicable law and listing requirements, the Company will obtain stockholder approval of any amendment to the Amended 2003 Plan. The Board may unilaterally amend the Amended 2003 Plan or any award agreement, retroactively or otherwise, to conform the Amended 2003 Plan or award agreement to any present or future law, regulation or rule applicable to the Amended 2003 Plan, including Section 409A of the Code. Section 409A establishes certain requirements applicable to nonqualified deferred compensation and imposes tax penalties on such deferred compensation that does not satisfy these requirements. Certain awards granted under the Amended 2003 Plan may be deemed to constitute deferred compensation and will be required to comply with the requirements of Section 409A. Summary of Federal Income Tax Consequences THE FOLLOWING IS ONLY A SUMMARY OF THE EFFECT OF THE U.S. FEDERAL INCOME TAXATION UPON PARTICIPANTS AND THE COMPANY UNDER THE AMENDED 2003 PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND IT DOES NOT DISCUSS THE TAX CONSEQUENCES OF THE EMPLOYEE’S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE, OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE. INCENTIVE STOCK OPTIONS. An optionee who is granted an incentive stock option does not recognize taxable income at the time the option is granted or upon its exercise, although the exercise may subject the optionee to the alternative minimum tax. Upon an optionee’s sale of the shares (assuming that the sale occurs at least two years after grant of the option and at least one year after exercise of the option), any gain will be taxed to the optionee as long-term capital gain. If the optionee disposes of the shares prior to the expiration of the above holding periods, then the optionee will recognize ordinary income in an amount generally measured as the difference between the exercise price and the lower of the fair market value of the shares at the exercise date or the sale price of the shares. The difference between the amount treated as ordinary income from such premature sale and the amount realized will be characterized as capital gain or loss. NONSTATUTORY STOCK OPTIONS. An optionee does not recognize any taxable income at the time he or she is granted a non-statutory stock option. Upon exercise, the optionee recognizes taxable income generally measured by the excess of the then fair market value of the shares over the exercise price. Upon a disposition of such shares by the optionee, any difference between the sale price and the optionee’s exercise price, to the extent not recognized as taxable income as provided above, is treated as long-term or short-term capital gain or loss, depending on the holding period. RESTRICTED STOCK. If at the time of purchase, restricted stock is subject to a “substantial risk of forfeiture” within the meaning of Section 83 of the Code, the purchaser will not recognize ordinary income at the time of purchase. Instead, the purchaser will recognize ordinary income on the dates when a stock ceases to be subject to a substantial risk of forfeiture. At such times, the purchaser will recognize ordinary income measured as the difference between the purchase price and the fair market value of the stock on the date the stock is no longer subject to a substantial risk of forfeiture. The purchaser may accelerate to the date of purchase his or her recognition of ordinary income, if any, and the beginning of any capital gain holding period by timely filing an election pursuant to Section 83(b) of the Code. In such event, the ordinary income recognized, if any, is measured as the difference between the purchase price and the fair market value of the stock on the date of purchase, and the capital gain holding period commences on such date. The ordinary income recognized by a purchaser who is an employee will be subject to tax withholding by the Company. STOCK APPRECIATION RIGHTS. No income will be recognized by a recipient in connection with the grant of a SAR. When the SAR is exercised, the recipient will generally be required to include as taxable ordinary income in the year of exercise an amount equal to the sum of the amount of cash received and the fair market value of any common stock received upon the exercise. RESTRICTED STOCK UNITS, PERFORMANCE SHARES AND PERFORMANCE UNITS. A participant generally will recognize no income upon the receipt of a RSU, performance share or performance unit award. Upon the settlement of such awards, participants normally will recognize ordinary income in the year of settlement in an amount equal to the cash received and the fair market value of any unrestricted shares of stock received. If the participant is an employee, such ordinary income generally is subject to withholding of federal income and employment taxes. If the participant receives performance shares, the participant generally will be taxed in the same manner as described above under “Restricted Stock.” Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value of unrestricted shares on the date they were issued, will be taxed as a long- or short-term capital gain or loss, depending on whether the shares have been held for more than one year since they were acquired by the participant. DIVIDENDS AND DIVIDEND EQUIVALENTS. Because RSUs and performance unit awards are not actual, issued shares of our common stock, recipients do not have the rights of a stockholder, but these awards may provide for the payment of dividend equivalents. Recipients of stock-based awards that earn dividends or dividend equivalents will recognize taxable ordinary income on any dividend payments received with respect to such awards. If the participant is an employee, such income is subject to withholding of federal income and employment taxes. COMPANY TAX DEDUCTION. The Company generally will be entitled to a tax deduction in connection with an award under the Amended 2003 Plan in an amount equal to the ordinary income realized by a participant and at the time the participant recognizes such income (for example, the vesting of a restricted stock unit). Special rules limit the deductibility of compensation paid to certain executive officers. Section 162(m) of the Code places a limit of $1.0 million dollars on the amount of compensation that we may deduct as a business expense in any year with respect to certain of our most highly paid executive officers. SECTION 409A. Section 409A of the Code provides certain requirements for non-qualified deferred compensation arrangements with respect to an individual’s deferral and distribution elections and permissible distribution events. Awards granted under the Amended 2003 Plan with a deferral feature will be subject to the requirements of Section 409A of the Code. If an award is subject to and fails to satisfy the requirements of Section 409A of the Code, the recipient of that award may recognize ordinary income on the amounts deferred under the award, to the extent vested, which may be prior to when the compensation is actually or constructively received. Also, if an award that is subject to Section 409A of the Code fails to comply with Section 409A’s provisions, Section 409A imposes an additional 20% federal income tax on compensation recognized as ordinary income, as well as interest on such deferred compensation. New Plan Benefits
Amendment, Suspension or Termination of the Amended 2003 Plan
(1)Mr. Derksen will cease to serve as Executive Vice President and Chief Financial Officer, effective September 30, 2023 (2)Includes Pam Avent, who was appointed Interim Chief Financial Officer, effective October 1, 2023 and excludes Mr. Derksen. (3)The number of shares subject to each non-employee director’s RSU award will not be determinable until the grant date under the terms of the Amended 2003 Plan. Assuming each of the eight non-employee director nominees are elected at the 2023 annual stockholder meeting, amount reflects the standard annual equity award of $210,000 granted to each non-employee director under the terms of the Amended 2003 Plan. History of Grants under the 2003 Plan The table below shows, as to the listed individuals and specified groups, the number of shares of common stock subject to an equity award grant (even if not currently outstanding) under the 2003 Plan from the inception of the 2003 Plan through July 1, 2023.
THE BOARD RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 2003 EQUITY INCENTIVE PLAN
THE BOARD RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 2003 EQUITY INCENTIVE PLAN
THE BOARD RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 2003 EQUITY INCENTIVE PLAN
| Proposal 6 | Amendment and Restatement of 1998 Employee Stock Purchase Plan |
THE BOARD RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 2003 EQUITY INCENTIVE PLAN
We are asking our stockholders to approve the amendment and restatement of our 1998 Employee Stock Purchase Plan (the “ESPP”), as amended and restated by our Board on September 19, 2023, to, among other things, (i) increase the number of shares of common stock reserved for issuance under the ESPP by 6,000,000 shares, (ii) eliminate the term of the ESPP, and (iii) make certain other best practice and administrative changes to the ESPP (the ESPP, as amended and restated, the “Amended ESPP”). The approval of the Amended ESPP by our stockholders is important because the number of shares currently authorized for issuance under our ESPP is not expected to be sufficient to meet our needs over the next year. If our stockholders do not approve this proposal, then the Amended ESPP, including an increase in the number of shares available for issuance and the other amendments described in this proposal, will not become effective. Reasons to Approve the Amended ESPP The ESPP is designed to provide our eligible employees and those of our designated affiliates with the opportunity to purchase shares of our common stock at a discount on periodic purchase dates through accumulated payroll deductions. The ESPP allows U.S.-based employees to make such purchases in a manner intended to result in favorable tax treatment under Section 423 of Internal Revenue Code of 1986, as amended and restated (“Section 423 of the Code”). We may also approve offerings under the ESPP that are not intended to qualify for such favorable tax treatment under Section 423 of the Code in which eligible employees who are not subject to U.S. tax laws may participate. As of August 31, 2023, an aggregate of 1,218,322 shares of common stock remained available for future issuance under the ESPP. We believe that, if stockholders approve the Amended ESPP, the additional shares reserved under the Amended ESPP will be sufficient to enable us to grant purchase rights under the 2003 Plan for approximately the next six years assuming a stable stock price and consistent participation rate in the Amended ESPP. Our Board of Directors believes the proposed share increase is in the best interests of VIAVI and its stockholders, as we believe our success is largely due to our highly talented employee base and that our future success depends on our ability to attract and retain high caliber personnel. We believe that the ESPP is an important employee retention and recruitment vehicle, as it closely aligns the interests of our employees with those of our stockholders by encouraging employees to invest in our common stock, and helps our employees share in the Company’s success through the appreciation in value of such purchased stock. The Board also believes that amending the ESPP to remove the plan term will enable us to continue offering benefits to employees under the ESPP without regard to a term limit. In addition, the Board believes that making the amendments summarized below under Material Changes to the ESPP will further align the ESPP with corporate governance best practices and applicable law. Material Changes to the ESPP The Amended ESPP is being amended to provide for the following: •Increase Share Reserve. Increase the number of shares reserved for issuance by 6,000,000 shares. •Remove Plan Term. Eliminate the term of the ESPP. •Rename Plan. Rename the ESPP to be the “Viavi Solutions Inc. Employee Stock Purchase Plan.” •Clarify Terms of Non-423 Component. Clarify the terms that purchase rights, which do not meet the requirements of an employee stock purchase plan under Section 423 of the Code, may be granted pursuant to. •Update Definition of Eligible Participants. Clarify that employees must (i) be a common law employee of the Company or an affiliate and (ii) be regularly engaged for a period of 20 hours or more per week and more than 5 months per calendar year to participate in the Amended ESPP. •Clarify Eligible Compensation. Clarify that eligible compensation for purposes of the Amended ESPP means an employee’s regular and recurring straight time gross earnings, plus payments for overtime, shift premium, incentive compensation, incentive payments, bonuses, sales commission, and other similar incentive compensation but excludes other types of compensation. •Clarify Impact of Transfers of Employment on Eligibility. Clarify that the transfer of employment from one participating company to another will not constitute a termination of employment for purposes of the Amended ESPP but may result in the participant participating in a different offering under the Amended ESPP, and certain terms and conditions may continue to apply. •Provide that Death or Disability Will Result in Ineligibility. Provide that if a participant ceases to be an employee during any purchase period for any reason, including but not limited to, death or permanent disability, then the participant’s outstanding purchase right under the plan will immediately terminate and all contributions that have not been applied to purchases will be refunded without interest. •Clarify When a Leave of Absence will Result in Ineligibility. Clarify that, subject to applicable law, a participant will not cease to be an employee for purposes of the Amended ESPP in the case of sick leave, military leave, or any other leave of absence approved by the Company or an affiliate; provided that such leave is for a period of not more than 90 days or reemployment upon the expiration of such leave is guaranteed by contract or statute. •Provide the Plan is Subject to Delaware Law. Provide that the Amended ESPP is to be construed in accordance with and governed by the internal laws of the State of Delaware. The Amended ESPP Reflects Governance Best Practices The Amended ESPP includes provisions that protect our stockholders’ interests and reflect corporate governance best practices, including: •Purchase price is at least 85% of fair market value. •Offering periods do not exceed 27 months. •The number of shares allocated to the Amended ESPP is less than 10% of our outstanding shares overall. Summary of the Amended ESPP The material terms and provisions of the Amended ESPP are summarized below. This summary, however, does not purport to be a complete description of the Amended ESPP. The following summary of the Amended ESPP is qualified in its entirety by reference to the complete text of the Amended ESPP, a copy of which is included as Appendix C to this Proxy Statement.
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
In response to the 2023 say-on-pay vote, in which 92% of votes cast (for or against), voted in favor of our executive compensation program, we followed through with our commitments to our stockholders to realign our compensation with best practices, and made the following enhancements to our executive compensation program: ▪We did not grant any one-time equity awards to our executive officers in FY23 outside of our ongoing annual long-term incentive compensation program, and we will not grant off cycle equity awards for at least three years from September 29, 2022, except in connection with new hires and promotions. 1 Appendix A includes a reconciliation of non-GAAP measures to the most directly comparable GAAP measures.
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
▪We did not grant any performance-based equity awards, which use an absolute stock price metric in FY23 and do not plan to do so in the future. ▪We have incorporated ESG goals into our fiscal year 2024 annual cash incentive plan. ▪We continue to consider incorporating operating metrics into our annual long-term incentive plan when evaluating the design of our plan. We invite you to review our CD&A, for more detailed information. We appreciate your ongoing support and seek your feedback, whether virtually or through written correspondence, on our compensation design and path forward. Sincerely, Chair, Compensation Committee of the Board of Directors Compensation Discussion and Analysis This Compensation Discussion and Analysis (“CD&A”) provides information on the goals and objectives of our executive compensation program, including VIAVI’s compensation philosophy, which focuses on rewarding our executive officers for their central role in our growth and long-term performance. While the principles underlying this philosophy extend to all levels of the organization, this CD&A primarily covers the compensation provided to our named executive officers (“NEOs”). For FY23, our NEOs consisted of the five executive officers named below and in the executive compensation tables of this Proxy Statement. We use the term “Compensation Committee” in the CD&A and the executive compensation tables to refer to the Compensation Committee of VIAVI’s Board of Directors.
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
| Incentive Awards | Performance Highlights | Commentary | | FY23 Target Annual Cash Incentive Award Opportunities (as a percentage of base salary) | Zero payouts to executives for both the H1 and H2 bonuses. H1 Aggregate Achievement Against Financial Goals: Corporate: 0%; NSE: 0%; OSP: 11%(1); NSE Sales: 0% H2 Aggregate Achievement Against Financial Goals: Corporate: 0%; NSE: 0%; OSP: 0%; NSE Sales: 28%(2) (1)(2) Mr. Scrivanich and Mr. Staley each declined FY23 cash incentive award payment | Payouts were subject to the achievement of a threshold performance level. Financial goals were weighted at 100% and capped at 150% payout, except in the case of Mr. Staley’s NSE sales booking goal, which is capped at 250% payout with respect to 40% of his target annual cash incentive award opportunity. | | Market-based Stock Units (“MSUs”)(1) | ▪FY20 MSUs: 108.3%of 3rd tranche earned, based on our 58.3 percentile TSR ranking ▪FY21 MSUs: 145% of 2nd tranche earned, based on our 73 percentile TSR ranking ▪FY22 MSUs: 146% of 1st tranche earned, based on our 73.4 percentile TSR ranking ▪FY21 CFO New Hire MSUs: 139.3% of 2nd tranche earned, based on our 70.7 percentile TSR ranking(2) (1)Earned based on total shareholder return through 9/15/22 (2)Mr. Derksen received MSUs with four vesting tranches in connection with his new hire awards, which vest over four years. | Earned based on our total stockholder return (“TSR”) relative to the performance of companies in the Nasdaq Telecommunications Index (the “Nasdaq Telecom Index”) measured over one-year, two-year and three-year performance periods. Above median (55th percentile) performance required for a target payout. | | FY21 Retention Awards: Performance-based Stock Units (“PSUs”) | ▪0% of PSUs have vested | There have been no shares awarded to any of our NEOs under the PSUs. The PSUs, which vest based on share price, have not vested as the share price target of $20 has not been achieved. In FY23, our Board determined that our CEO achieved his Executive Leadership Development and Succession Plan goals. However, our CEO’s PSUs, which are associated with such goals remain subject to his continuing to provide services through February 2025 at which time such PSUs will vest in full. |
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
2022 Say-on-Pay Advisory Vote - Stockholder Outreach Every year, VIAVI provides our stockholders with the opportunity to vote to approve the compensation of our NEOs on an advisory basis, also known as a "say-on-pay" vote. At our 2022 Annual Meeting of Stockholders, approximately 92% of votes cast (for or against) were voted in favor of our executive compensation program, which was a significant improvement from 2021, when 56% of votes cast were voted in favor of our executive compensation program. Following the 2022 say-on-pay vote, we followed through with the commitments that we made to our stockholders to realign our compensation with best practices, and made the following enhancements to our executive compensation program: •We did not grant any one-time equity awards to our executive officers in FY23 outside of our ongoing annual long-term incentive compensation program, and we will not grant off cycle equity awards for at least three years from September 29, 2022, except in connection with new hires and promotions. •We did not grant any performance-based equity awards, which use an absolute stock price metric in FY23 and do not plan to do so in the future. •We have incorporated ESG goals into our fiscal year 2024 annual cash incentive plan. •We continue to consider incorporating operating metrics into our annual long-term incentive plan when evaluating the design of our plan. CEO Compensation and Performance Alignment The Compensation Committee takes seriously its responsibility to maintain appropriate pay for performance alignment with an emphasis on sustainable stockholder value creation. We set rigorous short- and long-term incentive goals and use equity in long-term incentives to ensure executive compensation is aligned with stockholder value creation, as illustrated in the chart below, which shows the relationship between our CEO’s target compensation and realizable pay over the last two fiscal years. The realizable pay of our CEO’s short-term incentive compensation is tied to the achievement of financial goals, while the realizable pay of his long-term incentive compensation is contingent upon the value of our stock price on both an absolute basis and relative to other companies in the Nasdaq Telecom Index. Our stock price decreased by 13.4% at the end of FY23 and compared to the end of FY22. At the end of FY23, the realizable value of our CEO’s target total direct compensation awarded in FY23 was only 44% of target.
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
| ($) | FY22 Target | FY22 Realizable | FY23 Target | FY23 Realizable | | Base Salary | $849,038 | $849,038 | $895,192 | $895,192 | | Non-Equity Incentive Plan Compensation | $1,018,846 | $938,369 | $1,118,990 | — | | RSUs | $3,460,542 | $2,574,821 | $3,713,800 | 2,891,915 | | MSUs | $4,087,467 | $3,204,422 | $4,364,672 | 627,545 |
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
“Target Pay” for each fiscal year is the sum of (a) the salary rate for that year, pro-rated accordingly based on the effective date of any increase, (b) the target annual cash incentive award opportunity, and (c) the grant date fair value of long-term incentive compensation awards. “Realizable Pay” is the sum of (a) the salary earned for the applicable year; (b) the annual incentive award earned for the applicable year; (c) the value of RSUs granted in FY22 or FY23, as applicable, in FY23, which for vested RSUs is equal to the stock price on the applicable vesting dates multiplied by the number of vested RSUs, and for unvested RSUs is valued based on our closing stock price of $11.33 on June 30, 2023, the last trading day of FY23, multiplied by the number of unvested RSUs as of the end of FY23; and (d) the value of MSUs granted in FY22 or FY23, as applicable, in FY23, which for: (i) unvested MSUs are valued based on the number of shares that would have been earned based on actual results through the end of FY23, multiplied by our closing stock price on June 30, 2023, and (ii) vested MSUs are valued based on the number of shares earned multiplied by our closing stock price on June 30, 2023 (FY23), or vesting date stock price (FY22). Long-Term Retention PSUs and RSUs In FY21, we experienced retention issues related to the highly competitive talent market within which we compete, as a number of the core members of our executive team were recruited to work for other companies, which ultimately culminated in the departure of our then Chief Financial Officer. Such concerns led the Compensation Committee in February 2021 to approve an Executive Retention Plan, pursuant to which key executive officers, including our CEO, received long-term equity awards, 50% of which were performance-based and 50% which were time based. Our CEO received 50% of his performance-based awards in the form of performance-based stock units that vest based on the achievement of share-price targets (“Share Price PSUs”) and the other 50% in the form of performance-based stock units that vest based on Executive Leadership Development and Succession plan goals specific to him (“Executive Leadership PSUs”). 100% of the performance-based awards of the other key executive officers were in the form of Share Price PSUs.
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
There have been no shares delivered to our CEO or to any of our NEOs under any of the Share Price PSU or RSU awards as the share price goal of $20 has not been achieved and the RSUs remain subject to a four-year “cliff” vesting requirement. In FY23, our Board determined that our CEO achieved his Executive Leadership PSU goal, which included developing CEO success profile, which was approved by the Board, identifying internal candidates and benchmarking external candidates against the success profiles, making a detailed presentation to the Board of Directors covering the outcome of an internal and external assessment, and preparing individual development plans for internal candidates. However, our CEO’s Executive Leadership PSUs remain subject to his continuing to provide services through February 2025 at which time such PSUs will vest in full.
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
(1)Reflects aggregate grant date fair value of PSUs and RSUs. (2)Reflects realizable value of PSUs and RSUs, calculated by multiplying the number of outstanding RSUs held by our CEO by our closing stock price of $11.33 on June 30, 2023. The Share Price PSUs had a realizable value of $0 as of July 1, 2023 given that the stock price target has yet to be achieved. Compensation Philosophy Our executive compensation program is based on the following objectives:
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
| | | | What We Do •Compensation Committee is comprised 100% of independent Directors. •Independent compensation consultant retained by the Compensation Committee. •Balance short- and long-term incentives, cash and equity and fixed and variable pay elements. •Performance-based equity awards comprising approximately 50% of the overall equity allocation to executive officers. •Require one-year minimum vesting for equity awards, subject to certain limited exceptions. •Maintain a clawback policy that applies to both cash incentives and equity awards. •Assess and mitigate compensation risk. •Solicit an annual advisory vote on named executive officer compensation. •Maintain stock ownership guidelines. | What We Don’t Do •No employment agreements that provide for fixed terms or automatic compensation increases or equity awards. •No repricing or repurchasing of underwater stock options without stockholder approval. •No dividends or dividend equivalents on unearned awards. •No pledging or hedging of VIAVI securities. •No “single trigger” change in control acceleration of vesting for equity awards. •No excessive perquisites. •No excessive cash severance payments or benefits. •No executive pension plans •No supplemental executive retirement plans. •No "golden parachute" tax gross-ups. |
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
| Annual Cash Incentive Awards | | | Purpose: | Align NEO performance with near-term financial objectives goals. | | Characteristics: | Cash incentive payments can be earned by our NEOs only if we achieve a significant level of our financial performance goals, which are aligned to our long-term strategic plan. |
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
| Annual MSUs | | | Purpose: | Align interests of NEOs and stockholders through incentivizing long-term stock price growth relative to Nasdaq Telecom Index and encouraging retention; manage dilution. | | Characteristics: | Annual MSUs vest based on our TSR relative to the performance of the companies in the Nasdaq Telecom Index, with three overlapping performance periods of one, two, and three years. |
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
| Annual RSUs | | | Purpose: | Align interests of NEOs and stockholders through incentivizing long-term stock price growth on an absolute basis and encouraging retention; manage dilution. | | Characteristics: | Annual RSUs vest annually over a three-year period, subject to continued service with us, and become more valuable as our stock price increases, which benefits all stockholders. |
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
| ANNUAL CASH INCENTIVES |
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
A target annual cash incentive award opportunity is the amount of cash incentive compensation that a NEO could earn based on achievement of the pre- established performance goals under the Executive VPP. Targets are expressed as a percentage of the NEO’s earned base salary. In reviewing target award opportunities, the Compensation Committee takes into consideration each NEO’s role and responsibilities, our financial performance projections, the budget for the coming year, pay at comparable companies, historical compensation levels and the resulting total target cash compensation that can be earned given the individual’s earned base salary and related target incentive award opportunity. The target annual cash incentive award opportunity (as a percentage of earned base salary) for each of our NEOs for FY23 are set forth below. None of our NEOs received increases in their FY23 target annual cash incentive award opportunities (as a percentage of base salary) in FY23, except our CEO who received a 5% increase based on our strong financial performance in FY22, market considerations and the desire to make more of his compensation performance-based and at risk. 50% of each NEO’s target annual cash incentive award opportunity is tied to each six-month performance period.
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
| NEO | FY23 Target Annual Cash Incentive Award Opportunity (% of Earned Base Salary) | | Oleg Khaykin | 125% | | Henk Derksen | 100% | | Paul McNab | 85% | | Luke Scrivanich | 85% | | Gary Staley | 85% |
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
For FY23, the Compensation Committee believed the consistent application of this blend of performance metrics would contribute to our consistent revenue growth and profitability achievement. The Compensation Committee set the numeric goals for each performance metric based on the FY23 operating plan approved by our Board. Annual Cash Incentive Award Calculations and Measures For FY23, the award payouts under the Executive VPP for our NEOs were calculated by multiplying the individual’s earned base salary for the performance period by the individual target annual cash incentive award opportunity and financial metric attainment percentage.
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
| Payout Formula | | | | | | H1 Financial Objectives | = | Base Salary for Periodx | Target Annual Cash Incentive Award Opportunity (% of Earned Base Salary)x | Financial Metric Attainment % (100% weighting) | | H2 Financial Objectives | | | | |
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
The following tables describe the threshold, target, and maximum performance levels for each of the financial metrics as well as reporting the actual results and payout percentage for FY23. Payouts could have ranged from 0% to 150% for these metrics. None of our NEOs received any annual cash incentive award payouts in FY23. Mr. Scrivanich and Mr. Staley were each eligible to earn a partial payout based upon partial OSP Non-GAAP operating profit and NSE Sales achievement, respectively but each elected to waive the payment in light of the Company’s overall financial performance.
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
| Corporate VPP (Participants: Messrs. Khaykin and Derksen) | | | | | | | | | | | | | | | | | H1 FY23 | | | | | | H2 FY23 | | | | | | | Goal | Weighting | Threshold | 50% | 100% | 150% | Results | Payout | Threshold | 50% | 100% | 150% | Results | Payout | | Consolidated Revenue (in millions) | 50% | 611 | 649 | 682 | 709 | 589 | 0% | 624 | 662 | 695 | 723 | 504 | 0% | | Consolidated Non-GAAP Operating Profit (in millions) | 50% | 128 | 152 | 173 | 190 | 111 | 0% | 128 | 153 | 173 | 190 | 57 | 0% |
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
(1)Our business segment targets reflect our analyses, expectations and objectives for our business segments, taking into consideration then current forecasted economic conditions, the outlook for the industry and our businesses, technology and new product development. Due to the confidential and commercially sensitive nature of these analyses, expectations and objectives, we believe the specific disclosure of business segment targets could result in competitive harm to us. It is for this reason that they are not disclosed for the OSP VPP, NSE VPP, and NSE Sales VPP. Long-Term Incentive Compensation We believe that equity awards align the interests of our executive officers with the long-term interests of our stockholders by rewarding long-term value creation measured by our stock price and by providing retention incentives through multi-year vesting periods.
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS The Compensation Committee granted the following annual equity awards in the first quarter of FY23 to our NEOs under our Amended and Restated 2003 Equity Incentive Plan (the “2003 Plan”): ▪Annual MSUs, which are earned and vest based on our TSR relative to the performance of companies in the Nasdaq Telecom Index, with three overlapping performance periods of one, two and three years. ▪Annual RSUs, which, for RSUs granted in FY23, vest annually over three years, with 1/3 vesting on each one-year anniversary of the date of grant. The Compensation Committee believes granting MSUs is appropriate because, among other things, MSUs encourage our NEOs to focus on long-term value creation, since MSUs reward sustained increases in our stock price relative to the Nasdaq Telecom Index. The Compensation Committee also believes granting RSUs also promotes long-term performance as they are directly subject to increases and decreases in our stock price, further aligning NEO and stockholder interests. The annual equity compensation program for our NEOs for FY23 consisted of an equally weighted mix of MSUs and RSUs consistent with our commitment to pay-for-performance as well as other considerations, as described further below:
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
| NEO | MSU Shares (Target # of shares) | Time-Based RSU Awards (Target # of Shares) | Grant Date Fair Value of Equity Awards ($) | | Oleg Khaykin | 255,244 | 255,244 | 8,078,473 | | Henk Derksen | 69,930 | 69,930 | 2,213,285 | | Paul McNab | 29,720 | 29,720 | 940,638 | | Luke Scrivanich | 31,468 | 31,468 | 995,962 | | Gary Staley | 34,965 | 34,965 | 1,106,642 |
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
Target Dollar Value Used to Calculate Number of Units. The number of MSUs and RSUs granted to each NEO was based on a target dollar value divided by the average closing price per share of our common stock over the 60 trading days immediately preceding the grant date of August 28, 2022, with approximately 50% of the dollar value being allocated to each type of award. This approach will result in different values than reported in the Summary Compensation Table because (i) the Summary Compensation Table values use the stock price on the grant date while we use the 60 trading day average stock price and (ii) the the Summary Compensation Table value for the MSUs is determined using a Monte Carlo valuation methodology that takes into account the probabilities of various stock prices and performance to determine the grant value. In determining the size of each NEO’s target dollar value, the Compensation Committee considered each NEO’s role and responsibilities, historical compensation levels, the average size and potential returns of comparable awards made to NEOs in similar positions at the companies in our compensation peer group, the NEO’s potential for increased responsibility and promotion over the award term and the NEO’s individual performance in recent periods, and internal pay equity. The Compensation Committee also considered the value of outstanding unvested equity awards held by the NEO to maintain an appropriate level of equity incentives for that NEO. Our equity budget for the coming fiscal year and the impact on our burn rate were also critical factors, as the Compensation Committee was mindful of potential stockholder dilution when approving equity awards. The Compensation Committee did not have a specific formula that weighed these factors. The following table sets forth the initial target dollar value of each NEO’s equity award compared to the last year and the primary reasons for the adjustment.
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
| Initial Target Dollar Value for Annual Equity Awards of all NEOs | | | | | | NEO | FY23 Approved Target Dollar Value ($) | FY22 Approved Target Dollar Value ($) | Difference from FY22 (%) | Primary Reasons for the Change | | Oleg Khaykin | 7,300,000 | 7,000,000 | +4.3% | Retention; market competitiveness; prior performance | | Henk Derksen | 2,000,000 | 1,000,000 | +100% | Market competitiveness; prior performance; alignment with offer letter terms. | | Paul McNab | 850,000 | 850,000 | 0% | N/A | | Luke Scrivanich | 900,000 | 900,000 | 0% | N/A | | Gary Staley | 1,000,000 | 1,000,000 | 0% | N/A |
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
The actual grant date fair value of the MSUs and RSUs is reflected in the table in the section above and in the “FY23 Summary Compensation Table” below and is different from the target dollar value, as it is based on the accounting value of the awards on the effective grant date. MSU Awards The MSUs that were granted in FY23 are earned based on our TSR relative to the performance of the companies in the Nasdaq Telecom Index, with three overlapping performance periods and 1/3rd of the shares earned based on relative TSR measured over one-year, two-year and three-year measurement periods ending on September 15, 2023, September 15, 2024 and September 15, 2025, respectively. The closing price for each period, determined as the weighted average closing price of our common stock for the period from August 1st to September 15th of the appropriate year, will be compared against our weighted average stock price during the period of August 1, 2022 to September 15, 2022. The MSU award consists of three equal tranches, with one tranche assigned to each measurement period. The actual number of shares of our common stock that are earned and will vest will be determined by the Compensation Committee after the end of each measurement period based on our TSR ranking relative to the Nasdaq Telecom Index for the period and will range from 0% to 150% of the target number of shares for that period. In order to vest at 100% of the target number of shares subject to the MSUs, our TSR must be ranked at the 55th percentile of the Nasdaq Telecom Index for each measurement period. The Compensation Committee believes that the Nasdaq Telecom Index is an appropriate benchmark because it represents a broad representation of the potential opportunity cost of investing in the Company rather than other telecommunications companies from an investor’s perspective. The actual percentage of shares earned will be determined by the Compensation Committee at the end of each year of the overall three-year performance period for the MSUs and will be interpolated on a linear basis for performance between threshold and target and target and maximum for each level of achievement as follows:
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
| Performance Threshold/Target | Shares Earned | | 0-25th Percentile | 0% of Target Shares | | 25th-55th Percentile | 0%-100% of Target Shares | | 55th-75th Percentile and Above | 100%-150% of Target Shares |
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
Each earned unit converts into one share of common stock on the vesting date.
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
| MSUs Earned in FY23 |
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
The following table shows the MSUs earned by our NEOs in FY23.
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
| MSUs Earned in FY23 | Measurement Period | Measurement Period Ranking | | FY20 MSUs: 108.25% of 3rd tranche earned | 8/1/19 to 9/15/19 vs 8/1/22 to 9/15/22 | 58.3 percentile TSR ranking | | FY21 MSUs: 145.00% of 2nd tranche earned | 8/1/20 to 9/15/20 vs 8/1/22 to 9/15/22 | 73.0 percentile TSR ranking | | FY22 MSUs: 146.00% of 1st tranche earned | 8/1/21 to 9/15/21 vs 8/1/22 to 9/15/22 | 73.4 percentile TSR ranking | | FY21 CFO MSUs: 139.25% of 2nd tranche earned (2) | 3/15/21 to 4/28/21 vs 8/1/22 to 9/15/22 | 70.7 percentile TSR ranking |
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
| NEO | FY20 MSUs # of Shares Earned | FY21MSUs # of Shares Earned | FY22 MSUs # of Shares Earned | | Oleg Khaykin | 70,129 | 127,383 | 101,028 | | Henk Derksen | — | 31,899 | 14,432 | | Paul McNab | 12,630 | 14,558 | 12,268 | | Luke Scrivanich | 10,825 | 15,468 | 12,990 | | Gary Staley | 13,531 | 18,198 | 14,432 |
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
(1)Mr. Derksen’s MSUs were granted with four vesting tranches in connection with his hire, and his initial measure period is reflective of his March 15, 2021 start date. Mr. Derksen’s unvested MSUs will terminate effective September 30, 2023 in connection with his departure. Other Benefits
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
| General Health, Welfare and Other Benefit Plans | Perquisites and Other Benefits | | We believe that our executive officers should not operate under different standards than our other employees. Accordingly, our executive officers are eligible to participate in a variety of employee benefit plans on the same terms as our other employees, including our healthcare, insurance, and other welfare and employee benefit programs. We believe these benefits are consistent with benefits provided by our compensation peer group and help us to attract and retain high quality executive officers. | No executive perquisites or other personal benefits, outstanding loans of any kind or other special executive benefits were given to our executive officers in FY22. In general, VIAVI and the Compensation Committee do not provide perquisites or other personal benefits to our executive officers. |
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
Severance and Change of Control Benefits
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
| Name of Plan | Material Features | | Executive Change of Control Benefits Plan (Covers all NEOs except for our CEO) | ▪“Double-trigger” provisions to preserve morale and productivity, encourage executive retention to maintain the stability of our business during a change of control and protect executive officers in the event of job loss. ▪A departing executive officer must sign a separation and release agreement acceptable to us as a condition to receiving post-employment compensation payments or benefits. ▪Provides for benefits comparable to benefits offered by members of our compensation peer group, which helps us attract talented executive officers and maintain a consistent management team. | | CEO Employment Agreement | ▪Limited severance payments and benefits outside of a change in control and “double trigger” provision in the event of a change in control. ▪Our CEO must sign a separation and release agreement acceptable to us as a condition to receiving post-employment compensation payments or benefits. ▪Provides for benefits comparable to benefits offered by members of our compensation peer group. | | CFO Employment Agreement2 | ▪Limited payments and severance benefits outside of a change in control. ▪Our CFO must sign a separation and release agreement acceptable to us as a condition to receiving post-employment compensation payments or benefits. ▪Provides for benefits comparable to benefits offered by members of our compensation peer group. | | Equity Plan Awards | ▪Consistent with the practice of many of our compensation peers and to encourage our executive officers and other employees to remain employed with us, all grants of RSUs and MSUs provide for full vesting upon death or disability, with MSUs vesting at the target performance level. ▪Limited pro-rata vesting of Retention RSUs in the event of an involuntary termination of employment outside of a change in control to reward prior service; all Executive Leadership PSUs and Share Price PSUs will terminate in such circumstances consistent with our pay for performance philosophy. ▪The Executive Leadership PSUs and Share Price PSUs provide that, in the event of a change in control in which the PSUs are assumed, the PSUs will convert to time-based awards and vest upon the end of the applicable four-year retention period, subject to any qualifying termination, to promote the stability and focused service of our CEO and other NEOs during a potentially uncertain time. |
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
See the subsection titled “Potential Payments upon Termination of Employment or Change of Control” in the “Executive Compensation Tables” section below for more information regarding each of these plans or arrangements as well as our estimated potential payment obligations. For the avoidance of doubt, Mr. Derksen will not receive any severance benefits in connection with his departure and all his unvested and outstanding equity awards will terminate without consideration. 2 Mr. Derksen will not receive post-employment compensation or benefits in connection with his voluntary resignation, effective September 30, 2023. Other Important Compensation Practices
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
| Policy | Considerations | Material Features | | Anti-Hedging Policy | ▪Hedging insulates executive officers from stock price movement and reduces alignment with stockholders. | ▪Pursuant to our insider trading policy, all Board members, employees (including executive officers), contractors, and consultants of VIAVI and its subsidiaries, and their immediate family members, co-inhabitants, and controlled parties are prohibited from engaging in the following types of hedging transactions involving our common stock: (i) short sales, (ii) transactions involving publicly traded options, including put options, call options, and other derivative securities, and (iii) hedging or monetization transactions, including the use of financial instruments such as prepaid variable forwards, equity swaps, collars and exchange funds. | | Anti-Pledging Policy | ▪Pledging raises potential risks to stockholder value, particularly if the pledge is significant. | ▪Our insider trading policy prohibits Board members, employees (including executive officers), contractors and consultants of VIAVI and its subsidiaries, and their immediate family members, co-inhabitants, and controlled parties from holding our securities in margin accounts or pledging securities. | | Equity Grant Timing Policy | ▪Equity award grants should not be timed to take advantage of the release of material nonpublic information. | ▪Our executive officers are generally granted equity awards, which include a mix of RSUs and MSUs as described above, at the beginning of each fiscal year at a Compensation Committee meeting that is typically scheduled more than a year in advance. ▪New-hire, retention, promotional, or as otherwise necessary equity awards for executive officers are generally granted on the 28th day of the second month of the quarter. ▪We do not time the release of material nonpublic information for the purpose of affecting the value of executive compensation, nor do we time the grant of equity awards to our share price or factors, which may affect our future share price. | | Burn Rate Policy | ▪Dilution to our existing stockholders should be closely managed. | ▪The Compensation Committee approves an annual gross equity budget at the beginning of the fiscal year to achieve a gross burn rate that approximates the average burn rate for peer group companies and the telecommunications industry more generally. ▪Our gross burn rate was ~1.6%(1) for FY23. | | Stock Ownership Policy | ▪Stock ownership among our executive officers and non-employee members of the Board encourages incentive alignment with stockholders. | ▪We maintain robust formal stock ownership requirements for our executive officers and the non-employee members of the Board, as described in “Stock Ownership Guidelines” below. Under our stock ownership policy, the Board has the discretion to determine how to address any non-compliance with the policy on a case-by- case basis. | | Clawback Policy | ▪We should be able to recoup cash and equity awards in the event of fraud or intentional misconduct of any Section 16 officers or members of the Board. | ▪The Compensation Committee has sole discretion under the policy, consistent with any applicable statutory requirements, to seek reimbursement, holdback, and/or “clawback” cash and equity compensation awards in the event of fraud or intentional misconduct by any Section 16 officers or Directors. ▪The SEC and Nasdaq recently adopted long-awaited final rules implementing the incentive-based compensation recovery provisions of the Dodd-Frank Act, which require listed companies to develop and implement a policy providing for the recovery of erroneously awarded incentive-based compensation received by current or former executive officers. We intend to timely amend and restate our clawback policy to reflect these new requirements. |
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
(1)Gross Burn Rate is calculated as (a) the number of new RSU stock awards granted under the 2003 Plan plus the number of PSU awards earned in the fiscal year, divided by (b) the weighted average common shares outstanding of the Company at the end of the fiscal year. Our Compensation Decision-making Process
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
| ROLE OF COMPENSATION COMMITTEE AND BOARD | ▪The Compensation Committee is responsible for determining the compensation of our executive officers (other than our CEO) and making recommendations to the Board regarding the compensation of our CEO and meets regularly throughout the year to review and discuss, among other items, our compensation philosophy, changes in compensation governance, compliance rules and best practices, and the composition of our compensation peer group for pay comparisons. ▪The Board determines the compensation of our CEO based on the recommendations of the Compensation Committee. | | ROLE OF COMPENSATION COMMITTEE CONSULTANT | ▪The Compensation Committee directly retained the services of Compensia, Inc. (“Compensia”) as its compensation consultant for FY23. ▪The Compensation Committee conducts an annual assessment of its consultant’s performance and independence and, based on its assessment, determines whether to re-appoint its consultant each year. ▪In FY23, the Compensation Committee assessed the independence of Compensia pursuant to the Nasdaq Listing Standards and SEC rules and concluded that Compensia is independent and that no conflict of interest has arisen or will arise that would prevent Compensia from serving as an independent consultant to the Compensation Committee. ▪In FY23, the services provided by Compensia included: ◦Assisting in the selection of our compensation peer group companies for FY24 (and with the determination of our FY23 compensation peer group in FY22; ◦Collecting and analyzing compensation market data drawn from companies that the Compensation Committee selected as a “peer group” of technology companies, as well as a broader set of competitive market data based on the Radford Global Technology Survey; ◦Helping the Compensation Committee interpret and understand the compensation market data; ◦Assisting in the review of recent governance trends for potential policy updates; ◦Advising on the reasonableness of our NEO and senior management’s compensation levels and programs; ◦Assisting in the review of non-employee Director compensation, including providing compensation market data; ◦Assisting in the review of the NEO compensation disclosure in this Proxy Statement; ◦Conducting a detailed review of our cash and equity compensation plans to provide an independent view of the risks associated with our compensation programs, including those for our NEOs and any other employees; and ◦Attending each Compensation Committee meeting, including meeting with the Compensation Committee in private sessions, without any members of senior management present. | | ROLE OF MANAGEMENT | ▪The Compensation Committee discusses NEO performance assessments and compensation targets with our Board chair and our Senior Vice President, Human Resources. ▪To assess our CEO’s performance, the Compensation Committee oversees a comprehensive assessment process including feedback from the Board and members of senior management and is facilitated by our Senior Vice President, Human Resources. ▪We also have an executive compensation team that provides background on company budgetary constraints and internal pay comparisons to help the Compensation Committee understand Compensia’s recommendations in those contexts. NEOs are not present for Compensation Committee decisions related to their individual compensation. |
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
Compensation Peer Group Comparisons The Compensation Committee uses peer group comparisons to measure the competitiveness of our compensation practices. Pay at comparable companies is just one of the factors in the Compensation Committee’s pay decisions, which also take into account individual performance, an NEO’s level of experience and responsibilities, internal pay equity, our compensation budget, historical compensation levels, and other factors that are deemed to be important based on the Compensation Committee’s business judgment. At the time of the selection in February 2022, the Compensation Committee selected peer group companies for FY23 with an emphasis on companies that (1) were U.S.-based business or labor market competitors in the network test/ communications equipment, technology or hardware industries; (2) generated annual revenues between approximately 0.4 and 2.5 times VIAVI’s last four quarters’ revenue of $1.2 billion; and (3) had a market capitalization between approximately 0.25 and 4.0 times the mid-market capitalization range of $1.0 billion to $10.0 billion.
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
| FY22 Peer Group | | | 3D Systems Corporation | National Instruments Corporation | | Ciena Corporation | NETGEAR, Inc. | | Cirrus Logic, Inc. | NetScout Systems, Inc. | | Coherent | OSI Systems, Inc. | | Commvault Systems, Inc. | Plantronics, Inc. | | Extreme Networks, Inc. | Silicon Laboratories Inc. | | F5, Inc. | SunPower Corporation | | Infinera Corporation | Synaptics Incorporated | | Knowles Corporation | Ubiquiti Inc. | | Lumentum Holdings Inc. | Viasat, Inc. | | MKS Instruments, Inc. | Wolfspeed, Inc. (formerly Cree, Inc.) |
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
In determining our compensation peer group for FY23, Sun Power Corporation was added to our FY23 peer group because it meets the financial criteria set forth above, is a company with which we compete for talent, operates in a similar or adjacent industry as VIAVI. Ciena Corporation was also added to our FY23 peer group because management believes it is a good business fit with respect to industry. Coherent, Inc. was removed from our FY23 peer group because of its then-pending acquisition by II-VI and Teradyne, Inc. was removed from our FY23 peer group because its revenue exceeded the selection criteria range. Section 162(m) While Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”) places a limit of $1.0 million dollars on the amount of compensation that we may deduct as a business expense in any year with respect to certain of our most highly paid executive officers, the Compensation Committee retains the right to award compensation that is not deductible as it believes that it is in the best interests of our stockholders to maintain flexibility in our approach to executive compensation in order to structure a program that we consider to be the most effective in attracting, motivating and retaining key executive officers. Stock Ownership Guidelines We maintain stock ownership guidelines, which require individuals employed in specified positions to own certain levels of our common stock to align their interests with those of our stockholders, and to promote accountability and mitigate excessive risk taking in long-term decision making. Under our current stock ownership guidelines, each of our executive officers and non-employee members of the Board is required to maintain ownership of our common stock as summarized in the table below.
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
| Category | Ownership Requirement | Deadline for Compliance | | Non-Employee Directors | 3x annual cash retainer | 5th anniversary of election to the Board | | Chief Executive Officer | 3x annual base salary | 5th anniversary of hire or promotion date | | Executive Officers (excluding CEO) | 1x annual base salary | 5th anniversary of hire or promotion date |
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
As of September 21, 2023, our CEO and all of our executive officers have either satisfied their stock ownership requirement or have time remaining to satisfy the requirement. Compensation Risk Assessment The Compensation Committee aims to establish company-wide compensation policies and practices that reward contributions to long-term stockholder value creation and do not promote unnecessary or excessive risk-taking. In furtherance of this objective, the Compensation Committee conducted an annual assessment of our company-wide compensation arrangements. The assessment process included, among other things, a review of: ▪Our compensation philosophy; ▪Comparative compensation at peer group companies; ▪Our core compensation element mix; and ▪The terms and payments under our cash and equity incentive plans. As part of that review, the Compensation Committee asked Compensia to perform a detailed review of our cash and equity compensation plans in comparison to market practices to determine if there were any areas of risk and recommend appropriate remediation policies, if necessary.
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
| Risk Assessment Factors | | | The Compensation Committee considered the following, among other factors, when determining the level of risk: | | | Pay Mix and Base Salary | ■Target annual cash incentive award opportunities are not over weighted ■Mix of cash and equity compensation is aligned with market ■Compensation is balanced, with potential for increased rewards based on company performance ■Use of MSUs provides performance alignment with stockholders | | Base Salary | ■Non-executive base salaries are targeted within market range ◦Exceptions are managed via approval process ◦Executive base salaries are based on market data and competitive factors | | Executive Annual Cash Incentive Award | ■Different plans for top executives, sales employees and all other employees to develop goals that optimize the incentive to each population ■Sliding scale of payouts from threshold up to maximum to avoid binary outcomes ■Multiple performance metrics that are aligned to business strategy to focus executives on the appropriate actions ■Semi-annual performance targets address forecasting issues with longer (annual) time periods ■Combination of organization, business group and individual goals can incentivize and reward employees for both group and personal performance | | Cash and equity incentive awards | ■Review of sales contracts by employees not dependent on commissions and review of calculation of commissions of employees that do not report to the sales department ■Two review groups to ensure proper functioning of the sales incentive program ■Clear documentation to help ensure the uniform treatment of all sales employees and assist in compliance with the plan | | Equity Incentive Awards | ■Equity awards, including the use of MSUs, promote alignment between executive and stockholder interests ■Equity awards are generally within the market norms and the Compensation Committee closely reviews any exceptions ■Mix of spending between NEOs and the general employee population within market norms | | Stock Ownership Guidelines and Trading Policies | ■Three-year vesting helps to provide greater retention value ■Stock ownership requirements are aligned with market and best practice | | Clawback Policy | ■Clawback Policy that applies to cash incentive payments and equity compensation awards provided to Section 16 officers under any applicable equity incentive plan | | Severance and Benefits | ■Benefit levels and severance triggers are consistent with market practice and do not include any poor pay practices |
FY23 EQUITY AWARDS – ANNUAL EQUITY AWARDS
Based upon this assessment, the Compensation Committee believes that our company-wide compensation policies and practices are reasonable and encourage appropriate behaviors without creating risks that are reasonably likely to have a material adverse effect on us.
Summary Compensation Tables
Summary Compensation Tables The following table contains information concerning the compensation provided to our NEOs for fiscal years 2023, 2022 and 2021.
Summary Compensation Tables
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) (1) | Non-Equity Incentive Plan Compensation ($) (2) | All Other Compensation ($) (3) | Total ($) | | Oleg Khaykin President and Chief Executive Officer | 2023 | 895,192 | — | 8,078,473 | — | 5,000 | 8,978,665 | | | 2022 | 849,038 | — | 7,548,009 | 938,369 | 5,000 | 9,340,416 | | | 2021 | 800,000 | — | 15,169,727 | 894,281 | 4,000 | 16,868,008 | | Henk Derksen Executive Vice President and Chief Financial Officer (4) | 2023 | 522,115 | — | 2,213,285 | — | — | 2,735,400 | | | 2022 | 510,000 | — | 1,078,256 | 466,977 | — | 2,055,233 | | | 2021 | 137,308 | 200,000 | 3,572,692 | 128,120 | 80,000 | 4,118,120 | | Paul McNab Executive Vice President and Chief Marketing & Strategy Officer | 2023 | 447,116 | — | 940,638 | — | — | 1,387,754 | | | 2022 | 435,000 | — | 916,527 | 388,337 | — | 1,739,864 | | | 2021 | 435,000 | — | 1,728,750 | 171,227 | — | 2,334,977 | | Luke Scrivanich Senior Vice President and General Manager, Optical Security & Performance Products (OSP) | 2023 | 398,077 | — | 995,962 | 19,362 | 5,000 | 1,418,401 | | | 2022 | 383,769 | — | 970,448 | 257,847 | 5,000 | 1,617,064 | | | 2021 | 372,000 | — | 1,782,887 | 442,680 | 4,000 | 2,601,567 | | Gary Staley Senior Vice President, Global Sales, Network Enablement and Service Enablement | 2023 | 416,154 | — | 1,106,642 | 49,980 | 5,000 | 1,577,776 | | | 2022 | 391,346 | — | 1,078,256 | 343,016 | 5,000 | 1,817,618 | | | 2021 | 375,000 | — | 2,160,967 | 150,884 | 4,000 | 2,690,851 |
Summary Compensation Tables
(1)Amounts shown do not reflect compensation actually earned by the NEO. Instead, the amounts shown in this column represent (i) the grant date fair values of time-based RSUs issued pursuant to the 2003 Plan computed in accordance with ASC Topic 718, (ii) the grant date fair values of Share Price PSUs (earned when the average share price equals or exceeds $20 over a period of 90 consecutive calendar days), and (iii) the grant date fair values of MSUs (earned based on relative TSR) at the target level of performance. This amount for FY21 also includes for Mr. Khaykin, the grant date fair value of his Executive Leadership PSU award, which was estimated using a probability weighted model in accordance with ASC Topic 718. The grant date fair value for MSUs is calculated based on a Monte-Carlo valuation of each award on the date of grant, determined under ASC Topic 718. Share Price PSUs and the Executive Leadership PSU award could only be earned at target while the payout of the MSUs could range from 0% to 150% of target. Assuming the highest level of performance is achieved under the applicable performance conditions, the maximum possible value of the MSUs granted to certain of the NEOs in FY23, FY22 and FY21, using the grant date fair value, is set forth in the table below:
Summary Compensation Tables
| Name | Fiscal Year | Maximum Possible Value of MSUs Using Grant Date Fair Value | | Oleg Khaykin | 2023 | 6,547,009 | | | 2022 | 6,131,200 | | | 2021 | 6,143,444 | | Henk Derksen | 2023 | 1,793,705 | | | 2022 | 875,860 | | | 2021 | 2,949,602 | | Paul McNab | 2023 | 762,318 | | | 2022 | 744,489 | | | 2021 | 702,097 | | Luke Scrivanich | 2023 | 807,154 | | | 2022 | 788,289 | | | 2021 | 745,990 | | Gary Staley | 2023 | 896,852 | | | 2022 | 875,860 | | | 2021 | 1,333,270 |
Summary Compensation Tables
The MSUs reflected in the above table are at the maximum level of achievement, which is equal to 150% of target. The assumptions used to calculate these amounts for FY23 are set forth under Note 16 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for FY23 filed with the SEC on August 17, 2023. (2)All non-equity incentive plan compensation was paid pursuant to the Executive VPP. The amounts in this column represent the aggregate Executive VPP annual cash incentive award earned by each NEO and approved by the Compensation Committee. Mr. Scrivanich and Mr. Staley each forfeited their VPP bonus payment. (3)The amounts in the “All Other Compensation” column for FY23 include 401(k) matching contributions by the Company in the amount of $5,000 for each NEO other than Mr. McNab and Mr. Derksen, who did not contribute to the Company's 401(k) plan in FY23. (4)Mr. Derksen will cease to serve as Executive Vice President and Chief Financial Officer, effective September 30, 2023. Grants of Plan-Based Awards Table The following table provides information about equity and non-equity awards granted to the NEOs in FY23.
Summary Compensation Tables
| GRANTS OF PLAN BASED AWARDS | | | | | | | | | | | | | | | | | Estimated Future Payouts Under Non- Equity Incentive Plan Awards (1) | | | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | | | All Other Stock Awards: | | | Name | Grant Date | Approval Date | Award Type | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | Number of Shares of Stock (#) | Grant Date Fair Value of Stock Awards(3) ($) | | Oleg Khaykin | 8/28/2022 | 8/17/2022 | MSUs | | | | 0 | 255,244 | 382,866 | | 4,364,672 | | | 8/28/2022 | 8/17/2022 | RSUs | | | | | | | 255,244(4) | 3,713,800 | | | N/A | N/A | Cash | 0 | 1,125,000 | 1,687,500 | | | | | | | | | | Incentive | | | | | | | | | | Henk Derksen | 8/28/2022 | 8/17/2022 | MSUs | | | | 0 | 69,930 | 104,895 | | 1,195,803 | | | 8/28/2022 | 8/17/2022 | RSUs | | | | 0 | | | 69,930(4) | 1,017,482 | | | N/A | N/A | Cash | 0 | 525,000 | 787,500 | | | | | | | | | | Incentive | | | | | | | | | | Paul McNab | 8/28/2022 | 8/17/2022 | MSUs | | | | 0 | 29,720 | 44,580 | | 508,212 | | | 8/28/2022 | 8/17/2022 | RSUs | | | | | | | 29,720(4) | 432,426 | | | N/A | N/A | Cash | 0 | 382,500 | 573,750 | | | | | | | | | | Incentive | | | | | | | | | | Luke Scrivanich | 8/28/2022 | 8/17/2022 | MSUs | | | | 0 | 31,468 | 47,202 | | 538,103 | | | 8/28/2022 | 8/17/2022 | RSUs | | | | | | | 31,468(4) | 457,859 | | | N/A | N/A | Cash | 0 | 340,000 | 510,000 | | | | | | | | | | Incentive | | | | | | | | | | Gary Staley | 8/28/2022 | 8/17/2022 | MSUs | | | | 0 | 34,965 | 52,448 | | 597,902 | | | 8/28/2022 | 8/17/2022 | RSUs | | | | | | | 34,965(4) | 508,741 | | | N/A | N/A | Cash | 0 | 357,000 | 678,300 | | | | | | | | | | Incentive | | | | | | | | |
Summary Compensation Tables
(1)These columns show the potential cash value range of the payout for each NEO under the Executive VPP. The amounts actually earned by each NEO in FY23 are summarized in the Summary Compensation Table above. Please see the section entitled "Annual Cash Incentive Awards” in the CD&A above for more information. (2)These columns show the estimated share vesting range for each NEO’s MSU awards, which could range from 0% to150%. MSUs vest in three annual tranches based upon (i) the Company’s TSR relative to the performance of the component companies of the Nasdaq Telecommunications Index with three overlapping performance periods of one, two, and three years and (ii) the NEO’s continuous service through each applicable vesting date, subject to certain exceptions as set forth in the section below entitled “Potential Payments Made Upon Termination or Change in Control.” Please see the section entitled "Long-Term Incentive Compensation” in the CD&A above for more information. (3)Except as otherwise noted, the amounts shown in this column are the grant date fair values in the period presented as determined pursuant to stock-based compensation accounting rule ASC Topic 718. The assumptions used to calculate these amounts are set forth under Note 16 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for FY23 filed with the SEC on August 17, 2023. (4)Represents time-based RSUs that vest annually over three years, with 1/3 vesting on each one-year anniversary of the date of grant, subject to certain exceptions as set forth in the section below entitled “Potential Payments Made Upon Termination or Change in Control.” Outstanding Equity Awards at Fiscal Year-End
Summary Compensation Tables
| | OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END OPTION AWARDS | | | | | | STOCK AWARDS | | | | | | | | | | | | Equity Incentive Plan Awards: | Equity Incentive Plan Awards: | | Name | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(1) | Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(1) | | Oleg Khaykin | 2/15/2016 | 1,180,257(2) | | 5.95 | 2/15/2024 | | | | | | | 8/28/2020 | | | | | 87,852(3) | 995,363 | | | | | 2/28/2021 | | | | | 245,000(4) | 2,775,850 | | | | | 2/28/2021 | | | | | 122,500(5) | 1,387,925 | | | | | 8/28/2021 | | | | | 138,394 | 1,568,004 | | | | | 8/28/2022 | | | | | 255,244(6) | 2,891,915 | | | | | 8/28/2020 | | | | | | | 131,778(7) | 1,493,045 | | | 2/28/2021 | | | | | | | 122,500(8) | 1,387,925 | | | 8/28/2021 | | | | | | | 207,591(7) | 2,352,006 | | | 8/28/2022 | | | | | | | 255,244(7) | 2,891,915 | | Henk Derksen | 5/28/2021 | | | | | 45,815(9) | 519,084 | | | | | 8/28/2021 | | | | | 19,770(6) | 223,994 | | | | | 8/28/2022 | | | | | 69,930(3) | 792,307 | | | | | 5/28/2021 | | | | | | | 68,723(10) | 778,626 | | | 8/28/2021 | | | | | | | 29,655(7) | 582,276 | | | 8/28/2022 | | | | | | | 69,930(7) | 792,307 | | Paul McNab | 8/28/2020 | | | | | 10,040(3) | 113,753 | | | | | 2/28/2021 | | | | | 30,000(4) | 339,900 | | | | | 8/28/2021 | | | | | 16,805(6) | 190,401 | | | | | 8/28/2022 | | | | | 29,720(3) | 336,728 | | | | | 8/28/2020 | | | | | | | 15,060(7) | 170,630 | | | 2/28/2021 | | | | | | | 30,000(8) | 339,900 | | | 8/28/2021 | | | | | | | 25,207(7) | 285,595 | | | 8/28/2022 | | | | | | | 29,720(7) | 335,991 | | Luke Scrivanich | 8/28/2020 | | | | | 10,668(3) | 120,868 | | | | | 2/28/2021 | | | | | 30,000(4) | 339,900 | | | | | 8/28/2021 | | | | | 17,794(6) | 201,606 | | | | | 8/28/2022 | | | | | 31,468(3) | 356,532 | | | | | 8/28/2020 | | | | | | | 16,002(7) | 181,303 | | | 2/28/2021 | | | | | | | 30,000(8) | 339,900 | | | 8/28/2021 | | | | | | | 26,690(7) | 302,392 | | | 8/28/2022 | | | | | | | 31,468(7) | 356,532 | | Gary Staley | 8/28/2020 | | | | | 12,551(3) | 142,203 | | | | | 2/28/2021 | | | | | 37,500(4) | 424,875 | | | | | 8/28/2021 | | | | | 19,770(6) | 223,994 | | | | | 8/28/2022 | | | | | 34,965(3) | 396,153 | | | | | 8/28/2020 | | | | | | | 18,827(7) | 213,304 | | | 2/28/2021 | | | | | | | 37,500(8) | 424,875 | | | 8/28/2021 | | | | | | | 29,655(7) | 335,991 | | | 8/28/2022 | | | | | | | 34,965(7) | 396,153 |
Summary Compensation Tables
(1)Amounts reflecting market value of RSUs, MSUs and PSUs are based on the price of $11.33 per share, which was the closing price of our common stock as reported on Nasdaq on June 30, 2023, the last trading day of FY23. (2)Time-based stock option, which has fully vested. (3)Time-based RSUs with 1/3 of the units vesting on the first three anniversaries of the grant date, contingent on the NEO’s continuous service through each applicable vesting date, subject to certain exceptions as set forth in the section below entitled “Potential Payments Made Upon Termination or Change in Control.” (4)Time-based RSUs with 100% of the units vesting on the fourth-year anniversary of the hire date, contingent upon the NEO’s continuous service through the four years, subject to certain exceptions as set forth in the section below entitled “Potential Payments Made Upon Termination or Change in Control.” (5)Executive Leadership PSUs that will be earned once the Board has approved the Executive Leadership Development and Succession plan, which includes development of internal candidate(s), identification of external candidates, and consolidation of reporting structure under internal candidates. The Executive Leadership PSUs will vest and be released on the fourth anniversary of the grant date, contingent on the NEO’s continuous service through the four years, subject to certain exceptions as set forth in the section below entitled “Potential Payments Made Upon Termination or Change in Control” (the “Executive Leadership PSU Time-Vesting Conditions”). On December 12, 2022, the Board determined that all of the Executive Leadership PSU goals were achieved. As a result, as of July 1, 2023, the Executive Leadership PSUs only remained subject to the Executive Leadership Time-Vesting Conditions. (6)Time-based RSUs with 1/3 of the units vesting on the first anniversary of the grant date and the remainder vesting in equal quarterly installments for two years thereafter, contingent on the NEO’s continuous service through each applicable vesting date, subject to certain exceptions as set forth in the section below entitled “Potential Payments Made Upon Termination or Change in Control.” (7)MSUs that are subject to an award, which vests in three annual tranches based upon the Company’s TSR relative to the performance of the companies in the Nasdaq Telecommunications Index, measured over one-year, two-year and three- year performance periods, contingent on the NEO’s continuous service through each applicable vesting date, subject to certain exceptions as set forth in the section below entitled “Potential Payments Made Upon Termination or Change in Control.” With respect to MSUs granted during the 2021 and 2022 fiscal years, the number of MSUs disclosed in the table above were unvested as of the last day of FY23 and reflect vesting at 150% of the target amount, as the Company’s performance through the last day of FY23 exceeded the target performance level for such MSUs. With respect to MSUs granted during the 2023 fiscal year, the number of MSUs disclosed in the table above were unvested as of the last day of FY23 and reflect vesting at the target amount, as the Company’s performance through the last day of FY23 did not exceed the target performance level for such MSUs. The actual number of shares that will vest ranges from 0% to 150% of the target amount for each vesting tranche, subject to completion of the applicable measurement period and certification by the Compensation Committee. (8)Share-price PSUs that are earned when the average share price equals or exceeds $20 over a period of 90 consecutive calendar days; based on the daily closing share price, subject to certification by the Compensation Committee. 50% of the equity award will vest and be released at the time of achievement, contingent on the NEO’s continuous service through the vest date; 50% will vest and be released upon the earlier of the first anniversary of the achievement or at the end of the retention period, contingent on the NEO’s continuous service through the vest date, subject to certain exceptions as set forth in the section below entitled “Potential Payments Made Upon Termination or Change in Control.” (9)Time-based RSUs with ¼ of the units vesting on each of the first four anniversaries of the grant date, contingent upon the NEO’s continuous service through each applicable vesting date, subject to certain exceptions as set forth in the section below entitled “Potential Payments Made Upon Termination or Change in Control.” (10)MSUs that are subject to an award, which vests in four annual tranches based upon the Company’s TSR relative to the performance of the companies in the Nasdaq Telecommunications Index, measured over one-year, two-year, three-year and four-year performance periods, contingent on the NEO’s continuous service through each applicable vesting date, subject to certain exceptions as set forth in the section below entitled “Potential Payments Made Upon Termination or Change in Control.” The number of MSUs disclosed in the table above were unvested as of the last day of FY23 and reflect vesting at 150% of the target amount, as the Company’s performance through the last day of FY23 exceeded the target performance level for such MSUs. The actual number of shares that will vest ranges from 0% to 150% of the target amount for each vesting tranche, subject to completion of the applicable measurement period and certification by the Compensation Committee. Option Exercises and Stock Vested The following Option Exercises and Stock Vested Table provides additional information about the value realized by the NEOs due to the vesting of equity during FY23. No stock options were exercised in FY23.
Summary Compensation Tables
| OPTION EXERCISES AND STOCK VESTED | | | | | | | OPTION AWARDS | | STOCK AWARDS | | | Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) (1) | | Oleg Khaykin | — | — | 471,865 | 6,489,475 | | Henk Derksen | — | — | 79,124 | 883,698 | | Paul McNab | — | — | 60,830 | 835,362 | | Luke Scrivanich | — | — | 61,360 | 843,291 | | Gary Staley | — | — | 71,737 | 985,610 |
Summary Compensation Tables
(1)Represents the amounts realized based on the product of (a) the number of stock units vested and (b) the closing price of our common stock on Nasdaq on the vesting day (or, if the vesting day falls on a day on which our stock is not traded,the prior trading day). Potential Payments Made Upon Termination or Change in Control Change in Control Plan The Company’s Change in Control Plan (the “Change in Control Plan”), which covers all NEOs (except for Mr. Khaykin), provides the following benefits if a termination is without Cause or is for Good Reason (each as defined in the Change in Control Plan) within the 12- month period beginning upon a Change in Control (as defined in the Change in Control Plan), subject to the execution of a general release of claims: (a) accelerated vesting of any unvested stock options and other securities or similar incentives held at the time of termination (including accelerated vesting of any performance- based awards at 100% of the target achievement level), (b) a lump sum payment equal to either eighteen months or two years’ base salary (depending on the executive level), and (c) a cash payment equal to 12 months of COBRA premiums for the NEO and his or her eligible dependents. The same benefits are payable if the NEO is terminated due to death or Disability (as defined in the Change in Control Plan) during the coverage period. The Change in Control Plan is scheduled to expire, if not otherwise extended, in June 2023.
Summary Compensation Tables
| Khaykin Agreement |
Summary Compensation Tables
Pursuant to the terms of the Company’s agreement with Mr. Khaykin (the “Khaykin Agreement”), if the Company terminates Mr. Khaykin’s employment without Cause or he terminates his employment for Good Reason (each, as defined in the Khaykin Agreement, and each, an “Involuntary Termination”), in addition to any accrued payments to which he is entitled, and provided that he signs a separation agreement and release of claims, Mr. Khaykin will receive the following severance benefits: If an Involuntary Termination occurs within three months prior to, or one year after a Change in Control (as defined in the Employment Agreement), Mr. Khaykin will receive: ■If the termination date occurs after the second anniversary of his hire date, a lump sum payment equal to 150% of his annual base salary plus 225% of his target annual cash incentive award. ■Immediate vesting of all equity awards, except for Mr. Khaykin’s Executive Leadership PSUs, Share Price PSUs and Retention RSUs, which will be treated as described in the section entitled “Retention RSU, Executive Leadership PSU and Share Price PSU Vesting Provisions Upon Involuntary Termination” below, with performance awards treated as earned at the greater of the target amount or the actual achievement attained as of the termination date. If an Involuntary Termination occurs during a time that is not within three months before or one year after a Change in Control, or is a termination due to death or Disability (as defined in the Khaykin Agreement), Mr. Khaykin will receive: ■A prorated portion of his target annual cash incentive award for the fiscal year in which the termination date occurs, which will be determined at the end of the Company’s fiscal year based on the Company’s actual performance. ■An additional amount equal to the sum of (i) 150% of Mr. Khaykin’s base salary at the time of termination and (ii) 150% of his target annual cash incentive award. ■Immediate vesting of all equity awards (excluding Mr. Khaykin’s Executive Leadership PSUs, Share Price PSUs and Retention RSUs, which will be treated as described in the section entitled “Retention RSU, Executive Leadership PSU and Share Price PSU Vesting Provisions Upon Involuntary Termination” below) to the extent that they would have otherwise vested within 18 months of the termination date, with performance awards treated as earned at the target amount. Whether or not an Involuntary Termination occurs within one year after a Change in Control, Mr. Khaykin will also be reimbursed for 18 months the amount equal to the difference between the monthly cost of his COBRA health and dental benefits and the amount he would have been required to contribute for health and dental coverage if he remained an active employee of the Company. The Khaykin Agreement contains a “better after-tax” provision, which provides that if any of the payments to Mr. Khaykin constitutes a parachute payment under Section 280G of the Code, the payments will either be (i) reduced or (ii) provided in full to Mr. Khaykin, whichever results in him receiving the greater amount after taking into consideration the payment of all taxes, including the excise tax under Section 4999 of the Code.
Summary Compensation Tables
| Derksen Agreement |
Summary Compensation Tables
Pursuant to the terms of the Company’s agreement with Mr. Derksen (the “Derksen Agreement”), if Mr. Derksen’s employment is involuntarily terminated other than within a period ending on the first anniversary of a Change of Control, he will receive a severance payment equal to 18-months base salary and will also be reimbursed for 18 months, the amount equal to the difference between the monthly cost of his COBRA health and dental benefits and the amount he would have been required to contribute for health and dental coverage if he remained an active employee of the Company. Mr. Derksen voluntarily resigned from the Company, effective September 30, 2023. Mr. Derksen will not be entitled to receive any severance payments or benefits in connection with his resignation. Executive Leadership PSU and Share Price PSU Vesting Provisions Upon Change in Control The Executive Leadership PSUs and Share Price PSUs provide that, in the event of a change in control in which the PSUs are assumed, the PSUs will cease to be subject to any performance-based vesting conditions and 100% of the PSUs will vest upon the end of the applicable four-year retention period, subject to the NEO’s continuous active service through the vesting date. Retention RSU, CEO PSU and Share Price PSU Vesting Provisions Upon Involuntary Termination Notwithstanding anything to the contrary in any individual employment agreement, upon a termination without Cause or resignation for Good Reason (each as defined in the Change in Control Plan), in each case, outside of the 12-month period beginning upon a Change in Control (as defined in the Change in Control Plan), Retention RSUs will vest on a prorated basis, while Executive Leadership PSUs and Share Price PSUs will be forfeited. Retention RSUs, Executive Leadership PSUs and Share Price PSUs are subject to the terms of the Change in Control Plan (as described above) upon a termination without Cause or resignation for Good Reason (each, as defined in the Change in Control Plan), in each case, within the 12- month period beginning upon a Change in Control (as defined in the Change in Control Plan). RSU and PSU Vesting Provisions Upon Death and Disability Consistent with the practice of many of our peers and to encourage our employees to remain employed with us through the date of the applicable vesting event, grants of RSUs, MSUs, Share Price PSUs and Executive Leadership PSUs, provide for full vesting upon separation from the Company due to death or Disability (as defined in the award agreements), with MSUs and PSUs vesting at target. Potential Payments Upon Termination or Change in Control The table below reflects the amount of compensation to be paid to each of the NEOs in the event of termination of such executive’s employment. The figures shown below assume that such termination was effective as of July 1, 2023 (and therefore use the closing price of our common stock on Nasdaq as of June 30, 2023, the last trading day of FY23, for all equity-based calculations), and thus include amounts earned through such time and are estimates of the amounts which would be paid out to the NEOs upon their termination. The actual amounts that would be paid for the other NEOs can only be determined at the time of such executive’s separation from the Company.
Summary Compensation Tables
| Name | Benefit | Death or Disability($) (1) | Within 12 Months After a Change in Control($) (2) | Termination Not in Connection with a Change in Control ($) (3) | | Oleg Khaykin | Cash Severance | 3,037,500 | 3,881,250 | 3,037,500 | | | Equity Award Acceleration | 16,462,263 | 16,462,263 | 8,982,617 | | | COBRA | — | 37,974 | 37,974 | | Henk Derksen(4) | Cash Severance | — | 1,050,000 | 787,500 | | | Equity Award Acceleration | 3,070,781 | 3,070,781 | — | | | COBRA | — | 27,053 | 40,580 | | Paul McNab | Cash Severance | — | 900,000 | — | | | Equity Award Acceleration | 1,961,552 | 1,961,552 | — | | | COBRA | — | 27,053 | — | | Luke Scrivanich | Cash Severance | — | 800,000 | — | | | Equity Award Acceleration | 2,037,802 | 2,037,802 | — | | | COBRA | — | 16,792 | — | | Gary Staley | Cash Severance | — | 630,000 | — | | | Equity Award Acceleration | 2,374,451 | 2,374,451 | — | | | COBRA | — | 27,053 | — |
Summary Compensation Tables
(1)Amounts in this column reflect the value of unvested securities as of the last day of FY23 that would accelerate and vest upon a separation from the Company due to death or Disability, pursuant to the terms of the NEO’s RSU, MSU, Share Price PSU and Executive Leadership PSU award agreement(s). In addition, Mr. Khaykin is entitled to cash severance benefits upon a death or Disability, pursuant to the Khaykin Agreement, which benefits are also reflected in this column. (2)Amounts in this column reflect the value of severance benefits under the Change in Control Plan and the Khaykin Agreement. Severance benefits for Mr. Khaykin are also payable if he is terminated without Cause or resigns for Good Reason within three months prior to a Change in Control, which are the same benefits that he is entitled to receive if he experiences a qualifying termination within 12 months after a Change in Control. These amounts do not reflect the impact of any “better after-tax” provision. (3)Amounts in this column reflect the value of severance benefits under (i) the Khaykin Agreement, (ii) the Derksen Agreement and (iii) unvested Retention RSUs. (4)Mr. Derksen voluntarily resigned from the Company, effective September 30, 2023. Mr. Derksen will not be entitled to receive any severance payments or benefits in connection with his resignation. In addition, Mr. Derksen’s unvested MSUs will terminate effective September 30, 2023 in connection with his departure. CEO Pay Ratio Under rules adopted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K, we are required to calculate and disclose the total compensation paid to our median employee, as well as the ratio of the total compensation paid to the median employee as compared to the total compensation paid to Oleg Khaykin, our CEO. The following paragraphs describe our methodology and the resulting CEO Pay Ratio. For FY23, the median annual total compensation of all our employees (other than our CEO) was $79,503. The annual total compensation of our CEO was $8,978,665. Based on this information, the ratio of the annual total compensation of our CEO to the median annual total compensation of all our employees was approximately 113 to 1. We identified the “median employee” using the following methodology and material assumptions, adjustments, and estimates (consistent with applicable SEC rules): ■We selected July 1, 2023, as the date upon which we would identify the “median employee.” ■As of this date, our employee population consisted of approximately 3,661 individuals. After excluding 179 employees (representing less than 5% of our total number of employees), we identified our median employee from a group of approximately 3,482 employees globally.
Summary Compensation Tables
| Countries | # of Employees | % of Employees | | Netherlands | 1 | 0.03% | | Norway | 1 | 0.03% | | Denmark | 2 | 0.05% | | Poland | 2 | 0.05% | | Switzerland | 2 | 0.05% | | Austria | 3 | 0.08% | | Georgia | 4 | 0.11% | | Hong Kong | 4 | 0.11% | | United Arab Emirates | 6 | 0.16% | | Australia | 7 | 0.19% | | Finland | 9 | 0.25% | | Taiwan | 11 | 0.30% | | Sweden | 12 | 0.33% | | Spain | 23 | 0.63% | | Ireland | 28 | 0.77% | | Japan | 30 | 0.82% | | Brazil | 34 | 0.93% | | Total Employees Excluded | 179 | 4.90% |
Summary Compensation Tables
■For purposes of determining our median employee, we excluded employees in certain countries that, in total, resulted in the exclusion of approximately 179 employees (the “De Minimis Exemption”). This exclusion represents less than 5% of our total number of employees as permitted under SEC rules. ■We used base compensation earned in FY23 as our consistently applied compensation measure. In the case of foreign employees, base compensation also included “13th month pay” and any holiday allowance that was statutorily required to be paid as we view such compensation to be part of their base compensation. ■Base compensation was annualized for all permanent employees who were hired after the fiscal year began, and all foreign currencies were converted to U.S. dollars using the applicable exchange rate as of July 1, 2023. ■Once we identified the median employee, we calculated the elements of the median employee’s FY23 total annual compensation in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K. We believe this ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described above. The SEC rules for identifying the “median employee” and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. Accordingly, the pay ratio reported by other companies may not be comparable to the pay ratio reported by us, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their pay ratios. Pay Versus Performance This section provides disclosure about the relationship between executive compensation actually paid to our principal executive officer (PEO) and Non-PEO NEOs and certain financial performance measures of the Company for the fiscal years listed below. This disclosure has been prepared in accordance with Item 402(v) of Regulation S-K under the Securities Exchange Act of 1934 (the “Pay Versus Performance Rules”) and does not necessarily reflect how the Compensation Committee evaluates compensation decisions.
Summary Compensation Tables
| Year(1) (a) | Summary Compensation Table Total for PEO (b) | Compensation Actually Paid to PEO (2)(3) (c) | Average Summary Compensation Table Total for Non-PEO Named Executive Officers (d) | Average Compensation Actually Paid to Non-PEO Named Executive Officers(2)(4) (e) | Value of Initial Fixed $100 Investment Based On:(5) | | Net Income(in millions) (h) | Consolidated Non-GAAP Operating Income (in millions)(6) (i) | | | | | | | Total Shareholder Return (f) | Peer Group Total Shareholder Return (g) | | | | 2023 | $8,978,665 | $5,273,915 | $1,779,833 | $1,142,474 | $91 | $95 | $25.5 | $172.5 | | 2022 | $9,340,416 | $2,475,672 | $1,807,445 | $812,945 | $105 | $93 | $15.5 | $286.8 | | 2021 | $16,868,008 | $20,204,757 | $2,690,648 | $1,913,339 | $140 | $127 | $67.5 | $253.5 |
Summary Compensation Tables
(1)The following table lists the PEO and Non-PEO NEOs for each of fiscal years 2021, 2022 and 2023.
Summary Compensation Tables
| | PEO | Non-PEO NEOs | | 2023 | Oleg Khaykin | Henk Derksen, Paul McNab, Luke Scrivanich and Gary Staley | | 2022 | Oleg Khaykin | Henk Derksen, Paul McNab, Luke Scrivanich and Gary Staley | | 2021 | Oleg Khaykin | Amar Maletira, Paul McNab, Luke Scrivanich, Gary Staley, Amar Maletira and Pam Avent |
Summary Compensation Tables
(2)The dollar amounts reported represent the amount of “compensation actually paid,” as calculated in accordance with the Pay Versus Performance Rules. These dollar amounts do not reflect the actual amounts of compensation earned by or paid to our NEOs during the applicable year. For purposes of calculating “compensation actually paid,” the fair value of equity awards is calculated in accordance with ASC Topic 718 using the same assumption methodologies used to calculate the grant date fair value of awards for purposes of the Summary Compensation Table (refer to “Executive Compensation and Other Information – Summary Compensation Table” for additional information). (3)The following table shows the amounts deducted from and added to the Summary Compensation Table total to calculate “compensation actually paid” to Mr. Khaykin in accordance with the Pay Versus Performance Rules:
Summary Compensation Tables
| | Pension Plan Adjustments | | | Equity Award Adjustments | | | | | | | | | | Summary Compensation Table Total for PEO | Change in Pension Value | Pension Service Cost | Stock Awards | Year End Fair Value of Equity Awards Granted in the Year and Unvested at Year End | Year over Year Change in Fair Value of Outstanding and Unvested Equity Awards Granted in Prior Years | Fair Value as of Vesting Date of Equity Awards Granted and Vested in the Year | Change in Fair Value of Equity Awards Granted in Prior Years that Vested in the Year | Fair Value at the End of the Prior Year of Equity Awards that Failed to Meet Vesting Conditions in the Year | Value of Dividends or other Earnings Paid on Stock or Option Awards not Otherwise Reflected in Fair Value | Compensation Actually Paid to PEO | | 2023 | $8,978,665 | N/A | N/A | ($8,078,473) | $5,533,334 | ($2,036,350) | - | $876,739 | - | - | $5,273,915 | | 2022 | $9,340,416 | N/A | N/A | ($7,548,009) | $6,150,273 | ($4,404,592) | - | ($1,062,416) | - | - | $2,475,672 | | 2021 | $16,868,008 | N/A | N/A | ($15,169,727) | $17,892,079 | $688,558 | - | ($74,161) | - | - | $20,204,757 |
Summary Compensation Tables
(4)The following table shows the amounts deducted from and added to the average Summary Compensation Table total compensation to calculate the average “compensation actually paid” to our Non-PEO NEOs in accordance with the Pay Versus Performance Rules.
Summary Compensation Tables
| | Pension Plan Adjustments | | | Equity Award Adjustments | | | | | | | | | | Average Summary Compensation Table Total for Non-PEO NEOs ($) | Change in Pension Value ($) | Pension Service Cost ($) | Stock Awards ($) | Year End Fair Value of Equity Awards Granted in the Year and Unvested at Year End ($) | Year over Year Change in Fair Value of Outstanding and Unvested Equity Awards Granted in Prior Years ($) | Fair Value as of Vesting Date of Equity Awards Granted and Vested in the Year ($) | Change in Fair Value of Equity Awards Granted in Prior Years that Vested in the Year ($) | Fair Value at the End of the Prior Year of Equity Awards that Failed to Meet Vesting Conditions in the Year ($) | Value of Dividends or other Earnings Paid on Stock or Option Awards not Otherwise Reflected in Fair Value ($) | Average Compensation Actually Paid to Non-PEO Named Executive Officers ($) | | 2023 | $1,779,833 | N/A | N/A | ($1,314,132) | $900,113 | ($296,655) | - | $73,315 | - | - | $1,142,474 | | 2022 | $1,807,445 | N/A | N/A | ($1,010,872) | $823,679 | ($636,360) | - | ($170,947) | - | - | $812,945 | | 2021 | $2,690,648 | N/A | N/A | ($2,137,496) | $1,785,693 | $72,144 | - | ($78,732) | ($418,919) | - | $1,913,339 |
Summary Compensation Tables
(5)In accordance with the Pay Versus Performance Rules, the Company and the Company’s peer group total shareholder return (the “Peer Group TSR”) is determined based on the value of an initial fixed investment of $100 on June 27, 2020, through the end of the listed fiscal year. The Peer Group TSR set forth in this table was determined using the Nasdaq Telecommunication Index, which we also use in preparing the stock performance graph required by Item 201(e) of Regulation S-K for our Annual Report for the fiscal year ended July 1, 2023. (6)We have determined that Consolidated Non-GAAP Operating Income (also referred to in our Compensation Discussion and Analysis as “Non-GAAP Operating Profit”) is the financial performance measure that, in the Company’s assessment, represents the most important financial performance measure used to link “compensation actually paid” to our NEOs, for fiscal year 2023, to company performance (the “Company Selected Measure” as defined in the Pay Versus Performance Rules). Please refer to the section titled “Elements of FY23 Executive Compensation – Financial Metrics for FY23” for the definition of Non-GAAP Operating Income and to Annex A for a reconciliation of Non-GAAP Operating Income to GAAP Operating Income. Financial Performance Measures In accordance with the Pay Versus Performance Rules, the following table lists the three financial performance measures that, in the Company’s assessment, represent the most important financial performance measures used to link “compensation actually paid” to our NEOs, for fiscal year 2023, to company performance, as further described in our Compensation Discussion and Analysis within the section titled “Elements of FY23 Executive Compensation – Financial Metrics for FY23” (see page 81).
Summary Compensation Tables
| Seven Most Important Performance Measures | | Consolidated Non-GAAP Operating Income | | Consolidated Revenue | | OSP Revenue | | OSP Non-GAAP Operating Income | | NSE Revenue | | NSE Non-GAAP Operating Income | | Relative TSR |
Summary Compensation Tables
Relationship Between “Compensation Actually Paid” and Performance In accordance with the Pay Versus Performance Rules, the charts below illustrate how “compensation actually paid” to our NEOs aligns with the Company’s financial performance as measured by our TSR, our Peer Group TSR, our net income, and Non-GAAP Operating Income.
Compensation Actually Paid, Cumulative TSR of the Company and Cumulative TSR
Compensation Actually Paid, Cumulative TSR of the Company and Cumulative TSR
Compensation Actually Paid and Net Income
Compensation Actually Paid and Net Income
Compensation Actually Paid and Non-GAAP Operating Income
Compensation Actually Paid and Non-GAAP Operating Income Equity Compensation Plans The following table sets forth information about shares of the Company’s Common Stock that may be issued under the Company’s equity compensation plans, including compensation plans that were approved by the Company’s stockholders as well as compensation plans that were not approved by the Company’s stockholders. Information in the table is as of July 1, 2023.
Compensation Actually Paid and Non-GAAP Operating Income
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted- average exercise price of outstanding options, warrants and rights (1) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) | | Equity compensation plans approved by security holders | 7,497,370(2) | n/a | 9,059,960(3) | | Equity compensation plans not approved by security holders | 1,180,257(4) | $5.95 | — | | Total/Weighted Ave./Total | 8,677,627 | $5.95 | 9,059,960 |
Compensation Actually Paid and Non-GAAP Operating Income
(1)Excludes outstanding RSUs, which have no exercise price. (2)Represents shares of the Company’s Common Stock issuable upon the exercise of options outstanding and vesting and settlement of RSUs under the 2003 Plan and excludes purchase rights under the Amended and Restated 1998 Employee Stock Purchase Plan (the “1998 ESPP”). Excluding outstanding RSUs, which have no exercise price, as of July 1, 2023, there were no options to purchase shares under the 2003 Plan. (3)Represents shares of the Company’s Common Stock authorized for future issuance under the 2003 Plan (under which 7,517,419 shares remained available for grant as of July 1, 2023) and the ESPP (under which 1,542,541 shares remained available for grant as of July 1, 2023, including shares subject to purchase during the current purchase period, which commenced on January 31, 2023 (the exact number of which will not be known until the purchase date on July 31, 2023). (4)On February 15, 2016, in connection with his appointment as CEO, Mr. Khaykin was granted compensatory options, which were not made pursuant to any stockholder-approved equity plan, as an inducement for Mr. Khaykin to join the Company. As of July 1, 2023, options to purchase 1,180,257 shares of common stock with an exercise price of $5.95 per share, which are fully vested and had an original term of eight years with a remaining term of less than one year remain outstanding.