COGNEX CORP

Our executive compensation program is designed to be largely performance-based. In its deliberations of compensation for our executive officers, the Compensation/Stock Option Committee considers the following:

The Compensation/Stock Option Committee uses Competitive Analysis to assess our executives’ compensation against the compensation paid to executives in similar positions in our compensation peer group to help ensure that the compensation we pay is competitive and fair to our executives and to our shareholders. To supplement market benchmarking information sourced from the public filings of the peer group summarized below, our Compensation/Stock Option Committee also reviews competitive compensation data representative of our peer group and other similarly situated high-tech companies provided within Radford’s Global Technology survey suite. We generally target overall compensation opportunities for our executives just above the median of the market as an initial benchmark, as described under “Compensation Philosophy” above. While we use Competitive Analysis as a starting point, we also consider the qualitative, unique dimensions of an executive’s role and tenure when setting our executives’ compensation as we do not believe an external benchmark should be the only determinant of compensation.

Total compensation for our named executive officers also includes other benefits that are available to Cognex employees generally. These include Perseverance Awards (which reward employee longevity, commitment and loyalty), company-paid basic group term life insurance and basic accidental death and dismemberment insurance, an employer match of eligible compensation that employees invest in their 401(k) accounts, and tuition reimbursement. In connection with his hire, Mr. Fehr also received commuting assistance for a limited period of time as well as certain relocation benefits.

Determinations with respect to compensation for a fiscal year are generally made in the first quarter following our Board’s approval of Cognex’s annual budget for that year, which typically occurs at the end of the previous year.

Compensation Consultant

The Compensation/Stock Option Committee engaged Pay Governance as its independent consultant to assist it in evaluating our executive compensation programs and practices. Pay Governance is a specialist in compensation practices and provides an additional objective perspective as to the reasonableness of our executive compensation programs and practices, and their effectiveness in supporting our business and compensation objectives. During 2024, Pay Governance performed the following tasks for the committee:

Annually, the Compensation/Stock Option Committee evaluates Pay Governance’s independence by considering the following six factors: (i) the provision of other services to the company by Pay Governance; (ii) the amount of fees received by Pay Governance from the company as a percentage of Pay Governance’s total revenue; (iii) Pay Governance’s policies and procedures that are designed to prevent conflicts of interest; (iv) any business or personal relationship of the Pay Governance consultant with members of the Compensation/Stock Option Committee; (v) any company stock owned by the Pay Governance consultant managing the relationship with the company; and (vi) any business or personal relationship of the Pay Governance consultant or Pay Governance, as applicable, with any executive officer of the company. After considering these factors, the Compensation/Stock Option Committee determined that Pay Governance was independent and that its work with the committee for 2024 has not raised any conflicts of interest.

Competitive Analysis

The compensation peer group used for the Competitive Analysis consists of 14 publicly traded U.S. companies, most of which are in the software and services or technology hardware and equipment industries, that have revenues and market capitalizations in a range we believe is appropriate. The Compensation/Stock Option Committee believes this group represents the competition for executive talent in our industry. The Compensation/Stock Option Committee plans to review the peer group annually to ensure that the companies in the peer group remain relevant and provide meaningful compensation comparisons.

2024 Peer Group

Base Salary

In determining the base salaries paid to our named executive officers for fiscal year 2024, the Compensation/Stock Option Committee considered, in particular, levels of responsibility, salary increases awarded in the past, Competitive Analysis, and the executive’s experience and potential. The base salary approved for each of our named executive officers for fiscal year 2024 was determined based on the following criteria:

Following its investigation and consideration of the above criteria, the Compensation/Stock Option Committee made the following adjustments to base salary for 2024:

Annual Company Bonuses

The Compensation/Stock Option Committee views annual company bonuses as a way to reward employees for meeting individual and company performance objectives. The annual bonus program is designed to be variable. Cognex employees, including our named executive officers but excluding employees on a sales commission plan, are eligible to participate in this performance-based annual bonus program. The Compensation/Stock Option Committee approves the annual bonus program following our Board’s approval of Cognex’s annual budget.

There are three components to the annual company bonus program:

The calculation is as follows:

Target Bonus Amountx Achievement of Adjusted EBITDA Percentage x Individual Goal Achievement=

Cash Bonus

Target Amounts

The Compensation/Stock Option Committee approves the target bonus amounts for each employee at the vice president level and above, including each named executive officer. For most executives, the target bonus amount (as a percentage of base salary) falls within 10% of the median of our compensation peer group.

The following table sets forth the target bonus amounts for each of our named executive officers:

Company-Wide Financial Target

The financial target for 2024 was calculated in the same way as the company’s adjusted EBITDA percentage to provide consistency between our internal and external metrics. In prior years, we used the company’s operating margin as determined in accordance with generally accepted accounting principles (“GAAP”). The Compensation/Stock Option Committee determined that adjusted EBITDA percentage is an appropriate metric for our bonus program because the committee believes that employee performance is integral to achieving desired levels of company profitability. Adjusted EBITDA percentage is calculated by dividing adjusted EBITDA (which is anon-GAAP financial measure calculated as GAAP operating income adjusted for amortization of acquisition-related intangible assets and depreciation, as well as, if applicable, restructuring charges, reorganization charges, acquisition and integration costs andone-time discrete events, such as loss or recovery related to a fire), by revenue.

In the first quarter of 2024, the Compensation/Stock Option Committee, following the approval of the 2024 budget, set the target adjusted EBITDA percentage at 19.6%. The minimum adjusted EBITDA percentage was set at 65% of the target, or 12.7%. If Cognex’s actual adjusted EBITDA percentage falls below the minimum, no bonus is achieved for our executive officers. If the adjusted EBITDA percentage falls between the minimum and the target (e.g., between 12.7% and 19.6%), the maximum eligible bonus is calculated on a straight-line basis between 0% and 100%.

“Pmax”

If the adjusted EBITDA percentage is above the target (e.g., above 19.6% in 2024), executives are eligible to receive more than 100% of their target bonus based on employment level and up to a maximum percentage of such executives’ target bonus as approved by the Compensation/Stock Option Committee (“Pmax”). The Compensation/Stock Option Committee typically sets Pmax percentages at the beginning of each year following the approval of the annual budget. This additional bonus amount is funded by a portion of the incremental adjusted EBITDA above Cognex’s adjusted EBITDA target at an accelerated rate of funding as approved by the Compensation/Stock Option Committee. In other words, for each dollar above the adjusted EBITDA target, a portion goes to fund the additional bonus. Once the Pmax percentages are reached by employment level, the bonus is achieved at its maximum level and funding stops.

Individual Goals

The final component of Cognex’s annual bonus program is individual achievement. In the first quarter of each year, executives, with the CEO, set individual goals. Goals are specific to each individual and function, but often relate to and support Cognex’s company-wide strategic priorities. For named executive officers, 80% of individual goals are objective and only 20% are subjective. Examples of objective individual goals (80%) include revenue targets derived from new product introduction, on-time product releases and new technology development milestones. Individual goals are not disclosed publicly for competitive reasons. Examples of subjective goals (20%) include professional development milestones and contributions to Cognex culture. Our CEO assesses the subjective goals of our executive officers following each fiscal year. The subjective goals of our CEO are assessed annually by our Chairman of the Board, Anthony Sun, and reviewed and approved by the Compensation/Stock Option Committee.

2024 Corporate Achievement

For 2024, the actual adjusted EBITDA percentage was 17.1%, which was below our target of 19.6%. Therefore, no employee, including named executive officers, could earn more than 64% of their target bonus amount (i.e., (17.1% - 12.7%) / (19.6% - 12.7%) = 64%). The components for calculating bonus achievement for our named executive officers in 2024 were as follows:

The 2024 annual bonuses for our named executive officers are also listed under the heading “Executive Compensation—Summary Compensation Table” and were paid in the first quarter of 2025. For executives to be eligible to receive their annual bonus, they must be employed on the date the bonus is actually paid. The Compensation/Stock Option Committee believes that the payment of an annual company bonus based upon the achievement of company and individual performance goals is an appropriate way to reward our named executive officers for meeting performance objectives while also achieving desired levels of company profitability.

Equity-Based Awards

Cognex’s equity award program is intended to reward a significant portion of our eligible employees, which includes our named executive officers, for their efforts in building shareholder value and improving corporate performance over the long term. The Compensation/Stock Option Committee believes that granting stock options, restricted stock units (RSUs) and performance restricted stock units (PRSUs) is instrumental to our ability to recruit, retain and motivate our high caliber employees.

The Compensation/Stock Option Committee approves the equity awards granted to our named executive officers on an individual basis. Except for our former CFO, Mr. Todgham, who left the company in March 2024, and our current CFO, Mr. Fehr, who became CFO in May 2024, each of our named executive officers participated in our annual equity award program, which was completed in the first quarter of 2024. Grant amounts are determined based on, among other factors, Competitive Analysis, levels of responsibility and the desire to retain our most valuable employees. Vesting schedules and expiration dates relating to equity-based awards for our executives were consistent with the majority of grants made to our other employees.

Share Dilution

Each year, Cognex determines the equity-based awards to be granted to current employees by considering, among other factors, the impact of the awards on shareholder dilution. We have always been, and will continue to be, sensitive to shareholders’ concerns about the dilutive impact of new equity-based grants. In 2024, our equity-based awards consisted of only about 1.48% of our average outstanding shares. We have also reduced share dilution by repurchasing Cognex stock on the open market. As a result, the number of outstanding shares has decreased by about 2.85% from 2021 to 2024. We intend to continue to actively manage our use of shares each year.

Equity Grant Practices

Annual grants of equity awards to our named executive officers are approved by the Compensation/Stock Option Committee at apre-scheduled meeting in the first quarter of the fiscal year, andnew-hire, promotional or special recognition equity grants are generally made on a quarterly basis. Our general policy is to grant equity-based awards on certain fixed dates. If any such date falls within a designated quiet period, then the grants will instead be made on the first Monday following the completion of the quiet period. If Nasdaq is closed on the appropriate Monday as described above, then the grants will instead be made on the next day that Nasdaq is open for trading. The Compensation/Stock Option Committee retains the discretion to grant equity-based awards at such other times as it may otherwise deem appropriate. The exercise price for all stock options granted equals the closing price of our common stock on Nasdaq on the date of grant.

During fiscal 2024, no executive officer received a grant of stock options during the period beginning four business days before, and ending one business day after, the filing of a periodic report on Form 10-Q or Form 10-K, or the filing or furnishing of a current report on Form 8-K that discloses material nonpublic information.

Stock Options and Restricted Stock Units

In 2024, each of our named executive officers, excluding Mr. Willett, Mr. Todgham and Mr. Fehr, was eligible to receive an annual grant of (i) stock options that generally vest over a period of five years of continuous employment (20% per year), and (ii) RSUs that vest over a period of three years of continuous employment (20% in year one, 30% in year two, and 50% in year three). These executives received equity awards in terms of total economic value (based on grant date fair value) whereby 1/3rd of the economic value was represented by RSUs and 2/3rds of the economic value was represented by stock options. For example, if an executive received an annual equity award worth $1,500,000 on the grant date, such award would consist of stock options valued at $1,000,000 and RSUs valued at $500,000. Mr. Willett received a similar equity award except that instead of RSUs, Mr. Willett received PRSUs as described below. Mr. Todgham did not participate in the annual equity grant process given that Mr. Todgham left the company on March 15, 2024. In connection with the commencement of his employment, Mr. Fehr received an initial grant of (i) options that vest in two equal installments on the fourth and fifth anniversaries of the date of grant and (ii) RSUs that vest over a period of three years of continuous employment following the date of grant (20% in year one; 30% in year two; and 50% vesting in year three so long as Mr. Fehr has relocated to Massachusetts by October 31, 2026).

Cognex continues to grant a substantial amount of stock options in relation to its peers. The Compensation/Stock Option Committee continues to favor stock options because, upon vesting, stock options have zero value to the executive unless value has been created for shareholders following the grant date (by virtue of stock price appreciation). Cognex continues to believe that executives who hold a significant number of stock options are highly motivated to build shareholder value and improve corporate performance over the long term. We believe that this equity compensation model has allowed us to recruit, retain and motivate our senior employees.

Performance Restricted Stock Units (“PRSUs”)

In 2022, the Compensation/Stock Option Committee introduced PRSUs for Mr. Willett and has continued awarding Mr. Willett PRSUs in each year since 2022. One third of Mr. Willett’s 2024 annual equity grant (based on grant date fair value) was in the form of PRSUs. The vesting of Mr. Willett’s PRSUs is based on the percentile rank of the company’s total shareholder return (“TSR”) against the TSR of the companies within the S&P Composite 1500 Electronic Equipment, Instruments & Components index (or a comparable index if such index is materially changed or discontinued) (“PRSU Index TSR”) over a three-year measurement period. The number of PRSUs earned is calculated by multiplying (i) the Performance Multiplier for the measurement period based on the company’s TSR percentile, as set forth in the table below, by (ii) the target PRSU shares.

If the company’s TSR ranks between a designated performance percentile, the performance multiplier will be determined using linear interpolation. If the company’s TSR is a negative percentage, regardless of the percentile achieved, the performance multiplier will be capped at 100%. The vesting of the PRSUs in all cases is subject to Mr. Willett’s continued service with the company. In January 2025, the Compensation/Stock Option Committee determined that zero PRSUs from Mr. Willett’s 2022 PRSU grant would vest due to the company’s TSR percentile being below the 25 th percentile of the PRSU Index TSR at the conclusion of the measurement period. We believe that PRSUs further align the interests of Mr. Willett with building shareholder value and improving corporate performance over the long term.

In 2025, the Compensation/Stock Option Committee also decided to expand PRSUs to executive officers beyond just Mr. Willett. In February 2025, the committee granted PRSUs to executive officers based on certain financial targets over a three-year measurement period in connection with their annual equity grants.

Change of Control Arrangements

Change of control transactions typically represent events where our shareholders are realizing the value of their equity interests in the company. We believe it is appropriate for our named executive officers to share in this realization of shareholder value. Mr. Willett’s February 2023 PRSU and 2024 PRSU agreements provide that the PRSUs will vest immediately upon a “change of control” of Cognex (which is defined as a corporate transaction in which the holders of Cognex common stock before the transaction control less than 51% of the stock of Cognex or any successor corporation after the transaction), with such number of vested PRSUs to be calculated based on the applicable performance multiplier determined by the percentile rank of the company’s TSR against the PRSU Index TSR over a measurement period concluding on the date immediately prior to such change of control. In providing for the immediate vesting of these PRSU awards, the Compensation/Stock Option Committee noted that, given Mr. Willett’s role with Cognex, it was unlikely that Mr. Willett’s employment with Cognex would continue following a change of control transaction.

As of December 31, 2024, all stock option and (time-based) RSU agreements entered into by Mr. Willett and Mr. Fehr, as well as the October 2020, February 2022, February 2023 and February 2024 option and RSU agreements entered into by Ms. DiPalma and Mr. Gerst, the August 2022 option agreement and the February 2023 and February 2024 option and RSU agreements entered into by Mr. Kuechen, and the March 2024 RSU agreement entered into by Ms. MacDonald are subject to immediate vesting if there is both a “change of control” of Cognex and the respective executive officer’s employment is involuntarily terminated within twelve months following such transaction.