DEF 14A of Penguin Solutions, Inc.
Filed Dec 19, 2023 · FY20230001140361-23-058423
DIRECTOR COMPENSATION
DIRECTOR COMPENSATION The Compensation Committee is responsible for approving the compensation of our independent directors. As part of this process, the Compensation Committee periodically reviews the independent director compensation program to evaluate whether it is competitive with market practices after considering input from the Compensation Committee’s independent compensation consultant with respect to market data for the same peer group of companies as is used for evaluating executive compensation decisions. Following this review, for fiscal 2023, the Compensation Committee decided not to adjust the independent director compensation program, which consists of the following, effective as of February 11, 2022:
Director Compensation Table for Fiscal 2023
Director Compensation Table for Fiscal 2023
Director Compensation Table for Fiscal 2023
| Name | Fees Earned or Paid in Cash ($) | Share Awards ($)(1)(2) | Total ($) | | Randy Furr | 90,000 | 149,991 | 239,991 | | Penelope Herscher | 115,000 | 149,991 | 264,991 | | Bryan Ingram | 77,500 | 149,991 | 227,491 | | Sandeep Nayyar | 90,000 | 149,991 | 239,991 | | Mark Papermaster | 82,500 | 179,899 | 262,399 | | Mary Puma(3) | 8,942 | 189,015 | 197,957 | | Maximiliane Straub | 90,000 | 149,991 | 239,991 |
Director Compensation Table for Fiscal 2023
| (1) Represents the grant date fair value of each RSU award granted during fiscal 2023 in accordance with the Financial Accounting Standard Board’s Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”), disregarding for this purpose the estimate of forfeitures related to service-based vesting conditions. For a discussion of assumptions used to calculate the FASB ASC Topic 718 grant date fair value, refer to the Share-Based Compensation Note to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended August 25, 2023. |
Director Compensation Table for Fiscal 2023
| (2) As of August 25, 2023, our non-employee directors held the equity awards set forth in the following table: |
Director Compensation Table for Fiscal 2023
| Name | RSUs (#) | | Randy Furr | 8,417 | | Penelope Herscher | 8,417 | | Bryan Ingram | 8,417 | | Sandeep Nayyar | 8,417 | | Mark Papermaster | 9,564 | | Mary Puma | 6,967 | | Maximiliane Straub | 8,417 |
Director Compensation Table for Fiscal 2023
| (3) Ms. Puma was appointed to the Board in July 2023 and therefore served as a director for a portion of fiscal 2023. |
PROPOSAL NO. 1: ELECTION OF DIRECTORS
PROPOSAL NO. 1: ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE. Our Board is presently composed of eight members who are divided into three classes, designated as Class I, Class II, and Class III. One class of directors is elected by the shareholders at each annual general meeting of shareholders to serve from the time of their election until the third annual general meeting of shareholders following their election. Class I directors consist of Sandeep Nayyar, Mary Puma, and Maximiliane Straub. Class II directors consist of Randy Furr and Penelope Herscher. Class III directors consist of Mark Adams, Bryan Ingram, and Mark Papermaster. The current terms of our Class I directors expire at the Annual General Meeting. The following table sets forth information regarding the Board nominees and other members of the Board as of December 12, 2023.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF
| Name | Age | Position with SGH | Director Since | Class | Term Expires | | Sandeep Nayyar | 64 | Director and Nominee | 2014 | I | 2024 | | Mary Puma | 65 | Director and Nominee | 2023 | I | 2024 | | Maximiliane Straub | 59 | Director and Nominee | 2019 | I | 2024 | | Randy Furr | 69 | Director | 2017 | II | 2025 | | Penelope Herscher | 63 | Director | 2021 | II | 2025 | | Mark Adams | 59 | Director, President and CEO | 2020 | III | 2026 | | Bryan Ingram | 59 | Director | 2018 | III | 2026 | | Mark Papermaster | 62 | Director | 2022 | III | 2026 |
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF
The NCG Committee has nominated Mr. Nayyar and Mses. Puma and Straub as Class I director nominees for a three-year term expiring at the 2027 Annual General Meeting and until their respective successors are duly elected and qualified, or, if sooner, until the director’s death, resignation, or removal. A brief biography of each nominee and each continuing director is set forth below as of December 12, 2023, as well as information regarding the experience, qualifications, attributes, and/or skills of each nominee that led the NCG Committee to believe that the director should continue to serve on the Board. Each of the nominees has consented to being named in this Proxy Statement and to serve if elected.
Nominees for Election as Class I Directors for a Term Expiring at the 2027 Annual General Meeting
Nominees for Election as Class I Directors for a Term Expiring at the 2027 Annual General Meeting Sandeep Nayyar has served as a director since September 2014. Mr. Nayyar has been Vice President and CFO of Power Integrations, Inc., a supplier of high-performance electronic components, from 2010 to the present. From 2001 to 2009, Mr. Nayyar served as Vice President of Finance for Applied Biosystems, Inc., a developer and manufacturer of life sciences products. From 1990 to 2001, Mr. Nayyar served in various senior finance roles including Vice President, Finance at Quantum Corporation, a computer storage company. Mr. Nayyar was with Ernst & Young LLP, a public accounting firm, from 1986 to 1990, including service as an Audit Manager. Mr. Nayyar holds a Bachelor of Commerce from the University of Delhi, India and is a Certified Public Accountant. We believe that Mr. Nayyar’s experience in complex technology companies in the semiconductor, life sciences, and storage industries and the perspective he brings as a Certified Public Accountant make him well qualified for service as a director. Mary Puma has served as a director since July 2023. Ms. Puma previously served as Chief Executive Officer and President of Axcelis Technologies, Inc. (“Axcelis”), a publicly-held company engaged in the supply of capital equipment for the semiconductor chip manufacturing industry, from 2002 to May 2023. Prior to becoming Chief Executive Officer in 2002, Ms. Puma served as President and Chief Operating Officer of Axcelis from 2000. In 1998, she became General Manager and Vice President of Axcelis’s predecessor, the Implant Systems Division of Eaton Corporation, a global diversified industrial manufacturer. In 1996, she joined Eaton as General Manager of the Company’s Commercial Controls Division. Prior to joining Eaton, Ms. Puma spent 15 years in various marketing and general management positions for General Electric Company. Ms. Puma currently serves as Executive Chairperson of the Board of Axcelis, a position she will hold until May 2024, and previously served as Chairperson of the Board from 2005 to 2015. Ms. Puma has served as a director of Ciena Corporation, an American telecommunications networking equipment and software services supplier, since August 2023, and has served as Chairperson of the Board of SEMI, a global industry association serving the manufacturing supply chain for the micro- and nano-electronics industries, since January 2023. Ms. Puma also served as a director of Nordson Corporation from July 2001 to November 2023. Ms. Puma holds a Bachelor of Arts degree in Economics from Tufts University and a Master of Science degree from the MIT Sloan School of Management. We believe that Ms. Puma’s substantial expertise as an industry leader in the technology, electronics, and semiconductor industries, as well as her extensive supply chain expertise, make her well qualified for service as a director. Maximiliane Straub has served as a director since April 2019. Ms. Straub has served with the Robert Bosch LLC companies (“Robert Bosch companies”) for over 27 years and currently serves as President Global Business Services Bosch, a position she has held since January 1, 2020. Ms. Straub also serves as CFO and Executive Vice President of Finance, Controlling, and Administration of Bosch North LLC, a position she has held since June 2010. Prior to joining the Robert Bosch companies, Ms. Straub held several financial positions within the semiconductor division of Siemens AG and Siemens Matsushita Components. Ms. Straub serves on the Board of Directors of Inforum, a professional organization focused on creating strategic connections to help advance professional women. In 2010, 2015, and 2020, Ms. Straub was recognized by Automotive News as one of the “Top 100 Women in the Auto Industry.” She is a guest lecturer for the University of Michigan Ross School of Business program “Ascending to the C-Suite: From Theory to Practice.” Ms. Straub served on the boards of directors of MTS Systems Corporation, Horizon Global Corporation, and Aquantia Corp. Ms. Straub’s educational degrees include Industriekauffrau IHK and an Advanced Business Administration degree with thesis, Diplom-Betriebswirt from the University of Munich. We believe that Ms. Straub’s substantial experience as an executive at public companies in the technology sector, as well as her extensive financial and operational expertise and her background in industrial technology, make her well qualified for service as a director. Each of the following resolutions will be put to shareholders at the Annual General Meeting: “RESOLVED, by ordinary resolution, that Sandeep Nayyar be appointed as a Class I director of the Board to serve until the Company’s 2027 Annual General Meeting of Shareholders or until his respective successor is duly elected and qualified or until his earlier death, resignation, or removal. RESOLVED, by ordinary resolution, that Mary Puma be appointed as a Class I director of the Board to serve until the Company’s 2027 Annual General Meeting of Shareholders or until her respective successor is duly elected and qualified or until her earlier death, resignation, or removal. RESOLVED, by ordinary resolution, that Maximiliane Straub be appointed as a Class I director of the Board to serve until the Company’s 2027 Annual General Meeting of Shareholders or until her respective successor is duly elected and qualified or until her earlier death, resignation, or removal.”
Class II Directors: Continuing in Office Until the 2025 Annual General Meeting
Class II Directors: Continuing in Office Until the 2025 Annual General Meeting Randy Furr has served as a director since September 2017. Mr. Furr joined Bloom Energy Corporation (“Bloom Energy”) in April 2015 and served as Executive Vice President and CFO until his retirement in 2020. Prior to Bloom Energy, he served as Corporate Executive Vice President and CFO of Spansion Inc. from June 2009 to March 2015, when it was acquired by Cypress Semiconductor Corporation. Mr. Furr has over 35 years of experience in the technology sector and is an experienced financial and operations executive. Mr. Furr also held senior executive positions as Executive Vice President and CFO at Magellan Navigation, Inc. from August 2008 to June 2009, and as COO and CFO at Aliph Brands, a consumer Bluetooth telephony device company, from April 2008 to August 2008. Prior to that, Mr. Furr was at Adobe Systems, Inc. (“Adobe”), where he served as Senior Vice President, Business Process Improvement from May 2007 to January 2008, as SVP and Interim Chief Information Officer from November 2006 to May 2007, and as Executive Vice President and CFO from May 2006 to November 2006. Before joining Adobe, Mr. Furr spent 13 years at Sanmina Corporation (“Sanmina”), an electronics manufacturing services provider, where he served as President and COO from 1996 to 2005 and as Executive Vice President and CFO from 1992 to 1996. Mr. Furr served as a member of the board of directors of Sanmina from 1998 until 2005. Mr. Furr holds a Bachelor of Business Administration from the University of Oklahoma and is a Certified Public Accountant. We believe that Mr. Furr’s substantial experience as an executive at several public companies in the technology sector and his background as a Certified Public Accountant make him well qualified for service as a director. Penelope Herscher has served as a director since September 2021. Ms. Herscher is a seasoned technology public company board director, executive, and entrepreneur, with more than 15 years of experience as a high-tech CEO in Silicon Valley and more than 10 years of experience serving on public company boards of directors. She currently serves as chair of the board of directors at Lumentum Holdings, Inc. and as a member of the board of directors of FORVIA SA and several private companies. Ms. Herscher previously served as a member of the board of directors of Embark Trucks, Inc. from September 2022 to August 2023, Verint Systems, Inc. from March 2017 to June 2021, PROS Holdings, Inc. from January 2018 to May 2021 and Rambus, Inc. from July 2006 to April 2018. Since 2004, Ms. Herscher held various executive positions as CEO of First Rain, Inc., Executive Vice President and Chief Marketing Officer of Cadence Design Systems, Inc., and CEO of Simplex Solutions. Ms. Herscher holds a BA Hons, MA in Mathematics from Cambridge University in England. We believe that Ms. Herscher’s substantial experience as a director at public companies and as an executive in the technology sector make her well qualified for service as a director.
Class III Directors: Continuing in Office Until the 2026 Annual General Meeting
Class III Directors: Continuing in Office Until the 2026 Annual General Meeting Mark Adams became our President and CEO as of August 31, 2020 and has served as a director since September 2020. Mr. Adams served as CEO of Lumileds, Inc. (“Lumileds”) from February 2017 until March 2019. Previously, Mr. Adams served as President of Micron Technology, Inc. (“Micron”) from February 2012 to February 2016. From 2006 to February 2012, Mr. Adams served in a number of positions at Micron, including as Vice President of Worldwide Sales and Vice President of Digital Media. Prior to joining Micron, Mr. Adams served as COO of Lexar Media, Inc. in 2006. Mr. Adams also served as Vice President of Sales and Marketing of Creative Labs, Inc. (“Creative Labs”) from 2002 to 2006. In addition, he held numerous roles at Creative Labs prior to 2002, including five years as General Manager of Latin America. Prior to joining Creative Labs, Mr. Adams spent five years in major account sales for the enterprise server business of NCR Corporation. Mr. Adams has served as a member of the board of directors of Cadence Design Systems, Inc. since 2015 and served as a member of the board of directors of Seagate Technology PLC from January 2017 to October 2022. Mr. Adams holds a Master of Business Administration from Harvard University, focused in finance and international marketing. As our top executive, Mr. Adams has direct responsibility for strategy development and execution. We believe that Mr. Adams’ substantial experience in investing and finance and his service as a senior executive and on the boards and board committees of technology companies, make him well qualified for service as a director of SGH. Bryan Ingram has served as a director since October 2018. Mr. Ingram retired from Broadcom Inc. (“Broadcom”) effective March 20, 2020. Mr. Ingram served as Senior Vice President (“SVP”) and General Manager of Broadcom’s Wireless Semiconductor Division (“WSD”) from November 2015 to November 2019 and from 2007 to March 2013. As SVP and General Manager at WSD, Mr. Ingram oversaw the development, production, and marketing of Radio-Frequency components used in handsets and other communications devices. Mr. Ingram served as COO of Avago Technologies (“Avago”) from April 2013 until October 2015. In this role, he led the legacy Avago business units and operations. From 2005 to 2007, Mr. Ingram was Vice President of WSD. Prior to the founding of Avago from the Agilent Semiconductor Products Group (“SPG”) in 2005, Mr. Ingram was Vice President and General Manager of the SPG Wireless Semiconductor Division. From 1986 to 1999, Mr. Ingram held various management positions at HP Inc. and Westinghouse Electric Corporation. Mr. Ingram holds a Bachelor of Science in Electrical Engineering from the University of Illinois and a Master of Science in Electrical Engineering from Johns Hopkins University. We believe that Mr. Ingram’s substantial experience as an executive at public companies in the technology sector, as well as his background in operations, business development, and marketing, make him well qualified for service as a director. Mark Papermaster has served as a director since August 2022. Mr. Papermaster is an experienced Chief Technology Officer overseeing corporate technical direction and product development with a demonstrated history of delivering impactful, leading-edge products to market. He currently serves as Chief Technology Officer and Executive Vice President, Technology and Engineering, at Advanced Micro Devices, Inc. (“AMD”), where he is responsible for corporate technical direction, product development, advanced research, and the information technology foundation of compute infrastructure and services. Before joining AMD in October 2011, he held senior leadership positions at Cisco Systems, Inc., Apple, Inc., and International Business Machines Corporation. Mr. Papermaster holds a Bachelor of Science from the University of Texas at Austin and a Master of Science from the University of Vermont, both in Electrical Engineering. He is a long-term member of the University of Texas Cockrell School of Engineering Advisory Board, the Juvenile Diabetes Research Foundation, the CTO Forum Advisory Board, IEEE Industry Advisory Board, and Global Semiconductor Alliance Board of Directors. We believe that Mr. Papermaster’s substantial engineering experience, including significant leadership roles managing the development of a wide range of products from microprocessors to mobile devices and high-performance servers, as well as his cyber, technology, and information security background as a Chief Technology Officer, make him well qualified for service as a director.
Our Named Executive Officers
* Mr. Laurello was appointed President, Intelligent Platform Solutions effective June 27, 2023. Because Mr. Laurello did not participate in the Company’s standard annual executive compensation program for fiscal 2023, the compensation he received with respect to fiscal 2023 is described in “Other Elements of Our 2023 Executive Compensation Program – Employment and Severance Arrangements – Laurello Offer Letter” below, and references to our fiscal 2023 annual executive compensation program in this Compensation Discussion and Analysis exclude Mr. Laurello. Mr. Laurello succeeded Mr. Pellegrino, who ceased serving as Senior Vice President of SGH and President of Intelligent Platform Solutions effective June 27, 2023 and has agreed to provide consulting services to the Company through January 31, 2024. Please see “Other Elements of Our 2023 Executive Compensation Program – Employment and Severance Arrangements – Pellegrino Transition Arrangement” below for a description of Mr. Pellegrino’s transition agreement.
Executive Summary
| | Pay Element* | | | | | | Base Salary | Short-Term Cash Incentive Compensation | Time-Based RSUs | Performance-Based RSUs | | Recipients | All NEOs | All NEOs | All NEOs | All NEOs | | When Granted | Annually | Annually | Annually | Annually | | Form of Delivery | Cash | Cash | Equity | Equity | | Type of Performance | Short-term emphasis, fixed | Short-term emphasis, variable | Long-term emphasis, variable | Long-term emphasis, variable | | Performance / Vesting Period | Annual, fixed | One-year performance period | Quarterly vesting over a four-year period, subject to continued service through the applicable vesting date | Three-year performance period |
Executive Summary
| | Pay Element* | | | | | | Base Salary | Short-Term Cash Incentive Compensation | Time-Based RSUs | Performance-Based RSUs | | How Payout Is Determined | Compensation Committee determination | Determined by Compensation Committee based upon objectives approved by Compensation Committee | Service throughout the vesting period | Attainment of performance condition(s) approved by Compensation Committee and service throughout performance period and vesting date | | 2023 Performance Measures | Individual | Performance is weighted 75% based on financial performance (net sales and non-GAAP operating income) and 25% based on individual performance, which includes matters related to environmental, social, and governance issues | Share price | Total shareholder return relative to Russell 2000 |
Executive Summary
| Our Executive Compensation Practices | | | ✔ | Substantial percentage of target annual compensation is at risk and delivered in the form of variable compensation tied to financial performance measured against pre-established targets based on financial metrics in our annual operating plan, or tied to performance of our share price or total shareholder return | | ✔ | Emphasis on performance in our short-term and long-term incentive programs, where actual payouts vary based on Company performance against both Company-specific and relative metrics (including for fiscal 2023 and fiscal year 2024 (“fiscal 2024”)). Under the cash incentive program, Company performance is measured on an annual basis against pre-established financial metrics. And, with regard to annual equity grants to our then-serving executive officers in October 2021, September 2022, and September 2023, 50% of the grant was in the form of performance-based restricted share units (“PSUs”) with vesting tied to the achievement of total shareholder return relative to the Russell 2000 over a three-year performance period | | ✔ | Ten percent of each executive’s target bonus is subject to performance on predetermined, measurable ESG goals related to human capital and environmental stewardship | | ✔ | Market comparison of executive compensation against a relevant peer group | | ✔ | Independent Compensation Committee | | ✔ | Use of an independent compensation consultant that provides no other services to the Company and reports directly to the Compensation Committee | | ✔ | Robust share ownership guidelines | | ✔ | Clawback policy, including a supplemental policy compliant with the SEC’s new clawback rules | | ✔ | Annual Say-on-Pay vote | | ✔ | Management consideration and implementation of shareholder feedback related to executive compensation matters | | ✔ | Limited perquisites | | ✔ | No excessive severance benefits | | ✔ | Payment of dividends or dividend equivalents on unearned performance-based equity awards is not permitted under our long-term incentive plan until such awards vest and/or are earned | | ✔ | Prohibition on hedging, pledging, or short sales of our securities | | ✔ | Pay equity study in the United States designed to inform our efforts to ensure pay parity amongst our employees |
Executive Summary
| What We Heard from Investors | How We Responded | | Executive Compensation: Investors would like to see executive compensation more closely tied to performance and more closely aligned with shareholder returns. | • For fiscal 2022, 2023, and 2024, 50% of the annual equity grant to each of our then-serving NEOs included PSUs with vesting tied to the achievement of total shareholder return goals relative to the Russell 2000 over a three-year performance period. The remaining 50% of the annual equity grant, time-based RSUs, vests subject to continued service over a longer four-year vesting period. • More than 78% of our NEOs’ compensation in fiscal 2023 was weighted towards at-risk, variable incentive awards (short-term cash incentives and equity grants) rather than base salaries. No guaranteed bonuses were paid in fiscal 2022 or fiscal 2023. • Beginning in fiscal 2022 and continuing in fiscal 2023, performance under the short-term cash incentive executive compensation program was measured on an annual basis rather than every six months. We set robust goals for our cash incentive program taken from our Board-approved annual operating plan. For fiscal 2023, our net sales performance target was set at $2.01 billion, an increase of 13% over our fiscal 2022 net sales performance target, and our non-GAAP operating income performance target was set at $268.9 million, an increase of 42% over our fiscal 2022 non-GAAP operating income performance target. We adhered rigorously to our structured short-term cash incentive program. • Executive departures in fiscal 2023, such as the departure of Thierry Pellegrino, were not coupled with equity award acceleration. • While our burn rate over the prior three fiscal years was high compared to our peers, primarily due to stock price decline and acquisitions, our gross burn rate for fiscal 2023 is below fiscal 2021 levels and we expect a slight decrease in overhang as granted equity vests. |
Executive Summary
| What We Heard from Investors | Our Perspective / How We Responded | | ESG Disclosures and Governance: Investors would like to see more disclosure regarding how our Board oversees our ESG practices and goals. | • In fiscal 2023, we released our second annual Environmental, Social, and Governance Report, which reports on our progress toward our ESG goals. We formed an ESG steering committee in 2021 and have continued our commitment to a sustainable future and a better world. • We have demonstrated progress toward reaching our longer-term measurable ESG goals, including reduction of our Scope 1 and Scope 2 carbon emissions in support of our commitment to achieve net-zero Scope 1 and Scope 2 carbon emissions by 2030. • Our first three employee resource groups were fully launched by fiscal 2023, providing new spaces for employees to connect over their shared perspectives and identities. We conducted a robust gender pay equity study in the United States to inform our efforts to advance pay parity amongst our employees. We took swift action in response to promote an equitable pay structure consistent across the Company. • We adopted a supplemental clawback policy compliant with the SEC’s new clawback rules. • We leveraged the experience and expertise of Mark Papermaster, the chair of our Board’s Cybersecurity Risk Management Committee, to improve oversight of our information technology use, data security, and compliance with information security and data protection laws. • In fiscal 2023, our Compensation Committee approved measurable ESG goals for assessing executive performance. Ten percent of each executive’s target bonus is affected by performance on predetermined ESG goals focused on human capital and environmental stewardship. This performance will be measured year-over-year using a scorecard-based approach. |
How We Make Executive Compensation Decisions
| • | Maintaining levels of guaranteed compensation aligned with our peer group and other comparably sized companies; |
How We Make Executive Compensation Decisions
| At-Risk Executive Compensation | | | Pay Element | Philosophies and Objectives | | Performance-Based Equity Awards | • Directly links compensation to relative total shareholder return goals and/or other performance-based metrics | | Time-Based Equity Awards | • Supports executive retention by tying awards to specific timelines • Provides an opportunity for executives to benefit from the creation of shareholder value over time • Provides appropriate incentive to drive Company performance | | Short-Term Cash Incentive Program | • Ties fiscal 2023 performance goals to net sales and non-GAAP operating income in order to incentivize top-line growth and profitability • Fiscal 2023 performance goals are designed to be challenging but achievable, and are taken directly from the Board-approved annual operating plan • Does not include any guaranteed bonuses paid in fiscal 2023 • Assesses performance based on human capital and environmental, social, and governance matters, with specific, measurable metrics previously established for fiscal 2023 |
How We Make Executive Compensation Decisions
Role of the Board, the Compensation Committee, and Our Executive Officers At least once per year (prior to awarding short-term cash incentive compensation), the CEO assesses each NEO’s performance, taking into account accomplishments, areas of strength, and opportunities for development. The CEO bases this evaluation on his knowledge of each NEO’s performance and the individual’s self-assessment. Starting in fiscal 2022, this evaluation also includes a review of the NEOs’ collective progress on ESG matters, which is presented to the Compensation Committee and informs the CEO’s recommendations for any upward or downward adjustments to compensation and the actual payout amount of the short-term cash incentive. For fiscal 2023, ten percent of each executive’s target bonus was subject to performance on predetermined, measurable ESG goals related to human capital and environmental stewardship. This performance is evaluated year-over-year using a scorecard approach. NEOs, including our CEO, do not propose or seek approval of their own compensation or participate in the discussion of their performance with the Compensation Committee. After considering the CEO’s recommendations and a variety of other factors outlined below, the Compensation Committee has final authority to implement any changes to the compensation of each NEO. The CEO’s annual performance review is conducted by the Compensation Committee, which is composed of independent directors only. This evaluation takes several factors into account, including the criteria listed above as well as overall actual Company performance relative to Company performance goals for the fiscal year. The Compensation Committee also considers the CEO’s individual contributions to Company performance, including his leadership and stewardship in achieving the Company’s actual performance. They then consider these evaluations in conjunction with any input they receive from other directors in order to arrive at an overall evaluation of the CEO’s performance. The Compensation Committee also considers whether any changes to the CEO’s compensation are warranted and presents any such changes to the Board. Guidance from Independent Compensation Consultant During fiscal 2023, Semler Brossy Consulting Group (“Semler” or the “Compensation Consultant”) provided executive and director compensation consulting services to the Compensation Committee. The Compensation Committee’s independent Compensation Consultant reports directly to and is accountable to the Compensation Committee. The Compensation Consultant was engaged to provide advice, information, and recommendations relating to the compensation of our executive officers and directors, including base salary, cash incentive and equity incentive levels, and program structures and other retention incentives, and assessed how this compensation compares to compensation for executive officers and directors of members of our peer group and comparably sized technology companies. In addition, the Compensation Consultant assisted the Compensation Committee with the development of a peer group and the design and refinement of our compensation philosophy. The Compensation Consultant also advised the Compensation Committee regarding compensation disclosures, share ownership guidelines, clawback provisions, shareholder proposals, and trends and best practices in executive and director pay. In the course of its work, the Compensation Consultant interacts with management to understand existing Company programs and policies, collects current pay program data, reviews competitive compensation data, obtains feedback on industry trends and best practices, and provides input on the CD&A disclosure in our proxies. Semler does not provide and has not been retained to provide any services to us outside of the work assigned by the Compensation Committee. The Compensation Committee has assessed the independence of the Compensation Consultant pursuant to the Nasdaq listing standards and concluded that the Compensation Consultant’s work for the Compensation Committee did not raise any conflict of interest. Comparison to Relevant Peer Group In determining actual pay, the Compensation Committee considers compensation levels at peer group and other comparably sized companies. However, it is only one factor among five, including:
How We Make Executive Compensation Decisions
| • | Competitive compensation data from our peer group and other comparably sized companies. |
How We Make Executive Compensation Decisions
Comparative Framework Each year, the Compensation Committee works with the Compensation Consultant to develop and/or evaluate a peer group intended to represent companies with technology product manufacturing operations and a financial profile similar to ours. After consulting with its independent Compensation Consultant, the Compensation Committee updated the peer group used for purposes of compiling compensation benchmarking data for our fiscal 2023 executive compensation programs in order to better align our peer group with the size and structure of our evolving business. Given the more diversified nature of our business and the Company’s revenue growth in fiscal 2022, the Compensation Committee sought to include companies with similar growth profiles and business characteristics to SGH (e.g., business-to-business products and services, semiconductor and semiconductor equipment, LED/LCD products, high-level computing, and internet-of-things companies) against which our business can be appropriately compared. The peer group for fiscal 2023 was selected based on the following criteria:
Elements of Executive Compensation
| ○ | Short-term cash incentive compensation; and |
Elements of Executive Compensation
| ○ | Equity compensation (including time-based and performance-based awards). |
Elements of Executive Compensation
| ○ | Severance benefits. |
Elements of Executive Compensation
Short-Term Cash Incentive Compensation The Compensation Committee approved fiscal 2023 financial performance targets early in the year, including ambitious goals that were designed to be challenging but attainable, with achievement over 100% as a stretch goal. For example, the fiscal 2023 net sales performance target for SGH was $2.01 billion (13% above our fiscal 2022 net sales performance target), and the fiscal 2023 non-GAAP operating income performance target for SGH was $268.9 million (42% above our fiscal 2022 non-GAAP operating income performance target). Fiscal 2023 Short-Term Cash Incentive Program for NEOs Other Than David Laurello Performance Period. For fiscal 2023, performance under our short-term cash incentive program was measured over an annual period to promote executive focus on long-term results and to encourage executive retention. Bonus payouts are prorated based on the number of days employed during a particular bonus period. Performance Factors. For fiscal 2023, each NEO’s actual bonus was determined by multiplying their target bonus amount by a Financial Performance Factor (weighted 75%) and an Individual Performance Factor (weighted 25%). Financial Performance Factor. Financial performance targets for each performance period are set forth for SGH as a whole and for each of the three individual Business Units (Memory Solutions, LED Solutions, and IPS) in our Board-approved annual operating plan (“AOP”). The AOP is approved by the Board before the beginning of each fiscal year or as soon as is practicable thereafter. The financial performance of SGH (the “SGH Performance Factor”) was calculated based on achievement of non-GAAP operating income targets (weighted 75%) and net sales targets (weighted 25%). The individual financial performance of the Memory Solutions, LED Solutions, and IPS Business Units (the “BU Performance Factor”) was calculated based on achievement of non-GAAP operating income targets for the applicable Business Unit (weighted 75%) and net sales targets for the applicable Business Unit (weighted 25%). For Messrs. Adams and Rizvi, the Financial Performance Factor was based 100% on the SGH Performance Factor. For Messrs. Pacheco, Clark, and Pellegrino, the Financial Performance Factor was based on both the SGH Performance Factor (weighted 10%) and the respective BU Performance Factor (weighted 90%).
Elements of Executive Compensation
| SGH Payout Opportunity | Non-GAAP Operating Income(1) (in millions) | Net Sales (in millions) | | Maximum (150% Achievement) | $403.3 | $3,011.3 | | Target (100% Achievement) | $268.9 | $2,007.5 | | Actual Achievement | $134.8 | $1,454.0 | | % of Target | 50.1% | 72.4% |
Elements of Executive Compensation
| (1) For purposes of determining cash incentive targets and attainment, “Non-GAAP Operating Income” is defined as GAAP operating income excluding share-based compensation expense, amortization of acquisition-related intangible assets (consisting of amortization of developed technology, customer relationships, trademarks/trade names, and backlog acquired in connection with business combinations), acquisition-related inventory adjustments, acquisition-related expenses, restructure charges and integration expenses, impairment of goodwill, changes in the fair value of contingent consideration, and other infrequent or unusual items. The Compensation Committee determined that it was appropriate to exclude these items in order to better measure and assess SGH’s core operating performance. |
Elements of Executive Compensation
| Memory Solutions Payout Opportunity | Business Unit Non-GAAP Operating Income(1) (in millions) | Business Unit Net Sales (in millions) | | Maximum (150% Achievement) | $198.3 | $1,516.0 | | Target (100% Achievement) | $132.2 | $1,010.7 | | Actual Achievement | $51.0 | $628.6 | | % of Target | 38.5% | 62.2% |
Elements of Executive Compensation
| (1) For purposes of determining cash incentive targets and attainment, “Non-GAAP Operating Income” is defined as GAAP operating income excluding share-based compensation expense, amortization of acquisition-related intangible assets (consisting of amortization of developed technology, customer relationships, trademarks/trade names, and backlog acquired in connection with business combinations), acquisition-related inventory adjustments, acquisition-related expenses, restructure charges and integration expenses, changes in the fair value of contingent consideration, and other infrequent or unusual items. The Compensation Committee determined that it was appropriate to exclude these items in order to better measure and assess the Business Unit’s core operating performance. |
Elements of Executive Compensation
| LED Solutions Payout Opportunity | Business Unit Non-GAAP Operating Income(1) (in millions) | Business Unit Net Sales (in millions) | | Maximum (150% Achievement) | $84.1 | $603.0 | | Target (100% Achievement) | $56.1 | $402.0 | | Actual Achievement | ($3.5) | $248.3 | | % of Target | (6.2%) | 61.8% |
Elements of Executive Compensation
| (1) For purposes of determining cash incentive targets and attainment, “Non-GAAP Operating Income” is defined as GAAP operating income excluding share-based compensation expense, amortization of acquisition-related intangible assets (consisting of amortization of developed technology, customer relationships, trademarks/trade names, and backlog acquired in connection with business combinations), acquisition-related inventory adjustments, acquisition-related expenses, restructure charges and integration expenses, changes in the fair value of contingent consideration, and other infrequent or unusual items. The Compensation Committee determined that it was appropriate to exclude these items in order to better measure and assess the Business Unit’s core operating performance. |
Elements of Executive Compensation
| IPS Payout Opportunity | Business Unit Non-GAAP Operating Income(1) (in millions) | Business Unit Net Sales (in millions) | | Maximum (150% Achievement) | $120.9 | $892.3 | | Target (100% Achievement) | $80.6 | $594.9 | | Actual Achievement | $87.4 | $577.0 | | % of Target | 108.4% | 97.0% |
Elements of Executive Compensation
| (1) For purposes of determining cash incentive targets and attainment, “Non-GAAP Operating Income” is defined as GAAP operating income excluding share-based compensation expense, amortization of acquisition-related intangible assets (consisting of amortization of developed technology, customer relationships, trademarks/trade |
Elements of Executive Compensation
| Named Executive Officer | 2023 Cash Incentive Target | Financial Performance Factor – Before Accelerator / Decelerator (weighted 75%) | Financial Performance Factor – After Accelerator / Decelerator (weighted 75%) | Individual Performance Factor(1) (weighted 25%) | Total 2023 Cash Incentive Payout | | Mark Adams | $750,000 | 55.7% | 0.0% | 80.0% | $150,000 | | Ken Rizvi | $380,000 | 55.7% | 0.0% | 80.0% | $76,000 | | Jack Pacheco | $403,750 | 45.6% | 0.0% | 80.0% | $80,750 | | Joseph Clark | $281,250 | 0.0% | 0.0% | 80.0% | $56,250 | | Thierry Pellegrino(2) | $380,000 | 100.6% | 100.9% | 80.0% | $324,652 |
Elements of Executive Compensation
| (2) Mr. Pellegrino’s fiscal 2023 cash incentive payout was prorated to reflect his partial year of employment as further described under “Other Elements of Our 2023 Executive Compensation Program – Employment and Severance Arrangements – Pellegrino Transition Arrangement” below. |
Elements of Executive Compensation
For fiscal 2023, out of an aggregate total annual short-term cash incentive target amount of $2,195,000 at 100% achievement for these NEOs, the Company paid an aggregate total of $687,652, demonstrating the Company’s pay-for-performance compensation philosophy. Fiscal 2023 Short-Term Cash Incentive Program for David Laurello Mr. Laurello joined the Company group when the Company acquired Stratus in August 2022 and participated in the historical Stratus annual bonus program for Stratus’ fiscal year ending in February 2023. Under the Stratus bonus program, Mr. Laurello was eligible to earn a target bonus equal to 100% of his annual base salary based on Stratus’ achievement of performance targets related to total revenue (weighted 20%), adjusted EBITDA (weighted 65%), and product bookings (weighted 15%). In March 2023, the Company determined that Stratus had achieved 105.9% of the total revenue target, 121.7% of the adjusted EBITDA target, and 123.4% of the product bookings target, which, after the application of accelerators, resulted in total achievement of 149.5% of target, and a payout to Mr. Laurello in the amount of $846,917. Mr. Laurello was also eligible to receive a performance bonus under the Stratus bonus plan for the second half of fiscal 2023 (covering the period from March 2023 through the end of fiscal 2023) with a target half-year bonus equal to 50% of his annual base salary of $566,500 (i.e., a target bonus of $283,250 for half of a fiscal year). Mr. Laurello’s fiscal 2023 annual base salary and target bonus reflect his base salary and target bonus at the time of the Stratus acquisition, and there was no increase to Mr. Laurello’s base salary or target bonus in connection with the Stratus acquisition or upon his promotion to President, Intelligent Platform Solutions. The Stratus bonus plan for the second half of fiscal 2023 generally followed the design of the SGH annual cash incentive program for fiscal 2023 (including with respect to accelerators and decelerators), except that 100% of the performance goals related to Stratus’ performance. Following the second half of fiscal 2023, the Compensation Committee evaluated the performance of Stratus based on actual performance versus the target performance goals relating to Stratus’ non-GAAP operating income, weighted 75%, and Stratus’ total revenue, weighted 25%. Based on such evaluation, the Compensation Committee determined that Stratus had achieved 153.3% of the Stratus non-GAAP operating income target and 102.1% of the Stratus total revenue target. Weighting Stratus’ non-GAAP operating income achievement at 75% and Stratus’ total revenue achievement at 25% yielded a Stratus financial performance factor of 140.5%, which increased to 181.1% after application of the accelerator, resulting in a second half of fiscal 2023 cash incentive payout to Mr. Laurello in the amount of $512,966. Pursuant to the terms of Mr. Laurello’s amended and restated employment offer letter, the minimum bonus payable to Mr. Laurello for the second half of fiscal 2023 was set at $283,250; however, the bonus actually earned by Mr. Laurello based on performance against pre-established performance goals under the Stratus bonus plan exceeded this minimum amount. Commencing in fiscal 2024, Mr. Laurello is eligible to participate in the SGH annual cash incentive program, and will no longer participate in the Stratus annual bonus plan. Equity Compensation We believe that equity awards are long-term incentives that support retention of executives by rewarding them for improving SGH performance and creating shareholder value. In determining individual equity awards, the Compensation Committee consults with the Compensation Consultant and, with their guidance, considers five key factors:
Elements of Executive Compensation
| • | Competitive market practices; and |
Elements of Executive Compensation
As part of its annual review of our long-term incentive program, the Compensation Committee decided to grant fiscal 2023 equity awards for each then-serving NEO in the form of (i) 50% time-based RSUs, with a longer four-year vesting period in order to enhance the retention component of our executive compensation program, and (ii) 50% PSUs tied to a three-year performance period in order to further align our executive compensation program with market practices and shareholder interests. PSU Vesting Condition. All NEOs’ PSUs are earned, if at all, based on the Company’s total shareholder return (“TSR”) relative to the performance of the median company in the Russell 2000 Index, as identified on the date of grant, following the end of a given three-year performance period, subject to the executive’s continued employment through the date of the Compensation Committee’s certification of our performance. Upon a change in control (as defined in the Plan) that (i) occurs within twelve months of the grant date, the performance goals applicable to the PSUs are deemed satisfied at the target performance level and the PSUs vest as of the date of such change in control under the Plan and are earned in an amount consistent with the target performance level, or (ii) occurs more than twelve months following the grant date, the PSUs vest as of the date of the change in control under the Plan based on actual performance through the date of such change in control under the Plan and are earned in an amount consistent with the executives’ actual performance.
Elements of Executive Compensation
| TSR Performance Relative to Russell 2000 | Payout as a % of Target* | | + 25% of median company performance | 200% | | +12.5% of median company performance | 150% | | At median company performance | 100% | | -12.5% of median company performance | 75% | | -25% of median company performance | 50% | | Less than -25% of median company performance | 0% |
Elements of Executive Compensation
* Payouts for performance between the achievement levels described above (other than achievement below -25% of median company performance) are increased (or decreased) by 4% for each 1% that the Company’s TSR exceeds (or lags) the performance of the median company in the Russell 2000 Index. For fiscal 2023 PSU awards, TSR is measured as the percentage change in the 30-trading-day rolling average closing price of a share as measured on the first and last day of the three-year period beginning on August 27, 2022. In fiscal 2023, our NEOs were granted the following equity awards as part of the annual executive compensation program:
Elements of Executive Compensation
| Named Executive Officer | RSUs(1) | PSUs(2) | | Mark Adams | 53,979 | 53,979 | | Ken Rizvi | 32,387 | 32,387 | | Jack Pacheco | 24,290 | 24,290 | | Joseph Clark | 25,900 | 26,989 | | Thierry Pellegrino | 24,290 | 24,290 |
Elements of Executive Compensation
| (1) These RSUs vested as to 6.25% on January 20, 2023 (or on October 20, 2022 for Mr. Clark) and continue to vest in 15 equal quarterly installments thereafter, subject to the NEO’s continued service through each applicable vesting date. |
Elements of Executive Compensation
| (2) These PSUs vest contingent on continuation of employment and achievement of the TSR performance goals described above. |
Elements of Executive Compensation
Mr. Laurello received a grant of 103,600 RSUs in connection with the acquisition of Stratus on August 29, 2022, which grant vested as to 25% on October 20, 2023 and will continue to vest as to the remainder in equal quarterly installments over the following three years, subject to his continued service through each applicable vesting date. Therefore, he was not eligible for the annual equity awards made to our other NEOs. Attainment of Performance Conditions for Prior-Year Awards Fifty percent of the performance-based restricted share awards granted to Mr. Adams on August 31, 2020 (the “PRSAs”) were subject to the 150% PRSA Vesting Condition (defined below) and vest in four equal tranches of 25% on October 20, 2021 and each of the first three annual anniversaries thereof if the Fair Market Value (as defined in the Plan) of a share of the Company equals or exceeds 150% of the Fair Market Value of a share of the Company on the grant date for at least 60 consecutive trading days at any time during the one-year period immediately preceding the applicable vesting date or any subsequent annual vesting date (the “150% PRSA Vesting Condition”), subject to Mr. Adams' continued service as CEO through each applicable vesting date. The Compensation Committee certified the satisfaction of the 150% PRSA Vesting Condition for the first tranche, second tranche, and third tranche on September 27, 2021, October 12, 2022, and September 25, 2023, respectively. The remaining fifty percent of the PRSAs granted to Mr. Adams were subject to the 200% PRSA Vesting Condition (defined below) and also vest in four equal tranches of 25% on October 20, 2021 and each of the first three annual anniversaries thereof if the Fair Market Value (as defined in the Plan) of a share of the Company equals or exceeds 200% of the Fair Market Value of a share of the Company on the grant date for at least 60 consecutive trading days at any time during the one-year period immediately preceding the applicable vesting date or any subsequent annual vesting date (the “200% PRSA Vesting Condition”), subject to Mr. Adams' continued service as CEO through each applicable vesting date. The Compensation Committee certified the satisfaction of the 200% PRSA Vesting Condition for the first tranche and second tranche on October 12, 2022. Other Elements of Our 2023 Executive Compensation Program Employment and Severance Arrangements We generally execute an offer of employment before an executive joins our Company. This offer describes the basic terms of the executive’s employment, including their initial base salary, target cash incentives, equity compensation opportunities, and severance benefits. The terms of the offer letter are set after considering compensation levels paid to similarly situated SGH executive officers, competitive market data on external practices at peer companies, input from the Compensation Committee’s independent Compensation Consultant, and the amount of compensation deemed necessary to induce the executive to join us. The offer letters also provide for severance and other benefits in the event of certain qualifying terminations of employment and in connection with a Company change in control (as defined in the executive offer letters). The Compensation Committee believes that these severance benefits help secure the continued employment and dedication of our NEOs and are important as a recruitment and retention device, particularly given that many of the companies with which we compete for executive talent have similar agreements in place for their senior management. For additional information about these arrangements with each of the NEOs, refer to “Employment and Severance Agreements; Potential Payments upon Termination or Change in Control” below. Laurello Offer Letter. Effective June 27, 2023, we entered into an amended and restated employment offer letter with Mr. Laurello for his service as President, Intelligent Platform Solutions. Pursuant to the offer letter, Mr. Laurello is eligible to receive:
Elements of Executive Compensation
| • | A one-time retention bonus in the amount of $275,000, subject to continued service with the Company through April 1, 2024, assumed by the Company in connection with its acquisition of Stratus (the “Stratus Retention Bonus”); |
Elements of Executive Compensation
| • | Any earn-out bonus that is earned pursuant to an earn-out bonus agreement that the Company entered into in connection with its acquisition of Stratus (the “Stratus Earn-Out Bonus”); |
Elements of Executive Compensation
| • | A one-time bonus payable in the amount of $1,133,000, subject to Mr. Laurello remaining in good standing with the Company through May 31, 2024 (the “SGH Retention Bonus”); and |
Elements of Executive Compensation
| • | A performance bonus under the Stratus bonus plan for the second half of fiscal 2023, with a target half-year bonus equal to 50% of his annualized base salary and minimum amount payable for the second half of fiscal 2023 equal to such target amount. |
Elements of Executive Compensation
Pellegrino Transition Arrangement. Effective June 27, 2023, Mr. Pellegrino ceased to serve as Senior Vice President of SGH and President of Intelligent Platform Solutions. On July 18, 2023, Mr. Pellegrino’s employment terminated (the “Transition Date”), and he entered into a Transition and Separation Agreement (the “Transition Agreement”) pursuant to which he agreed to provide consulting services to the Company through January 31, 2024. Pursuant to the Transition Agreement, Mr. Pellegrino’s time-based equity awards that remained unvested as of the Transition Date will continue to vest in accordance with their terms for the duration of the consulting period, subject to his continued service as a consultant through such period. The consulting services can be terminated before January 31, 2024 by Mr. Pellegrino or the Company for any reason upon 30 days’ notice. In accordance with his employment offer letter and in exchange for providing a release of claims, under the Transition Agreement Mr. Pellegrino also received (i) an aggregate amount equal to 75% of his fiscal 2023 base salary, (ii) his fiscal 2023 annual bonus prorated for the portion of fiscal 2023 for which he provided services as an employee (i.e., through the Transition Date), with the amount based on the Compensation Committee’s determination of performance during fiscal 2023 according to the same methodology used in determining bonus amounts awarded to the other NEOs, and (iii) payment or reimbursement of the cost of health benefit continuation coverage under COBRA during the period starting on the Transition Date and ending on the earlier of (x) nine months following the first full month after the month in which the Transition Date falls or (y) the date Mr. Pellegrino becomes eligible for health benefits with another employer. For additional information on the transition arrangement with Mr. Pellegrino, refer to “Employment and Severance Agreements; Potential Payments upon Termination or Change in Control” below. Benefits and Perquisites Executive officers are eligible to participate in all of our employee benefit plans, including medical, dental, vision, group life, disability, and accidental death and dismemberment insurance, and our 401(k) plan on substantially the same basis as other employees. Our 401(k) plan permits us to make matching contributions to eligible participants. In fiscal 2023, we continued our recent practice of matching 100% of participant contributions up to 3% of eligible compensation, and 50% of participant contributions of the next 2% of eligible compensation, in each case subject to applicable Internal Revenue Service limits. Our NEOs are also eligible to participate in our 2018 Employee Share Purchase Plan (the “ESPP”). In addition, we provide limited additional benefits for our NEOs that include enhanced life insurance coverage, enhanced disability insurance coverage, annual physical exams, and reimbursement for financial counseling services. Share Ownership Requirements The Compensation Committee believes that, in order to more closely align the interests of executives with the interests of our other shareholders, all executives should maintain a minimum level of equity interests in our ordinary shares. The Compensation Committee has adopted share ownership guidelines requiring ownership of six times annual base salary for our President and CEO, three times annual director fees for our directors, and one times annual base salary for our other executive officers. Covered individuals are required to be in compliance with the policy by the later of: (i) March 31, 2024 or (ii) the date that is five years after such individual first became subject to the ownership guidelines. Until this requirement is met, an executive officer must retain 20% of after-tax shares acquired upon the exercise of share options and vesting of other equity awards. As of the Record Date, all of our then-serving NEOs and our directors were in compliance with our share ownership guidelines or were in the five-year transition period. Eligible equity under our share ownership guidelines generally includes shares beneficially owned by the executive, the after-tax value of unvested time-based restricted shares and time-based RSUs, and the after-tax value of performance-based restricted shares and performance-based RSUs, but solely to the extent that the underlying performance condition has been achieved. The following shares do not count toward achievement of the share ownership guidelines: unexercised share options and unvested share options, unearned performance-based restricted shares, and unearned performance-based RSUs. Clawback Policy We maintain a clawback policy that allows our Board to seek recovery of certain excess incentive compensation paid to our executive officers, including our NEOs, in the event of a restatement of our financials or in the event that an NEO’s misconduct caused, or could cause, financial or reputational harm to us, in each case to the extent such recovery is permitted by applicable law. We also adopted a supplemental clawback policy effective as of October 2, 2023 that is compliant with Rule 10D-1 under the Exchange Act and Nasdaq listing standards. The supplemental clawback policy generally provides that if the Company is required to prepare an accounting restatement (including a restatement to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period), the Company must recover from its current and former executive officers any incentive-based compensation that was erroneously received on or after October 2, 2023 and during the three years preceding the date that the Company is required to prepare such accounting restatement. The amount required to be recovered under the supplemental clawback policy is the excess of the amount of incentive-based compensation received over the amount that otherwise would have been received based on the restated financial measure. Anti-Hedging and Anti-Pledging Policy Under our Insider Trading and Confidentiality Policy, all of our executive officers and directors are prohibited from engaging in short sales, transactions in put or call options, hedging transactions, or other inherently speculative transactions in SGH shares and from pledging SGH shares in any circumstance, including by purchasing SGH shares on margin or holding SGH shares in a margin account.
2023 Summary Compensation Table
2023 Summary Compensation Table The following table provides information regarding the compensation earned by our NEOs for fiscal 2023 and, to the extent required under the SEC executive compensation disclosure rules, fiscal 2022 and fiscal 2021.
2023 Summary Compensation Table
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Share Awards ($)(1) | Option Awards ($)(1) | Nonequity Incentive Plan Compensation ($)(2) | All Other Compensation ($)(3) | Total ($) | | Mark Adams President and Chief Executive Officer | 2023 | 750,000 | — | 2,284,931 | — | 150,000 | 29,411 | 3,214,342 | | | 2022 | 750,000 | — | 4,995,747 | — | 897,449 | 21,674 | 6,664,870 | | | 2021 | 750,000 | 375,000 | 9,426,563 | 3,324,775 | 924,424 | 9,567 | 14,810,329 | | Ken Rizvi Senior Vice President and Chief Financial Officer | 2023 | 475,000 | — | 1,370,942 | — | 76,000 | 15,205 | 1,937,147 | | | 2022 | 475,000 | — | 999,126 | — | 454,707 | 19,972 | 1,948,805 | | | 2021 | 255,769 | 430,000 | 2,613,857 | — | 18,247 | 5,825 | 3,323,698 | | David Laurello Senior Vice President and President, Intelligent Platform Solutions | 2023 | 566,500 | — | 1,949,752 | — | 1,359,883 | 8,476 | 3,884,611 | | Jack Pacheco Executive Vice President, Chief Operating Officer and President, Memory Solutions | 2023 | 475,000 | — | 1,028,196 | — | 80,750 | 23,329 | 1,607,275 | | | 2022 | 460,000 | — | 999,126 | — | 445,507 | 43,262 | 1,947,895 | | | 2021 | 499,321 | — | 1,327,680 | — | 573,166 | 31,111 | 2,431,279 | | Joseph Clark Senior Vice President and President, LED Solutions | 2023 | 375,000 | — | 1,158,669 | — | 56,250 | 15,275 | 1,605,194 | | Thierry Pellegrino(4) Former Senior Vice President and President, Intelligent Platform Solutions | 2023 | 401,923 | — | 1,028,196 | — | 324,652 | 383,686 | 2,138,457 | | | 2022 | 450,000 | — | 749,315 | — | 464,348 | 26,563 | 1,690,226 | | | 2021 | 216,346 | 305,319 | 1,494,355 | — | 153,853 | 3,917 | 2,173,791 |
2023 Summary Compensation Table
| (1) Amounts reported in these columns for fiscal 2023 represent the grant date fair value of the RSUs and PSUs granted during fiscal 2023, as calculated in accordance with FASB ASC Topic 718. See our Share-Based Compensation Note to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended August 25, 2023 for the assumptions used in calculating the amounts reported in this column. Under FASB ASC Topic 718, the vesting conditions related to the PSUs granted to the NEOs in fiscal 2023 are considered market conditions and not performance conditions. Accordingly, there is no grant date fair value in excess of the amount reflected in the table above that could be calculated and disclosed based on achievement of the underlying market condition. The fair value of PSUs granted in September 2022 was determined as of the date of grant using the Monte Carlo simulation method, which utilizes multiple input variables to estimate the probability of meeting the performance objectives established for the award, including the expected volatility of our stock price relative to the group of peer companies listed on page 57 of this proxy statement at the end of the three-year performance period and a risk-free interest rate of 4.32% derived from linear interpolation of the term structure of Treasury Constant Maturities yield rates for the period; as such, their maximum grant date fair values were the same as their target grant date fair values shown in the table. Based on the Monte Carlo simulation method, the grant date fair value of the PSUs was 164.23% of our average stock price on the grant date. The grant date fair values of the PSUs were $1,420,187, $852,102, $639,070, $710,081, and $639,070 for Messrs. Adams, Rizvi, Pacheco, Clark, and Pellegrino, respectively. |
2023 Summary Compensation Table
| (2) See the “Short-Term Cash Incentive Compensation” section above for a description of these amounts. The amount for Mr. Laurello includes (i) $846,917 earned under the Stratus bonus plan for Stratus’ fiscal 2023 12-month |
2023 Summary Compensation Table
performance period ended February 28, 2023, which straddles SGH’s fiscal 2022 and fiscal 2023, and (ii) $512,966 earned under the Stratus bonus plan for the second half of SGH’s fiscal 2023, as further described in “Short-Term Cash Incentive Compensation – Fiscal 2023 Short-Term Cash Incentive Program for David Laurello” above.
2023 Summary Compensation Table
| (3) Amounts in this column for fiscal 2023 include the following: |
2023 Summary Compensation Table
| (a) for Mr. Adams, (i) $23,092 for 401(k) plan matching contributions by the Company and (ii) $6,319 for life insurance premium payments by the Company; |
2023 Summary Compensation Table
| (b) for Mr. Rizvi, (i) $11,993 for 401(k) plan matching contributions by the Company, (ii) $2,091 for life insurance premium payments by the Company, and (iii) $1,121 for a tax gross-up related to the reimbursement of tax preparation fees; |
2023 Summary Compensation Table
| (c) for Mr. Laurello, (i) $6,972 for 401(k) plan matching contributions by the Company, (ii) $1,486 for life insurance premium payments by the Company, and (iii) $17 for a tax gross-up related to the purchase of certain software; |
2023 Summary Compensation Table
| (d) for Mr. Pacheco, (i) $13,299 for 401(k) plan matching contributions by the Company, (ii) $9,295 for life insurance premium payments by the Company, and (iii) $735 for a tax gross-up related to the reimbursement of executive medical examination fees; |
2023 Summary Compensation Table
| (e) for Mr. Clark, (i) $11,805 for 401(k) plan matching contributions by the Company, (ii) $2,630 for life insurance premium payments by the Company, and (iii) $840 for a tax gross-up related to the reimbursement of tax preparation fees; and |
2023 Summary Compensation Table
| (f) for Mr. Pellegrino, (i) $10,406 for 401(k) plan matching contributions by the Company, (ii) $1,897 for life insurance premium payments by the Company, (iii) $1,286 for a tax gross-up related to the reimbursement of executive medical examination fees, (iv) $356,250 in accrued severance payments, and (v) $13,847 in accrued post-termination healthcare continuation coverage. |
2023 Summary Compensation Table
| (4) Mr. Pellegrino’s employment with the company terminated on July 18, 2023. |
2023 Grants of Plan-Based Awards Table
2023 Grants of Plan-Based Awards Table The following table provides information on non-equity incentive awards for fiscal 2023 and equity awards granted in fiscal 2023 under our Amended and Restated 2017 Share Incentive Plan for each of our NEOs. There can be no assurance that the grant date fair value for any equity award, as listed in this table, will ever be realized. The grant date fair value amounts reported here are also included in the “Share Awards” column of the 2023 Summary Compensation Table.
2023 Grants of Plan-Based Awards Table
| Name | Grant Date | Estimated Possible Payouts under Non- Equity Incentive Plan Awards(1) | | | Estimated Future Payouts under Equity Incentive Plan Awards(2) | | | All Other Share Awards: Number of Shares of Stock or Units (#) | Grant Date Fair Value of Share and Option Awards(3) ($) | | | | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | | | | Mark Adams | | — | 750,000 | 1,359,375 | — | — | — | — | — | | | 9/26/2022 | — | — | — | 26,990 | 53,979 | 107,958 | — | 1,420,187 | | | 9/26/2022 | — | — | — | — | — | — | 53,979(4) | 864,744 | | Ken Rizvi | | — | 380,000 | 688,750 | — | — | — | — | — | | | 9/26/2022 | — | — | — | 16,194 | 32,387 | 64,774 | — | 852,102 | | | 9/26/2022 | — | — | — | — | — | — | 32,387(4) | 518,840 | | David Laurello | | — | 283,250 | 566,500 | — | — | — | — | — | | | 8/29/2022 | — | — | — | — | — | — | 103,600(5) | 1,949,752 | | Jack Pacheco | | — | 403,750 | 731,797 | — | — | — | — | — | | | 9/26/2022 | — | — | — | 12,145 | 24,290 | 48,580 | — | 639,070 | | | 9/26/2022 | — | — | — | — | — | — | 24,290(4) | 389,126 |
2023 Grants of Plan-Based Awards Table
| Name | Grant Date | Estimated Possible Payouts under Non- Equity Incentive Plan Awards(1) | | | Estimated Future Payouts under Equity Incentive Plan Awards(2) | | | All Other Share Awards: Number of Shares of Stock or Units (#) | Grant Date Fair Value of Share and Option Awards(3) ($) | | | | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | | | | Joseph Clark | | — | 281,250 | 509,766 | — | — | — | — | — | | | 9/2/2022 | — | — | — | — | — | — | 25,900(6) | 448,588 | | | 9/26/2022 | — | — | — | 13,495 | 26,989 | 53,978 | — | 710,081 | | Thierry Pellegrino | | — | 380,000 | 688,750 | — | — | — | — | — | | | 9/26/2022 | — | — | — | 12,145 | 24,290 | 48,580 | — | 639,070 | | | 9/26/2022 | — | — | — | — | — | — | 24,290(4) | 389,126 |
2023 Grants of Plan-Based Awards Table
| (1) Represents an opportunity to earn an annual (or for Mr. Laurello, a half-year) cash incentive award based on attainment of pre-established goals as described in detail in the “Short-Term Cash Incentive Compensation” section above. Payouts of such cash incentive awards may range from $0 to the applicable maximum as set forth above. Therefore, no amounts are included in the “Threshold” column. |
2023 Grants of Plan-Based Awards Table
| (2) These PSUs will vest on the date of the Compensation Committee’s certification of our performance following the end of a three-year performance period contingent upon the NEO’s continued employment through the vesting date and the Compensation Committee certifying that the Company’s total shareholder return during the performance period relative to that of the median company in the Russell 2000 Index equals or exceeds the applicable threshold level of performance. Payouts under the PSUs range from 50% of target at threshold to a maximum of 200% of target, as described in the “Equity Compensation” section above. |
2023 Grants of Plan-Based Awards Table
| (3) The amounts reported represent the grant date fair value associated with the grant of RSUs and PSUs, as computed in accordance with FASB ASC Topic 718. See our Equity Plans Note to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended August 25, 2023 for the assumptions used in calculating these amounts. The fair value of PSUs granted in September 2022 was determined as of the date of grant using the Monte Carlo simulation method, which utilizes multiple input variables to estimate the probability of meeting the performance objectives established for the award, including the expected volatility of our stock price relative to the group of peer companies listed on page 57 of this proxy statement at the end of the three-year performance period and a risk-free interest rate of 4.32% derived from linear interpolation of the term structure of Treasury Constant Maturities yield rates for the period. |
2023 Grants of Plan-Based Awards Table
| (4) These RSUs vested as to 6.25% of the shares on January 20, 2023 and continue to vest in 15 equal quarterly installments thereafter, subject to the NEO’s continued service through each applicable vesting date. |
2023 Grants of Plan-Based Awards Table
| (5) These RSUs vested as to 25% of the shares on October 20, 2023 and continue to vest in equal quarterly installments over the following three years, subject to the NEO’s continued service through each applicable vesting date. |
2023 Grants of Plan-Based Awards Table
| (6) These RSUs vested as to 6.25% of the shares on October 20, 2022 and continue to vest in 15 equal quarterly installments thereafter, subject to the NEO’s continued service through each applicable vesting date. |
Outstanding Equity Awards at 2023 Fiscal Year End
Outstanding Equity Awards at 2023 Fiscal Year End The following table sets forth information regarding options, RSUs, RSAs, PSUs, and PSAs held by our NEOs as of August 25, 2023.
Outstanding Equity Awards at 2023 Fiscal Year End
| Name | Grant Date | Option Awards | | | | | Share Awards | | | | | | | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(1) | Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(1) | | Mark Adams | 9/28/2020 | 10,416(2) | 145,834 | — | 13.50 | 9/27/2030 | — | — | — | — | | | 8/31/2020 | — | — | — | — | — | 140,626(3) | 3,363,774 | — | — | | | 8/31/2020 | — | — | — | — | — | 62,500(4) | 1,495,000 | 62,500(4) | 1,495,000 | | | 8/31/2020 | — | — | — | — | — | — | — | 125,000(5) | 2,990,000 | | | 10/1/2021 | — | — | — | — | — | 47,448(6) | 1,134,956 | — | — | | | 10/1/2021 | — | — | — | — | — | — | — | 168,704(7) | 4,035,400 | | | 9/26/2022 | — | — | — | — | — | 43,859(8) | 1,049,107 | — | — | | | 9/26/2022 | — | — | — | — | — | — | — | 107,958(7) | 2,582,355 | | Ken Rizvi | 2/15/2021 | — | — | — | — | — | 43,626(9) | 1,043,534 | — | — | | | 2/15/2021 | — | — | — | — | — | — | — | 9,970(10) | 238,482 | | | 2/15/2021 | — | — | — | — | — | — | — | 9,970(11) | 238,482 | | | 10/1/2021 | — | — | — | — | — | 9,492(6) | 227,049 | — | — | | | 10/1/2021 | — | — | — | — | — | — | — | 33,740(7) | 807,061 | | | 9/26/2022 | — | — | — | — | — | 26,315(8) | 629,455 | — | — | | | 9/26/2022 | — | — | — | — | — | — | — | 64,774(7) | 1,549,394 | | David Laurello | 8/29/2022 | — | — | — | — | — | 103,600(12) | 2,478,112 | — | — | | Jack Pacheco | 1/22/2019 | 60,000(13) | — | — | 10.78 | 1/21/2029 | — | — | — | — | | | 3/12/2020 | 77,500(14) | 17,500 | — | 9.20 | 3/11/2030 | — | — | — | — | | | 9/28/2020 | — | — | — | — | — | 4,000(15) | 95,680 | — | — | | | 12/14/2020 | — | — | — | — | — | 22,500(16) | 538,200 | — | — | | | 10/1/2021 | — | — | — | — | — | 9,492(6) | 227,049 | — | — | | | 10/1/2021 | — | — | — | — | — | — | — | 33,740(7) | 807,061 | | | 9/26/2022 | — | — | — | — | — | 19,736(8) | 472,085 | — | — | | | 9/26/2022 | — | — | — | — | — | — | — | 48,580(7) | 1,162,034 | | Joseph Clark | 3/4/2021 | — | — | — | — | — | 34,550(17) | 826,436 | — | — | | | 4/7/2022 | — | — | — | — | — | 6,174(18) | 147,682 | — | — | | | 9/2/2022 | — | — | — | — | — | 19,425(19) | 464,646 | — | — | | | 9/26/2022 | — | — | — | — | — | — | — | 53,978(7) | 1,291,154 |
Outstanding Equity Awards at 2023 Fiscal Year End
| Name | Grant Date | Option Awards | | | | | Share Awards | | | | | | | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(1) | Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(1) | | Thierry Pellegrino | 3/8/2021 | — | — | — | — | — | 29,760(17) | 711,859 | — | — | | | 10/1/2021 | — | — | — | — | — | 7,118(6) | 170,263 | — | — | | | 9/26/2022 | — | — | — | — | — | 19,736(8) | 472,085 | — | — |
Outstanding Equity Awards at 2023 Fiscal Year End
| (1) The market value of shares or units of stock that have not vested reflects a share price of $23.92, our closing share price on August 25, 2023. |
Outstanding Equity Awards at 2023 Fiscal Year End
| (2) These time-based options vested as to 25% on September 28, 2021 and continue to vest in equal monthly installments over the following three years, subject to Mr. Adams’ continued employment as CEO through each applicable vesting date. |
Outstanding Equity Awards at 2023 Fiscal Year End
| (3) These time-based RSAs vested as to 25% on October 20, 2021 and continue to vest in equal quarterly installments over the following three years, subject to Mr. Adams’ continued employment as CEO through each applicable vesting date. |
Outstanding Equity Awards at 2023 Fiscal Year End
| (4) These PSAs vested or vest as to 25% on each of October 20, 2021, 2022, 2023, and 2024, contingent on continued service and subject to the value of a share of the Company equaling or exceeding $18.90 (i.e., 150% of the trading price on Mr. Adams' start date, as adjusted to reflect our two-for-one share split, which was effected on February 1, 2022) for at least sixty consecutive trading days. The first and second tranches of these PSAs vested on October 20, 2021 and October 20, 2022, respectively. The performance condition applicable to the third tranche of these PSAs was achieved in fiscal 2023 and such PSAs vested on October 20, 2023 (fiscal 2024). |
Outstanding Equity Awards at 2023 Fiscal Year End
| (5) These PSAs vested or vest as to 25% on each of October 20, 2021, 2022, 2023, and 2024, contingent on continued service and subject to the value of a share of the Company equaling or exceeding $25.20 (i.e., 200% of the trading price on Mr. Adams’ start date, as adjusted to reflect our two-for-one share split, which was effected on February 1, 2022) for at least sixty consecutive trading days. The first and second tranches of these PSAs vested on October 20, 2022. |
Outstanding Equity Awards at 2023 Fiscal Year End
| (6) These RSUs vested as to 25% on October 20, 2022 and continue to vest in equal quarterly installments over the following three years, subject to the NEO’s continued service through each applicable vesting date. |
Outstanding Equity Awards at 2023 Fiscal Year End
| (7) Represents the maximum number of PSUs granted on each of October 1, 2021 and September 26, 2022 based on actual performance tracking at above target through fiscal year-end. These PSUs will vest on the date of the Compensation Committee’s certification of our performance following the end of a three-year performance period contingent upon the NEO’s continued employment through the vesting date and the Compensation Committee certifying that the Company’s total shareholder return during the performance period relative to that of the median company in the Russell 2000 Index equals or exceeds the applicable threshold level of performance. |
Outstanding Equity Awards at 2023 Fiscal Year End
| (8) These RSUs vested as to 6.25% on January 20, 2023 and continue to vest in 15 equal quarterly installments thereafter, subject to the NEO’s continued service through each applicable vesting date. |
Outstanding Equity Awards at 2023 Fiscal Year End
| (9) These RSUs vested as to 25% on April 20, 2022 and continue to vest in equal quarterly installments over the following three years, subject to the NEO’s continued employment through each applicable vesting date. |
Outstanding Equity Awards at 2023 Fiscal Year End
| (10) These PSUs vest as to 25% on each of April 20, 2022, 2023, 2024, and 2025, contingent on continued service and subject to the value of a share of the Company equaling or exceeding $35.38 (i.e., 150% of the trading price on Mr. Rizvi’s start date, as adjusted to reflect our two-for-one share split, which was effected on February 1, 2022) for at least sixty consecutive trading days. Any tranches that have not vested as of April 20, 2025 will be forfeited. |
Outstanding Equity Awards at 2023 Fiscal Year End
| (11) These PSUs vest as to 25% on each of April 20, 2022, 2023, 2024, and 2025, contingent on continued service and subject to the value of a share of the Company equaling or exceeding $47.17 (i.e., 200% of the trading price on Mr. Rizvi’s start date, as adjusted to reflect our two-for-one share split, which was effected on February 1, 2022) for at least sixty consecutive trading days. Any tranches that have not vested as of April 20, 2025 will be forfeited. |
Outstanding Equity Awards at 2023 Fiscal Year End
| (12) These RSUs vested as to 25% on October 20, 2023 and continue to vest in equal quarterly installments over the following three years, subject to the NEO’s continued service through each applicable vesting date. |
Outstanding Equity Awards at 2023 Fiscal Year End
| (13) These options are fully vested and exercisable. |
Outstanding Equity Awards at 2023 Fiscal Year End
| (14) These time-based options vested as to 25% on March 12, 2021 and continue to vest in equal monthly installments over the following three years, subject to the NEO's continued employment through each applicable vesting date. |
Outstanding Equity Awards at 2023 Fiscal Year End
| (15) These PSUs vested as to 33% on October 20, 2021, following Compensation Committee certification of the attainment of the applicable performance conditions (the “Initial Vesting Date”), and continued to vest in equal installments every six months following the Initial Vesting Date for two years, contingent on continued service. |
Outstanding Equity Awards at 2023 Fiscal Year End
| (16) These RSUs vested as to 25% on January 20, 2022 and continue to vest in equal quarterly installments over the following three years, subject to the NEO’s continued employment through each applicable vesting date. |
Outstanding Equity Awards at 2023 Fiscal Year End
| (17) These RSUs vested as to 25% on April 20, 2022 and continue to vest in equal quarterly installments over the following three years, subject to the NEO's continued service through each applicable vesting date. |
Outstanding Equity Awards at 2023 Fiscal Year End
| (18) These RSUs vested as to 6.25% on July 20, 2022 and vest as to the remainder in 15 equal quarterly installments thereafter, subject to the NEO’s continued service through each applicable vesting date. |
Outstanding Equity Awards at 2023 Fiscal Year End
| (19) These RSUs vested as to 6.25% on October 20, 2022 and vest as to the remainder in 15 equal quarterly installments thereafter, subject to the NEO’s continued service through each applicable vesting date. |
2023 Option Exercises and Ordinary Share Awards Vested
2023 Option Exercises and Ordinary Share Awards Vested The following table sets forth information regarding options exercised by and shares vested under RSU, RSA, PSU, and PSA awards granted to our NEOs during the fiscal year ended August 25, 2023.
2023 Option Exercises and Ordinary Share Awards Vested
| Name | Option Awards | | Ordinary Share Awards | | | | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($)(1) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(2) | | Mark Adams | 343,750 | 4,662,969 | 347,024 | 5,242,657 | | Ken Rizvi | — | — | 38,378 | 684,090 | | David Laurello | — | — | — | — | | Jack Pacheco | 45,000 | 657,527 | 50,932 | 828,061 | | Joseph Clark | — | — | 28,464 | 511,573 | | Thierry Pellegrino | — | — | 27,092 | 482,667 |
2023 Option Exercises and Ordinary Share Awards Vested
| (1) Values were determined based on the difference between the fair market value of our ordinary shares on the date of exercise and the exercise price of the options. |
2023 Option Exercises and Ordinary Share Awards Vested
| (2) Values were determined based on the fair market value of our ordinary shares on the vesting date. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control Offer Letters and Employment Agreements We have entered into agreements with our NEOs pursuant to which such officers will be eligible for severance and/or change in control benefits under specified conditions. The following summarizes the severance and change in control benefits under these agreements. We entered into offer of employment letters with each of Messrs. Adams, Rizvi, and Pellegrino in connection with the commencement of their employment, an offer letter with Mr. Clark in connection with his promotion in August 2022, and an amended and restated offer letter with Mr. Laurello in connection with his promotion in June 2023 (together, the “Executive Offer Letters”), and an amended and restated employment agreement with Mr. Pacheco in connection with his promotion in December 2017 (the “Pacheco Employment Agreement”). The initial term of the Pacheco Employment Agreement is for one year, at which time it was automatically renewed for an additional one-year term, and has and will continue to be automatically renewed for successive one-year periods thereafter unless either party provides written notice of termination no later than 90 days prior to the expiration of the then-current term. The Executive Offer Letters and the Pacheco Employment Agreement provide for the severance payments and benefits described further below. Pellegrino Transition Agreement As described in “Other Elements of Our 2023 Executive Compensation Program – Employment and Severance Arrangements – Pellegrino Transition Arrangement” above, Mr. Pellegrino’s employment with the Company terminated on July 18, 2023. In connection therewith, Mr. Pellegrino entered into the Transition Agreement (as defined above) on July 18, 2023, pursuant to which he agreed to provide consulting services to the Company through January 31, 2024 and his time-based equity awards that remained unvested as of his employment termination date will continue to vest in accordance with their terms for the duration of the consulting period, subject to his continued service as a consultant through such period. In accordance with his Executive Offer Letter and in exchange for providing a release of claims, under the Transition Agreement Mr. Pellegrino also received the following severance benefits:
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| • | An aggregate amount of $356,250, equal to 75% of his fiscal 2023 annual base salary, payable in equal installments over 12 months; |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| • | A prorated annual bonus for fiscal 2023 in the amount of $324,652; and |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| • | Payment or reimbursement of the cost of health benefit continuation coverage under COBRA during the period starting on his employment termination date and ending on the earlier of (x) nine months following the first full month after the month in which the employment termination date falls or (y) the date Mr. Pellegrino becomes eligible for health benefits with another employer. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
Benefits Provided Upon Termination by Us Without Cause or Termination by Employee for Good Reason Pursuant to the Executive Offer Letters and the Pacheco Employment Agreement, subject to the execution and non-revocation of a release of claims against us or any of our affiliates within 60 days following termination, if an NEO’s employment is terminated by us without Cause (as defined in the Executive Offer Letters or Pacheco Employment Agreement, as applicable), or if an NEO terminates employment for Good Reason (as defined in the Executive Offer Letters or Pacheco Employment Agreement, as applicable), and such termination or resignation occurs outside of the Change in Control Protection Period (as defined below), then we will be obligated to:
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| • | Pay an amount equal to 100%, in the case of Messrs. Adams and Laurello, and 75%, in the case of Messrs. Rizvi, Pacheco, and Clark, of his then-current annual base salary; |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| • | Pay, with respect to Messrs. Adams, Rizvi, Pacheco, and Clark, to the extent a bonus could be earned for the year, the annual bonus for the then-current fiscal year prorated through the date of termination (based on the Board’s determination of our performance through the date of termination) (the “Prorated Bonus”); |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| • | Pay, with respect to Mr. Laurello, 100% of his annualized target bonus for the then-current fiscal year, the Stratus Retention Bonus, the SGH Retention Bonus, and to the extent earned, the Stratus Earn-Out Bonus; |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| • | Continue to provide for or reimburse health benefit continuation coverage until the earlier of twenty-four months, in the case of Mr. Laurello, twelve months, in the case of Mr. Adams, and nine months, in the case of Messrs. Clark, Pacheco, and Rizvi, following the date of termination or the date he becomes eligible for health benefits with another employer; and |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| • | With respect to Mr. Laurello, accelerate the vesting of the number of shares of his outstanding unvested equity awards that would have otherwise vested during the 12-month period immediately following the termination date had his employment continued during such period. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
With respect to Messrs. Adams, Rizvi, Laurello, and Clark, the “Change in Control Protection Period” refers to the period beginning two months prior to and ending twelve months following a Change in Control. With respect to Mr. Pacheco, “Change in Control Protection Period” means the twelve-month period following a Change in Control. The foregoing severance benefits are subject to each NEO’s execution and non-revocation of a release of claims against us or any of our affiliates. We are obligated to pay the cash base salary benefits in accordance with our regular payroll practices in equal or substantially equal payments over a maximum of twelve months (or, for Mr. Laurello, in a lump sum). The Prorated Bonus is to be paid at the same time as bonuses are paid to other executives. Mr. Laurello’s bonus payments would be paid in a lump sum within 15 days after the effective date of his release of claims, except that his Earnout Bonus would be paid, to the extent earned, no later than the Company’s second regular payroll date following May 31, 2024. Benefits Provided Upon Termination by Us Without Cause or Termination by Employee for Good Reason Related to a Change in Control Subject to the execution and non-revocation of a release of claims against us or any of our affiliates, if an NEO’s employment is terminated within the Change in Control Protection Period by us without Cause or by the NEO for Good Reason, then in lieu of the basic severance above, we will be obligated to:
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| • | Pay, with respect to Messrs. Adams, Rizvi, Pacheco, and Clark, an amount equal to 150% of his then-current annual base salary plus 150% of the annual bonus paid or payable for the most recently completed fiscal year, and with respect to Mr. Laurello, an amount equal to 100% of his then-current annual base salary plus 100% of his annualized target bonus for the then-current fiscal year; |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| • | Pay, with respect to Messrs. Adams, Rizvi, Pacheco, and Clark, the Prorated Bonus, and with respect to Mr. Laurello, the Stratus Retention Bonus, the SGH Retention Bonus, and to the extent earned, the Stratus Earn-Out Bonus; |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| • | Continue to provide for or reimburse health benefit continuation coverage until the earlier of twenty-four months, in the case of Mr. Laurello and until the earlier of eighteen months, in the case of Messrs. Adams, Rizvi, Pacheco, and Clark, following the date of termination or the date the NEO becomes eligible for health benefits with another employer; and |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| • | Accelerate the vesting of 100% of the NEO’s unvested and outstanding equity awards. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
Except for the Prorated Bonus, which is to be paid at the same time that bonuses are paid to other executives, the health benefit continuation coverage, and the amounts payable to Mr. Laurello, which are to be paid within 15 days following the effective date of his release of claims (or, for his Earnout Bonus, to the extent earned, no later than the Company’s second regular payroll date following May 31, 2024), we are obligated to pay the foregoing benefits in accordance with our regular payroll practices in equal or substantially equal payments over a maximum of twelve months following the execution and non-revocation of the NEO’s release of claims against us or any of our affiliates. Benefits Provided Upon a Change in Control The Executive Offer Letters provide that, except as otherwise provided in the applicable award agreement, upon a Change in Control, a prorated portion of any then-unvested performance-based equity awards held by Messrs. Adams, Rizvi, Laurello, and Clark will vest based on actual performance measured through the date of such Change in Control and the remainder will vest in equal monthly installments over the remainder of the original performance period, provided that such remaining portion will immediately vest upon a Change in Control in which the successor to our Company does not assume or substitute such awards with substantially equivalent awards. Under the 2022 PSUs and the 2023 PSUs, upon a change in control (as defined in the Plan), that (i) occurs within twelve months of the grant date, the performance goals applicable to the PSUs are deemed satisfied at the target performance level and the PSUs vest as of the date of such change in control under the Plan and are earned in an amount consistent with the target performance level, or (ii) occurs more than twelve months following the grant date, the PSUs vest as of the date of the change in control under the Plan based on actual performance through the date of such change in control under the Plan and are earned in an amount consistent with the executives’ actual performance. The following table quantifies the payments and benefits that would be provided to Mr. Adams under different scenarios in connection with termination of his employment or a Change in Control, effective August 25, 2023, the last day of our most recently completed fiscal year. Mr. Adams’ time-based options and RSAs and market-based PSAs also provide that, in addition to the treatment provided under the terms of his offer letter, such awards will immediately vest in full if Mr. Adams agrees to, and does, continue in employment with us in a role other than CEO during the Change in Control Protection Period. This benefit was offered to Mr. Adams to enable him to assist us in connection with a Change in Control in a non-CEO role without jeopardizing his rights to the benefits provided to him in connection with a Change in Control, which he would otherwise only be entitled to in the event he were to resign for good reason or be terminated without cause.
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| Name | Payment/Benefit Type | Trigger Event | | | | | | | | Involuntary Termination ($) | Death ($) | Disability ($) | Change of Control ($) | Involuntary Termination During Change in Control Protection Period ($) | | Mark Adams | Severance(1) | 750,000 | — | — | — | 1,350,000 | | | Prorated Bonus(2) | — | — | — | — | — | | | Equity Awards(3) | — | — | — | 7,966,341 | 18,374,734 | | | Continued Health Coverage(4) | 42,177 | — | — | — | 62,495 | | | Life Insurance Benefit(5) | — | 2,000,000 | — | — | — | | | Disability Benefit(6) | — | — | 1,135,333 | — | — |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (1) Upon an involuntary termination on August 25, 2023, Mr. Adams would have received severance benefits including 100% of his base salary. Upon an involuntary termination during the Change in Control Protection Period on August 25, 2023, Mr. Adams would have received severance benefits including 150% of his base salary and 150% of the annual bonus paid or payable for the most recently completed fiscal year. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (2) Upon (i) an involuntary termination or (ii) an involuntary termination during the Change in Control Protection Period on August 25, 2023, Mr. Adams would have received his bonus for the fiscal year, prorated for his service during that year. These estimates are based on a deemed termination at the end of the fiscal year, so a prorated bonus has not been included. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (3) Upon a Change in Control on August 25, 2023, (i) the PSUs granted on each of October 1, 2021 and September 26, 2022 would vest in accordance with their terms at the maximum level and at the target level, respectively, and (ii) a pro rata portion of the PRSAs granted on August 31, 2020 would vest in accordance with their terms. The value of these awards as of August 25, 2023 has been measured using a price of $23.92 per share, the closing price of our ordinary shares on August 25, 2023. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
Upon an involuntary termination or voluntary transition to a role other than CEO during the Change in Control Protection Period on August 25, 2023, Mr. Adams would have vested in 100% of his outstanding unvested equity awards. Pursuant to SEC guidance, the value of any accelerated vesting of Mr. Adams’ equity awards has been estimated using a price of $23.92 per share, the closing price of our ordinary shares on August 25, 2023.
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (4) Upon an involuntary termination on August 25, 2023, Mr. Adams would have received continued health coverage for up to twelve months following his termination. Upon an involuntary termination during the Change in Control Protection Period on August 25, 2023, Mr. Adams would have received continued health coverage for up to eighteen months following his termination. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (5) Represents a life insurance benefit payable to Mr. Adams’ beneficiaries with a face value of seven times his base salary as in effect on August 25, 2023, with a maximum benefit of $2,000,000. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (6) Represents the present value of a weekly short-term disability benefit for 52 weeks following termination on August 25, 2023, followed by a monthly long-term disability benefit until the month of Mr. Adams’ 65th birthday. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
The following table quantifies the payments and benefits that would have been provided to Mr. Rizvi under different scenarios in connection with termination of his employment or a Change in Control, effective as of August 25, 2023, the last day of our most recently completed fiscal year.
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| Name | Payment/Benefit Type | Trigger Event | | | | | | | | Involuntary Termination ($) | Death ($) | Disability ($) | Change of Control ($) | Involuntary Termination During Change in Control Protection Period ($) | | Ken Rizvi | Severance(1) | 356,250 | — | — | — | 826,500 | | | Prorated Bonus(2) | — | — | — | — | — | | | Equity Awards(3) | — | — | — | 1,581,758 | 3,958,760 | | | Continued Health Coverage(4) | 31,936 | — | — | — | 62,708 | | | Life Insurance Benefit(5) | — | 2,000,000 | — | — | — | | | Disability Benefit(6) | — | — | 2,561,314 | — | — |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (1) Upon an involuntary termination on August 25, 2023, Mr. Rizvi would have received severance benefits including 75% of his base salary. Upon an involuntary termination during the Change in Control Protection Period on August 25, 2023, Mr. Rizvi would have received severance benefits including 150% of his base salary and 150% of the annual bonus paid or payable for the most recently completed fiscal year. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (2) Upon (i) an involuntary termination or (ii) an involuntary termination during the Change in Control Protection Period on August 25, 2023, Mr. Rizvi would have received his bonus for the fiscal year, prorated for his service during that year. These estimates are based on a deemed termination at the end of the fiscal year, so a prorated bonus has not been included. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (3) Upon a Change in Control on August 25, 2023, the PSUs granted on each of October 1, 2021 and September 26, 2022 would vest in accordance with their terms at the maximum level and at the target level, respectively. The value of these awards as of August 25, 2023 has been measured using a price of $23.92 per share, the closing price of our ordinary shares on August 25, 2023. No portion of the PSUs granted on February 15, 2021 would vest upon a Change in Control as the share price hurdles would not have been met using a price of $23.92 per share, the closing price of our ordinary shares on August 25, 2023. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
Upon an involuntary termination during the Change in Control Protection Period on August 25, 2023, Mr. Rizvi would have vested in 100% of his outstanding unvested equity awards. Pursuant to SEC guidance, the value of any accelerated vesting of Mr. Rizvi’s equity awards has been estimated using a price of $23.92 per share, the closing price of our ordinary shares on August 25, 2023.
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (4) Upon an involuntary termination on August 25, 2023, Mr. Rizvi would have received continued health coverage for up to nine months following his termination. Upon an involuntary termination during the Change in Control Protection Period on August 25, 2023, Mr. Rizvi would have received continued health coverage for up to eighteen months following his termination. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (5) Represents a life insurance benefit payable to Mr. Rizvi’s beneficiaries with a face value of seven times his base salary as in effect on August 25, 2023, with a maximum benefit of $2,000,000. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (6) Represents the present value of a weekly short-term disability benefit for 52 weeks following termination on August 25, 2023, followed by a monthly long-term disability benefit until the month of Mr. Rizvi’s 65th birthday. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
The following table quantifies the payments and benefits that would have been provided to Mr. Laurello under different scenarios in connection with termination of his employment or a Change in Control, effective as of August 25, 2023, the last day of our most recently completed fiscal year.
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| Name | Payment/Benefit Type | Trigger Event | | | | | | | | Involuntary Termination ($) | Death ($) | Disability ($) | Change of Control ($) | Involuntary Termination During Change in Control Protection Period ($) | | David Laurello | Severance(1) | 1,133,000 | — | — | — | 1,133,000 | | | Other Bonuses(2) | 1,908,000 | — | — | — | 1,908,000 | | | Equity Awards(3) | 1,084,174 | — | — | — | 2,478,112 | | | Continued Health Coverage(4) | 42,792 | — | — | — | 42,792 | | | Life Insurance Benefit(5) | — | — | — | — | — | | | Disability Benefit(6) | — | — | 583,065 | — | — |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (1) Upon (i) an involuntary termination or (ii) an involuntary termination during the Change in Control Protection Period on August 25, 2023, Mr. Laurello would have received severance benefits including 100% of his base salary and 100% of his annualized target bonus. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (2) Upon (i) an involuntary termination or (ii) an involuntary termination during the Change in Control Protection Period on August 25, 2023, Mr. Laurello would have received the Stratus Retention Bonus in the amount of $275,000, the SGH Retention Bonus in the amount of $1,133,000, and the Stratus Earn-Out Bonus in the amount of $500,000. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (3) Upon an involuntary termination on August 25, 2023, Mr. Laurello’s outstanding unvested equity awards would have vested as to the number of shares that would have otherwise vested during the 12-month period immediately following the termination date had his employment continued during such period. Upon an involuntary termination during the Change in Control Protection Period on August 25, 2023, Mr. Laurello would have vested as to 100% of his outstanding unvested equity awards. Pursuant to SEC guidance, the value of any accelerated vesting of Mr. Laurello’s equity awards has been estimated using a price of $23.92 per share, the closing price of our ordinary shares on August 25, 2023. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (4) Upon (i) an involuntary termination or (ii) an involuntary termination during the Change in Control Protection Period on August 25, 2023, Mr. Laurello would have received continued health coverage for up to 24 months following his termination. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (5) Mr. Laurello declined life insurance coverage effective February 1, 2023. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (6) Represents the present value of a weekly short-term disability benefit for 52 weeks following termination on August 25, 2023, followed by a monthly long-term disability benefit for a period of eighteen months. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
The following table quantifies the payments and benefits that would have been provided to Mr. Pacheco under different scenarios in connection with termination of his employment or a Change in Control, effective as of August 25, 2023, the last day of our most recently completed fiscal year.
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| Name | Payment/Benefit Type | Trigger Event | | | | | | | | Involuntary Termination ($) | Death ($) | Disability ($) | Change of Control ($) | Involuntary Termination During Change in Control Protection Period ($) | | Jack Pacheco | Severance(1) | 356,250 | — | — | — | 833,625 | | | Prorated Bonus(2) | — | — | — | — | — | | | Equity Awards(3) | — | — | — | 1,388,078 | 2,978,779 | | | Continued Health Coverage(4) | 21,719 | — | — | — | 42,647 | | | Life Insurance Benefit(5) | — | 2,000,000 | — | — | — | | | Disability Benefit(6) | — | — | 851,238 | — | — |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (1) Upon an involuntary termination on August 25, 2023, Mr. Pacheco would have received severance benefits including 75% of his base salary. Upon an involuntary termination during the Change in Control Protection Period on August 25, 2023, Mr. Pacheco would have received severance benefits including 150% of his base salary and 150% of the annual bonus paid or payable for the most recently completed fiscal year. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (2) Upon (i) an involuntary termination or (ii) an involuntary termination during the Change in Control Protection Period on August 25, 2023, Mr. Pacheco would have received his bonus for the fiscal year, prorated for his service during that year. These estimates are based on a deemed termination at the end of the fiscal year, so a prorated bonus has not been included. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (3) Upon a Change in Control on August 25, 2023, the PSUs granted on each of October 1, 2021 and September 26, 2022 would vest in accordance with their terms at the maximum level and at the target level, respectively. The value of these awards as of August 25, 2023 has been measured using a price of $23.92 per share, the closing price of our ordinary shares on August 25, 2023. Upon an involuntary termination during the Change in Control Protection Period on August 25, 2023, Mr. Pacheco would have vested in 100% of his outstanding unvested equity awards. Pursuant to SEC guidance, the value of any accelerated vesting of Mr. Pacheco’s equity awards has been estimated using a price of $23.92 per share, the closing price of our ordinary shares on August 25, 2023. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (4) Upon an involuntary termination on August 25, 2023, Mr. Pacheco would have received continued health coverage for up to nine months following his termination. Upon an involuntary termination during the Change in Control Protection Period on August 25, 2023, Mr. Pacheco would have received continued health coverage for up to eighteen months following his termination. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (5) Represents a life insurance benefit payable to Mr. Pacheco’s beneficiaries with a face value of seven times his base salary as in effect on August 25, 2023, with a maximum benefit of $2,000,000. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (6) Represents the present value of a weekly short-term disability benefit for 52 weeks following termination on August 25, 2023, followed by a monthly long-term disability benefit until the month of Mr. Pacheco’s 65th birthday. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
The following table quantifies the payments and benefits that would have been provided to Mr. Clark under different scenarios in connection with termination of his employment or a Change in Control, effective as of August 25, 2023, the last day of our most recently completed fiscal year.
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| Name | Payment/Benefit Type | Trigger Event | | | | | | | | Involuntary Termination ($) | Death ($) | Disability ($) | Change of Control ($) | Involuntary Termination During Change in Control Protection Period ($) | | Joseph Clark | Severance(1) | 281,250 | — | — | — | 646,875 | | | Prorated Bonus(2) | — | — | — | — | — | | | Equity Awards(3) | — | — | — | 645,577 | 2,084,341 | | | Continued Health Coverage(4) | 15,885 | — | — | — | 31,191 | | | Life Insurance Benefit(5) | — | 2,000,000 | — | — | — | | | Disability Benefit(6) | — | — | 2,298,105 | — | — |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (1) Upon an involuntary termination on August 25, 2023, Mr. Clark would have received severance benefits including 75% of his base salary. Upon an involuntary termination during the Change in Control Protection Period on August 25, 2023, Mr. Clark would have received severance benefits including 150% of his base salary and 150% of the annual bonus paid or payable for the most recently completed fiscal year. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (2) Upon (i) an involuntary termination or (ii) an involuntary termination during the Change in Control Protection Period on August 25, 2023, Mr. Clark would have received his bonus for the fiscal year, prorated for his service during that year. These estimates are based on a deemed termination at the end of the fiscal year, so a prorated bonus has not been included. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (3) Upon a Change in Control on August 25, 2023, the PSUs granted on September 26, 2022 would vest at the target level in accordance with their terms. The value of these awards at the target level as of August 25, 2023 has been measured using a price of $23.92 per share, the closing price of our ordinary shares on August 25, 2023. Upon an involuntary termination during the Change in Control Protection Period on August 25, 2023, Mr. Clark would have vested in 100% of his outstanding unvested equity awards. Pursuant to SEC guidance, the value of any accelerated vesting of Mr. Clark’s equity awards has been estimated using a price of $23.92 per share, the closing price of our ordinary shares on August 25, 2023. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (4) Upon an involuntary termination on August 25, 2023, Mr. Clark would have received continued health coverage for up to nine months following his termination. Upon an involuntary termination during the Change in Control Protection Period on August 25, 2023, Mr. Clark would have received continued health coverage for up to eighteen months following his termination. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (5) Represents a life insurance benefit payable to Mr. Clark’s beneficiaries with a face value of six times his base salary as in effect on August 25, 2023, with a maximum benefit of $2,000,000. |
Employment and Severance Agreements; Potential Payments upon Termination or Change in Control
| (6) Represents the present value of a weekly short-term disability benefit for 52 weeks following termination on August 25, 2023, followed by a monthly long-term disability benefit until the month of Mr. Clark’s 65th birthday. |
Pay Ratio
Pay Ratio In accordance with the requirements of Section 953(b) of the Dodd-Frank Act and Item 402(u) of Regulation S-K (collectively, the “Pay Ratio Rule”), we are providing the following estimated information for fiscal 2023:
Pay Ratio
| • | The annual total compensation of our median employee (excluding our President and CEO) was $22,879; |
Pay Ratio
| • | The annual total compensation of our President and CEO was $3,214,342; and |
Pay Ratio
| • | The ratio of these two amounts was 140 to 1. We believe that this ratio is a reasonable estimate calculated in a manner consistent with the requirements of the Pay Ratio Rule. |
Pay Ratio
SEC rules for identifying the median employee compensation and calculating the pay ratio allow companies to apply various methodologies and assumptions. As a result, the pay ratio reported by us may not be comparable to the pay ratio reported by other companies. For fiscal 2023, we identified our median employee by considering the Form W-2 (or for non-U.S. employees, Form W-2 equivalent) income for fiscal 2023 of individuals who were our employees on August 25, 2023. In order to align with our fiscal year end, we used a median employee determination date of August 25, 2023 for fiscal 2023, a change from our median employee determination date of May 31, 2021 for fiscal 2021. Each resulting compensation figure in a currency other than U.S. dollars was converted to a U.S. dollar figure using the relevant currency conversion rates on August 25, 2023. For purposes of this identification, we excluded all 159 employees in India, representing about 4.3% of our approximately 3,709 employees (excluding our President and CEO) worldwide as of August 25, 2023, due to the relatively low cost of living in that country. As of August 25, 2023, approximately 1,036 of our worldwide employees were U.S. employees and approximately 2,673 were non-U.S. employees. After excluding our employees in India, we determined the median employee from a population of 3,550 employees, including 1,036 U.S. employees and 2,514 non-U.S. employees. The annual total compensation of our median employee was determined in a manner consistent with the calculation of compensation required to be disclosed for each of our NEOs in the Summary Compensation Table. The resulting figure was converted to a U.S. dollar figure using the relevant currency conversion rate on August 25, 2023.
Pay Versus Performance Table
Pay Versus Performance Table The following table sets forth information concerning the compensation of our principal executive officers identified in footnote 1 to the table below (our “PEOs”) and our other NEOs (our “non-PEO NEOs”) for each of fiscal 2021, 2022, and 2023, and our financial performance for each such fiscal year:
Pay Versus Performance Table
| | | | | | | | Value of Initial Fixed $100 Investment Based on: | | | | | Year | Summary Compensation Table Total for Adams ($) | Summary Compensation Table Total for Shah ($) | Compensation Actually Paid to Adams(1)(2) ($) | Compensation Actually Paid to Shah(1)(2) ($) | Average Summary Compensation Table Total for Non-PEO NEOs ($) | Average Compensation Actually Paid to Non-PEO NEOs(1)(2) ($) | Total Shareholder Return(3) ($) | Peer Group Total Shareholder Return(4) ($) | Net Income (Loss)(5) ($ thousands) | Company Selected Measure: Non-GAAP Operating Income(5)(6) ($ thousands) | | 2023 | 3,214,342 | — | 4,918,909 | — | 2,234,537 | 2,732,723 | 205 | 145 | 9,690 | 179,794 | | 2022 | 6,664,870 | — | 5,198,254 | — | 1,878,963 | 1,260,114 | 146 | 128 | 24,407 | 177,461 | | 2021(7) | 14,810,329 | 47,437 | 29,451,132 | 5,856,579 | 2,948,891 | 3,702,862 | 192 | 144 | (41,954) | 83,484 |
Pay Versus Performance Table
| (1) Amounts represent compensation actually paid to our PEOs and the average compensation actually paid to our non-PEO NEOs for the relevant fiscal year, as determined under SEC rules (and described below), which includes the individuals indicated in the table below for each fiscal year: |
Pay Versus Performance Table
| Year | PEOs | Non-PEO NEOs | | 2023 | Mark Adams | Ken Rizvi, David Laurello, Jack Pacheco, Joseph Clark, and Thierry Pellegrino | | 2022 | Mark Adams | Ken Rizvi, Jack Pacheco, Claude Demby, and Thierry Pellegrino | | 2021(7) | Mark Adams, Ajay Shah | Ken Rizvi, Jack Pacheco, Claude Demby, Thierry Pellegrino, and Anne Kuykendall |
Pay Versus Performance Table
Compensation actually paid to our NEOs represents the “Total” compensation reported in the Summary Compensation Table for the applicable fiscal year, as adjusted as follows:
Pay Versus Performance Table
| | 2021 | | | 2022 | | 2023 | | | Adjustments | Adams ($) | Shah ($) | Average Non-PEO NEOs ($) | Adams ($) | Average Non-PEO NEOs ($) | Adams ($) | Average Non-PEO NEOs ($) | | Deduction for Amounts Reported under the “Share Awards” and “Option Awards” Columns in the Summary Compensation Table for Applicable FY | (12,751,338) | — | (2,275,835) | (4,995,747) | (936,673) | (2,284,931) | (1,307,151) | | Increase based on ASC 718 Fair Value of Awards Granted during Applicable FY that Remain Unvested as of Applicable FY End, determined as of Applicable FY End | 27,392,141 | — | 2,528,042 | 4,140,801 | 776,376 | 3,369,794 | 1,622,677 |
Pay Versus Performance Table
| | 2021 | | | 2022 | | 2023 | | | Adjustments | Adams ($) | Shah ($) | Average Non-PEO NEOs ($) | Adams ($) | Average Non-PEO NEOs ($) | Adams ($) | Average Non-PEO NEOs ($) | | Increase based on ASC 718 Fair Value of Awards Granted during Applicable FY that Vested during Applicable FY, determined as of Vesting Date | — | — | — | — | — | 196,325 | 81,831 | | Increase/deduction for Awards Granted during Prior FYs that were Outstanding and Unvested as of Applicable FY End, determined based on change in ASC 718 Fair Value from Prior FY End to Applicable FY End | — | 3,916,398 | 317,778 | (2,814,656) | (479,258) | 3,789,781 | 249,068 | | Increase/deduction for Awards Granted during Prior FYs that Vested During Applicable FY, determined based on change in ASC 718 Fair Value from Prior FY End to Vesting Date | — | 1,892,744 | 183,986 | 2,202,986 | 20,706 | (3,366,402) | (72,809) | | Deduction of ASC 718 Fair Value of Awards Granted during Prior FYs that were Forfeited during Applicable FY, determined as of Prior FY End | — | — | — | — | — | — | (75,430) | | TOTAL ADJUSTMENTS | 14,640,803 | 5,809,142 | 753,971 | (1,466,616) | (618,849) | 1,704,567 | 498,186 |
Pay Versus Performance Table
| (2) Fair value or change in fair value, as applicable, of equity awards in the “Compensation Actually Paid” columns was determined by reference to (i) for solely service-vesting RSU and RSA awards, the closing price per share on the applicable fiscal year-end date(s) or, in the case of vesting dates, the closing price per share on the applicable vesting date(s), (ii) for PSU awards (excluding any market-based awards), the same valuation methodology as RSU and RSA awards above except that the fiscal year-end values are multiplied by the probability of achievement of the applicable performance objective as of the applicable date, (iii) for market-based PSU and PSA awards, the fair value calculated by a Monte Carlo simulation model as of the applicable fiscal year-end date(s), and (iv) for share options, a Black Scholes value as of the applicable fiscal year-end or vesting date(s), determined based on the same methodology as used to determine grant date fair value but using the closing stock price on the applicable revaluation date as the current market price and with an expected life set based on the moneyness factor of the award – if the moneyness factor is below 0.4, the remaining contractual term is used, if the moneyness factor is between 0.4 and 0.7, the midway point between the remaining contractual term and the remaining expected term is used, and if the moneyness term is above 0.7, the remaining expected term is used, and in all cases based on volatility and risk free rates determined as of the revaluation date based on the expected life period and based on an expected dividend rate of 0%. For additional information on the assumptions used to calculate the valuation of the awards, see the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended August 25, 2023 and prior fiscal years. |
Pay Versus Performance Table
| (3) Pursuant to Item 402(v) of Regulation S-K, the comparison assumes $100 was invested on August 31, 2020 in our ordinary shares. Historic stock price performance is not necessarily indicative of future stock performance. |
Pay Versus Performance Table
| (4) For the relevant fiscal year, represents the cumulative TSR (the “Peer Group TSR”) of the Nasdaq Electronic Components Index (the “Peer Group”). |
Pay Versus Performance Table
| (5) Net income (loss) and non-GAAP operating income are presented on a continuing operations basis and exclude the operations of SMART Brazil. |
Pay Versus Performance Table
| (6) We have selected non-GAAP operating income as the Company Selected Measure because it is a core driver of our performance and shareholder value creation and, accordingly, was utilized in the Company’s short-term cash incentive program. Non-GAAP operating income is defined as GAAP operating income (loss) excluding share-based compensation expense, amortization of acquisition-related intangible assets (consisting of amortization of developed technology, customer relationships, trademarks/trade names and backlog acquired in connection with business combinations), acquisition-related inventory adjustments, acquisition-related expenses, restructure charges and integration expenses, impairment of goodwill, changes in the fair value of contingent consideration, and other infrequent or unusual items. |
Pay Versus Performance Table
| (7) In fiscal 2021, the Company underwent a transition to an almost entirely new management team, including the appointments of PEO Mr. Adams and non-PEO NEOs Mr. Rizvi, Mr. Demby, Mr. Pellegrino, and Ms. Kuykendall. These NEOs received sign-on inducement equity compensation and/or cash sign-on awards in fiscal 2021, which resulted in higher relative Summary Compensation Table total compensation amounts for fiscal 2021. |
Narrative Disclosure to Pay Versus Performance Table
Narrative Disclosure to Pay Versus Performance Table Relationship Between Financial Performance Measures The graphs below compare the compensation actually paid to our PEO(s) and the average of the compensation actually paid to our non-PEO NEOs, with (i) our cumulative TSR and our Peer Group TSR, (ii) our net income (loss), and (iii) our non-GAAP operating income, in each case, for each of fiscal 2021, 2022, and 2023. Net income (loss) and non-GAAP operating income are presented on a continuing operations basis and exclude the operations of SMART Brazil. For fiscal 2021, the compensation actually paid to our two PEOs has been aggregated for purposes of the graphical relationship disclosure below, and as described in footnote 7 above, five of the NEOs received sign-on inducement equity compensation and/or cash sign-on awards in fiscal 2021, which resulted in higher relative Summary Compensation Table total compensation amounts for fiscal 2021.
Narrative Disclosure to Pay Versus Performance Table
| * TSR amounts reported in the graph assume an initial fixed investment of $100. |
Narrative Disclosure to Pay Versus Performance Table
| ** For fiscal 2021, PEO Compensation Actually Paid represents the aggregate of Mr. Adams’ and Mr. Shah’s compensation actually paid. |
Narrative Disclosure to Pay Versus Performance Table
| * For fiscal 2021, PEO Compensation Actually Paid represents the aggregate of Mr. Adams’ and Mr. Shah’s compensation actually paid. |
Narrative Disclosure to Pay Versus Performance Table
| * For fiscal 2021, PEO Compensation Actually Paid represents the aggregate of Mr. Adams’ and Mr. Shah’s compensation actually paid. |
Narrative Disclosure to Pay Versus Performance Table
Tabular List of Financial Performance Measures We believe the following performance measures represent the most important financial performance measures used by us to link compensation actually paid to our NEOs for fiscal 2023:
Narrative Disclosure to Pay Versus Performance Table
| • | Net sales; |
Narrative Disclosure to Pay Versus Performance Table
| • | Non-GAAP operating income; and |
Narrative Disclosure to Pay Versus Performance Table
| • | Relative TSR. |
Narrative Disclosure to Pay Versus Performance Table
For additional details regarding our most important financial performance measures, please see the sections titled “Elements of Executive Compensation – Short-Term Cash Incentive Compensation” and “Elements of Executive Compensation – Equity Compensation” in our CD&A above.