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Infinera Corporation
6373 San Ignacio Avenue
San Jose, California 95119
Dear Stockholders,
I am pleased to report another year of solid financial results and continued progress toward our long-term business objectives. Despite prevailing macroeconomic challenges, geopolitical uncertainty and adverse industry conditions, we made strong progress toward our overall financial goals in 2023 while deepening customer relationships across the market segments we serve. Highlights of our achievements over the past year included:
•Delivered strong financial performance – 2023 marked our sixth consecutive year of revenue growth. In addition, on a year over year basis we expanded our gross margin by approximately 450 basis points, expanded our operating margin by approximately 350 basis points, and enhanced our earnings per share.
•Advanced our go-to-market strategy – during the year we continued to deliver on our core strategy of scaling our optical transport systems business, expanding our customer offerings with a newly launched line of pluggable optics and leveraging our U.S.-based optical semiconductor fab and innovative technology to open new opportunities.
•Improved our customer experience metrics – we believe the success of our brand is based on the quality of our products and our customers’ experience when working with us. We continued to enhance our brand and build customer trust through improvements in both customer experience and quality. In 2023, we won the Telecommunications Industry Association (TIA) QuEST Forum Participant Company of the Year Award, recognizing Infinera’s instrumental role in the development and maintenance of the TL 9000 Quality Management System standard.
I would like to thank the global Infinera team for another solid year of execution and results, as well as for their resolve and commitment to delivering an unrivaled customer experience founded upon our Power of Orange cultural values of innovation, inclusivity, collaboration, and integrity. Despite short term challenges in the environment and market, we believe we have the right strategy, product portfolio team and customer trust to drive meaningful long-term value for our stockholders, customers, partners and employees.
Your voting support of the proposals described in the accompanying proxy statement would be deeply appreciated as we work together to increase the value of your investment in Infinera. We thank you for your continued commitment to Infinera and belief in our team.
Sincerely,
David W. Heard
Chief Executive Officer
Infinera Corporation
6373 San Ignacio Avenue
San Jose, California 95119
Dear Fellow Stockholders,
In 2023, Infinera continued to further establish itself as a market leader and innovator in coherent optical networking. We are pleased with the Company’s financial performance and portfolio advances in 2023 as it rose to the challenge of navigating another year of profound global uncertainty and macroeconomic challenges impacting not only our industry, but the world at large. I am very proud of our global management team for its perseverance through these continuing challenges and its focus on building an innovative, sustainable, inclusive and profitable company.
Market trends continue to reinforce the critical role of optics in the communications industry and support our growth prospects. These trends include continued year-over-year bandwidth growth of over 30 percent driving web-scaler and carrier capacity demands, increased deployment of fiber optics closer to end users, and accelerated adoption of new applications such as artificial intelligence that is driving unprecedented demand for network bandwidth. By focusing on innovation that matters, we believe we are uniquely positioned to meet our customers’ evolving connectivity needs with our best-in-class portfolio of open optical networking solutions and drive continued progress toward our long-term business model.
Our strategy includes an ongoing commitment to strengthen our environmental, social, and governance (“ESG”) practices. I am proud we submitted new emissions targets to the Science-based Targets Initiative (“SBTi”) and committed publicly to achieving net-zero scope 2 emissions by 2050. Our years-long commitment to greater environmental sustainability has positioned us well to continue to reduce the potential impact of our operations and products and maximize the positive impact we can have on the world. Underpinning Infinera’s culture and our approach to these commitments are three core principles that unite our Board, management team and global employees: innovation that matters, better together and we care.
Our highly qualified, independent and diverse Board remains inspired by the ability of the Infinera team and its core values and vision to overcome challenging external conditions to deliver strong results while looking after its customers, partners and employees. We are excited about the future ahead and the Company’s potential for value creation for stockholders.
In closing, as you review the accompanying proxy statement, I am confident that our collective commitment to excellence in our corporate governance and executive compensation practices will be evident. Thank you for your ongoing support of Infinera.
Sincerely,
George A. Riedel
Independent Board Chair
Infinera Corporation
6373 San Ignacio Avenue
San Jose, California 95119
NOTICE OF 2024 ANNUAL MEETING OF STOCKHOLDERS
Date:
June 12, 2024
Record Date:
April 30, 2024
Time:
10:00 a.m. Pacific Time
Attendance:
www.virtualshareholdermeeting.com/INFN2024.
Dear Stockholder:
You are cordially invited to attend the virtual 2024 Annual Meeting of Stockholders of Infinera Corporation (“Infinera”), a Delaware corporation, and any postponement, adjournment or other delay thereof (the “Annual Meeting”). The Annual Meeting will be held via live webcast at www.virtualshareholdermeeting.com/INFN2024 on Wednesday, June 12, 2024 at 10:00 a.m. Pacific Time. You will be able to attend the Annual Meeting online and submit questions during the Annual Meeting by visiting the website listed above. You will also be able to vote your shares electronically at the Annual Meeting.
This Annual Meeting is being held for the following purposes:
1.To elect three Class II directors to the Board of Directors to hold office until the 2027 annual meeting of stockholders or until their respective successors have been duly elected and qualified, or until their earlier death, resignation or removal from the Board of Directors.
2.To approve the Infinera Corporation 2016 Equity Incentive Plan (the “2016 Plan”), as amended, including increasing the number of shares authorized for issuance thereunder by 7,100,000 shares.
3.To approve, on an advisory basis, the compensation of Infinera’s named executive officers, as described in the Proxy Statement.
4.To ratify the appointment of Ernst & Young LLP as Infinera’s independent registered public accounting firm for the fiscal year ending December 28, 2024.
5.To transact such other business that may properly come before the meeting or any postponement or adjournment thereof.
These items of business are more fully described in the Proxy Statement accompanying this Notice.
The record date for the Annual Meeting was April 30, 2024 (the “Record Date”). Only stockholders of record at the close of business on that date may vote at the Annual Meeting. Your vote is important. Whether or not you expect to attend the Annual Meeting, it is important that you vote as soon as possible so that your shares are represented. To vote your shares, please follow the instructions in the Proxy Card or Voting Instruction Form included in your Proxy Materials, which is being mailed to you on or about May 17, 2024. The proxy materials and our annual report can be accessed by visiting www.virtualshareholdermeeting.com/INFN2024.
On behalf of the Board of Directors, thank you for your participation in this important annual process.
This Proxy Statement contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. You can identify forward-looking statements by words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” “estimate,” “predict,” “potential,” “continue” or other similar expressions. Actual results may differ from those set forth in the forward-looking statements due to a variety of factors, including those contained in the Company’s Annual Report on Form 10-K for the year ended December 30, 2023 and the Company’s other filings with the U.S. Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or revise any forward-looking statements.
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting
to be Held on June 12, 2024
The Proxy Statement, including the Notice of Annual Meeting therein, and Form of Proxy are first being mailed on or about May 17, 2024 to all stockholders entitled to vote at the Annual Meeting. This Proxy Statement and our 2023 Annual Report are also available on the Investors page at investors.infinera.com.
Virtual Meeting Admission
Stockholders of record as of April 30, 2024 will be able to participate in the Annual Meeting by visiting our Annual Meeting website at www.virtualshareholdermeeting.com/INFN2024. To participate in the Annual Meeting, you will need the 16-digit control number included on your proxy card.
The Annual Meeting will begin promptly at 10:00 a.m. Pacific time on Wednesday, June 12, 2024. Online check-in will begin at 9:45 a.m. Pacific time, and you should allow approximately 15 minutes for the online check-in procedures.
Voting. Whether or not you plan to virtually attend the Annual Meeting and regardless of the number of shares of common stock that you own, please cast your vote, at your earliest convenience, as instructed on your proxy card and/or voting instruction form. Your vote is very important. Your vote before the Annual Meeting will ensure representation of your shares at the Annual Meeting even if you are unable to virtually attend. You may submit your vote by the Internet, telephone, mail or virtually at the Annual Meeting. Voting over the Internet or by telephone is fast and convenient, and your vote is immediately confirmed and tabulated. By using the Internet or telephone, you help us reduce postage, printing and proxy tabulation costs. We encourage all holders of record to vote in accordance with the instructions on the proxy card and/or voting instruction form prior to the Annual Meeting even if they plan on virtually attending the Annual Meeting. Submitting a vote before the Annual Meeting will not preclude you from voting your shares at the Annual Meeting should you decide to virtually attend.
You may vote using the following methods:
Prior to the Annual Meeting, visit the website listed on your proxy card/voting instruction form to vote via the Internet.
During the Annual Meeting, visit our Annual Meeting website at www.virtualshareholdermeeting.com/INFN2024
Sign, date and return your proxy card/voting instruction form to vote by mail.
Call the telephone number on your proxy card/voting instruction form to vote by telephone.
INFINERA AT A GLANCE
About Infinera
Our Mission
Our mission is to lead in the era of open optical networking by leveraging our deep vertical integration and innovation in optical semiconductor technologies to provide the most efficient and scalable high-speed connectivity solutions that help network operators cope with growing bandwidth demand and offer new, innovative, and differentiated services.
What Inspires Us
A connected world with unlimited bandwidth for everyone — Everywhere, Always and Instantly
What Motivates Us
Delivering Innovative and Impactful Coherent Optical Technologies and Open Optical Solutions that unlock NewValue for our customers.
What Drives Us
To be a valued investment for our Stockholders’ money, our Customers’ capital expenditures, and our Employees’ time by delivering an Unrivaled Customer Experience from an Inclusive Culture of Innovation for our customers
Our Company, Solutions and Customers(1)
$1.6B+ in Revenue
1,480+ Patents
3,000+ Employees
40+ Countries with Operations
Coherent Optical Engines & Subsystems
Optical Transport Systems for Network Infrastructure
Automation Software
Professional Services
1,000+ Customers Worldwide
9 of the Top 10 Tier 1 Operators
5 of the Top 6 Internet Content Providers
330+ GX Series Customers
History of Technology Innovation
Leveraging its US-based optical semiconductor fab, Infinera has a distinguished history of delivering breakthrough innovation through multi-discipline opto-electronic R&D including: industry-leading high-performance optical engines, revolutionary point-to-multipoint coherent optics, and customized design and production
This summary highlights important information you will find in this Proxy Statement. As it is only a summary, please review the complete Proxy Statement carefully before voting.
Virtual Stockholder Meeting
Our 2024 Annual Meeting will be conducted as a virtual meeting held over the Internet, allowing all of our stockholders the option to participate in the live, online meeting from any location convenient to them. Stockholders at the close of business on April 30, 2024 will be allowed to communicate with us and ask questions in our virtual stockholder meeting forum before and during the meeting. All directors and executive officers are expected to be available to answer questions. Representatives of Ernst & Young LLP will be available to respond to appropriate questions. For further information on the virtual meeting, please see the “User’s Guide” at the back of this Proxy Statement. Please note that there will not be a physical meeting.
Voting Matters and Board Recommendations
Proposal
Board Vote
Recommendation
Page Reference
(for more detail)
1.To elect three Class II directors to the Board of Directors to hold office until the 2027 annual meeting of stockholders or until their respective successors have been duly elected and qualified, or until their earlier death, resignation or removal from the Board of Directors.
2.To approve the Infinera Corporation 2016 Equity Incentive Plan (the “2016 Plan”), as amended, including increasing the number of shares authorized for issuance thereunder by 7,100,000 shares.
4.To ratify the appointment of Ernst & Young LLP as Infinera’s independent registered public accounting firm for the fiscal year ending December 28, 2024.
AC = Audit Committee; CC = Compensation Committee; NGC = Nominating and Governance Committee; M = Member
(1)Under the rules and regulations of the SEC and the listing standards of The Nasdaq Stock Market (“Nasdaq”).
(2)Committee memberships shown are effective upon the conclusion of our 2024 Annual Meeting of Stockholders.
1
Board and Governance Highlights
Seven out of nine of our directors, including our Chair, are independent in accordance with the rules and regulations of the SEC and the listing standards of Nasdaq.
Board Independence
The Board consists of a diverse group of professionals who bring significant experience, leadership and distinct qualities and skill sets to Infinera. Three out of nine of our directors are female (33%), one of whom was appointed as chair of our Compensation Committee during 2023 upon relinquishing her position as chair of our Nominating and Governance Committee. One of our directors is an “underrepresented minority,” as such term is defined under Nasdaq Rule 5605(f) (the “Nasdaq Board Diversity Rule”). While we believe the current composition of the Board provides a diverse range of perspectives and experience to engage each other and management to effectively represent our stockholders, we will continue to consider gender, cultural and ethnic diversity when evaluating potential changes to our Board membership.
Board Diversity
We have separated the positions of Chair and Chief Executive Officer (“CEO”).
Leadership Structure
The Board and its committees assess their performance through an annual self-evaluation.
Board and Committee Evaluation
The average tenure of our current Board members is approximately six years. We have refreshed our Board by appointing five new directors since the beginning of fiscal 2020.
Board Tenure
We have three standing committees of the Board – Audit, Compensation, and Nominating and Governance. All committees are composed entirely of independent directors.
Board Committees
Each non-employee director is required to own shares of Infinera common stock having a value of at least four times the annual cash retainer for service as a director.
Director Stock Ownership
Members of our senior management team are responsible for implementation of our day-to-day risk management processes, while the Board, as a whole and through its committees, has oversight of risk management.
Risk Oversight
Executive Compensation Program Highlights
The design of our executive compensation program for fiscal 2023 reflects our ongoing commitment to pay-for-performance and the continued strong alignment of the interests of our named executive officers (“NEOs”) with those of our stockholders. At the beginning of fiscal 2023, when a majority of executive compensation decisions were made, the Compensation Committee considered the performance of our company as we exited fiscal 2022 and the goals of achieving profitable revenue growth, achieving non-GAAP Operating Income growth despite a challenging macroeconomic environment, expanding our gross margins and growing our total addressable market. The decisions made reflected a continuing effort to maintain a strong pay-for-performance profile and supported accountability of our leadership team for our financial performance.
2
Fiscal 2023 Executive Compensation Highlights
We emphasize performance-based incentives for compensation of all of our NEOs, including, in particular, our CEO. Our compensation programs are designed to reward executives with realized compensation that exceeds target through a combination of strong stockholder returns and performance that exceeds the targets approved for our short- and long-term incentive plans. In furtherance of our pay-for-performance goals, we continued to focus on the Company’s financial performance in setting compensation programs. For example, 41% of our CEO’s targeted equity awards in fiscal 2023 were granted in the form of a performance share award (“PSA”).
Pay-for-Performance
In fiscal 2023, our Compensation Committee continued to focus on expense reduction and cash preservation in the face of a challenging macroeconomic environment, while balancing the need to effectively retain critical talent and incentivize achievement of key business objectives by our NEOs. The Compensation Committee also approved the full transition back to executive compensation practices in place prior to the COVID-19 pandemic, with our Chief Legal Officer (“CLO “) and SVP, Worldwide Sales participating in our annual corporate bonus plan instead of being granted retention equity awards in lieu thereof.
Expense Reduction and Cash Preservation
During fiscal 2023, we continued to make progress toward achievement of our longer-term strategic goals. In support of our compensation policy promoting strong pay and performance alignment:
–69.6% of our PSAs granted to our NEOs in 2021 became eligible to vest based on performance during 2023, and none of the shares under the PSAs granted to our NEOs in 2022 became eligible to vest based on performance during 2023; and
–Realized compensation value for our CEO in fiscal 2023 was 41.2% of his target compensation.
Longer-Term Strategic Goals
As a complement to the executive compensation highlights referenced above, we continue to maintain sound corporate governance policies and practices. During fiscal 2023, the following policies and practices continued to be in effect:
Compensation At-Risk
Majority Voting for the Election of Directors
Compensation Recovery Policy
Stock Ownership Policy
Anti-Hedging Policy
“Double-Trigger” Change-of-Control Agreements
No Pledging of our Common Stock by NEOs
Annual Compensation Risk Assessment
Independent Compensation Consultant Reporting Directly to Compensation Committee
Fully Independent Audit, Compensation and Nominating and Governance Committees
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INFINERA CORPORATION
PROXY STATEMENT
2024 ANNUAL MEETING OF STOCKHOLDERS
OUR BOARD OF DIRECTORS
PROPOSAL 1—ELECTION OF CLASS II DIRECTORS
HOW WE ARE SELECTED AND ELECTED
Director Qualifications
The Nominating and Governance Committee reviews candidates for service on the Board and recommends nominees for election to fill vacancies on the Board, including nomination for re-election of directors whose terms are due to expire. In discharging its responsibilities to nominate candidates for election to the Board, the Nominating and Governance Committee endeavors to identify, recruit and nominate candidates who demonstrate character, sound judgment, independence, expertise and diversity of experience. The Nominating and Governance Committee seeks to ensure that the Board is composed of individuals of diverse backgrounds who have a variety of complementary experience, training, attributes and relationships relevant to our business. In nominating candidates to fill vacancies created by the expiration of the term of a director, the Nominating and Governance Committee determines whether the incumbent director is willing to stand for re-election. The Nominating and Governance Committee evaluates each director’s performance to determine suitability for re-election, taking into consideration, among other things, each director’s willingness to fully participate and contribute to the Board and its committees, ability to work constructively with the rest of the members of the Board, personal and professional integrity and familiarity with our business, operations and markets.
Our Amended and Restated Bylaws (“Bylaws”) provide that, in an election of directors where the number of nominees does not exceed the number of directors to be elected, a nominee for director is elected if the votes cast for such nominee exceed the votes cast against such nominee. If a nominee for director fails to receive the required number of votes for re-election, such director shall offer to properly tender his or her resignation (to the extent not already tendered) to the Nominating and Governance Committee, which shall then make a recommendation to the Board as to whether to accept or reject such director’s resignation or whether other action should be taken. Thereafter, the Board will act on the Nominating and Governance Committee’s recommendation. The Board will publicly disclose its decision and its rationale within 90 days of the certification of the election results. The director whose resignation is under consideration shall abstain from participating in any decision regarding that resignation.
We will also disclose the voting results from the Annual Meeting on a Current Report on Form 8-K that we will file with the SEC within four business days after the meeting. If final voting results are not available to us in time to file a Form 8-K, we will file a Form 8-K to publish preliminary results and will provide the final results in an amendment to the Form 8-K as soon as they become available.
WHO WE ARE
Our Board consists of nine directors and is divided into three classes with staggered three-year terms. At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the class whose term is then expiring. This year, our Class II Directors are standing for election. The Class II director nominees are David W. Heard, Paul J. Milbury and David F. Welch, Ph.D.
The nomination of these directors to stand for election at the Annual Meeting has been recommended by the Nominating and Governance Committee and has been approved by the Board. Each of the nominees for our Class II directors, if elected, will serve for a three-year term expiring at the 2027 Annual Meeting of Stockholders, or until his or her successor is duly elected and qualified, or until his or her earlier death, resignation or removal from the Board.
Each of the Class II director nominees has consented to serve if elected. However, if any of the persons nominated by the Board subsequently declines to accept election, or is otherwise unavailable for election prior to the Annual Meeting, proxies solicited by the Board will be voted by the proxy holders for the election of any other person or persons as the Board may recommend, at its option, or may decide to further reduce the number of directors that constitute the entire Board.
Director Skills Matrix
Our Board believes that the caliber of our Board members and the breadth, diversity and complementary nature of their skills, attributes and experiences are among the most important aspects of our governance best practices, and enhances our Board’s effectiveness while aligning with the Company’s long-term strategy. Our Board members have created
4
and patented technologies, founded and grown companies, managed complex financial, accounting and technology matters and spent significant time representing customers, investors and stockholders.
The Board skills matrix below highlights some of the key skills, attributes and experiences that our Board has identified as particularly valuable to the effective oversight of the Company and the execution of our long-term strategy.
Skill, Attribute or Experience
Bucklin
Dougherty
Heard
Holt
Lakkaraju
Milbury
Rice
Riedel
Welch
Current or Former CEO
ü
ü
ü
Senior Management/Operations
ü
ü
ü
ü
ü
ü
ü
ü
Industry Experience/Knowledge
ü
ü
ü
ü
ü
ü
Financial Reporting/Accounting
ü
ü
ü
ü
Enterprise Risk Management
ü
ü
ü
Environment, Social and Governance
ü
ü
ü
ü
Cybersecurity/Information Security
ü
ü
ü
Public Company Board/Corporate Governance
ü
ü
ü
ü
ü
ü
Financings/Investments/Capital Markets
ü
ü
ü
ü
ü
Strategy/M&A
ü
ü
ü
ü
ü
ü
ü
ü
ü
Human Capital Management
ü
ü
ü
Sales and Marketing
ü
ü
ü
ü
ü
ü
Product Development
ü
ü
ü
ü
Global Business
ü
ü
ü
ü
ü
ü
ü
Strategic Planning
ü
ü
ü
ü
ü
ü
ü
ü
ü
Technology/Intellectual Property
ü
ü
ü
ü
ü
Board Diversity
We believe the current Board consists of a diverse group of professionals, including former CEOs, CFOs and industry leaders, who bring significant leadership and distinct qualities and skill sets to Infinera, including direct stockholder representation by our second largest stockholder. This group provides a diverse range of perspectives and experience to engage each other and management to effectively represent our stockholders. In addition, the Board added its first female director in June 2019 and second and third female directors in 2020. In 2020, the Board appointed a female director as chair of our Nominating and Governance Committee; in 2022, she relinquished this role when she was appointed as chair of our Compensation Committee. In 2022, the Board also added a director who is an “underrepresented minority,” as such term is defined under the Nasdaq Board Diversity Rule. These actions further highlight our commitment to diversity.Any search firms retained to assist the Nominating and Governance Committee will be specifically advised to seek to include qualified, diverse candidates from traditional and nontraditional environments, including members of underrepresented communities, as was done for the Board search process conducted in 2021.
The following table provides certain information regarding the diversity of our Board as of May 17, 2024. As shown below in the board diversity matrix, the Company is currently in compliance with the diversity requirements of the Nasdaq listing rules (5605 and 5606) that mandate gender and other diversity disclosure on our Board and require us to disclose information on each director’s voluntary self-identified characteristics in a board diversity matrix.
Board Diversity Matrix As of May 17, 2024
Total number of directors
9
Gender Identity
Female
Male
Did Not Disclose Gender
Directors
3
5
1
Demographic Background
Asian
1
White
3
4
Did Not Disclose Demographic Background
1
Directors Who Are Military Veterans
1
5
Director Nominees and Continuing Directors
Class II Nominees for terms expiring at the 2027 Annual Meeting of Stockholders.
David W. Heard
Class II Director
Professional Experience:
David W. Heard has served as our CEO and has been a member of our Board of Directors since November 2020. Mr. Heard joined Infinera in June 2017 and served as our Chief Operating Officer from October 2018 to November 2020. During his time as COO, Mr. Heard was responsible for leading the innovation of new solutions and the overall operational excellence of the company, overseeing functions including corporate development, facilities, human resources, information technology, marketing, operations, product lifecycle management, quality, research and development, and services. Mr. Heard brings a proven track record of technology industry leadership, with more than 25 years of success in the industry. Prior to Infinera, Mr. Heard served as President of Network and Service Enablement at JDS Uniphase from 2010 to 2015, and as COO at BigBand Networks (now Arris) from 2007 to 2010. Earlier roles included President and Chief Executive Officer (CEO) at Somera (now Jabil), President and General Manager, Switching Division, at Tekelec (now Oracle), President and CEO at Santera Systems, and various positions at Lucent Technologies and AT&T.
Mr. Heard holds a B.A. in Production and Operations Management from Ohio State University, an MBA from the University of Dayton, and an M.S. in Management from Stanford Graduate School of Business, where he was a Sloan Fellow.
Director since November 2020
Chief Executive Officer of Infinera
Current Committees:
•None
Age: 56
Key Skills and Qualifications:
•Expertise in operations and corporate strategy
•Extensive knowledge of Infinera and the optical networking industry
Paul J. Milbury
Class II Director
Professional Experience:
Paul J. Milbury has been a member of our Board of Directors since July 2010. Mr. Milbury served as Vice President of Operations and CFO of Starent Networks Corp., a provider of mobile network solutions, from January 2007 until its acquisition by Cisco in 2009. From December 2009 to July 2010, he played a key role in integrating Starent Networks into Cisco to create the Mobile Internet Technology Group. From December 2000 to March 2007, Mr. Milbury served as Vice President and CFO of Avid Technology, Inc., a digital media creation, management, and distribution solutions company. Mr. Milbury previously served as audit committee chair for public companies Gigamon, Inc., a provider of network traffic visibility solutions and Aerohive Networks, a pioneer in cloud-managed WLAN. Mr. Milbury has served on the public company board of Markforged Holding Corporation since May 2019, and he also serves on several private company boards.
Mr. Milbury holds a B.B.A. in Business and Economics and an M.B.A. from the University of Massachusetts, Amherst.
Independent Director since July 2010
Current Committees:
•Audit
•Compensation
Age: 75
Key Skills and Qualifications:
•Significant finance, accounting and technology operations experience
•Wide executive management and board experience at leading public and private technology companies
•Audit Committee Financial Expert
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David F. Welch, Ph.D.
Class II Director
Professional Experience:
David F. Welch, Ph.D. is Founder and Chief Innovation Officer at Infinera, a role he has held since October 2018. In this role, he drives deep business and technology innovation through forward-looking strategies, including breakthrough technologies and technology partnerships, in addition to innovative business and market directions. Dr. Welch is currently a member of Infinera’s Board of Directors, where he has served since 2010. Dr. Welch’s past roles at Infinera include Chief Strategy and Technology Officer from 2017 to 2018, President from 2013 to 2017, Executive Vice President and Chief Strategy Officer from 2004 to 2013, and Chief Technology Officer (CTO) from 2001 to 2004. Prior to co-founding Infinera, he served as CTO, Transmission Division at JDS Uniphase, and in various executive roles, including CTO and Vice President of Corporate Development, at Spectra Diode Labs (SDL).
Dr. Welch currently serves on the board of directors of several start-up companies, including the public benefit corporation board of NosTerra Ventures, a position he has held since May 2023. He previously served on the board of CytoDyn Inc., a biopharmaceutical company from January 2019 to September 2020. He holds over 130 patents and has authored over 300 technical publications, and he has been awarded the Optical Society of America’s (OSA) Adolph Lomb Medal, Joseph Fraunhofer Award and John Tyndall Award, as well as the Institution of Engineering Technology’s J J Thomson Medal for Electronics. He is a Fellow of the OSA and the Institute of Electrical and Electronics Engineers, and he is a member of the National Academy of Engineering.
Dr. Welch holds a B.S. in Electrical Engineering from the University of Delaware and a Ph.D. in Electrical Engineering from Cornell University.
Director since October 2010
(Previously served as a Director from May 2001 to November 2006)
Founder and Chief Innovation Officer of Infinera
Current Committees:
• None
Age: 63
Key Skills and Qualifications:
•One of the most highly regarded innovators in our sector
•Deep technology knowledge in the optical networking industry
•Experience as an Infinera founder, executive leader and board member
•Product development, marketing and sales strategies insights
Class III Directors whose terms expire at the 2025 Annual Meeting of Stockholders
Christine B. Bucklin
Class III Director
Professional Experience:
Christine B. Bucklin has been a member of our Board of Directors since June 2020. Ms. Bucklin served as Managing Director, Operations Group at Gryphon Investors, Inc., a private equity firm, from 2015 to 2018. From 2008 to 2010, Ms. Bucklin served as Senior Vice President, Corporate Strategic Planning at Sun Microsystems, Inc., a technology company, prior to its acquisition by Oracle Corporation in 2010. From 1999 to 2007, Ms. Bucklin served as Chief Operating Officer of Internet Brands, Inc., an internet media company. From 1988 to 1999, Ms. Bucklin worked at McKinsey & Company, a consulting company, including as a partner. From 2011 to 2019, Ms. Bucklin served as a director of Local Media San Diego, LLC, a radio station and event company. From 2015 to 2018, Ms. Bucklin served as a director of Leadership Platform Acquisition Corporation, a portfolio company of Gryphon Investors related to educational services.
Ms. Bucklin received an AB in Mathematics from Dartmouth College and an MBA from Stanford Business School.
Independent Director since June 2020
Current Committees:
•Audit
Age: 61
Key Skills and Qualifications:
•Substantial experience in operations, strategic planning and sales and marketing
•Provides perspective from outside the optical networking industry
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Gregory P. Dougherty
Class III Director
Professional Experience:
Greg P. Dougherty has been a member of our Board of Directors since January 2019. Mr. Dougherty served on the board of Fabrinet, an optical, electro-mechanical and electronic manufacturing services company from February 2019 to January 2022. Mr. Dougherty served as Chief Executive Officer of Oclaro from June 2013 until its acquisition by Lumentum in December 2018. Mr. Dougherty also served as a director of Oclaro from April 2009 until the completion of the sale in December 2018. Prior to Oclaro, Mr. Dougherty served as a director of Avanex Corporation, a leading global provider of intelligent photonic solutions, from April 2005 to April 2009, when Avanex and Bookham merged to become Oclaro. Mr. Dougherty also served as a director of Picarro, Inc., a manufacturer of ultra-sensitive gas spectroscopy equipment using laser-based technology, from October 2002 to August 2013, and as its Interim Chief Executive Officer from January 2003 to April 2004. Earlier in his career, Mr. Dougherty served as the Chief Operating Officer at SDL from 1997 to 2001, when the company was acquired by JDS Uniphase Corporation, where he continued in the role until 2002. From 1989 to 1997, Mr. Dougherty was the Director of Product Management and Marketing at Lucent Technologies Microelectronics in the Optoelectronics Strategic Business Unit. Mr. Dougherty has served on the public company boards of IPG Photonics Corporation, a fiber laser manufacturer, since January 2019, and MaxLinear, a fabless integrated circuit design company, since March 2020.
Mr. Dougherty also served as a board member of the Ronald McDonald House at Stanford from January 2004 to December 2009, and the Bay Area Make-A-Wish Foundation. Mr. Dougherty currently serves on the board of directors of IPG Photonics Corporation, a fiber laser manufacturer, and MaxLinear, a fabless integrated circuit design company.
Mr. Dougherty received a B.Sc. in Optics in 1983 from the University of Rochester.
Independent Director since January 2019
Current Committees:
•Compensation
•Nominating and Governance
Age: 64
Key Skills and Qualifications:
•Board expertise as Lead Independent Director and Compensation Committee Chair
•Extensive knowledge of the fiber optic component and transceiver markets
•Significant restructuring and integration experience
Sharon E. Holt
Class III Director
Professional Experience:
Sharon E. Holt has been a member of our Board of Directors since June 2019. Ms. Holt has served as a Principal at Fraser Stuart Ventures, LLC, a private investment and advisory firm, since 2016. From 2016 to May 2021, Ms. Holt was on the board of Immersion Corporation, a leading developer and licensor of touch feedback technology. Since 2012, she has served as an advisor to several technology companies. Ms. Holt was a senior executive at Rambus Inc., a leading technology development and licensing company, from 2004 to 2012, where she served as Senior Vice President of Sales, Licensing and Marketing, and Senior Vice President and General Manager of the Semiconductor Business Group. From 1999 to 2004, Ms. Holt was an executive at Agilent Technologies in the Semiconductor Products Group (now Broadcom), where her last position was Vice President & General Manager of Americas Field Operations, overseeing sales and technical support operations for the semiconductor business, including ASICs, ASSPs, optical and wireless ICs. Prior to that, she ran sales operations focused on Agilent’s largest global customers. From 1986 to 1999, Ms. Holt worked at HP in Applications Engineering, Sales and Distribution Channel Management for the Semiconductor Products Group.
Ms. Holt received a B.S. in Electrical Engineering from Virginia Polytechnic Institute and State University (Virginia Tech).
Independent Director since June 2019
Current Committees:
•Compensation (Chair)
Age: 59
Key Skills and Qualifications:
•Board expertise as Lead Independent Director, and Nominating and Governance and Compensation Committee chairs
•Wide technology sector executive leadership experience and intellectual property expertise
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Class I Directors whose terms expire at the 2026 Annual Meeting of Stockholders
Roop K. Lakkaraju
Class I Director
Professional Experience:
Roop K. Lakkaraju has been a member of our Board of Directors since February 2022. Mr. Lakkaraju is the Executive Vice President, Chief Financial Officer at Bio-Rad, a position he has held since April 2024. From January 2018 to April 2024, Mr. Lakkaraju served as Executive Vice President, Chief Financial Officer of Benchmark Electronics, Inc. From February 2017 to January 2018, he served as Chief Financial Officer of Maana, Inc., an enterprise software company that pioneered an artificial intelligence-driven knowledge platform. From October 2013 to February 2017, he served as Chief Operating Officer and Chief Financial Officer of Support.com, a provider of cloud-based software and services for technology support. From July 2011 to October 2013, he was Chief Financial Officer of Quantros, Inc., a provider of enterprise SaaS-based solutions and information services that advance healthcare quality and safety performance. Prior to that he held executive financial and operational roles at 2Wire, Solectron Corporation, and Safeguard Scientifics. Mr. Lakkaraju is currently on the board of directors of Greater Phoenix Economic Council. He began his career in 1993 as an auditor with Grant Thornton before joining PricewaterhouseCoopers in their Audit and Business Advisory Services.
Mr. Lakkaraju holds a B.S. in Business Administration from San Jose State University.
Independent Director since February 2022
Current Committees:
• Audit (Chair)
Age: 53
Key Skills and Qualifications:
•Management experience in overall financial strategy, including as a public company CFO
•Significant finance, accounting and technology operations experience
•Audit Committee Financial Expert
Amy H. Rice
Class I Director
Professional Experience:
Amy H. Rice has been a member of our Board of Directors since April 2020. Ms. Rice is a Managing Director with Oaktree’s Special Situations Group and has been with the firm since 2009. Prior to joining Oaktree, Ms. Rice spent two years as an associate at Lindsay Goldberg, LLC, and before that, she spent two years as an analyst in the Leveraged Finance group at Deutsche Bank. Ms. Rice has served on the board of GenesisCare, a private company providing cancer and multi-specialty network services, since February 2024.
Ms. Rice has an A.B. from Harvard College and an M.B.A. from The Wharton School of the University of Pennsylvania.
Key Skills and Qualifications:
•Expertise in capital markets transactions and merger and acquisition transactions.
•Representative of the investor perspective
Independent Director since April 2020
Current Committees:
•Nominating and Governance
Age: 44
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George A. Riedel
Class I Director
Professional Experience:
George A. Riedel has been a member of our Board of Directors since June 2020 and has served as its Chair since November 2020. Mr. Riedel has served as a Senior Lecturer in the General Management Unit at Harvard Business School since 2017. From 2014 to 2017, Mr. Riedel served as the Chair and Chief Executive Officer of CloudMark, Inc., a cybersecurity company, overseeing the company’s sale to Proofpoint, Inc. in 2017. From 2006 to 2011, Mr. Riedel served in executive leadership roles at Nortel Networks Corporation, a Canadian telecommunications and data networking equipment manufacturing company, including Chief Strategy Officer and Vice President of Business Units. From 2003 to 2006, Mr. Riedel served as Vice President of Strategy and M&A at Juniper Networks, a networking and cybersecurity company. From 1987 to 2003, Mr. Riedel worked at McKinsey & Company, including as a senior partner. Mr. Riedel has served as an independent director at Cerner Corporation, a health information technology company, from April 2019 to June 2022. Between 2010 and 2020, Mr. Riedel served on various boards, including as chair of Accedian Networks Inc., a Canadian network communications software company; as a director of PeerApp Ltd., a caching solution provider; as a director of NextDocs Corporation, a compliance innovation company (acquired by Aurea Software, Inc.); and as a director of Xperi Corporation, a technology and intellectual property licensing company from May 2013 to June 2020. Mr. Riedel has served on the public company board of Markforged Holding Corporation since May 2024. He is also currently chairman of the board of Juvare, a private company that provides emergency preparedness and response software solutions, and a board member of Bridgeway Benefit Technologies, a private company that provides healthcare and retirement benefit administration software focused on the end-to-end needs of self-administered multiemployer benefit funds and third-party administrators
Mr. Riedel received a BS with distinction in Mechanical Engineering from the University of Virginia and an MBA from Harvard Business School.
Independent Director since June 2020
Chair of the Board since November 2020
Current Committees:
•Nominating and Governance (Chair)
Age: 66
Key Skills and Qualifications:
•Extensive executive leadership experience in the global networking and cybersecurity industries
•Excellent track record in strategy and M&A
•Served on ten boards, including as chair of four of the boards, over the last decade.
Vote Required
A nominee for director is elected if the votes cast for such nominee exceed the votes cast against such nominee. If a nominee for director fails to receive the required number of votes for re-election, such director shall offer to properly tender his or her resignation (to the extent not already tendered) to the Nominating and Governance Committee, which shall then make a recommendation to the Board as to whether to accept or reject such director’s resignation or whether other action should be taken. Thereafter, the Board will act on the Nominating and Governance Committee’s recommendation. Abstentions and broker non-votes will have no effect on the outcome of the vote with respect to any nominee.
Proposal 1—Recommendation of the Board of Directors
The Board unanimously recommends a vote “FOR” the election of each of
the three Class II nominees listed above
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HOW WE GOVERN AND ARE GOVERNED
Although it is important and exciting to focus on opportunities and successes, we at Infinera believe it is also important to focus on responsible compliance, risk management, and governance structures and functions. Success in our sector in particular depends on maintaining an ability to identify challenges early, maintaining the best possible security and governance practices, and fostering an ability to pivot quickly and continually.
Board Oversight of Risk
Risk is inherent with every business and the Board is responsible for overseeing our risk management function, including a regular review of our strategic plans and business objectives. Members of our senior management team are responsible for implementation of our day-to-day risk management processes, while the Board, as a whole and through its committees, has responsibility for the oversight of overall risk management. In addition, each of the committees of the Board considers any risks that may be within its area of responsibilities and Board members, or Board committee members, periodically engage in discussions with members of our senior management team as appropriate. Specifically, the Audit Committee assists the Board in fulfilling its oversight responsibilities with respect to risk management in the areas of financial reporting, internal controls, key accounting and reporting policies, and cybersecurity, as well as meeting with the Vice President of Internal Audit and our external independent auditors. The Compensation Committee assists the Board in fulfilling its oversight responsibilities with respect to the management of risks arising from our compensation policies and programs. The Nominating and Governance Committee assists the Board in fulfilling its oversight responsibilities with respect to the management of risks associated with Board organization, membership and structure, succession planning for our directors and executive officers, and corporate governance. Each of the committee chairs reports to the full Board at regular meetings concerning the activities of the committee, the significant issues it has discussed, and the actions taken by the committee.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics which applies to all of our employees, officers (including our principal executive officer, principal financial officer, and principal accounting officer or controller, or persons performing similar functions), agents and representatives, including our independent directors and consultants, who are not employees of Infinera, with regard to their Infinera-related activities. The Code of Business Conduct and Ethics reflects our policy of dealing honestly and with integrity with everyone, including our customers, employees, investors and suppliers. We require all employees to complete training on our Code of Business Conduct and Ethics.
Our Code of Business Conduct and Ethics is just one element of the many practices and procedures we utilize to support a diverse and inclusive culture that encourages helpful and honest communication both up and down reporting relationship chains. Our executive leaders set the tone for this culture at the top and our ability to maintain a positive and creative work environment depends on its success. Our annual Infinera Environmental, Social and Governance Report describes some of the additional programs and practices we maintain to protect our people and promote their productivity, health and well-being.
A copy of our Code of Business Conduct and Ethics is available on our website at investors.infinera.com/ by clicking on “Governance Documents” under the “Governance” heading. You may also obtain a copy of our Code of Business Conduct and Ethics without charge by writing to: Infinera Corporation, c/o Corporate Secretary, 6373 San Ignacio Avenue, San Jose, California 95119. We intend to disclose future amendments to certain provisions of our Code of Business Conduct and Ethics, or waivers of such provisions, applicable to any principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and our directors on our website identified above or on a Current Report on Form 8-K if required by the applicable listing standards.
Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines which govern, among other things, Board composition, Board responsibilities, committee composition, management succession and stockholder communications. You can access these Corporate Governance Guidelines, along with other materials such as Board committee charters, on our website at investors.infinera.com/ by clicking on “Governance Documents” under the “Governance” heading.
Stock Ownership Policy
The Board believes that it is important to link the interests of our directors and management to those of our stockholders. Accordingly, the Board has adopted a Stock Ownership Policy for our directors and executive officers who are designated as reporting officers under Section 16 (“Section 16 Officers”) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For additional information regarding our Stock Ownership Policy, please see the section
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entitled “Compensation Discussion and Analysis—Additional Information Regarding Our Compensation Practices—Stock Ownership Policy.”
ESG and Corporate Responsibility
We focus our efforts on the elements of sustainability that are most important and impactful to our business and to our stakeholders. Through our 2022 ESG materiality assessment, the following topics were determined to be the most material ESG issues. Our programs, goals and disclosures have been aligned to emphasize these topics.
Environmental Responsibility
Social Responsibility
Corporate Governance
Climate, greenhouse gas emissions and energy
Community engagement and philanthropy
Supply chain management and responsible sourcing
Waste management and recycling
Employee health, safety and well-being
Privacy, data protection and information security
Product sustainability
Diversity, equity and inclusion
Leadership engagement, oversight and accountability
We are committed to being a good corporate citizen and are dedicated to paving a sustainable path that strategically considers our impact on our key stakeholders, our communities and our planet. In our operations and our supply chain, we strive to act in ways that support a more sustainable, equitable and connected world and to execute our programs with intention through our global sustainability program.
Each year we summarize our sustainability program and activities in the Infinera ESG Report, which describes our practices, metrics, targets and disclosures. We encourage you to read our 2023 Infinera ESG Report. A copy of the Infinera ESG Report can be found on the “Sustainability” page of our website at www.infinera.com/corporate-social-responsibility-reports.
In 2023, we continued to make progress toward our ESG goals and improved our programs with dedicated resources.
Notable ESG Highlights
Our Global ESG Working Group collaborates with functions across the globe to set goals, report progress, implement programs and meet customer expectations. In 2023, this team worked closely with our executive leadership team to ensure alignment of our ESG objectives and our corporate strategy. We created an overall ESG roadmap, continued to refine our ESG objectives, assigned owners to focus on these objectives and held quarterly ESG review meetings during 2023.
ESG Management
In 2023, we are proud to have been awarded EcoVadis’ silver medal in recognition of our sustainability achievements in the areas of Environment, Labor & Human Rights, Ethics and Sustainable Procurement.
Transparency and Reporting
Integrity, trust, mutual commitment and respect for diversity are core Infinera values – values brought to life by our talented, diverse and dedicated global workforce. In 2023, we continued to invest in fostering a more inclusive work environment. In the U.S., we have continued our partnerships with non-profit institutions and historically black colleges and universities to increase our pipeline of diverse talent. We have also continued to provide access to DEI training for our global employee base. Training topics are focused on global diversity, employees' roles in workplace diversity and related matters. We offer recruiters and managers training on topics such as leveraging inclusive hiring practices. We continued to expand Women at Infinera ("WIN") employee resource group activities and participation, including with our mentoring program and by participating in local and regional women’s conferences and a speakers program addressing topics including development, recruitment and retention of women. In various locations, employees have also partnered with local nonprofit institutions and schools to encourage female students to pursue STEM careers.
Diversity, Equity and Inclusion (“DEI”)
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We are dedicated to providing an inclusive and informative learning experience for each of our employees. In 2023, we continued to offer learning and development initiatives, including a scalable, multi-language e-learning platform that enables the proliferation of global, diverse, and professional education. We also provided education on topics that include, but are not limited to, technical sessions, managerial training, effective time management, unlocking executive presence, working in a multigenerational workplace, next level delegation and breaking down barriers. In addition, all of our full-time employees, and regular part-time employees working at least 24 hours per week, are eligible for general Infinera benefits.
Commitment to our Employees
We are proud of our strong safety culture and comprehensive health and safety management system, which is standardized around the globe. In 2023, we extended our health and safety programs to all sites to better track, manage and improve health and safety metrics. We also implemented an incident and near miss reporting and tracking tool, which is available to all employees.
Employee Health and Safety
It takes industry-wide effort to move the needle in mitigating climate change, and we are committed to doing our part to reduce emissions in our operations and from within our value chain. We currently have seven global sites that use 100% carbon free energy. In 2023, we submitted our carbon report through CDP (formerly the Carbon Disclosure Project) to share our emissions and progress toward our stated goals. Infinera received a score of “B-, Managed” which is an improvement over our first submission score in 2021 of “C, Awareness”. In 2023, we committed to SBTi (Science-Based Targets institute) to align with the Paris Agreement on climate change and reduce our greenhouse gas emissions. Though we have more work to do to meet our goal of a greater than 50% reduction of greenhouse gases by 2030, through our CDP disclosures we intend to demonstrate transparency and accountability regarding our progress toward this important ESG goal.
Carbon Emissions
At Infinera, we recognize the importance of discipline, sustainability, and ethics in managing our supply chain, and we also recognize the importance of ethical supply chain management to our stakeholders. We also understand the need to remain vigilant as the global regulatory environment evolves to ensure our supply chain not only follows all applicable laws and regulations, but also aligns with our core values. To support supply chain compliance, we have continued to invest in tools to better screen suppliers. We also require our suppliers to comply with the Infinera Supplier Code of Conduct and applicable law. Furthermore, our suppliers are required to ensure that their direct suppliers and subcontractors also comply with the Supplier Code of Conduct and applicable law. A copy of our Partner Code of Conduct can be found on our website at www.infinera.com/social-responsibility/code-of-ethics/.
Supply Chain Management
At Infinera, we strive to foster a culture of integrity and honesty and provide our employees with the tools and training to make ethical decisions in their daily work. All employees are expected to understand and comply with our Code of Business Conduct and Ethics and are reminded of this expectation annually. Any breaches of that code may be reported using our EthicsPoint Hotline. A copy of our Code of Business Conduct and Ethics may be found on our website at www.infinera.com/social-responsibility/code-of-ethics/.
Business Ethics
In 2021, Infinera made a public commitment to increase power efficiency and reduce the carbon footprint of our products. Our recent innovations in efficiency have enabled our XR Optics solution to significantly reduce power consumption and CO2 emissions. In 2023, we received the Most Innovative Proof of Concept award for our passive optical network (“PON”) overlay demonstration at FiberConnect 2023. Our PON overlay technology reduces time, cost, energy, emissions, and the need for new infrastructure.
Product Sustainability
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We strive to maintain the highest degree of product safety and compliance. To accomplish this, we are members of the Responsible Minerals Initiative. We also maintain compliance with local, state, federal and international regulations by continuously updating our environmental compliance system and collecting data for the following:
–Banned substances under the Directive on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment;
–Reportable substances under Registration, Evaluation, Authorization, and Restriction of Chemicals; and
–Waste management under the Waste Electrical and Electronic Equipment Directive.
Product Compliance
We have implemented a comprehensive and robust cybersecurity risk management program to guide and strengthen our cybersecurity posture to engender trust with customers, employees, and stockholders while protecting the confidentiality, integrity, and availability of our systems and data. In 2023, we took several measures to enhance our cybersecurity strategy and program, including revising our cybersecurity policies to ensure continued compliance with regulatory requirements while strengthening our defenses against emerging threats, in addition to new risks from emerging technologies such as artificial intelligence (“AI”). We also conducted tabletop exercises with expanded participation from company leadership. Throughout our workforce, we used activities and training to further imbue a culture of cybersecurity awareness and data protection. In 2023, we continued to strengthen and scale our cybersecurity processes to reduce the risk of existing and potential threats, including new technologies such as AI. We launched a new cross-functional AI Steering Committee to address issues surrounding AI including bias, reliability, and data security. We are committed to securing the confidential and proprietary information of our employees and business partners, including employee data and intellectual property. To support this commitment, Infinera has internal security and privacy working groups that meet regularly to discuss regulatory matters, internal compliance and policies and best practices for privacy and data protection matters. In 2023, we did not experience a material cybersecurity incident. We are also proud to maintain our certification to the International Organization for Standardization (“ISO”) 27001 Information Security Management System standard, which we held throughout 2023.
Privacy and Data Protection
In addition to the accomplishments, best practices, activities and disclosures summarized above, our products and solutions help keep people connected socially and professionally; run their businesses more efficiently, fairly and globally; and manage the risks that are created by living in a connected global economy.
HOW TO COMMUNICATE WITH US
The Board actively seeks input from stockholders, stakeholders, thought leaders and many others to perform its functions optimally. As stockholders bring wide and relevant experiences and have a financial stake in the wisdom of their input, the Board values maintaining a number of avenues to receive that input. These include:
•Stockholder attendance or participation at our annual stockholders meetings
•Input from proxy voting
•Use of the company’s various reporting mechanisms such as its “hot lines” and reports to the internal audit function
•Participation in our numerous investor relations programs and conferences
Write to the Board as a whole, or to individual directors, at the following address:
Board of Directors c/o Corporate Secretary
Infinera Corporation
6373 San Ignacio Avenue
San Jose, California 95119
Communications are distributed to the Board or to any individual director, as appropriate, depending on the facts and circumstances outlined in the communication. At the direction of the Board, all mail received may be opened and screened for security purposes. Communications that are unduly hostile, threatening, illegal or similarly unsuitable will be excluded
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with the provision that any communication that is filtered out will be made available to any independent or non-employee director upon request.
HOW WE ARE ORGANIZED
Independence of the Board
On an annual basis, in accordance with the current listing standards of Nasdaq, the Board affirmatively determines the independence of each director or nominee for election as a director. The Board has determined that seven out of nine of our directors (with the exception of Mr. Heard and Dr. Welch, both of whom are employees of Infinera) are “independent” in accordance with the rules and regulations of the SEC and the listing standards of Nasdaq. Also, all members of the Audit Committee, Compensation Committee and Nominating and Governance Committee, as more fully described below, are independent directors. In making these determinations, our Board considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances that our Board deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and the transactions involving them described in the section titled “Certain Relationships and Related Person Transactions.” There are no family relationships among any of our directors, director nominees or executive officers.
Board Leadership Structure
The Board believes its current leadership structure best serves the objectives of the Board’s oversight of management, the Board’s ability to carry out its roles and responsibilities on behalf of our stockholders, and our overall corporate governance. Separating the positions of Chair of the Board and CEO allows our CEO to focus on our day-to-day business, while allowing the Chair of the Board to lead the Board in its fundamental role of providing advice to and independent oversight of management. While our Bylaws do not require that our Chair of the Board and CEO positions be separate, the Board believes that having separate positions is the appropriate leadership structure for Infinera at this time and demonstrates our commitment to good corporate governance practices. The Board has assigned the Chair of the Board responsibility for presiding over meetings of the Board, developing meeting agendas, facilitating communication between management and the independent directors, representing the views of the independent directors to management and improving meeting effectiveness, among other things.
The Board also believes that the combination of an independent Chair of the Board, all three of our current standing committees being comprised entirely of independent directors and the regular use of executive sessions of the independent directors enables the Board to maintain independent oversight of our strategies and activities.
Agreement with Oaktree Optical Holdings
In April 2020, we entered into a letter agreement with Oaktree Optical Holdings, L.P. (“Oaktree”) pursuant to which we agreed, among other things, to nominate and support Ms. Rice for election as a director at the 2020 Annual Meeting of Stockholders. Subject to certain exceptions set forth in the letter agreement, Oaktree and certain affiliates agreed to vote all of its shares at the 2020 Annual Meeting of Stockholders in a manner consistent with the recommendation of our Board. Oaktree also agreed to customary standstill restrictions. Our letter agreement with Oaktree also required that Infinera and Oaktree reasonably cooperate to identify a director candidate (the “Independent Designee”) for consideration by our Nominating and Governance Committee. In June 2020, Ms. Bucklin joined the Board as the Independent Designee. Ms. Rice was re-elected as a Class I director at the 2023 Annual Meeting of Stockholders.
Information Regarding the Board and its Committees
The Board met eight times during fiscal 2023. During fiscal 2023, each director then in office attended 75% or more of the meetings of the Board. During fiscal 2023, each director then in office attended 75% or more of the meetings of the committees on which he or she served during the period for which he or she was a committee chair or committee member, as applicable. Our independent directors meet in executive sessions, without management present, during most regular meetings of the Board. Directors are encouraged, but not required, to attend our annual meetings of stockholders. All nine of our then-serving members of the Board attended our 2023 Annual Meeting of Stockholders.
The Board had three standing committees as of the end of fiscal 2023: an Audit Committee, a Compensation Committee and a Nominating and Governance Committee. Mr. Heard and Dr. Welch do not currently serve on any committees of the Board. The following table presents our current Board and committee composition (and assuming the election of the nominees for Class II directors who are standing for election at the 2024 Annual Meeting of Stockholders, this
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table also presents our Board and committee composition effective upon the conclusion of our 2024 Annual meeting of Stockholders).
Name
Board
Audit
Compensation
Nominating
and
Governance
Christine B. Bucklin
M
M
—
—
Gregory P. Dougherty
M
—
M
M
David W. Heard
M
—
—
—
Sharon E. Holt
M
—
C
—
Roop K. Lakkaraju
M
C
—
—
Paul J. Milbury
M
M
M
—
Amy H. Rice
M
—
—
M
George A. Riedel
C
—
—
C
David F. Welch, Ph.D.
M
—
—
—
Total Meetings in Fiscal 2023
8
17
6
4
_________________
C = Chair; M = Member
Audit Committee
The Audit Committee reviews and monitors our financial statements, financial reporting process and our external audits, including, among other things, our internal controls and audit functions, the results and scope of the annual audit and other services provided by our independent registered public accounting firm as well as our compliance with legal matters that have a significant impact on our financial statements. The Audit Committee also consults and discusses with our management and our independent registered public accounting firm prior to the presentation of financial statements to stockholders. The Audit Committee also promotes the Company’s compliance with applicable law. The Audit Committee is responsible for establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, and for the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters. In addition, the Audit Committee is directly responsible for the appointment, retention, compensation and oversight of the work of our independent registered public accounting firm, including approving services and fee arrangements. The Audit Committee has oversight of the Company’s significant financial risks and exposures, including related to cybersecurity matters. Any related party transactions are subject to approval by the Audit Committee. A more detailed description of the Audit Committee’s functions can be found in our Audit Committee charter. In addition, the Audit Committee meets in executive sessions, without management present and with the independent registered public accounting firm, during most regular meetings of the Audit Committee. A copy of the Audit Committee charter is available on our website at investors.infinera.com/ by clicking on “Governance Documents” under the “Governance” heading.
The current members of the Audit Committee are Ms. Bucklin and Messrs. Lakkaraju and Milbury. Mr. Milbury chaired the Audit Committee until May 18, 2023 when, upon the conclusion of our 2023 Annual Meeting, Mr. Lakkaraju became chair of the Audit Committee and Mr. Milbury remained a member of the Audit Committee. Each current member of the Audit Committee served the entirety of fiscal 2023. The Audit Committee met 17 times during fiscal 2023. Each member of the Audit Committee is independent for Audit Committee purposes under the rules and regulations of the SEC and the applicable Nasdaq listing standards. In addition to qualifying as independent under the Nasdaq rules, each member of the Audit Committee can read and understand fundamental financial statements in accordance with Nasdaq Audit Committee requirements. The Board has determined that Messrs. Lakkaraju and Milbury are each an “Audit Committee Financial Expert” as defined in Item 407(d)(5)(ii) of Regulation S-K. The designation does not impose on Messrs. Lakkaraju and Milbury any duties, obligations or liabilities that are greater than those generally imposed on them as members of the Audit Committee and the Board.
Compensation Committee
The Compensation Committee has the responsibility, authority and oversight relating to the development of our overall compensation strategy and compensation policies and programs. The Compensation Committee establishes our compensation philosophy and policies, administers all of our compensation plans for executive officers, and recommends the compensation for the non-employee directors of the Board. The Compensation Committee seeks to assure that our compensation policies and practices promote stockholder interests and support our compensation objectives and philosophy as described in more detail in the “Compensation Discussion and Analysis” section of this Proxy Statement.
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The Compensation Committee also oversees, reviews and administers all of our material employee benefit plans, including our 401(k) plan, and reviews and approves various other compensation policies and matters. The Compensation Committee assists the Board in its oversight of our strategies, initiatives and programs relating to human capital management, including culture, talent acquisition, employee development, retention, and diversity, equity and inclusion. The Compensation Committee may form and delegate authority to one or more subcommittees as appropriate. A more detailed description of the Compensation Committee’s functions can be found in our Compensation Committee charter. A copy of the Compensation Committee charter is available on our website at investors.infinera.com/ by clicking on “Governance Documents” under the “Governance” heading.
The current members of the Compensation Committee are Ms. Holt and Messrs. Dougherty and Milbury. Ms. Holt chairs the Compensation Committee. Each current member of the Compensation Committee served the entirety of fiscal 2023. The Compensation Committee met six times during fiscal 2023. Each member of the Compensation Committee is a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act, an outside director, as defined pursuant to Section 162(m) (“Section 162(m)”) of the Internal Revenue Code, as amended (the “Code”) and satisfies the director and compensation committee independence requirements under the applicable Nasdaq listing standards.
Nominating and Governance Committee
The Nominating and Governance Committee is responsible for reviewing developments in corporate governance practices, evaluating and making recommendations to the Board concerning corporate governance matters, and recommending changes to the Company's corporate governance policies and practices. In addition, the Nominating and Governance Committee is responsible for identifying, evaluating and making recommendations of nominees to the Board and evaluating the performance of the Board and individual directors, including those eligible for re-election at the annual meeting of stockholders. The Nominating and Governance Committee also oversees an annual board evaluation process to determine whether the Board is functioning effectively. In addition, the Nominating and Governance Committee oversees our succession planning process. A more detailed description of the Nominating and Governance Committee’s functions can be found in our Nominating and Governance Committee charter. A copy of the Nominating and Governance Committee charter is available on our website at investors.infinera.com/ by clicking on “Governance Documents” under the “Governance” heading.
The current members of the Nominating and Governance Committee are Ms. Rice and Messrs. Dougherty and Riedel. Mr. Riedel chairs the Nominating and Governance Committee. Each current member of the Nominating and Governance Committee served the entirety of fiscal 2023 as a member of this committee. The Nominating and Governance Committee met four times during fiscal 2023. Each member of the Nominating and Governance Committee satisfies the independence requirements under the applicable Nasdaq listing standards.
Board Nominees and Diversity
The Nominating and Governance Committee reviews and reports to the Board on a periodic basis with regard to matters of corporate governance, and reviews, assesses and makes recommendations on the effectiveness of our corporate governance policies. In addition, the Nominating and Governance Committee reviews and makes recommendations to the Board regarding the size and composition of the Board and the appropriate skills and characteristics required of our directors in the context of the then-current composition of the Board. This includes an assessment of each candidate’s independence, personal and professional integrity, financial literacy or other professional or business experience relevant to an understanding of our business, ability to think and act independently and with sound judgment, and ability to serve our stockholders’ long-term interests. The Board and the Nominating and Governance Committee follow a process in which we consider governance best practices when reviewing the overall composition of the Board and considering the slate of nominees for annual election to the Board and the appointment of individual directors to the Board. The Board and Nominating and Governance Committee evaluate the skill sets needed to provide the right level of guidance and oversight to the management team. Within the context of evaluating the skills needed on the Board, the Nominating and Governance Committee also considers diversity attributes, including gender, race, ethnicity, specialized expertise and a range of insight gathered from relevant industries. These factors, and others considered useful by the Nominating and Governance Committee, are reviewed in the context of an assessment of the perceived needs of the Board at a particular point in time.
The Nominating and Governance Committee leads the search for, selects and recommends candidates for election to the Board. Consideration of new director candidates typically involves a series of committee discussions, review of information concerning candidates and interviews with selected candidates. From time to time, the Nominating and Governance Committee may engage the services of a search firm to identify director candidates. Any search firms retained to assist the Nominating and Governance Committee will be specifically advised to seek to include qualified, diverse candidates from traditional and nontraditional environments, including members of underrepresented communities, as was done for the Board search process conducted in 2021. The Nominating and Governance Committee will also consider candidates proposed in writing by stockholders, provided such proposal meets the eligibility requirements for submitting stockholder proposals for inclusion in our next proxy statement and is accompanied by the required information about the
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candidate specified in Section 2.4 of our Bylaws. Candidates proposed by stockholders are evaluated by the Nominating and Governance Committee using the same criteria as for all other candidates.
If a stockholder wishes to recommend a director candidate for consideration by the Nominating and Governance Committee, pursuant to our Corporate Governance Guidelines, the stockholder must have held at least 1,000 shares of our common stock for at least six months and must notify the Nominating and Governance Committee by writing to our Chief Legal Officer at our principal executive offices, and must include the following information:
•To the extent reasonably available, information relating to such director candidate that would be required to be disclosed in a proxy statement pursuant to Regulation 14A under the Exchange Act, in which such individual would be a nominee for election to the Board;
•The director candidate’s written consent to (a) if selected, be named in our proxy statement and proxy, and (b) if elected, to serve on the Board;
•The other information set forth in the applicable sections of Section 2.4 of our Bylaws; and
•Any other information that such stockholder believes is relevant in considering the director candidate.
Non-Executive Equity Award Subcommittee
The guidelines for the size of new hire, promotional and annual retention equity awards for Section 16 Officers are periodically reviewed and approved by the Compensation Committee. The Compensation Committee has delegated to the Non-Executive Equity Award Subcommittee (the “Subcommittee”) the authority to formally approve new hire, promotional and retention equity awards to certain employees and consultants pursuant to guidelines pre-approved from time to time by the Compensation Committee. The delegation to the Subcommittee does not include the authority to grant equity awards to new employees who are or are reasonably expected to become Section 16 Officers or to current Section 16 Officers. The delegation of authority to the Subcommittee is not exclusive and the Board and Compensation Committee have retained the right to approve any equity awards at their discretion. This Subcommittee is currently comprised solely of our CEO (who is also a Board member).
Compensation Committee Interlocks and Insider Participation
During fiscal 2023, Ms. Holt and Messrs. Dougherty and Milbury served on the Compensation Committee. None of these individuals was an executive officer or employee of Infinera at any time during fiscal 2023, or at any other time. No member of the Compensation Committee had any relationship with Infinera during fiscal 2023 requiring disclosure under Item 404 of Regulation S-K under the Exchange Act. None of our executive officers has ever served as a member of the board or compensation committee of any other entity that has or has had one or more executive officers serving as a member of the Board or Compensation Committee.
HOW WE ARE PAID
Our compensation program for our non-employee directors is designed to attract and retain highly qualified, independent directors to represent stockholders on the Board and to act in our stockholders’ best interests. Non-employee directors receive a mix of cash compensation and equity awards under this program. Directors who are also employees of Infinera do not participate in our director compensation program, nor do they receive any additional compensation for their service as directors. The Compensation Committee, which consists solely of independent directors, has the primary responsibility for reviewing and recommending any changes to our director compensation program, with compensation changes approved or ratified by the full Board.
From time to time, the Compensation Committee engages Compensia, Inc. (“Compensia”), an independent compensation consultant, to help the Compensation Committee review our director compensation program by providing relevant market data regarding director compensation derived from the same peer group used at the time for evaluating our executive compensation. During late fiscal 2022, the Compensation Committee engaged Compensia to provide market data on director compensation. Compensia provided such market data to the Compensation Committee for the peer group which the Compensation Committee had approved in September 2022 for use in evaluating our executive compensation for fiscal 2023. The Compensation Committee concluded that in light of our director compensation program generally aligning with market competitive levels, no change in director compensation would be recommended at that time. As a result, in fiscal 2023, no changes were made to our director compensation program.
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Director Fees
During fiscal 2023, our cash compensation program for our non-employee directors was as follows:
Position
Annual
Retainer Fee
($)
Non-Employee Director
50,000
Chair of the Board
70,000
Audit Committee Chair
30,000
Audit Committee Member
12,500
Compensation Committee Chair
20,000
Compensation Committee Member
10,000
Nominating and Governance Committee Chair
11,000
Nominating and Governance Committee Member
6,000
We do not pay meeting fees for the Board or any of the committees of the Board. We pay the retainer fees set forth above in quarterly installments. Retainer fees are paid in arrears. In addition, we have a policy of reimbursing our non-employee directors for reasonable travel, lodging and other expenses incurred in connection with their attendance at Board and committee meetings.
Director Equity Awards
During fiscal 2023, our equity compensation program for our non-employee directors was as follows:
On the date of each annual meeting of stockholders, each individual who continues to serve as a non-employee director after that annual meeting will automatically be granted an RSU award covering a number of shares determined by dividing $200,000 by the closing price of the Company’s common stock on the date of grant, with any resulting fractional share rounded down to the nearest whole share (the “Annual RSU Award”). The Annual RSU Award will vest as to 100% of the underlying shares on the earlier of the date of the next annual meeting of stockholders or the one-year anniversary of the date of grant provided that the non-employee director remains a service provider of Infinera on the applicable vesting date.
Annual Restricted Stock Unit (“RSU”) Award
Each new non-employee director will be automatically granted an annual RSU award covering a number of shares determined by first prorating $200,000 for the number of months remaining until the next scheduled annual meeting of stockholders and then dividing such prorated dollar amount by the closing price of the Company’s common stock on the date of grant, with any resulting fractional share rounded down to the nearest whole share (the “Prorated Annual RSU Award”). The Prorated Annual RSU Award will vest as to 100% of the underlying shares on the earlier of the date of the next annual meeting of stockholders or the one-year anniversary of the most recently held annual meeting of stockholders, provided that the non-employee director remains a service provider of Infinera on the applicable vesting date.
Prorated Annual RSU Award For
New Directors
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Effective March 27, 2024, new Annual RSU Awards and Prorated Annual RSU Awards granted to non-employee directors will vest as to 100% of the underlying shares on the earlier of (i) the date of the next annual meeting of stockholders, provided that it occurs at least 50 weeks after the prior annual stockholders meeting or (ii) the one-year anniversary of the date of grant, provided that the non-employee director remains a service provider of Infinera on the applicable vesting date.
Fiscal 2023 Director Compensation
The following table sets forth all of the compensation awarded to or earned by the non-employee members of the Board in fiscal 2023. In addition, the table sets forth compensation awarded to or earned by Dr. Welch for his services as an employee of Infinera; Dr. Welch does not receive compensation for his services as a director. Compensation information for Dr. Welch is not disclosed in “Our Pay—Fiscal 2023 Compensation” below because he is not a Named Executive Officer.
Name
Fees Earned
or Paid in Cash
($)(1)
Stock
Awards
($)(2)
All Other
Compensation
($)
Total
($)
Christine B. Bucklin
62,500
199,996
(3)
—
262,496
Gregory P. Dougherty
66,000
199,996
(3)
—
265,996
Sharon E. Holt
70,000
199,996
(3)
—
269,996
Roop K. Lakkaraju
73,413
199,996
(3)
—
273,409
Paul J. Milbury
79,087
199,996
(3)
—
279,083
Amy H. Rice(4)
—
—
—
—
George A. Riedel
131,000
199,996
(3)
—
330,996
David F. Welch, Ph.D.
—
738,000
(5)
205,704
(6)
943,704
_________________
(1)For a description of the annual non-employee director retainer fees and retainer fees for committee chair positions and for service as Chair of the Board, see the disclosure above under “Director Fees.”
(2)The amounts reported in this column represent the aggregate grant date fair value of the RSU awards granted in fiscal 2023 computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, “Compensation – Stock Compensation” (“ASC 718”). See Notes 2 and 14 of the notes to our consolidated financial statements contained in our 2023 Annual Report on Form 10-K for a discussion of all assumptions made by us in determining the ASC 718 values of equity awards.
(3)Reflects for each director the value of the Annual RSU Award awarded in connection with the 2023 Annual Meeting of Stockholders, which value was determined by multiplying for each director 39,447 shares of Infinera common stock by Infinera’s closing stock price of $5.07 per share on May 18, 2023, the date of grant.
(4)Ms. Rice has waived any participation in the compensation benefits available to the Company’s non-employee directors, except for customary reimbursement of expenses.
(5)Reflects the value of Dr. Welch’s equity awards granted as compensation in 2023 for his services as an employee of Infinera.
(6)Reflects Dr. Welch’s 2023 employee salary in the amount of $200,000, plus the total value of Company paid life insurance premiums and 401(k) match in the amount of $5,704.
During fiscal 2023, Dr. Welch, our Chief Innovation Officer and employee member of the Board, did not receive compensation for his services as a director. Dr. Welch’s base salary for fiscal 2023 was $200,000. Dr. Welch was not eligible for an incentive target bonus opportunity during fiscal 2023. On March 9, 2023, Dr. Welch was granted an RSU award covering 100,000 shares, which is scheduled to vest over a three-year period, with one-third of the underlying shares vesting on April 5, 2024, and one-twelfth of the underlying shares vesting quarterly thereafter, subject to his continued service to Infinera through each applicable vesting date. This RSU award had an aggregate grant date fair market value of $738,000, computed in accordance with ASC 718. See Notes 2 and 14 of the notes to our consolidated financial statements contained in our 2023 Annual Report on Form 10-K for a discussion of all assumptions made by us in determining the ASC 718 values of equity awards.
On March 4, 2020, Dr. Welch was granted a performance share award covering 650,000 shares (at target level achievement). The award provided for a number of quantitative and qualitative performance objectives related to the successful development of the Company's XR Optics program to be achieved over different periods from fiscal 2020 through fiscal 2024. On March 24, 2023, the Compensation Committee determined that the achievement of one of the performance metrics, which related to generating $50 million of ICE-X-related revenues by the end of fiscal 2022, had not been achieved. As a result, 150,000 shares of common stock underlying the award were forfeited on this date. On May 12, 2024, the Compensation Committee determined that the achievement of another of the performance metrics, which related to generating $100 million of ICE-X-related revenues by the end of fiscal 2023, had not been achieved. As a result, 150,000 shares of common stock underlying the award were forfeited on this date.
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Additional Information with Respect to Director Equity Awards
Name
Number of Shares Subject to
Outstanding Stock Awards
at Fiscal Year-End
(#)(1)
Christine B. Bucklin
39,447
Gregory P. Dougherty
39,447
Sharon E. Holt
39,447
Roop K. Lakkaraju
52,403
Paul J. Milbury
39,447
Amy H. Rice(2)
—
George A. Riedel
39,447
David F. Welch, Ph.D.(3)
500,001
_________________
(1)Unvested time-based RSU awards, except as noted below with respect to Dr. Welch.
(2)Ms. Rice has waived any participation in the compensation benefits available to the Company’s non-employee directors, except for customary reimbursement of expenses.
(3)Comprised of 150,001 shares subject to unvested time-based RSUs and 350,000 shares subject to performance share awards (at target level achievement), 150,000 of which had a performance goal that was not met as of completion of the applicable performance period ending at the end of fiscal 2023 and 200,000 of which had a performance goal based on fiscal 2024 performance.
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OUR PAY
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis provides information related to the fiscal 2023 compensation program and related decisions for our NEOs identified below.
Our Named Executive Officers
For fiscal 2023, our NEOs were the following:
•David W. Heard, our CEO;
•Nancy L. Erba, our Chief Financial Officer (“CFO”);
•David L. Teichmann, our Chief Legal Officer (“CLO”) and Corporate Secretary; and
•Nicholas R. Walden, our Senior Vice President, Worldwide Sales.
Executive Summary
Fiscal 2023 Business Results
Fiscal 2023 was a year in which we continued to strengthen our product portfolio, accelerate growth and expand margins. We continued to make strong progress toward our overall financial and strategic goals. Below are four key accomplishments in fiscal 2023.
First
We delivered against our major financial milestones, as we grew revenue for the 6th consecutive year, expanded gross margin by approximately 450 bps in the year, expanded operating margin by approximately 350 bps in the year, and enhanced our earnings per share. During the year, we strengthened our balance sheet further by refinancing a portion of our debt and reducing our 2024 convertible debt to approximately $19 million (down from approximately $100 million). We continue to maintain an asset-backed lending facility as an additional source of funds to address any short-term financing requirements.
Second
We drove commercial success across our customer footprint as we secured new global service provider and internet content provider (“ICP”) design wins. In fiscal 2023, we delivered another year of 30%-plus revenue growth with ICPs which have now grown to represent almost 50% of product revenue (both on a direct and indirect basis). Furthermore, we expanded our share in the Metro segment, landed major service provider deals in the U.S., Europe, the Middle East and Southeast Asia, and maintained our position as a top vendor in the Subsea segment, a segment characterized by stringent capacity and reach requirements.
Third
We continued to refresh and expand our Systems portfolio, as we increasingly converged our Systems portfolio on the flagship GX-series platform, introduced a next-generation GX-based line system, invested in software and automation, and continued to scale and add customers on our flagship 800G ICE-6 embedded engine. In 2023, our GX-Series portfolio represented almost 50% of the company’s product revenue. As we exited the year, we also shipped our first vertically integrated Metro systems with our own coherent pluggables, an important milestone for the continued expansion of our gross margin.
Fourth
We successfully launched and scaled our Subsystems portfolio as we booked more than $10 million in orders for Subsystems products during the year. To date, we have received purchase orders for our suite of ICE-X 100G, 400G, and 800G pluggables and components from more than 26 customers. The commercialization of our Subsystems products expands our addressable market and will be critical to accelerating our revenue growth and expanding margins from higher levels of vertical integration across the portfolio. In addition, the Open XR Forum, which was launched in June 2021, now has more than 40 members, including service providers and network equipment manufacturers, demonstrating continued momentum within our industry for this new technology as well as our commitment to open networks in the industry.
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The following tables illustrates our GAAP revenue and non-GAAP Operating Income (loss) over the last three fiscal years:
_______________
(1)For a reconciliation of GAAP to non-GAAP Operating Income for fiscal 2023, 2022 and 2021 referenced in this table or elsewhere in this Proxy Statement, please see Appendix A.
The following graph shows our 1-, 3- and 5-year TSR as compared to the Nasdaq Telecommunications Index (“Nasdaq Telecommunications Index”), measured from the last trading day of fiscal 2023.
Fiscal 2023 Executive Compensation Program Overview
At the beginning of fiscal 2023, when a majority of executive compensation decisions were made, the Compensation Committee considered the performance of our company as we exited fiscal 2022 and the goals of achieving profitable revenue growth and non-GAAP Operating Income growth despite a challenging macroeconomic environment and the desire to return to a customary executive compensation framework as the world normalized from the COVID-19 pandemic. The decisions made reflected our continuing commitment to a strong pay-for-performance profile and supported accountability of our leadership team for our financial performance.
As indicated below, a significant portion of our executive compensation program is designed to align the compensation outcomes for our participating NEOs with performance against measurable objectives.
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Executive Compensation Program Structure
Compensation Element
(CEO/Average NEO Allocation of Elements in Target Total Direct Compensation)
Structure and Attributes
•Competitively set
•Each NEO received a pay increase in FY’23
Base Salary
(11% CEO/23% NEOs)
•Annual target bonuses are payable in cash
•2023 Corporate Bonus Plan funding level determined by non-GAAP Operating Income to emphasize achievement of profitable growth
•SVP, Worldwide Sales participates in the 2023 Corporate Bonus Plan but also a separate incentive plan tied to achievement of financial targets for bookings and non-GAAP product standard margin to emphasize bookings growth and profitable growth for the Company
Target Annual
Incentive
(14% CEO/20% NEOs)
•Based on non-GAAP gross margin, an objective performance metric
•Vesting occurs when performance objective has been certified as having been achieved by the Compensation Committee for full fiscal year during performance period and time-based vesting requirement is met
•CEO received performance-based shares valued at 41% of target total direct compensation (55% of target long-term incentive (“LTI”) value); other NEOs received performance-based shares valued at 28% of target total direct compensation (50% of target LTI value)
Long-Term Performance-
Based Stock Awards
(41% CEO/28% NEOs)
•Designed for long-term retention and to promote strong long-term stockholder alignment
•RSUs vest over three years, with one-third vesting after one year and then quarterly for the remaining two years
•CEO received RSUs valued at 34% and other NEOs received RSUs valued at 28% of target total direct compensation
Long-Term Time-Based RSU Awards
(34% CEO/28% NEOs)
Pay-for-Performance Outcome in Fiscal 2023
During fiscal 2023, we continued to make progress toward achievement of our longer-term strategic goals despite a challenging macroeconomic environment. Under our fiscal 2023 executive compensation program, and consistent with our compensation policy promoting strong pay and performance alignment:
•Annual Corporate Bonus Plan incentives were earned between approximately 68.9% and 83.5% of target for each NEO;
•69.6% of the performance shares granted in 2021 became eligible to vest in 2024 based on performance during 2023;
•None of the performance shares granted in 2022 and 2023 became eligible to vest based on performance during 2023; and remain outstanding and eligible to be earned based on the level of achievement of the Company's longer-term strategic goals during the applicable performance period; and
•Realized compensation value for our CEO in fiscal 2023 was 41.2% of his target compensation (as further discussed below).
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Pay-for-Performance with Respect to Fiscal 2023 CEO Compensation
We emphasize performance-based compensation for all of our NEOs, including in particular our CEO. The chart below displays the target total direct compensation (i.e., base salary, target cash incentive opportunity, and equity awards at target) of our CEO versus our CEO’s actual realized compensation during the most recent three fiscal years, as well as our stock price during that time period. Mr. Heard served as our CEO during fiscal 2021, 2022 and 2023. The target value of equity awards reflects the modeling value of such award based on an $8.00 per share reference price, which is used during the compensation modeling process and which differs from the value reported in the Summary Compensation Table provided further below. Actual realized compensation includes the base salary and any cash annual incentive earned during the year plus the sum of any RSUs and performance shares that vested during the year, valued using the share price on the vesting date, which differs from the values shown in the Pay Versus Performance table provided further below given the specific requirements with respect to “compensation actually paid” under such table.
As described above, our CEO target total direct compensation emphasizes compensation that aligns with investor interests, including an at-risk annual incentive opportunity and long-term vesting equity awards. When the Company’s performance is strong, our compensation programs are designed to reward executives with realized compensation that exceeds target through a combination of strong stockholder returns and performance that exceeds the targets approved for our short- and long-term incentive plans. Realized compensation for fiscal 2023 for our CEO was 41.2% of target. This reflected in part the depreciation in the value of equity awards granted in prior years but that vested during fiscal 2023, as the closing share price of our common stock decreased from $10.48 on December 31, 2020 (the start of the 3-year period detailed in the chart above) to a closing price of $4.75 on December 29, 2023 (which was the last trading day of our fiscal 2023). The forfeiture of the performance share awards granted in fiscal 2020 with a performance period ending in fiscal 2022 also contributed to the decline in the realized compensation for fiscal 2022 (see the section below titled “Performance Share Awards” for more information regarding these performance share awards). As a result of our emphasis on pay-for-performance, the realized compensation of our CEO fell significantly below his target total direct compensation in fiscal 2022 and fiscal 2023, but was slightly above target in fiscal 2021. In furtherance of our pay-for-performance goals, 55% of Mr. Heard’s targeted equity awards in fiscal 2023 were also granted in the form of performance share awards.
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Governance of Executive Compensation
Our executive compensation program includes the following executive compensation governance policies and practices:
Our executive compensation program is designed so that a significant portion of our NEO compensation is “at risk” based on corporate performance, as well as equity-based to more closely align the interests of our NEOs and stockholders.
Compensation At Risk
We maintain a compensation recovery policy that applies to our Section 16 Officers and certain other individuals and provides for recovery of both cash and equity incentive compensation under specified circumstances. Our policy is compliant with applicable Nasdaq listing rules and SEC regulations.
Compensation Recovery Policy
Our Insider Trading Policy prohibits all employees, including our NEOs, and Board members from hedging their Infinera common stock.
Anti-Hedging Policy
Our Insider Trading Policy prohibits our NEOs and Board members from pledging Infinera common stock as collateral for a loan.
Anti-Pledging Policy
Our executive compensation program is administered by the Compensation Committee, which consists solely of independent directors.
Fully Independent Compensation Committee
Our Section 16 Officers and Board members are subject to minimum stock ownership requirements.
Stock Ownership Policy
Our change of control agreements contain “double-trigger” arrangements that require a termination of employment without cause or a constructive termination of employment following a change of control of Infinera before payments and benefits are triggered, unless otherwise set forth in a specific equity award agreement.
“Double-trigger” Change of Control Arrangements
The Compensation Committee annually conducts a compensation risk assessment to determine whether our compensation arrangements, or components thereof, create risks that are reasonably likely to have a material adverse effect on Infinera.
Annual Compensation Risk Assessment
The Compensation Committee utilizes input from Compensia, an independent compensation consultant that is retained directly by the Compensation Committee and performed no services for Infinera during fiscal 2023 other than services provided to the Compensation Committee.
Independent Compensation Consultant Reporting Directly to Compensation Committee
Fiscal 2023 Compensation
Base Salaries
For fiscal 2023, the Compensation Committee reviewed the base salaries in March 2023 for each of our NEOs. After considering market data provided by Compensia and taking into account each NEO’s respective individual performance during this period, the Compensation Committee approved increases to the base salaries for the NEOs as shown in the table below. The Compensation Committee did not consider these increases to be material changes for any of the NEO’s base salaries.
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The following table shows the annual base salary for each of our NEOs for fiscal 2022 and fiscal 2023.
Name
Fiscal 2022
Annual Base
Salary
($)
Fiscal 2023
Annual Base Salary
($)(1)
David W. Heard
700,000
758,000
Nancy L. Erba
475,000
500,000
David L. Teichmann
415,000
445,000
Nicholas R. Walden
420,000
430,000(2)
_________________
(1)2023 annual base salary increases became effective as of July 1, 2023.
(2)In August 2023, Mr. Walden relocated from the United States to the United Kingdom (“UK”). Following such relocation, Mr. Walden received his salary in Pound Sterling (“GBP”). The salary amount paid to Mr. Walden in GBP was determined by converting into GBP his annual salary amount stated above in United States Dollars (“USD”) using the exchange rate of 1.286 USD to 1 GBP.
Annual Incentive Compensation
Target Bonus Opportunities. In March 2023, the Compensation Committee reviewed the target bonus opportunities (which are expressed as a percentage of base salary) for fiscal 2023 for each of our NEOs, and determined that the target bonus opportunity for our CEO, CFO and CLO would remain the same in fiscal 2023 as in fiscal 2022 and that the target bonus opportunity for our Senior Vice President, Worldwide Sales would be increased as set forth in the table below for fiscal 2023. In considering the target bonus opportunities for our NEOs, the Compensation Committee considered the competitive market data provided by Compensia and its desire to provide appropriate competitive compensation to our NEOs given their critical leadership roles. In the case of Mr. Walden, the Compensation Committee determined to increase his target bonus opportunity from 90% to 100% of base salary. The Compensation Committee believed it would be appropriate to provide additional incentive under his bonus opportunity to further emphasize achievement of the Company’s profitable growth, in further alignment of pay versus performance for an important financial performance objective for the Company.
The following table shows the annual target bonus opportunities for each of our NEOs for fiscal 2022 and fiscal 2023.
In addition, the Compensation Committee approved a variable cash compensation program for Mr. Walden for fiscal 2023.
Target Bonus Opportunity as a Percentage of Base Salary
Name
Fiscal 2022
Target Bonus
Fiscal 2023
Target Bonus
David W. Heard
125%
125%
Nancy L. Erba
90%
90%
David L. Teichmann
75%
75%
Nicholas R. Walden(1)
90%
100%
_________________
(1)For fiscal 2023, Mr. Walden’s total target bonus of 100% of base salary was split with 25% of his target value tied to the 2023 Corporate Bonus Plan and 75% of his target value tied to achievement under the Walden 2023 Variable Compensation Program. Please see below for information regarding the Walden 2023 Variable Compensation Program.
2023 Bonus Plan Design. In March 2023, the Compensation Committee approved a 2023 corporate bonus plan (the “2023 Corporate Bonus Plan”) that was applicable to our NEOs. The Company’s non-GAAP Operating Income achievement in fiscal 2023 was used to determine the plan’s funding level. The Compensation Committee determined that this financial performance objective supported the Company’s objectives for profitable growth. If the Company achieved the target level of non-GAAP Operating Income of $98.3 million for fiscal 2023, the 2023 Corporate Bonus Plan would be funded at 100%. If the Company achieved the threshold level of non-GAAP Operating Income of $78.6 million for fiscal 2023, the 2023 Corporate Bonus Plan would be funded at 80%. There was no guaranteed minimum funding under the plan if the threshold is not met. If the Company achieved above the target level of non-GAAP Operating Income of $98.3 million for fiscal 2023, then 50% of each additional dollar of non-GAAP Operating Income would be added to the bonus funding level. Although the Compensation Committee did not set a maximum level of non-GAAP Operating Income under the 2023 Corporate Bonus Plan, it retains authority to increase, reduce or eliminate any bonus award, and to increase, reduce or eliminate any amount allocated to the bonus pool. The Compensation Committee reserves such discretion in order to take into consideration any other relevant factors in determining bonus payouts, such as overall Company performance, functional performance, individual performance, financial considerations, or any other internal or external factors that it deems appropriate. Based on such other factors, bonus payouts may be adjusted up or down to pay out at a higher or lower level than otherwise would become payable based solely on achievement of non-GAAP Operating Income.
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For fiscal 2023, each of our NEOs participated in the 2023 Corporate Bonus Plan. Mr. Walden’s participation in the 2023 Corporate Bonus Plan was limited to 25% of his total target bonus opportunity. With respect to the remaining 75% of his total target bonus opportunity, Mr. Walden participated in a separate variable compensation program, as discussed below under the “Walden 2023 Variable Compensation Program.”
2023 Bonus Plan Results. The Compensation Committee considered the Company’s actual achievement level of non-GAAP Operating Income of $87.2 million, which otherwise would result in achievement at the 88.7th percentile funding for the 2023 Corporate Bonus Plan. In determining funding as well as payout for the NEOs, the Compensation Committee considered additional factors, including that the Company’s revenue for fiscal 2023 was $1,614.1 million, which was below our expectations. Further, the Company’s bookings for fiscal 2023 were below our expectations. Given these additional factors relating to the Company’s overall performance for the year, and notwithstanding the achievement level of non-GAAP Operating Income, the Compensation Committee believed it appropriate to apply negative discretion for funding bonuses under the 2023 Corporate Bonus Plan and resolved to approve funding at 83.5% of target. The Compensation Committee further considered departmental function objectives and performance with respect to financial goals overall for the Company and applied discretion to reduce Ms. Erba’s bonus amount to approximately 68.9% of her target. The following table sets forth the payouts that will be paid to our NEOs during the second fiscal quarter of 2024 under the 2023 Corporate Bonus Plan. For a reconciliation of GAAP to non-GAAP Operating Income for fiscal 2023 referenced above or elsewhere in this proxy statement, please see Appendix A.
Name
Bonus Amount Earned
($)(1)
David W. Heard
791,163
Nancy L. Erba
309,994
David L. Teichmann
278,681
Nicholas R. Walden
89,762
_________________
(1) Mr. Walden's bonus amount is stated in USD using the exchange rate of 1.286 USD to 1 GBP. Payout of his bonus will be in GBP under our UK payroll.
The Compensation Committee also determined that the annual incentive compensation for our NEOs under the 2023 Corporate Bonus Plan would be payable entirely in cash.
The Compensation Committee decided it was appropriate that the annual incentive compensation for our NEOs with respect to fiscal 2023 would be fully at risk and payable in cash based on achievement of the target goal given their ability to drive the Company’s financial performance. This completed the transition started in fiscal 2022 of all of our NEOs back to a more customary executive compensation framework continuing to emphasize closer alignment between the interests of our NEOs and those of our stockholders.
Walden 2023 Variable Compensation Program. In March 2023, the Compensation Committee approved a fiscal 2023 variable compensation program for Mr. Walden (the “2023 Walden Variable Plan”). Under the 2023 Walden Variable Plan, 75% of Mr. Walden’s total target bonus opportunity for fiscal 2023 is tied to achievement of financial targets for bookings and non-GAAP product standard margin (the “Walden Financial Goals”). With respect to the Walden Financial Goals under the 2023 Walden Variable Plan, the achievement of the bookings objective is weighted at 50% and the achievement of the non-GAAP product standard margin objective is weighted at 50%. The Compensation Committee believed that these objectives, as well as Mr. Walden’s participation in the 2023 Walden Variable Plan in addition to his participation in the 2023 Corporate Bonus Plan, would be appropriate given Mr. Walden’s critical role leading the Company’s efforts in driving revenue, and for focusing efforts on our profitable revenue growth by emphasizing bookings, which are closely correlated with revenue balancing, and non-GAAP product standard margin, which is an important measure of the Company’s business success.
Bookings Minimum
Threshold
Bookings
Target
Bookings Maximum
Non-GAAP Product Standard Margin Threshold
Non-GAAP Product Standard Margin
Target
Non-GAAP Product Standard Margin Maximum
Amount
$1.7 billion
$1.9 billion
$2.1 billion
$660.1 million
$680.4 million
$707.5 million
Funding % of Target
35%
100%
200%
70%
100%
200%
Actual Results
$1.4 billion
$640.7 million
Achievement between the minimum threshold and the target level would be determined based on linear interpolation. The maximum payout potential with respect to each of the bookings and non-GAAP product standard margin objectives was
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set at 200%, with achievement between the target level and the maximum payout potential determined based on linear interpolation.
We did not achieve the minimum threshold for the bookings or the non-GAAP product standard margin objectives under the 2023 Walden Variable Plan. The CEO recommended that the Compensation Committee use discretion to provide a partial payout with respect to the non-GAAP product standard margin achievement result in recognition of the significant year-over-year improvement in non-GAAP product standard margin during fiscal 2023. After careful consideration of the contribution of the Company’s improvement in non-GAAP product standard margin to the Company’s performance, the Compensation Committee approved the use of discretion to approve a partial payout of $66,564 or 41.28% of the target payout, attributable solely to the non-GAAP product standard margin objective. This payout amount was determined by applying linear interpolation between the target and actual amount of non-GAAP product standard margin achieved. For a reconciliation of GAAP to non-GAAP product standard margin for fiscal 2023 referenced above or elsewhere in this proxy statement, please see Appendix A.
Fiscal 2024 Bonus Plan. In March 2024, the Compensation Committee approved a fiscal 2024 Bonus Plan (the “2024 Corporate Bonus Plan”), which will be payable in cash. Mr. Walden will participate in the 2024 Corporate Bonus Plan as to 50% of his target incentive opportunity and will also participate in a separate incentive compensation program as to 50% of his target value that is tied to achievement of new financial targets for bookings and standard margin, measured on a non-GAAP basis. The Compensation Committee determined to shift a greater percentage of Mr. Walden’s target incentive compensation to be allocated to his participation in the 2024 Corporate Bonus Plan (as compared to the prior fiscal year) to further enhance alignment with the rest of the executive team.
Long-Term Incentive Compensation
Our long-term incentive compensation opportunities are delivered in the form of equity awards. Under the 2016 Plan, the Compensation Committee grants equity awards to eligible employees, including our NEOs. All awards to our NEOs were made pursuant to the 2016 Plan. Annual equity awards for NEOs are generally approved by the Compensation Committee during the first open trading window of each new calendar year. The Compensation Committee actively monitors our annual aggregate equity utilization as measured by our burn rate.
Equity Compensation Design. The Compensation Committee believes that it is in the best interests of the Company and our stockholders to grant a combination of time-based and performance-based equity awards to senior level employees, including our NEOs. It also believes that our performance-based equity awards foster a “pay-for-performance” culture and multi-year vesting schedules create longer-term incentives that maintain alignment of the interests of our NEOs with those of our stockholders. Our NEOs benefit from these equity awards based on our sustained performance over time and the ability of our NEOs to create the results that drive stockholder value.
In determining the appropriate mix of such equity awards, the Compensation Committee considered how each equity vehicle supports our compensation strategy as follows:
Type of Award
Description
Why It Is Used
Performance Share Award
•Provides the opportunity to earn shares of Infinera common stock upon the achievement of pre-established performance objectives.
•If the threshold performance level is not achieved, the entire portion of the award tied to such performance objective is forfeited.
•Supports pay-for-performance philosophy.
•Increases alignment with interests of stockholders.
•Supports retention and succession planning.
•Provides a direct incentive for future performance.
•Useful in recruiting new executives.
Restricted Stock Unit Award
•Provides the opportunity to earn a specified number of shares of Infinera common stock subject to the participant’s continued employment for a specified period.
•Typically has a three-year or four-year vesting period to encourage a long-term perspective and to encourage key employees to remain at Infinera.
Target Award Size. In determining the size of these annual equity awards, the Compensation Committee considered the factors described above in the sections entitled “Use of Market Data” and “Relevant Qualitative Factors,” with particular attention to market data, internal equity considerations, the potential dilutive impact of the equity awards, and the amount
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and value of unvested equity awards held by each of our NEOs. For our CEO, the Compensation Committee also considered his tenure and performance in the role in determining the size of his annual equity awards. The Compensation Committee believed a combination of time-based and performance-based equity awards promote close alignment of the interests of our NEOs with those of our stockholders.
For fiscal 2023, the Compensation Committee first determined the target value of long-term incentive compensation for each executive. The number of RSUs and performance shares granted to each executive was then determined based on an assumed stock price of $8.00 per share and assuming a 55% allocation of target value into performance shares for Mr. Heard, our CEO, and a 50% allocation of target value into performance shares for our other NEOs. Due to Mr. Heard’s significant responsibilities in leading the Company and executing on our business strategy, the Compensation Committee believed it appropriate for the mix of Mr. Heard’s equity awards to be more heavily weighted toward performance shares as compared to the other NEOs. The Compensation Committee determined to utilize an $8.00 per share reference price in order to facilitate the equity planning process, which was set after considering recent stock price history and volatility at a price per share that was projected to be higher than the stock price per share at the date of grant. The actual grant date value for these equity awards was below $8.00 per share, and as a result, the target value approved by the Compensation Committee differs from the value of equity reported in the Summary Compensation Table set forth on page 41below. The following table sets forth the fair market value of each award granted to our NEOs in March 2023 on the basis of the $8.00 per share reference price used by the Compensation Committee and the actual grant date per share value.
Grant Date
Performance Shares
Granted
(#)
Value of Performance Shares Based on $8.00 Per Share Reference Price
($)
Grant Date Fair Value of Performance Shares
($)(1)
RSUs Granted (#)
Value of RSUs Based on $8.00 Per Share Reference Price
($)
Grant Date
Fair Value
of RSUs
($)(1)
David W. Heard
3/13/2023
412,500
3,300,000
2,825,625
337,500
2,700,000
2,311,875
Nancy L. Erba
3/9/2023
117,500
940,000
867,150
117,500
940,000
867,150
David L. Teichmann
3/9/2023
57,500
460,000
424,350
57,500
460,000
424,350
Nicholas R. Walden
3/9/2023
65,000
520,000
479,700
65,000
520,000
479,700
_________________
(1)The fair market value of our common stock (based on the closing sale price) was $7.38 per share for awards granted on March 9, 2023 and $6.85 per share for awards granted on March 13, 2023.
Fiscal 2023 Equity Awards. In March 2023, the Compensation Committee granted annual equity awards for fiscal 2023 in the form of a time-based RSU award and a performance share award to each of our NEOs. The following table sets forth the equity awards granted to our NEOs in March 2023.
Name
Number of Shares
Subject to 2023
RSU Awards(1)
Number of Shares Subject to 2023 Performance
Share Awards (at Target)
David W. Heard
337,500
412,500
Nancy L. Erba
117,500
117,500
David L. Teichmann
57,500
57,500
Nicholas R. Walden
65,000
65,000
________________
(1)The RSU awards vest over a three-year period, with one-third of the underlying shares vesting on April 5, 2024, and one-twelfth of the underlying shares vesting quarterly thereafter, in each case subject to the NEO’s continued service to the Company through the applicable vesting date.
Performance Share Awards
Determining the Performance Goal. In determining the performance criteria for the 2023 performance share awards for our NEOs, the Compensation Committee considered the importance of growing our margins. The Compensation Committee also considered that the performance share awards should be designed to work in concert with grants made in previous years that will have overlapping performance cycles with the awards granted in 2023. Fiscal 2021 awards were structured to encourage executives to accelerate our profitable revenue growth combined with non-GAAP Operating Income growth.
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Fiscal 2022 awards were structured to encourage executives to focus on profitability, to accelerate the Company’s external pluggables sales and to accelerate cost savings from using the Company’s pluggables in our products.
Performance Criteria. Accordingly, the Compensation Committee decided the fiscal 2023 performance share awards would be subject to a performance goal relating to non-GAAP gross margin (the “2023 PSA”). The performance period of the 2023 PSAs covers the three years of fiscal 2023 through fiscal 2025 (the “2023 PSA Performance Period”) and the 2023 PSA requires achievement of a non-GAAP gross margin goal at a specified level (the “2023 PSA Goal”) during the 2023 PSA Performance Period, as further explained below. We estimate that the achievement of the 2023 PSA performance goals will be challenging but possible based on effective execution of and focus on our long-term business model during the 2023 PSA Performance Period.
In establishing the performance goals for our NEOs under the 2023 PSA, the Compensation Committee reflected that the prior awards included goals targeted at specific financial objectives that ultimately tie to stockholder value, and that the 2023 awards should as well. The Compensation Committee believes the overlapping, multiyear performance period design provides our NEOs with significant incentives to achieve various objectives that are important for our long-term success.
Achievement and Vesting. If the non-GAAP gross margin is certified by the Compensation Committee to be at a certain percentage level for the last year of the 2023 PSA Performance Period, fiscal 2025 (the “Minimum Threshold”), then 50% of the target number of shares will become eligible shares. If the non-GAAP gross margin is certified by the Compensation Committee to be at a higher specified percentage level for fiscal 2025 (the “Target Threshold”), then 100% of the target number of shares will become eligible shares. If the non-GAAP gross margin is certified by the Compensation Committee to be at a higher specified percentage level for fiscal 2025 (the “Maximum Threshold”), then 150% of the target number of shares will become eligible shares. If the Minimum Threshold is not attained, then no shares will become eligible shares. If non-GAAP gross margin for fiscal 2025 is certified by the Compensation Committee to be between the Minimum Threshold and the Target Threshold, then the percentage of shares that become eligible shares will be determined by applying linear interpolation between the Minimum Threshold and the Target Threshold. If non-GAAP gross margin for fiscal 2025 is certified by the Compensation Committee to be between the Target Threshold and the Maximum Threshold, then the percentage of shares that become eligible shares will be determined by applying linear interpolation between the Target Threshold and the Maximum Threshold. The number of shares that become eligible shares may not exceed 150% of the target number of shares. Shares that become eligible for fiscal 2025 performance will vest upon the applicable certification date, subject to the NEO remaining a service provider through the applicable vesting date. If non-GAAP gross margin is certified by the Compensation Committee to be at the Target Threshold level or greater for the second year of the 2023 PSA Performance Period, for fiscal 2024 (“Early Achievement”), then 150% of the target shares will become eligible shares and 2/3 of such eligible shares will vest on such certification date and the remaining 1/3 of eligible shares will vest on the last day of fiscal 2025, subject to the NEO remaining a service provider through the applicable vesting date.
In the event a change in control occurs during the 2023 PSA Performance Period but after fiscal 2024, the Compensation Committee will complete a certification for fiscal 2024 to the extent a certification has not yet been completed, and no later than immediately prior to the change in control. In the event of a change in control that occurs during the 2023 PSA Performance Period and none of the shares have become eligible shares, then 100% of the target shares will have their vesting accelerated as of immediately prior to the change in control, provided that the NEO remains a service provider through the date of the change in control. In the event of a change in control that occurs during the 2023 PSA Performance Period but shares have already become eligible shares pursuant to Early Achievement, then 100% of the shares will become eligible shares and will have their vesting accelerated as of immediately prior to the change in control, provided that the NEO remains a service provider through the date of the change in control.
Outstanding Performance Share Awards Granted in Prior Fiscal Years. The following table provides information regarding outstanding performance share awards granted prior to fiscal 2023 that were eligible to be earned in fiscal 2023 by our NEOs based on the achievement of performance with respect to the objectives underlying such performance share awards.
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Name
Fiscal
Year
of Grant
Total
Number of
Performance
Shares
Remaining
at Target
(#)
Target Number
of Shares that
Could Vest
for Fiscal 2023
Performance
Period
(#)
Maximum
Number of
Shares that
Could Vest
for Fiscal 2023
Performance
Period
(#)
Actual Number
of Shares
Vested for
Fiscal 2023
Performance
Period
(#)
David W. Heard
2021
(1)
258,000
258,000
258,000
179,567
(2)
2022
(3)
346,666
346,666
346,666
0
(4)
Nancy L. Erba
2021
(1)
60,000
60,000
60,000
41,760
(2)
2022
(3)
92,500
92,500
92,500
0
(4)
David L. Teichmann
2021
(1)
50,000
50,000
50,000
34,800
(2)
2022
(3)
55,000
55,000
55,000
0
(4)
Nicholas R. Walden
2021
(1)
55,000
55,000
55,000
38,279
(2)
2022
(3)
64,000
64,000
64,000
0
(4)
_________________
(1)In fiscal 2021, the Compensation Committee granted to the NEOs in the table above a performance share award (the “2021 PSA”) with two sets of performance goals that could be earned during fiscal 2021 through fiscal 2023 (the “2021 PSA Performance Period”), with each set of goals covering one-half of the 2021 PSA (each such half, a tranche). The goals applicable to the first tranche included both an operating income goal, measured on a non-GAAP basis over a full fiscal year during the performance period, and a revenue goal, measured over a full fiscal year during the performance period. If for a fiscal year, the operating income goal for the first tranche was achieved at $50 million or greater and the revenue goal was achieved at $1.66 billion or greater, then 100% of such tranche (half of the 2021 PSA) becomes eligible to vest. Alternatively, if in fiscal 2023, the operating income goal is achieved at $50 million or greater and the revenue goal is achieved at $1.56 billion or greater, then 50% of such tranche will become eligible to vest (and linear interpolation is applied with respect to achievement of revenue between $1.56 and $1.66 billion). The second tranche required an operating income goal, measured on a non-GAAP basis over a full fiscal year during the performance period, to be achieved at $116 million or greater for 100% of such tranche (half of the 2021 PSA) to become eligible to vest. Alternatively, if in fiscal 2023, the operating income goal for the second tranche was achieved at $78 million or greater, then 50% of such tranche will become eligible to vest (and linear interpolation is applied with respect to achievement of operating income between $78 million and $116 million). For purposes of the 2021 PSA, non-GAAP Operating Income was calculated by excluding from the Company’s GAAP operating income the following: acquisition-related deferred revenue adjustment, stock-based compensation expense, amortization of acquired intangible assets, acquisition and integration costs, restructuring and other related costs, inventory related charges, global distribution center transition costs, warehouse fire loss (recovery) and litigation charges.
(2)In May 2024, following approval by the Audit Committee of the Company’s fiscal 2023 non-GAAP Operating Income achieved of $87.2 million, and revenue achieved of $1,614.1 million, the Compensation Committee certified that (i) based on the achievement level of the goals for the first tranche of the 2021 PSA, 77.06% of the shares subject to the 2021 PSA became eligible to vest and 22.94% of the shares subject to the 2021 PSA were forfeited; and (ii) based on the level of achievement of the goal for the second tranche of the 2021 PSA, 62.14% of the shares subject to the 2021 PSA became eligible to vest and 37.86% of the shares subject to the 2021 PSA were forfeited. For a reconciliation of GAAP to non-GAAP Operating Income for fiscal 2023 referenced above or elsewhere in this proxy statement, please see Appendix A.
(3)In fiscal 2022, the Compensation Committee granted to the NEOs in the table above a performance share award (the “2022 PSA”) that would be subject to two performance goals, each covering one-half of the fiscal 2022 PSA (each such half, a tranche). The first tranche was subject to the requirement that a GAAP net income goal be achieved at a specified level for a full fiscal year during a performance period covering fiscal 2023 through fiscal 2024. Upon achievement of the performance during the performance period, 100% of the shares subject to the first tranche will become eligible to vest. If the GAAP net income goal is not achieved at such specified level during the performance period, then none of the shares subject to the first tranche would become eligible to vest. The second tranche of the 2022 PSAs was subject to a requirement to achieve a specified level of gross profit dollars determined in accordance with GAAP generated by revenue from external sales of our pluggables and by cost savings resulting from use of our pluggables in our products during the performance period covering fiscal 2022 through fiscal 2024. If the total amount from these gross profit dollars meets a threshold level during the relevant performance period, then 100% of the shares subject to the second tranche will become eligible to vest. If the gross profit dollars meets a lower specified level or greater during the relevant performance period, then 25% of the shares subject to the second tranche will become eligible to vest. If the gross profit dollar amount does not meet this lower specified level during the relevant performance period, then none of the shares subject to the second tranche would become eligible to vest. We estimate that the achievement of the goals under the 2022 PSAs would be challenging but possible based on effective execution of and focus on our long-term business model during the respective performance periods.
(4)We did not achieve the performance objectives for the 2022 PSA during fiscal 2023. As a result, as of the end of fiscal 2023, the target number of shares subject to the 2022 PSA remain eligible to be earned and vest during the applicable performance periods.
Employee Benefits and Perquisites
Generally, our NEOs are only eligible to receive the same benefits as our U.S. salaried employees. Upon relocation to the UK in 2023, Mr. Walden has received our standard UK benefits package applicable generally to our other full-time employees based in the UK. Infinera and the Compensation Committee believe this approach is reasonable and consistent with the overall compensation objectives to attract and retain employees. For our NEOs based in the U.S., these benefits
32
include medical, dental, vision and disability benefits, a Section 401(k) plan, and other plans and programs, including the 2007 ESPP, made available on a broad basis to other eligible employees. We provide a matching contribution of up to $2,500 under the Section 401(k) plan that is applicable to all eligible participants, including our NEOs other than Mr. Walden following his relocation. Mr. Walden’s benefits in the UK include similar benefits to the other NEOs except for the Section 401(k) plan. Mr. Walden is eligible for a UK Pension plan similar to other UK employees plus other plans and programs, including the 2007 ESPP, made available on a broad basis to other eligible employees based in the UK. Employee benefits and perquisites are reviewed periodically to ensure that benefit levels remain competitive but are not included in the Compensation Committee’s annual determination of the total compensation for each of our NEOs.
All exempt U.S. employees, at any U.S. work location, participate in our “As Needed” Flexible Time-Off (“FTO”) Program providing flexible time off. Under this program, these employees may schedule FTO as they see fit and as business necessity allows, although they must continue to meet all job expectations and remain responsible for ensuring appropriate coverage for the time they will be out of the office. Under this program, FTO does not accrue for these employees. The FTO Program is not available in the UK, and Mr. Walden receives the standard UK vacation benefits.
From time to time, Infinera may provide other benefits based on the particular circumstances and any business needs (for example, in order to recruit an individual to join the Company or retain key employees).
In 2023, Infinera agreed to pay up to $238,000 in relocation costs for Mr. Walden, SVP, Worldwide Sales, in connection with his move to the UK on the basis of our belief that such relocation would strengthen Infinera’s strategic focus on improving global sales coverage in key markets outside of North America. Please see footnote 5 to the Summary Compensation Table set forth on page 41below for the lower total amount of relocation costs actually paid by Infinera in 2023.
Overview of Our Executive Compensation Program Philosophy and Process
Compensation Objectives and Philosophy
Our executive compensation program is designed to attract, retain, and reward talented executive officers and to motivate them to pursue our corporate objectives, while fostering the creation of long-term value for our stockholders. To achieve this mission, we take a “pay-for-performance” approach that forms the foundation for the design of our executive compensation program. The Compensation Committee also designs the various components of our executive compensation program to support our company culture and performance (i.e., increasing levels of accountability through the use of “at risk” pay for more senior level employees), current business priorities and strategy and product development cycles, and takes into consideration in its design the current market practices of our peer group. Further, certain elements of our compensation program measure progress on similar metrics in the short and long term and contain rewards for our executives that are earned when certain strategically important financial milestones are met and sustained. We believe this program is in the best interests of and aligned with our stockholders and maximizes the incentive for our employees and executive team to deliver stockholder value.
Advisory Vote on Fiscal 2023 Named Executive Officer Compensation—“Say-on-Pay” Vote
In 2023, stockholders were provided with the opportunity to cast an advisory (non-binding) vote on the compensation of our NEOs (a “say-on-pay” proposal) for fiscal 2022. Our stockholders overwhelmingly approved this say-on-pay proposal, with more than 98% of votes cast voting in favor of our executive compensation program. Noting the results of this vote, the Compensation Committee considered this stockholder approval when making compensation decisions for fiscal 2023 as well as fiscal 2024.
In light of the 2023 say-on-pay vote, the Compensation Committee maintained the consistent general approach to our executive officer compensation program for fiscal 2023. This included a continued emphasis on pay-for-performance through the use of performance shares that reward executive officers only if they deliver value for our stockholders.
The Compensation Committee will continue to consider input from our stockholders as reflected in the outcome of our annual say-on-pay vote when making executive compensation program decisions.
Compensation-Setting Process
Role and Authority of Compensation Committee. The Compensation Committee is responsible for our executive compensation program and all related policies and practices. The Compensation Committee has the responsibility to establish and approve the compensation of each of our executive officers, including our NEOs. In addition, the Compensation Committee reviews and administers our equity and employee benefit plans and programs, which are generally available to our employees, including our NEOs. The Compensation Committee also has the authority to engage
33
its own advisors to assist it in carrying out its responsibilities, and the reasonable compensation for such advisor services is paid by Infinera.
Role of Compensation Consultant. During fiscal 2023, the Compensation Committee engaged the services of Compensia, a national compensation consulting firm, as its independent compensation consultant to provide advice on matters relating to the compensation of our executives and non-employee directors. Compensia attended several of the Compensation Committee’s meetings during fiscal 2023 and provided the Compensation Committee with an analysis of industry-sector competitive market data regarding NEO compensation, information on compensation trends, peer group and general market data, as well as assistance with the parameters used to determine the peer group, base salary, incentive plan design, equity compensation and the structure of our executive compensation program. During fiscal 2023, Compensia also provided general observations about our compensation programs and reviewed and provided input on this Compensation Discussion and Analysis section.
Compensia reports directly to the Compensation Committee. During fiscal 2023, Compensia interacted with management at the direction of the Compensation Committee but did not provide any other services for Infinera or its management team. Compensia’s fees in fiscal year 2023 were paid by Infinera. The Compensation Committee annually reviews the independence of its compensation consultant and during fiscal 2023 determined that there were no conflicts of interest in connection with Compensia’s work.
Determination of CEO Compensation. Compensia provides market data and considerations for the Compensation Committee regarding the amount and form of our CEO’s compensation. As part of this process, the Compensation Committee considers input from the Board and feedback from the Chair of the Board, in particular with respect to the performance of our CEO. After considering the feedback and recommendations received, all decisions regarding our CEO’s compensation are made by the Compensation Committee, based on its own judgment and after considering the interests of our stockholders, in executive sessions excluding our CEO.
Determination of Non-CEO NEO Compensation. As a result of his close working relationship with each of the other NEOs, our CEO is asked to provide his assessment of their performance to the Compensation Committee, including considerations regarding retention and importance of their contributions to Infinera. Our CEO is assisted by our Chief Human Resources Officer in making these assessments. Our CEO then presents his performance assessment of the other NEOs and makes formal recommendations to the Compensation Committee regarding adjustments to base salary, annual cash incentive award opportunities, and equity awards for our NEOs(other than himself). While the Compensation Committee considers the recommendations of our CEO in determining compensation for our other NEOs, ultimately its decisions are based on its own judgment and the interests of our stockholders. None of our NEOs makes any recommendations regarding his or her own compensation and none of our NEOs are present at meetings at the time their compensation is determined.
Executive Compensation Elements
We consider the following to constitute the key elements of our executive compensation programs. We believe each is necessary to attract, retain and motivate our executive officers, on whom our success largely depends.
Pay Element
Type
Form/Purpose
Base Salary
Fixed
We pay base salaries to attract, retain and motivate our executive officers for their day-to-day contributions.
Annual Incentive Compensation
Variable
We provide annual incentive cash compensation to link payments to the achievement of our annual financial and/or operational objectives.(1)
Long-Term Incentive Compensation
Variable
We provide long-term incentive compensation delivered in the form of time-based and performance-based equity awards to more closely align the interests of our executive officers with those of our stockholders and provide significant motivational and retention value to our executive officers.
________________
(1)In response to impacts from the COVID-19 pandemic, we cancelled this program for the second half of fiscal 2020 and all of fiscal 2021. In fiscal 2022, we fully reinstated an annual incentive cash compensation program for our CEO and CFO, and for our other NEOs, we treated fiscal 2022 as a transition year with 50% of the target value of their annual incentive compensation program issued in retention RSUs and 50% of the target value in cash. In 2023, the annual incentive cash compensation program was fully reinstated for all of our NEOs, with our SVP, Worldwide Sales participating as to 25% of his cash target value and also participating in a separate
34
incentive compensation program as to 75% of his target value that was tied to achievement of new financial targets for bookings and non-GAAP product standard margin.
In addition, we also provide employee benefits that are generally available to all our employees including our NEOs, and certain severance and “double-trigger” change of control payments and benefits pursuant to change of control severance agreements entered into with our NEOs or our Executive Severance Policy in which NEOs participate, as described further below.
Allocation of Compensation Across Pay Elements
In determining how to allocate an NEO’s target total direct compensation opportunity among these various elements, the Compensation Committee considers market-competitive practices for companies of a similar size and with a comparable business focus. Individual retention considerations are also factored in the Compensation Committee’s final determination of target total direct compensation. Equity awards, which for fiscal 2023 consisted of awards of time-based RSUs and performance shares, represented the largest component of our NEOs’ target total direct compensation opportunity. This approach was designed to encourage sustained, long-term performance and to ensure closer alignment of the interests of our NEOs with those of our stockholders. Consistent with our “pay-for-performance” philosophy, a significant portion of our NEOs’ fiscal 2023 target total direct compensation opportunity was completely “at risk,” including 55% of Mr. Heard’s target total direct compensation opportunity. We define “at risk” compensation as opportunities for which vesting eligibility or payout is contingent upon achievement of specified performance conditions. In fiscal 2023, this included annual target incentive compensation under the 2023 Corporate Bonus Plan and performance share awards, where the value of performance shares is included in the charts below based on the grant date target value of shares awarded.
The following charts show the target total direct compensation mix for fiscal 2023 for Mr. Heard and our other NEOs, with the value of equity awards determined using grant date fair value.
Role of the Compensation Peer Group and Market Data
In making compensation decisions for our executive officers, the Compensation Committee reviews and analyzes competitive market practices using data prepared by Compensia that is drawn from a group of peer companies, as supplemented by data from the Radford Global Technology survey as not all peer companies provide publicly available data for each role.
In September 2022, the Compensation Committee reviewed the peer group used for executive compensation decision-making for purposes of fiscal 2023 compensation planning. The target selection criteria for the peer group identified in September 2022 and used for fiscal 2023 compensation planning were:
•Industry: companies in the communications equipment sector and Infinera’s direct competitors, as well as other companies in broader technology sectors, with a focus on companies that overlap with key elements of Infinera’s business;
•Annual Revenue: $726 million to $2.9 billion;
•Market Capitalization: $312 million to $5 billion; and
•Headquarters and Location: Companies that have headquarters in the U.S., with a preference for Bay Area-headquartered companies.
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Our peer group for fiscal 2023 compensation planning consisted of the following companies:
ADTRAN Holdings, Inc. [ADTN]
MaxLinear, Inc. [MXL]
Advanced Energy Industries, Inc. [AEIS]
NETGEAR, Inc. [NTGR]
Calix, Inc. [CALX]
NetScout Systems, Inc. [NTCT]
Ciena Corporation [CIEN]
OSI Systems, Inc. [OSIS]
Cirrus Logic, Inc. [CRUS]
Ribbon Communications Inc. [RBBN]
Diodes Incorporated [DIOD]
Synaptics Incorporated [SYNA]
Extreme Networks, Inc. [EXTR]
ViaSat, Inc. [VSAT]
Lumentum Holdings Inc. [LITE]
Viavi Solutions Inc. [VIAV]
Due to the limited data available from the peer group with respect to the roles of certain of our NEOs, the Compensation Committee also reviewed market data prepared by Compensia that was derived from the Radford Global Technology survey to supplement the available peer group data in determining the compensation of Mr. Teichmann, our Chief Legal Officer and Mr. Walden, our Senior Vice President, Worldwide Sales. The Compensation Committee reviewed data from the Radford Global Technology survey in the aggregate and did not review data of any specific companies comprising such survey. In this discussion, where we refer to “market” levels of pay and the “market data,” we are referring to the combined compensation peer group and survey data described above that were then in effect and applicable to our NEOs.
Use of Market Data
For its fiscal 2023 compensation decisions, the Compensation Committee continued to maintain a holistic and flexible approach in its use of market data. The Compensation Committee’s goal is generally to set all elements of compensation to be competitive, using a balanced approach that does not use rigid percentiles to target pay levels for each compensation element, but instead makes its compensation decisions based on a variety of relevant factors, including those listed below. While the Compensation Committee continues to review and reference market data, the data generally is used to inform the Compensation Committee of market practices to ensure that our executive compensation program remains generally competitive with our peers.In addition to the market data, several other factors are taken into account in setting the amount of each NEO’s target total direct compensation opportunity. These factors include:
The Compensation Committee reviews existing NEO compensation and retention levels relative to estimated replacement cost with respect to the scope, responsibilities and skills required of the particular position.
Recruitment, retention and
historical factors
Compensation data for some of our key positions are often not explicitly reported by companies in our compensation peer group or survey data. This results in limited sample sizes and/or inconclusive data that can be misleading if targeting a specific percentile for market positioning.
Lack of directly comparable data for some of our key roles
Certain elements of compensation reported from one source can be consistently higher or lower than the data collected from another, given differences in methods and samples used by each source to collect market data. Given this variability and volatility within the market data, the Compensation Committee has determined that targeting pay levels at specific percentiles of this data could result in outcomes that do not align with the internal value and strategic importance of various roles at Infinera.
Market positioning may be distorted by the source of the data
As discussed below, the Compensation Committee also considers several qualitative factors.
Desire to account for other factors not captured in the market data
36
Relevant Qualitative Factors
In addition to our uses of competitive market data as described above, the Compensation Committee considers a range of subjective and qualitative factors when making compensation decisions for our NEOs, including:
•The role the executive officer plays and the importance of such individual’s contributions to our ability to execute on our business strategy and to achieve our strategic objectives;
•Each executive officer’s tenure, skills and experience;
•The responsibilities and particular nature of the functions performed or managed by the executive officer;
•Our CEO’s recommendations and his assessment of each executive officer’s performance (other than his own performance), and with respect to the CEO’s performance, assessment and input by the Board including feedback from the Chair of the Board;
•The value of unvested equity awards held by each executive officer and in comparison to other members of our executive management team and senior employees;
•Internal pay equity across the executive management team;
•The impact of our compensation decisions on key financial and other measures such as our equity award “burn rate”;
•Our overall performance as compared to internal plans and external benchmarks;
•The potential impact on stockholder dilution of our compensation decisions relative to peers and historical practices; and
•Competitive labor market pressures and the likely cost, difficulty and impact on our business and strategic objectives that would be encountered in recruiting a replacement for the role filled by each of our NEOs.
The Compensation Committee does not assign relative weights or rankings to any of these factors and does not solely use any quantitative formula, target percentile or multiple for establishing compensation among the executive officers or in relation to the market data. Instead, the Compensation Committee relies upon its members’ knowledge and judgment in assessing the various qualitative and quantitative inputs it receives regarding each individual and makes compensation decisions accordingly.
Additional Information Regarding Our Compensation Practices
The estimated payments and benefits that would be received by each NEO in connection with a qualifying termination of employment, as described immediately below, are presented in the section entitled “Estimated Payments and Benefits upon Termination, Change of Control or Death/Disability” below.
Change of Control Payments and Benefits
The Compensation Committee considers maintaining a stable and effective management team to be essential to protecting the best interests of Infinera and its stockholders. Accordingly, Infinera has entered into Change of Control Agreements (the “COC Agreements”) with each of our NEOs to encourage their continued attention, dedication and continuity with respect to their roles and responsibilities without the distraction that may arise from the possibility or occurrence of a change of control of Infinera. The current terms of these COC Agreements are included below.
An NEO will receive payments and benefits under the COC Agreement only if his or her employment is terminated without “cause,” or by him or her as a result of a “constructive termination” (as more fully described in the section entitled “Estimated Payments and Benefits upon Termination, Change of Control or Death/Disability” below), beginning on the date three months prior to the first change of control to occur following the effective date of the COC Agreement and ending on the date 18 months following a change of control of Infinera. The Compensation Committee believes that this “double-trigger” structure provides an appropriate balance between the corporate objectives described above and the potential compensation payable to each NEO upon a change of control. The Compensation Committee also believes that should Infinera engage in any discussions or negotiations relating to a change of control that the Board believes is in the best interests of our stockholders, these COC Agreements will help to ensure that our NEOs remain focused on the consummation of such potential transaction, without significant distraction or concern regarding their personal circumstances, such as continued employment.
The following terms apply with respect to each of the NEOs if Infinera undergoes a change of control and the NEO’s employment is terminated without cause or as a result of a constructive termination during the Change of Control Period
37
(that is, the period beginning three months prior to, and ending eighteen months after, a change of control), subject to such individual entering into and not revoking a release of claims in our favor within 60 days of the termination date:
•100% of all outstanding equity awards will vest (awards based on the achievement of performance criteria will vest as to 100% of the amount of the award assuming the performance criteria have been achieved at target levels, unless otherwise provided in the agreement relating to such performance-based award);
•Our CEO will be paid a lump sum severance payment (less applicable tax withholdings) equal to two times his annual base salary and our other NEOs will be paid a lump sum severance payment (less applicable tax withholdings) equal to one and one-half times their annual base salary;
•Our CEO will be paid a lump sum severance payment (less applicable tax withholdings) equal to two times his annual target incentive bonus amount and our other NEOs will be paid a lump sum severance payment (less applicable tax withholdings) equal to one and one-half times their annual target incentive bonus amount; and
•Our CEO will be reimbursed for premiums under COBRA for a period of up to 24 months and our other NEOs will be reimbursed for premiums under COBRA for a period of up to 18 months.
Each COC Agreement will have an initial term of three years commencing on the effective date of such COC Agreement. On the third anniversary of the effective date, such COC Agreement will renew automatically for an additional, one-year term unless either party provides the other party with written notice of non-renewal at least one year prior to the date of automatic renewal.
In addition, the award agreements of certain performance share awards granted to our NEOs specify additional terms that apply to such awards in the event of our change in control. These additional terms are described below on page 50 in the section titled “Estimated Payments and Benefits Upon Termination, Change Of Control Or Death/Disability.”
Executive Severance Policy
In addition to the change of control-related payments and benefits discussed above, the Compensation Committee has taken appropriate steps to provide competitive post-employment compensation arrangements that promote the continued attention, dedication and continuity of the members of our senior management team, including our NEOs, and enable us to continue to recruit talented senior executive officers. Accordingly, the Compensation Committee has adopted an executive severance policy, under which the following severance payments and benefits will become payable if the employment of one of our NEOs is terminated by us without “cause” (as defined in the policy) subject to such individual entering into and not revoking a release of claims in our favor:
•Our CEO will be paid a lump sum severance payment equal to one and one-half times his annual base salary, and our other NEOswill be paid a lump sum severance payment equal to their annual base salary; and
•Our CEO will be reimbursed for premiums under COBRA for a period of 18 months, and our other NEOs will be reimbursed for premiums under COBRA for a period of 12 months.
If an NEO’s employment with Infinera is less than one year, the amount of severance payable to such individual will be equal to the lesser of (x) the base salary paid to such individual during his or her period of employment, or (y) the severance amount set forth above.
Acceleration of Equity Awards upon Death or Disability
In addition, all awards granted under our equity incentive plans permit accelerated vesting in the event of termination of service due to an employee’s death or terminal illness (with exceptions in certain circumstances). Because we do not have any policy with respect to severance payments or benefits in the event of an employee’s death or disability other than certain disability and life insurance benefits generally available to our employees, the Compensation Committee believes that in the event of an employee’s death or terminal illness, it would be appropriate to provide the accelerated vesting of his or her RSU awards and performance share awards at target.
Equity Award Subcommittee
The Compensation Committee has delegated to a subcommittee (the “Subcommittee”) the authority to grant new hire, retention, promotion and consultant equity awards to non-executive employees pursuant to certain pre-approved guidelines. At this time, the sole member of the Subcommittee is our CEO.
The Subcommittee generally approves the award by written consent on the second Monday of each month to approve new hire, retention, promotion and consultant equity awards. Annual focal equity awards are approved by the Compensation Committee. The delegation to the Subcommittee does not include the authority to grant equity awards to new employees who are or are reasonably expected to become Section 16 Officers or to current Section 16 Officers.
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Compensation Recovery Policy
We maintain a compensation recovery policy that applies to our Section 16 Officers (which includes each of our NEOs) and which complies with applicable Nasdaq listing rules and SEC regulations. Under the policy, if we are required to prepare an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period (an “Accounting Restatement”), then the Compensation Committee must determine the Excess Compensation, if any, that must be recovered.
This policy applies to certain types of incentive-based compensation received on or after October 2, 2023 during the covered period that have been received by a person after such person became an Executive Officer and the person served as an Executive Officer at any time during the performance period to which the incentive-based compensation applies. The “Excess Compensation” that is subject to recovery under the policy is the amount of eligible incentive-based compensation that exceeds the amount of such incentive-based compensation that otherwise would have been received had such incentive-based compensation been determined based on the restated amounts. For the purposes of this policy, “incentive-based compensation” means any compensation that is granted, earned, or vested based wholly or in part upon the attainment of a financial reporting measure. For the purposes of the policy, “financial reporting measures” are measures that are determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and any measures that are derived wholly or in part from such measures, as well as stock price and total shareholder return. Incentive-based compensation is “received” under the policy in the Company’s fiscal period during which the financial reporting measure specified in the incentive-based compensation award is attained, even if the payment, vesting, settlement or grant of such compensation occurs after the end of that period. Under the policy, the applicable “covered period” means the three completed fiscal years immediately preceding the earliest to occur of: (a) the date the Board, a committee of the Board, or one or more of the officers of the Company authorized to take such action if Board action is not required, concludes, or reasonably should have concluded, that the Company is required to prepare an Accounting Restatement; and (b) the date a court, regulator, or other legally authorized body directs the Company to prepare an Accounting Restatement.
Stock Ownership Policy
The Board believes that it is important to link the interests of our NEOs to those of our stockholders. Our Stock Ownership Policy requires our Section 16 Officers (which includes each of our NEOs) and directors to accumulate and hold a minimum number of shares of Infinera common stock within three years of the later of (i) the effective date of the policy or (ii) the date of appointment of the director or appointment/promotion of the Section 16 Officer. As of April 30, 2024, each of our Section 16 Officers and directors has either satisfied these ownership guidelines or had time remaining to do so. Our stock ownership requirements for our Section 16 Officers and directors are as follows:
Position
Ownership Requirement
CEO
4x annual base salary
CFO
2x annual base salary
Other Section 16 Officers and employee directors
1x annual base salary
Non-employee directors
4x annual cash retainer for annual Board service
Shares of Infinera common stock that count towards satisfaction of this policy include: (i) shares owned outright by the Section 16 Officer or director or his or her immediate family members residing in the same household and (ii) shares held in trust for the benefit of the Section 16 Officer or director or his or her family. The value of a share of Infinera common stock is measured on the last trading day of the most recently completed fiscal quarter as the greater of (i) the closing price on the date of calculation or (ii) the purchase price actually paid by the person for such share of Infinera common stock. For the avoidance of doubt, the purchase price for shares of Infinera common stock subject to RSU awards, performance share awards and other similar full value awards is zero.
Anti-Hedging Policy
Under our Insider Trading Policy, we prohibit our employees, including our NEOs, and Board members from hedging the risk associated with ownership of shares of Infinera common stock and other securities.
Anti-Pledging Policy
Under our Insider Trading Policy, we prohibit our NEOs and directors from pledging any Infinera securities as collateral for a loan.
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Tax and Accounting Treatment of Compensation
Prior to 2018, Section 162(m) of the Code generally limited the tax deductibility of compensation paid to the CEO and each of the next three most highly compensated executive officers (excluding the CFO) that exceeded $1 million in any taxable year unless the compensation over $1 million qualified as “performance-based” within the meaning of Section 162(m).
The ability to rely on the “performance-based” compensation exception under Section 162(m) was eliminated in 2017 and the $1 million limitation on deductibility generally was expanded to include any individuals serving as the CEO or CFO during the tax year, the next three most highly compensated executive officers during the tax year and any other individual who was considered a covered employee for any prior tax year beginning after 2016. Thus, we generally will not be able to take a deduction for any compensation paid to our NEOs in excess of $1 million unless the compensation qualifies for transition relief applicable to certain arrangements in place on November 2, 2017. We cannot guarantee that any compensation payable to our NEOs will qualify for the transition relief or that the compensation will ultimately be deductible. Although the Compensation Committee has not adopted a formal policy regarding tax deductibility of compensation paid to our CEO and other senior executive officers, the Compensation Committee intends to maintain an approach to executive compensation that strongly links pay to performance.
We account for the equity compensation awarded to our executive officers and other employees under ASC 718, which requires us to estimate and record an expense for each award of equity compensation over the service period of the award. Accounting rules also require us to record cash compensation as an expense at the time the obligation is incurred.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on its review and discussions with management, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023.
Compensation Committee
Sharon E. Holt (Chair)
Gregory P. Dougherty
Paul J. Milbury
The information contained in this report shall not be deemed to be “soliciting material” or “filed” with the SEC or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that Infinera specifically requests that the information be treated as soliciting material or incorporates it by reference into a document filed under the Securities Act of 1933, as amended (“Securities Act”), or the Exchange Act.
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EXECUTIVE COMPENSATION TABLES
The following tabular information and accompanying narratives and footnotes provide all of the compensation awarded to, earned by, or paid to the individuals who served as our principal executive officer, principal financial officer and our two other executive officers during fiscal 2023. As previously noted, we refer to these executive officers as our NEOs.
Fiscal 2023 Summary Compensation Table
Name and Principal Position
Year
Salary
($)(1)
Bonus
($)
Stock
Awards
($)(2)(3)
Non-Equity
Incentive Plan
Compensation
($)(4)
All
Other
Compensation
($)(5)
Total
($)
David W. Heard
2023
729,000
—
5,137,500
791,163
5,985
6,663,648
Chief Executive Officer
2022
700,000
—
4,855,638
700,000
5,062
6,260,700
2021
700,000
200,000
3,702,300
—
4,665
4,606,965
Nancy L. Erba
2023
487,500
—
1,734,300
309,994
5,985
2,537,779
Chief Financial Officer
2022
463,461
—
1,604,875
342,000
5,985
2,416,322
2021
439,615
—
1,273,419
—
5,986
1,719,020
David L. Teichmann
2023
430,000
—
848,700
278,681
10,350
1,567,731
Chief Legal Officer and Corporate Secretary
2022
409,231
—
1,099,244
124,500
10,350
1,643,325
2021
395,962
—
1,062,474
—
11,530
1,469,965
Nicholas R. Walden
2023
426,103
(6)
—
959,400
156,326
(7)
183,217
1,725,045
Senior Vice President, Worldwide Sales
2022
416,154
—
1,154,395
250,425
4,665
1,825,639
2021
400,577
—
1,009,953
412,082
34,665
1,857,277
_________________
(1)Salary data is provided from payroll records based on the fiscal year.
(2)The amounts reported in this column represent the aggregate grant date fair value of the listed equity awards, computed in accordance with ASC 718. See Notes 2 and 14 of the notes to our consolidated financial statements contained in our 2023 Annual Report on Form 10-K for a discussion of all assumptions made by us in determining the ASC 718 values of equity awards.
(3)For grants made in 2023, the stock awards reported in this column were in the amounts set forth in the “Fiscal 2023 Grants of Plan- Based Awards” table below. The fair market value of our common stock (based on the closing sale price) was $7.38 per share for awards granted on March 9, 2023 and $6.85 per share for awards granted on March 13, 2023. The grant date fair value of PSAs included in this column assumes a payout at the target performance level. For additional information, including PSA awards at target and maximum performance on a per executive basis, refer to the “Fiscal 2023 Grants of Plan-Based Awards Table,” below.
(4)Non-equity incentive plan compensation reported for the applicable year was based on performance in that year, but will be paid during the second fiscal quarter of the following year. For additional information regarding the bonuses paid to our NEOs, refer to “Fiscal 2023 Compensation—Annual Incentive Compensation” in the Compensation Discussion and Analysis above.
(5)The amounts in this column represent the payment of life insurance premiums and 401(k) match for each NEO, and for Mr. Walden, the reimbursement of taxable relocation expenses in the amount of $178,999.
(6)In August 2023, Mr. Walden relocated from the United States to the UK. Following such relocation, Mr. Walden received his salary in GBP. The salary amount paid to Mr. Walden in GBP was determined by converting into GBP his annual salary amount determined in USD using the exchange rate of 1.286 USD to 1 GBP. For purposes of calculating the total salary paid to Mr. Walden in 2023, the portion of his 2023 salary paid in GBP was converted to USD using the same exchange rate applied upon his relocation.
(7)Represents (i) cash bonus in the amount of $66,564 as a result of Compensation Committee discretion applied under the 2023 Walden Variable Plan to recognize Company performance notwithstanding that the minimum threshold for a bonus payout under the 2023 Walden Variable Plan was not achieved, plus (ii) the payout of $89,762 being the cash bonus portion of Mr. Walden’s 2023 annual incentive bonus pursuant to the terms of our 2023 Corporate Bonus Plan. For additional information on Mr. Walden’s fiscal 2023 bonus payout, please see the section entitled “Annual Incentive Compensation–2023 Bonus Plan Results” in the Compensation Discussion and Analysis section above.
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Fiscal 2023 Grants of Plan-Based Awards Table
The following table sets forth information regarding fiscal 2023 annual cash incentive compensation and equity awards granted to our NEOs during fiscal 2023.
Name
Grant
Date
Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards(1)
Estimated Future Payouts
Under Equity
Incentive Plan Awards(2)
All Other Stock
Awards: Number
of Shares
of Stock or
Units
(#)
Grant Date
Fair Value
of Stock
and Option
Awards
($)(3)
Threshold
($)
Target
($)
Maximum
($)
Threshold
(#)
Target
(#)
Maximum
(#)
David W. Heard
3/13/2023
758,000
947,500
(4)
—
(5)
206,250
412,500
618,750
337,500
(6)
5,137,500
Nancy L. Erba
3/9/2023
360,000
450,000
(4)
—
(5)
58,750
117,500
176,250
117,500
(6)
1,734,300
David L. Teichmann
3/9/2023
267,000
333,750
(4)
—
(5)
28,750
57,500
86,250
57,500
(6)
848,700
Nicholas R. Walden
3/9/2023
86,000
(7)
107,500
(4)
(5)
32,500
65,000
97,500
65,000
(6)
959,400
3/9/2023
56,438
(7)
322,500
(4)
645,000
_________________
(1)Amounts listed in these columns do not represent amounts actually paid or that may be paid in the future. Rather, these amounts are the target award opportunities that were established under the Company’s annual incentive compensation plan for 2023 as discussed in the section entitled “Fiscal 2023 Compensation—Annual Incentive Compensation” in the Compensation Discussion and Analysis section above. Any payments that will be made to the NEOs with respect to these award opportunities during the second fiscal quarter of 2024 for 2023 performance are listed in the “2023 Summary Compensation Table” above under the “Non-Equity Incentive Plan Compensation” column for 2023.
(2)Each performance share award was granted under the 2016 Plan. The performance shares vest based on the Company’s achievement of a non-GAAP gross margin goal which can be earned during fiscal 2023 through fiscal 2025. For additional information regarding these performance share awards granted to our NEOs in fiscal 2023, please see the section entitled “Fiscal 2023 Compensation—Performance Share Awards” in the Compensation Discussion and Analysis above.
(3)Each RSU award was granted under the 2016 Plan. For RSUs, represents the aggregate grant date fair value of each equity award computed in accordance with ASC 718. For performance shares, represents the aggregate grant date fair value of each equity award at the target payout level computed in accordance with ASC 718. See Notes 2 and 14 of the notes to our consolidated financial statements contained in our 2023 Annual Report on Form 10-K for a discussion of all assumptions made by us in determining the ASC 718 values of equity awards. The fair market value of our common stock (based on the closing sale price) was $7.38 per share for awards granted on March 9, 2023 and $6.85 per share for awards granted on March 13, 2023.
(4)Assuming target performance is achieved, our 2023 Corporate Bonus Plan is designed to pay cash bonuses at target.
(5)There is no maximum under our 2023 Corporate Bonus Plan, provided that the Compensation Committee retains authority to increase, reduce or eliminate any bonus award under such plan.
(6)This RSU award is scheduled to vest over a three-year period, with one-third of the underlying shares vesting on April 5, 2024, and one-twelfth of the underlying shares vesting quarterly thereafter, subject to each NEO’s continued service to Infinera through each applicable vesting date.
(7)Mr. Walden participated in our 2023 Corporate Bonus Plan with respect to 25% of his total target bonus and in the 2023 Walden Variable Plan with respect to 75% of his total target bonus. For additional information on Mr. Walden’s fiscal 2023 variable compensation program, please see the section entitled “Fiscal 2023 Compensation – Walden 2023 Variable Compensation Program” in the Compensation Discussion and Analysis section above.
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Fiscal 2023 Outstanding Equity Awards at Fiscal Year-End Table
The following table sets forth information regarding outstanding RSU awards and performance share awards held by each of our NEOs as of December 30, 2023. The vesting conditions for each award are set forth in the footnotes below the table.
Name
Grant
Date
Number of
Shares or
Units of Stock
That Have Not
Vested
(#)
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(1)
Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights
That Have Not
Vested
(#)
Equity
Incentive Plan
Awards:
Market or
Payout Value
or Unearned
Shares, Units
or Other
Rights
That Have Not
Vested
($)(1)
David W. Heard
3/9/2021
28,667
(2)
136,168
258,000
(3)
1,225,500
3/5/2022
96,296
(4)
457,406
—
—
3/21/2022
—
—
346,666
(5)
1,646,664
3/13/2023
337,500
(6)
1,603,125
412,500
(7)
1,959,375
Nancy L. Erba
3/9/2021
10,000
(2)
47,500
60,000
(3)
285,000
3/1/2022
38,542
(4)
183,075
—
—
3/21/2022
—
—
92,500
(5)
439,375
3/9/2023
117,500
(6)
558,125
117,500
(7)
558,125
David L. Teichmann
3/9/2021
8,334
(2)
39,587
50,000
(3)
237,500
3/1/2022
22,917
(4)
108,856
—
—
3/21/2022
—
—
55,000
(5)
261,250
3/9/2023
57,500
(6)
273,125
57,500
(7)
273,125
Nicholas R. Walden
3/9/2021
9,167
(2)
43,543
55,000
(3)
261,250
3/1/2022
26,667
(4)
126,668
—
—
3/21/2022
—
—
64,000
(5)
304,000
3/9/2023
65,000
(6)
308,750
65,000
(7)
308,750
_________________
(1)The market value of unvested and unearned stock awards is based on an assumed price of $4.75 per share, which was the Nasdaq closing price per share of our common stock on December 29, 2023 (the last trading day of our 2023 fiscal year end).
(2)This RSU award is scheduled to vest over a three-year period, with one-third of the underlying shares vesting on April 5, 2022, and one-twelfth of the underlying shares vesting quarterly thereafter, subject to the NEO’s continued service to Infinera through each applicable vesting date.
(3)This performance share award can be earned during fiscal 2021 through fiscal 2023. The first half of the performance shares (each half, a "tranche”) vests based on the Company’s achievement of both an operating income goal, measured on a non-GAAP basis over a full fiscal year, and a revenue goal, measured on a GAAP basis over a full fiscal year. The second tranche of the award vests based on the Company’s achievement of an operating income goal, measured on a non-GAAP basis over a full fiscal year. For additional information regarding these performance share awards granted to our NEOs in fiscal 2021, please see the section entitled “Fiscal 2023 Compensation—Performance Share Awards” in the Compensation Discussion and Analysis above. With respect to achievement of the goals applicable to the first tranche of the awards, the Compensation Committee certified on May 12, 2024, that 77.06% of the applicable shares vested on such date. With respect to achievement of the goal applicable to the second tranche of the awards, the Compensation Committee certified on May 12, 2024, that 62.14% of the applicable shares vested on such date. The shares that did not vest were forfeited as of such certification date.
(4)This RSU award is scheduled to vest over a three-year period, with one-third of the underlying shares vesting on March 5, 2023, and one-twelfth of the underlying shares vesting quarterly thereafter, subject to the NEO’s continued service to Infinera through each applicable vesting date.
(5)One-half of the performance shares vest on the Company’s achievement of a GAAP net income goal which can be earned during fiscal 2023 through fiscal 2024. The other half of the performance shares vest on the Company achieving a target related to gross profit dollars determined in accordance with GAAP generated by revenue from external sales of our pluggables and by cost savings resulting from use of our pluggables in our products which can be earned during fiscal 2022 through fiscal 2024. For additional information regarding these performance share awards granted to our NEOs in fiscal 2023, please see the section entitled “Fiscal 2023 Compensation—Performance Share Awards” in the Compensation Discussion and Analysis above. No performance shares subject to this award vested with respect to the Company’s performance in fiscal 2023.
(6)This RSU award is scheduled to vest over a three-year period, with one-third of the underlying shares vesting on April 5, 2024, and one-twelfth of the underlying shares vesting quarterly thereafter, subject to the NEO’s continued service to Infinera through the applicable vesting date.
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(7)This performance share award can be earned during fiscal 2023 through fiscal 2025. The performance shares vest on the Company’s achievement of a gross margin goal, measured on a non-GAAP basis over a full fiscal year. For additional information regarding these performance share awards granted to our NEOs in fiscal 2023, please see the section entitled “Fiscal 2023 Compensation—Performance Share Awards” in the Compensation Discussion and Analysis above. No performance shares subject to this award vested with respect to the Company’s performance in fiscal 2023.
Fiscal 2023 Stock Vested Table
The following table sets forth the number of shares acquired and the value realized upon the vesting of RSU awards and performance share awards during fiscal 2023 by each of our NEOs.
Name
Number of Shares
Acquired on
Vesting
(#)
Value Realized
on Vesting
($)(1)
David W. Heard
285,898
1,654,003
Nancy L. Erba
228,017
1,160,177
David L. Teichmann
132,608
872,043
Nicholas R. Walden
66,667
402,485
_________________
(1)The value realized on the vesting date is based on the fair market value of our common stock on the vesting date and does not necessarily reflect the proceeds actually received by the NEO.
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2023 CEO PAY RATIO
We are providing the following information regarding the relationship of the annual total compensation of our median employee to the annual total compensation of our CEO (in each case, the annual total compensation was calculated in accordance with SEC rules applicable to the Summary Compensation Table above). The pay ratio included in this information is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K.
For 2023:
•Our median employee’s annual total compensation (not including our CEO) was $134,941.
•Our CEO’s annual total compensation, as reported on page 41 in the Summary Compensation Table, was $6,663,648.
•Based on this information, the ratio of the annual total compensation of our CEO to the annual total compensation of our median employee is 49 to 1.
Pay Ratio Methodology. The SEC rules allow us to select a methodology for identifying our median employee in a manner that is most appropriate based on our size, organizational structure and compensation plans, policies and procedures.
For fiscal 2023, we calculated the pay ratio using the same median employee that we used to calculate the pay ratio in fiscal 2022, as there has been no significant change in our employee population or compensation arrangements during the fiscal year that we reasonably believe would result in a significant change to our pay ratio disclosure. In fiscal 2022, we selected December 1, 2022, as the date on which to determine our median employee, which is a date within the last three months of our 2022 fiscal year. As of that date, we had 3,264 employees, with 1,250 employees based in the United States and 2,014 employees located outside of the United States. The pay ratio disclosure rules provide an exemption for companies to exclude non-U.S. employees from the median employee calculation if non-U.S. employees in a particular jurisdiction account for five percent (5%) or less of the company's total number of employees. We applied this de minimis exemption when identifying the median employee by excluding 23 countries: 13 employees in Taiwan, 12 employees in Netherlands, 12 employees in France, 11 employees in Japan, 10 employees in United Arab Emirates, 10 employees in Spain, 9 employees in Kazakhstan, 8 employees in Saudi Arabia, 8 employees in Colombia, 7 employees in Thailand, 7 employees in Poland, 6 employees in Indonesia, 6 employees in Vietnam, 6 employee in Republic of Korea, 5 employees in Ireland, 5 employees in Egypt, 4 employees in Hungary, 4 employees in Belgium, 3 employees in Denmark, 2 employees in Greece, 2 employees in Serbia, 1 employee in Norway and 1 employee in Israel.
After taking into account the de minimis exemption, 1,250 employees based in the United States and 1,862 employees located outside of the United States were considered for identifying the median employee.
For purposes of identifying the median employee from our employee population base, we considered total cash compensation (base salary, including overtime, annual bonus and the sum of other bonuses, which included retention bonuses), as compiled from our payroll records. We selected total cash compensation as this information is readily available in each country. In addition, we measured compensation for purposes of determining the median employee using the year-to-date period ended December 31, 2022, and annualized for employees (other than any temporary or seasonal employees) who were employed on December 1, 2022, but did not work for us for all of 2022. Compensation paid in foreign currencies was converted to U.S. dollars based on exchange rates in effect on December 1, 2022.
The CEO pay ratio reported above is a reasonable estimate, calculated in a manner consistent with SEC rules, based on the methodologies and assumptions described above. SEC rules for identifying the median employee and determining the CEO pay ratio permit companies to employ a wide range of methodologies, estimates, and assumptions. As a result, the CEO pay ratios reported by other companies, which may have employed other permitted methodologies or assumptions, and which may have a significantly different workforce structure from ours, might not be comparable to our CEO pay ratio.
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PAY VERSUS PERFORMANCE
As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(v) of Regulation S-K, we are providing the following information regarding the relationship between executive compensation actually paid and certain financial performance of the Company. For further information concerning our pay-for-performance philosophy and how we align executive compensation with the Company’s performance, refer to “Our Pay–Compensation Discussion and Analysis,” above. Fair value amounts below are computed in accordance with ASC 718. See Notes 2 and 14 of the notes to our consolidated financial statements contained in our 2023 Annual Report on Form 10-K for a discussion of all assumptions made by us in determining the ASC 718 values of equity awards.
Pay Versus Performance Table
Year(1)
Summary Compensation Table Total for PEO
($)
Compensation Actually Paid to PEO
($)(2)
Average Summary Compensation Table Total for Non-PEO NEOs
($)
Average Compensation Actually Paid to Non-PEO NEOs
($)(2)
Value of Initial Fixed $100 Investment Based on:
Net Income ($)(in thousands)
Non-GAAP Operating Income
($)(in thousands)
Summary Compensation Table Total for Second PEO ($)
Compensation Actually Paid for Second PEO
($)(2)
Total Stockholder Return (TSR)
($)(3)
Peer Group
TSR
($)(4)
2023
6,663,648
2,991,185
—
—
1,943,518
968,440
61
91
(25,213)
87,225
2022
6,260,700
1,963,303
—
—
1,961,762
227,172
87
82
(76,043)
68,988
2021
4,606,965
3,073,908
—
—
1,682,087
1,044,985
123
112
(170,778)
29,586
2020
4,139,627
7,316,489
3,787,396
8,713,585
927,392
1,801,224
141
110
(206,723)
(6,274)
_________________
(1)The Principal Executive Officer (“PEO”) and Other NEOs for each applicable year are:
•2023 - PEO: Mr. Heard. Other NEOs: Ms. Erba, and Messrs. Teichmann and Walden.
•2022 - PEO: Mr. Heard. Other NEOs: Ms. Erba, and Messrs. Teichmann and Walden.
•2021 - PEO: Mr. Heard. Other NEOs: Ms. Erba, and Messrs. Teichmann and Walden.
•2020 - PEOs: Mr. Heard and Tom Fallon. Mr. Fallon transitioned from his position of Chief Executive Officer to Advisor as of November 23, 2020. Mr. Heard is referred to as the first PEO and Mr. Fallon is referred to as the second PEO in the table above. Other NEOs: Ms. Erba, and Messrs. Teichmann and Walden, and Robert Jandro. Mr. Jandro resigned from his position of SVP, Worldwide Sales as of January 3, 2020.
(2) SEC rules require certain adjustments be made to the “Summary Compensation Table” totals to determine “compensation actually paid” as reported in the “Pay Versus Performance” table above. The following table details the applicable adjustments that were made to determine “compensation actually paid.”
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FY2023
FY2022
FY2021
FY2020
PEO ($)
Average Other NEO
($)
PEO ($)
Average Other NEO
($)
PEO
($)
Average Other NEO
($)
PEO ($)
Second PEO ($)
Average Other NEO ($)
Summary Compensation Table - Total Compensation
6,663,648
1,943,518
6,260,700
1,961,762
4,606,965
1,682,087
4,139,627
3,787,396
927,392
(Deduct) Grant Date Fair Value of Stock Awards and Option Awards Granted in Fiscal Year
5,137,500
1,180,800
(4,855,638)
(1,286,171)
(3,702,300)
(1,115,282)
(3,532,500)
(3,239,500)
(596,452)
(Increase) Fair Value at Fiscal Year End of Outstanding and Unvested Stock Awards and Option Awards Granted in Fiscal Year
3,562,500
760,000
3,894,217
1,001,002
4,106,500
1,237,043
5,485,000
6,033,500
1,059,154
(Increase/Deduct) Change in Fair Value of Outstanding and Unvested Stock Awards and Option Awards Granted in Prior Fiscal Years
(1,824,514)
(405,864)
(2,423,828)
(1,058,559)
(1,614,753)
(713,504)
1,520,786
2,439,280
680,099
(Increase) Fair Value at Vesting of Stock Awards and Option Awards Granted in Fiscal Year that Vested During Fiscal Year
—
—
—
—
—
—
—
—
—
(Increase/Deduct) Change in Fair Value as of Vesting Date of Stock Awards and Option Awards Granted in Prior Fiscal Years for which Applicable Vesting Conditions were Satisfied During Fiscal Year
(272,949)
(148,414)
(912,149)
(390,862)
(322,504)
(45,359)
(296,424)
(307,091)
(136,708)
(Deduct) Fair Value as of Prior Fiscal Year End of Stock Awards and Option Awards Granted in Prior Fiscal Years that Failed to Meet Applicable Vesting Conditions During Fiscal Year
—
—
—
—
—
—
—
—
(132,260)
Compensation Actually Paid
2,991,185
968,440
1,963,303
227,172
3,073,908
1,044,985
7,316,489
8,713,585
1,801,224
(3)Represents the Company’s common stock cumulative TSR on a fixed investment of $100 over the fiscal year starting from the market close on the last trading day of fiscal 2019 through the end of each applicable fiscal year in the table, assuming reinvestment of any dividends.
(4)Represents the cumulative TSR of the Nasdaq Telecommunications Index, the Company’s peer group for this Pay Versus Performance disclosure, on a fixed investment of $100 over the fiscal year starting from the market close on the last trading day of fiscal 2019 through the end of each applicable fiscal year in the table. This is the same peer group the Company uses for its disclosure under Item 201(e) of Regulation S-K.
List of Most Important Performance Measures
The four performance measures listed below represent an unranked list of the most important performance measures for fiscal 2023 the Company used to align compensation to the Company’s financial performance. While these performance measures are the most important measures in fiscal 2023 the Company used to align compensation and the Company’s financial performance, additional financial and other measures were also used to align pay and performance, as further described in the section “Our Pay–Compensation Discussion and Analysis.”
The most important performance measures are:
Key Performance Measures
Non-GAAP Operating Income
Non-GAAP Gross Margin
Revenue
Bookings
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Pay Versus Performance Relationship Disclosure
The chart below provides a comparison between the compensation actually paid to each of our first and second PEO (Messrs. Heard and Fallon, respectively) and our average compensation actually paid to our other NEOs against the Company TSR and the peer group TSR, which was the Nasdaq Telecommunications Index. As demonstrated below, the trend in NEO compensation has largely been aligned to the trend in TSR.
48
The chart below illustrates the correlation between compensation actually paid to each of our first and second PEO and average compensation actually paid to our other NEOs against the Company’s GAAP net income for fiscal years 2020, 2021, 2022 and 2023. Although GAAP net income has increased from fiscal 2020 to fiscal 2023, compensation actually paid to our NEOs has decreased in large part because of the significant emphasis the Company places on equity incentives, which are sensitive to stock price fluctuations.
The chart below illustrates the correlation between compensation actually paid to each of first and second PEOs and average compensation actually paid to our other NEOs against the Company’s non-GAAP Operating Income for fiscal years 2020, 2021, 2022 and 2023. Although non-GAAP Operating Income has increased from fiscal 2020 to fiscal 2023, compensation actually paid to our NEOs has decreased in large part because of the significant emphasis the Company places on equity incentives, which are sensitive to stock price fluctuations.
49
ESTIMATED PAYMENTS AND BENEFITS UPON TERMINATION, CHANGE OF CONTROL OR DEATH/DISABILITY
Executive Severance Policy
As discussed above in more detail in the section entitled “Compensation Discussion and Analysis – Additional Information Regarding Our Compensation Practices—Executive Severance Policy,” the Compensation Committee has taken appropriate steps to provide competitive post-employment compensation arrangements that promote the continued attention, dedication and continuity of the members of our senior management team, including our NEOs, and enable us to continue to recruit talented senior executive officers. Infinera shall not pay severance pursuant to this policy to the individuals subject to this policy in the event of (i) a change of control of Infinera (as defined below), or (ii) if such individual is terminated for Cause (as defined below).
Death and Disability Benefits
Pursuant to the 2016 Plan, accelerated vesting of RSU awards and performance share awards is provided in the event of the termination of service due to death (with exceptions in certain circumstances) or permanent disability of an employee, including our NEOs, as discussed above in the section entitled “Compensation Discussion and Analysis – Additional Information Regarding Our Compensation Practices—Acceleration of Equity Awards upon Death or Disability.”
Change of Control Payments and Benefits
As discussed above in more detail in the section entitled “Compensation Discussion and Analysis – Additional Information Regarding Our Compensation Practices—Change of Control Payments and Benefits,” we entered into COC Agreements with each of our NEOs to encourage their continued attention, dedication and continuity with respect to their roles and responsibilities without the distraction that may arise from the possibility or occurrence of a change of control of Infinera.
For purposes of these benefits, the terms below generally have the following meanings:
Change of Control
(i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Infinera representing fifty percent (50%) or more of the total voting power represented by Infinera’s then outstanding voting securities; (ii) the consummation of the sale or disposition by Infinera of all or substantially all of Infinera’s assets; (iii) the consummation of a merger or consolidation of Infinera with any other corporation, other than a merger or consolidation which would result in the voting securities of Infinera outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of Infinera or such surviving entity or its parent outstanding immediately after such merger or consolidation; or (iv) a change in the composition of the Board occurring within a two (2) year period, as a result of which less than a majority of the directors are Incumbent Directors. “Incumbent Directors” means directors who either (A) are directors of Infinera as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the directors of Infinera at the time of such election or nomination (but will not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to Infinera).
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Constructive Termination
The executive officer’s resignation as a result of, and within three (3) months following the expiration of any company cure period (discussed below) following the occurrence of one or more of the following: (i) a material reduction in the executive officer’s job, duties or responsibilities in a manner that is substantially inconsistent with the position, duties or responsibilities held by the executive officer immediately before such reduction; (ii) a material reduction in the executive officer’s base salary (in other words, a reduction of more than five percent of executive’s base salary within the twelve-month period following a Change of Control); or (iii) a material change in the work location at which the executive officer is required to perform services for Infinera (in other words, a requirement that the executive officer relocate to a work location that is more than 50 miles from the executive’s work location in effect as of the date immediately prior to a Change in Control). The executive officer will not resign as the result of a Constructive Termination without first providing Infinera with written notice of the acts or omissions constituting the grounds for “Constructive Termination” within ninety (90) days of the initial existence of the grounds for “Constructive Termination” and a cure period of thirty (30) days following the date of such notice.
Cause
(i) The executive officer’s willful failure to substantially perform his or her duties and responsibilities to Infinera or deliberate violation of a company policy; (ii) the executive officer’s commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is reasonably expected to result in material injury to Infinera; (iii) unauthorized use or disclosure by the executive officer of any proprietary information or trade secrets of Infinera or any other party to whom the executive officer owes an obligation of nondisclosure as a result of his or her relationship with Infinera; or (iv) the executive officer’s willful breach of any of his or her obligations under any written agreement or covenant with Infinera. The determination as to whether the executive officer is being terminated for Cause will be made in good faith by Infinera and will be final and binding on the executive officer.
Additionally, we granted performance share awards in 2023 to our NEOs, as described further above in the section titled “Performance Share Awards” (referred to as the “2023 PSAs”), as well as performance share awards in 2022 (referred to as the “2022 PSAs”) and 2021 (referred to as the “2021 PSAs”) to each of our NEOs. The performance period for the 2023 PSAs continues through the end of fiscal 2025. The performance period for the 2022 PSAs continues through the end of fiscal 2024. The performance period for the 2021 PSAs continued through the end of fiscal 2023.
The 2023 PSAs, 2022 PSAs and 2021 PSAs provide that, in the event of our change in control (as defined in the 2016 Plan, pursuant to which each of such awards were granted) that occurs during the performance period applicable to the performance share award, such award will vest at the target level. Under our 2016 Plan, change in control generally means (i) a person (or more than one person acting as a group) acquires ownership of our shares resulting in their holding more than 50% of the total voting power of our shares (with certain exceptions where a person or group of persons that already holds more than 50% of the total voting power of our shares acquires additional shares, or where our stockholders after such transaction retain beneficial ownership of 50% or more of the voting power of our shares in substantially the same proportions); (ii) a change in our effective control that occurs when a majority of our Board members are replaced in a 12-month period by directors whose appointment or election is not endorsed by a majority of our Board members before the date of appointment or election; or (iii) a change in ownership of a substantial portion of our assets, which occurs when a person (or group of persons acting as a group) acquires our assets having a gross fair market value of at least 50% of the total gross fair market value of all of our assets.
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Fiscal 2023 Estimated Payments and Benefits Table
The amount of compensation and benefits payable to each of our NEOs (as of the last day of fiscal 2023 and assuming that no portion of the 2021 PSAs had vested or been forfeited) in the event of (a) a termination of employment by Infinera, (b) a termination of employment without Cause or as a result of a Constructive Termination in connection with a Change of Control transaction (as described above) within 3 months prior to, through 18 months after, a Change of Control, (c) a termination of employment due to death or permanent disability, or (d) a Change in Control transaction (within the meaning of our 2016 Plan as described above) has been estimated in the table below.
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