DEF 14A
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

Filed by the Registrant    

Filed by a Party other than the Registrant    

Check the appropriate box:

 

 Preliminary Proxy Statement

 Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 Definitive Proxy Statement

 Definitive Additional Materials

 Soliciting Material Pursuant to § 240.14a-12

Analog Devices, Inc.

 

 

(Name of Registrant as Specified in Its Charter)

 

  

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

No fee required.

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  (1)

Title of each class of securities to which transaction applies:

 

 

 

  (2)

Aggregate number of securities to which transaction applies:

 

 

 

  (3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

 

  (4)

Proposed maximum aggregate value of transaction:

 

 

 

  (5)

Total fee paid:

 

 

 

Fee paid previously with preliminary materials.

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  (1)

Amount previously paid:

 

 

 

  (2)

Form, Schedule or Registration Statement No.:

 

 

 

  (3)

Filing Party:

 

 

 

  (4)

Date Filed:

 

 


Table of Contents

LOGO


Table of Contents

 

 

LOGO   

Analog Devices, Inc.

One Analog Way

Wilmington, MA 01887

Letter From Our Board

Dear Fellow Shareholders,

First and foremost, we thank you for your continued investment in Analog Devices, Inc., or ADI.

At ADI, we are committed to maximizing shareholder value creation over the long-term, and we have a highly engaged Board and sound corporate governance structure in place to oversee this commitment.

The ADI Board of Directors cordially invites you to attend the 2021 Annual Meeting of Shareholders, or Annual Meeting, which will be held virtually on Wednesday, March 10, 2021, at 9:00 a.m. local time. Due to the continued public health concerns about in-person gatherings related to the COVID-19 pandemic, the Board of Directors supports the company’s decision that this year, ADI will hold a virtual Annual Meeting conducted via live webcast in order to protect the health and well-being of its shareholders, employees and directors. We believe that hosting a virtual meeting will facilitate shareholder attendance and participation at the Annual Meeting by enabling shareholders to participate remotely from any location around the world. We have designed the format of the virtual Annual Meeting so that shareholders have the same rights and opportunities to vote and participate as they would have at a physical meeting. Shareholders will be able to submit questions before and during the meeting using online tools, providing you with the opportunity for meaningful engagement with the company. For instructions on attending the Annual Meeting virtually and voting your shares, please see pages A-6 and A-7.

You vote is very important to us. Our Board encourages you to read these proxy materials and to vote your shares “FOR” each proposal.

Thank you for the trust you place in us and the opportunity to serve as your directors.

THE ADI BOARD OF DIRECTORS

 

A-1


Table of Contents

 

 

LOGO   

Analog Devices, Inc.

One Analog Way

Wilmington, MA 01887

Letter From Our CEO

 

Dear Fellow Shareholders,

The global pandemic created a challenging year for all. We were forced to rethink the health and safety of our employees as well as our customer engagement and business operations, while balancing our lives at home. At ADI, I’m proud of how we worked together with determination and optimism. We embraced and learned from this undoubtedly tough time, while making great strides in strengthening ADI for the future.

Fiscal 2020 Results & Strategic Progress

Over the past decade, we strategically realigned our portfolio toward more durable end markets, creating a more diverse business across customers, products and applications. At the same time, we accelerated our innovation engine to continue to develop cutting-edge technologies, guided by our vision to solve our customers’ and the world’s toughest engineering challenges. It’s this combination of diversity and innovation, along with our financial discipline, that creates a virtuous cycle of innovation-led success.

Looking back at fiscal 2020, it was an uneven year. The first half was dampened by the pandemic, but the second half came back strong with revenue increasing 14% versus the first half. In total, we generated $5.6 billion of revenue, and our business-to-business (B2B) end markets of industrial, communications and automotive cumulatively outperformed peers for a third straight year. Despite this tough environment, we maintained solid profitability and delivered strong cash generation with operating cash flow of $2.0 billion and free cash flow of $1.8 billion. Notably, our free cash flow margin continues to be in the top 10% of companies in the S&P 500. And, importantly, we returned more than $1.1 billion through dividends and share repurchases.

This resilient business model allows us to invest in our future during any economic backdrop. In fiscal 2020, we spent more than $1.0 billion in research and development with over 95% targeted at the most attractive B2B opportunities. This includes funding our go-to-market activities and product development to drive new vectors of growth, such as digital healthcare. We also announced our proposed acquisition of Maxim Integrated Products, Inc., or Maxim Integrated. This complementary combination will deepen our domain expertise and engineering capabilities, enabling us to create even more complete solutions for our customers.

Destination for the Best Analog Engineering Talent

Over the last several years, our customers have reallocated more of their engineering resources towards software, away from hardware. As a result, they are increasingly relying on us to fill this void and be their critical innovation partner in architecting analog solutions. Given these dynamics, I believe talent will become an even more important competitive differentiator across the semiconductor industry.

We have built ADI to be a destination for the world’s best analog engineering talent. At our core, we are a global team of problem solvers who do not wait for the future—but imagine it and build it. That’s why we’re committed to empowering our engineers with freedom and unlimited opportunities to improve the world around us and push the boundaries of what’s possible. Once combined with Maxim Integrated, we will stand at 10,000 engineers strong, and this increased scale will unlock additional avenues of professional growth for our people.

Our Mission to “Engineer Good”

At ADI, we are passionately driven by our mission to “engineer good” for generations to come. This mission came to life in a unique way in fiscal 2020 as the COVID-19 pandemic revealed the fragility of our global healthcare system. To help meet the needs of the medical community, our team prioritized production of our healthcare solutions to support customers and we continued to partner with hospitals and biotech start-ups to develop solutions that leverage our technologies. Furthermore, our impact extended beyond our own facilities and capabilities as we made multi-million dollar donations through the Analog Devices Foundation to aid both global and local pandemic response efforts.

Beyond the immediate challenges of the pandemic, we believe there is much more ADI can do, leveraging our expertise to preserve and regenerate our precious natural ecosystem. In support of this, we launched the semiconductor industry’s first green bond to help finance projects that offer sustainability benefits within our own operations. We also recently joined the United Nations Global Compact, a voluntary leadership platform for the development, implementation and disclosure of responsible business practices, that reinforces our commitment to operate with integrity.

 

 

A-2


Table of Contents

 

 

 

A More Connected, Safer and Sustainable Future

We are living in a time of unbounded opportunities driven by astonishing innovation in the third wave of Information and Communications Technology. This wave is characterized by pervasive sensing, hyper- scale and edge computing and ubiquitous connectivity. In this world, our customers are prioritizing digitalization and connectivity more than ever and new applications are emerging.

ADI, where data is born, provides the essential technologies to interpret the physical world around us and is enabling this market revolution. Over the years, we have invested in an industry-leading product portfolio with a suite of capabilities that range from DC to 100 gigahertz, from nanowatts to kilowatts, and from sensor to cloud. This portfolio supports customers of all sizes and is the foundation upon which we build more targeted, integrated solutions for our vertical applications. From Industry 4.0 to vehicle electrification to 5G communications, our next generation smart architectures are shaping a more connected, safer and sustainable future.

Building Resilience

In his book, “Antifragile: Things That Gain From Disorder,” author Nassim Nicholas Taleb writes that certain systems in nature, business and society actually gain strength when they are stressed, when randomness takes root, and chaos is the order of the day, calling them antifragile.

Over our 56-year history, ADI has proven to be antifragile. We have not only remained resilient during crises but have demonstrated an ability to learn and adapt quickly in a period of tremendous change. I am encouraged by our momentum and I am more confident than ever in ADI’s place in this reordered world.

Thank you for choosing to invest in ADI and for your continued trust in our management team.

 

LOGO  

LOGO

        
 

VINCENT ROCHE

President and

Chief Executive Officer

      
     
  B2B Highlights                                                                 
         Industrial       
 

 

LOGO   

  Industrial is characterized by a diversity of customers, products and applications, and long product life cycles. ADI’s heritage in this market positions us as the partner of choice to meet the expanding needs of our customers from traditional challenges of precision, control and power management, as well as emerging challenges of connectivity and safety.  
  Automotive  
 

 

LOGO

  ADI is creating a more sustainable, safe and immersive vehicle experience with our core franchises of audio processing, connectivity and power management. As we look ahead, the electric vehicle revolution unlocks new opportunities. We are a market leader in battery management systems, with over half of the top 10 electric vehicle brands using our solution.  
  Communications  
 

 

LOGO

  In wireless, ADI is enabling next generation 5G systems. With our expertise in radio signal chains, microwave, mmWave and power, our radio solutions possess best-in-class performance, size and cost. In wireline, we are a leader in precision signal chains for optical control systems and power management, used by carrier networks and in data centers.  
  Digital Healthcare  
 

 

LOGO

 

Our core healthcare technologies, consisting of medical imaging, instrumentation and vital signs monitoring, have been critical in the fight against COVID-19. Looking forward, one of our missions is to fast-track the affordability, accessibility and wellness focus of global healthcare by extending clinical-grade patient care from the hospital to the home.

 

 
 

 

A-3


Table of Contents

 

 

LOGO   

Analog Devices, Inc.

One Analog Way

Wilmington, MA 01887

A Global Team

“At ADI, we don’t wait for the future — we imagine it and then we build it. Our global team of insatiably curious problem solvers is working every day to address our customers’ toughest challenges and develop breakthrough solutions that impact the world. By empowering our team through investment, creative freedom and a culture of innovation, we strive to be the destination for the world’s best analog engineering talent.”

 

LOGO           
 

DAN LEIBHOLZ

Chief Technology Officer

      

Talent Priorities

Core to our talent engagement and development strategy is building a culture of 360-degree training and development throughout each team member’s career. We provide all of our people with the freedom, opportunity, and support so that they can realize their full potential and collectively shape the ADI of the future.

 

 

 1. 

  

 

Continuous Education & Networking

 

LOGO

  

 

Encouraging our team to keep

learning & grow their networks

  

 

Our annual General Technical Conference (GTC) is dedicated to showcasing our talent & innovation. In fiscal 2020, 5,000+ engineers from 30+ countries participated in a virtual meeting with 280+ technical papers, posters, demos & live workshops.

  

 

Hundreds of employees take part in our ADI Technical University, which offers in-person and on-demand classes & workshops. It provides employees with the opportunity to broaden their engineering and functional expertise as well as learn through hands-on experiences.

 

2.

  

 

Promoting Experiential Career Development

 

LOGO

  

 

Investing in our people with hands-on experiences

  

 

GEEC, or Global Early Employee Challenge, is a company-wide competition that develops the business skills of those with five or fewer years of experience. We had 400+ early career participants across 60 teams in fiscal 2020.

  

 

Analog Garage is our innovation incubation laboratory, bringing together 80+ engineers, data scientists, and hardware & software experts to create new technologies & new solutions in a fast-moving, idea-driven startup atmosphere.

 

3.

  

 

Broadening Access
to Digital Economies

 

LOGO

  

 

Developing leaders who reflect our global business

  

 

20 years ago, we created the Academe Linkage program in the Philippines to forge long-term, collaborative relationships with local higher education institutions. This has helped inspire many students to

  

 

pursue engineering degrees & dramatically aided our recruiting efforts. Today, we have a team of 1,800+ engineers, including those who develop & test algorithms.

 

4.

  

 

Prioritizing Diversity & Inclusion

 

LOGO

  

 

Building a culture of inclusion & embracing different perspectives

  

 

We support women’s career development through our Elevate program. More than 50% of women in this accelerated development program have moved into higher profile career roles.

  

 

We have a variety of Employee Networks that help create a sense of inclusion. We added two new networks this year, including The Green Team to support ESG, for a total of six across ADI.

 

A-4


Table of Contents

 

We know that amazing talent drives our success as a company. That’s why we aim to be the destination for the world’s best analog engineering talent. We invest in career-long talent development and foster an inclusive workplace where all voices and diverse backgrounds can contribute, thrive and produce better outcomes for our employees and customers.

 

LOGO   

~7,600

 

Engineers Worldwide

 

    

 

LOGO

  

~3,600

 

Global Patents

         
LOGO   

$1B+

 

R&D Investment
in FY ’20

   

LOGO

  

96%

 

Employee Retention
in FY ’20

 

SPOTLIGHT:     

Analog Devices Fellows

ADI Fellow is a distinguished technical position given to engineers who contribute significantly to the company’s success through exceptional innovation, leadership and an unparalleled ability to unite and mentor others. In addition to their business and innovation impact, Fellows serve as company ambassadors and are recognized as industry leaders in their fields of expertise.

 

“ADI has changed a lot over the last five years, and now the opportunities for exploration and broadening your skillset are just enormous. It’s a very rewarding, dynamic environment and people who are good at self-direction are going to find that there is unlimited opportunity here.”

 

LOGO    
 

BOB ADAMS

ADI Fellow

 

“New technologies find their way to market and the developers of the old way find new things to do. This culture of constant reinvention has a lot to do with ADI’s success over the last 50+ years. You can’t do one thing for that length of time in the world of technology and expect to be successful.”

 

LOGO  
 

TONY MONTALVO

ADI Fellow and VP of Technology for Automotive, Communications and Aerospace

 

 

A-5


Table of Contents

 

 

LOGO   

Analog Devices, Inc.

One Analog Way

Wilmington, MA 01887

Notice of 2021

Annual Meeting of Shareholders

2021 Annual Meeting of Shareholders

 

Date and Time:

Wednesday, March 10, 2021

9:00 am local time

  

Place:

Virtual Meeting www.virtualshareholdermeeting.com/ADI2021

  

Record Date:

Monday, January 4, 2021

Items of Business

The 2021 Annual Meeting of Shareholders of Analog Devices, Inc. will be held virtually on Wednesday, March 10, 2021 at 9:00 a.m. local time. At the meeting, shareholders will consider and vote on the following matters:

 

 

1.

To elect the eleven director nominees named in this proxy statement to our Board of Directors, each to serve for a term expiring at the next annual meeting of shareholders;

 

2.

To approve, by non-binding “say on pay” vote, the compensation of our named executive officers, as described in the Compensation Discussion and Analysis, executive compensation tables and accompanying narrative disclosures in this proxy statement; and

 

3.

To ratify the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending October 30, 2021.

The shareholders will also act on any other business that may properly come before the meeting.

The Board recommends that you vote “FOR” each director nominee included in Proposal 1 and “FOR” each of the other proposals. The full text of these proposals is set forth in this proxy statement. Registered shareholders of the Company at the close of business on the record date are eligible to vote at the meeting.

Please note that we are furnishing proxy materials and access to our proxy statement to our shareholders via our website instead of mailing printed copies to each of our shareholders. By doing so, we save costs and reduce our impact on the environment.

Beginning on January 22, 2021, we will mail to our shareholders a Notice of Internet Availability of Proxy Materials, or Notice, which contains instructions on how to access our proxy materials and vote online. If you attend the Annual Meeting virtually, you may withdraw your proxy and vote online during the Annual Meeting if you so choose. The Notice also contains instructions on how each of our shareholders can receive a paper copy of our proxy materials, including this proxy statement, our 2020 Annual Report and a form of proxy card or voting instruction form. All shareholders who do not receive the Notice, including shareholders who have previously requested to receive paper copies of proxy materials, will receive a paper copy of the proxy materials by mail unless they have previously requested delivery of proxy materials electronically.

Further information about how to attend the Annual Meeting online, vote your shares online during the meeting, and submit questions online before and during the meeting is included in this proxy statement. A list of our registered holders as of the close of business on the record date will be made available to shareholders during the meeting at www.virtualshareholdermeeting.com/ADI2021. To access such list of registered holders beginning January 24, 2021 and until the meeting, shareholders should email Analog Devices Investor Relations at investor.relations@analog.com.

Your vote is important no matter how many shares you own, and we encourage you to vote promptly whether or not you plan to attend the Annual Meeting.

By Order of the Board of Directors,

YOON AH OH

Corporate Secretary

January 22, 2021

 

^   

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be Held on March 10, 2021: This proxy statement and the 2020 Annual Report are available for viewing, printing and downloading at www.analog.com/AnnualMeeting.

 

A-6


Table of Contents

 

 

How to vote: Your vote is important

PLEASE VOTE BY FOLLOWING THE INSTRUCTIONS ON YOUR PROXY CARD OR VOTING INSTRUCTION FORM

 

 

LOGO

 

Vote by Internet

Go to www.proxyvote.com
You will need the 16-digit
control number that appears on
your proxy card or the Notice.

 

 

LOGO

 

Vote by Telephone

Call 1-800-690-6903
You will need the 16-digit
control number that appears on
your proxy card or the Notice.

 

 

 

LOGO  

 

Vote by Mail

Mark, sign, date, and mail your proxy
card or your voting instruction form.
No postage is required if mailed in
the U.S.

 

 

DURING THE VIRTUAL ANNUAL MEETING     

 

 

LOGO

  For details on voting your shares during the virtual annual meeting,
see “Q&A About Annual Meeting and Voting” on page 65.

Web links throughout this document are provided for convenience only, and the content on the referenced websites does not constitute a part of this proxy statement.

The sum and/or computation of individual numerical amounts or percentages disclosed in this proxy statement may not equal the total due to rounding.

Forward-Looking Statements

This proxy statement contains forward-looking statements regarding future events and our future results that are subject to the safe harbor created under the Private Securities Litigation Reform Act of 1995 and other safe harbors under the Securities Act of 1933 and the Securities Exchange Act of 1934. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” “could” and “will,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections regarding our future financial performance; the proposed acquisition of Maxim Integrated Products, Inc.; our anticipated growth and trends in our businesses; our future liquidity, capital needs and capital expenditures; the impact of the COVID-19 pandemic on our business, financial condition and results of operations; our future market position and expected competitive changes in the marketplace for our products; our ability to pay dividends or repurchase stock; our ability to service our outstanding debt; our expected tax rate; the effect of changes in or the application of new or revised tax laws; expected cost savings; the effect of new accounting pronouncements; our ability to successfully integrate acquired businesses and technologies; and other characterizations of future events or circumstances are forward- looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified in Part I, Item 1A. “Risk Factors” and elsewhere in our most recent Annual Report on Form 10-K. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements, including to reflect events or circumstances occurring after the date of the filing of this report, except to the extent required by law.

 

A-7


Table of Contents

Table of Contents

Notice of 2021 Annual Meeting of Shareholders

Proxy Summary     1  
Proposal 1 — Election of Directors     10  
Corporate Governance     17  

Board Policies & Practices

    17  

Board of Directors Leadership Structure

    18  

Board of Directors Meetings and Committees

    18  

Determination of Independence

    21  

Director Candidates

    21  

Communications from Shareholders
and Other Interested Parties

    22  

The Board of Directors’ Role in Risk Oversight

    23  

Engagement with our Shareholders

    23  

Corporate Responsibility Highlights

    24  

Director Compensation

    26  

Certain Relationships and Related Transactions

    28  
Proposal 2 — Advisory Vote on the
Compensation of our Named Executive Officers
    30  
Information about Executive Compensation     31  

Compensation Discussion and Analysis

    31  

Fiscal 2020 Financial Results and
Shareholder Value Creation

    31  

Pay and Governance Best Practices

    32  

Factors Considered in Determining
Fiscal 2020 Target Compensation Levels

    34  

Components of Executive Compensation

    34  

Compensation Processes and Policies

    42  

Summary Compensation Table

    46  

Grants of Plan-Based Awards in Fiscal 2020

    50  

Outstanding Equity Awards at Fiscal Year-End 2020

    52  

Option Exercises and Stock Vested During Fiscal 2020

    54  

Non-Qualified Deferred Compensation Plan

    54  

Change in Control Benefits

    55  

CEO Pay Ratio

    58  

Equity Award Program Description

    58  

Securities Authorized for Issuance
Under Equity Compensation Plans

    60  

Compensation Committee
Interlocks and Insider Participation

    60  

Compensation Committee Report

    60  
Proposal 3 — Ratification of Selection
of Independent Registered Public Accounting Firm
    61  

Independent Registered Public Accounting Firm Fees

    62  

Audit Committee’s Pre-Approval Policy and Procedures

    62  

Audit Committee Report

    63  
Other Matters     64  
Q&A About Annual Meeting and Voting     65  
Additional Information     69  

Householding of Annual Meeting Materials

    69  

Security Ownership of Certain Beneficial Owners

    69  

Security Ownership of Directors and Executive Officers

    70  

Delinquent Section 16(a) Reports

    70  
Appendix A: Reconciliation of GAAP Measures
to Non-GAAP Measures
    71  
 

 

Helpful Resources

 

Annual Meeting

Proxy Statement & Annual Report:

investor.analog.com/financial-info/annual-reports

Voting Your Proxy via the Internet Before the Annual Meeting: www.proxyvote.com

Board of Directors

investor.analog.com/governance/board-of-directors

Governance Documents

investor.analog.com/corporate-governance.cfm Corporate governance documents and policies, including:

 

  Corporate Governance Guidelines

 

  Committee Charters

 

  Code of Business Conduct and Ethics

 

  Related Person Transaction Policy

 

  Equity Award Grant Date Policy

 

  Human Rights Statement

Investor Relations

investor.analog.com

Corporate Social Responsibility

analog.com/csr

 

 


 

A-8


Table of Contents

 

 

Proxy Summary

 

Voting Matters

 

  

    2021

t

 

This proxy summary provides an overview of select information in this proxy statement. We encourage you to read the entire Proxy Statement before voting. Shareholders will be asked to vote on the following matters at the Annual Meeting:

 

Proposal

  

Items of Business

 

Board Recommendation

  Where to
Find Details 
  1     

 

Election of Eleven Directors

 

 

 

  LOGO  FOR 

each director nominee

  10
              
  2      Advisory Approval of the Compensation of the Company’s Named Executive Officers  

 

  LOGO  FOR 

  30
              
  3      Ratification of the Selection of Ernst & Young LLP as Independent Registered Public Accounting Firm for the Company’s Fiscal Year ending October 30, 2021  

 

  LOGO  FOR 

  61
              

 

What’s New?     

We continually review our corporate governance practices to ensure that ADI is in a position to consistently deliver on its commitment to sustaining a culture of innovation, collaboration, solid performance, and fiduciary responsibility. We believe providing a broader understanding of our perspectives on these items will be beneficial to you as you consider this year’s voting matters. This year’s updated items include:

 

 

 

  Published our inaugural Corporate Responsibility Report in May 2020, which includes enhanced disclosure of our environmental, social and governance, or ESG, initiatives, which can be found under Corporate Social Responsibility on our website

 

  Continued to refine our shareholder engagement process to connect our shareholders with key stakeholders within our company around topics of interest, including sustainability and human capital management reporting
  Revised our Board practices for risk oversight to include cybersecurity at the Board level and ESG under the Nominating and Corporate Governance Committee

 

  Adopted a new clawback policy for all executive officers with respect to cash and equity incentives that is applicable in the event of a material financial restatement due to fraud or willful misconduct
 

 

Governance Highlights

 

Effective Board leadership, independent
oversight and strong corporate governance
 

Shareholder rights and accountability

LOGO

  Majority of directors are independent   LOGO   Annual election of directors of a declassified Board

LOGO

  Average tenure of independent directors standing for re-election is approximately 6.7 years   LOGO   Majority voting for directors in uncontested director election

LOGO

  Regular executive sessions of independent directors   LOGO   Implemented proxy access bylaw

LOGO

  Adopted clawback policy for CEO and executive officers   LOGO   Annual Board and Committee self-evaluations

LOGO

  Active Board engagement in managing talent and long-term succession planning for executives   LOGO   No dual class of stock or controlling shareholder

 

LOGO

 

1


Table of Contents

About ADI

At ADI, we are committed to solving our customers’ and the world’s toughest challenges.

Our hardware technologies are uniquely positioned at the edge – where data is born. They sense, measure and interpret phenomena, such as temperature, pressure, sound, light, speed, and motion, and transform these signals into intelligent actions – bridging the physical and cyber worlds and igniting human breakthroughs. We create leading edge technologies and solutions to solve our customers’ problems in instrumentation, automation, communications, healthcare, automotive and numerous other industries.

 

ADI At A Glance   

 

Background

 

 

Founded: 1965

 

 

Headquarters: Wilmington, MA

 

 

Employees: 15,900

 

 

Countries: 30+

Worldwide sales, field applications, engineers,
distribution, design and technical support

 

 

Products: ~45,000 SKUs

 

 

Customers: 125,000+

 

 

Publicly Listed – NASDAQ: ADI

 

 

Design Centers: ~44

 

 

Global Manufacturing:

U.S. (Massachusetts, California, Washington)

Ireland  |  Philippines  |  Malaysia  |  Singapore

 

Fiscal 2020 Revenue: $5.6B
LOGO   

Industrial

 

Aerospace and Defense

Energy

Factory Automation

Healthcare

Instrumentation

 

LOGO

  

Communications

 

Wired/Optical Networking

Wireless

 

LOGO

 

  

Automotive

 

Electrification

Infotainment

Autonomous Mobility

LOGO   

Consumer

 

Hearable & Wearable Devices

High-End Audio & Video

Portables

 

 

LOGO

 

2


Table of Contents

Our Strategy

Central to our strategy is our focus on challenges that our customers have across the most impactful application areas. By bringing together domain expertise with some of the world’s best technologies across hardware, software and AI, we make our customers’ solutions more accurate, efficient and intelligent — driving profitable growth.

Despite the highly uncertain environment and unprecedented challenges of the COVID-19 pandemic, fiscal

2020 represented a year of strategic progress for ADI as we continued to deliver strong results and progress against our three key priorities:

 

Efficient Use

of Capital

 

 

 R&D investment of $1B+ with 95% targeted on most attractive B2B opportunities

 

 Extracting value from M&A to drive long-term value creation, including pending acquisition of Maxim Integrated

 

 Targeting to return 100% of free cash flow after debt repayments to shareholders in the form of dividends and buybacks

 

Deepening Customer

Centricity

 

 

 Partnering more deeply with customers to deliver complete solutions

 

 Extensive breadth of engineering capabilities and depth of domain expertise

 

 Executing on opportunity pipeline conversion and achieving record value

 

Capitalizing on

Secular Trends

 

 

 Automotive: Electrification, Autonomous Driving, Cabin Digitalization

 

 Industrial: Industrial 4.0 IoT, Digital Health, Space

 

 Communications: Next-Gen Wireless (5G), Data Center

 

 

Fiscal 2020 Performance Highlights     

 

$5.6B

 

Revenue

 

  

65.9%

 

Gross

Margins

 

  

26.7%

 

Operating

Margins

 

  

$3.28

 

Diluted

Earnings

per Share

  

$2.0B

 

Operating

Cash Flow

 

~90%

 

Business-

to-Business

Revenue

  

69.1%

 

Adjusted

Gross

Margins*

  

39.9%

 

Adjusted

Operating

Margins*

  

$4.91

 

Adjusted

Diluted

Earnings

per Share*

  

$1.8B

 

Free

Cash Flow*

*

See Additional Information for additional information regarding non-GAAP financial measures and reconciliations of non-GAAP financial measures to their most directly comparable GAAP financial measures

 

Fiscal 2020 Shareholder Value Creation   

 

LOGO   LOGO   LOGO

Returned $1.1B to shareholders

in the form of dividends and

share repurchases

 

Increased our dividends per

share paid to shareholders by

15% on an annualized basis

  1-, 3- and 5-year TSR1 of 12%, 38% and 121%, respectively, which outperformed the S&P 500 over the same periods

 

(1)

Total Shareholder Return calculation is share price appreciation plus cumulative cash dividend payments, and the effect of reinvesting those dividends into the security, for the one-, three- and five-year periods ended October 31, 2020.

 

LOGO

 

3


Table of Contents

Governance Highlights

ADI’s Board is composed of a diverse, experienced group of global thought, business, and academic leaders.

Director Nominees

 

  Name   Age   Director
Since
 

Principal

Occupation

  Independent
Director
 

Other

Company
Board(s)

  Committee
Member-
ship(s)
LOGO   Ray Stata   86   1965  

Chairman of the Board

of Analog Devices, Inc.

     
LOGO   Vincent Roche   60   2013  

President and Chief Executive

Officer of Analog Devices, Inc.

    1  
LOGO   James A. Champy   78   2003  

Former Vice President of the Dell/Perot

Systems business unit of Dell, Inc.

  LOGO     NCGC (Chair)
LOGO   Anantha P. Chandrakasan       52   2019  

Dean of MIT’s School of Engineering

and Vannevar Bush Professor of Electrical

Engineering and Computer Science

 

  LOGO     NCGC
LOGO   Bruce R. Evans   61   2015  

Senior Advisor & Former Chairman of the Board of Summit Partners

  LOGO   1   AC
LOGO   Edward H. Frank   64   2014  

Co-Founder and Former

CEO of Cloud Parity

  LOGO   2   CC (Chair)
LOGO   Laurie H. Glimcher   69   2020   Professor of Medicine at Harvard Medical School and President and Chief Executive Officer of the Dana-Farber Cancer Institute   LOGO   1   CC
LOGO   Karen M. Golz   66   2018  

Former Global Vice

Chair of Ernst & Young

  LOGO     AC
LOGO   Mark M. Little   68   2017  

Former SVP, GE Global Research & Chief

Technology Officer of General Electric Company

  LOGO     CC
LOGO   Kenton J. Sicchitano   76   2003  

Former Global Managing Partner

of PricewaterhouseCoopers LLP

  LOGO     AC (Chair)
LOGO   Susie Wee   51   2019  

Senior Vice President and General

Manager of DevNet and CX Ecosystem

Success at Cisco Systems

  LOGO     CC

AC = Audit Committee CC = Compensation Committee NCGC = Nominating and Corporate Governance Committee

 

LOGO

 

4


Table of Contents

Board Composition

The Board of Directors and the Nominating and Corporate Governance Committee are committed to ensuring that the Board is comprised of a highly capable group of directors who collectively provide a significant breadth of experience, knowledge and ability to effectively represent the interest of shareholders, drive shareholder value and reflect our corporate values of integrity, honesty and adherence to high ethical standards.

 

45%

 

of director

nominees added

in the last 5 years

 

97%

 

overall attendance

at Board and

Committee

meetings in

fiscal 2020

 

31

 

Board and

Committee

meetings in

fiscal 2020

 

9 of 11

 

director

nominees are

independent

Strong Board Diversity

The Board also believes that having directors with a mix of tenure helps transition the institutional knowledge of the more experienced directors while providing a broad, fresh set of perspectives. The Board has continued to make progress in broadening the experience, gender and tenure of our eleven director nominees.

 

Average Tenure                                     Diversity             

 

45%

 

27%

 

27%

 

6.7

Years

 

 

0-5 Years     LOGO

 

5-10 Years   LOGO

 

10+ Years     LOGO

 

Average Tenure

of independent

director nominees

   

LOGO

 

LOGO

 

 

3 of 11

 

Directors are female,

or 27%

 

2 of 11

Directors are

ethnically diverse,

or 18%

Board Profile

ADI’s directors contribute significant experience in the areas most relevant to overseeing the Company’s business and strategy. The below matrix provides a high-level summary of the experience and qualifications of our director nominees:

 

Name

 

 

LOGO

 

 

LOGO

 

 

LOGO

 

 

LOGO

 

 

LOGO

 

 

LOGO

 

 

LOGO

 

 

LOGO

 

 

LOGO

 

 

Ray Stata

 

 

 

LOGO

 

 

 

LOGO

 

 

 

LOGO

 

         

 

LOGO

 

 

 

LOGO

 

       

 

Vincent Roche

 

 

 

LOGO

 

 

 

LOGO

 

 

 

LOGO

 

 

 

LOGO

 

     

 

LOGO

 

 

 

LOGO

 

       

 

James A. Champy

 

     

 

LOGO

 

 

 

LOGO

 

         

 

LOGO

 

 

 

LOGO

 

     

 

LOGO

 

 

Anantha P. Chandrakasan

 

     

 

LOGO

 

 

 

LOGO

 

         

 

LOGO

 

 

 

LOGO

 

       

 

Bruce R. Evans

 

 

 

LOGO

 

     

 

LOGO

 

 

 

LOGO

 

 

 

LOGO

 

 

 

LOGO

 

 

 

LOGO

 

     

 

LOGO

 

 

Edward H. Frank

 

 

 

LOGO

 

 

 

LOGO

 

 

 

LOGO

 

 

 

LOGO

 

         

 

LOGO

 

     

 

LOGO

 

 

Laurie H. Glimcher

 

 

 

LOGO

 

 

 

LOGO

 

 

 

LOGO

 

 

 

LOGO

 

         

 

LOGO

 

       

 

Karen M. Golz

 

             

 

LOGO

 

 

 

LOGO

 

 

 

LOGO

 

 

 

LOGO

 

 

 

LOGO

 

   

 

Mark M. Little

 

     

 

LOGO

 

 

 

LOGO

 

         

 

LOGO

 

 

 

LOGO

 

     

 

LOGO

 

 

Kenton J. Sicchitano

 

             

 

LOGO

 

 

 

LOGO

 

     

 

LOGO

 

       

 

Susie Wee

 

     

 

LOGO

 

 

 

LOGO

 

          LOGO  

 

LOGO

 

     

 

LOGO

 

 

LOGO

 

5


Table of Contents

Integrated Approach to Shareholder Engagement

We conduct extensive investor outreach throughout the year involving our senior management, investor relations, legal and human resources departments. This helps management and the Board understand and focus on the issues that matter most to our shareholders, so ADI can address them effectively.

ADI’s Year-Round Engagement Process

Engaging with Shareholders Year-round

 

 

 

In fiscal 2020, we held more than 400 meetings with our shareholders, including the majority of our top 25 shareholders, on a variety of topics

 

 

Launched a new webcast series, ADI Uncovered, discussing business strategy and secular growth trends of 5G communications, vehicle electrification, digital healthcare and processing at the edge

 

 

Held multiple webcasts and attended multiple conferences to keep shareholders informed of Company developments; this included a special call regarding our proposed acquisition of Maxim Integrated

Enhancing Practices & Disclosures

 

 

 

During fiscal 2020, we reached out to our top 25 shareholders, representing approximately 55% of our outstanding shares, with an invitation to have discussions with their corporate governance teams

 

 

Topics of interest during engagement included Board composition and risk oversight, Board evaluation and refreshment, corporate governance trends and environmental, social and governance considerations, including human capital management reporting

 

 

Shareholder and stakeholder feedback are integrated into boardroom discussions regularly and helps to inform the Board’s decisions and the Company’s practices and disclosures

Shareholder Topics & Company Response

In the spirit of continuous improvement, we have reviewed with our Board of Directors the key takeaways from these meetings with our shareholders with the goal of continuing to evolve our corporate governance practices to best meet the needs of the Company and our shareholders. Our dialogue has led to enhancements to our practices and disclosure, which our Board believes are in the best interests of our company and our shareholders. For example:

 

Topics of

Discussion

  

Recent Outcomes of Engagement

Corporate
Governance

  

 Continued focus on active Board refreshment and diversity, adding two new female directors to the Board

 

 Enhanced risk oversight practices for our Board, including cybersecurity at the Board level and ESG under the Nominating and Corporate Governance Committee

 

 Adopted a new clawback policy for all executive officers with respect to cash and equity incentives that is applicable in the event of a material financial restatement due to fraud or willful misconduct

Corporate Social
Responsibility

  

 Published our inaugural Corporate Responsibility Report in May 2020 that includes enhanced disclosure of our ESG initiatives

 

 Enhanced our diversity and inclusion disclosures, including management perspective and workforce data on diversity and inclusion topics in the Corporate Responsibility Report

 

 Continued to refine our shareholder engagement process to connect our shareholders with key stakeholders within our company around topics of interest

 

LOGO

 

6


Table of Contents

Executive Compensation

Our executive compensation program is designed to attract, retain and motivate top executive talent and align the interests of our executives and our shareholders.

Compensation Best Practices

 

 

  Our cash incentive bonus awards are based solely on our financial performance

 

  A significant portion of equity awards are contingent upon long-term performance achievement

 

  Incentive awards are tied to rigorous performance targets aligned with our corporate strategy

 

  Payout for relative TSR-based awards capped at target for instances of negative absolute TSR
  We recently adopted a clawback policy for all executive officers in the event of a material financial restatement due to fraud or willful misconduct

 

  We have a specific policy regarding the grant dates of stock options, RSUs and other stock-based awards for our directors, executive officers and employees

 

  We have stock ownership guidelines for all officers and directors

 

  We prohibit hedging and pledging of ADI securities

 

  Annual “say on pay” vote
 

 

Overview of CEO Pay

Executive pay at ADI is strongly aligned with long-term company performance, with the majority of compensation delivered in long-term equity-based awards. The pay mix chart is based on target compensation consisting of the annual rate of base salary and short-term and long-term incentive targets approved by the Compensation Committee.

 

 

LOGO

Fiscal 2020 Total Shareholder Return

2020 compensation actions for our NEOs are supported by solid corporate performance and strong shareholder returns.

 

 

LOGO
Total Shareholder Return calculation is share price appreciation plus cumulative cash dividend
payments, and the effect of reinvesting those dividends into the security for the one-year period
ended October 30, 2020.

 

LOGO

 

7


Table of Contents

Summary of Direct Compensation Elements

We provide a mix of compensation elements that support our goals of attracting and retaining top executive talent and incentivizing our key performance objectives in the short- and long-term.

 

 

  Pay Element

 

 

 

    LOGO    

 

  Purpose

    LOGO    

 

  Time Period

    LOGO    

 

  Performance Measures

 

 Base Salary

       

 

 Attract and retain executive talent

 

   

 

 Annual

     

 

 Variable Cash Incentive

   

 

 Motivate and reward executives for achieving short-term Company financial objectives aligned with value creation

   

 

 Paid semi-annually, with quarterly corporate financial targets tied to corporate strategy of profitable growth

 

   

 

 50%: quarterly OPBT margin

 

 50%: year over year revenue growth (measured quarterly)

 

 Minimum OPBT margin required for payout

 

 

 Annual Long-Term Incentives

 

 

 TSR PRSUs – 25%

   

 

 Align NEO and shareholder interest to drive superior relative TSR results

   

 

 Cumulative three-year period

   

 

 Relative TSR compared to comparator group

 

 Payouts capped at target if absolute TSR is negative

 

   

 

 Financial Metric PRSUs – 25%

   

 

 Align NEO and shareholder interests with long-term profitability

   

 

 One-year, two-year cumulative and three-year cumulative time periods

 

   

 

 Operating profit ($)

   

 

 Stock Options
– 25%

   

 

 Align NEO and shareholder interests in absolute stock price appreciation

 

   

 

 Four year graded vesting

 

 10 year term

   

 

 Absolute stock price appreciation

   

 

 RSUs – 25%

 

   

 

 Retain key executives

 

   

 

 Four year graded vesting

 

   

 

 None

 

OPBT = Operating Profit Before Taxes.  TSR = Total Shareholder Return

 

Historical “Say on Pay” Votes

 

Our pay programs have a history of strong shareholder support. Our Compensation Committee believes the results of last year’s “Say on Pay” vote and input from our shareholder engagement affirmed our shareholders’ support of our company’s executive compensation program. This informed our decision to maintain a consistent overall approach in setting executive compensation in fiscal 2020.

  LOGO            

Please see the Compensation Discussion and Analysis section beginning on page 31 of this proxy statement for a more detailed description of our executive compensation program, philosophy and design.

 

LOGO

 

8


Table of Contents

Corporate Responsibility

Our Approach

As a global company, we are passionately driven to be a leading corporate citizen—“engineering good” through the relentless pursuit of innovative technologies in order for our customers to be more successful in a more connected, greener and healthier future.

We believe that sustainability is about delivering holistic solutions to make a real, demonstrable impact in the world. Our goal is to help our customers solve their sustainability challenges while making meaningful progress on environmental regeneration efforts and broader societal challenges. We drive positive impact through our technologies and solutions, which are used across a range of end-markets and end-uses, as well as our sustainability strategy and platform, which is focused on three core pillars:

 

 

1.

Protect and Regenerate the Environment: we will deliver solutions that reduce our carbon and environ-mental footprint, as well as restore and replenish our natural resources and ecosystems

 

2.

Empower People: we aim to create opportunities for people and make a meaningful impact on their lives—both at ADI and in the broader community

3.

Impact Through Engagement: we will leverage the ingenuity of ADI employees to drive positive change and help solve real-world problems that benefit our lives, our communities and our planet

 

 

Sustainability Governance

Our sustainability agenda is led and managed by our Chief Executive Officer alongside a senior management team that includes our Chief People Officer, Chief Financial Officer, Chief Legal Officer, Senior Vice President of Industrial and Consumer, and newly appointed Director of Social Purpose.

In addition, our Board of Directors is fully engaged and receives updates from senior management about our progress against our sustainability initiatives.

Fiscal 2020 Highlights

 

Disclosure & Transparency

 

Our Environment

 

Our People & Society

 

 Published the company’s first Corporate Responsibility Report

 

 Our Corporate Responsibility Report is prepared in accordance with the Global Reporting Initiative (GRI): Core Option and we report separately to the CDP Climate Change and Water Security projects

 

 Our sustainability activities and reporting are appropriately aligned with the UN Sustainable Development Goals

 

 Going forward, we plan to review other evolving ESG disclosure frameworks (e.g., TCFD and SASB) to better inform our sustainability reports

 

 

 Significant progress against emissions reduction targets

 

 Set ambitious absolute emissions reduction goals by 2025

 

 Issued inaugural green bond—the first in the industry—to help finance or refinance eligible projects that offer environmental sustainability benefits

 

 Continued to innovate and develop solutions with meaningful environmental benefits, including our Battery Management Solutions, Energy Storage Systems and leveraging our intelligent sensing systems to make data centers greener

 

 

 Expanded training and development programs and established employee-led networks to drive inclusion and engagement

 

 Shifted production focus to healthcare technologies, supporting the medical community during the COVID-19 pandemic

 

 Established the Analog Devices Foundation to formalize the company’s philanthropy and charitable giving

 

 Provided support to global and local COVID-19 relief efforts through the Analog Devices Foundation

 

 Partnered with Massachusetts General Hospital and the Analog Devices Foundation donated $500,000 towards MGH’s Vaccine and Immunotherapy Center

 

LOGO

 

9


Table of Contents

 

u  

 

Proposal 1

 

Election of Directors

Our Board of Directors unanimously recommends that you vote   LOGO FOR   the election of each of the below nominees.

Election Process

Our entire Board of Directors is elected annually by our shareholders and currently consists of eleven directors, of whom nine are deemed to be “independent directors.” At the Annual Meeting, shareholders will accordingly have an opportunity to vote for each of the eleven nominees listed below. The persons named in the proxy card, upon receipt of a properly executed proxy, will vote for each of these nominees, unless you instruct them to vote otherwise on the proxy card (whether executed by you or through Internet or telephonic voting). Each of the nominees has indicated his or her willingness to serve, if elected. However, if any or all of the nominees should be unable or unwilling to serve, the proxies may be voted for a substitute nominee designated by our Board of Directors or our Board of Directors may reduce the number of directors.

We have also agreed to add two members of the Maxim Integrated Board of Directors to our Board of Directors upon the completion of our proposed acquisition of Maxim Integrated, with such two directors to hold office until the earliest to occur of the appointment or election of his or her respective successor or his or her resignation or proper removal. One of the directors will be Tunç Doluca, President and Chief Executive Officer of

Maxim Integrated, and the other director will be selected by mutual agreement between us and Maxim Integrated. We have agreed to nominate both directors for election at the first annual meeting of our shareholders that occurs after the closing of the acquisition.

Director Criteria, Qualifications and Experience

The Board of Directors is committed to ensuring that it is composed of a highly capable group of directors who collectively span a broad range of leadership skills and provide a significant breadth of experience, knowledge and abilities, relevant to the Company’s strategic vision, long-term objectives and business activities to effectively represent the interests of shareholders, exercise sound judgment and reflect our corporate values of integrity, honesty and adherence to high ethical standards. Key factors that the Board of Directors and the Nominating and Corporate Governance Committee consider when selecting directors include:

 

Diversity                                                        Independence                                                       

 

LOGO   

 

3 of 11

Directors are female, or 27%

  

 

LOGO

 

LOGO

 

 

 

2 of 11

Directors are ethnically

diverse, or 18%

  

 

9 of 11

Directors are Independent, or 81%

 

While the Board of Directors does not have a specific diversity policy, our Corporate Governance Guidelines provide that gender, racial, and ethnic diversity, consistent with the requirement for relevant and diverse experience, skills, and industry familiarity, are important search criteria.

Under Nasdaq rules, a majority of the members of our Board must be independent directors. To be considered independent, a director must be independent as determined under applicable Nasdaq rules, and in the Board’s judgment, the director must not have a relationships with the Company that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

 

 


 

10


Table of Contents

 

Director Experience        

 

Experience/Expertise   Number of Directors

CEO Experience

Experienced leadership of complex global businesses

  LOGO

Industry Experience

Insight into key issues affecting our company

  LOGO

Technology Leadership

Expertise and thought leadership relating to technological innovation in our industry and our end markets

  LOGO

Governance/Public Company Board Expertise

Knowledge of public company governance issues and policies to enhance Board practices

  LOGO

Financial Expertise

Oversight of our company’s audit function and preparation of financial statements and capital market expertise

  LOGO

International Experience

Insight into the many factors involved in overseeing management of our company’s global footprint

  LOGO

Strategy Experience

Oversight of management’s development and implementation of strategic priorities

  LOGO

Risk Management Expertise

Oversight of risks facing our company and a comprehensive approach to risk management

  LOGO

Cybersecurity Expertise

Oversight of our company’s efforts to maintain our customers’ trust and protect the security of their data

  LOGO

The following paragraphs provide information as of the date of this proxy statement about each nominee. The information presented includes information each director has given us about his or her age, all positions he or she holds, his or her principal occupation and business experience, and the names of other publicly-held companies of which he or she currently serves as a director or has served as a director during the past five years. In addition to the information presented below regarding each nominee’s specific experience, qualifications, attributes and skills that led our Board of Directors to the conclusion that he or she should serve as a director, we also believe that all of our director nominees have a reputation for integrity, honesty and adherence to high ethical standards. They each have demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to ADI and our Board of Directors. Finally, we value their significant experience on other public company boards of directors and board committees.

Information about the number of shares of common stock beneficially owned by each director appears below under the heading “Security Ownership of Directors and Executive Officers.” See also “Certain

Relationships and Related Transactions.” There are no family relationships among any of the directors and executive officers of ADI.

 


 

11


Table of Contents

Ray Stata

 

Chairman of the Board of Directors

 

Director since: 1965        Age: 86        Committee(s): None

 

Professional Experience and Background

Mr. Stata has served as our Chairman of the Board of Directors since 1973 and served as an executive officer of our Company from its inception until April 2012. Mr. Stata served as our Chief Executive Officer from 1973 to November 1996 and as our President from 1971 to November 1991.

 

Key Qualifications and Expertise

Mr. Stata has more than 50 years of experience and leadership in the semiconductor industry, including as our founder, our Chairman for 44 years and formerly as our President for 20 years. If re-elected, the Company expects that Mr. Stata will continue to serve as our Chairman of the Board of Directors in fiscal 2021.

 

Other Public Company Boards:

Current: None                  Past 5 Years: None

 

 

 

LOGO

 

Vincent Roche

 

President and Chief Executive Officer

 

Director since: 2013        Age: 60        Committee(s): None

 

Professional Experience and Background

Mr. Roche has served as President of Analog Devices since 2012 and was appointed Chief Executive Officer and elected as a director in 2013. Under his leadership, ADI has extended its market leadership and grown to approximately $5.6 billion in revenue in fiscal 2020. Mr. Roche began his career at ADI in 1988 and has served in key positions spanning corporate leadership, worldwide sales, strategic marketing, business development, and product management over his more than 30-year tenure at ADI.

 

Key Qualifications and Expertise

Mr. Roche’s leadership role in the Company and his deep knowledge of the Company’s products, markets, customers, culture and organization.

 

Other Public Company Boards:

Current: Acacia Communications, Inc.        Past 5 Years: None

 

 

 

LOGO

 

James A. Champy

 

Presiding Director

 

Independent Director since: 2003        Age: 78

Committee(s): Nominating and Corporate Governance

 

Professional Experience and Background

Mr. Champy retired in 2010 as Vice President of the Dell/Perot Systems business unit of Dell, Inc., a computer and technology services company. He was previously a Vice President and the Chairman of Consulting at Perot Systems Corporation, a technology services company, from 1996 to November 2009. He served as a director of Perot Systems Corporation from 1996 to 2004. Mr. Champy is the author of several business books and is a Life Member of the MIT Corporation, the governing body of the Massachusetts Institute of Technology, or MIT, a private research university.

 

Key Qualifications and Expertise

Mr. Champy’s expertise in corporate strategy development and his organizational acumen.

 

Other Public Company Boards:

Current: None                  Past 5 Years: None

 

 

 

LOGO

 


 

12


Table of Contents

Anantha P. Chandrakasan

 

Independent Director since: 2019        Age: 52

Committee(s): Nominating and Corporate Governance

 

Professional Experience and Background

Dr. Chandrakasan has served as the Dean of the School of Engineering at Massachusetts Institute of Technology, or MIT, a private research university, since July 2017, and as the Vannevar Bush Professor of Electrical Engineering and Computer Science since 2003. He also co-chairs the MIT-IBM Watson AI Lab and the MIT-Takeda Program. From July 2011 to June 2017, Dr. Chandrakasan was the head of MIT’s Department of Electrical Engineering and Computer Science (EECS). He is an Institute of Electrical and Electronics Engineers fellow, and in 2015 he was elected to the National Academy of Engineering.

 

Key Qualifications and Expertise

Dr. Chandrakasan’s deep understanding of complex technologies and experience driving innovation.

 

Other Public Company Boards:

Current: None                  Past 5 Years: None

 

 

 

LOGO

 

Bruce R. Evans

 

Independent Director since: 2015        Age: 61        Committee(s): Audit

 

Professional Experience and Background

Mr. Evans has served as president of Evans Capital LLC, a private investment fund, since March 2019. Mr. Evans has also served in various positions with Summit Partners, a growth equity, venture capital and credit investment firm, since 1986, including most recently as Senior Advisor to the firm, a role he has held since January 2018. From 2011 to March 2019, he served as Chairman of Summit Partners’ Board. From 2011 to December 2017, he served as Managing Director and Chairman of Summit Partners’ Board. From 1999 to 2011, he was one of Summit Partners’ Co- Managing Partners. During his 34 years with Summit Partners, Mr. Evans has served as a member of the boards of directors of over 35 technology and other growth industry companies in the U.S. and Europe, including 14 public companies. In addition, Mr. Evans is Chairman of the Vanderbilt University Board of Trust and the former Chairman of Vanderbilt’s Investment Committee.

 

Key Qualifications and Expertise

Mr. Evans’ financial and management expertise, including his investing experience in the technology sector and his experience with acquisitions and other transactions.

 

Other Public Company Boards:

Current: Casa Systems, Inc.                  Past 5 Years: None

 

 

 

LOGO

 


 

13


Table of Contents

Edward H. Frank

 

Independent Director since: 2014        Age: 64     Committee(s): Compensation

 

Professional Experience and Background

Dr. Frank was most recently co-founder and CEO of Cloud Parity Social Networking, a voice of the customer startup, from January 2014 through August 2016. From May 2009 to October 2013, Dr. Frank held the position of Vice President, Macintosh Hardware Systems Engineering at Apple Inc., a company that designs, manufactures and markets electronic devices. Prior to his tenure at Apple, Dr. Frank served as Corporate Vice President, Research and Development, of Broadcom Corp. Dr. Frank was founding CEO of Epigram, Inc., a developer of integrated circuits and software for home networking, which Broadcom acquired in 1999, and was a Distinguished Engineer at Sun Microsystems, Inc. Dr. Frank is vice-chair of Carnegie Mellon University Board of Trustees, where he has been a Trustee since 2000, and since July 2017, has been Executive Director (pro bono) of Metallica’s All Within My Hands Foundation. He is a member of the National Academy of Engineering and a Fellow of the IEEE.

 

Key Qualifications and Expertise

Dr. Frank’s substantial experience in the design, manufacture, sale and marketing of semi- conductors for a broad set of markets, including many of the markets serviced by the Company and his extensive executive leadership experience.

 

Other Public Company Boards:

Current: Marvell Technology Group, Ltd.            Past 5 Years: Cavium, Inc. (until 2018)

SiTime Corp.                                                                 Amesite, Inc. (until 2020)

           Quantenna Communications, Inc.

           (until 2018)

 

 

 

 

LOGO

 

Laurie H. Glimcher

 

Independent Director since: 2020        Age: 69         Committee(s): Compensation

 

Professional Experience and Background

Dr. Glimcher has served as a Professor of Microbiology and Immunology at Harvard Medical School since May 2017, the Richard and Susan Smith Professor of Medicine at Harvard Medical School and Dana-Farber Cancer Institute since October 2016, an Attending Physician, Department of Cancer Immunology and Virology at Dana-Farber Cancer Institute since October 2016 and the President and Chief Executive Officer of the Dana-Farber Cancer Institute since September 2016. In addition to a number of senior leadership roles held at both Harvard Medical School and Harvard School of Public Health from 1984 to 2011 and from October 2016 to present, she also served as the Stephen and Suzanne Weiss Dean and Professor of Medicine of Weill Cornell Medicine and as Provost for Medical Affairs of Cornell University from January 2012 to August 2016. She is a member of the Board of Trustees at the Dana-Farber Cancer Institute and a member of the US National Academy of Sciences, the National Academy of Medicine, the American Academy of Arts and Sciences and the American Philosophical Society.

 

Key Qualifications and Expertise

Dr. Glimcher’s scientific and public health expertise as well as diversity of technical skills and experience as a physician, scientist and professor.

 

Other Public Company Boards:

Current:          GlaxoSmithKline plc

Past 5 Years: Bristol-Myers Squibb Company (until 2017)

   Waters Corporation (until 2020)

 

 

 

 

LOGO

 


 

14


Table of Contents

Karen M. Golz

 

Independent Director since: 2018        Age: 66         Committee(s): Audit

 

Professional Experience and Background

Ms. Golz is a retired partner from Ernst & Young (EY), a public accounting firm, where she held various senior leadership positions during her tenure at the firm, including most recently as Global Vice Chair, Japan from July 2016 to June 2017 and prior thereto, from July 2010 to June 2016, as Global Vice Chair, Professional Practice. Ms. Golz also served on EY’s Global Risk Management Executive Committee, which was charged with risk management across EY’s global network, from 2008 to 2016. Ms. Golz currently serves as senior advisor to The Boston Consulting Group’s Audit and Risk Committee, a role she has held since August 2017, and as a principal for K.M. Golz Associates, LLC, a consulting services company, since August 2017. She also sits on the Board of Trustees of the University of Illinois Foundation. Ms. Golz is also a National Association of Corporate Directors (NACD) Board Leadership Fellow.

 

Key Qualifications and Expertise

Ms. Golz’s accounting and audit expertise and extensive experience helping large organizations successfully navigate the complexities of international trade and regulation.

 

Other Public Company Boards:

Current: None              Past 5 Years: None

 

 

 

 

LOGO

 

Mark M. Little

 

Independent Director since: 2017        Age: 68         Committee(s): Compensation

 

Professional Experience and Background

Dr. Little is the former Senior Vice President, GE Global Research and Chief Technology Officer of General Electric Company, or GE, a global digital industrial company. Dr. Little joined GE in 1978, and during his 37-year tenure, held management positions in engineering and business, culminating with his most recent position, which he held from November 2005 until his retirement in December 2015. In addition to his technology leadership, Dr. Little led several multi-billion dollar business units at GE, including GE Energy’s power-generation segment.

 

Key Qualifications and Expertise

Dr. Little’s extensive leadership experience in a global technology company, combined with his experience driving change and innovation through GE’s various phases of business transformation.

 

Other Public Company Boards:

Current: None              Past 5 Years: None

 

 

 

 

LOGO

 


 

15


Table of Contents

Kenton J. Sicchitano

 

Independent Director since: 2003        Age: 76        Committee(s): Audit

 

Professional Experience and Background

Mr. Sicchitano retired from PricewaterhouseCoopers LLP, or PwC, a public accounting firm, in July 2001. At the time of his retirement, Mr. Sicchitano was the Global Managing Partner of Independence and Regulatory Matters for PwC. Mr. Sicchitano joined Price Waterhouse LLP, a predecessor firm of PwC, in 1970 and became a partner in 1979. During his 31-year tenure with PwC, Mr. Sicchitano held various positions including the Global Managing Partner of Audit/Business Advisory Services and the Global Managing Partner responsible for Audit/Business Advisory, Tax and Financial Advisory Services.

 

Key Qualifications and Expertise

Mr. Sicchitano’s extensive experience with public and financial accounting matters for complex global organizations.

 

Other Public Company Boards:

Current: None              Past 5 Years: PerkinElmer, Inc. (until 2017)

     Metlife, Inc. (until 2017)

 

 

 

 

LOGO

 

Susie Wee

 

Independent Director since: 2019        Age: 51        Committee(s): Compensation

 

Professional Experience and Background

Dr. Wee has served as the Senior Vice President and General Manager of DevNet and CX Ecosystem Success at Cisco Systems Inc., or Cisco, a technology company, since October 2019. She founded and has led DevNet, Cisco’s developer program, since October 2013. DevNet is a key pillar of Cisco’s software transformation strategy, has grown to a global community of over 500,000 developers and includes Cisco DevNet professional career certifications and business specializations for the partner ecosystem. Dr. Wee has been with Cisco since April 2011, and has held leadership roles including Senior Vice President & Chief Technology Officer of DevNet from October 2018 to October 2019, Vice President & Chief Technology Officer of DevNet from October 2013 to October 2018, Vice President & Chief Technology Officer of Networked Experiences from October 2012 to October 2013, and Vice President & Chief Technology and Experience Officer of Cisco’s Collaboration Technology Group from April 2011 to October 2012. Previously, Dr. Wee had a 15-year career at Hewlett Packard Enterprise Company, a technology company, where she held a number of technical and leadership roles, including Vice President and General Manager of the HP Experience Software Business and Lab Director at HP Labs. Dr. Wee is an Institute of Electrical and Electronics Engineers fellow and serves on the visiting committee of the Massachusetts Institute of Technology Electrical Engineering and Computer Science department and the board of Girls in Tech.

 

Key Qualifications and Expertise

Dr. Wee’s extensive experience in information technology and application development, together with her established track record of driving software innovation at global technology companies.

 

Other Public Company Boards:

Current: None              Past 5 Years: None

 

 

 

 

LOGO

 


 

16


Table of Contents

Corporate Governance

Board Policies & Practices

We have long believed that good corporate governance is important to ensure that Analog Devices is managed for the long-term benefit of our shareholders. We periodically review our corporate governance policies and practices and compare them to those suggested by various authorities in corporate governance and the practices of other public companies. As a result, we have adopted the following policies and procedures that we believe are in the best interests of Analog Devices and our shareholders:

 

Policy/Practice

 

Summary

Corporate Governance Guidelines

 

Our Board of Directors has adopted Corporate Governance Guidelines for our Company that establish a common set of expectations to assist the Board and its committees in performing their duties. The Board reviews these Guidelines at least annually, and updates them as necessary to reflect changing regulatory requirements and evolving practices.

Declassified Board of Directors

 

We have a declassified Board of Directors and our bylaws provide that each director will serve for a term ending on the date of the annual meeting following the one at which such director was elected. All of our directors will stand for election for terms expiring at the next annual meeting of shareholders.

Majority Voting for Election of Directors

 

Our bylaws provide for a majority voting standard in uncontested director elections, so a nominee is elected to the Board of Directors if the votes “for” that director exceed the votes “against” (with abstentions and broker non-votes not counted as for or against the election). If a nominee does not receive more “for” votes than “against” votes, the director must offer his or her resignation, which the Board of Directors must determine whether to accept and publicly disclose that determination.

Executive Sessions

 

At least twice per year, our Board of Directors holds executive sessions of non-employee directors, who are all independent as defined under The Nasdaq Stock Market, Inc. Marketplace Rules, or Nasdaq Rules. Our Presiding Director, James A. Champy, presides at these executive sessions. In addition, the committees of our Board of Directors also regularly hold executive sessions with their advisors without management present.

No Hedging Policy

 

We prohibit all hedging transactions or short sales involving Company securities by our directors and employees, including our executive officers.

No Pledging Policy

 

Since January 2013, we have prohibited our directors and executive officers from holding any Company securities in a margin account, and from any future pledging of their Company securities as collateral for a loan.

Equity Award Grant Date Policy

 

We do not time or select the grant dates of any stock options or stock-based awards in coordination with our release of material non-public information, nor do we have any program, plan or practice to do so. In addition, the Compensation Committee has adopted specific written policies regarding the grant dates of stock option and stock-based awards made to our directors, executive officers and employees. See “—Director Compensation” and “Information About Executive Compensation—Compensation Discussion and Analysis—Equity Award Grant Date Policy” below for more information.

Executive Stock Ownership Guidelines

 

Under our guidelines, the target stock ownership levels are two times annual base salary for the Chief Executive Officer and one times annual base salary for other executive officers. The Chief Executive Officer has four years from the date of his appointment as CEO to achieve his targeted level. Executive officers other than the CEO have five years from the date he or she becomes an executive officer to achieve their targeted level. Shares subject to unexercised options, whether or not vested, and unvested performance-based RSUs whose performance has not yet been certified by the Compensation Committee will not be counted for purposes of satisfying these guidelines. RSUs and restricted stock (whether or not vested) and unvested performance-based RSUs whose performance has been certified by the Compensation Committee are counted for purposes of satisfying the guidelines. All of our executive officers were in compliance with our stock ownership guidelines as of the end of the fiscal year ended October 31, 2020, or fiscal 2020.

Adoption of Clawback Policy

 

Our recently adopted clawback policy provides that in the event of a material restatement of our financial results, the Compensation Committee may, as appropriate, seek to recover from any executive officer whose fraud or willful misconduct caused or partially caused such restatement, all or a portion of the performance-based compensation awarded to such executive officer that was in excess of the amount that would have been awarded based on the restated financial results.

Adoption of Proxy Access Right

 

Our Board of Directors approved a bylaw amendment implementing proxy access, which allows shareholders that meet standard eligibility requirements to submit director candidates for election in the Company’s proxy statement.

 


 

17


Table of Contents

You can access our bylaws, the current charters for our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, our Corporate Governance Guidelines, our Code of Business Conduct and Ethics, our Related Person Transaction Policy and our Equity Award Grant Date Policy at investor.analog.com/corporate-governance.cfm or by writing to:

Investor Relations Department

Analog Devices, Inc.

One Analog Way

Wilmington, Massachusetts 01887

Phone: 781-461-3282

Email: investor.relations@analog.com

Board of Directors Leadership Structure

Our Corporate Governance Guidelines provide that the roles of Chief Executive Officer and Chairman of the Board of Directors should be separate, unless otherwise determined by a majority of the Board of Directors, and we currently separate these roles. Our Chief Executive Officer is responsible for setting the strategic direction for the Company and the day-to-day leadership and performance of the Company, while our Chairman of the Board of Directors provides guidance to the Chief Executive Officer, sets the agenda for Board meetings and presides over meetings of the full Board of Directors. Because our Board of Directors has determined that Mr. Stata, our Chairman and founder, is not an independent director under the Nasdaq Rules, our Board of Directors has appointed James A. Champy as Presiding Director to preside at all executive sessions of directors without management present. The Board of Directors meets in executive session at each regular meeting.

Board of Directors Meetings and Committees

The Board of Directors has responsibility for reviewing our overall performance, rather than day-to-day operations. The Board of Directors’ primary responsibility is to oversee the management of the Company and, in doing so, serve the best interests of the Company and its shareholders. The Board of Directors provides for the succession of the Chief Executive Officer, nominates for election at annual shareholder meetings individuals to serve as directors of Analog Devices, and elects individuals to fill any vacancies on the Board of Directors. It reviews corporate objectives and strategies, and evaluates and approves significant policies and proposed major commitments of corporate resources. It participates in decisions that have a potential major economic impact on Analog Devices. Management keeps the directors informed of Company activity through regular written reports and presentations at Board and committee meetings.

The Board of Directors met ten times and its committees collectively held 21 meetings in fiscal 2020 (including by telephone conference). During fiscal 2020, overall attendance at Board and committee meetings was 97% and each of our incumbent directors attended 75% or more of the total number of meetings of the Board of Directors and the committees on which he or she served. The Board of Directors has standing Audit, Compensation, and Nominating and Corporate Governance Committees. All members of all three committees are independent, non-employee directors. Each committee has a charter that has been approved by the Board of Directors and is reviewed annually. In addition, each committee conducts an annual self-evaluation of its own performance and the performance of its members in accordance with its respective Committee charter. Each director also undertakes an evaluation of the Board more generally. Our Presiding Director, who is also currently the Chair of our Nominating and Corporate Governance Committee, working with outside counsel, also has conversations with each Board member designed to assess the competencies and skills each director brings to the Board. Summaries of the evaluations are presented to the Board. Mr. Roche is the only current director who is, or has been in the past three years, an employee of Analog Devices. Messrs. Roche and Stata do not serve on any standing Board committee and do not participate in the portion of any Board or committee meeting during which their compensation is evaluated. The independent directors met in executive session without Messrs. Stata or Roche at each in-person Board meeting in fiscal 2020.

Our Corporate Governance Guidelines set forth our policy that directors are expected to attend annual meetings of shareholders. Due to unforeseen circumstances relating to the COVID-19 pandemic, only one of our then-serving directors attended our in-person 2020 Annual Meeting of Shareholders.

 


 

18


Table of Contents

Audit Committee

The current members of our Audit Committee are Messrs. Sicchitano (Chair) and Evans and Ms. Golz. The Board of Directors has determined that each of Messrs. Sicchitano and Evans and Ms. Golz qualifies as an “audit committee financial expert” under the rules of the U.S. Securities and Exchange Commission, or SEC, and is independent as defined under the Nasdaq Rules and the independence requirements under Rule 10A-3(b)(1) of the Exchange Act. In addition, our Board of Directors has determined that each member of the Audit Committee is able to read and understand financial statements, including the Company’s consolidated balance sheet and its consolidated statements of income, comprehensive income, shareholders’ equity and cash flows and related notes as required under the Nasdaq Rules. The Board of Directors has certified that it has at least one member of the Audit Committee who has past employment experience in finance or accounting as required by the Nasdaq Rules. None of Messrs. Sicchitano and Evans or Ms. Golz serves on the audit committees of more than two other public companies.

The primary purpose of the Audit Committee is to assist the Board of Directors’ oversight of (i) the integrity of our financial statements and the Company’s systems of internal control over financial reporting and disclosure controls and procedures, (ii) the qualifications and independence of our independent registered public accounting firm, and (iii) the performance of our internal audit function and independent registered public accounting firm. The Audit Committee has the authority to engage any independent legal, accounting and other advisors that it deems necessary or appropriate to carry out its responsibilities. These independent advisors may be the regular advisors to the Company. The Audit Committee is empowered, without further action by the Board of Directors, to cause the Company to pay the compensation of those advisors as established by the Audit Committee. The Audit Committee selected and appointed Ernst & Young LLP, our independent registered public accounting firm, and did not retain any other advisors during fiscal 2020. The Audit Committee met eleven times during fiscal 2020 (including by telephone conference). The responsibilities of our Audit Committee and its activities during fiscal 2020 are described in the Report of the Audit Committee below.

Compensation Committee

The current members of our Compensation Committee are Drs. Frank (Chair), Glimcher, Little and Wee. Dr. Lisa Su also served on the Compensation Committee during fiscal 2020. The Board of Directors has determined that each of Drs. Frank, Glimcher Little and Wee is independent as defined under the Nasdaq Rules and the independence requirements under Rule 10C-1 of the Exchange Act. The Compensation Committee evaluates and sets the compensation of our Chief Executive Officer and our other executive officers, and makes recommendations to our Board of Directors regarding the compensation of our directors. The Compensation Committee oversees the evaluation of senior management. In connection with its oversight and administration of ADI’s cash and equity incentive plans, the Compensation Committee authorizes the granting of stock options, RSUs and other stock incentives (within guidelines established by our Board of Directors and in accordance with our Stock Option and Stock-Based Award Grant Date Policies) to our officers. In accordance with the terms of our 2020 Equity Incentive Plan, which we refer to as the 2020 Plan, the Compensation Committee has delegated to our Chief Executive Officer the power to grant and modify options, RSUs and other stock awards to employees who are not executive officers, other senior vice presidents who report to the Chief Executive Officer or directors, subject to specified thresholds, parameters and applicable law. Additionally, the Compensation Committee oversees our newly adopted clawback policy, as well as any clawback policy the Company may adopt in the future. Our Compensation Committee held eight meetings (including by telephone conference) during fiscal 2020.

 


 

19


Table of Contents

Compensation Committee Consultants. The Compensation Committee has the authority, in its sole discretion, to retain or obtain the advice of any independent legal, accounting or other advisors it deems necessary or appropriate to carry out its responsibilities. The Compensation Committee is empowered, without further action by the Board of Directors, to cause the Company to pay the compensation of these advisors as established by the Compensation Committee. The Compensation Committee retained Pearl Meyer and Partners, or Pearl Meyer, an independent compensation consultant, during fiscal 2020. Pearl Meyer reports directly to the Compensation Committee and assists the Compensation Committee in evaluating and designing our executive and director compensation program and policies. For fiscal 2020, the Compensation Committee instructed Pearl Meyer to assist in the following matters:

 

 

  defining a peer group of companies;

 

  reviewing and validating the appropriateness of executive incentive plan goals;

 

  assisting the Compensation Committee in defining a comparator group of companies for the 2020 relative total shareholder return performance-based RSUs;

 

  providing market data and advice regarding executive and director compensation plan design, design of the executive performance incentive plan and equity incentive mix and design, including a market update relating to the effects of COVID-19 on executive compensation;
  conducting a detailed analysis of the competitiveness and appropriateness of the Company’s total executive compensation opportunity and total director compensation opportunity in comparison to our defined peer group; and

 

  conducting a risk assessment of our executive compensation program.
 

 

In connection with its work for the Compensation Committee, Pearl Meyer is invited to attend the Compensation Committee’s meetings and, upon request of the Compensation Committee, attends executive sessions of the Compensation Committee. Pearl Meyer is retained only by the Compensation Committee and does not provide any other consulting services to Analog Devices. The Compensation Committee also solicits advice from time to time from our outside counsel, WilmerHale. The Compensation Committee assesses the independence of its advisors on an annual basis. The Compensation Committee requested and received an independence letter from each of Pearl Meyer and WilmerHale providing information to assist the Compensation Committee in selecting and receiving advice from such advisor after considering the independence factors that are identified in the Nasdaq rules. The Compensation Committee determined that the engagement of these advisors did not raise any conflicts of interest for all work performed for the Compensation Committee during fiscal 2020. The activities of our Compensation Committee and the services Pearl Meyer performed for the Compensation Committee during fiscal 2020 are further described in “INFORMATION ABOUT EXECUTIVE COMPENSATION—Compensation Discussion and Analysis” below.

Nominating and Corporate Governance Committee

The current members of our Nominating and Corporate Governance Committee are Mr. Champy (Chair) and Dr. Chandrakasan. The Board of Directors has determined that each of Mr. Champy and Dr. Chandrakasan is independent as defined under the Nasdaq Rules. The primary responsibility of the Nominating and Corporate Governance Committee is to identify individuals qualified to become Board members consistent with criteria approved by the Board of Directors, recommend to the Board of Directors the persons to be nominated by the Board of Directors for election as directors at any meeting of shareholders and the persons to be elected by the Board to fill any vacancies on the Board, recommend to the Board of Directors the directors to be appointed to each committee of the Board of Directors, develop and recommend to the Board of Directors a set of corporate governance principles and oversee the evaluation of the Board of Directors. The Nominating and Corporate Governance Committee also leads the Board of Directors’ succession planning efforts with respect to senior executives and oversight of our Code of Business Conduct and Ethics, and oversees and periodically reviews the Company’s environmental, social and governance policies, goals and programs.

The Nominating and Corporate Governance Committee has the authority to engage any independent legal and other advisors it deems necessary or appropriate to carry out its responsibilities. These independent advisors may be the regular advisors to the Company. The Nominating and Corporate Governance Committee is empowered, without further action by the Board of Directors, to cause the Company to pay the compensation of

 


 

20


Table of Contents

these advisors as established by the Nominating and Corporate Governance Committee. For information relating to nominations of directors by our shareholders, see “—Director Candidates” above. Our Nominating and Corporate Governance Committee held six meetings during fiscal 2020 (including by telephone conference).

Determination of Independence

Under applicable Nasdaq Rules, a director of Analog Devices will only qualify as an “independent director” if, in the opinion of our Board of Directors, that person does not have a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our Board of Directors has established guidelines (within our Corporate Governance Guidelines) to assist it in determining whether a director has a relationship with Analog Devices that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. These guidelines are posted on our website under investor.analog.com/corporate-governance.cfm. For relationships not covered by the guidelines, the determination of whether such a relationship exists is made by the members of our Board of Directors who are independent (as defined above). Our Board of Directors has determined that none of Messrs. Champy, Evans and Sicchitano, Ms. Golz and Drs. Chandrakasan, Frank, Glimcher, Little and Wee has a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is an “independent director” as defined under Rule 5605(a)(2) of the Nasdaq Rules. The Board also determined that Lisa Su and Neil Novich, both former directors, were each an “independent director” prior to their retirements from the Board on March 11, 2020. The Board of Directors has determined that Mr. Roche, our President and Chief Executive Officer, and Mr. Stata, our Chairman and founder, are not “independent” under the Nasdaq Rules because Mr. Roche is a current employee and Mr. Stata is our founder. The Board of Directors considered the Company’s annual laboratory membership and sponsorship of university research projects with MIT (of which Anantha P. Chandrakasan is the Dean of the School of Engineering and James A. Champy is a board member) and Karen Golz’s former affiliation with Ernst & Young and determined that those relationships would not interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

Director Candidates

Shareholders of record of Analog Devices may recommend director candidates for inclusion by the Board of Directors in the slate of nominees that the Board of Directors recommends to our shareholders for election. The qualifications of recommended candidates will be reviewed by the Nominating and Corporate Governance Committee. If the Board of Directors determines to nominate a shareholder-recommended candidate and recommends his or her election as a director by the shareholders, the name will be included in Analog Devices’ proxy card for the shareholders’ meeting at which his or her election is recommended.

Shareholders may recommend individuals for the Nominating and Corporate Governance Committee to consider as potential director candidates by submitting their names and background and a statement as to whether the shareholder or group of shareholders making the recommendation has beneficially owned more than 5% of Analog Devices’ common stock for at least one year as of the date the recommendation is made, to the “Analog Devices Nominating and Corporate Governance Committee,” c/o Yoon Ah Oh, Secretary, Analog Devices, Inc., One Analog Way, Wilmington, Massachusetts 01887. The Nominating and Corporate Governance Committee will consider a recommendation only if appropriate biographical information and background material is provided on a timely basis.

The process followed by the Nominating and Corporate Governance Committee to identify and evaluate candidates includes requests to Board members and others for recommendations, meetings from time to time to evaluate biographical information and background material relating to potential candidates and interviews of selected candidates by members of the Nominating and Corporate Governance Committee and the Board of Directors. From time to time, the Nominating and Corporate Governance Committee may also seek input from director search firms for identification and evaluation of candidates. Laurie H. Glimcher, who joined our Board of Directors in August 2020, was recommended by a non-management director.

 


 

21


Table of Contents

Assuming that appropriate biographical and background material is provided for candidates recommended by shareholders on a timely basis, the Nominating and Corporate Governance Committee will evaluate director candidates recommended by shareholders by following substantially the same process, and applying substantially the same criteria, as it follows for director candidates submitted by Board members.

Shareholders also have the right to directly nominate director candidates, without any action or recommendation on the part of the Nominating and Corporate Governance Committee or the Board of Directors, by following the procedures set forth in our bylaws and described in the response to the question “How and when may I submit a shareholder proposal, including a shareholder nomination for director, for the 2022 annual meeting of shareholders?” below.

In considering whether to recommend any candidate for inclusion in the Board of Directors’ slate of recommended director nominees, including candidates recommended by shareholders, the Nominating and Corporate Governance Committee will apply the criteria set forth in our Corporate Governance Guidelines. These criteria include the candidate’s integrity, business acumen, experience, commitment, and diligence; the presence of any conflicts of interest and the ability of the candidate to act in the interests of all shareholders. The Nominating and Corporate Governance Committee seeks nominees with a broad diversity of experience, professions, skills, geographic representation and backgrounds. The Nominating and Corporate Governance Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. Analog Devices believes that the backgrounds and qualifications of the directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that will allow the Board of Directors to fulfill its responsibilities. While we do not have a policy regarding Board diversity, the Nominating and Corporate Governance Committee includes gender, racial and ethnic diversity as part of its search criteria, consistent with the requirement for relevant and diverse experience, skills and industry familiarity.

Communications from Shareholders and Other Interested Parties

The Board of Directors will give appropriate attention to written communications on issues that are submitted by shareholders and other interested parties, and will respond if and as appropriate. Absent unusual circumstances or as contemplated by committee charters, the Chairman of the Nominating and Corporate Governance Committee will, with the assistance of Analog Devices’ internal legal counsel, (1) be primarily responsible for monitoring communications from shareholders and other interested parties and (2) provide copies or summaries of such communications to the other directors as he considers appropriate.

Communications will be forwarded to all directors if they relate to substantive matters and include suggestions or comments that the Chairman of the Nominating and Corporate Governance Committee considers to be important for the directors to review. In general, communications relating to corporate governance and long-term corporate strategy are more likely to be forwarded than communications relating to personal grievances, commercial solicitations and matters as to which Analog Devices tends to receive repetitive or duplicative communications.

Shareholders and other interested parties who wish to send communications on any topic to the Board of Directors (including the Presiding Director or the independent directors as a group) should address such communications to James A. Champy, Presiding Director, c/o Secretary, Analog Devices, Inc., One Analog Way, Wilmington, Massachusetts 01887.

 


 

22


Table of Contents

The Board of Directors’ Role in Risk Oversight

The following table summarizes management’s and the Board of Directors’ role in risk management and oversight:

 

   

Management

   Our Risk Management Framework defines how we identify, manage and govern risk throughout our organization to promote the achievement of our financial and operational goals in a compliant manner. It assigns accountability for risk management to every business unit, based on the risks they encounter as part of their day-to-day operations. Risk governance is managed by our Chief Legal Officer and Chief Financial Officer in partnership with the senior leadership team. Members of management report to the Board of Directors (or the appropriate committee in the case of risks that are under the purview of a particular committee) regarding risk identification, risk management and risk mitigation strategies.

Board of
Directors

   The Board of Directors’ role in the Company’s risk oversight process includes receiving regular reports from members of senior management on areas of material risk to the Company. Specifically, our Chief Legal Officer reports to our full Board of Directors regarding our management of all enterprise and operational risks and our Risk Management Framework annually, with periodic updates on focus areas, such as cybersecurity. The Board also receives regular updates from our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, which provide our Board with thorough insight about how ADI manages risk.

Audit
Committee

   The Audit Committee discusses ADI’s policies with respect to risk assessment and risk management as they apply to ADI’s financial statement integrity and reporting and internal controls. The Audit Committee also receives regular reports from our Director of Internal Audit on internal audit matters and receives reports at least annually from our Chief Information Officer on information security, technology and data privacy and protection. The Chief Information Officer also provides an annual report to the full Board of Directors regarding cybersecurity risk.

Compensation
Committee

   The Compensation Committee considers whether ADI’s executive compensation program and non- executive director compensation practices encourage excessive or inappropriate risk taking.

Nominating
and Corporate
Governance
Committee

   The Nominating and Corporate Governance Committee leads the Board with respect to the adequacy of the Company’s governance structure and process and of succession planning for the Company’s Board of Directors, Chief Executive Officer and other executive officers. The Committee oversees the Company’s environmental, social and governance policies, goals and programs, including reviewing the Company’s sustainability initiatives and goals and the Company’s progress toward achieving those goals.

Engagement with Our Shareholders

Since our inception as a public company, we have maintained an active engagement program with our shareholders, meeting with them extensively throughout the year as part of our investor outreach efforts. In fiscal 2020, we held more than 400 meetings with our shareholders, including the majority of our top 25 shareholders, to discuss the Company’s performance and prospects, as well as trends affecting the semiconductor industry. We also continued our specific outreach effort with our institutional investors to discuss corporate governance issues affecting the Company. During fiscal 2020, we reached out to our top 25 shareholders, representing approximately 55% of our outstanding shares, with an invitation to have discussions with their corporate governance teams. Of the shareholders who accepted our engagement invitation, topics covered in these meetings included:

 

 

  Board composition and risk oversight

 

  Board evaluations and refreshment

 

  Corporate governance trends
  Environmental, social and governance considerations, including diversity and inclusion and human capital management

 

  Executive compensation practices and design
 

 


 

23


Table of Contents

In the spirit of continuous improvement, we have reviewed with our Board of Directors the key takeaways from these meetings with our shareholders with the goal of continuing to evolve our corporate governance practices to best meet the needs of the Company and our shareholders. Our dialogue has led to enhancements to our practices and disclosure, which our Board believes is in the best interests of our company and our shareholders. For example:

 

Topics of

Discussion

   Recent Outcomes of Engagement

Corporate

Governance

  

 Continued focus on active Board refreshment and diversity, adding two new female directors to the Board

  

 Enhanced risk oversight practices for our Board, including cybersecurity at the Board level and ESG under the Nominating and Corporate Governance Committee

  

 Adopted a new clawback policy for all executive officers with respect to cash and equity incentives that is applicable in the event of a material financial restatement due to fraud or willful misconduct

Corporate Social

Responsibility

  

 Published our inaugural Corporate Responsibility Report in May 2020 that includes enhanced disclosure of our ESG initiatives

  

 Enhanced our diversity & inclusion disclosures, including management perspective and workforce data on diversity and inclusion topics in the Corporate Responsibility Report

  

 Continued to refine our shareholder engagement process to connect our shareholders with key stakeholders within our company around topics of interest

We intend to continue our shareholder outreach efforts on an on-going basis and look forward to continuing to engage with our valued shareholders.

Corporate Responsibility Highlights

We believe that sustainability is about delivering holistic solutions to ensure we are making a real, demonstrable impact in the world. ADI strives to create a rewarding workplace and be a trusted partner, leading corporate citizen, environmental steward and contributor to our communities. We periodically evaluate our sustainability priorities outlined in our 2020 Corporate Responsibility Report, entitled Engineering Good, to ensure alignment with our long-term strategy. As part of this process, we regularly engage with key stakeholders to ensure we continue to focus on the most important issues.

 

Approach to Stakeholder Engagement      
Our Shareholders    Our Workforce    Our Suppliers    Our Communities
We actively engage with our shareholders around topics of interest, including sustainability reporting and human capital management.    Through employee-led Green Teams, our employees focus on improving sustainability at local offices and provide feedback through our quarterly ADI Pulse engagement survey.    ADI is a proud member of the Responsible Business Alliance and requires our suppliers to adhere to our code of conduct.    ADI continues to fund and support STEM education and local environmental initiatives across the globe.

Our sustainability agenda is led and managed by our Chief Executive Officer alongside a senior management team that includes our Chief People Officer, Chief Financial Officer, Chief Legal Officer, Senior Vice President of Industrial and Consumer, and newly appointed Director of Social Purpose. In addition, our Board of Directors is fully engaged and receives updates from senior management about our progress against our sustainability initiatives.

 


 

24


Table of Contents

We utilize third-party disclosure initiatives to inform our sustainability activities and reporting. Our 2019 Corporate Responsibility Report was prepared in accordance with the Global Reporting Initiative: Core Option and we also report separately to the CDP Climate Change and Water Security projects. Our sustainability activities and reporting are appropriately aligned with the UN Sustainable Development Goals. Going forward, we plan to review other evolving ESG disclosure frameworks (e.g., TCFD and SASB) to better inform our sustainability reports.

We have a long history of leadership in corporate responsibility and pursue corporate social responsibility and sustainability along four pillars—Protect and Regenerate the Environment, Empower People, Impact Through Engagement and Promoting Good Governance.

Protect and Regenerate the Environment—While we are focused on reducing our carbon footprint and our impact on the environment today, we also strive to deliver an even greater environmental impact. Our goal is to make meaningful progress on environmental regeneration efforts and partner with our customers to help them solve their sustainability challenges. We leverage our expertise to develop new solutions to help restore natural resources, regenerate the quality of our biosphere and reduce carbon.

We establish environmental performance objectives using a five-year planning horizon, and make annual updates to our objectives, targets, and programs. For example, key 2025 operational targets for ADI include: 50% greenhouse gas emission reduction over our 2015 baseline; 50% water recycling rate; and 100% renewable energy use for power generation. Progress is reviewed quarterly at the corporate level and monthly at the site level and senior management allocates resources appropriately to help keep programs on plan.

Empower People—We are committed to helping our employees thrive through education, inclusion and support. We are focused on building programs within ADI to enhance our diverse and accepting workplace culture, while also broadening availability of STEM education, training and employment to impoverished communities across the globe.

As we continue to evolve our business offerings and innovate our designs, we are also placing our environmental and social responsibilities at the center of our operations. The empowerment of our people is a key focus area. Our empowerment strategy is led by our new Social Purpose Governance Council, made up of members from across our business units who provide different perspectives across age, gender, ethnicity and sexual orientation. Core to our empowerment strategy is embracing diversity and building a culture of inclusion across the organization. We plan to achieve this by expanding the diversity of our workforce, creating growth and development opportunities for our employees, embracing different perspectives and fostering an inclusive work environment for all.

Impact Through Engagement—ADI takes an active role in addressing problems that impact our employees, our communities and our planet. We stand behind our employee engagement efforts and are proud to contribute to their causes. For example, Analog Devices Foundation, Analog Devices and our employees—through an accelerated employee match—donated a combined $4 million to the World Health Organization’s COVID-19 Solidarity Response Fund. Additionally, the Analog Devices Foundation donated $500,000 to fund research for the Vaccine & Immunotherapy Center, or the VIC, at Massachusetts General Hospital. The donation directly supports work to develop a vaccine and novel point-of-care testing technologies for COVID-19. Analog Devices and the VIC are supporting a trial to deploy new diagnostic testing to identify those infected with COVID-19 and confirm which individuals have developed an immune response and are virus negative.

Promoting Good Governance—We have long believed that good corporate governance is important to ensure Analog Devices is managed for the long-term benefit of our shareholders. We review our corporate governance policies and practices annually and compare them to those suggested by various authorities in corporate governance and the practices of other public companies. As a result, we have adopted policies and procedures that we believe are in the best interests of Analog Devices and our shareholders.

Sustainability is infused into all aspects of how we do business, and we are proud that our sustainability commitment is routinely recognized around the globe, including most recently with the following awards:

Employer Brand

 

 

 The Boston Globe’s Top Places to Work (2017-2020)

  

 Forbes World’s Best Employers (2018-2020)

— Rankings based on employee satisfaction

  

— Rankings based on employee evaluations

 


 

25


Table of Contents

Corporate Reputation

 

 

 Derwent Top 100 Global Innovators (2020)

  

 Shingo Accreditation (2020)

— Awarded to the world’s most innovative organizations which successfully develop patented inventions that also have strong commercialization potential

  

— Global recognition for premier quality and operational excellence; ADI Limerick is the first semiconductor site in the world to achieve this

For more information about our corporate responsibility efforts, please refer to our Corporate Responsibility Report available at analog.com/csr. We are not including the information contained in our Corporate Responsibility Report in, or incorporating it by reference into, this proxy statement.

Director Compensation

Our non-employee director compensation program is designed to attract and retain experienced and knowledgeable directors and to provide equity-based compensation to align the interests of our directors with those of our shareholders. Each non-employee director receives an annual cash retainer and an annual equity award in the form of RSUs. To reflect their additional responsibilities, the Chairs and members of all committees receive an additional cash retainer. The Presiding Director also receives an additional cash retainer. Mr. Roche, as an employee director, does not receive any additional compensation for his services as director.

The Board of Directors has delegated to the Compensation Committee the responsibility to review and recommend to the Board of Directors any proposed changes to non-employee director compensation. Annually, the Compensation Committee reviews with Pearl Meyer, the Compensation Committee’s independent compensation consultant, non-employee director compensation information for our peer group to check the alignment of our non-employee director compensation package with market practice and current trends. The Compensation Committee then makes recommendations to the full Board with respect to compensation of our non-employee directors, and the full Board reviews these recommendations and makes a final determination.

In fiscal 2020 we granted 100% of the value of the annual equity award to each of our non-employee directors in the form of time-based RSUs. These RSUs vest in full on the earlier of the first anniversary of the date of grant or the date of the Company’s next annual meeting of shareholders. On March 11, 2020, we granted each non- employee director 2,210 RSUs for services to be provided from that date until the earlier of the first anniversary of the date of the grant or the Company’s next annual meeting of shareholders. On December 16, 2019, Dr. Wee, who joined the Board in November 2019, was granted 520 RSUs for services to be provided from the date of her initial election as a director through the 2020 annual meeting of shareholders. On September 15, 2020, Dr. Glimcher, who joined the Board in August 2020, was granted 1,060 RSUs for services to be provided from the date of her initial election as a director through the 2021 annual meeting of shareholders.

The following table details the total compensation earned by our non-employee directors in fiscal 2020.

Fiscal 2020 Director Compensation

 

Name

   Fees Earned
or Paid in Cash
($) (1)
    

Stock
Awards ($)

 (2) (3)

     All Other
Compensation
($) (4)
     Total ($)  

James A. Champy

     125,000        203,179               328,179  

Anantha P. Chandrakasan

     90,000        203,179               293,179  

Bruce R. Evans

     95,000        203,179               298,179  

Edward H. Frank

     100,000        203,179               303,179  

Laurie H. Glimcher (5)

     18,750        120,395               139,145  

Karen M. Golz

     95,000        203,179               298,179  

Mark M. Little

     90,000        203,179               293,179  

Neil Novich (6)

     33,929                      33,929  

Kenton J. Sicchitano

     110,000        203,179               313,179  

Ray Stata

     250,000        203,179        15,324        468,503  

Lisa T. Su (6)

     32,143                      32,143  

Susie Wee (7)

     83,571        262,251               345,822  

 


 

26


Table of Contents

 

(1)

This amount includes a $80,000 annual board retainer. An additional annual retainer of $30,000 was paid to the chair of the Audit Committee, an additional annual retainer of $20,000 was paid to the chair of the Compensation Committee and an additional annual retainer of $20,000 was paid to the chair of the Nominating and Corporate Governance Committee. The Presiding Director also received an additional annual retainer of $25,000. The members of the Audit Committee (other than the chair) received an additional annual retainer of $15,000, the members of the Compensation Committee (other than the chair) received an additional annual retainer of $10,000, and the members of the Nominating and Corporate Governance Committee (other than the chair) received an additional annual retainer of $10,000. For fiscal 2020, Mr. Stata, as Chairman of the Board of Directors, received a total annual retainer of $250,000. All cash retainers are paid in quarterly installments each on the 15th day of December, March, June and September of each fiscal year and are pro-rated for a partial year of service. Each director can elect to defer receipt of his or her fees under our Deferred Compensation Plan, or DCP. For more information relating to our DCP, see “Information About Executive Compensation—Non-Qualified Deferred Compensation Plan” below. Dr. Frank elected to defer receipt of his fees under the DCP in fiscal 2020.

(2)

These amounts represent the aggregate grant date fair value of awards for grants of RSUs to each listed director in fiscal 2020. These amounts do not represent the actual amounts paid to or realized by the directors during fiscal 2020. We recognize the fair value as of the grant date for RSUs over the number of days of service required for the award to become vested.

(3)

The aggregate number of stock options and RSUs outstanding held by each non-employee director (representing unexercised stock options and unvested RSUs) at October 31, 2020 is as follows:

 

Name

  

Number of Shares Subject to

Option Awards Held as of

October 31, 2020

     Number of RSUs that have not
Vested as of October 31, 2020
 

James A. Champy

     37,620        2,210  

Anantha P. Chandrakasan

            2,210  

Bruce R. Evans

            2,210  

Edward H. Frank

            2,210  

Laurie H. Glimcher

            1,060  

Karen M. Golz

            2,210  

Mark M. Little

     1,040        2,210  

Neil Novich

             

Kenton J. Sicchitano

     25,760        2,210  

Ray Stata

     37,620        2,210  

Lisa Su

             

Susie Wee

            2,210  

The following table includes the assumptions, rounded to the nearest hundredth, which we used to calculate the grant date fair value amounts included in the “Stock Awards” column for fiscal 2020 Director Compensation.

 

Grant Date

          Assumptions         
           

 

Risk-Free

Interest Rate (%)

    

 

Dividend

Yield (%)

    

 

Grant Date Fair Value
Per Share ($)

 

12/16/2019

     RSUs        1.67        1.82        113.60  

3/11/2020

     RSUs        0.10        2.63        91.94  

9/15/2020

     RSUs        0.13        2.14        113.58  

The grant date fair value of RSUs represents the value of our common stock on the date of grant, reduced by the present value of dividends expected to be paid on our common stock prior to vesting. For a more detailed description of the assumptions used for purposes of determining grant date fair value, see Note 3 to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Stock-Based Compensation,” included in our Annual Report on Form 10-K for the year ended October 31, 2020.

 


 

27


Table of Contents
(4)

The amount represents payment of medical and dental insurance premiums on behalf of Mr. Stata and his spouse.

(5)

Dr. Glimcher joined the Board on August 18, 2020, and in accordance with our Equity Award Grant Date Policy, was granted a pro rata RSU award for her service from August 18, 2020 through our 2021 annual meeting of shareholders.

(6)

Mr. Novich and Dr. Su served on the Board of Directors until their terms ended on March 11, 2020.

(7)

Dr. Wee joined the Board on November 29, 2019, and in accordance with our Equity Award Grant Date Policy, was granted a pro rata RSU award for her service from November 29, 2019 through our 2020 annual meeting of shareholders.

We also reimburse our directors for travel to Board meetings and other related expenses.

Stock Ownership Guidelines for Non-Employee Directors

Under our stock ownership guidelines, the target share ownership level for non-employee directors is at least four times the directors’ annual cash retainer. Directors have four years to achieve their targeted level. Shares subject to unexercised options, whether or not vested, and any shares that have been pledged as collateral for a loan will not be counted for purposes of satisfying these guidelines. Unvested RSUs are counted for purposes of satisfying the guidelines. All of our non-employee directors were in compliance with our stock ownership guidelines as of the end of fiscal 2020.

Equity Award Grant Date Policy for Non-Employee Directors

During fiscal 2020, our Equity Award Grant Date Policy for non-employee directors provided for the following:

 

 

  Each newly elected non-employee director elected other than at an annual meeting of shareholders is granted under the 2020 Equity Incentive Plan an RSU award for a number of shares of our common stock approved by the Board of Directors, on the 15th day of the month following the month of the date of initial election as a director, or if Nasdaq is closed on that day, the next succeeding business day that Nasdaq is open.
  On an annual basis, each non-employee director elected or re-elected at an annual meeting of shareholders is granted under the 2020 Equity Incentive Plan an RSU award for a number of shares of our common stock approved by the Board of Directors, on the date of our annual meeting of shareholders, or if Nasdaq is closed on that day, the next succeeding business day that Nasdaq is open.
 

 

For fiscal 2020, RSUs granted to our non-employee directors under the 2020 Equity Incentive Plan vest on the earlier of the date of the Annual Meeting and the first anniversary of the date of grant, subject to acceleration as described below. The RSU awards vest in full upon the occurrence of a Change in Control Event (as defined in the 2020 Equity Incentive Plan) or the director’s death. If the director ceases to serve as a director by reason of his or her disability, as determined by the Board of Directors, each outstanding and unvested RSU will vest in full at the time he or she ceases to be a director. In addition, upon the occurrence of a Change in Control Event or in the event of the director’s death, disability or retirement after age 60, each vested option will continue to be exercisable for the balance of its term.

Certain Relationships and Related Transactions

Transactions with Related Persons

During fiscal 2020, Mr. Stata, our founder and Chairman of the Board, received a cash retainer for service on the Board of $250,000. Following his retirement as an employee in 2012, the Company agreed to provide medical and dental benefits to Mr. Stata and his spouse during their lifetimes on the same basis as provided to U.S. employees of the Company. The value of those medical and dental benefits in fiscal 2020 was $15,324. On March 11, 2020, we granted 2,210 RSUs to Mr. Stata. This award is identical to the award granted to our other non-employee directors on March 11, 2020 and vests on the earlier of the date of the Annual Meeting or the first anniversary of the grant date.

The Company contributes annually to Massachusetts Institute of Technology (MIT) to fund university research projects. In fiscal 2020, the Company made approximately $1.6 million in total contributions to MIT of which $120,000 funded a graduate student working in Dr. Chandrakasan’s laboratory.

 


 

28


Table of Contents

Policies and Procedures for Related Person Transactions

Our Board of Directors has adopted written policies and procedures for the review of any transaction, arrangement or relationship in which Analog Devices is a participant, the amount involved exceeds $120,000, and one of our executive officers, directors, director nominees or 5% shareholders (or their immediate family members), each of whom we refer to as a “related person” has a direct or indirect material interest.

If a related person proposes to enter into such a transaction, arrangement or relationship, which we refer to as a “related person transaction,” the related person must report the proposed related person transaction to our Chief Legal Officer. The policy calls for the proposed related person transaction to be reviewed and, if deemed appropriate, approved by the Nominating and Corporate Governance Committee. Whenever practicable, the reporting, review and approval will occur prior to entry into the transaction. If our Chief Legal Officer determines that advance review and approval is not practicable, the Nominating and Corporate Governance Committee will review, and, in its discretion, may ratify the related person transaction at the next meeting of the Nominating and Corporate Governance Committee. The policy also permits the Chairman of the Nominating and Corporate Governance Committee to review and, if deemed appropriate, approve proposed related person transactions that arise between committee meetings, subject to ratification by the Nominating and Corporate Governance Committee at its next meeting. Any related person transactions that are ongoing in nature will be reviewed annually.

A related person transaction reviewed under the policy will be considered approved or ratified if it is authorized by the Nominating and Corporate Governance Committee after full disclosure of the related person’s interest in the transaction. As appropriate for the circumstances, the Nominating and Corporate Governance Committee will review and consider:

 

 

  the related person’s interest in the related person transaction;

 

  the approximate dollar value of the amount involved in the related person transaction;

 

  the approximate dollar value of the amount of the related person’s interest in the transaction without regard to the amount of any profit or loss;

 

  whether the transaction was undertaken in the ordinary course of our business;
  whether the terms of the transaction are no less favorable to us than the terms that could have been reached with an unrelated third party;

 

  the purpose of, and the potential benefits to us of, the transaction; and

 

  any other information regarding the related person transaction or the related person in the context of the proposed transaction that would be material to investors in light of the circumstances of the particular transaction.
 

 

The Nominating and Corporate Governance Committee may approve or ratify the transaction only if the Nominating and Corporate Governance Committee determines that, under all of the circumstances, the transaction is in Analog Devices’ best interests. The Nominating and Corporate Governance Committee may, in its sole discretion, impose any conditions on us or the related person in connection with approval of the related person transaction.

In addition to the transactions that are excluded by the instructions to the SEC’s related person transaction disclosure rule, the Board of Directors has determined that the following transactions do not create a material direct or indirect interest on behalf of related persons and, therefore, are not related person transactions for purposes of this policy:

 

 

  interests arising solely from the related person’s position as an executive officer of another entity (whether or not the person is also a director of that entity), that is a participant in a transaction, where (a) the related person and all other related persons own in the aggregate less than a 10% equity interest in the entity, (b) the related person and his or her immediate family members are not involved in the
   

negotiation of the terms of the transaction and do not receive any special benefits as a result of the transaction, and (c) the amount involved in the transaction equals less than the greater of $200,000 or 5% of the annual gross revenues of the company receiving payment under the transaction; or

 

  the transactions that are specifically contemplated by provisions of Analog Devices’ charter or bylaws.
 

 

The policy provides that the transactions involving compensation of executive officers shall be reviewed and approved by the Compensation Committee in the manner specified in its charter.

 


 

29


Table of Contents

 

u  

 

Proposal 2

 

Advisory Vote on the Compensation of Our Named Executive Officers

Our Board of Directors unanimously recommends that you vote   LOGO FOR  approval of the compensation of our named executive officers as disclosed in this proxy statement.

We are requesting shareholder approval of the compensation of the executive officers named in our Summary Compensation Table below, who we refer to as our “named executive officers” or “NEOs.” We are required to provide our shareholders with the opportunity to vote to approve, on an advisory (non-binding) basis, the compensation of our NEOs as disclosed in this proxy statement in accordance with the SEC’s rules. At the 2017 annual meeting of shareholders, our shareholders voted in favor of holding future “say on pay” votes every year. In accordance with the results of that vote, our Board of Directors determined to submit “say on pay” proposals to our shareholders every year.

Our Board of Directors is asking shareholders to approve the following non-binding advisory resolution:

RESOLVED, that the compensation paid to the Company’s NEOs, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and accompanying narrative disclosures in this proxy statement, is hereby approved.

As required by the Dodd-Frank Act, this is an advisory vote, which means that this proposal is not binding on us. Our Compensation Committee, however, values the opinions expressed by our shareholders and will carefully consider the outcome of the vote when making future compensation decisions for our NEOs. You may vote for, against or abstain from voting on this matter. At our 2020 annual meeting of shareholders, our compensation program for our NEOs received the support of 95.9% of the total votes cast. In light of the support received, our Compensation Committee did not make significant changes to our executive compensation program.

As described in detail in the “Compensation Discussion and Analysis” section of this proxy statement, ADI’s executive compensation program is significantly performance-based and designed to attract, retain and motivate strong executives to lead our complex, global organization and to align their interests with those of our shareholders. We seek to provide total compensation to our executives that is competitive with our peers, and we believe that our executive compensation program is designed to encourage the most talented individuals to grow their careers at ADI.

ADI has a longstanding philosophy and practice of paying executives for performance. In order to align our pay practices with shareholder interests, we tie a significant percentage of each executive’s compensation to the Company’s performance, in the form of variable cash incentive bonus payments, and equity awards that are subject to performance vesting and rise in value only if our stock price increases. While fiscal 2020 represented a year of strategic progress for ADI, our results were partly impacted by the economic volatility and supply chain disruptions related to the COVID-19 pandemic. We actively managed operating expenses, and for fiscal 2020, we delivered reported operating margins of 26.7% and adjusted operating margins of 39.9%. Revenue was $5.6 billion in fiscal 2020, down modestly year-over-year. Importantly, we saw continued improvement quarter to quarter as evidenced by our second half revenue increasing 14% when compared to the first half. We exceeded our profitability target but did not meet our revenue growth target under our executive performance incentive bonus plan, which resulted in aggregate payments under the plan made at 77% of target, compared to 95% in fiscal 2019 and 183% in fiscal 2018.

We believe that our executive compensation program is working as intended and appropriately aligns executive pay with Company performance.

 


 

30


Table of Contents

Information About

Executive Compensation

Compensation Discussion and Analysis

We intend to provide compensation for our executives that is competitive with our peers, with an opportunity for increased compensation if the Company’s performance warrants. We have designed our compensation program to make a substantial percentage of our executive pay variable, subject to increase when corporate targets are overachieved and reduction when corporate targets are not reached. The elements of our executives’ total compensation are base salary, variable cash incentive awards, long-term equity compensation awards and retirement and other employee benefits.

This Compensation Discussion and Analysis, or CD&A, and the tables and narrative that follow provide important information about our executive officer compensation program for fiscal 2020. In this proxy statement, the terms “named executive officers” or “NEOs” refer to the following individuals who served as executive officers during fiscal 2020:

 

 

Named Executive Officer

 

 

 

Position

 

Vincent Roche

  President and Chief Executive Officer

Prashanth Mahendra-Rajah

  Senior Vice President, Finance and Chief Financial Officer

Martin Cotter

  Senior Vice President, Worldwide Sales and Digital Marketing

John Hassett

  Senior Vice President, Industrial and Consumer

Steve Pietkiewicz

  Senior Vice President, Power Products

Fiscal 2020 Financial Results and Shareholder Value Creation

In fiscal 2020, ADI delivered solid financial results against a backdrop of challenging macroeconomic conditions, including disruptions caused by the COVID-19 pandemic and ongoing trade uncertainty. Importantly, we made progress positioning ADI for continued long-term success through deepening our customer engagements, continuing to invest in our business to drive innovation, extracting value from recent acquisitions and capitalizing on secular trends to drive addressable markets and diversified growth. We also announced the proposed acquisition of Maxim Integrated Products, Inc., which if completed will strengthen ADI as a semiconductor leader with increased breadth and scale across multiple attractive end markets. We also demonstrated our commitment to deliver strong shareholder returns during fiscal 2020, returning approximately $1.1 billion to our shareholders in the form of dividends and share buybacks.

Fiscal 2020 Performance Highlights

 

$5.6B

 

Revenue

   

65.9%

 

Gross

Margins

   

26.7%

 

Operating Margins

   

$3.28

 

Diluted Earnings

per Share

   

$2.0B

 

Operating

Cash Flow

 

~90%

 

Business- to-Business

Revenue

 

 

 

69.1%

 

Adjusted

Gross

Margins*

 

 

 

39.9%

 

Adjusted Operating Margins*

 

 

 

$4.91

 

Adjusted Diluted Earnings

per Share*

 

 

 

$1.8B

 

Free

Cash Flow*

 

 

 

*

See Additional Information for additional information regarding non-GAAP financial measures and reconciliations of non-GAAP financial measures to their most directly comparable GAAP financial measures

 


 

31


Table of Contents
Fiscal 2020 Shareholder Value Creation     

 

LOGO

 

 

LOGO

 

  LOGO

 

Returned $1.1B to shareholders

in the form of dividends and

share repurchases

 

Increased our dividends per

share paid to shareholders by

15% on an annualized basis

  1-, 3- and 5-year TSR1 of 12%, 38% and 121%,
respectively, which outperformed the S&P 500
over the same periods

 

1.

Total Shareholder Return, or TSR, calculation is share price appreciation plus cumulative cash dividend payments, and the effect of reinvesting those dividends into the security, for the one-, three- and five-year periods ended October 31, 2020.

Our executive compensation program is designed to attract and retain top executive talent and align the interests of our executives and our shareholders. We accomplish this through the following steps:

 

LOGO

 

 

LOGO

 

 

LOGO

 

First, we ensure our executive

compensation is competitive and attracts and retains top executive talent by understanding how the total target compensation (consisting of salary, bonus, and equity awards) of our NEOs compares to the total target compensation of those in similar positions within our peer group.

  We then consider a variety of factors, including the scope of the role, tenure in the position, and the performance and experience of the individual when deciding how to position each NEO’s total target compensation to the total target compensation of those in similar positions within our peer group.  

We structure our compensation

package to align executives’ interests with those of our shareholders by tying a significant portion of their total compensation directly to ADI’s short- and long-term performance. For the NEOs this is measured by OPBT, OPBT margin, year-over-year revenue growth, absolute stock price appreciation, and relative total shareholder return, which all drive shareholder value.

Pay and Governance Best Practices

Our pay and governance practices are designed to align our executives’ interests with our shareholders. For example:

 

 

 

 Our cash incentive bonus awards are based solely on our financial performance

 

 A significant portion of equity awards are contingent upon long-term performance achievement

 

 Incentive awards are tied to rigorous performance targets aligned with our corporate strategy

 

 Payout for relative TSR-based awards capped at target for instances of negative absolute TSR

  

 We recently adopted a clawback policy for all executive officers in the event of a material financial restatement due to fraud or willful misconduct

 

 We have a specific policy regarding the grant dates of stock options, RSUs and other stock-based awards for our directors, executive officers and employees

 

 We have stock ownership guidelines for all officers and directors

 

 We prohibit hedging and pledging of ADI securities

 

 Annual “say on pay” vote

 


 

32


Table of Contents

Pay for Performance

A significant portion of the total target compensation for our executives is in the form of variable, performance-based incentive compensation, with only a small portion of the total target compensation provided in the form of “fixed” compensation. We believe this provides our executives an opportunity to earn above peer average compensation if ADI delivers strong results, and conversely, if the Company delivers weaker results, our executives would earn less compensation. The target pay mix for our NEOs for fiscal 2020 is shown below:

 

LOGO

The pay mix charts above are based on target compensation consisting of the annual rate of base salary and short-term and long-term incentive targets approved by the Compensation Committee. For more information about the components of the performance and incentive pay mix for our Named Executive Officer Compensation, see “Compensation Discussion and Analysis—Components of Executive Compensation.”

Summary of Direct Compensation Elements

We provide a mix of compensation elements that support our goals of attracting and retaining top executive talent and incentivizing our key performance objectives in the short- and long-term.

 

Pay Element

 

   

 

  LOGO  

 

 

Purpose

 

 

 

  LOGO  

 

Time Period

 

 

 

  LOGO  

 

Performance Measures

 

 Base Salary

   

 Attract and retain executive talent

 

   

 Annual

 

     

 Variable Cash Incentive

   

 Motivate and reward executives for achieving short-term Company financial objectives aligned with value creation

   

 Paid semi-annually, with quarterly corporate financial targets tied to corporate strategy of profitable growth

   

 50%: quarterly OPBT margin

 

 50%: year over year revenue growth (measured quarterly)

 

 Minimum OPBT margin required for payout

 Annual Long-Term Incentives

 

 TSR PRSUs – 25%

   

 Align NEO and shareholder interest to drive superior relative TSR results

   

 Cumulative three-year period

   

 Relative TSR compared to comparator group

 

 Payouts capped at target if absolute TSR is negative

   

 Financial Metric PRSUs – 25%

   

 Align NEO and shareholder interests with long-term profitability

   

 One-year, two-year cumulative and three-year cumulative time periods

   

 Operating profit ($)

   

 Stock Options – 25%

   

 Align NEO and shareholder interests in absolute stock price appreciation

   

 Four year graded vesting

 

 10 year term

   

 Absolute stock price appreciation

   

 RSUs – 25%

   

 Retain key executives

   

 Four year graded vesting

   

 None

 

OPBT

= Operating Profit Before Taxes. TSR = Total Shareholder Return

 


 

33


Table of Contents

Factors Considered in Determining Fiscal 2020 Target Compensation Levels

Chief Executive Officer Pay Determination. Mr. Roche has served as our Chief Executive Officer since May 2013. Under his leadership, the Company has successfully executed its financial, strategic and operational objectives intended to drive long-term profitable growth and increase shareholder value. In determining Mr. Roche’s compensation as Chief Executive Officer for fiscal 2020, the Compensation Committee considered all elements of Mr. Roche’s compensation and compared his total target compensation to the median of Chief Executive Officer compensation of our peer companies. The Committee also considered Mr. Roche’s experience, tenure, and performance executing the Company’s strategy and driving long-term shareholder value. The design of Mr. Roche’s fiscal 2020 compensation provided incentives that linked realized compensation with Company performance.

Pay Determination for other Named Executive Officers: In determining fiscal 2020 compensation to Messrs. Mahendra-Rajah, Cotter, Hassett and Pietkiewicz, including base salary levels, annual incentive payout targets, and fiscal 2020 equity grants, the Compensation Committee considered the executive’s individual responsibilities and other factors including their performance, tenure and market data, and benchmark information from our peer group.

Components of Executive Compensation

For fiscal 2020, compensation for our executive officers consisted of the following principal elements:

 

Base Salary

 

 

 

  LOGO  

 

Cash Incentive

Bonus Award

 

 

 

  LOGO  

 

Long-term Equity Compensation

 

 

 

  LOGO  

 

Retirement and Other Employee Benefits

 

 Attract and retain executive talent

 

 Provide stable source of income

   

 Link pay and short-term Company performance

 

 Motivate and reward executives for achieving short-term Company financial objectives aligned with value creation

   

 Link pay and long- term Company performance

 

 Align the interests of executives with shareholders by rewarding long-term stock price appreciation

   

 Retain executive talent by providing financial protection and security

Base Salary

We use salaries for similar positions within our peer group as an important factor in setting a base salary that can attract and retain talent. When setting the fiscal 2020 base salary for each individual NEO, the Compensation Committee also considered other factors, including the scope of the role and the performance and experience of the individual.

Fiscal 2020 Executive Performance Incentive Plan

In September 2019, the Compensation Committee approved the terms of our executive performance incentive plan for fiscal 2020. The plan is designed to be variable, depending on ADI’s operating results.

All executive officers, including our NEOs, participated in our fiscal 2020 executive performance incentive plan. We calculated and paid bonuses under the fiscal 2020 plan as follows:

 

 

LOGO

 


 

34


Table of Contents

Individual Target Bonus Percentage. For fiscal 2020, the Compensation Committee set target percentages of 150% of base salary for our Chief Executive Officer and 100% of base salary for our other NEOs. The Compensation Committee selected these target bonus percentages to ensure that a substantial portion of each NEO’s cash compensation is performance-based and linked directly to our business performance, and to ensure that total compensation is competitive with those in similar positions within our peer group. Setting our Chief Executive Officer’s target at 150% also ties the majority of his cash compensation directly to Company performance.

Bonus Payout Factor. For fiscal 2020, we based the Bonus Payout Factor for the applicable quarterly bonus period on our OPBT margin and year-over-year revenue growth compared to the same quarter in the prior year. While our executive performance incentive plan contains quarterly performance targets, the Compensation Committee designed this plan to drive long-term performance. The targets are directly linked to our long-term corporate strategy of profitable growth, which drives shareholder value. We believe this combination ensures that we encourage a long-term focus on our business objectives, while measuring and rewarding progress against those objectives on a quarterly basis.

The Compensation Committee reviews and approves our performance targets, and historically these targets have not been re-set during the performance period, regardless of Company performance or economic conditions. We believe that this approach fosters accountability for our business results and is in keeping with our core belief that variable compensation expense, which increases when our performance is good and contracts when it is poor, gives us maximum flexibility to operate our business. While the OPBT margin and year-over-year revenue growth targets are typically set annually, we measure performance against those targets on a quarterly basis, applying the corresponding Bonus Payout Factor to base salary for that quarter, and pay the bonus amounts to our NEOs on a semi-annual basis following the end of the second and fourth quarters.

In setting performance targets for our executive performance incentive plan, multiple factors are considered including our actual past business results, estimates of multi-year performance from our long-term strategic planning, and the performance of market competitors. Based on our evaluation of these factors1, the Compensation Committee determined that our fiscal 2020 OPBT margin and year-over-year revenue growth targets would remain the same as fiscal 2019 and that these quarterly performance targets were sufficiently rigorous and consistent with the Company’s long-term financial model.

The Compensation Committee implemented the following targets for fiscal 2020:

 

 

50% of Bonus Based on

OPBT Margin

 

Bonus Payout  

Factor  

 

50% of Bonus Based  

on Revenue Growth  

 

Bonus Payout  

Factor  

£36%

  0%     £0%     0%  

39%

  100%     5%     100%  

42%

  200%     10%     200%  

³45%

  300%     ³15%     300%  

We also have a floor on the OPBT margin target so that profitability at or below 36% will result in no bonus payments for that performance period, regardless of revenue growth levels.

While fiscal 2020 represented a year of strategic progress for ADI, our results were partly impacted by the economic volatility and supply chain disruptions related to the COVID-19 pandemic. We actively managed operating expenses, and for fiscal 2020, we delivered reported operating margin of 26.7% and adjusted operating margin of 39.9%. Specifically, while performance against our quarterly profitability targets was between threshold and target for the first half of fiscal 2020, we met or exceeded our quarterly profitability targets in the second half of the year. Revenue was $5.6 billion in fiscal 2020, down modestly year-over-year. Importantly, we saw continued improvement quarter to quarter as evidenced by our second half revenue

 

(1)

Note: The Compensation Committee may adjust the OPBT margin and year-over-year revenue growth metrics in its sole discretion to exclude special items such as (but not limited to) restructuring-related expense, acquisition-related expense, amortization of intangibles, gain or loss on disposition of businesses, non-recurring royalty payments, and other similar non-cash or non-recurring items. The Compensation Committee may, in its discretion, exclude these items in order to prevent payments under the plan from being adversely or advantageously affected by special items. For purposes of determining the Bonus Payout Factor for each quarter of fiscal 2020, OPBT margin was adjusted to exclude acquisition-related expenses, acquisition-related transaction costs, charitable foundation contribution and restructuring-related expenses, consistent with the non-GAAP adjustments included in our fiscal 2020 quarterly earnings releases.

 


 

35


Table of Contents

increasing 14% when compared to the first half. As a result, we exceeded our year-over-year revenue growth target in the fourth quarter but did not meet our year-over-year revenue growth targets for the remainder of fiscal 2020. For a summary of our fiscal 2020 financial results, see page 31 of this proxy statement. For fiscal 2020, the calculated OPBT Margin, Year-Over-Year Revenue Growth and Bonus Payout Factor under our executive performance incentive program for each quarter were as follows:

 

Quarter

   OPBT Margin (50% weight)          Revenue Growth (50% weight)      Quarterly Bonus Payout  
Factor (average)  
    

 

OPBT Margin (by
quarter)

   Bonus Payout  
Factor (by quarter)  
       YOY Revenue  
Growth (by quarter)  
   Bonus Payout Factor  
(by quarter)  

Q1

   36.9%      30%          (15.4)%      0%      15%  

Q2

   38.0%      68%          (13.8)%      0%      34%  

Q3

   42.3%      210%          1.6%      0%      105%  

Q4

   41.7%      190%          5.8%      115%      153%  

Aggregate payments under our executive performance incentive plan were made at 77% of target, compared to 95% in fiscal 2019 and 183% in fiscal 2018.

Base Salary and Individual Target Bonus Percentages

During fiscal 2020, the Compensation Committee approved base salaries and target bonus percentages for our NEOs as specified in the table below:

 

             

Name of Executive

  Fiscal
2020
Base
Salary
    Fiscal
2019
Base
Salary
    %
Increase
    Fiscal 2020
Individual
Target Bonus
as % of
Base Salary
    Fiscal 2019
Individual
Target Bonus
as % of
Base Salary
    %
Increase
 

Vincent Roche

President &
Chief Executive Officer

  $ 1,050,000     $ 1,050,000       0%       150%       150%       0%  

Prashanth Mahendra-Rajah

Senior Vice President, Finance

and Chief Financial Officer

  $ 575,000     $ 575,000       0%       100%       100%       0%  

Martin Cotter

Senior Vice President, Worldwide

Sales & Digital Marketing

  $ 460,000     $ 460,000       0%       100%       100%       0%  

John Hassett

Senior Vice President,

Industrial and Consumer

  $ 475,000     $ 475,000       0%       100%       100%       0%  

Steve Pietkiewicz

Senior Vice President,

Power Products

  $ 450,000     $ 450,000       0%       100%       90%       11%  

In March 2020, as part of our standard annual review cycle, the Compensation Committee reviewed the base salaries and individual target bonus for our NEOs. They considered several factors, including their performance, tenure, job responsibilities, market benchmark information from our peer group and the uncertainties to the broader economy resulting from the COVID-19 pandemic. The Compensation Committee decided to make no changes to base salary and bonus targets for the NEOs in 2020, with the exception of an increase to the individual target bonus for Mr. Pietkiewicz.

Equity Compensation

Our equity compensation program is a broad-based, long-term employee rewards program that is intended to attract, retain and motivate our employees, officers and directors and to align their interests with those of our shareholders. We believe that our equity program is critical to our efforts to hire and retain the best talent in the extremely competitive analog semiconductor industry. All equity awards granted to our executive officers in fiscal 2020 were made under the Company’s 2020 Equity Incentive Plan, or the 2020 Plan.

 


 

36


Table of Contents

Equity Mix. A significant amount of our executives’ total compensation is in the form of equity awards, the value of which is directly tied to our stock price performance over the long term. In fiscal 2020, approximately 73% of the average total target compensation of our NEOs was in the form of equity.

In fiscal 2020, the form and mix of equity awards delivered as part of our annual equity award program for our NEOs was as follows:

 

Equity

Award Type

 

Value of

Annual

Grant

 

Purpose

 

Time Period

 

Performance

Metrics

 

Payout

Relative TSR PRSUs

 

25%

 

Align NEOs’ and shareholders’ interests to drive superior TSR relative to comparison group

 

3-year performance period. Earned shares

(if any) vest 3 years + 14 days after grant date

 

ADI’s 3-year TSR com- pared to median of a comparator group

 

0-200%

Financial Metric

PRSUs

 

25%

 

Align NEOs’ and shareholders’

interests in long-term profitability

 

1-year, 2-year cumulative and 3-year cumulative performance periods; earned shares (if any)
vest on 3rd anniversary
of grant date. 3-year
cliff vesting

 

1-year, 2-year cumulative and
3-year cumulative operating profit
(in dollars)

 

0-200%

Stock Options

 

25%

 

Align NEOs’ and shareholders’ interests
in absolute stock
price appreciation

 

  4-year graded vesting

  10-year term

 

Absolute stock price appreciation

 

100% Value
only delivered
if stock price appreciates

Time-Based RSUs

 

25%

 

Retain key executives

 

4-year graded vesting

 

None

 

100% Value
in line with stock price performance

Equity Vehicle Structure

PRSUs. For fiscal 2020, approximately 50% of our annual equity awards to our NEOs were in the form of PRSUs. Our fiscal 2020 equity compensation program includes two types of PRSUs for our executives, relative TSR PRSUs and financial metric PRSUs, to ensure that a direct link exists between the value of our long-term incentives and the value that is created for our shareholders.

Relative TSR PRSUs. The number of shares of ADI common stock received by an executive officer following vesting of the relative TSR PRSUs will range from 0% to a maximum of 200% of the target amount based on ADI’s TSR performance measured against the median TSR of an established comparator group over a three-year period, capped at a maximum of 100% of the initial number of PRSUs granted if the Company’s TSR is negative. For fiscal 2020, the performance parameters established by the Compensation Committee were equal to 100% plus or minus one and one-half times the difference between the Company’s TSR and the comparator group median TSR. This means that 0% of an award will vest if ADI’s TSR is -66.67% or lower than the TSR of the median company in the comparator group. Equally, an award will vest at a maximum 200% if ADI’s TSR is +66.67% or higher than the TSR of the median company in the comparator group. Attainment within performance parameters is subject to interpolation on a linear basis.

The comparative peer group consists of companies represented in the Philadelphia Semiconductor Index (SOX Index) as of the grant date that are included in the SOX Index for the entire performance period. The Compensation Committee chose this comparator group because it consists of publicly traded companies, which compete in the semiconductor industry, are representative of likely alternative investment opportunities for our investors, compete with us for talent, and are similar to ADI in their product and services offerings and business models. Consistent with our Compensation Committee’s desire to tie pay to performance, the value of each of these awards is directly linked to the long-term performance of our stock price.

2017-2020 TSR PRSUs Payouts. The relative TSR PRSUs granted on March 8, 2017 had a three-year performance period that ended on March 8, 2020. The comparator group designated by the Compensation Committee for the relative TSR PRSUs granted in fiscal 2017 once again consisted of the companies represented in the SOX Index as of the grant date that are included in the SOX Index for the entire performance period. On a three-year cumulative basis, our TSR performance was 53.03%, compared to the median comparative peer group TSR of 68.06%. The median comparative peer group TSR performance exceeded the Company’s TSR performance, which resulted in a payout percentage of 69.94% of target.

 


 

37


Table of Contents

Financial Metric PRSUs. Beginning in fiscal 2019, the Compensation Committee has included financial metric PRSUs, based on non-GAAP operating profit in dollars, for our executives to incentivize long-term profitable growth measured over one-year, two-year cumulative and three-year cumulative time periods. The Compensation Committee selected this metric because it is a key measure that executives use both internally to drive business decisions and externally when speaking to investors about Company results and progress against execution of the Company’s strategy. The number of shares of ADI common stock received by an executive officer following vesting of the financial metric PRSUs will range from 0% to a maximum of 200% of the target amount based on the Company’s one-year, two-year cumulative and three-year cumulative non-GAAP OPBT targets set by the Compensation Committee, measured as a dollar value. The Compensation Committee will determine the level of achievement of each tranche of financial metric PRSUs after the completion of each of the one-year, two-year cumulative and three-year cumulative performance periods. After such determination, the number of shares of ADI common stock earned by an executive remains subject to a time-based service requirement and will vest on the third anniversary of the grant date, subject to the executive’s employment through such date.

In December 2020, the Compensation Committee determined the level of achievement of the current financial metrics PRSU grants as follows:

2019-2021 Financial Metric PRSUs: The targets were set at the beginning of fiscal 2019, and the awards were granted in March 2019. The Compensation Committee reviewed the achievement of the second tranche of these awards, covering the two-year cumulative non-GAAP operating profit for fiscal 2019 and fiscal 2020, and determined that the attainment threshold had not been met, resulting in 0 shares being earned by the Company’s executives under this incentive compensation vehicle for that period.

2020-2022 Financial Metric PRSUs: The targets were set at the beginning of fiscal 2020, and the awards were granted in March 2020. The Compensation Committee reviewed the achievement of the first tranche of these awards, covering the one year non-GAAP operating profit for fiscal 2020, and determined that with a non-GAAP operating profit of $2.234 billion which was above the non-GAAP operating profit target attainment level of $2.143 billion and below the non-GAAP operating profit maximum attainment level of $2.250 billion, 185% of the shares subject to the first tranche were earned by the Company’s executives under this incentive compensation vehicle for that period.

Stock Options. We use stock options as a way to reward long-term value creation. Stock options granted to the NEOs in fiscal 2020 will vest 25% per year on each of the first four anniversaries of March 15, 2020 and are subject to a 10 year term.

Time-Based RSUs. In a volatile stock market, time-based RSUs continue to provide value when stock options may not, which the Compensation Committee believes will be useful in retaining talented executives and employees in uncertain economic times. In this way, we use time-based RSUs as a retention tool and to enable our executives to accumulate stock ownership in the Company. Time-based RSUs granted to the NEOs in fiscal 2020 will vest 25% per year on each of the first four anniversaries of March 15, 2020.

Equity Awards Granted in Fiscal 2020

In fiscal 2020, the Compensation Committee granted equity awards to our NEOs as follows:

 

Name

   Stock
Options
    

Time-

based

RSUs

    

Relative

TSR

PRSUs

     Financial
Metric
PRSUs
     Total Grant
Date
Fair Value
 

Vincent Roche

     134,620        27,368        27,368        27,368        $9,990,987  

Prashanth Mahendra-Rajah

     35,001        7,116        7,116        7,116        $2,597,741  

Martin Cotter

     24,232        4,927        4,927        4,927        $1,798,594  

John Hassett

     24,232        4,927        4,927        4,927        $1,798,594  

Steve Pietkiewicz

     24,232        4,927        4,927        4,927        $1,798,594  

 

 


 

38


Table of Contents

Recent Special Equity Awards

2017 Linear Integration PRSUs. To promote the successful integration of Linear Technology Corporation, or Linear Technology, and the achievement of the Company’s synergy goals, in July 2017, the Compensation Committee approved the grant of the Linear Integration Performance-Based Restricted Stock Units, or the Linear Integration PRSUs, to members of the Company’s senior executive team, other than our Chief Executive Officer.

The Linear Integration PRSUs were subject to the achievement of a pre-established performance goal based on the trailing twelve month non-GAAP OPBT as a percentage of revenue of the Company, determined as of the end of the second quarter of fiscal 2020. In June 2020, the Compensation Committee certified that the non-GAAP OPBT as a percentage of revenue goal of 39% had been attained and as a result 120% of the target number of Linear Integration PRSUs became subject to vesting for each participant.

Under the terms of the Linear Integration PRSUs, the Compensation Committee was permitted to exercise discretion to reduce (but not increase) the number of Linear Integration PRSUs that would otherwise vest based on the attainment level of the following two additional performance goals: (i) 50% of the Linear Integration PRSUs were subject to negative discretion based on the attainment level of the pre-established net synergy goal achieved in connection with the acquisition of Linear Technology within eighteen months of the closing of the acquisition; and (ii) 50% of the Linear Integration PRSUs were subject to negative discretion based on the attainment level of the pre-established three-year cumulative revenue goal of Linear Technology on a standalone basis.

In September 2019, the Compensation Committee determined that the Company had achieved the net synergy goal at the 120% maximum attainment level. In June 2020, the Compensation Committee determined that the cumulative revenue goal would have been met at the 80% attainment level but for a two-week shipping delay in orders due to the COVID-19 pandemic. Given the duration of, and reason for, the two-week delay, the Compensation Committee concluded that the participants had demonstrated achievement of the underlying integration and synergy objectives of the Linear Integration PRSUs and determined that, for purposes of exercising negative discretion, it would treat the cumulative revenue goal as having been satisfied at the 80% level. Accordingly, the Compensation Committee reduced the number of Linear Integration PRSUs issuable from 120% to 100% of the target number. The shares were issued on July 17, 2020 to all participants who remained employed as of that date.

CEO Performance Stock Option Award

In December 2020, the Compensation Committee approved the grant of a special performance stock option award, which we refer to as the CEO Performance Stock Option Award, to Mr. Roche.

Since Mr. Roche’s tenure as CEO began in 2013, the Company’s total shareholder returns have increased 284% (vs. S&P 500 of 168%, or 1.7x S&P 500 over that time), and the Company’s market capitalization has increased by $40 billion. The CEO Performance Stock Option Award was granted to provide Mr. Roche with a strong incentive to create sustained exceptional growth in the Company and its stock price. The award carries a long-term performance period and rigorous stock price hurdles.

Before granting the CEO Performance Stock Option Award, the Compensation Committee considered the following factors:

 

 

 

 

the key role that Mr. Roche has played in leading and transforming ADI since he became CEO in 2013;

 

 

the rapid changes and consolidation taking place within the semiconductor industry and the constant need to transform and grow within this highly competitive environment;

 

 

Mr. Roche’s unique depth of understanding of ADI, strength of leadership capability and vision to drive the long-term corporate strategy and continued success of the Company; and

 

 

the importance of continuing to motivate and reward continued exceptional shareholder value creation over an extended timeframe and aligning Mr. Roche’s interests with those of our shareholders.

The CEO Performance Stock Option Award is exercisable for up to 460,000 shares of our common stock, or the Target Number of Shares, at an exercise price per share of $144.06 (which was the closing price of our common stock on the date of grant of the CEO Performance Stock Option Award) and vests subject to the satisfaction of certain challenging target price thresholds during a five-year period. The CEO Performance Stock Option Award was granted to Mr. Roche in addition to his annual equity awards for fiscal 2021.

 


 

39


Table of Contents

The target price thresholds, and the number of shares underlying the CEO Performance Stock Option Award that will become exercisable as a result of the attainment of each threshold, are set forth below. To determine meaningful but challenging target price thresholds, the Compensation Committee established a baseline stock price of $122.72, which was calculated as the 70-trading day average closing stock price on November 30, 2020. The target price thresholds were chosen to reward significant growth from our baseline stock price. The actual number of shares that will become exercisable will range from 0 to a maximum of 100% of the Target Number of Shares based on the attainment of such target price thresholds at any time during a five-year period from December 15, 2020 to December 15, 2025.

 

Target Price Threshold

  Share price % increase vs
baseline stock price of $ 122.72  
  Number of Shares Exercisable as a
Percentage of Target Number of Shares  

$180 per share

  47%   33%

$200 per share

  63%   66%

$220 per share

  79%   100%

A given target price threshold will be met, and the shares underlying the CEO Performance Stock Option Award that are associated with such threshold will become exercisable, when our average closing stock price over 70 consecutive trading days is equal to or exceeds the threshold. If a threshold is attained, the earned number of shares will become exercisable one year after the attainment date, or if earlier, on December 15, 2025, in each case provided that Mr. Roche continues to serve as our CEO (or in a substantially similar role as determined by our Board) on the applicable vesting date. There is no linear interpolation between target price thresholds and a threshold may be met only once.

The CEO Performance Stock Option Award, designed by the Compensation Committee in consultation with Pearl Meyer, its independent compensation consultant, emphasizes sustainable shareholder value creation over time. The Compensation Committee specifically determined to issue this award in the form of stock options such that Mr. Roche will only realize value from the award if significant increases in our stock price are sustained, thereby closely aligning with shareholder interests.

Maxim Integration PRSUs

To promote the successful integration of Maxim Integrated and the achievement of the Company’s synergy goals, in December 2020, the Compensation Committee also approved the award of PRSUs, or Maxim Integration PRSUs, to a select group of key employees, including the following NEOs, but excluding the CEO: 19,443 Maxim Integration PRSUs for Mr. Mahendra-Rajah, 13,460 Maxim Integration PRSUs for Mr. Hassett, and 13,460 Maxim Integration PRSUs for Mr. Cotter. The recipients of the Maxim Integration PRSUs are key decision makers who have a responsibility to drive integration and cost synergy. The Maxim Integration PRSUs were granted in addition to the recipients’ annual equity awards for fiscal 2021.

The number of Maxim Integration PRSUs that may be earned will range from 0 to a maximum of 200% of the target amount of Maxim Integration PRSUs, or the Target Amount, and will be determined according to the achievement of three performance metrics set forth below. Any shares earned will vest on the 60th day following the period from December 15, 2020 until the two-year anniversary of the closing of the Maxim acquisition, or the Performance Period. If the Maxim acquisition does not close, the awards will be cancelled. The performance metrics are designed to incentivize the achievement of stretch targets with respect to both the magnitude of cost synergies and the speed of delivery:

 

 

Operating Profit Goal: As a gatekeeping hurdle, the combined company must maintain a minimum average non-GAAP OPBT for the last four fiscal quarters completed as of the end of the Performance Period as a percentage of revenue. If this requirement is not met, then no Maxim Integration PRSUs will vest.

 

 

Synergy Performance Goal: Provided the Operating Profit Goal has been attained for the Performance Period, a number of Maxim Integration PRSUs ranging from 0 to 150% of the Target Amount will vest based on the gross dollar amount of cost synergies attained following the closing date of the Maxim acquisition, or Acquisition Date, as represented by the scale set forth below. For cost synergies to be deemed attained, either (i) cost synergies must take effect within the Performance Period, or (ii) cost synergies must take effect within the 12-month period following the Performance Period as a result of a firm commitment made during the Performance Period.

 


 

40


Table of Contents
 

The number of Maxim Integration PRSUs that will vest will be calculated based on linear interpolation between targets.

 

Synergy Performance Goal Attained

  Percentage of Target Amount to Vest

Minimum threshold as determined by the Compensation Committee

  0%

Target threshold as determined by the Compensation Committee

  100%

Maximum threshold as determined by the Compensation Committee

  150%

 

 

Speed of Delivery Accelerator: If the minimum Synergy Performance Goal is fully realized within 18 months following the Acquisition Date, then an additional number of Maxim Integration PRSUs equal to 50% of the Target Amount will vest.

A recipient can only obtain the maximum 200% of the Target Amount if both (i) the minimum Synergy Performance Goal is attained within 18 months following the Acquisition Date, in which case the Speed of Delivery Accelerator will apply, and (ii) the maximum Synergy Performance Goal is attained within the Performance Period. The recipient must be employed on the vesting date in order for any of the Maxim Integration PRSUs to vest.

Dilution Considerations. The Company is committed to keeping dilution under its stock plans for employees at reasonable levels. Our gross and net dilution rate have been consistently lower than that of our peers over the past several years.

Other Compensation Elements

Retirement and Other Employee Benefits

We maintain broad-based benefits for all employees, including health and dental insurance, life and disability insurance and retirement plans. Executives are eligible to participate in all of our employee benefit plans on the same basis as our other employees. The retirement and other employee benefit component of our executive compensation program is designed to attract excellent candidates by providing financial protection and security, and reward our executives for the total commitment we expect from them in service to ADI.

We maintain a Deferred Compensation Plan, or DCP, under which our executive officers and directors, along with a group of highly compensated management and engineering employees, are eligible to defer receipt of some or all of their cash compensation. This plan offers many of the same investment options as our 401(k) plan. Under our DCP, we provide all participants (other than non-employee directors) with Company contributions equal to 8% of eligible deferred contributions.

In the United States during fiscal 2020, we contributed to our 401(k) plan on behalf of all eligible employees, including our NEOs, amounts equal to 5% of the employee’s eligible compensation, plus matching contributions up to an additional 3%, subject to Internal Revenue Service, or IRS, limits. For those employees who also participated in the DCP described above, any compensation that was deferred under that plan was not considered eligible compensation for purposes of our Company contributions under the 401(k) plan. We also provided employees who are eligible to participate in the 401(k) plan but whose compensation is greater than the amount that may be taken into account in any plan year as a result of IRS limits ($285,000 for fiscal 2020), with a taxable payment equal to 8% of the employee’s 401(k)-eligible compensation in excess of the IRS limit.

Limited Perquisites

We do not award extensive perquisites to our executive officers. In fiscal 2020, we provided a voluntary health services benefit to executives and reimbursement for financial and tax planning services of up to $15,000 for the Chief Executive Officer and up to $10,000 for the other executive officers. These items are detailed in the Summary Compensation Table below.

On occasion, and with the approval of our CEO, an officer or director may have his or her family members accompany him or her on the Company’s leased airplane when traveling on business. The executive or director may incur taxable income for any such travel in accordance with applicable tax rules. We do not gross-up or in any way compensate the officer or director for any income tax owed for any such travel. No such travel occurred in fiscal 2020.

 


 

41


Table of Contents

Compensation Processes and Policies

Executive Stock Ownership Guidelines

Under our guidelines, the target stock ownership levels are two times annual base salary for the Chief Executive Officer, and one times annual base salary for other executive officers. The Chief Executive Officer has four years from the date of his appointment as CEO to achieve his targeted level. Executive officers other than the CEO have five years from the date he or she becomes an executive officer to achieve their targeted level. Shares subject to unexercised options, whether or not vested, and unvested PRSUs whose performance has not yet been certified by the Compensation Committee will not be counted for purposes of satisfying these guidelines. Time-based RSUs (whether or not vested) and unvested PRSUs whose performance has been certified by the Compensation Committee are counted for purposes of satisfying the guidelines. All of our executive officers were in compliance with our stock ownership guidelines as of the end of fiscal 2020.

Compensation Recovery

Under the Sarbanes-Oxley Act, in the event of misconduct that results in a financial restatement that would have reduced a previously paid incentive amount, we can recoup those improper payments from our Chief Executive Officer and Chief Financial Officer. In addition, in December 2020, our Board of Directors adopted a compensation clawback policy. The policy provides that in the event of a material restatement of our financial results, the result of which is that any performance-based cash or equity compensation received by an executive officer, or awarded compensation, would have been lower had it been calculated based on such restated financial results, or actual compensation, the Compensation Committee may, in its sole discretion and as appropriate under the circumstances, seek to recover for our benefit all or a portion of the difference between the awarded compensation and the actual compensation of any executive officer whose fraud or willful misconduct caused or partially caused the need for such restatement. For purposes of the policy, the term “executive officer” has the meaning given to that term in Rule 3b-7 under the Securities Exchange Act of 1934, as amended.

We will amend our compensation clawback policy, if necessary, so that it is compliant with the regulations mandated under the Dodd-Frank Wall Street Reform and Consumer Protection Act when the regulations are adopted by the SEC and corresponding listing standards become effective.

Benchmarking

In making its compensation determinations, including base salary, cash incentive bonus award targets and long-term equity compensation, the Compensation Committee annually reviews the total compensation that each of our executives is eligible to receive against the compensation levels of comparable positions of a peer group of companies. The composition of the peer group is also reviewed annually by the Compensation Committee. In June 2019, the Compensation Committee engaged Pearl Meyer to conduct a review of the composition of the Company’s peer group for fiscal 2020. The Compensation Committee has sought to select peer companies that are publicly traded, are headquartered in the United States, compete with us for talent, and are similar to ADI in their product and services offerings, business model, revenue size and market capitalization.

As a result of rapid consolidation in the semiconductor industry over the last several years, in addition to companies that meet the criteria outlined above, the peer group also includes companies outside of the semiconductor industry. These additional companies are similar in size and have similar gross margins and research and development spend as the Company, include peers of peers and peers of other companies in our sector, and often compete with the Company for talent. Further to this review, our peer group for fiscal 2020 remained unchanged from fiscal 2019.

 


 

42


Table of Contents

The peer group used by the Compensation Committee in fiscal 2020 to evaluate executive compensation consisted of the following companies:

 

2020 Peer Group

   

 

Advanced Micro Devices, Inc.

  Maxim Integrated Products, Inc.

Agilent Technologies, Inc.

  Microchip Technology Inc.

Applied Materials, Inc.

  NetApp, Inc.

Boston Scientific Corporation

  NVIDIA Corporation

Broadcom Limited

  Skyworks Solutions Inc.

KLA-Tencor Corporation

  Texas Instruments Inc.

Lam Research Corporation

  Xilinx Inc.

Marvell Technology Group Ltd.

   

 

 

 

 

 

                2019 Market  Capitalization

(as of June 2019)

   

                                     2019 Revenue

 

Analog Devices

    $41,735       $5,991  

2020 Peer Group Median

    $27,130       $5,724  

For officers in positions for which the fiscal 2020 peer group companies do not publicly disclose compensation data, the Compensation Committee reviewed data collected from Radford’s Global Technology Survey. This survey depicts executive compensation levels across a wide spectrum of technology sector companies comparable in annual revenue size.

Equity Award Grant Date Policy

Our Compensation Committee has adopted specific policies regarding the grant dates of stock options, RSUs and other stock-based awards for our executive officers and employees. In each case, the exercise price of stock options equals the closing price of our common stock on the grant date.

 

 

New Hire Grants: The grant date of all awards to newly hired executive officers and employees is the 15th day of the month after the date on which the individual commences employment with us (or the next succeeding business day that Nasdaq is open).

 

 

Annual Grants: The grant date of all annual awards is the earlier to occur of (i) the scheduled date of the annual meeting of shareholders, or (ii) the first business day of April that Nasdaq is open.

 

 

Other Grants: All other awards granted to existing executive officers and employees throughout the year (off-cycle awards) have a grant date of the 15th day of the month (or the next succeeding business day that Nasdaq is open) provided the award is approved on or prior to such grant date.

 

 

Foreign Registrations: Any awards requiring registration or approval in a foreign jurisdiction will have a grant date of the 15th day of the month (or the next succeeding business day that Nasdaq is open) following the effective date of that registration or approval.

 

 

Blackout Periods: Our Compensation Committee does not approve off-cycle awards to our executive officers during the quarterly and annual blackout periods under our insider trading policy. The quarterly and annual blackout periods begin three weeks before the end of each fiscal quarter and end at the beginning of the second full trading day after we announce our quarterly earnings.

We describe the Equity Award Grant Date Policy for our non-employee directors above under “Corporate Governance—Director Compensation.”

Severance, Retention and Change in Control Benefits

Change in Control Benefits

We have entered into change in control retention agreements with each of our executive officers and other key employees. Among other things, these retention agreements provide for severance benefits if the employee’s service with us is terminated within 24 months after a change in control (as defined in each agreement) that was approved by our Board of Directors.

 


 

43


Table of Contents

We designed the change in control retention agreements to help ensure that our executive team is able to evaluate objectively whether a potential change in control transaction is in the best interests of ADI and our shareholders, despite possible risks to their future employment. We believe that retaining the services of our key executives during a change in control scenario is critical. These agreements help ensure the continued services of our executive officers throughout the change in control transaction by giving them incentives to remain with us rather than seeking alternative employment or being recruited to a competitor during a highly uncertain time. The Compensation Committee reviewed prevalent market practices in determining the severance amounts and the events that trigger payments under the agreements. The Compensation Committee determined that the amounts and triggering events were appropriate and designed to encourage decision-making that is in the best interests of ADI. In fiscal 2020, the Compensation Committee asked Pearl Meyer, its independent compensation consultant, to review our severance, retention and change in control arrangements and Pearl Meyer determined that those arrangements were competitive with existing market practice in the semiconductor industry and that it was appropriate to maintain the program for fiscal 2020. Change in control retention agreements entered into between the Company and eligible employees since 2009 do not contain excess parachute payment tax gross-up provisions.

Under our 2020 Plan and our 2006 Stock Incentive Plan, in the event of a change in control, all of our employees who continue to remain employed on the closing of the change in control, including our NEOs, would have the vesting of one-half of the shares of common stock subject to their then outstanding unvested equity awards accelerate and become immediately exercisable and free from forfeiture. The remaining one-half of their unvested equity awards would continue to vest in accordance with the original vesting schedules, and any remaining unvested equity awards would vest if, on or prior to the first anniversary of the change in control, his or her employment is terminated without “cause” or for “good reason” (as defined in the plan). We have provided more detailed information about these benefits, along with estimates of their value under various circumstances, under the caption “—Potential Payments Upon Termination or Change in Control” below.

Severance Benefits

When the employment of an executive officer terminates in a situation that does not involve a change in control, the officer is entitled to receive the same benefits as any other terminated employee in that geographical location.

Tax and Accounting Considerations

Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for compensation in excess of $1 million paid to certain of the Company’s executives. Pursuant to the Tax Cuts and Jobs Act of 2017, or the Tax Act, for fiscal years beginning after December 31, 2017, the group of executives whose compensation is subject to the deduction limitation is broader than under prior law. Prior to the effectiveness of the Tax Act, the deduction limit did not apply to “performance-based compensation” satisfying the requirements of Section 162(m). For fiscal years commencing after December 31, 2017 and future tax years, subject to the transition rules, all compensation in excess of $1 million paid to the specified executives will not be deductible.

Mr. Roche has a change in control retention agreement that contains provisions regarding Section 280G of the Internal Revenue Code. Since 2009, any new executive compensation arrangements for new executives do not contain tax gross up provisions for excess parachute payments.

We expense in our financial statements the compensation that we pay to our executive officers, as required by U.S. generally accepted accounting principles. As one of many factors, the Compensation Committee considers the financial statement impact in determining the amount of, and allocation among the elements of, compensation. We account for stock-based compensation under our 2020 Plan, our 2006 Stock Incentive Plan, the Amended and Restated 2005 Equity Incentive Plan, or 2005 Plan, and the Amended and Restated 2010 Equity Incentive Plan, or 2010 Plan (the latter two of which we assumed in the Linear Technology acquisition), as well as all predecessor plans, in accordance with U.S. generally accepted accounting principles.

 


 

44


Table of Contents

Risk Considerations in Our Compensation Program

In fiscal 2020, our Compensation Committee reviewed our incentive compensation programs, discussed the concept of risk as it relates to our compensation program, considered various mitigating factors and reviewed these items with its independent consultant, Pearl Meyer. In addition, our Compensation Committee asked Pearl Meyer to conduct an independent risk assessment of our executive compensation program. Based on these reviews and discussions, the Compensation Committee does not believe that any risks arising from our employee compensation policies and practices are reasonably likely to have a material adverse effect on our company. Our Compensation Committee believes that any such risks are mitigated by the following factors, among others:

 

 

 

 

We structure our pay to consist of both fixed and variable compensation with short- and long-term horizons. We feel that the variable elements of compensation, which represented 92% and 83% of the total target compensation for our CEO and other NEOs, respectively, for fiscal 2020, are a sufficient percentage of overall compensation to motivate executives to produce superior short- and long-term corporate results and to achieve Company goals, while the fixed element is also sufficiently high that the executives are not encouraged to take unnecessary or excessive risks in doing so.

 

 

We believe that our focus on both OPBT margin and year-over-year revenue growth through our executive performance incentive plan, and operating profit and stock price performance through our equity compen- sation program, provides a check on excessive short-term risk taking. That is, even if our executives could inappropriately increase OPBT margin or revenue by excessively reducing expenses or adding new revenue sources that are inconsistent with our business model, this could ultimately harm our stock price and the value of their equity awards. Conversely, if our executives were to add revenue sources at low margins in order to generate a higher growth multiple and increased stock prices, it could decrease OPBT margin and the value of their cash bonus payments. Our OPBT margin and year-over-year revenue targets are applicable to our executives and employees alike, which we believe encourages consistent behavior across the organization, and reflect goals that are challenging, but not so high that they require performance outside of what the Compensation Committee believes is reasonable for us or could motivate our executives and employees to take actions in which we assume unreasonable levels of risk.

 

 

We cap our bonus payout factors. Even if we dramatically exceed our OPBT margin or year-over-year revenue growth targets, bonus payments are limited. In fiscal 2020, the bonus payment factor cap was 300% of target. Conversely, we also have a floor on the OPBT margin target so that profitability at or below 36% will result in no bonus payments for that performance period, regardless of revenue growth levels. We believe this avoids incentivizing management to drive revenue levels without regard to profitability.

 

 

Our stock ownership guidelines provide an incentive for management to consider ADI’s long-term interests because a portion of their personal investment portfolio consists of ADI stock.

 


 

45


Table of Contents

Summary Compensation Table

The following table contains certain information about the compensation that our named executive officers earned in fiscal 2020, fiscal 2019 and fiscal 2018.

 

Name and

Principal Position

  Fiscal
Year
   

Salary

($)

    Stock
Awards
($) (1a)
    Option
Awards
($) (1b)
    Non-Equity
Incentive Plan
Compensation
($) (2)
    All Other
Compensation
($) (3)
    Total ($)  

Vincent Roche

President and Chief

Executive Officer

 

 

2020

 

 

 

1,050,000

 

 

 

7,505,999

 

 

 

2,484,988

 

 

 

1,229,106

 

 

 

87,825

 

 

 

12,357,918

 

 

 

2019

 

 

 

1,030,769

 

 

 

7,039,560

 

 

 

2,362,177

 

 

 

1,430,337

 

 

 

85,591

 

 

 

11,948,434

 

 

 

2018

 

 

 

984,615

 

 

 

4,949,953

 

 

 

2,305,013

 

 

 

2,682,173

 

 

 

85,937

 

 

 

11,007,691

 

Prashanth Mahendra-Rajah

Senior Vice President,

Finance and Chief

Financial Officer

 

 

2020

 

 

 

575,000

 

 

 

1,951,648

 

 

 

646,093

 

 

 

448,721

 

 

 

57,200

 

 

 

3,678,662

 

 

 

2019

 

 

 

565,385

 

 

 

1,851,447

 

 

 

621,295

 

 

 

523,413

 

 

 

153,136

 

 

 

3,714,676

 

 

 

2018

 

 

 

571,154

 

 

 

1,555,801

 

 

 

724,429

 

 

 

1,040,769

 

 

 

92,608

 

 

 

3,984,761

 

Martin Cotter

Senior Vice President,

Worldwide Sales &

Digital Marketing

 

 

2020

 

 

 

460,000

 

 

 

1,351,289

 

 

 

447,305

 

 

 

358,977

 

 

 

36,800

 

 

 

2,654,371

 

 

 

2019

 

 

 

456,154

 

 

 

1,178,980

 

 

 

408,592

 

 

 

395,809

 

 

 

103,098

 

 

 

2,542,633

 

 

 

2018

 

 

 

445,673

 

 

 

1,208,486

 

 

 

428,088

 

 

 

687,348

 

 

 

108,627

 

 

 

2,878,222

 

John Hassett

Senior Vice President,

Industrial and Consumer

 

 

2020

 

 

 

475,000

 

 

 

1,351,289

 

 

 

447,305

 

 

 

370,683

 

 

 

51,767

 

 

 

2,696,044

 

 

 

2019

 

 

 

471,154

 

 

 

1,234,544

 

 

 

414,212

 

 

 

437,875

 

 

 

45,899

 

 

 

2,603,684

 

 

 

2018

 

 

 

469,423

 

 

 

1,208,486

 

 

 

428,088

 

 

 

762,186

 

 

 

49,668

 

 

 

2,917,851

 

Steve Pietkiewicz

Senior Vice President,

Power Products

 

 

2020

 

 

 

450,000

 

 

 

1,351,289

 

 

 

447,305

 

 

 

345,496

 

 

 

63,760

 

 

 

2,657,850

 

 

 

2019

 

 

 

438,462

 

 

 

1,618,867

 

 

 

414,212

 

 

 

365,763

 

 

 

331,740

 

 

 

3,169,044

 

 

 

2018

 

 

 

408,786

 

 

 

1,451,045

 

 

 

493,930

 

 

 

771,403

 

 

 

242,397

 

 

 

3,367,561

 

(1)  a.

Amounts represent the aggregate grant date fair value of time-based RSUs and PRSUs granted in fiscal 2020, 2019 and 2018.

      b.

Amounts represent the aggregate grant date fair value of stock options granted in fiscal 2020, 2019 and 2018.

These amounts do not represent the actual amounts paid to or realized by the NEO for these awards during the respective fiscal years. We recognize the value as of the grant date for stock options and time-based RSUs and PRSUs over the number of days of service required for the grant to become vested.

 


 

46


Table of Contents

The following table includes the assumptions, rounded to the nearest hundredth, that we used to calculate the grant date fair value reported for fiscal years 2020, 2019 and 2018 on a grant-by-grant basis and the grant date fair value of relative TSR PRSUs and financial metric PRSUs, assuming the achievement of the maximum level of performance conditions.

 

Name

 

Grant

Date

    Options/
Restricted
Stock Units
Granted (#)
    Exercise
Price ($)
    Volatility (%)     Expected
Life
(Years)
    Risk-
Free
Interest
Rate (%)
    Dividend
Yield (%)
    Grant Date
Fair Value
($) Per
Share
    Grant Date
Fair Value at
Maximum
Achievement
Level for
Performance
Based RSUs ($)
 

Vincent

Roche

 

 

3/29/2018

 

 

 

26,366

 

 

 

 

 

 

 

 

 

 

 

2.54

 

 

 

2.11

 

 

 

86.51

 

       
 

 

3/29/2018

 

 

 

26,366

** 

 

 

 

 

 

25.63

 

 

 

 

 

 

2.37

 

 

 

2.08

 

 

 

101.23

 

 

 

5,338,060

 

 

 

3/29/2018

 

 

 

110,661

 

 

 

91.13

 

 

 

27.77

 

 

 

5.0

 

 

 

2.64

 

 

 

2.11

 

 

 

20.83

 

       
 

 

3/13/2019

 

 

 

22,763

 

 

 

 

 

 

 

 

 

 

 

2.42

 

 

 

2.00

 

 

 

102.89

 

       
 

 

3/13/2019

 

 

 

22,763

** 

 

 

 

 

 

24.07

 

 

 

 

 

 

2.38

 

 

 

2.00

 

 

 

114.36

 

 

 

5,206,353

 

 

 

3/13/2019

 

 

 

22,763

*** 

 

 

 

 

 

 

 

 

 

 

 

2.42

 

 

 

2.00

 

 

 

92.00

 

 

 

4,636,823

 

 

 

3/13/2019

 

 

 

100,803

 

 

 

108.08

 

 

 

26.32

 

 

 

5.0

 

 

 

2.42

 

 

 

2.00

 

 

 

23.43

 

       
 

 

3/11/2020

 

 

 

27,368

 

 

 

 

 

 

 

 

 

 

 

0.66

 

 

 

2.63

 

 

 

88.28

 

       
 

 

3/11/2020

 

 

 

27,368

** 

 

 

 

 

 

27.99

 

 

 

 

 

 

0.58

 

 

 

2.59

 

 

 

97.71

 

 

 

5,348,255

 

 

 

3/11/2020

 

 

 

27,368

*** 

 

 

 

 

 

 

 

 

 

 

 

0.66

 

 

 

2.63

 

 

 

88.28

 

 

 

4,832,094

 

 

 

3/11/2020

 

 

 

134,620

 

 

 

94.41

 

 

 

29.49

 

 

 

5.0

 

 

 

0.66

 

 

 

2.63

 

 

 

18.46

 

       

Prashanth

Mahendra-Rajah

 

 

3/29/2018

 

 

 

8,287

 

 

 

 

 

 

 

 

 

 

 

2.54

 

 

 

2.11

 

 

 

86.51

 

       
 

 

3/29/2018

 

 

 

8,287

** 

 

 

 

 

 

25.63

 

 

 

 

 

 

2.37

 

 

 

2.08

 

 

 

101.23

 

 

 

1,677,786

 

 

 

3/29/2018

 

 

 

34,779

 

 

 

91.13

 

 

 

27.77

 

 

 

5.0

 

 

 

2.64

 

 

 

2.11

 

 

 

20.83

 

       
 

 

3/13/2019

 

 

 

5,987

 

 

 

 

 

 

 

 

 

 

 

2.42

 

 

 

2.00

 

 

 

102.89

 

       
 

 

3/13/2019

 

 

 

5,987

** 

 

 

 

 

 

24.07

 

 

 

 

 

 

2.38

 

 

 

2.00

 

 

 

114.36

 

 

 

1,369,347

 

 

 

3/13/2019

 

 

 

5,987

*** 

 

 

 

 

 

 

 

 

 

 

 

2.42

 

 

 

2.00

 

 

 

92.00

 

 

 

1,219,552

 

 

 

3/13/2019

 

 

 

26,513

 

 

 

108.08

 

 

 

26.32

 

 

 

5.0

 

 

 

2.42

 

 

 

2.00

 

 

 

23.43

 

       
 

 

3/11/2020

 

 

 

7,116

 

 

 

 

 

 

 

 

 

 

 

0.66

 

 

 

2.63

 

 

 

88.28

 

       
 

 

3/11/2020

 

 

 

7,116

** 

 

 

 

 

 

27.99

 

 

 

 

 

 

0.58

 

 

 

2.59

 

 

 

97.71

 

 

 

1,390,609

 

 

 

3/11/2020

 

 

 

7,116

*** 

 

 

 

 

 

 

 

 

 

 

 

0.66

 

 

 

2.63

 

 

 

88.28

 

 

 

1,256,401

 

 

 

3/11/2020

 

 

 

35,001

 

 

 

94.41

 

 

 

29.49

 

 

 

5.0

 

 

 

0.66

 

 

 

2.63

 

 

 

18.46

 

       

Martin

Cotter

 

 

3/29/2018

 

 

 

4,897

 

 

 

 

 

 

 

 

 

 

 

2.54

 

 

 

2.11

 

 

 

86.51

 

       
 

 

3/29/2018

 

 

 

4,897

** 

 

 

 

 

 

25.63

 

 

 

 

 

 

2.37

 

 

 

2.08

 

 

 

101.23

 

 

 

991,447

 

 

 

3/29/2018

 

 

 

20,552

 

 

 

91.13

 

 

 

27.77

 

 

 

5.0

 

 

 

2.64

 

 

 

2.11

 

 

 

20.83

 

       
 

 

9/17/2018

 

 

 

3,334

 

 

 

 

 

 

 

 

 

 

 

2.87

 

 

 

2.10

 

 

 

86.72

 

       
 

 

3/13/2019

 

 

 

2,295

 

 

 

 

 

 

 

 

 

 

 

2.42

 

 

 

2.00

 

 

 

102.89

 

       
 

 

3/13/2019

 

 

 

2,295

**