DEF 14A of Adaptive Biotechnologies Corp
Filed Apr 26, 2024 · FY20230001193125-24-118168
Shareholder Recommendations for Director Nominees
Shareholder Recommendations for Director Nominees In evaluating potential director nominees, our nominating and corporate governance committee will consider director candidates recommended by our shareholders, provided such recommendations are validly made by our shareholders pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 (the “Exchange Act”) and our Bylaws. Shareholders who wish to recommend a candidate to our nominating and corporate governance committee for consideration for nomination should send to us, at our principal executive offices, information regarding the candidate.
Our Board
Our Board Our continuing directors and their respective ages (as of April 10, 2024) and class designations are as follows:
Our Board
| Name | Age | Director Designation | | Michelle Griffin | 58 | Class II Director | | Robert Hershberg, PhD, MD | 61 | Class I Director | | Peter Neupert | 68 | Class II Director | | Katey Owen, PhD | 55 | Class I Director | | Michael Pellini, MD | 58 | Class III Director | | Chad Robins | 49 | Class III Director |
Compensation and Human Capital Committee Service and Responsibilities
| • | Reviewing and making recommendations to our board of directors with respect to director compensation. |
DIRECTOR COMPENSATION
DIRECTOR COMPENSATION The following table presents the total compensation for each person who served as a non-employee member of our board of directors at any time during the year ended December 31, 2023. Other than as set forth in the table and described more fully below, we did not pay any compensation, make any additional equity awards or non-equity awards to or pay any other compensation to any of the non-employee members of our board of directors in 2023. We reimburse non-employee members of our board of directors for reasonable travel and out-of-pocket expenses incurred in attending meetings of our board of directors and committees of our board of directors. We also do not, and do not expect to, provide separate compensation to our directors who are also our employees, such as Chad Robins, our Chief Executive Officer. Mr. Robins’ compensation as our principal executive officer in 2023 is reported in the “Executive Compensation” section of this proxy statement.
DIRECTOR COMPENSATION
| Name | Fees Earned or Paid in Cash ($) | Option Awards(1) ($) | Stock Awards(2) ($) | Total ($) | | Kevin Conroy(3) | 40,272 | 124,999 | 124,997 | 290,268 | | Michelle Griffin(4) | 80,000 | 124,999 | 124,997 | 329,996 | | Robert Hershberg, PhD, MD(5) | 75,000 | 124,999 | 124,997 | 324,996 | | Peter Neupert(6) | 105,000 | 124,999 | 124,997 | 354,996 | | Katey Owen, PhD(7) | 60,000 | 124,999 | 124,997 | 309,996 | | Michael Pellini, MD(8) | 60,000 | 124,999 | 124,997 | 309,996 | | Leslie Trigg(9) | 26,301 | 124,999 | 124,997 | 276,297 |
DIRECTOR COMPENSATION
| (1) In accordance with SEC rules, amounts in this column reflect the aggregate grant date fair value of stock options granted during 2023 computed in accordance with Accounting Standards Codification (“ASC”) Topic 718, Compensation-Stock Compensation (“ASC 718”), rather than the amounts paid or realized by the named individual. We provide information regarding the assumptions used to calculate grant date fair value of our stock options in Note 14 to our audited consolidated financial statements filed with our Annual Report on Form 10-K for the year ended December 31, 2023. For 2023 option awards, the number of option shares was determined by dividing the target economic value of each individual’s stock option award by the corresponding ASC 718 fair value using a Black-Scholes valuation of $5.36. |
DIRECTOR COMPENSATION
| (2) In accordance with SEC rules, amounts in this column reflect the aggregate grant date fair value of restricted stock units (“RSUs”) granted during 2023 computed in accordance with ASC 718, rather than the amounts paid or realized by the named individual. We provide information regarding the assumptions used to calculate the grant date fair value of our RSUs in Note 14 to our audited consolidated financial statements filed with our Annual Report on Form 10-K for the year ended December 31, 2023. |
DIRECTOR COMPENSATION
| (3) Mr. Conroy resigned from our board of directors on September 1, 2023. As of December 31, 2023, Mr. Conroy had no outstanding stock options or RSUs. |
DIRECTOR COMPENSATION
| (4) As of December 31, 2023, Ms. Griffin held (i) options to purchase 104,782 shares of our common stock, 98,949 of which were vested and exercisable as of such date; and (ii) 14,775 unvested RSUs. |
DIRECTOR COMPENSATION
| (5) As of December 31, 2023, Dr. Hershberg held (i) options to purchase 112,698 shares of our common stock, 106,865 of which were vested and exercisable as of such date; and (ii) 14,775 unvested RSUs. |
DIRECTOR COMPENSATION
| (6) As of December 31, 2023, Mr. Neupert held (i) options to purchase 257,698 shares of our common stock, 251,865 of which were vested and exercisable as of such date; and (ii) 14,775 unvested RSUs. |
DIRECTOR COMPENSATION
| (7) As of December 31, 2023, Dr. Owen held (i) options to purchase 51,160 shares of our common stock, 41,855 of which were vested and exercisable as of such date; and (ii) 16,997 unvested RSUs. |
DIRECTOR COMPENSATION
| (8) As of December 31, 2023, Dr. Pellini held (i) options to purchase 122,698 shares of our common stock, 116,865 of which were vested and exercisable as of such date; and (ii) 14,775 unvested RSUs. |
DIRECTOR COMPENSATION
| (9) Ms. Trigg resigned from our board of directors on June 9, 2023. As of December 31, 2023, Ms. Trigg had no outstanding stock options or RSUs. |
DIRECTOR COMPENSATION
Our board of directors has adopted a non-employee director compensation policy that is designed to enable us to attract and retain, on a long-term basis, highly qualified non-employee directors. Specifically, we provided $60,000 annual cash retainer payments payable quarterly in arrears, to each director who is not an employee of ours, with additional amounts for those serving as Lead Independent Director and chairpersons of our audit, compensation, and nominating and corporate governance committees, as set forth below:
DIRECTOR COMPENSATION
| | Additional Annual Fee ($) | | Lead Independent Director | 35,000 | | Audit Committee Chairperson | 20,000 | | Compensation and Human Capital Committee Chairperson | 15,000 | | Nominating and Corporate Governance Committee Chairperson | 10,000 |
DIRECTOR COMPENSATION
In addition, subject to board discretion, each non-employee director initially elected or appointed to our board of directors will receive a grant with a total target economic value equivalent to $400,000, comprised 50% of stock options and 50% of RSUs. With respect to the stock option grant, 25% of the shares vest on the first anniversary of the vesting commencement date and 1/48th of the shares vest in monthly installments thereafter, subject to continuous service through each applicable vesting date. With respect to the RSU grant, 25% of the shares vest on each of the first four anniversaries of the vesting commencement date, subject to continuous service through each applicable vesting date. Our non-employee director compensation policy sets the total target economic value of the annual director equity grants, comprised 50% of stock options and 50% of RSUs, at $250,000. With respect to the stock option grant, 1/12th of the shares vest on each of the first twelve months following the vesting commencement date, subject to continuous service through each applicable vesting date. With respect to the RSU grant, 100% of the shares vest on the first anniversary of the vesting commencement date, subject to continuous service through each applicable vesting date. The aggregate amount of compensation under our 2019 Equity Incentive Plan (the “2019 Plan”), including both the grant date fair value of equity compensation and cash compensation, paid to any non-employee director in a calendar year will not exceed $750,000 for the first year of service and $600,000 for each year of service thereafter.
PROPOSAL 1: ELECTION OF DIRECTORS
PROPOSAL 1: ELECTION OF DIRECTORS Pursuant to our Articles of Incorporation and our Bylaws, the total number of directors constituting the board of directors is fixed from time to time by the board. The current authorized number of directors is fixed at six. The board of directors is divided into three classes, each containing as nearly as possible an equal number of directors. The current term of office of our Class II directors expires at the Annual Meeting, while the term for our Class III directors will expire at our 2025 annual meeting of shareholders and the term for our Class I directors expires at our 2026 annual meeting of shareholders. Based upon the recommendation of our nominating and corporate governance committee, the board has nominated Peter Neupert and Michelle Griffin, both current Class II directors, for election at the Annual Meeting. Each director elected at the Annual Meeting will serve a three-year term expiring at our 2027 annual meeting of shareholders and until his or her successor is duly elected and qualified as a Class II director, or until his or her earlier death, resignation or removal. At the Annual Meeting, proxies cannot be voted for a greater number of individuals than the two nominees named in this proxy statement. The board of directors and the nominating and governance committee believe the skills, qualities, attributes and experience of our directors provide us with business acumen and a diverse range of perspectives to engage each other and management to effectively address our evolving needs and represent the best interests of our shareholders. If any nominee should become unavailable for election prior to the Annual Meeting, an event that currently is not anticipated, the proxies will be voted in favor of the election of a substitute nominee or nominees proposed by the board of directors or the number of directors may be reduced accordingly. Each nominee has agreed to serve if elected and the board of directors has no reason to believe that any nominee will be unable to serve. We confirm as well that vacancies on the board, including any vacancy created by an increase in the size of the board, may be filled only by a majority of the directors remaining in office, even though less than a quorum of the board, or a sole remaining director. A director elected by the board to fill a vacancy will serve until the next election of the class of directors for which such director was chosen and until such director’s successor is elected and qualified, or until such director’s earlier retirement, resignation, disqualification, removal or death.
Class II Director Nominees Biographies
Class II Director Nominees Biographies Set forth below is biographical information for each nominee and a summary of the specific qualifications, attributes, skills and experiences which led our board of directors to conclude that each nominee should serve on the board of directors at this time. Peter Neupert has served as a member of our board of directors since December 2013. Mr. Neupert served as an Operating Partner at Health Evolution Partners, a private equity fund, from February 2012 to July 2014. Prior to joining Health Evolution Partners, Mr. Neupert served as Corporate Vice President, Health Solutions Group at Microsoft from August 2005 to January 2012, and as the Chief Executive Officer and Chairman of the board of directors of Drugstore.com, which he joined in July 1998. Mr. Neupert currently serves on the board of directors of Laboratory Corporation of America Holdings, a public clinical laboratory company, and Fortrea, a clinical research organization. He has previously served as a member of the board of directors of several private companies. Mr. Neupert served as a member of the Board of Trustees of Fred Hutchinson Cancer Research Center from June 2007 to June 2020. Mr. Neupert holds an MBA from the Tuck School of Business at Dartmouth College and a BA in Philosophy from Colorado College. We believe Mr. Neupert is qualified to serve on our board of directors based on his extensive experience in leadership roles in the health services sector and as a member of the board of directors of several organizations in the biotechnology industry. Michelle Griffin has served on our board of directors since March 2019. Ms. Griffin previously served on the boards of directors of Acer Therapeutics, Inc., formerly a public pharmaceutical company, (including as chair of the compensation and human capital committee), HTG Molecular Diagnostics, Inc., formerly a public commercial-stage life sciences company, Chinook Therapeutics, formerly a public clinical-stage biotechnology company, (including as chair of the audit committee), PhaseRx, Inc., formerly a public life sciences company, OncoGenex Pharmaceuticals Inc. (now Achieve Life Sciences, Inc.) and Sonus Pharmaceuticals, Inc. (now Achieve Life Sciences, Inc.). Ms. Griffin also served as Executive Vice President, Operations, and Chief Financial Officer at OncoGenex Pharmaceuticals, Inc. from January 2011 to April 2013, served as Acting Chief Executive, Senior Vice President and Chief Operating Officer at Trubion Pharmaceuticals, Inc. from November 2009 until its acquisition in October 2010 and as its Chief Financial Officer from January 2006 to November 2009; served as Senior Vice President and Chief Financial Officer of Dendreon Corp. from August 2005 to January 2006, and served as Chief Financial Officer of Corixa Corp from October 1997 until its acquisition in August 2005. Ms. Griffin holds a BS in marketing from George Mason University and an MBA from Seattle University. We believe Ms. Griffin is qualified to serve as a member of our board of directors based on our review of her extensive operational experience in the biotechnology industry and deep experience in public company financial matters. THE BOARD RECOMMENDS A VOTE “FOR” EACH OF THE TWO NAMED CLASS II DIRECTOR NOMINEES.
Additional Biographical Information about Other Directors Not Standing for Election at this Meeting
Additional Biographical Information about Other Directors Not Standing for Election at this Meeting
Class III Directors with Terms Expiring at the 2025 Annual Meeting Biographies
Class III Directors with Terms Expiring at the 2025 Annual Meeting Biographies Chad Robins co-founded our company in September 2009 and has served as our Chief Executive Officer and a member of our board of directors since incorporation. Mr. Robins currently serves on the board of directors of CM Life Sciences III, Inc., a public special purpose acquisition company sponsored by affiliates of Casdin Capital, LLC and Corvex Management LP. Mr. Robins served on the board of directors of ARYA Sciences Acquisition Corp II, a public special purpose acquisition company, from June 2020 to October 2020. Prior to co-founding our company, Mr. Robins held numerous executive-level positions in medical technology, investment and real estate companies. Mr. Robins holds an MBA from The Wharton School at the University of Pennsylvania and a BS in Managerial Economics from Cornell University. We believe Mr. Robins is qualified to serve as a member of our board of directors based on our review of his experience, qualifications, attributes and skills, including co-founding our company and his executive leadership experience in the biotechnology industry. Michael Pellini, MD, has served on our board of directors since February 2018. Dr. Pellini currently serves as a General Partner of Section 32, LLC, a technology and life sciences-based venture capital fund. Dr. Pellini currently serves as a member of the board of directors of the American Cancer Society (a nonprofit organization) and Singular Genomics Systems, Inc. (a public development-stage life sciences company), as well as several private companies. Dr. Pellini previously served as Chairman of the board of directors, Chief Executive Officer and President at Foundation Medicine, Inc., a molecular information company, which was acquired by the Roche Group in 2018. Dr. Pellini holds an MD from Jefferson Medical College, an MBA from Drexel University and a BA in Economics from Boston College. We believe Dr. Pellini is qualified to serve on our board of directors because of his medical and clinical experience in the biotechnology industry.
Class I Directors with Terms Expiring at the 2026 Annual Meeting Biographies
Class I Directors with Terms Expiring at the 2026 Annual Meeting Biographies Katey Owen, PhD, has served as a member of our board of directors since March 2021. Dr. Owen joined the Bill and Melinda Gates Foundation, a private foundation with the goal to enhance healthcare and reduce extreme poverty, in 2013 as Deputy Director of Vaccine Development. In 2017, she stepped into the role of Director, Neglected Tropical Diseases. In this role, Dr. Owen holds end-to-end responsibilities for a portfolio of investments with the goal to eliminate tropical diseases from the planet. In addition, Dr. Owen assumed the position of Director, Vaccine Development in November 2022, with responsibility for target selection, development and commercialization focusing on 100+ vaccine candidates. Prior to joining the Gates Foundation, Dr. Owen held roles of increasing responsibility at Merck & Co., including Executive Director, Merck Vaccines, Sr. Director, Merck Manufacturing Division, and Director, Merck Research Laboratories. Dr. Owen holds a PhD in Molecular Virology and a BS in Genetic Biology from Purdue University. We believe Dr. Owen is qualified to serve on our board of directors based on her extensive scientific expertise and strategic insights into commercialization and manufacturing at scale. Robert Hershberg, PhD, MD, has served on our board of directors since February 2013. Dr. Hershberg is currently Chairman and CEO of Hillevax, a position he has held since 2020 and has been a Venture Partner at Frazier Healthcare Partners since March 2020. Formerly, from April 2017 to March 2020, Dr. Hershberg was the executive vice president and head of business development and global alliances at Celgene (acquired by Bristol-Myers Squibb in November 2019). He was employed in positions of ascending responsibility at Celgene since joining the company in 2014, including his role as Chief Scientific Officer from January 2016 to March 2020. Dr. Hershberg previously served in several roles at VentiRx Pharmaceuticals, Inc., a clinical stage biopharmaceutical company, which he co-founded in 2006, and was Chief Executive Officer of VentiRx from 2012 until the company’s acquisition by Celgene in February 2017. Dr. Hershberg currently serves on the board of directors of Fate Therapeutics, Inc., a public company specializing in cellular immunotherapies, on the board of directors of Recursion Pharmaceuticals, Inc., a public company specializing in drug discovery, and as a clinical faculty member at the University of Washington School of Medicine. Dr. Hershberg holds a PhD in Biology from the University of California, San Diego’s Affiliated PhD Program with the Salk Institute for Biological Studies and an MD and a BA from the University of California, Los Angeles. We believe Dr. Hershberg is qualified to serve on our board of directors based on his extensive technical expertise and executive leadership in the biotechnology industry.
2023 Say-on-Pay Voting Results, Our Responsiveness, and Pay-Versus-Performance Alignment
| • | Replaced time-based stock option grants with performance stock units (“PSUs”) for our Chief Executive Officer in 2022, for our Chief Scientific Officer in 2023, and for our Chief Financial Officer (including our internally promoted Chief Financial Officer) and President and Chief Operating Officer in 2024. |
2023 Say-on-Pay Voting Results, Our Responsiveness, and Pay-Versus-Performance Alignment
| • | Equity grants made in 2024 to our Chief Executive Officer, Chief Financial Officer and President and Chief Operating Officer were set below the 50 th percentile of our peers in view of the declining stock price. |
vs. Realizable Pay (in thousands)
| (1) Target pay is defined as target equity grant value, “Target Annual Incentive Opportunity” as reported in the “ Incentive Compensation and 2023 Goals Achievement ” section and annual salary in place at the end of each year. Reported pay is defined as value as reported in the “ Summary Compensation Table ” table for each applicable pay element. Realizable pay is defined as “Salary” and “Non-Equity Incentive Plan Compensation” as reported in the “ Summary Compensation Table ” table, as well as equity awards valued at the Company’s stock price as of December 29, 2023 ($4.90), with the 2022 and 2023 PSU award payouts shown at the trending below threshold level (based on our relative TSR performance against the constituents of the S&P Biotechnology Select Industry Index through the end of 2023) and options shown using the intrinsic “in-the-money” value. |
Our Compensation Objectives
| • | Link pay to performance and strategy by aligning compensation with achieving relevant financial, strategic and individual performance goals. |
Our Compensation Objectives
| • | Regarding equity compensation, our Chief Executive Officer and Chief Scientific Officer (our co-founders), as well as our President and Chief Operating Officer and Chief Financial Officer (including our internally promoted Chief Financial Officer) in 2024, have and will receive half of their equity grant in PSUs. |
Our Compensation Objectives
| • | Utilize variable compensation components tied to the achievement of annual and long-term objectives. |
Our Compensation Objectives
| • | Aim for at least 50% of target compensation to be delivered in the form of equity awards; and regularly review executive officer compensation elements to maintain a competitive pay level and pay mix to market. |
Our Compensation Objectives
| • | Provide a heavy weight of incentives toward long-term equity that aligns with the interests of shareholders, rewarding long-term sustainable performance. |
Our Compensation Objectives
| • | Maintain target compensation at or near the median of our peer group. |
Our Compensation Objectives
| • | Utilize stock ownership guidelines to discourage short-term decision-making over driving long-term performance. |
Elements of Executive Compensation
| Element of Pay | Base Salary | Annual Incentive Program | Long-Term Incentive Program | | Why It Is Provided | Base level of compensation for carrying out day-to-day responsibilities | Incentivizes delivery of corporate goals that position the Company for future growth and allows for an assessment of individual contributions to intra-year results | Incentivizes sustainable long- term company growth Aligns executives with shareholder experience and ties compensation more closely to performance for Mr. Robins and Dr. Robins and, in 2024, for Ms. Rubinstein and our Chief Financial Officer (including our internally promoted Chief Financial Officer), as well. Annual target LTI levels can reflect role-based market dynamics and individual contributions. | | Fixed Pay or Variable Pay | Fixed | Variable | Variable |
Establishing Target Equity Values and Equity Structure for our Co-Founders and Other Key Employees
Establishing Target Equity Values and Equity Structure for our Co-Founders and Other Key Employees Our two co-founders (our Chief Executive Officer, Mr. Robins, and Chief Scientific Officer, Dr. Robins) continue to play critical roles in driving our business forward. We believe that both are essential to our current and future success. When establishing their target compensation, we reference role-specific peer group pay data to understand the competitiveness of their target pay opportunities. We reference peer Chief Executive Officer pay levels for Mr. Robins and, for 2023, an average of peer highest-paid and second-highest paid non-Chief Executive Officer pay data for Dr. Robins. These role-calibrated market benchmarks are then used to establish individual target pay levels for the Chief Executive Officer and Chief Scientific Officer roles. Although the peer group benchmarking data would have historically supported higher compensation for Mr. Robins, he has recommended to the compensation and human capital committee since 2020 that he not receive an actual equity grant value greater than the equity grant value awarded to Dr. Robins. The compensation and human capital committee, having already determined market-competitive individual target equity values for each executive using the methodology described above, elected to average the individually-calibrated target equity values to ensure a “zero-sum” process between actual grants to the co-founders and their role-based target equity values. The compensation and human capital committee believes that this process recognizes the criticality of each of our co-founders to our success and the expansive scope of our co-founders’ roles. Accordingly, the compensation and human capital committee approved target equity grant values of $6,000,000 for each of Mr. Robins and Dr. Robins in 2023, which w ere unchanged from the targeted value in 2022. The share or unit equivalents were set based on the closing price of Adaptive stock on the date of grant divided by the target value. The target mix of shares of common stock that may be earned was 50% PSUs and 50% RSUs. The RSUs vest with respect to 25% on the first four anniversaries of the vesting commencement date. In 2024, in light of our recent stock price levels and in an effort to further manage potential dilution, the compensation and human capital committee approved target grant levels based upon share count as opposed to target award dollar values. In 2024, the compensation and human capital committee elected to continue granting PSUs to Mr. Robins and Dr. Robins, as well as to extend them to Ms. Rubinstein and Mr. Peterson (and to Mr. Piskel when he succeeded Mr. Peterson in the Chief Financial Officer role) to align with our compensation philosophy. The shares of common stock that may be earned under PSU awards are calculated based upon our TSR (“Company rTSR”) during the performance period as measured against the total shareholder return of a comparator group of companies comprising the S&P Biotechnology Select Industry Index (the “Index”) as of the date of grant, subject to certain adjustments to such index group (the “index TSR”) as set forth in the Form of Performance Units Agreement representing the PSU awards (the “PSU Award Agreement”). Company rTSR and index TSR are each calculated as set forth in the PSU Award Agreement. Achievement between the threshold and maximum percentiles will be interpolated on a straight-line basis. If the threshold percentile is not achieved the PSUs shall be forfeited, and if the Company rTSR is negative, our recipients of PSUs cannot earn more than the target number of shares. The Company employs a Monte Carlo simulation to assess valuation for accounting purposes under ASC 718. We note that the historical volatility in stock price experienced by the Company compared to the Index peer group can produce accounting divergence between the intended economic value of the PSU awards and the Monte Carlo derived accounting value. As a compensation philosophy, the Company believes that PSU recipients should not be penalized as a result of such a divergence, as the Monte Carlo model includes a number of assumptions inputs that are outside of the Company’s control. Therefore, the target numbers of PSUs awarded reflects the intended valuation notwithstanding variations in the underlying Monte Carlo (accounting) value. The payout scale for our PSUs is as follows:
Establishing Target Equity Values and Equity Structure for our Co-Founders and Other Key Employees
The target number of the PSU and RSU awards granted to each of Mr. Robins and Dr. Robins on March 6, 2023 are summarized as follows:
Establishing Target Equity Values and Equity Structure for our Co-Founders and Other Key Employees
| Vehicle | Percentage of Long-Term Pay | Target Grant Value | Number of Units | | RSUs . . . . . . . . . . | 50% | $3,000,000 | 354,610 | | PSUs . . . . . . . . . . . | 50% | $3,000,000 | 354,610 |
Establishing Target Equity Values and Equity Structure for our Co-Founders and Other Key Employees
The structure of the PSU program was unchanged in 2023 from its introduction in 2022. Employing the PSU award payout methodology described above, the payout levels achievable under the 2023 PSU awards to Mr. Robins and Dr. Robins, with linear interpolation between performance levels, are as follows:
Establishing Target Equity Values and Equity Structure for our Co-Founders and Other Key Employees
| Company rTSR (as a percentile of index TSR) | % Multiplier (applied to the target number of PSUs) | Payout Level for 2022 PSU Award | Payout Level for 2023 PSU Award | | Less than 33% | 0% | — | — | | 33% (Threshold) | 50% | 123,558 | 177,305 | | 50% (Target) | 100% | 247,117 | 354,610 | | 75% (Maximum) | 200% | 494,234 | 709,220 |
Role of the Compensation Consultant
Role of the Compensation Consultant Our compensation and human capital committee may, in its sole discretion, retain or obtain the advice of one or more compensation consultants. During 2023, Semler Brossy Consulting Group, LLC (“Semler Brossy”) provided our compensation and human capital committee with a competitive assessment of executive compensation comprised of comparative data regarding compensation trends and practices in our industry, based upon an appropriate list of peer companies. Semler Brossy also provided research assistance to the compensation and human capital committee in developing the peer group referenced below. The compensation and human capital committee believes that working with an independent compensation consultant furthers our objectives to recruit and retain qualified executives, align executive interests with those of shareholders and ensure that executive compensation packages will appropriately motivate and reward ongoing achievement of business goals. The compensation and human capital committee assessed Semler Brossy’s independence in 2023 and determined there were no conflicts of interest. We further expect that, in the future, our compensation and human capital committee will continue to engage independent compensation consultants to provide additional guidance on our executive compensation programs and to conduct competitive benchmarking against our peer group of publicly traded companies on an annual basis. Our compensation and human capital committee will review information regarding the independence and potential conflicts of interest of any compensation consultant it may engage and ultimately makes its own decisions on executive compensation matters. During 2023, Semler Brossy provided the following services to our compensation and human capital committee with respect to our 2023 compensation matters:
Role of the Compensation Consultant
| • | Provided a review and recommendation with respect to adjustments to our peer group. |
Role of the Compensation Consultant
| • | Conducted a competitive benchmarking assessment comprised of comparative data on the compensation levels for our executive compensation and equity usage based on the peer group. |
Role of the Compensation Consultant
| • | Provided information on executive compensation trends and practices in our industry. |
Use of Market Data
Use of Market Data For purposes of comparing our executive compensation, including the compensation of our named executive officers, against the competitive market, the compensation and human capital committee reviews and considers the compensation levels and practices of a group of peer companies. This compensation peer group consists of public life sciences companies whose businesses we believe are most pertinent in comparability to our core business areas of MRD and immune medicine, for example by operating at similar levels in the diagnostics, therapeutics and/or drug discovery spaces. The peer group companies that are selected are also similar to us on an enterprise level in terms of market capitalization, revenue, stage of development and number of employees. The compensation and human capital committee reviews our compensation peer group at least annually and makes adjustments to our peer group if necessary, taking into account changes in both our business and our peer companies’ businesses. The compensation and human capital committee referenced data from the following peer group companies when considering pay for 2023:
Use of Market Data
| 10X Genomics, Inc. | Guardant Health, Inc. | Natera, Inc. | | Allogene Therapeutics, Inc. | Halozyme Therapeutics, Inc. | NeoGenomics Laboratories, Inc. | | bluebird bio, Inc. | Invitae Corporation | Sage Therapeutics, Inc. | | Blueprint Medicines Corporation | Immunocore Holdings plc | Twist Biosciences Corporation | | BridgeBio Pharma, Inc. | ImmunityBio, Inc. | Veracyte, Inc. | | CareDx, Inc. | Myriad Genetics, Inc. | | | Fate Therapeutics, Inc. | NanoString Technologies, Inc. | |
Use of Market Data
The compensation and human capital committee also referenced biotechnology and life science companies in the Radford Global Compensation Database when evaluating the competitiveness of our named executive officers’ target pay opportunities. For 2023, the compensation and human capital committee targeted the median percentile for base salary and bonus while targeting the range between the median and the 75th percentile for equity compensation, in order to increase the amount of at-risk compensation for executive officers and further align shareholders and executive officers. However, an executive officer’s established target pay level could be positioned above or below these market levels based on individual factors, including but not limited to tenure in role, performance in role, company or business area performance and future leadership potential.
Annual Incentives
Annual Incentives We provide annual incentives to create a direct correlation between the executive’s role and responsibilities and the ability to earn variable pay. Achievement of these goals are then evaluated alongside individual goals for each executive. We believe that the financial metrics in our incentive program provide ample liquidity to efficiently fund our progression to profitability in the MRD business, while our business goals ensure diligent execution against critical milestones toward expansion of our product base and pipeline.
Incentive Compensation and 2023 Goals Achievement
Incentive Compensation and 2023 Goals Achievement The compensation and human capital committee determines the achievement level for each of the goals and the overall payout, not to exceed 125% of target except in extraordinary circumstances, based on the weighted achievement of the goals. Mr. Robins’ annual incentive is weighted 100% to corporate goals, and all other named executive officer annual incentives are weighted 75% to corporate goals and 25% to individual performance.
Incentive Compensation and 2023 Goals Achievement
| Goal Category (1) | Goals | Goal | Performance | Outcome | Payout | | Financial (70%) | Revenue (40%) (2) | $205 million | $170.3 million | Not Achieved | 0% | | | Operating Expense Reduction (30%) | $380 million | $371.9 million(3) | Achieved | 30% | | MRD (15%) | Diagnostic and Clinical Pipelines | Qualitative Assessment | | Achieved | 15% | | Immune Medicine (15%) | | Qualitative Assessment | | Achieved 2 of 3(4) | 15% | | TOTAL | | | | | 60% |
Incentive Compensation and 2023 Goals Achievement
| (1) There was an additional 10% kicker for employee engagement that was not achieved and had no payout. |
Incentive Compensation and 2023 Goals Achievement
| (2) The threshold revenue goal was $205 million and the maximum goal was $235 million. Achievement at threshold and maximum together with the targeted reduction of operating expenses would have resulted in payouts for the financial component of 70% and 150%, respectively. |
Incentive Compensation and 2023 Goals Achievement
| Named Executive Officers | 2023 Target Annual Incentive (% of Salary) | 2023 Target Annual Incentive Opportunity ($) | 2023 Annual Incentive Award Earned ($) | 2023 Actual Incentive Award Earned (% of Target) | | Chad Robins | 80 | 530,400 | 318,240 | 60 | | Tycho Peterson | 50 | 212,500 | 135,469 | 64 | | Sharon Benzeno, PhD | 50 | 237,500 | 151,406 | 64 | | Harlan Robins, PhD | 50 | 265,225 | 175,712 | 66 | | Julie Rubinstein | 50 | 265,225 | 185,658 | 70 |
Long-Term Equity Incentive Awards Other than Performance Stock Units
Long-Term Equity Incentive Awards Other than Performance Stock Units We grant equity incentive awards to our named executive officers in order to align their long-term economic interests with those of our shareholders, create an enduring ownership culture, and encourage contributions that drive our performance and increase our valuation. We typically make equity grants to each of our executive officers upon commencement of employment, annually in conjunction with our review of their individual performance and in connection with a promotion. Accordingly, we believe equity compensation is a crucial component of any competitive executive compensation package we offer. All of our named executive officers, with the exception of Mr. Robins and Dr. Robins, received grants of non-qualified stock options and RSUs during 2023. In terms of award mix, the compensation and human capital committee intended for 50% of the target economic value of the annual equity award to be represented by a stock option award and 50% to be represented by an RSU award. For 2023 option awards, the number of option shares was determined by dividing the target economic value of each individual’s stock option award by the corresponding ASC 718 fair value using a Black-Scholes valuation of $5.64. This methodology was applied consistently for all stock option awards made to executive officers in 2023. These awards are all subject to time-based vesting conditions. The RSUs typically vest with respect to 25% on the first four anniversaries of the vesting commencement date. The stock options typically have a ten-year term and vest with respect to 25% on the first anniversary of the vesting commencement date and then in 36 equal monthly installments thereafter. We believe that stock options are performance-based given their linkage to the stock price on the date of grant through the exercise price (i.e., participants can only realize value to the extent that our share price increases above the exercise price). For a description of the equity awards granted to our named executive officers during 2023, see the “ Summary Compensation Table ” and the “ Grants of Incentive Plan-Based Awards ” tables below.
Employment Arrangements and Severance Benefits
Employment Arrangements and Severance Benefits We have employment agreements with each of our executive officers, including our named executive officers, which set forth their basic terms of at-will employment. All of our current executive officers are also parties to an executive severance agreement. We believe reasonable and competitive post-employment compensation arrangements are essential to attracting and retaining highly-qualified executives, so the executive severance agreements aligned us with current market practice, including providing double-trigger severance arrangements in connection with a change in control and no excise tax gross-up payments for any change in control payments, and we believe they do and will facilitate both hiring and retention of senior executives. The PSU awards granted in 2023 also provides Mr. Robins and Dr. Robins with certain protections related to their PSUs upon qualifying terminations. For detailed descriptions of each of the named executive officers’ arrangements, see “ Employment Arrangements with our Named Executive Officers.”
Compensation Risk Considerations
Compensation Risk Considerations From a risk management standpoint, compensation structure is designed to align all Adaptive employees (including executive officers) with shareholders, with a similar risk and reward structure. With respect to our annual cash incentive plan compensation, risk is managed through a balancing of individual and corporate goals, with those corporate goals in turn being balanced among financial, operational and milestone achievements. Regarding equity compensation, we believe that RSUs have a powerful retention effect, and stock option awards allow employees to participate in significant upside on a leveraged basis over the long term. The compensation and human capital committee reviews and discusses with management on an ongoing basis the risks arising from our compensation philosophy and practices generally applicable to our employees to determine whether they encourage excessive risk-taking and to evaluate compensation policies and practices that could mitigate such risks. There is ongoing dialogue regarding the risk and reward alignment of our executive compensation.
COMPENSATION TABLES
| Name and Principal Position | Year | Salary ($) | Stock Awards (1) ($) | Option Awards (2) ($) | Non-Equity Incentive Plan Compensation (3) ($) | All Other Compensation ($) | Total ($) | | Chad Robins | 2023 | 663,000(4) | 7,900,711 | — | 318,240 | 22,316(5) | 8,904,267 | | Chief Executive Officer and Chairman | 2022 | 658,188 | 7,668,040 | — | 450,840 | 76,260(6) | 8,853,328 | | | 2021 | 639,063 | 2,999,986 | 4,592,798 | 463,500 | 56,270(7) | 8,751,617 | | Tycho Peterson | 2023 | 425,000(4) | 999,997 | 999,998 | 135,469 | 4,932(8) | 2,565,396 | | Former Chief Financial Officer | 2022 | 247,917 | 2,735,222 | 2,840,318 | 110,573 | 4,227(9) | 5,938,257 | | Sharon Benzeno, PhD | 2023 | 475,000(4) | 1,125,002 | 1,124,997 | 151,406 | 4,316(10) | 2,880,721 | | Chief Commercial Officer, IM | 2022 | 456,250 | 999,996 | 1,566,497 | 210,781 | 4,260(11) | 3,237,784 | | Harlan Robins, PhD | 2023 | 530,450(4) | 7,900,711 | — | 175,712 | 4,932(8) | 8,611,805 | | Chief Scientific Officer | 2022 | 526,588 | 3,000,000 | 4,699,482 | 228,757 | 4,260(11) | 8,459,087 | | | 2021 | 511,250 | 2,999,986 | 4,592,798 | 238,188 | 4,260(11) | 8,346,482 | | Julie Rubinstein | 2023 | 530,450(4) | 1,125,002 | 1,124,997 | 185,658 | 4,932(8) | 2,971,039 | | President and Chief Operating Officer | 2022 | 526,588 | 2,250,003 | 3,524,611 | 228,757 | 5,119(12) | 6,535,078 | | | 2021 | 511,250 | 2,000,020 | 3,061,874 | 238,188 | 4,607(13) | 5,815,939 |
Option Exercises and Stock Vested
Option Exercises and Stock Vested The following table sets forth information regarding exercises of equity awards by our named executive officers for the year ended December 31, 2023:
Option Exercises and Stock Vested
| | Option Awards | | Stock Awards | | | Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise (1) ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting (2) ($) | | Chad Robins | — | — | 78,949 | 716,857 | | Tycho Peterson | 149,289 | 130,809 | 93,672 | 660,388 | | Sharon Benzeno, PhD | — | — | 26,316 | 238,949 | | Harlan Robins, PhD | — | — | 78,949 | 716,857 | | Julie Rubinstein | — | — | 57,781 | 524,651 |
Option Exercises and Stock Vested
| (1) The value realized on exercise represents the difference between the exercise price and the sale price of the shares on the date of exercise. |
Option Exercises and Stock Vested
| (2) The value realized on vesting represents the closing price of our common stock on the vesting date multiplied by the shares vesting. |
Outstanding Equity Awards as of December 31, 2023
Outstanding Equity Awards as of December 31, 2023 The following table presents information regarding outstanding equity awards held by our named executive officers as of December 31, 2023.
Outstanding Equity Awards as of December 31, 2023
| | | Option Awards | | | | Stock Awards | | | Name | Grant Date | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested (1) ($) | | Chad Robins (2) | 6/9/2015 | 755,555(3) | — | 6.32 | 6/9/2025 | — | — | | Chief Executive Officer and Chairman | 2/7/2018 | 600,000(3) | — | 6.55 | 2/7/2028 | — | — | | | 2/7/2019 | 410,000(3) | — | 7.27 | 2/7/2029 | — | — | | | 2/13/2020 | 287,500(4) | 12,500 | 31.71 | 2/13/2030 | — | — | | | 3/4/2021 | 118,045(5) | 53,658 | 43.68 | 3/4/2031 | 34,341(6) | 168,271 | | | 3/4/2022 | — | — | — | — | 432,455(7) | 2,119,030(7) | | | 3/6/2023 | — | — | — | — | 709,220(8) | 3,475,178(8) | | Tycho Peterson (2) | 6/1/2022 | 74,644(9) | 373,224 | 7.30 | 6/1/2032 | 281,016(10) | 1,376,978 | | Former Chief Financial Officer | 3/6/2023 | —(11) | 177,377 | 8.46 | 3/6/2033 | 118,203(12) | 579,195 | | Sharon Benzeno, PhD (2) | 4/25/2017 | 834(3) | — | 6.27 | 4/25/2027 | — | — | | Chief Commercial Officer, Immune Medicine | 2/7/2018 | 20,834(3) | — | 6.55 | 2/7/2028 | — | — | | | 10/1/2018 | 49,480(3) | — | 6.55 | 10/1/2028 | — | — | | | 2/7/2019 | 34,375(3) | — | 7.27 | 2/7/2029 | — | — | | | 2/13/2020 | 44,687(4) | 2,709 | 31.71 | 2/13/2030 | — | — | | | 3/4/2021 | 39,348(5) | 17,886 | 43.68 | 3/4/2031 | 11,448(6) | 56,095 | | | 3/4/2022 | 90,094(13) | 115,837 | 12.14 | 3/4/2032 | 61,779(14) | 302,717 | | | 3/6/2023 | —(11) | 199,549 | 8.46 | 3/6/2033 | 132,979(12) | 651,597 | | Harlan Robins, PhD (2) | 6/9/2015 | 70,110(3) | — | 6.32 | 6/9/2025 | — | — | | Chief Scientific Officer | 2/7/2018 | 284,800(3) | — | 6.55 | 2/7/2028 | — | — | | | 2/7/2019 | 410,000(3) | — | 7.27 | 2/7/2029 | — | — | | | 2/13/2020 | 287,500(4) | 12,500 | 31.71 | 2/13/2030 | — | — | | | 3/4/2021 | 118,045(5) | 53,658 | 43.68 | 3/4/2031 | 34,341(6) | 168,271 | | | 3/4/2022 | 270,284(13) | 347,508 | 12.14 | 3/4/2032 | 185,338(14) | 908,156 | | | 3/6/2023 | — | — | — | — | 709,220(8) | 3,475,178(8) | | Julie Rubinstein (2) | 2/7/2018 | 195,325(3) | — | 6.55 | 2/7/2028 | — | — | | President and Chief Operating Officer | 2/7/2019 | 225,000(3) | — | 7.27 | 2/7/2029 | — | — | | | 2/13/2020 | 191,666(4) | 8,334 | 31.71 | 2/13/2030 | — | — | | | 3/4/2021 | 78,697(5) | 35,772 | 43.68 | 3/4/2031 | 22,894(6) | 112,181 | | | 3/4/2022 | 202,713(13) | 260,631 | 12.14 | 3/4/2032 | 139,004(14) | 681,120 | | | 3/6/2023 | —(11) | 199,549 | 8.46 | 3/6/2033 | 132,979(12) | 651,597 |
Outstanding Equity Awards as of December 31, 2023
| (1) Reflects intrinsic value based on the closing price ($4.90) of our common stock on December 29, 2023. |
Outstanding Equity Awards as of December 31, 2023
| (2) Each equity award is subject to the acceleration of vesting provisions as set forth in the section titled “Potential Payments on Termination or Change in Control.” Mr. Peterson’s unvested awards were forfeited upon his departure from the Company. |
Outstanding Equity Awards as of December 31, 2023
| (3) The shares underlying this option are fully vested. |
Outstanding Equity Awards as of December 31, 2023
| (4) The shares underlying this option vested 25% on February 13, 2021, then in 36 equal monthly installments thereafter. |
Outstanding Equity Awards as of December 31, 2023
| (5) The shares underlying this option vested 25% on March 4, 2022, then in 36 equal monthly installments thereafter. |
Outstanding Equity Awards as of December 31, 2023
| (6) The shares underlying this RSU vested 25% on March 4, 2022, then in 3 equal annual installments thereafter. |
Outstanding Equity Awards as of December 31, 2023
| (7) Inclusive of 247,117 RSUs and the target number of PSUs that may be earned subject to the provisions as set forth in the section titled “ Executive Compensation Design and Philosophy ,” but up to 200% of target may be earned. The shares underlying the RSU portion vested 25% on March 4, 2023, then in 3 equal annual installments thereafter. The “Market value of shares or units of stock that have not vested” value includes only the value of the RSUs and the target number of PSUs that may be earned. |
Outstanding Equity Awards as of December 31, 2023
| (8) Inclusive of 354,610 RSUs and the target number of PSUs that may be earned subject to the provisions as set forth in the section titled “ Executive Compensation Design and Philosophy ,” but up to 200% of target may be earned. The shares underlying the RSU portion vested 25% on March 4, 2024, then in 3 equal annual installments thereafter. The “Market value of shares or units of stock that have not vested” value includes only the value of the RSUs and the target number of PSUs that may be earned. |
Outstanding Equity Awards as of December 31, 2023
| (9) The shares underlying this option vested 25% on June 1, 2023, then in 36 equal monthly installments thereafter. |
Outstanding Equity Awards as of December 31, 2023
| (10) The shares underlying this RSU vested 25% on June 1, 2023, then in 3 equal annual installments thereafter. |
Outstanding Equity Awards as of December 31, 2023
| (11) The shares underlying this option vested 25% on March 4, 2024, then in 36 equal monthly installments thereafter. |
Outstanding Equity Awards as of December 31, 2023
| (12) The shares underlying this RSU vested 25% on March 4, 2024, then in 3 equal annual installments thereafter. |
Outstanding Equity Awards as of December 31, 2023
| (13) The shares underlying this option vested 25% on March 4, 2023, then in 36 equal monthly installments thereafter. |
Outstanding Equity Awards as of December 31, 2023
| (14) The shares underlying this RSU vested 25% on March 4, 2023, then in 3 equal annual installments thereafter. |
Pay-Versus-Performance
| Year (1) | SCT Total for PEO ($) | Compensation Actually Paid to PEO (2) ($) | Average SCT Total for Non- PEO NEOs ($) | Average Compensation Actually Paid to Non-PEO NEOs (2) ($) | Value of Initial Fixed $100 Investment Based on: | | Net Income (in thousands) ($) | Revenue (4) (in thousands) ($) | | | | | | | Total Shareholder Return ($) | Peer Group Total Shareholder Return (3) ($) | | | | (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | | 2023 | 8,904,267 | 2,745,457 | 4,257,240 | 1,361,275 | 16 | 119 | (225,304) | 170,276 | | 2022 | 8,853,328 | (1,144,530) | 4,316,929 | (2,584,615) | 26 | 114 | (200,368) | 185,308 | | 2021 | 8,751,617 | (6,175,537) | 5,865,883 | (3,112,380) | 94 | 126 | (207,298) | 154,344 | | 2020 | 7,131,118 | 24,866,836 | 4,133,719 | 14,493,980 | 198 | 126 | (146,227) | 98,382 |
Pay-Versus-Performance
| (4) Revenue was chosen from the following three most important financial performance measures used by us to link compensation actually paid to the PEO and non-PEO NEOs in 2023 to the Company’s performance: |
CEO Pay Ratio
CEO Pay Ratio We present below the ratio of annual total compensation of our median compensated employee to the annualized total compensation of Chad Robins, our Chief Executive Officer, calculated in accordance with Item 402(u) of Regulation S-K. In identifying our median employee, we reviewed the compensation of our entire employee population of 713 U.S. employees as of December 31, 2023, excluding contractors. In performing this analysis, we identified the median employee based on annual base salary rate and target bonus as of December 31, 2023 plus grant date fair value of all equity awards granted in 2023. For purposes of the calculation, overtime paid in 2023 was annualized and added to the annual base salary amount. After identifying the median employee, we then determined the annual base salary earned in 2023, the cash bonus for 2023 (paid in 2024), the grant date fair value of all equity awards granted in 2023, as well as other benefits such as 401(k) matching, utilizing the same method used to calculate and report Mr. Robins’ compensation. The 2023 total compensation for Mr. Robins, as reported below in the “Summary Compensation Table” table was $8,904,267, which reflects all elements of his compensation as determined under Item 402 of Regulation S-K. The 2023 annual total compensation as determined under Item 402 of Regulation S-K for our median employee, who is employed as a Computational Biologist II, was $181,708. The ratio of Mr. Robins’ total compensation to our median employee’s total annual compensation for 2023 is 49 to 1.
Potential Payments on Termination or Change in Control
Potential Payments on Termination or Change in Control