UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

 

Veeco Instruments Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

 

 

 

 

 

 

March 19, 2019

 

2019 Annual Meeting of Stockholders

 

Dear Fellow Stockholder:

 

It is my pleasure to invite you to join me at the 2019 Annual Meeting of Stockholders of Veeco Instruments Inc. to be held on Friday, May 3, 2019, at 8:30 a.m. Eastern Time, at 333 South Service Road, Plainview, New York 11803.

At this year’s meeting, we will vote on:

(1)    The election of three directors named in the attached proxy statement to hold office until the 2022 Annual Meeting of Stockholders and until their successors are duly elected and qualified;

(2)    An amendment and restatement of Veeco’s  2010 Stock Incentive Plan;

(3)    An amendment to Veeco’s  2016 Employee Stock Purchase Plan to increase the authorized shares of Veeco’s common stock thereunder by 750,000 shares; and

(4)    The ratification of KPMG LLP as Veeco’s independent registered public accounting firm.

We will also conduct a non-binding advisory vote to approve the compensation of the Company’s named executive officers.

We use the U.S. Securities and Exchange Commission rule that allows companies to furnish proxy materials to their stockholders over the internet. We believe this expedites stockholder’s receipt of proxy materials, lowers annual meeting costs and conserves natural resources. Thus, we are mailing to many stockholders a Notice of Internet Availability of Proxy Materials (“Notice”), rather than copies of the Proxy Statement and our 2018 Annual Report to Stockholders on Form 10‑K. The Notice contains instructions on how to access the proxy materials online, vote online and obtain your copy of our proxy materials.

Your vote is very important. I encourage you to sign and return your proxy card, or use telephone or internet voting prior to the meeting, so that your shares will be represented and voted at the meeting.

Sincerely,

William J. Miller, Ph.D.

Chief Executive Officer

VEECO INSTRUMENTS INC.

NOTICE OF 2019 ANNUAL MEETING OF STOCKHOLDERS

 

 

 

 

 

TABLE OF CONTENTS

 

 

 

 

PROXY STATEMENT SUMMARY

To assist you in reviewing the proposals to be acted upon at the Veeco Instruments Inc. (“Veeco” or the “Company”) 2019 Annual Meeting of Stockholders (the “Annual Meeting”), we call your attention to the following information about the proposals and voting recommendations, the Company’s director nominees, and highlights of the Company’s corporate governance and executive compensation.  The following description is only a summary.  For more complete information about these topics, please review the complete proxy statement.

Proposals and Voting Recommendations

 

Summary of Information Regarding the Board of Directors

Members of Veeco’s Board of Directors (“Board of Directors” or the “Board”) are listed below.  Messrs. Peeler and St. Dennis have been nominated for re-election to the Board. Dr. Miller is also nominated for election to the Board, in connection with his promotion as the Company’s Chief Executive Officer (“CEO”) effective October 1, 2018.

 

 

Corporate Governance Highlights

 

Executive Compensation Highlights

Here’s What We Do…

Pay for Performance. We ensure that the compensation of the CEO and the other named executive officers listed in the Summary Compensation Table below (collectively, the “NEOs”) tracks the Company’s performance.  Our compensation programs reflect our belief that the ratio of performance-based compensation to fixed compensation should increase with the level of the executive, with the greatest amount of performance-based compensation at the CEO level.

Peer Group Selection. As addressed in the Compensation Discussion and Analysis section below, we made changes to our Peer Group for 2019  with an increased focus, for example, on companies operating in the semiconductor equipment and adjacent industry segments, and those that were included in the Institutional Shareholder Services, Inc. (“ISS”) defined peer group. Changes included the addition of ten new companies, seven of which are smaller than Veeco in terms of annual revenue.

Performance-based Long-Term Incentives. The majority of the long-term incentive compensation provided to our CEO and other NEOs prior to October 2018 was awarded in the form of performance-based restricted stock units that feature a minimum three-year target performance period, were capped at 150% of target, and are subject to 100% forfeiture.  Beginning in October 2018, we adopted performance measures based on total shareholder return over a three-year period, comparing the Company’s performance to the Russell 2000 Index.  Awards were capped at 200% of target and are subject to 100% forfeiture.

Minimum Vesting. Our 2010 Stock Incentive Plan specifies a one year minimum vesting period for all equity awards, except for up to 5% of the maximum number of shares available or in the event of certain

circumstances (e.g., death, disability, corporate transactions).  Time-based awards granted to executives feature vesting periods ranging from three to four years.

Stock Option Provisions. Our 2010 Stock Incentive Plan prohibits the cash buyout of underwater stock options and the repricing of stock options without stockholder approval; the Company has not engaged in either of these practices.

Double-Trigger Change in Control Arrangements. Our Senior Executive Change in Control Policy features a narrow change in control definition, requiring an actual change in control and termination of employment before change in control benefits are triggered.  The situations where an executive is eligible to resign with “good reason” are limited to: (i) reductions in base salary, (ii) relocation by more than 50 miles, (iii) significant reductions in total benefits, for our CEO and our Chief Financial Officer/Chief Operating Officer (“CFO/COO”) only, and (iv) for our CEO only, a diminution in position.  These provisions are not triggered by bankruptcy.  See “Potential Payments Upon Termination or Change in Control” below for more information.

Clawback Policy. Our Compensation Recoupment Policy provides that in the event of a financial restatement due to fraud or intentional illegal conduct as determined by the independent members of the Board of Directors, a culpable executive officer may be required to reimburse the Company for performance-based cash compensation if the amount of such compensation would have been lower had it been calculated based on such restated financial statements.  Beginning in 2019, compensation subject to recoupment was expanded to include equity compensation.

Stock Ownership Guidelines. Our stock ownership guidelines require our NEOs and our Board of Directors to hold Veeco stock in a specified multiple of their base salaries or annual cash retainers, subject to a phase-in period.  For example, Veeco’s CEO is required to hold Veeco stock with a value equal to at least six times his base salary (this amount was increased by the Company in March 2019 from four times his base salary).  Pursuant to these guidelines, covered individuals are required to hold at least 50% of the net after-tax shares realized upon vesting or exercise until the ownership guidelines are met.

Hedging and Pledging Restrictions. Our insider trading policy prohibits all employees and directors from hedging or pledging their Veeco shares.

Annual Bonus. Amounts that can be earned under our annual incentive programs are based solely on performance against corporate financial and individual goals.  Awards under the programs are not guaranteed and are capped at 200% of target.

Annual Say-on-Pay Vote. We conduct an annual Say-on-Pay advisory vote.

Stockholder Engagement. We routinely engage with stockholders and, as appropriate, with proxy advisory firms, to better understand their perspective regarding executive compensation best practices and have incorporated many of these practices in our executive compensation programs.

Here’s What We Don’t Do…

No Multi-Year Guarantees. We do not offer multi-year guarantees for salary increases, bonuses or equity awards.

No Overly Generous Change in Control Benefits. We have used change in control protections sparingly and have limited cash payments to 1.5 to 2.0 times base salary and bonus.

No Gross-Ups. We do not provide tax gross ups for benefits that may become payable in connection with a change in control.

Limited Pension Benefits. We do not maintain a defined benefit pension plan or a supplemental executive retirement plan.  The Company’s 401(k) savings plan is its only pension benefit.

No Retirement Benefits. We do not offer retirement health and welfare benefits to our employees.

No Excessive Perquisites.  We do not provide executives with perquisites such as financial planning, corporate aircraft, etc.

STOCK OWNERSHIP

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information regarding the beneficial ownership of Veeco common stock as of March 11, 2019 (unless otherwise specified below) by (i) each person known by Veeco to own beneficially more than five percent of the outstanding shares of Veeco common stock, (ii) each director of Veeco, (iii) each NEO, and (iv) all executive officers and directors of Veeco as a group.  Unless otherwise indicated, Veeco believes that each of the persons or entities named in the table exercises sole voting and investment power over the shares of Veeco common stock that each of them beneficially owns, subject to community property laws where applicable.

 

*Less than 1%.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires Veeco’s officers and directors, and persons who own more than 10% of Veeco’s common stock, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (“SEC”).  These persons are required by SEC regulations to furnish Veeco with copies of all Section 16(a) forms they file.  SEC regulations require us to identify in this proxy statement anyone who filed a required report late or failed to file a required report.  Based on our review of forms we received, or written representations from reporting persons, we believe that during 2018 all Section 16(a) filing requirements were satisfied on a timely basis.

GOVERNANCE

Governance Highlights

Veeco’s Board of Directors and management are committed to responsible corporate governance to ensure that Veeco is managed for the long-term benefit of its stockholders.  To that end, the Board of Directors and management review published guidelines and recommendations of institutional stockholder organizations and current best practices of similarly situated public companies.  The Board and management periodically evaluate and, when appropriate, revise Veeco’s corporate governance policies and practices in light of these guidelines and other findings, and to comply with the requirements of the Sarbanes-Oxley Act of 2002 and the rules and listing standards issued by the SEC and by The NASDAQ Stock Market LLC (“NASDAQ”).

Veeco’s Corporate Governance Guidelines provide that at least two-thirds of the Board of Directors must be independent in accordance with the NASDAQ listing standards.  In fact, 75% of Veeco’s  eight continuing directors and nominees are independent, and none serve on more than two other public company boards.  All of Veeco’s directors attended each Board meeting, and each applicable committee meeting, held in 2018.  Veeco undergoes an annual Board, committee and individual director self-evaluation process, and the independent directors, guided by the independent Lead Director, meet regularly without management and perform an annual performance assessment of our CEO.

Governance Policies and Practices

Veeco has instituted a variety of policies and practices to foster and maintain corporate governance, including the following:

Corporate Governance Guidelines - Veeco adheres to written Corporate Governance Guidelines, adopted by the Board and reviewed by the Governance Committee from time to time.  The Corporate Governance Guidelines govern director qualifications, conflicts of interest, succession planning, periodic board self-assessment and other governance matters.  The Board has used an outside governance advisor to facilitate the board self-assessment at least every three years.

Code of Business Conduct - Veeco maintains written standards of business conduct applicable to all of its employees worldwide.

Code of Ethics for Senior Officers - Veeco maintains a Code of Ethics that applies to our CEO, CFO/COO and Chief Accounting Officer.

Environmental, Health & Safety Policy - Veeco maintains a written policy that applies to all of its employees with regard to environmental, health and safety matters.

Director Education Policy - Veeco has adopted a written policy under which it encourages directors to attend, and provides reimbursement for the cost of attending, director education programs.  A majority of Veeco’s Board members has attended one or more director education programs within the past five years.

Disclosure Policy - Veeco maintains a written policy that applies to all of its employees with regard to the dissemination of information.

Board Committee Charters - Each of Veeco’s Audit, Compensation and Governance Committees has a written charter adopted by Veeco’s Board that establishes practices and procedures for each committee in accordance with applicable corporate governance rules and regulations.

Copies of each of these documents can be found on the Company’s website (www.veeco.com) via the “Investors” page.

Independence of the Board

Veeco’s Corporate Governance Guidelines provide that at least two-thirds of the Board of Directors must be independent in accordance with the NASDAQ listing standards.  In addition, service on other boards must be

consistent with Veeco’s conflict of interest policy and the nature and time involved in such service is reviewed when evaluating suitability of individual directors for election.

Independence of Current Directors. Veeco’s Board of Directors has determined that all of the directors are “independent” within the meaning of the applicable NASDAQ listing standards, except Dr. Miller, the Company’s  CEO, and Mr. Peeler, the Executive Chairman of the Board.

Independence of Committee Members. All members of Veeco’s Audit, Compensation and Governance Committees are required to be and are independent in accordance with NASDAQ listing standards.

Compensation Committee Interlocks and Insider Participation. During 2018, none of Veeco’s executive officers served on the board of directors of any entity whose executive officers served on Veeco’s Compensation Committee.  No current or past executive officer of Veeco serves on our Compensation Committee.  The members of our Compensation Committee are Messrs. D’Amore, Hunter and St. Dennis.

Board Access to Independent Advisors. The Board members have full and free access to the officers and employees of Veeco and are permitted to retain independent legal, financial or other advisors as the Board or a Committee deems necessary.

Director Resignation Upon Change in Employment. The Corporate Governance Guidelines provide that a director shall submit his resignation if he changes his principal employment from what it was when he was elected as a director, or undergoes a change affecting his qualification as a director or fails to receive the required number of votes for re-election.  Upon such submission, the Board shall determine whether to accept or reject the resignation.  If the resignation is tendered for failure to receive the required number of votes for re-election, the Governance Committee will also inform the Board of any other action it recommends be taken.

Board Leadership Structure

Mr. Peeler, the Company’s  former CEO, serves as Executive Chairman of the Board.  We have a separate, independent Lead Director.  Although we do not have a formal policy addressing the topic, we believe that when the Chairman of the Board is not independent, it is important to have a separate Lead Director, who is an independent director.

Mr. D’Amore serves as the Lead Director.  In that role, he presides over the Board’s executive sessions, during which our independent directors meet without management, and he serves as the principle liaison between management and the independent directors of the Board. The Lead Director also:

Mr. D’Amore has served as Lead Director since 2016.

We believe the combination of Mr. Peeler as our Executive Chairman of the Board and an independent director as our Lead Director is an effective structure for the Company.  The division of duties and the additional avenues of communication between the Board and our management associated with this structure provide the basis for the proper functioning of our Board and its oversight of management.

Oversight of Risk Management

The Board has an active role, as a whole and also at the committee level, in overseeing management of the Company’s risks.  The Board regularly reviews information regarding the Company’s strategy, finances and operations, as well as the risks associated with each.  The Audit Committee is responsible for oversight of Company risks relating to accounting matters, financial reporting, internal controls and legal and regulatory compliance.  The Audit Committee undertakes, at least annually, a review to evaluate these risks.  Individual members of the Audit Committee are each assigned an area of risk to oversee.  The members then meet separately with management responsible for such area, including the Company’s  CFO/COO,  Chief Accounting Officer, internal auditor and general counsel, and report to the Audit Committee on any matters identified during such discussions with management.  In addition, the Governance Committee manages risks associated with the independence of the Board and potential conflicts of interest.  The Company’s Compensation Committee is responsible for overseeing the management of risks relating to the Company’s executive compensation plans and arrangements.  While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed about such risks through committee reports.

Compensation Risk

Our Compensation Committee conducted a risk-assessment of our compensation programs and practices and concluded that our compensation programs and practices, as a whole, are appropriately structured and do not pose a material risk to the Company.  Our compensation programs are intended to reward the management team and other employees for strong performance over the long-term, with consideration of near-term actions and results that strengthen and grow our Company.  We believe our compensation programs provide the appropriate balance between short-term and long-term incentives, focusing on sustainable operating success for the Company.  We consider the potential risks in our business when designing and administering our compensation programs, and we believe our balanced approach to performance measurement and compensation decisions mitigates the likelihood that individuals will be encouraged to undertake excessive or inappropriate risk.  Further, our compensation program administration is subject to considerable internal controls and when determining the principal outcomes – performance assessments and compensation decisions – we rely on principles of sound governance and good business judgment.

Board Meetings and Committees

During 2018, Veeco’s Board held eight meetings.  It is the policy of the Board to hold executive sessions without management at every regularly scheduled board meeting and as requested by a director.  The Lead Director or Committee Chairperson, as appropriate, presides over these executive sessions.  All members of the Board are welcome to attend the Annual Meeting of Stockholders.  In 2018,  Mr. Peeler was the only director who attended the Annual Meeting.  The Board has established the following committees:  an Audit Committee, a Compensation Committee, and a Governance Committee.

Audit Committee.  As defined in Section 3(a)(58)(A) of the Exchange Act, the Company established an Audit Committee which reviews the scope and results of the audit and other services provided by Veeco’s independent registered public accounting firm.  The Audit Committee consists of Ms. Bayless and Messrs. Jackson and Simone (Chairman). The Board has determined that all members of the Audit Committee are financially literate as that term is defined by NASDAQ and by applicable SEC rules.  The Board has determined that each of Ms. Bayless and Messrs. Jackson and Simone is an “audit committee financial expert” as defined by applicable SEC rules.  During 2018, the Audit Committee met six times.

Compensation Committee. The Compensation Committee sets the compensation levels of senior management and administers Veeco’s equity compensation plans.  All members of the Compensation Committee are “non-employee directors” (within the meaning of Rule 16b‑3 of the Exchange Act), and “outside directors” (within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended).  None of the members of the Compensation Committee has interlocking relationships as defined by the SEC.  The Compensation Committee consists of Messrs. D’Amore, St. Dennis and Hunter (Chairman).  During 2018, the Compensation Committee met seven times.

Governance Committee. The Company’s Governance Committee addresses Board organizational issues and develops and reviews corporate governance principles applicable to Veeco.  In addition, the committee searches for persons qualified to serve on the Board of Directors and makes recommendations to the Board with respect thereto, as more fully described below.  The Governance Committee is comprised entirely of independent directors, as defined by the NASDAQ listing standards, and currently consists of Messrs. Hunter, Simone and Jackson (Chairman). During 2018, the Governance Committee met four times.

Board Composition and Nomination Process

Pursuant to our Corporate Governance Guidelines, the Governance Committee will evaluate the suitability of potential nominees for membership on the Board, taking into consideration the Board’s current composition, including expertise, diversity and balance of inside, outside and independent directors, and considering the general qualifications of the potential nominees, including those characteristics described in the Corporate Governance Guidelines as in effect from time to time.  In selecting the director nominees, the Board endeavors to establish a diversity of background and experience in a number of areas of core competency, including business judgment, management, accounting and finance, knowledge of the industries in which the Company operates, understanding of manufacturing and services, strategic vision, knowledge of international markets, marketing, research and development and other areas relevant to the Company’s business.  Under our Corporate Governance Guidelines, the Board periodically conducts a critical self-evaluation, including an assessment of the make-up of the Board as a whole.  In any particular situation, the Governance Committee may focus on persons possessing a particular background, experience or qualifications which the committee believes would be important to enhance the effectiveness of the Board.  The full Board reviews and has final approval authority on all potential director candidates being recommended to the stockholders for election.

Compensation of Directors

Veeco’s Director Compensation Policy provides  that members of the Board of Directors who are not employees of Veeco shall be paid a  quarterly retainer in the amount of $17,500. Additional quarterly retainers are paid for committee membership, as follows:

 

A quarterly retainer in the amount of $5,125 is paid for service as the Lead Director.  Board members do not receive fees for attending meetings either in person or telephonically.

Each non-employee Director shall also receive an annual grant of shares of restricted stock having a fair market value in the amount determined by the Compensation Committee from time to time.  For 2018, the Compensation Committee determined that the value of this annual award should be $120,000 per director.  The restrictions on these shares lapse on the earlier of the first anniversary of the date of grant and the date immediately preceding the date of the next annual meeting of stockholders.  In addition, the Company’s Director Compensation Policy gives the Board the authority to compensate directors who perform significant additional services on behalf of the Board or a Committee.  Such compensation is to be determined by the Board in its discretion, taking into consideration the scope and extent of such additional services.  The Company is currently seeking stockholder approval to amend and restate the Veeco 2010 Stock Incentive Plan to, among other things, limit Director compensation to $400,000 per year (see Proposal 2 below for proposed changes to Veeco’s  2010 Stock Incentive Plan).  Directors who are employees, such as Dr. Miller and Mr. Peeler, do not receive additional compensation for serving as directors.

The following table provides information on compensation awarded or paid to the non-employee directors of Veeco for the fiscal year ended December 31, 2018.

 

 

Stock Ownership Guidelines: Directors

Under the Company’s Stock Ownership Guidelines, Directors are required to hold Veeco stock with a value equal to at least three times the Directors’ annual cash retainers (excluding retainers for committee or lead director service), measured as of February 1st of the most recently completed year and subject to a 5‑year phase-in period.

Certain Contractual Arrangements with Directors and Executive Officers

Veeco has entered into indemnification agreements with each of its directors, executive officers and certain senior officers and anticipates that it will enter into similar agreements with any future directors and executive officers.  Generally, the indemnification agreements are designed to provide the maximum protection permitted under Delaware law with respect to indemnification of a director or executive officer.  The indemnification agreements provide that Veeco will indemnify such persons against certain liabilities that may arise by reason of their status or service as a director or executive officer of the Company and that the Company will advance expenses incurred as a result of proceedings against them as to which they may be indemnified.  Under the indemnification agreements, a director or executive officer will receive indemnification if he or she is found to have acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of Veeco and with respect to any criminal action, if he or she had no reasonable cause to believe his or her conduct was unlawful.

COMPENSATION

Executive Officers

The executive officers of Veeco, their ages and positions as of March 11, 2019, are as follows:

 

William J. Miller, Ph.D. has been CEO and a Director since October 2018. Prior thereto, he served as President beginning in January 2016, overseeing all of Veeco’s global business units. Dr. Miller was named Executive Vice President, Process Equipment in December 2011, and was Executive Vice President, Compound Semiconductor from July 2010 until December 2011. Dr. Miller was Senior Vice President and General Manager of Veeco’s MOCVD business from January 2009 to July 2010, and Vice President, General Manager of Veeco’s Data Storage equipment business from January 2006 to January 2009.  He has held leadership positions of increasing responsibility in both the engineering and operations organizations since he joined Veeco in November 2002.  Prior to joining Veeco, Dr. Miller held engineering and operations leadership positions at Advanced Energy Industries, Inc.

John R. Peeler has been Executive Chairman since October 2018. Prior thereto, he served as CEO and a Director beginning in July 2007, and as Chairman beginning in May 2012. Before coming to Veeco, Mr. Peeler was Executive Vice President of JDS Uniphase Corp. (“JDSU”) and President of the Communications Test & Measurement Group of JDSU, which he joined upon the closing of JDSU’s merger with Acterna in August 2005.  Before joining JDSU, Mr. Peeler served as President and CEO of Acterna. Mr. Peeler joined a predecessor of Acterna in 1980 and served in a series of increasingly senior leadership roles including Vice President of Product Development, Executive Vice President and COO, and President and CEO of TTC, a communications test equipment company. Mr. Peeler also serves on the board of IPG Photonics Corporation.

Shubham (Sam) Maheshwari has been Executive Vice President,  CFO and COO since October 2018.  Prior thereto, he served as Executive Vice President and CFO beginning in May 2014.  Mr. Maheshwari oversees Veeco’s  Quality, Customer Satisfaction, Business Process Improvement, Legal, Finance, Investor Relations, Information Technology, Supply Chain and Global Manufacturing functions.  From 2011 to 2014, Mr. Maheshwari served as CFO of OnCore Manufacturing LLC, a global manufacturer of electronic products in the medical, aerospace, defense and industrial markets.  From 2009 to 2011, he held various finance roles including Senior Vice President Finance, Treasury, Tax and Investor Relations at Spansion, Inc., a global leader in flash memory based embedded system solutions.  Mr. Maheshwari helped lead Spansion’s emergence from bankruptcy to become a successful public company.  From 1998 to 2009, he was with KLA-Tencor Corporation, a global semiconductor capital equipment manufacturing company, in various senior level corporate development and finance roles, including Vice President of Corporate Development and Corporate Controller.  Mr. Maheshwari also serves on the board of Kateeva, Inc.

John P. Kiernan has been Senior Vice President, Finance, Chief Accounting Officer (“CAO”) and Treasurer since December 2011, and also served as Corporate Controller from December 2011 through December 2017.  From July 2005 to November 2011, Mr. Kiernan was Senior Vice President, Finance, CAO and Corporate Controller.  Prior thereto, he was Vice President, Finance and Corporate Controller of Veeco from April 2001 to June 2005, Vice President and Corporate Controller from November 1998 to March 2001, and Corporate Controller from February 1995 to November 1998.  Prior to joining Veeco, Mr. Kiernan was an Audit Senior Manager at Ernst & Young LLP from October 1991 through January 1995 and held various audit staff positions with Ernst & Young LLP from June 1984 through September 1991.

Compensation Discussion and Analysis

This Compensation Discussion and Analysis describes Veeco’s current compensation programs and policies, which are subject to change.

Business Summary and Recent Developments

Veeco is a leading manufacturer of innovative semiconductor and thin film process equipment used by our customers to solve an array of challenging materials engineering problems. Our broad portfolio of metal organic chemical vapor deposition (“MOCVD”), molecular beam epitaxy (“MBE”), lithography, laser annealing, ion beam and single wafer etch and clean technologies play an integral role in the fabrication and packaging of advanced semiconductor and compound semiconductor devices including in the production of light emitting diodes (“LEDs”) for solid-state lighting and display, lasers for communications and 3D sensing, radio frequency (“RF”) devices and application processors for mobile phones and thin film magnetic heads for hard disk drives.  We design our systems to optimize technical performance and productivity to achieve superior cost of ownership for our customers. We support our products through sales and service teams located throughout the Asia-Pacific region, Europe and North America.

Veeco holds technology leadership positions in each of our served markets. However, the semiconductor and thin film process equipment industries are highly cyclical and characterized by periods of volatility which may be difficult to predict.  Our products require significant R&D investment sustained over very long periods of time and our customers’ buying decisions are highly dependent on technology trends and industry supply and demand patterns. Our executive compensation programs are designed to align with such market conditions, to balance both the short and long-term interests of stockholders and executives and, at the same time, retain and continue to attract executives through business downturns, motivating them for our longer-term success.

The Company seeks to foster a performance-oriented culture by linking a significant portion of each executive’s compensation to the achievement of performance targets important to the success of the Company and its stockholders. We structure our executive compensation program each year so that a meaningful percentage of compensation is tied to the achievement of objectives that, at the time they are established, are considered challenging in light of anticipated market conditions.

2018 Business Highlights and Challenges

Executive Leadership Team Changes

The Company made changes to its executive leadership team during 2018. John Peeler, Chairman and CEO, retired from the position of CEO effective September 30, 2018.  In conjunction with the Company’s established CEO succession plan, Mr. Peeler agreed to serve as Executive Chairman of the Company for one year and to continue as non-executive Chairman thereafter, subject to his re-election to the Board upon expiration of his current term at the 2019 Annual Meeting of Stockholders.

William Miller, Ph.D. succeeded Mr. Peeler as the Company’s CEO, effective October 1, 2018. Prior to being named CEO, Dr. Miller served as President of the Company. Dr. Miller was an integral part of the strategic direction and product development for the Company’s MOCVD and Ion Beam product lines and was responsible for the Company’s global operations organization.

Shubham (Sam) Maheshwari, the Company’s CFO, was appointed to the additional position of COO, also effective October 1, 2018. Mr. Maheshwari joined the Company in 2014 with 20 years of experience in finance. Mr. Maheshwari oversees the Company’s finance, global operations, information technology, quality and customer satisfaction, and legal functions.

2018 / 2019 Executive Compensation Highlights

Executive Compensation Strategy and Objectives

The Company’s executive compensation strategy is designed to create opportunities for competitive, total compensation that reflects our culture, the markets we serve and our performance. The primary objective of the executive compensation strategy is to motivate executives to achieve long-term growth and success for the Company, including increasing stockholder value, without subjecting the Company or stockholders to unnecessary or unreasonable risks.  The Company’s executive compensation programs are also essential to

our ability to attract and retain executives.  Accordingly, the Company has adopted the following guiding principles:

 

Our target pay mix places significant emphasis on variable compensation comprised of PRSU awards1, time-based equity awards and an annual target bonus.  As illustrated in the following charts, 87% and 76% of the target compensation packages for our CEO and our other NEOs, respectively, are comprised of equity-based and performance-based compensation.

 

*Includes October 2018 promotion equity awards to Dr. Miller and Mr. Maheshwari.

1 Beginning in October 2018, based on 3‑year relative total shareholder return as compared to the Russell 2000 Index.

Executive Compensation Governance and Procedures

The Committee administers the Company’s compensation programs operating under a charter adopted by the Board.  This charter authorizes the Committee to administer and interpret the Company’s compensation and equity plans and establish rules for their implementation and administration. The Committee consists of three independent directors who are appointed annually.  The Committee works closely with the CEO and the Senior Vice President, Human Resources and relies on information provided by independent compensation consultants.

When making compensation decisions, the Committee considers the compensation practices and the competitive market for executives at companies with which we compete for talent.  To this end, the Company utilizes several resources which, during 2018, included: meetings with Compensation Strategies, Inc., an independent compensation consultant; compensation surveys prepared by Radford; and executive compensation information compiled by Compensation Strategies, Inc. from the proxy statements of other companies, including a peer group.

Veeco’s peer group (the “Peer Group”) reflects the companies that closely resemble Veeco based on industry and competition for talent, and that closely align with Veeco’s market segments and size.  The 2018 Peer Group consisted of the following seventeen companies:

 

In July 2018, consistent with its periodic review, the Committee updated the Peer Group by removing two companies and adding ten companies based on industry segment (comprised of Semiconductor Equipment, Technology/Hardware, Storage & Peripherals and Electronic Equipment & Instruments) and, within segment, revenue within a range of 0.5x – 3.0x.  This resulted in the 2019 Peer Group, consisting of the following 25 companies:

 

The Company considers the executive compensation practices of the companies in its Peer Group and the Radford survey (hereinafter collectively, the “market data”) as one of several factors used in setting compensation.  The Company’s compensation consultant uses statistical regression techniques to adjust market data to construct market pay levels representative of the 50th - 75th percentile that are reflective of Veeco’s size based on revenues.  Although the Committee considers the executive compensation practices of the Peer Group companies and broader market data in setting compensation, it does not benchmark compensation to any specific percentile or ranking within our Peer Group.  Individual compensation levels may

vary within a range around market as a result of Veeco’s financial and operating performance, personal performance, experience, and criticality, as well as competitive factors.

For 2018, total target compensation of Veeco’s NEOs and other executives was generally below the 50th percentile of market.  Given the performance emphasis present in Veeco’s executive compensation program, actual compensation earned or received can vary significantly with results and actual compensation for 2018 was well below targeted opportunity levels.

In addition to reviewing the market data, the Committee meets with the Company’s CEO and Senior Vice President, Human Resources to consider recommendations with respect to compensation for the NEOs and other executives.  These recommendations include base salary levels, cash bonus targets and awards, and equity compensation awards.  The Committee considers these recommendations along with other factors in determining specific compensation levels for the NEOs.  The Committee discusses the elements of the CEO’s compensation with him, but makes the final decisions regarding his compensation without him present.

Decisions regarding the Company’s compensation program elements are made by the Committee in regularly scheduled and ad hoc meetings.  Issues of significant importance are frequently discussed over several meetings.  This practice provides the Committee with the opportunity to raise and address concerns before arriving at a decision.  Prior to each meeting, Committee members are provided with the written materials, information and analyses as may be required to assist the Committee in its decision-making process.  To the extent possible, meetings of the Committee are conducted in person.  When this is not possible, meetings are conducted telephonically.  The CEO and the Senior Vice President, Human Resources are regularly invited to attend Committee meetings but the Committee meets privately in executive sessions to consider certain matters including, but not limited to, the compensation of the CEO.

Elements of Our Executive Compensation Program

Our compensation programs are comprised of four elements: base salary, annual cash bonus, equity-based compensation and benefits and perquisites.  Each of these elements is used to attract executives and reward them for performance results as described in the following table:

 

The Company evaluates each element of each executive’s compensation individually and in the aggregate against market data for the position, experience, individual performance and the ability to affect future Company performance.  The following sections describe the process for determining each of the four elements of the executive compensation program.

(i)  Base Salary

The Company pays base salaries to attract and retain executives.  Base salaries are determined in accordance with the responsibilities of each executive, market data for the position and the executive’s experience and individual performance.  The Company considers each of these factors but does not assign a specific value to any one factor.

Base salaries for executives are typically set during the first half of the year in conjunction with the Company’s annual performance management process.  In 2018, base salaries were initially set in April.  The base salaries for certain NEOs were adjusted in October 2018 as part of changes in the Company’s executive leadership

team.  Following a review of the market data and management’s recommendations, the Committee set base salaries as follows in April 2018 and, following changes in the executive team, in October 2018:

 

(ii)  Cash Bonus Plan

The Company provides the opportunity for cash bonuses under its annual bonus plan to attract executives and reward them for performance consistent with the belief that a significant portion of the compensation of its executives should be performance-based.  As a result, individuals are compensated based on the achievement of specific financial and individual performance goals intended to correlate closely with stockholder value. The Company believes that the opportunity to earn cash bonuses motivates executives to meet Company performance objectives that, in turn, are linked to the creation of stockholder value.  The Company utilizes profitability, as measured by adjusted operating income, as the financial element of its bonus plan.  Executives must generally be employed at the time awards are paid to be eligible to receive a bonus for that period.

On February 6, 2018, the Committee approved the 2018 Management Bonus Plan (the “2018 Plan”) and the specific metrics thereof.  The 2018 Plan is based on the financial performance of the Company as measured by adjusted operating income (“Operating Income”).  We define Operating Income as earnings before the cost of bonuses, interest, taxes and amortization, adjusted to exclude share-based compensation expense, one-time charges relating to restructuring initiatives, non-cash asset impairments, certain other non-operating gains and losses, and acquisition-related items such as one-time transaction costs and the stepped-up cost of goods sold associated with the purchase accounting of acquired inventory.

The Committee elected to use Operating Income as the financial metric for the 2018 Plan because it closely aligns operating performance to earnings per share, a key driver of shareholder value.  If 2018 Operating Income exceeds $15 million (the threshold performance level), a bonus pool would be funded with a fixed percentage of Operating Income.  The bonus pool would not be funded and bonus awards would not be earned if Operating Income results are less than the threshold performance level.  Awards to participants would be made from this fixed pool in accordance with their target bonus amounts.  25% of a participant’s target bonus, after adjustment for Operating Income results, would be adjusted based on individual performance.  Awards for individual performance would be paid from this fixed pool, ranging from zero to 150%.

The total bonus award for an individual is capped at 200% of target bonus.

During the third quarter of 2018, management recommended to the Committee that the 2018 Plan be cancelled based on the financial outlook for the year. Based on this recommendation and notwithstanding that the Plan’s primary financial metric, Operating Income, was expected to exceed the threshold performance level ($15 million), the Committee agreed with management and the 2018 Plan was cancelled.

Had this negative discretion not been applied, bonus awards of approximately 37% of target would have been earned. To the extent calculated, below are components of the bonuses that were foregone:

 

On February 6, 2019, the Committee approved the 2019 Management Bonus Plan (the “2019 Plan”).  Under the 2019 Plan, bonuses will be based on the financial performance of the Company as measured by Operating Income.  If 2019 Operating Income exceeds $15.0 million, the threshold financial performance, a bonus pool will be funded with a predetermined fixed percentage of Operating Income.  The bonus pool will not be funded and bonus awards will not be earned if Operating Income is less than $15.0 million.  Awards to participants will be made from this fixed pool in accordance with their target bonus amounts.  25% of a participant’s target bonus, adjusted for Operating Income results, will be modified based on individual performance.  Awards for individual performance will be paid from this fixed pool and may range from zero to 150%.

Under the 2019 Plan, target bonus awards will only be earned when Operating Income significantly exceeds the 2019 business plan.  The total bonus award for an individual will be capped at 200% of target bonus.

Target bonuses for each of the NEOs, expressed as a percent of base salary are as follows:

 

(iii)  Equity-Based Compensation

The Company believes that a substantial portion of an executive’s compensation should be awarded in equity since equity-based compensation is directly linked to stockholder interests.  Equity awards vest over time, subject to being earned in the case of performance-based awards and to the recipient’s continued employment, therefore acting as both a significant performance and retention incentive. Equity awards also help create stock ownership among the Company’s executives.  The Committee believes that the majority of long-term incentives for higher-level executives including the NEOs should take the form of performance-based equity compensation and is committed to this principle.

The Company granted equity-based awards to the NEOs and certain other key employees in 2018 to create a clear and meaningful alignment between compensation and stockholder return.  These awards included restricted stock and performance-based restricted stock units.

The Company considered several factors in the design of the 2018 equity award process.  Long-term incentive compensation guidelines, denominated as a dollar value and based on the market data (as discussed above), were developed for each of the NEOs and the other executives.  Stock awards were valued at fair market value and not adjusted to reflect the impact of vesting or accounting valuation.

The actual value of stock awards granted to each individual was based on several factors including, but not limited to: (i) the Company’s guidelines (as described above), (ii) the individual’s level of responsibility, (iii) past performance and ability to affect future Company performance, (iv) noteworthy achievements and (v) a fixed budget for awards.  The CEO used these factors to arrive at a recommendation for each of the NEOs.  This recommendation was divided into performance- and time-based awards, such that a majority of the award was designated as performance-based. The CEO then discussed the rationale for his recommendations with the Committee.  The CEO presented the final recommendations to the Committee for approval.

2018 Annual Awards

On March 14, 2018, the Committee determined that the appropriate values of annual equity awards for Dr. Miller and Mr. Maheshwari were $1,100,000 and $750,000, respectively.  At that time, however, the Committee decided to grant equity awards to Dr. Miller and Mr. Maheshwari valued at approximately $880,000 and $600,000, respectively.  The Committee agreed to consider granting the balance of the equity awards at the end of the year subject to a review of Company performance (including total shareholder return and other financial metrics) and individual performance.  The March 2018 awards were split into performance- and time-based restricted stock with a ratio of approximately 51% to 49%, respectively; see discussion regarding “Performance-based Restricted Stock Unit Awards” below.  The Committee also approved an equity award package to Mr. Kiernan in the amount of approximately $200,000, with a performance-based to time-based ratio of 51% to 49%.

In December 2018, based on a review of Company performance and at Mr. Peeler’s recommendation, the Committee elected to forego granting any portion of the balance of the equity awards previously approved for, but not granted to, Dr. Miller and Mr. Maheshwari in March 2018.  As a result, Dr. Miller and Mr. Maheshwari were awarded equity compensation in the amounts of approximately $880,000 and $600,000, respectively, and forwent the remaining $230,000 and $150,000 of their annual equity awards, respectively.

The Committee determined Mr. Peeler’s 2018 equity award in conjunction with an analysis of his total compensation package, a review of market data and his performance during 2018 and a review of the stockholder advisor quantitative pay-for-performance methodology.  The Committee reviewed a tally sheet setting forth the components of compensation for Mr. Peeler, including base salary, annual incentive bonus, prior stock option and restricted stock grants, potential stock option and restricted stock gains, and the dollar value to Mr. Peeler and cost to the Company of all perquisites and other personal benefits.  Based on its review, the Committee concluded that Mr. Peeler’s compensation, in the aggregate, is reasonable and appropriate in light of our desire to retain him, the stated objectives of the Company’s compensation programs and the Company’s financial and operating performance. The Committee approved an equity award to Mr. Peeler valued at approximately $1,685,800, and granted equity valued at approximately $1,000,000, which was split into performance- and time-based restricted stock with a ratio of 51% to 49%, respectively (see discussion regarding “Performance-based Restricted Stock Unit Awards” below).  The Committee agreed to consider granting the balance of the award, approximately $685,800, at the end of the year, subject to a review of Company performance (including total shareholder return and other financial metrics) and individual performance.

In December 2018, based on a review of Company performance and at Mr. Peeler’s recommendation, the Committee elected to forego granting any portion of the balance of the equity award approved for, but not previously granted to, Mr. Peeler.  As a result, Mr. Peeler’s 2018 equity-based compensation was approximately $1,000,000, and he forwent the remaining $685,800 in awards.

Mr. Peeler’s performance-based and time-based restricted stock awards carry the same terms as awards granted to the other NEOs, as described below.

During 2018, the Committee granted equity awards to the NEOs specifically as follows:

 

Performance-based Restricted Stock Unit Awards

A majority of the annual long-term incentive awards granted in 2018 may be earned subject to the achievement of designated performance criteria.  If the applicable performance criteria are not achieved within the designated time, the PRSU awards granted to the NEOs will be completely forfeited.

March 2018 PRSU Award Terms

One-half of the PRSUs may be earned based on three-year cumulative revenue (the “Revenue Units”) and one-half of the PRSUs may be earned based on three-year cumulative adjusted EBITDA (the “EBITDA Units”), expressed as a percentage of cumulative revenue for the same period, each based on a target performance period of three years. We use cumulative targets because they encourage our executives to focus on longer-term targets that will serve to benefit shareholders over a period of years, rather than simply focusing on a series of shorter-term results. Up to an additional 50% of Revenue Units and EBITDA Units may be earned as a result of exceeding the respective targets. We define adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, adjusted to exclude share-based compensation expense, one-time charges relating to restructuring initiatives, non-cash asset impairments, certain other non-operating gains and losses, and acquisition-related items such as one-time transaction costs and the stepped-up cost of goods sold associated with the purchase accounting of acquired inventory.

The Revenue Units will be earned if the cumulative revenue targets established at the beginning of the performance period are met as shown below. The performance period will span the three-year period from the second quarter of 2018 through the first quarter of 2021. Any Revenue Units that are not earned will be forfeited.

 

The number of EBITDA Units earned will be determined pursuant to the following schedule based on adjusted EBITDA as a percent of cumulative revenue for the performance period from the second quarter of 2018 through the first quarter of 2021. Any EBITDA Units that are not earned will be forfeited.

 

Performance against the cumulative revenue target and the cumulative adjusted EBITDA target will be assessed upon the filing of the Form 10‑Q for the first quarter of 2021, three years after the grant date. The EBITDA and Revenue Units earned will be determined at that time with awards ranging from 0% to 150%.

October 2018 Promotion Awards

In October 2018, the Company granted Dr. Miller an equity award in connection with his promotion to CEO. The equity award consisted of an approximately $2,000,000 PRSU grant which was subject to the Company’s 3‑year TSR versus the 3‑year TSR of the Russell 2000 Index (“Miller TSR Award”) (as further described below), and an approximately $500,000 award which was granted as time-based restricted stock subject to vesting over a four-year period (25% per year) (“Miller Time-Based Award”). The Miller TSR Award and the Miller Time-Based Award were comprised of 195,121 PRSUs and 48,780 restricted stock shares, respectively.  A portion of the Miller TSR award (88,457 units) was granted subject to approval by the Company’s stockholders of a proposal to increase the annual individual award limit from 200,000 to 500,000 shares.

In October 2018, Mr. Maheshwari received an equity award in connection with his assumption of the additional role of COO. The equity award consisted of an approximately $750,000 award which was subject to the Company’s 3‑year TSR vs. the 3‑year TSR of the Russell 2000 Index (“Maheshwari TSR Award”) (as further described below), and an approximately $250,000 award which was granted as time-based restricted stock subject to vesting over a four-year period (25% per year) (“Maheshwari Time-Based Award”). The Maheshwari TSR Award and the Maheshwari Time-Based Award consisted of 73,170 PRSUs and 24,390 restricted stock shares, respectively.

The Committee determined the awards to Dr. Miller and Mr. Maheshwari described above pursuant to an analysis of their total compensation and a review of market data.  The Committee reviewed the components of compensation, including base salary, annual incentive bonus, equity award, prior stock option and restricted stock grants, and the dollar value to each executive and cost to the Company of all perquisites and other personal benefits.  Based on its review, the Committee concluded that the awards to Dr. Miller and Mr. Maheshwari were reasonable and appropriate in light of our desire to motivate and retain them, the stated objectives of the Company’s compensation programs and the Company’s financial and operating performance.

The Miller TSR Award and Maheshwari TSR Award may be earned and become vested in accordance with the table below based on the Company’s performance during the period of October 1, 2018 through September 30, 2021. Any units that are not earned will be forfeited.

 

2019 Annual Awards

The 2019 Awards to our NEOs (other than Mr. Peeler, as addressed above) will be comprised of PRSUs (60%) and time-based restricted stock (40%). The PRSU portion of the 2019 Awards will be earned in accordance with the table below based on the Company’s 3‑year TSR versus the 3‑year TSR of the Russell 2000 Index. Any units that are not earned will be forfeited.

 

The terms of 2019 PRSU awards shall include: (1) a negative TSR cap that limits awards to 100% if the Company’s TSR is negative, notwithstanding that the Company may be above the 50th percentile of the comparison group, and (2) a maximum award cap that limits the overall dollar value of the earned award to six times the grant value, based on the compound effects of the award payout and the then current stock price.  The portion of the 2019 Awards that are time-based restricted stock are subject to vesting over a four-year period.

Pursuant to the terms of Dr. Miller’s, Mr. Peeler’s and Mr. Maheshwari’s  August 2018 letter agreements, they are entitled to 2019 equity awards having a grant date fair value of $1,500,000, $1,250,000 and $850,000, respectively.

Ordinarily, the number of shares comprising the 2019 equity awards would be determined based on the stock price at the time of grant in 2019.   However, to ensure that our NEOs do not benefit from the decline in our stock price, the Committee proposed that the number of shares awarded to the NEOs for 2019 be determined on the basis of the higher of the stock price at the grant date and $15.00 per share.  This application of negative discretion has the effect of reducing the value of 2019 equity awards to our NEOs.

Earned PRSU Awards

On June 12, 2014, the Committee granted PRSUs to the NEOs and other executives that could be earned based on the length of time required to achieve cumulative revenue and EBITDA targets (the “Performance Targets”), each applicable to one half of the award. Under the terms of the grant, 100% of the PRSUs would be earned if the Performance Targets were achieved within three years of the grant date.  The number of PRSUs earned would be reduced if the Performance Target is achieved later than three years after the grant date and fully forfeited if the Performance Targets are not achieved within four and one-half years from the grant date.

In February 2019, the Committee determined that the cumulative EBITDA target ($135,929,000) was achieved during the third quarter of 2018, four and one-quarter years after the grant date. The number of units earned was reduced by 42% in accordance with the terms of the grant. One-half of the earned units became vested upon such determination; the remaining half shall vest, subject to the executive’s continued service, one year later.

(iv) Benefits and Perquisites

The Company provides the benefits and perquisites to its executive officers that it believes are required to remain competitive, with the goal of promoting enhanced employee productivity and loyalty to the Company.  The Committee periodically reviews the levels of benefits and perquisites provided to executive officers.  The NEOs participate in the Company’s 401(k) savings plan and other benefit plans on the same basis as other similarly-situated employees.  The Company provides a 401(k) savings plan under which it provides matching contributions of fifty cents for every dollar an eligible employee contributes, up to 6% of such employee’s eligible compensation, up to a maximum of $8,250.  The plan calls for vesting of Company contributions over the initial five years of a participant’s employment with the Company.  The Company also provides group term life insurance for its employees, including the NEOs.  The amounts of the Company’s 401(k) matching contributions and group term life insurance premiums for the NEOs are included under the caption “All Other Compensation” in the Summary Compensation Table below.  The Company also provides a car allowance for each of the NEOs.  Such amounts are also included under the caption “All Other Compensation” in the Summary Compensation Table.  The Company does not maintain other perquisite programs, such as post-retirement health and welfare benefits or defined or supplemental pension benefits, for its employees.

In addition, prior to his transition to Executive Chairman, the Company reimbursed Mr. Peeler for his reasonable housing expenses in the Plainview, New York area, and his transportation expenses to/from the Plainview area from/to his home in Maryland (provided that such amounts shall not exceed $75,000 per year). Following Mr. Peeler’s transition to Executive Chairman, he no longer received reimbursement for these items after October 1, 2018. For 2018, the actual expenses associated with Mr. Peeler’s housing and transportation allowance were approximately $27,651 (37% of the maximum).  No tax gross-up was provided to Mr. Peeler in connection with this reimbursement.

In 2009, the Company adopted the Senior Executive Change in Control Policy.  This policy was designed to provide specified executives, including Dr. Miller and Messrs. Maheshwari and Kiernan, with severance benefits if their employment is terminated under qualifying circumstances related to a change in control. Mr. Peeler is not covered by the Senior Executive Change in Control Policy (see “Potential Payments Upon Termination or Change in Control” below for an explanation of benefits payable to Mr. Peeler in connection with his termination, including in connection with a change in control).  The Committee recognizes that, as is the case for most publicly held companies, the possibility of a change in control exists, and the Company wishes to ensure that the NEOs are not disincentivized from discharging their duties with respect to a proposed or actual transaction involving a change in control. Accordingly, through the adoption of the Senior Executive Change in Control Policy, the Company has provided additional inducement for such NEOs to remain in the employ of the Company in the event of a proposed change in control.

Summary of Executive Compensation

The Committee acknowledges that the Company’s financial performance has lagged in certain respects, as reflected in the Company’s lower stock price and reduced stockholder value. The use of performance-based compensation has had the intended effect of reducing compensation for our executives, subjecting them to the same diminished value felt by our stockholders.

Nevertheless, the success of our Company hinges upon our ability to effectively compete for talent. Given the environment in which we operate, the Committee believes that our compensation practices are balanced and competitive and have enabled Veeco to attract and retain the executive talent needed for the successful operation of the Company. The Committee further believes that the total compensation for our NEOs is fair and reasonable and is consistent with the Company’s executive compensation philosophies.

Say-on-Pay

Our Board, the Committee and our management value the opinions of our stockholders. We have determined that our stockholders should vote, and do in fact vote, on a say-on-pay proposal on executive officer compensation each year. At the 2016, 2017, and 2018 annual meetings of stockholders, approximately 86%, 76%, and 84% respectively, of votes were cast in favor of our say-on-pay proposal.

Compensation Recoupment Policy

In January 2014, the Company adopted a Compensation Recoupment Policy (the “Clawback Policy”) for certain employees, including the NEOs. Under the Clawback Policy, in the event of a financial restatement due to fraud or intentional illegal conduct as determined by the independent members of the Board, a culpable executive officer may be required to reimburse the Company for performance-based cash compensation if the amount of such compensation would have been lower had it been calculated based on such restated financial statements.  In February 2019, the Company revised the Clawback Policy to, among other things, also apply to stock-based awards.

Stock Ownership Guidelines: NEO’s and Other Key Employees

In January 2014, the Company established stock ownership guidelines for certain employees, including the NEOs.  Under these guidelines, as amended, each covered individual has five years to reach the minimum levels of stock ownership identified by the Stock Ownership Guidelines.

Under the guidelines, covered employees are required to hold 50% of the net after tax shares realized upon vesting or exercise until the stock ownership guidelines are met.  Participants must maintain compliance once the guidelines have been met, except for the effect of a decrease in stock price in which case they will be required to retain at least 50% of shares acquired upon vesting or exercise until the stock ownership guidelines are again achieved.  All of the covered individuals were either in compliance with our Stock Ownership Guidelines or have a period of time remaining to meet the required ownership level.

Anti-Hedging/Anti-Pledging Policy

The Company has adopted an insider trading policy which incorporates anti-hedging and anti-pledging provisions. Consequently, no employee, executive officer or director may enter into a hedge or pledge of the Company’s common stock.

Financial and Tax Considerations

In designing our compensation programs, the Committee considers the financial impact and tax effects that each element of compensation will or may have on the Company and the executives.

Prior to December 22, 2017, when the Tax Cuts and Jobs Act of 2017 (“TCJA”) was signed into law, Section 162(m) of the Internal Revenue Code (“Section 162(m)”) generally limited Veeco’s tax deduction to $1 million per year for compensation paid to certain executive officers, unless the compensation qualified as “performance-based” under Section 162(m).

Under the TCJA, the “performance-based” exception under Section 162(m) was repealed and the $1 million deduction limit generally applies to anyone serving as our CEO or our CFO at any time during a taxable year and our top three other highest compensated executive officers serving at fiscal year-end, as well as to anyone who becomes subject to Section 162(m) in any tax year after 2016, whether or not still serving as an

executive officer.  These changes generally apply to taxable years beginning after December 31, 2017, but generally do not apply to remuneration provided pursuant to a written binding contract in effect on November 2, 2017, that is not modified in any material respect after that date.

The Committee will continue to monitor developments under Section 162(m), including the impact from the TJCA, but presently intends to retain flexibility to take actions which it deems to be in the best interest of Veeco and its stockholders, even if these actions may result in Veeco paying certain items of compensation that may not be fully deductible.

Conclusion

Attracting and retaining talented and motivated management and key employees is essential to creating long-term stockholder value.  Offering a competitive, performance-based compensation program with a substantial equity component helps to achieve this objective by aligning the interests of the executive officers and other key employees with those of our stockholders.  We believe that Veeco’s 2018 compensation program met these objectives and that the Company’s 2019 compensation program is appropriate in light of the challenges facing the Company and its employees.

Compensation Committee Report

The Committee has reviewed and discussed with management the Compensation Discussion and Analysis for 2018.  Based on the review and the discussions, the Committee recommended to the Board of Directors (and the Board approved), that the Compensation Discussion and Analysis be included in Veeco’s proxy statement for its 2019 Annual Meeting of Stockholders.

This report is submitted by the Committee.

Richard A. D’Amore

Gordon Hunter (Chairman)

Thomas St. Dennis

Summary Compensation Table

The following table sets forth a summary of annual and long-term compensation awarded to, earned by, or paid for the fiscal year ended December 31, 2018 to (a) the two individuals who served as principal executive officer of Veeco during the year,  (b) the principal financial officer of Veeco, and (c) the next most highly compensated executive officers (as defined in Rule 3b‑7 under the Exchange Act) of Veeco serving at the end of the year, of which there was one as of December 31, 2018 (the “NEOs”).

 

 

 

Grants of Plan-Based Awards

The following table sets forth certain information concerning grants to each NEO during 2018 of shares of restricted stock and restricted stock units made under the Company’s 2010 Stock Incentive Plan (as amended, the “2010 Plan”). In 2018, no stock options were awarded to the NEOs. The restricted stock and restricted stock unit awards made to the NEOs in 2018 are also included in the Stock Awards column of the Summary Compensation Table.

 

Outstanding Equity Awards at Fiscal Year End

The following table provides certain information as of December 31, 2018 concerning unexercised options and stock awards that had been granted but had not yet vested as of such date for each of the NEOs.  The

value of stock awards shown below is based upon the fair market value of the Company’s common stock on December 31, 2018, which was $7.41 per share.