UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

(AMENDMENT NO.          )

 

 

 

 

 

 

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5301 Stevens Creek Boulevard
Santa Clara, California 95051
(408) 553-2424

Notice of Annual Meeting of Stockholders

 

 

 

This Proxy Statement and the accompanying proxy card are being sent or made available
on or about February 7, 2019.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement contains forward-looking statements as defined in the Securities Exchange Act of 1934 and is subject to the safe harbors created therein. The forward-looking statements contained herein are generally identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on the beliefs and assumptions of our management and on currently available information. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in our annual report on Form 10-K for the fiscal year ended October 31, 2018.  We undertake no responsibility to publicly update or revise any forward-looking statement.

PROXY SUMMARY

The following is a summary which highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information you should consider, and you are urged to read the entire Proxy Statement carefully before voting.

Voting Matters and Vote Recommendations

We currently expect to consider four items of business at the 2019 annual meeting. The following table lists those items of business and our Board’s vote recommendation.

 

 

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Director Nominees

Our Board is currently divided into three classes serving staggered three-year terms.  The following table provides summary information about each of the three director nominees who are being voted on at the annual meeting.   

 

Corporate Governance Highlights

The Board is committed to sound and effective governance practices that promote long-term stockholder value and strengthen Board and management accountability to our stockholders, customers and other stakeholders. The following table highlights many of our key governance practices.  Specific details on our governance practices can be found starting on page 13.

 

 

 

 

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2019 ANNUAL MEETING OF STOCKHOLDERS

NOTICE OF ANNUAL MEETING AND PROXY STATEMENT

TABLE OF CONTENTS

 

 

 

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PROPOSAL 1 – ELECTION OF DIRECTORS

Our Board is divided into three classes serving staggered three-year terms. Directors for each class are elected at the annual meeting of stockholders held in the year in which the term for their class expires.  Our Bylaws, as amended, allow the Board to fix the number of directors by resolution. Our Board currently consists of ten directors divided into three classes.

On January 16, 2019, the Board, upon the recommendation of its Nominating/Corporate Governance Committee, increased the size of the Board from 10 to 11 members and appointed Mala Anand to fill the vacancy so created, both effective March 20, 2019. Ms. Anand was appointed to serve as a Class III director and will stand for re-election at the 2021 Annual Meeting of Stockholders.

Ms. Anand, age 51, has served as President, Intelligent Enterprise Solutions and Industries of SAP SE since October 2016.  Prior to joining SAP, Ms. Anand served as Senior Vice President, Data & Analytics and Automation Software Platform group at Cisco Systems, Inc. from July 2014 to October 2016 and as Vice President and General Manager, Services Platform Group at Cisco from October 2007 to June 2014. Prior to that, Ms. Anand held various senior executive positions in software products, go-to-market, services, and technology businesses and served as entrepreneur in residence for Kleiner Perkins Caufield and Byers, a venture capital firm.

The terms of three directors will expire at this annual meeting.  The current composition of the Board and the term expiration dates for each director is as follows:

 

Director Nominees for Election to New Three-Year Terms That Will Expire in 2022

 

Directors elected at the 2019 annual meeting will hold office for a three-year term expiring at the annual meeting in 2022 (or until their respective successors are elected and qualified, or until their earlier death, resignation or removal). All nominees are currently serving as our directors. To the best knowledge of the Board, all of the nominees are able and willing to serve.  Each nominee has consented to be named in this proxy statement and to serve if elected.  Information regarding each nominee is provided below as of December 31, 2018. There are no family relationships among our executive officers and directors.

 

 

Mr. Bishop served as president, chief executive officer and a member of the Board of Directors of Juno Therapeutics, Inc. from September 2013 to March 2018 when Juno was acquired by Celgene Corporation.  From February 2012 until October 2012, Mr. Bishop was the chief operating officer of Photothera Inc., a late-stage medical device company owned by Warburg Pincus, and he continued working with Warburg Pincus as an Executive in Residence until October 2013. Prior to joining Photothera Inc., Mr. Bishop served as executive vice president and chief operating officer at Dendreon Corporation, a publicly-traded biopharmaceutical company, from January 2010 to September 2011. Mr. Bishop has also served as the president of the specialty medicine business at Bayer Healthcare Pharmaceuticals Inc. from December 2006 to January 2010, where he was responsible for a diverse portfolio of neurology, oncology and hematology products.

Qualifications

 

Mr. Bishop brings a valuable set of skills to our Board through his broad experience as an operating officer within the pharmaceutical industry and executive experience in the biotechnology industry.

 

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Mr. Clark was a Strategic Advisory Board member of Genstar Capital, LLC from August 2007 to December 2016 and was an Operating Partner from August 2007 to January 2013.  Genstar Capital LLC is a middle market private equity firm that focuses on investments in selected segments of life sciences and healthcare services, industrial technology, business services and software. Prior to that, Mr. Clark was the Chief Executive Officer and President of ICOS Corporation, a biotherapeutics company, from June 1999 to January 2007, and the Chairman of the Board of Directors of ICOS from February 2000 to January 2007. From 1984 to December 1998, Mr. Clark worked in various capacities for Abbott Laboratories, a health care products manufacturer, retiring from Abbott Laboratories as Executive Vice President and a board member. His previous experience included senior positions with Marion Laboratories, a pharmaceutical company, and Sandoz Pharmaceuticals (now Novartis Corporation), a pharmaceutical company.

Qualifications

 

Mr. Clark has significant experience in the pharmaceutical and biotechnology industries, including his experience serving in senior management positions with ICOS Corporation, Abbott Laboratories, Marion Laboratories and Sandoz Pharmaceuticals.  In addition, Mr. Clark brings considerable public company director experience as well as his extensive experience within our industry and expertise in business finance.  Mr. Clark is the chairperson of our Audit and Finance Committee and is qualified as a financial expert under SEC guidelines.

 

 

Dr. Yamada is currently a Venture Partner on the Life Sciences team of Frazier Healthcare Partners, a healthcare-focused investment firm. From June 2011 to June 2015, Dr. Yamada served as the Chief Medical and Scientific Officer of Takeda Pharmaceuticals International, Inc., a research-based global pharmaceutical company. Dr. Yamada previously served as President of the Global Health Program of the Bill & Melinda Gates Foundation from June 2006 to June 2011. From 2000 to 2006, Dr. Yamada was Chairman of Research and Development for GlaxoSmithKline Inc. and prior to that, he held research and development positions at SmithKline Beecham. Prior to joining SmithKline Beecham, Dr. Yamada was Chairman of the Department of Internal Medicine at the University of Michigan Medical School and Physician-in-Chief of the University of Michigan Medical Center.

Qualifications

Dr. Yamada brings a unique perspective to our Board with his experience as the former President of the Global Health Program of the Bill & Melinda Gates Foundation as well as his significant research and development experience. Dr. Yamada’s extensive pharmaceutical industry knowledge gives him a unique insight into a number of issues we face.

 

Vote Required

Under our majority voting standard, in uncontested elections of directors, such as this election, each director must be elected by the affirmative vote of a majority of the votes cast by the shares present in person or represented by proxy and entitled to vote. A “majority of the votes cast” means that the number of votes cast “FOR” a director must exceed 50% of the votes cast with respect to that director. Abstentions and broker non-votes will not count as a vote “FOR” or “AGAINST” a nominee’s election and thus will have no effect in determining whether a director nominee has received a majority of the votes cast.

The Board of Directors recommends a vote FOR the election to the Board of each of the
foregoing nominees.

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The directors whose terms are not expiring this year and who will continue to serve as a director are listed below. They will continue to serve as directors for the remainder of their terms or such other date, in accordance with our Bylaws. Information regarding each of such directors is provided below as of December 31, 2018.

Directors Whose Terms Expire in 2020

 

 

 

 

Ms. Kunz served as Executive Vice President and Chief Financial Officer of Blue Shield of California from 2003 through 2012 and as Executive Vice President and the Chief Financial Officer of Gap, Inc. from 1999 to 2003. Prior thereto, Ms. Kunz served as the Chief Financial Officer of ITT Industries, Inc. from 1995 to 1999. From 1979 to 1995, she held senior financial management positions at General Motors Corporation, including Vice President and Treasurer.

Qualifications

Ms. Kunz possesses significant experience in management and financial matters, having served as the Chief Financial Officer of both public and private companies. Ms. Kunz previously served as the chairperson of our Audit and Finance Committee and was qualified as a financial expert under SEC guidelines. In addition, Ms. Kunz has considerable experience and expertise with our company having been a member of our Board for over 10 years.  

 

 

Ms. Rataj was Chief Executive, Petrochemicals for BP, a global energy company, until she retired in April 2011. In this role, she held responsibility for all of BP’s global petrochemical operations. Prior thereto, Ms. Rataj held a variety of senior management positions with BP, most recently serving as Group Vice President, Health, Safety, Operations and Technology for the Refining and Marketing Segment.

 

Qualifications

Ms. Rataj possesses significant leadership experience and business expertise from her executive positions with BP. Ms. Rataj has lived and worked extensively in the Asia Pacific and European regions and brings a global perspective to our Board. In addition, Ms. Rataj brings public company director experience and knowledge of public company management and governance practices.

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Dr. Scangos has served as Chief Executive Officer and a director of Vir Biotechnology, Inc. since January 2017.  From July 2010 to January 2017, Dr. Scangos served as the Chief Executive Officer and a director of Biogen Inc., a biopharmaceutical company. From 1996 to July 2010, Dr. Scangos served as the President and Chief Executive Officer of Exelixis, Inc., a drug discovery and development company. From 1993 to 1996, Dr. Scangos served as President of Bayer Biotechnology, where he was responsible for research, business development, process development, manufacturing, engineering and quality assurance of Bayer’s biological products. Before joining Bayer in 1987, Dr. Scangos was a Professor of Biology at Johns Hopkins University for six years.  Dr. Scangos served as the Chair of the California Healthcare Institute in 2010 and was a member of the Board of the Global Alliance for TB Drug Development from 2006 until 2010. He is also a member of the National Board of Visitors of the University of California, Davis School of Medicine and is currently an Adjunct Professor of Biology at Johns Hopkins University.

Qualifications

Dr. Scangos has extensive training as a scientist, significant knowledge and experience with respect to the biotechnology, healthcare and pharmaceutical industries, and a comprehensive leadership background resulting from service on various boards of directors and as an executive in the pharmaceutical industry.

 

 

Mr. Wilson has served as president and chief executive officer of Varian Medical Systems, Inc. since September 2012.  Prior to that, Mr. Wilson served in various capacities with Varian, including executive vice president and chief operating officer from October 2011 to September 2012 and vice president Varian Medical and president of Varian Medical Oncology Systems business from January 2005 to September 2011.  Prior to joining Varian Medical in 2005, Mr. Wilson held various senior management positions with GE Healthcare, a diversified industrial company.  

Qualifications

Mr. Wilson has a deep knowledge of the medical and healthcare industries through serving as president and chief executive officer of Varian Medical Systems and critical insight into operational requirements of a company with worldwide reach, knowledge of corporate and business unit strategies and operational expertise, gained from his executive management experience at GE Healthcare and Varian Medical Systems.  

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Directors Whose Terms Expire in 2021

 

 

Mr. Koh has served as non-Executive Chairman of our Board since March 2017.  Mr. Koh is the managing partner of Credence Capital Fund II (Cayman) Ltd., a private equity fund. Mr. Koh has served as the non-Executive Chairman of Sunningdale Tech Ltd. since January 2009 and previously served as its Executive Chairman and Chief Executive Officer from July 2005 to January 2009. He has served as the non-Executive Chairman of Yeo Hiap Seng Ltd. since April 2010, the non-Executive Chairman of Rippledot Capital Advisers Pte. Ltd. since February 2011 and the non-Executive Chairman of Far East Orchard Ltd. since April 2013. He served as Executive Director of MediaRing Limited from February 2002 to August 2009; Chairman of DBS Bank Ltd. from January 2006 to April 2010; Chairman of Singapore Airlines from July 2001 to December 2005 and Chairman of Singapore Telecom from April 1992 to August 2001. Mr. Koh spent fourteen years with Hewlett-Packard Company in its Asia Pacific region.

Qualifications

Mr. Koh possesses a strong mix of leadership and operational experience from his various senior positions with Sunningdale Tech, AAC Technologies, MediaRing Limited, DBS Bank, Singapore Airlines and Singapore Telecom. In addition, Mr. Koh has deep experience in the Asia Pacific region and brings that knowledge and perspective to the Board. Mr. Koh has extensive experience with our company and its predecessor, Hewlett-Packard, having served on our board for over 10 years and having spent 14 years with Hewlett-Packard.

 

 

Mr. McMullen has served as our Chief Executive Officer since March 2015 and as President since September 2014. From September 2014 to March 2015 he also served as our Chief Operating Officer. From September 2009 to September 2014 he served as Senior Vice President, Agilent and President, Chemical Analysis Group. Prior to that, he served in various capacities for Agilent including as our Vice President and General Manager of the Chemical Analysis Solutions Unit of the Life Sciences and Chemical Analysis Group and as Country Manager for our China, Japan and Korea Life Sciences and Chemical Analysis Group. Prior to that, Mr. McMullen served as the Controller for the Hewlett-Packard Company and Yokogawa Electric Joint Venture from July 1996 to March 1999. Since September 2018, Mr. McMullen has served as a member of the Board of Directors of Coherent, Inc.

Qualifications

Mr. McMullen has broad and deep experience with the company and its businesses having been an employee of the company and its predecessor, Hewlett-Packard, for over 20 years. During the course of his career, he has developed considerable expertise in, and in-depth knowledge of, our businesses from the perspective of an individual contributor and at numerous levels of management. This perspective gives valuable insight to our board.

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Dr. Podolsky has served as President of the University of Texas Southwestern Medical Center, a leading academic medical center, patient care provider and research institution, since September 2008. Previously Dr. Podolsky also served concurrently as Mallinckrodt Professor of Medicine at Harvard Medical School and the Chief of Gastroenterology at Massachusetts General Hospital. From 2005 to 2008, Dr. Podolsky served as Chief Academic Officer and Faculty Dean, Academic Programs of Partners Healthcare System, Inc., a non-profit health care system committed to patient care, research, teaching and service. Dr. Podolsky holds the Philip O’Bryan Montgomery, Jr., M.D. Distinguished Presidential Chair in Academic Administration, and the Doris and Bryan Wildenthal Distinguished Chair in Medical Science. He is a member of the National Academy of Medicine of the US National Academy of Sciences, a member of the Board of the Southwestern Medical Foundation and a member of the Scientific Advisory Board of Antibe Therapeutics, Inc., a company focused on the treatment of diseases characterized by inflammation, pain and/or vascular dysfunction. Dr. Podolsky is also a member of the National Academies of Sciences Board on Army Science and Technology.

Qualifications

Dr. Podolsky’s current responsibilities in leading a large academic medical center give him relevant insight into healthcare delivery and bring scientific expertise to the Board.

 

 

 

 

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COMPENSATION OF NON-EMPLOYEE DIRECTORS

Directors who are employed by us do not receive any compensation for their Board services. As a result, Mr. McMullen, our Chief Executive Officer, received no additional compensation for his services as a director. The general policy of the Board is that compensation for non-employee directors should be a mix of cash and equity-based compensation that is competitive with the compensation paid to non-employee directors within our peer group. The non-employee director’s compensation plan year begins on March 1 of each year (the “Plan Year”).

Summary of Non-Employee Director Annual Compensation for the 2018 Plan Year

The table below sets forth the annual retainer, equity grants and committee premiums for the non-employee directors and the Non-Executive Chairman for the 2018 Plan Year. Each non-employee director may elect to defer all or part of the cash compensation to the 2005 Deferred Compensation Plan for Non-Employee Directors (“Director Deferral Plan”). Any deferred cash compensation is converted into shares of our common stock.

 

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A non-employee director who joins the Board after the start of the Plan Year will have his or her cash retainer, equity grant and committee premium pro-rated based upon the remaining days in the Plan Year that the director will serve.

In September 2018, the Compensation Committee and the Board, based on the recommendation of the Compensation Committee’s independent compensation consultant, Semler Brossy Consulting Group LLC (“Semler Brossy”), concluded that the annual stock grant to non-employee directors should be increased from $200,000 in value to $225,000 in value so as to remain competitive with Agilent’s peer group.  No other changes were made to the non-employee director compensation for the 2019 Plan Year.  

 

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Non-Employee Director Compensation for Fiscal Year 2018

The table below sets forth information regarding the compensation earned by each of our non-employee directors during the fiscal year ended October 31, 2018:

 

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Non-Employee Director Reimbursement

Non-employee directors are reimbursed for travel and other out-of-pocket expenses incurred in connection with their service on our Board.

Non-Employee Director Stock Ownership Guidelines

Non-employee directors are required to own shares of our common stock having a value of at least six times an amount equal to the annual cash retainer. The shares counted toward the ownership guidelines include shares owned outright and the shares of our common stock in the non-employee director’s deferred compensation account. For recently appointed non-employee directors, these ownership levels must be attained within five years from the date of their initial election or appointment to the board of directors. All of our incumbent non-employee directors have either achieved the recommended ownership level or are expected to achieve the recommended ownership level within five years of their initial election or appointment to our Board.

 

 

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CORPORATE GOVERNANCE

We have had formal corporate governance standards in place since our inception in 1999. We have reviewed internally and with the Board the provisions of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), the rules of the Securities and Exchange Commission (SEC) and the New York Stock Exchange’s (NYSE) corporate governance listing standards regarding corporate governance policies and processes and are in compliance with the rules and listing standards.

We have adopted charters for our Audit and Finance Committee, Compensation Committee, Executive Committee and Nominating/Corporate Governance Committee consistent with the applicable rules and standards. Our committee charters, Amended and Restated Corporate Governance Standards and Standards of Business Conduct are located in the Investor Relations section of our website and can be accessed by clicking on “Governance Policies” in the “Corporate Governance” section of our web page at www.investor.agilent.com.

Board Leadership Structure

We currently separate the positions of chief executive officer and chairman of the Board.  Mr. Koh was appointed chairman of the Board in March 2017.  The responsibilities of the chairman of the Board include: setting the agenda for each Board meeting, in consultation with the chief executive officer; chairing the meetings of independent directors; and facilitating and conducting, with the Nominating/Corporate Governance Committee, the annual self-assessments by the Board and each standing committee of the Board, including periodic performance reviews of individual directors. Separating the positions of chief executive officer and chairman of the Board allows our chief executive officer to focus on our day-to-day business, while allowing the chairman of the Board to lead the Board in its fundamental role of providing advice to and independent oversight of management. The Board believes that having an independent director serve as chairman of the Board is the appropriate leadership structure for the company at this time.

However, our Corporate Governance Standards permit the roles of the chairperson of the Board and the chief executive officer to be filled by the same or different individuals. This provides the Board with flexibility to determine whether the two roles should be combined in the future based on our needs and the Board’s assessment of our leadership from time to time. Our Corporate Governance Standards provide that, in the event that the chairperson of the Board is also the chief executive officer, the Board may consider the election of an independent Board member as a lead independent director.

In 2014, we amended the Corporate Governance Standards to raise the mandatory retirement age for directors from 72 to 75.  The Board made the change in recognition of the contribution that experienced directors, with knowledge of the company, bring to effective board oversight.

Board’s Role in Risk Oversight

The Board executes its risk management responsibility directly and through its committees.  The full Board is kept abreast of risk oversight and other activities of its committees through reports of the committee chairpersons to the full Board during Board meetings.  The Audit and Finance Committee has primary responsibility for overseeing our enterprise risk management process. The Audit and Finance Committee receives updates and discusses individual and overall risk areas during its meetings, including our financial risk assessments, risk management policies and major financial risk exposures and the steps management has taken to monitor and control such exposures.

The Compensation Committee oversees risks associated with our compensation policies and practices with respect to both executive compensation and compensation generally.  The Compensation Committee receives reports and discusses whether our compensation policies and practices create risks that are reasonably likely to have a material adverse effect on the company.

Majority Voting for Directors

Our Bylaws provide for majority voting of directors regarding director elections. In an uncontested election, any nominee for director shall be elected by the vote of a majority of the votes cast with respect to the director. A “majority of the votes cast” means that the number of shares voted “FOR” a director must exceed 50% of the votes cast with respect to that director. The “votes cast” shall include votes to withhold authority and exclude votes to “ABSTAIN” with respect to that director’s election. If a director is not elected due to a failure to receive a majority of the votes cast and his or her successor is not otherwise elected and qualified, the director shall promptly tender his or her resignation following certification of the stockholder vote.

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The Nominating/Corporate Governance Committee will consider the resignation offer and recommend to the Board whether to accept or reject it, or whether other action should be taken. The Board will act on the Nominating/Corporate Governance Committee’s recommendation within 90 days following certification of the stockholder vote. Thereafter, the Board will promptly disclose their decision and the rationale behind it in a press release to be disseminated in the same manner as company press releases typically are distributed.  Any director who tenders his or her resignation pursuant to this provision shall not participate in the Nominating/Corporate Governance Committee recommendation or Board action regarding whether to accept the resignation offer.

Board Communications

Stockholders and other interested parties may communicate with the Board and our Non-Executive Chairperson of the Board of Directors by filling out the form at “Contact Chairman” under “Corporate Governance” at www.investor.agilent.com or by writing to Koh Boon Hwee, c/o Agilent Technologies, Inc., General Counsel, 5301 Stevens Creek Blvd., MS 1A-11, Santa Clara, California 95051. The General Counsel will perform a legal review in the normal discharge of duties to ensure that communications forwarded to the Non-Executive Chairperson preserve the integrity of the process. For example, items that are unrelated to the duties and responsibilities of the Board such as spam, junk mail and mass mailings, product complaints, personal employee complaints, product inquiries, new product suggestions, resumes and other forms of job inquiries, surveys, business solicitations or advertisements (the “Unrelated Items”) will not be forwarded to the Non-Executive Chairperson. In addition, material that is unduly hostile, threatening, illegal or similarly unsuitable will not be forwarded to the Non-Executive Chairperson.

Any communication that is relevant to the conduct of our business and is not forwarded will be retained for one year (other than Unrelated Items) and made available to the Non-Executive Chairperson and any other independent director on request. The independent directors grant the General Counsel discretion to decide what correspondence shall be shared with our management and specifically instruct that any personal employee complaints be forwarded to our Human Resources Department.

Director Stockholder Meeting Attendance

We encourage, but do not require, our Board members to attend the annual meeting of stockholders. Last year, all but one of our directors who were serving at such time, attended the annual meeting of stockholders.

Director Independence

We have adopted standards for director independence in compliance with the NYSE corporate governance listing standards.  These independence standards are set forth in our Corporate Governance Standards.  The Board has affirmatively determined that all of our directors meet these independence standards with the exception of Michael R. McMullen because of his role as our President and Chief Executive Officer.

Our non-employee directors meet at regularly scheduled executive sessions without management.  The Non-Executive Chairman of the Board presides at executive sessions of the non-management directors.

Compensation Committee Member Independence

We have adopted standards for compensation committee member independence in compliance with the NYSE corporate governance listing standards. In affirmatively determining the independence of any director who will serve on the compensation committee, the Board of Directors considers all factors specifically relevant to determining whether such director has a relationship to the company or any of its subsidiaries which is material to such director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to:

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Director Nomination Criteria: Qualifications and Experience

The Nominating/Corporate Governance Committee will consider director candidates for nomination by stockholders, provided that the recommendations are made in accordance with the procedures described in the section entitled “General Information” located at the end of this proxy statement.  Candidates recommended for nomination by stockholders that comply with these procedures will receive the same consideration as other candidates recommended by the Nominating/Corporate Governance Committee.

We typically hire a third-party search firm to help identify and facilitate the screening and interview process of candidates for director.  To be considered by the Nominating/Corporate Governance Committee, a director candidate must have:

In addition to these minimum requirements, the Nominating/Corporate Governance Committee will also consider whether the candidate’s skills are complementary to the existing Board members’ skills; the diversity of the Board in factors such as age, experience in technology, manufacturing, finance and marketing, international experience and culture; and the Board’s needs for specific operational, management or other expertise. The Nominating/Corporate Governance Committee from time to time reviews the appropriate skills and characteristics required of board members, including factors that it seeks in board members such as diversity of business experience, viewpoints and, personal background, and diversity of skills in technology, finance, marketing, international business, financial reporting and other areas that are expected to contribute to an effective Board of Directors. In evaluating potential candidates for the Board of Directors, the Nominating/Corporate Governance Committee considers these factors in the light of the specific needs of the Board of Directors at that time.  The search firm screens the candidates, does reference checks, prepares a biography of each candidate for the Nominating/Corporate Governance Committee to review and helps set up interviews.  The Nominating/Corporate Governance Committee and our Chief Executive Officer interview candidates that meet the criteria, and the Nominating/Corporate Governance Committee selects candidates that best suit the Board’s needs.  We do not use a third-party to evaluate current Board members.

 

 

 

 

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Committees of the Board of Directors

Our Board met eight times in fiscal 2018.  Each director attended at least 75% of the aggregate number of Board and applicable committee meetings held when the director was serving on the Board other than Dr. Scangos.  Set forth below are the four standing committees of the Board, their primary duties, their current members and the number of meetings held during fiscal 2018.

 

† Financial Expert

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Related Person Transactions Policy and Procedures

Our Standards of Business Conduct and Director Code of Ethics require that all employees and directors avoid conflicts of interests that interfere with the performance of their duties or the best interests of the company. In addition, we have adopted a written Related Person Transactions Policy and Procedures (the “Related Person Transactions Policy”) that prohibits any of our executive officers, directors or any of their immediate family members from entering into a transaction with the company, except in accordance with the policy. For purposes of the policy, a “related person transaction” includes any transaction involving the company and any related person that would be required to be disclosed pursuant to Item 404(a) of the Securities and Exchange Commission’s Regulation S-K.

Under our Related Person Transactions Policy, the General Counsel must advise the Nominating/Corporate Governance Committee of any related person transaction of which he becomes aware. The Nominating/Corporate Governance Committee must then either approve or reject the transaction in accordance with the terms of the policy. In the course of making this determination, the Nominating/Corporate Governance Committee shall consider all relevant information available to it and, as appropriate, must take into consideration the following:

Under the Related Person Transactions Policy, company management screens for any potential related person transactions, primarily through the annual circulation of a Director and Officer Questionnaire (“D&O Questionnaire”) to each member of the Board of Directors and each officer of the company who is a reporting person under Section 16 of the Securities Exchange Act of 1934. The D&O Questionnaire contains questions intended to identify related persons and transactions between the company and related persons. If a related person transaction is identified, such transaction is brought to the attention of the Nominating/Corporate Governance Committee for its approval, ratification, revision, or rejection in consideration of all of the relevant facts and circumstances.

The Nominating/Corporate Governance Committee must approve or ratify each related person transaction in accordance with the policy. Absent this approval or ratification, no such transaction may be entered into by the company with any related person.  The Related Person Transactions Policy provides for standing pre-approval of the following transactions with related persons:

We will disclose the terms of related person transactions in our filings with the SEC to the extent required.

Transactions with Related Persons

We purchase services, supplies, and equipment in the normal course of business from many suppliers and sell or lease products and services to many customers. In some instances, these transactions occur with companies with which members of our management or Board have relationships as directors or executive officers. For transactions entered into during fiscal year 2018, no related person had or will have a direct or indirect material interest.   None of the fiscal year 2018 transactions exceeded or fell outside of the pre-approved thresholds set forth in our Related Person Transactions Policy except for transactions with Juno Therapeutics, Inc. (“Juno”), the University of Texas Southwestern Medical Center (“UTSW”) and Varian Medical Systems, Inc. (“Varian”).  

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Hans E. Bishop served as the President and Chief Executive Officer of Juno until March 2018, Daniel K. Podolsky, M.D., is the President of UTSW and Dow R. Wilson, who joined our Board in March 2018, is the President and Chief Executive Officer of Varian.  The members of the Nominating/Corporate Governance Committee, excluding Mr. Bishop, Dr. Podolsky and Mr. Wilson, for their company’s respective transactions only, reviewed, approved and ratified the transactions with Juno, UTSW and Varian in accordance with the policy.

Below is a summary of the aggregate transactions between Agilent and each of Juno, UTSW and Varian that occurred in fiscal 2018 or during the time such Agilent director served as an officer of Juno, UTSW or Varian.

 

 

 

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PROPOSAL NO. 2 – APPROVAL OF THE RESERVATION OF 25,000,000 SHARES UNDER THE 2018 STOCK PLAN

 

On November 14, 2018, the Board of Directors approved an increase to the shares reserved for issuance under the 2018 Stock Plan, as amended (the “2018 Plan”), of 25,000,000 shares, which is subject to your approval at the annual meeting. The 2018 Plan was previously adopted by the Board on November 15, 2017 as an amendment and restatement of our 2009 Stock Plan (the “2009 Plan”), which replaced our 1999 Stock Plan and 1999 Non-Employee Director Stock Plan (collectively, the “1999 Plan”), and was approved by stockholders at the annual meeting held on March 21, 2018.  We intended to include a request for 25,000,000 additional shares in the proposal presented to stockholders at the annual meeting held on March 21, 2018 but it was unclear to stockholders that we were making that request.  We made a conservative decision that stockholders were not asked at the 2018 annual meeting to approve any new shares for issuance under the 2018 Plan.  Prior to this proposal, no new shares have been added to either the 2009 Plan or to the 2018 Plan since the 2009 Plan was initially approved by stockholders at the 2009 annual meeting. Stockholders are now being asked to approve an increase of 25,000,000 shares in order to allow us to continue to provide stock-based incentive compensation to eligible participants under the 2018 Plan.

The 2018 Plan is our primary plan for providing stock-based incentive compensation to our eligible employees and non-employee directors to motivate and reward these individuals and to facilitate stock ownership. As of November 1, 2018, that is, prior to the proposed amendment, 6,158,260 shares remained available for future awards granted under the 2018 Plan, which the Board of Directors believes is insufficient to meet our anticipated needs. If this proposal is approved by stockholders, then, effective as of such date, the number of shares that may be subject to awards granted under the 2018 Plan will equal the number of shares remaining available for issuance under the 2018 Plan as of immediately prior to such date plus 25,000,000 shares.  If this proposal is not approved by stockholders, then our ability to provide future awards to attract, provide incentives to and retain key personnel and non-employee directors would be limited significantly.  The shares that will become available for grant under the 2018 Plan pursuant to this proposal, if approved by the stockholders, represent approximately 7.18% of the common shares of the Company outstanding on a fully-diluted basis as of November 1, 2018. No other material changes are being included in this proposal.

Below is a summary of the material features of the 2018 Plan and its operation. This summary does not purport to be a complete description of all of the provisions of the 2018 Plan. It is qualified in its entirety by reference to the full text of the 2018 Plan. A copy of the 2018 Plan (as amended) is attached as Appendix B to this Proxy Statement.

Purpose of the 2018 Plan

The purpose of the 2018 Plan is to encourage ownership in the Company by its employees, directors and consultants whose long-term employment by or involvement with the Company is considered essential to the Company’s continued progress and, thereby, aligning the interests of the award recipients and stockholders and permitting the award recipients to share in the Company’s success. The 2018 Plan provides an essential component of the total compensation package offered to the Company’s key employees. It reflects the importance placed by the Company on motivating employees to achieve superior results over the long term and paying employees based on that kind of achievement. The Company strongly believes that its equity compensation programs and emphasis on employee stock ownership have been integral to the Company’s success and that a continuation of those programs is necessary for the Company to achieve superior performance in the future.

Key Features of the 2018 Plan

The 2018 Plan contains features that the Board believes are consistent with the interests of stockholders and sound governance principles. These features include the following:

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Administration of the 2018 Plan

The 2018 Plan may be administered by the Board or any of its committees (“Administrator”) and is currently administered by the Compensation Committee, which is a committee of “non-employee directors” for purposes of Rule 16b-3. The Administrator has the power in its discretion to grant awards under the 2018 Plan, to determine the terms of such awards, to interpret the provisions of the 2018 Plan and to take action as it deems necessary or advisable for the administration of the 2018 Plan. In accordance with the terms of the 2018 Plan, the 2018 Plan may be administered by different committees with respect to different groups of participants in the 2018 Plan.

Number of Authorized Shares

 

The total number of shares authorized and available for issuance under the 2018 Plan is (i) 25,000,000, subject to approval by the stockholders, plus (ii) any shares that were previously authorized for issuance under the 2018 Plan and remained available for issuance as of immediately prior to the date on which the proposed amendment is approved by stockholders. In addition, if any award previously granted under the 2009 Plan or the 1999 Plan is forfeited, expires or becomes unexercisable without having been exercised in full, the shares subject to such award will again be available for grant under the 2018 Plan. It is anticipated that this share reserve will be sufficient to cover all Company stock awards through fiscal 2028. Shares granted as options or SARs will be counted against this limit as one share for every one share granted. Shares granted as awards other than options or SARs will be counted against this limit as two shares for every one share granted. The maximum number of options or SARs under the 2018 Plan that may be granted in any one fiscal year to an individual participant may not exceed 1,500,000 shares. Notwithstanding the foregoing, in connection with a participant’s initial service, such participant may be granted awards for up to an additional 1,000,000 shares that will not count against this limit. Shares issued under the 2018 Plan may be currently authorized but unissued shares, or shares currently held or subsequently acquired by the Company as treasury shares, including shares purchased in the open market

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or in private transactions. On January 22, 2019, the per share closing price of Agilent’s common stock as reported on the NYSE was $71.32.

In the event of certain changes in the capitalization of the Company the Administrator will adjust the number and class of shares available for issuance under the 2018 Plan to prevent dilution or enlargement of rights. Except as described below, shares subject to an award under the 2018 Plan, the 2009 Plan or the 1999 Plan that are terminated, expire unexercised, or are forfeited, or repurchased by the Company at their original purchase price shall be available for subsequent awards under the 2018 Plan. Any shares that again become available for issuance under the 2018 Plan will be added back on a one to one basis for shares subject to options or SARs (as defined below in “-Types of Awards under the 2018 Plan”), or on a two to one basis for awards other than options or SARs.

Awards granted in assumption of, or in substitution for, awards previously granted by a company acquired by, or merged into, the Company or a subsidiary (“Substitute Awards”) will not reduce the shares authorized for issuance under the 2018 Plan or authorized for grant to a participant in any calendar year. Further, shares available for grant under stock plans assumed by the Company in an acquisition may be added to the available share reserve under the 2018 Plan.

Payments of the exercise price or applicable taxes made by delivery of shares to, or withholding of shares by, the Company in satisfaction of a participant’s obligations, or shares repurchased on the open market with the proceeds of an option exercise price, will not result in additional shares becoming available for subsequent awards under the 2018 Plan.

Eligibility and Participation

Eligibility to participate in the 2018 Plan is limited to employees (including officers), directors and consultants of Agilent, its affiliates or subsidiaries, as determined by the Administrator. Participation in the 2018 Plan is at the discretion of the Administrator. As of November 1, 2018, there were approximately 14,800 employees and nine nonemployee directors eligible to receive awards under the 2018 Plan. We currently do not make awards to consultants.

Types of Awards under the 2018 Plan

The 2018 Plan authorizes the Administrator to grant awards, individually or collectively, to participants in any of the following forms, subject to such terms, conditions and provisions as the Administrator may determine to be necessary or desirable:

Options and SARs

Stock options entitle the option holder to purchase shares at a price established by the Administrator. Options may be either ISOs or NSOs, provided that only employees may be granted ISOs. SARs entitle the SAR holder to receive cash equal to the positive difference (if any) between the fair market value of shares on the trading date and the exercise price. The Company does not currently have a practice of awarding ISOs, NSOs or SARs.

Exercise Price

The Administrator will determine the exercise price of an option and a SAR at the date of grant, which price, except in the case of Substitute Awards, may not be less than 100% of the fair market value of the underlying shares on the date of grant. The 2018 Plan

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prohibits any repricing, replacement, regrant or modification of stock options or SARs that would reduce the exercise price of the stock options or SARs without stockholder approval, other than in connection with a change in the Company’s capitalization or Substitute Awards.

Vesting/Expiration of Options

The Administrator may determine the terms under which options and SARs will vest and become exercisable. The Company’s practice is to vest options at 25% per year over 4 years, with a 10-year option term, except where different vesting or option terms are required or are advisable under local law.

Special Limitations on ISOs

If options were to be granted as ISOs, these options would be subject to certain additional restrictions imposed on ISOs by the Internal Revenue Code (the “Code”) including, but not limited to, restrictions on the post-termination exercise period of such options, the status of the individual receiving the grant and the number of options that could become exercisable for the first time by a participant in a given calendar year. Furthermore, if shares acquired upon exercise of an ISO are disposed of by a participant prior to the expiration of two years from the date of grant or one year from the date of exercise, or otherwise in a “disqualifying disposition” under the Code, the participant would have federal income tax consequences as described under “-U.S. Federal Income Tax Consequences”.

Exercise of Options

An option holder may exercise his or her option by giving written notice to the Company or a duly authorized agent of the Company stating the number of shares for which the option is being exercised and tendering payment for such shares. The Administrator may, in its discretion, accept cash, check or wire transfer, previously acquired shares (valued at their fair market value on the date of exercise) and consideration under a cashless exercise program, or a combination thereof as payment.

Surrender or Exchange of SARs

Upon surrender of a SAR, a participant will be entitled to receive cash, shares or a combination thereof, as specified in the award agreement, having an aggregate fair market value equal to the excess of (i) the fair market value of one share as of the date on which the non-tandem SAR is exercised over (ii) the base price of the shares covered by the non-tandem SAR, multiplied by the number of shares covered by the SAR, or the portion thereof being exercised.

Termination of Options and SARs

In the event that a participant’s service with the Company or its subsidiaries terminates prior to the expiration of an option or SAR, the participant’s right to exercise vested options or SARS shall be governed by the terms of the applicable award agreement approved by the Administrator at the time of grant.

Stock Awards and Performance Shares

Stock awards, including restricted stock, RSUs, performance shares and performance units, may be issued either alone, in addition to, or in tandem with other awards granted under the 2018 Plan. Stock awards may be denominated in shares or units payable in shares (e.g. RSUs), and may be settled in cash, shares, or a combination of cash and shares. Restricted stock granted to participants may not be sold, transferred, pledged or otherwise encumbered or disposed of during the restricted period established by the Administrator. The Administrator may also impose additional restrictions on a participant’s right to dispose of or to encumber restricted stock, including the satisfaction of performance objectives.

The Company currently grants RSUs to certain employees who are not executives of the Company. Grants are typically made once a year and vest 25% per year over 4 years unless different vesting is required or advisable under local law. The Company currently grants performance-based RSUs annually to its executives pursuant to the Long Term Performance Program (“LTP” or the “LTP Program”). LTP awards are generally designed to meet the criteria of a performance award with the performance metrics and peer group comparison set at the beginning of the performance period and are not thereafter modified. LTP awards are paid out based upon a 3-year performance period and only if the established performance criteria have been met, as determined by the Administrator. The Company also makes New Executive Stock Awards to newly hired or promoted executives, which are RSUs that

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mirror the LTP performance criteria for a 3-year performance period that is already in progress when an executive is first hired or is first promoted to an executive position.

In addition, the Company grants RSUs to nonemployee directors (referred to in the 2018 Plan as “Deferred Shares”) which are subject to payment and deferral rules intended to comply with Section 409A of the Code.

Termination of Stock Awards

In the event that a participant’s service with the Company or its subsidiaries terminates prior to the vesting of a stock award, that award will be forfeited unless the terms of the award, as approved by the Administrator at the time of grant, provide for continued or accelerated vesting.

Cash Incentive Awards

The Administrator may grant “cash incentive awards” under the 2018 Plan, which is the grant of a right to receive a payment of cash (or in the discretion of the Administrator, shares of common stock having value equivalent to the cash otherwise payable) that are contingent on achievement of performance objectives over a specified period established by the Administrator. The grant of cash incentive awards may also be subject to such other conditions, restrictions and contingencies, as determined by the Administrator, including provisions relating to deferred payment.

Qualifying Performance-Based Compensation

The Administrator may specify that the grant, retention, vesting, or issuance of any award (whether in the form of a stock option, SAR, restricted stock, RSU or a performance award) or the amount to be paid out under any award, be subject to or based on performance objectives or other standards of financial performance and/or personal performance evaluations. The number of shares issued or the amount paid under an award may, to the extent specified in the award agreement, be reduced by the Administrator on the basis of such further considerations as the Administrator in its sole discretion shall determine.

Establishment of Performance Goals

At the beginning of each performance period the Administrator will establish performance goals applicable to the performance awards. Such performance goals may be based upon the achievement of a specified percentage or level in one or more criteria of the following criteria and any adjustment(s) thereto as determined by the Administrator in its sole discretion: (i) revenue; (ii) margin; (iii) income; (iv) earnings or income measures (including earnings before interest, taxes and depreciation and amortization); (v) pre-tax profit; (vi) expenses; (vii) share price performance; (viii) earnings per share; (ix) return measures (including return on assets, capital, invested capital, equity, sales or revenue); (x) economic value added; (xi) market share; (xii) safety; (xiii) total stockholder return; (xiv) cash flow (including free cash flow); (xv) size-adjusted growth in earnings; (xvi) net order dollars; (xvii) contract bookings; (xviii) contract awards; (xix) book to bill; (xx) backlog; (xxi) customer metrics (including service, satisfaction, retention or profitability); (xxii) productivity; (xxiii) expense targets; (xxiv) market share; (xxv) cost control measures; (xxvi) balance sheet metrics; (xxvii) strategic initiatives; (xxviii) implementation, completion or attainment of measurable objectives with respect to recruitment or retention of personnel or employee satisfaction; (xxix) successful completion of, or achievement of milestones or objectives related to financing or capital raising transactions, strategic acquisitions or divestitures, joint ventures, partnerships, collaborations or other transactions; (xxx) debt levels or debt ratios; (xxxi) operating efficiency; (xxxii) working capital targets, including days working capital; (xxxiii) quantifiable, objective measures of individual performance relevant to the particular individual’s job responsibilities; (xxxiv) any combination of the foregoing business criteria; and (xxxv) such other criteria as determined by the Administrator.

Any criteria that are financial metrics may be determined in accordance with United States Generally Accepted Accounting Principles (“GAAP”) or may be adjusted when established or thereafter to include or exclude any items otherwise includable or excludable under GAAP. The performance goals may be based on one or more business criteria, one or more business units, divisions, subsidiaries or business segments of the Company and/or one or more product lines or products of the company, or the Company as a whole, and if so desired by the Administrator, on an absolute or relative basis. Performance awards granted under the 2018 Plan may contain such additional terms and conditions, not inconsistent with the terms of the 2018 Plan, as the Administrator may determine.

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Limited Transferability of Awards

The Administrator retains the authority and discretion to permit an award (other than an ISO) to be transferable as long as such transfers are made by a participant to the participant’s immediate family or trusts established solely for the benefit of one or more members of the participant’s immediate family. Awards may otherwise not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by the beneficiary designation, will or by the laws of descent or distribution and may be exercised, during the lifetime of the participant, only by the participant.

Tax Withholding

The Administrator may require payment, or withhold payments made by the 2018 Plan, to satisfy applicable withholding tax requirements.

Change in Control

Unless otherwise determined by the Administrator and set forth in the applicable award agreement, in the event of certain transactions described in the 2018 Plan constituting a change in control or the sale of substantially all of the assets of the Company for which a participant is performing services, all awards will fully vest immediately prior to the closing of the transaction. The foregoing shall not apply where such awards are assumed, converted or replaced in full by the successor corporation or a parent or subsidiary of the successor; provided, however, that in the event of a change of control in which one or more of the successor or a parent or subsidiary of the successor has issued publicly traded equity securities, the assumption, conversion, replacement or continuation shall be made by an entity with publicly traded securities and shall provide that the holders of such assumed, converted, replaced or continued stock options and SARs shall be able to acquire such publicly traded securities.

In the event of the dissolution or liquidation of the Company, the Administrator in its sole discretion may provide for an option or SAR to be fully vested and exercisable until ten days prior to such transaction, or such shorter reasonable period of time as the Administrator may establish in its discretion. In addition, the Administrator may provide that any restrictions on any award shall lapse prior to the transaction, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an award will terminate immediately prior to the consummation of such proposed transaction.

Termination and Amendment of the 2018 Plan

The Board may amend, suspend or terminate the 2018 Plan or the Administrator’s authority to grant awards under the 2018 Plan without the consent of stockholders or participants; provided, however, that any amendment to the 2018 Plan will be submitted to the Company’s stockholders for approval if such stockholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the shares may then be listed or quoted and the Board may otherwise, in its sole discretion, determine to submit other amendments to the 2018 Plan to stockholders for approval. Except in the event of certain changes in the capitalization of the Company, the total number of shares authorized and available for issuance under the 2018 Plan may not be increased by the Company without stockholder approval. Any such amendment, suspension, or termination may not materially and adversely affect the rights of a participant under any award previously granted without such participant’s consent.

It is the intention of the Company that, to the extent that any provisions of the 2018 Plan or any awards granted under the 2018 Plan are subject to Section 409A of the Code (relating to nonqualified deferred compensation), the 2018 Plan and the awards comply with the requirements of Section 409A of the Code. Further, it is the intention of the Company that the 2018 Plan and awards granted under it that are subject to Section 409A of the Code will be interpreted and administered in good faith in accordance with such requirements and that the Administrator will have the authority to amend any outstanding awards to conform to the requirements of Section 409A.

Term of 2018 Plan

Unless earlier terminated by the Board, the 2018 Plan will terminate March 21, 2028.

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U.S. Federal Income Tax Consequences

Stock options. There will be no federal income tax consequences to a participant or the Company upon the grant of either an ISO or an NSO under the 2018 Plan. Upon exercise of an NSO, the option holder generally will recognize ordinary income in an amount equal to: (i) the fair market value, on the date of exercise, of the acquired shares, less (ii) the exercise price of the NSO. Provided the Company satisfies applicable reporting requirements, it will be entitled to a tax deduction in the same amount.

Upon the exercise of an ISO, an option holder generally recognizes no immediate ordinary taxable income. Provided that certain holding periods are met, income recognition is deferred until the option holder sells the shares. If the ISO is exercised no later than three months after the termination of the option holder’s employment, and the option holder does not dispose of the shares so acquired within two years from the date the ISO was granted and within one year after the exercise of the ISO, the gain on the sale will be treated as long-term capital gain. Certain of these employment requirements are liberalized in the event of an option holder’s death or disability while employed by the Company.

Generally, the Company will not be entitled to any tax deduction for the grant or exercise of an ISO. If, however, the shares are not held for the full term of the holding period outlined above, the gain on the sale of such shares, being the lesser of: (i) the fair market value of the shares on the date of exercise minus the exercise price, or (ii) the amount realized on disposition minus the exercise price, will be taxed to the participant as ordinary income, and provided the Company satisfies applicable reporting requirements, the Company will be entitled to a deduction in the same amount. The excess of the fair market value of the shares acquired upon exercise of an ISO over the exercise price therefor constitutes a tax preference item for purposes of computing the “alternative minimum tax” under the Code.

SARs. There will be no federal income tax consequences to either a participant or the Company upon the grant of a SAR. However, the participant generally will recognize ordinary income upon the exercise of a SAR in an amount equal to the aggregate amount of cash and the fair market value of the shares received upon exercise. Provided the Company satisfies applicable reporting requirements, the Company will be entitled to a deduction equal to the amount included in the participant’s income.

RSUs & Restricted Stock. Except as otherwise provided below, there will be no federal income tax consequences to either a participant or the Company upon the grant of restricted stock or an RSU. When an RSU is settled, the participant will recognize ordinary income in an amount equal to the fair market value of the shares received or, if the RSU is paid in cash, the amount payable. With respect to restricted stock, the participant will recognize ordinary income in an amount equal to the excess, if any, that the participant paid for the shares over the fair market value of the shares on the earlier of (i) the date of vesting; and (ii) the date the shares become transferable. Subject to Section 162(m), and provided the Company satisfies applicable reporting requirements, the Company will be entitled to a corresponding deduction. Notwithstanding the above, a recipient of a restricted stock grant may make an election under Section 83(b) of the Code, within thirty days after the date of the grant, to recognize ordinary income as of the date of grant and the Company will be entitled to a corresponding deduction at that time.

Performance Awards. There will be no federal income tax consequences to a participant or the Company upon the grant of qualifying performance-based compensation awards. Participants will generally recognize taxable income upon the payment of an award, and subject to Section 162(m), the Company generally will be entitled to a deduction equal to the amount includible in the participant’s income.

Golden Parachute Payments. Awards that are granted, accelerated or enhanced upon the occurrence of, or in anticipation of, a change in control may give rise, in whole or in part, to “excess parachute payments” under Section 280G and Section 4999 of the Code. Under these provisions, the participant would be subject to a 20% excise tax on, and the Company would be denied a deduction with respect to, any “excess parachute payments.”

Section 162(m) of the Code. Section 162(m) of the Internal Revenue Code imposes an annual deduction limitation of $1 million on the amount of compensation paid to certain of its top executive officers.  Prior to the Tax Cut and Jobs Act of 2017 (the “Tax Act”), the deduction limit did not apply to “performance-based compensation” that complied with conditions imposed by Section 162(m) regulations and when the material terms of such compensation were disclosed to and approved by stockholders.  Effective November 2, 2017, the Tax Act eliminated the Section 162(m) provisions exempting performance-based compensation from the $1 million deduction limit.  The Tax Act provides limited transition relief for “performance-based compensation” pursuant to certain grandfathered arrangements in effect as of November 2, 2017.  The compensation to certain officers from stock options, SARs and performance awards granted under the 2018 Plan and described above may not be deductible for federal income tax purposes as it

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may be limited by Section 162(m).  The Administrator believes it is appropriate to retain the flexibility to authorize payments of compensation that may not qualify for deductibility if, in the Administrator’s judgment, it is in the Company’s best interest to do so.

New Plan Benefits

The benefits or amounts that will be received by or allocated to participants under the 2018 Plan are not provided because final awards made under the 2018 Plan are made at the Administrator’s discretion, subject to the terms of the 2018 Plan and the award grants. Therefore, the benefits and amounts to be received or allocated under the 2018 Plan are not determinable at this time. Our grant of performance stock units and restricted stock units to our Named Executive Officers is described in the Compensation Discussion and Analysis and Executive Compensation sections of this proxy statement. The equity grant program for our non-employee directors is described under the Compensation of Non-Employee Directors section of this proxy statement.

Equity Compensation Plan Information

The following table summarizes information about our equity compensation plans as of October 31, 2018. All outstanding awards relate to our common stock.

 

_______________________

 

 

 

Agilent’s Board recommends a vote FOR the approval of the reservation of 25,000,000 shares under

the Agilent Technologies, Inc. 2018 Stock Plan

 

 

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Dear Stockholder,

We are very pleased with our fiscal year 2018 results.  Our adjusted operating margins were 22.8%, exceeding our CEO’s commitment to shareholders for 2018, and adjusted earnings per share increased by 18.2% over fiscal year 2017. The company continues to create stockholder value through dividends, stock buy-backs and complementary acquisitions that bolster our market position. The leadership team, led by our CEO Mike McMullen, has built tremendous momentum throughout the years, expanding our product portfolio, extending into adjacent markets through smart acquisitions and improving the customer experience by streamlining processes, modernizing systems and making the company more efficient and customer friendly.

We believe our current executive compensation program is effectively focusing our executive team on the most critical short- and long-term strategic priorities.   Our recent results are evidence that the program is working.  Our executive team is delivering superior results and the company is on a strong growth trajectory that translates into increased stockholder value.  We have continued our ongoing dialog with our stockholders which we believe is valuable.  Our stockholders support our current executive compensation program and see no need for major modifications as evidenced by our Say on Pay vote results and the feedback from our shareholder outreach efforts.  We strongly agree with this sentiment and thus have made no significant changes to our executive compensation program for fiscal year 2019.  We believe our current formula is working well.  

In the Compensation Discussion and Analysis that follows, we discuss our fiscal year 2018 CEO and Officer compensation in more detail and share additional information about the program refinements we implemented for fiscal year 2018.  You will see that our commitment to both pay for performance and clear, transparent disclosure is strong.  We encourage you to review this analysis carefully and hope you agree that our executive compensation program is achieving our objectives of supporting the company’s growth strategy and creating long-term stockholder value.

 

Compensation Committee

Tadataka Yamada, M.D., Chairperson

Hans E. Bishop
Heidi Kunz

George A. Scangos, PhD

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COMPENSATION DISCUSSION AND ANALYSIS

This section of the proxy statement describes the compensation arrangements for our Named Executive Officers (NEOs) for fiscal year 2018, which were exclusively determined by our independent Compensation Committee and which are further detailed in the 2018 Summary Compensation Table and other compensation tables contained in this proxy statement. This Compensation Discussion and Analysis (CD&A) also includes additional information on how the Compensation Committee arrived at their fiscal year 2018 compensation decisions for the NEOs and an overview of our executive compensation philosophy and our executive compensation program.

 

Our NEOs for fiscal year 2018 are as follows:

 

 

_______________________

(1) Mr. McMahon was appointed CFO on September 1, 2018
(2) Mr. Hirsch served as CFO until August 31, 2018 and served as an advisor to the Board and CEO from September 1 to October
       31, 2018

In this CD&A, we provide the following:

 

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Executive Summary

Fiscal Year 2018 at a glance:

 

 

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Correlation of CEO Compensation to Company Performance

 

The chart below demonstrates how the historical total direct compensation of our CEO compares to our four-year indexed TSR.

 

 

Aligning CEO and NEO Pay with Performance

For fiscal year 2018, approximately 89% of Mr. McMullen’s and 83% of our other NEOs’ total direct compensation consisted of short-term and long-term incentives and was “at-risk”— which means that this component can vary year to year depending on the performance of the company and our stock price performance.

 

 

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Stockholder Outreach

We received 97% stockholder support on our 2018 Say-on-Pay proposal, along with support from the major stockholder advisory firms. While pleased with these results, our Compensation Committee and members of management believe ongoing dialog with stockholders regarding executive compensation is crucial. In 2018, we communicated with many of our largest stockholders to recap our program for fiscal year 2018 and discuss our strategy for fiscal year 2019. Stockholders affirmed our executive compensation program and supported our plan to maintain the current design for fiscal year 2019.

 

Fiscal Year 2018 Program Highlights

        For fiscal year 2018, we made no material changes to our program as we maintained operating margin and revenue as the financial metrics in the short-term incentive program and earnings per share and relative TSR as our metrics in the long-term incentive program.

 

Determining Executive Pay

Our executive pay decisions are grounded in a core philosophy that applies to all elements of compensation. Our compensation philosophy is intended to:

The following principal elements of compensation are provided under our executive compensation program:

 

 

Our actual total compensation for each NEO varies based on (i) company performance measured against external metrics that correlate to long-term stockholder value, (ii) performance of the business organizations against specific targets, and (iii) individual performance. These three factors are considered in positioning salaries, determining earned short-term incentives and determining long-term incentive grant values.

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Pay Practices

Our executive compensation program is supported by a set of strong governance provisions and pay practices.

 

 

(1)  See Compensation Risk Controls in Additional Information

Independent Compensation Committee and Consultant

The Compensation Committee is composed solely of independent members of the Board and operates under a Board-approved charter which outlines the Committee’s major duties and responsibilities. This charter is available on our Investor Relations website.

Semler Brossy, our independent compensation consultant, does not perform any other work for us, does not trade our stock, has independence policies that are reviewed annually by their Board of Directors, and will proactively notify the Compensation Committee chair of any potential or perceived conflicts of interest. The Compensation Committee found no conflict of interest during fiscal year 2018.

For fiscal year 2018, our independent compensation consultants advised the Compensation Committee on several compensation matters, including but not limited to:

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Process for Determining Compensation

To determine total target compensation for the upcoming fiscal year, the Compensation Committee considered:

Our independent compensation consultant presents and analyzes market data for each individual position and provides insight on market practices for the Compensation Committee’s actions, but it does not make any specific compensation recommendations on the individual NEOs. Our consultant does collaborate with the Committee Chair to develop CEO pay recommendations. The Compensation Committee then determines the form and amount of compensation for all executive officers after considering the market data and company, business unit and individual performance.

Peer Group for Executive Compensation

Each year, the Compensation Committee meets with our independent compensation consultant to review and approve the peer group companies that satisfy our selection criteria. For fiscal year 2018, our compensation peer group consisted of the 30 companies listed below from the S&P 500 Health Care Index (excluding the Health Care Distributors, Health Care Facilities and Managed Health Care subsectors) with revenues between 0.25x and 2.5x times our projected revenue, supplemented with two of our most direct competitors (Thermo Fisher and Danaher). We also kept prior year peers if those companies were still in the S&P 500 and revenue was within plus or minus 10% of the range. The range of annual revenues for peer group members was determined so that our annual revenue would be around the median of the peer group. We used data from this peer group to set each NEO’s compensation for fiscal year 2018, with aggregate compensation targeted at around the peer group median.  

 

Peer Group for the Long-Term Performance Program

The Compensation Committee believes that an expanded peer group is more appropriate for determining relative TSR under the company’s LTPP, as an expanded peer group provides a broader index for comparison. Therefore, the Compensation Committee uses the approximately 87 companies in the Health Care and Materials Indexes of the S&P 500 for determining TSR under the LTPP. Only companies that are included in one of these indexes at the beginning of the performance period and which have three years of stock price performance at the end of the performance period are included in the final calculation of results. Any change in the expanded peer group is solely due to Standard & Poor’s criteria for inclusion in the indexes.

Role of Management

The CEO and the Senior Vice President, Human Resources consider the responsibilities, performance and capabilities of each of our named executive officers, other than the CEO, and the compensation package they believe will attract, retain and motivate. The Senior Vice President, Human Resources does not provide input on setting his own compensation. A comprehensive analysis is conducted using a combination of the market data based on our compensation peer group and proxy data, performance against targets, and overall performance assessment. This data is used to determine if an increase in compensation is warranted and the

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amount and type of any increase for each of the total compensation components for the then-current fiscal year. After consulting with the Senior Vice President, Human Resources, the CEO makes compensation recommendations, other than for his own compensation, to the Compensation Committee at its first meeting of the fiscal year.

CEO Compensation

The Compensation Committee establishes the CEO’s compensation based on a thorough review of the CEO’s performance that includes:

The Compensation Committee reviews the CEO’s total direct compensation package annually and presents its recommendation to the other independent directors for review and comment before making the final determinations on compensation for the CEO.

Fiscal Year 2018 Compensation

Base Salary

Our salaries reflect the responsibilities of each NEO and the competitive market for comparable professionals in our industry and are set to create an incentive for executives to remain with us. Base salaries and benefits packages are the fixed components of our NEOs’ compensation and do not vary with company performance. Each NEOs’ base salary is set by considering market data as well as the performance of such NEO. For fiscal year 2018, our NEO base salaries ranged between the 25^th and 75^th percentile of our compensation peer group. Mr. Thaysen’s FY18 salary was increased in May in connection with his increased responsibilities as President of the Life Sciences and Applied Markets Group.

 

Short-Term Cash Incentives

The Performance-Based Compensation Plan reflects our pay-for-performance philosophy and directly ties short-term incentives to short-term business performance. These awards are linked to specific annual financial goals and key business initiatives for the overall company and the three business groups (LSAG, ACG and DGG). Annual cash incentives are paid to reward achievement of critical shorter-term operating, financial and strategic measures and goals that are expected to contribute to stockholder value creation over time. Financial goals are pre-established by the Compensation Committee at the beginning of the period, based on recommendations from management. The financial goals are based on our fiscal year 2018 financial plan established by the Board of Directors and were not changed after they were approved by the Compensation Committee. The Compensation Committee certifies the calculations of performance against the goals for each period and payouts, if any, are made in cash.

 

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For fiscal year 2018, the awards under the Performance-Based Compensation Plan were determined by multiplying the individual’s base salary for the performance period by the individual’s target award percentage and the performance results, as follows:

 

Target Award Percentages and FY18 Actual Payouts

Our Compensation Committee set the fiscal year 2018 short-term incentive target amounts based on a percent of base salary pre-established for each NEO considering the relative responsibility of each NEO.  For fiscal year 2018, short-term incentive target bonuses were set at 130% of base salary for the CEO and either 80% or 70% of base salary for the other NEOs.

The payouts under the Performance-Based Compensation Plan for fiscal year 2018 are provided in the chart below and in the “Non-Equity Incentive Plan Compensation” column in the “Summary Compensation Table.” The overall payout percent compared to target is shown above the actual columns.

 

Financial Goals and Fiscal Year 2018 Operational Results

The Performance-Based Compensation Plan financial goals were based on (1) our operating margin percentage and our revenue and (2) the adjusted operating margin percentage and revenue goals for each of the business units.  The Compensation Committee chose those metrics because:

The financial targets that must be met to receive the target payout are based on our business plan.

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To determine earned awards, we use payout matrices that link the metrics and reflect threshold-to-maximum opportunities based on various achievement levels of the metrics. No awards are paid unless the operating margin percentage threshold is achieved and the maximum award under the plan is capped at 200% of the target award. The target metrics set for our short-term incentives and their corresponding results were as follows:

 

 

Note: The adjusted operating margin measure used in our executive compensation programs may differ from adjusted operating margin as reported in our quarterly earnings releases as it excludes the ongoing impact of material mergers and acquisitions.

 

Payout Matrices to Measure Financial Metrics

We use payout matrices to determine payout percentages for our fiscal year 2018 short-term incentive program. The payout matrices are designed to reward profitable growth by increasing payout percentages commensurate with increased operating margin and / or revenue achievement as illustrated in the table below.

 

 

Note:  This specific payout matrix was used to determine the company level payout percentage. The payout percentage is determined by finding the intersection between goal attainments as a percentage of plan for each financial metric. Payout percentages are assigned to each intersection of revenue and operating margin percentage throughout the payout matrix. Payouts between the numbers represented in the table above are calculated on a linear payout matrix and the threshold amount for operating margin percentage must be met in order for a payout to be made. Payout matrices vary by business group.  

 

Key Business Initiatives – Targets and Results

For fiscal year 2018, under the Performance-Based Compensation Plan, we continued to utilize annual key business initiatives to align NEOs’ objectives with strategic company priorities. These key business initiatives are established at the same time as the financial goals and account for 25% of the total target bonus for each NEO who was assigned to key business initiatives. The maximum payout per NEO for satisfaction of the strategic component is the lesser of (i) up to 200% of key business initiative performance results or (ii) 0.75% of non-GAAP pre-tax earnings for the Company, and the Compensation Committee may exercise negative discretion in determining the final payout.

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The key business initiatives were selected to focus NEOs on strategic priorities such as revenue growth in specific markets and products, customer satisfaction scores and regulatory compliance. The following table sets forth (i) each key business initiative and its threshold, target and maximum achievement levels, (ii) the NEOs assigned to each key business initiative, and (iii) the final attainment and payout percentage for each objective. If an NEO is assigned to more than one objective, the weighting is equally distributed.  For fiscal year 2018, Messrs. McMullen, McMahon and Hirsch were not assigned to any key business initiatives. The targets were established with the rigor necessary to drive desired results for each initiative. For competitive purposes, specific threshold, target and maximum amounts are not shown in the descriptions that follow.

 

 

Actual payout tables for key business initiatives use a straight-line payout slope (and/or key milestones) from threshold to target and from target to maximum. Final payouts for each key business initiative are recommended by the CEO and approved by the Compensation Committee.

 

Long-Term Incentives – Performance Stock Units and Restricted Stock Units

Performance Stock Units Earned in Fiscal Year 2018 – Relative TSR

Fifty percent of the performance stock units granted in fiscal year 2016 for the FY16 to FY18 performance period were measured based on relative TSR versus all companies in the S&P 500 Health Care and Materials Indexes for fiscal years 2016 through 2018. The company did not establish an absolute TSR target as we believe performance is best measured on a relative basis against our selected peer group with the payout percentages as follows:

 

In November 2018, the Compensation Committee certified the relative TSR results for the FY16 to FY18 performance period. Agilent’s strong stock price performance exceeded the 75^th percentile of our peer group and would normally have resulted in a 200% payout percentage. However, these grants were capped at three times the original grant date value which resulted in a share payout of less than 200%. See table below:

 

Note: The final value shares awarded were determined by dividing the 3x value cap by $64.83, which was the 20-day average stock price ending on the day the Compensation Committee approved the payout of the shares.

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Our TSR performance relative to peers and the payout percentages for the LTPP for the past five performance periods are set forth below:

 

Performance Stock Units Earned in Fiscal Year 2018 – Operating Margin

Fifty percent of the performance stock units granted in fiscal year 2016 for the FY16 to FY18 performance period had financial goals based on adjusted operating margin. The 180% payout percentage earned under these performance stock units was determined by calculating the operating margin percentage attained at the end of each of the three fiscal years in the performance period compared to the targets (which were set at the beginning of the three-year performance period). We use non-GAAP operating margin adjusted to exclude material M&A during the performance period, subject to Compensation Committee approval. The payout percentage, which was certified by the Compensation Committee at the November 2018 meeting was an average of the payout percentage for fiscal year 2016 to fiscal year 2018. The threshold, target, maximum and final attainment numbers are set forth in the table below:

 

 

Note: The adjusted operating margin measure used in our executive compensation programs may differ from adjusted operating margin as reported in our quarterly earnings releases as it excludes the ongoing impact of material mergers and acquisitions.

 

In November 2018, the Compensation Committee certified the LTI OM results for the FY16-FY18 performance period. Agilent’s strong operating margin performance would normally have resulted in a 180% payout percentage. However, these grants were capped at three times the original grant date value resulting in a share payout lower than 180% as shown in the table below:

 

Note: The final value shares awarded were determined by dividing the 3x value cap by $64.83, which was the 20-day average stock price ending on the day the Compensation Committee approved the payout of the shares.

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Relative TSR Performance Stock Units – FY17 to FY19 Performance Period

 

Fifty percent of the performance stock units granted in fiscal year 2017 for the FY17 to FY19 performance period had financial goals based on relative TSR versus all companies in the S&P 500 Health Care and Materials Indexes for fiscal year 2017 through fiscal year 2019.  Relative TSR performance stock units are completely “at-risk” compensation because our performance must be at or above the 25th percentile for the individuals to receive a payout.  The final and only payout will be at the end of fiscal year 2019 based on the relative TSR for the three-year performance period.

 

Earnings Per Share Performance Stock Units – FY17 to FY19 Performance Period

 

Fifty percent of the performance stock units granted in fiscal year 2017 for the FY17 to FY19 performance period had financial goals based on earnings per share. Awards will be determined by calculating the earnings per share attained at the end of each of the three fiscal years in the performance period compared to the targets (which are set at the beginning of each fiscal year during the three-year performance period). The FY17 and FY18 EPS target was set at the mid-point of external guidance issued at the beginning of the fiscal year.  We use non-GAAP adjusted diluted earnings per share and all targets are subject to Compensation Committee approval. The final and only payout will be at the end of fiscal year 2019 based on an average of the payout percentage for each fiscal year. The threshold, target and maximum levels are set forth in the table below:

 

 

Note: The adjusted EPS measure used in our executive compensation programs may differ from adjusted EPS as reported in our quarterly earnings releases as it excludes the ongoing impact of material mergers and acquisitions.

Long-Term Incentives Granted in Fiscal Year 2018

The Compensation Committee places emphasis on performance as 60% of the annual NEO grants consist of performance awards. Restricted stock units make up the other 40% of the target LTI value. Stock grant values were delivered as follows:

 

 

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The target value of the long-term incentive awards is determined at the beginning of the then-current fiscal year for each NEO. The target value reflects the Compensation Committee’s judgment on the relative role of each NEO’s position within the company, as well as the performance of each NEO and benchmark data from our compensation peer group.