LAM RESEARCH CORP
For the period ended Nov 5, 2024. Filed Sep 25, 2024.
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Nov 5, 2024 · Filed Sep 25, 2024
Contents
Long-Term Incentive Program
Design
Our LTIP is designed to attract and retain top talent, provide competitive levels of compensation, align pay with achievement of business objectives and with stock performance over a multi-year period, reward our NEOs for outstanding Company performance, and create stockholder value over the long-term.
Under the current long-term incentive program, at the beginning of each multi-year performance period, target award opportunities (expressed as a U.S. dollar value), performance metrics, and the mix of vehicles used are established for the program.
Prior to our 2022/2024 long-term incentive program, 50% of the total target award opportunity was generally awarded in Market-based PRSUs, and the remaining 50% was awarded in a combination of stock options and service-based RSUs with at least 10% of the award in each of these two vehicles. The specific percentage of service-based RSUs and stock options was reviewed annually to determine whether service-based RSUs or stock options would be the more efficient form of equity for the majority of the award based on criteria such as the business environment and the potential value to motivate and retain the executives. We consider Market-based PRSUs and stock options to be performance-based, but do not classify service-based RSUs as performance-based.
Beginning with our 2022/2024 long-term incentive program, the committee determined to substantially increase the weighting of Market-based PRSUs relative to prior years, with the aim of furthering the committee's objective of aligning pay with performance. The committee also determined that it would be appropriate to provide for a different mix for the CEO and NEOs who are executive presidents than for NEOs who are senior vice presidents. Beginning with the 2022/2024 long-term incentive program, of the total target award opportunity for the CEO and NEOs who are executive vice presidents, 60% was awarded in Market-based PRSUs, 20% was awarded in stock options, and 20% was awarded in service-based RSUs; while for NEOs who are senior vice presidents, 55% was awarded in Market-based PRSUs, 15% was awarded in stock options, and 30% was awarded in service-based RSUs. Primarily as a result of this change, the percentage of the average NEO's target pay mix that is performance-based increased from 59% in calendar year 2021 to approximately 73% in calendar years 2022 through 2024.
While service-based RSUs and stock options vest on an annual basis over three years, Market-based PRSUs cliff vest after three years. Cliff, rather than annual, vesting provides for both retention and for aligning NEOs with longer-term stockholder interests.
Lam Research Corporation 2024 Proxy Statement 49
Equity Vehicles
The equity vehicles used in our 2024/2026 long-term incentive program are as follows:
Figure 40. 2024/2026 LTIP Program Equity Vehicles
| Equity Vehicles | Vesting | Terms |
| Market-based PRSUs • CEO/EVPs: 60% of Target Award Opportunity• SVPs: 55% of Target Award Opportunity | • Awards cliff vest three years from the March 1, 2024 grant date (the “Grant Date”) subject to satisfaction of a minimum performance requirement and continued employment. • Awards that vest at the end of the performance period are distributed in shares of our common stock. | • The target number of Market-based PRSUs granted is determined by dividing the applicable percentage of the target opportunity by the 30 trading day average of the closing price of our common stock prior to the Grant Date, $875.95, rounded down to the nearest share. • The number of shares represented by the Market-based PRSUs that can be earned over the performance period is determined according to the performance parameters described in Figure 43 below. |
| Stock Options • CEO/EVPs: 20% of Target Award Opportunity• SVPs: 15% of Target Award Opportunity | • Awards vest one-third on the first, second, and third anniversaries of the Grant Date, subject to continued employment. • Awards are exercisable upon vesting.• Expiration is on the seventh anniversary of the Grant Date. | • The number of stock options granted is determined by dividing the applicable percentage of the target opportunity by the 30 trading day average of the closing price of our common stock prior to the Grant Date, $875.95, rounded down to the nearest share and multiplying the result by three. The ratio of three options for every RSU is based on a Black Scholes fair value accounting analysis. • The exercise price of stock options is the closing price of our common stock on the Grant Date. |
| Service-based RSUs • CEO/EVPs: 20% of Target Award Opportunity• SVPs: 30% of Target Award Opportunity | • Awards vest one-third on the first, second, and third anniversaries of the Grant Date, subject to continued employment. • Awards are distributed in shares of our common stock upon vesting. | • The number of RSUs granted is determined by dividing the applicable percentage of the target opportunity by the 30 trading day average of the closing price of our common stock prior to the Grant Date, $875.95, rounded down to the nearest share. |
Figure 41. 2024/2026 Market-based PRSU Performance Parameters
| Parameter | Terms |
| Performance Period | Three years from the first business day in February (February 1, 2024 through January 31, 2027). |
| Performance Index | PHLX Semiconductor Sector Total Return Index, or “XSOX index” |
| Number of Shares | • Based on our “total return” stock price performance compared to the market price performance of the Performance Index, subject to a ceiling as described below. The stock price performance or market price performance is measured using the average closing price for the 50 trading days prior to the dates the performance period begins and ends, assuming that any dividends paid on our common stock are reinvested on the ex-dividend date (consistent with the treatment of dividends in the Performance Index).• The target number of shares represented by the Market-based PRSUs is increased by 2% of target for each 1% that our stock price performance exceeds the market price performance of the Performance Index; similarly, the target number of shares represented by the Market-based PRSUs is decreased by 2% of target for each 1% that our stock price performance trails the market price performance of the Performance Index. The result of the vesting formula is rounded down to the nearest whole number.• A table reflecting the potential payouts depending on various comparative results is shown below in Figure 42. |
| Award Ceiling/Minimum | The final shares awarded cannot exceed 150% of target (requiring a positive percentage change in our stock price performance compared to that of the market price performance of the Performance Index equal to or greater than 25 percentage points) and can be as little as 0% of target (requiring a percentage change in our stock price performance compared to that of the market price performance of the Performance Index equal to or lesser than negative 50 percentage points). |
Figure 42. Market-based PRSU Potential Payouts
| Lam's Total Return % Change Performance Compared to XSOX Index % Change Performance | Market-based PRSUs That Can Be Earned(% of Target)(1) |
|---|---|
| + 25% or more | 150 |
| +10% | 120 |
| 0% (equal to index) | 100 |
| - 10% | 80 |
| - 25% | 50 |
| - 50% or less | 0 |
| (1) | The results of the vesting formula (reflecting the number of Market-Based PRSUs that can be earned) are linearly interpolated between the stated percentages using the formula described in the third row of Figure 41. |
Target Award Opportunity
Under the long-term incentive program, the committee sets a target award opportunity for each participant based on the NEO’s position and responsibilities, Company and individual performance, and an assessment of competitive compensation data. The target award opportunities for each participant are expressed in a U.S. dollar value. The target amounts for each NEO under the program cycles affecting fiscal year 2024 are shown below. The calendar year 2024/2026 target award opportunities as shown below for the NEOs were increased from calendar 2023/2025 target opportunities after taking into consideration our NEOs' contributions and responsibilities. In particular, for our CEO, the committee considered the strength of our CEO's leadership, as reflected in the sustained value creation achieved for stockholders, and its desire to continue to incentivize outperformance and remain competitive relative to market practices. The committee last increased Mr. Archer's target LTIP award opportunity for the calendar year 2022/2024 award, and absent an increase, his calendar 2024/2026 target LTIP opportunity would have positioned him well below the median of our Peer Group. The calendar year 2024/2026 target award opportunities for Dr. Lord, Dr. Vahedi, and Mr. Varadarajan also factored in the significant changes to their scope of responsibilities (outlined above) since the 2023/2025 awards were granted.
Figure 43. LTIP Target Award Opportunities
| Target Award Opportunity ($) by Long-Term Incentive Program(1) | ||||
|---|---|---|---|---|
| Named Executive Officer | 2021/2023(2) | 2022/2024(3) | 2023/2025(4) | 2024/2026(5) |
| Timothy M. Archer | 11,000,000 | 15,000,000 | 15,000,000 | 21,500,000 |
| Douglas R. Bettinger | 3,050,000 | 3,750,000 | 4,250,000 | 5,800,000 |
| Patrick J. Lord | 2,500,000 | 3,000,000 | 3,500,000 | 4,650,000 |
| Seshasayee (Sesha) Varadarajan | 2,250,000 | 2,750,000 | 3,250,000 | 4,650,000 |
| Vahid Vahedi | 2,250,000 | 2,750,000 | 3,000,000 | 3,400,000 |
| (1) | Target award opportunities (expressed as a U.S. dollar value) are approved by the committee and converted to awards on the grant date as described in Figure 40 using the 30 trading day average of the closing price of our common stock prior to the Grant Date. Target award opportunities differ from the amounts shown in “Executive Compensation Tables” following this CD&A, which represent the grant date fair value of the awards determined in accordance with ASC 718. |
| (2) | The three-year performance period for the 2021/2023 LTIP began on February 1, 2021 and ended on January 31, 2024. |
| (3) | The three-year performance period for the 2022/2024 LTIP began on February 1, 2022 and ends on January 31, 2025. |
| (4) | The three-year performance period for the 2023/2025 LTIP began on February 1, 2023 and ends on January 31, 2026. |
| (5) | The three-year performance period for the 2024/2026 LTIP began on February 1, 2024 and ends on January 31, 2027. |
Calendar Year 2024 LTIP Decisions
Calendar Year 2024 decisions for the 2024/2026 long-term incentive program. On March 1, 2024, the committee made a grant under the 2024/2026 long-term incentive program, of Market-based PRSUs, stock options, and service-based RSUs on the terms set forth in Figures 40 and 41 with a combined value equal to the NEO’s total target award opportunity, as shown below.
Lam Research Corporation 2024 Proxy Statement 51
Figure 44. 2024/2026 LTIP Award Grants
| Named Executive Officer | Target AwardOpportunity($) | Market-based PRSUs Award(#)(1) | Stock Options Award(#) | Service-basedRSUs Award(#) |
|---|---|---|---|---|
| Timothy M. Archer | 21,500,000 | 14,726 | 14,724 | 4,908 |
| Douglas R. Bettinger | 5,800,000 | 3,972 | 3,972 | 1,324 |
| Patrick J. Lord | 4,650,000 | 3,185 | 3,183 | 1,061 |
| Seshasayee (Sesha) Varadarajan | 4,650,000 | 2,919 | 2,388 | 1,592 |
| Vahid Vahedi | 3,400,000 | 2,134 | 1,746 | 1,164 |
| (1) | The number of Market-based PRSUs awarded is reflected at target. The final number of shares that may be earned will be 0% to 150% of target. |
Calendar Year 2021/2023 LTIP Award Payouts
In February 2024, the committee determined the payouts for the calendar year 2021/2023 LTIP Awards of Market-based PRSUs. The number of shares represented by the Market-based PRSUs earned over the performance period was based on our stock price performance compared to the market price performance of the XSOX index.
Based on the above formula and Market-based PRSU Vesting Summary set forth in Figures 41 and 42, the Company’s stock price performance over the three-year performance period was equal to 59.07% and the performance of the XSOX index (based on market price) over the same three-year performance period was equal to 49.11%. Lam’s stock price outperformed the XSOX index by 9.96%, which resulted in a performance payout of 119.93% of the target number of Market-based PRSUs granted to each NEO. Based on such results, the committee made the following payouts to each NEO for the 2021/2023 LTIP Award of Market-based PRSUs.
Figure 45. 2021/2023 LTIP Market-based PRSU Award Payouts
| Named Executive Officer | Target Market-based PRSUs (#) | Actual Payout of Market-based PRSUs (119.93% of Target Award Opportunity) (#) |
|---|---|---|
| Timothy M. Archer | 9,998 | 11,990 |
| Douglas R. Bettinger | 2,772 | 3,324 |
| Patrick J. Lord | 2,272 | 2,724 |
| Seshasayee (Sesha) Varadarajan | 2,045 | 2,452 |
| Vahid Vahedi | 2,045 | 2,452 |
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.