Ciena Corporation
Shareholder Annual Meeting in a DEF 14A on 02/18/2021   Download
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

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Patrick H. Nettles, Ph.D.

Executive Chairman of

the Board of Directors

 

“The challenges brought on by the COVID-19 pandemic provided us with opportunities to show perseverance,
strength and kindness.”

 

- Patrick H. Nettles, Ph.D.

         

Message from our Board of Directors

 

Dear Fellow Stockholders:

 

Fiscal 2020 was a year that brought unprecedented challenges, testing us as individuals, companies and entire industries, and highlighting the essential nature of the global networks that connect us together. The COVID-19 pandemic also provided us with opportunities to show perseverance, strength and kindness. Our 2020 performance, across multiple dimensions, illustrated our market leadership, core values and resiliency. We were able to deliver solid performance in spite of these challenges through consistent execution of our strategy and our ability to leverage our competitive strengths – innovation leadership, diversification and global scale. These strengths serve as the foundation of a uniquely resilient business, differentiating us in the market and giving us confidence about our future.

 

Our management and our Board believe strongly that our success is ultimately rooted in our people. Through our team’s collective efforts, we achieve exceptional engineering feats, impactful social programs, progressive human capital initiatives and upstanding governance practices. Similarly, good corporate governance and a commitment to high ethical standards and sustainability remain essential to Ciena’s success in our markets. In 2020, we took several meaningful steps, including:

 

   Promoting Employee Safety & Wellbeing. Prioritizing the health and safety of our employees, we temporarily closed our offices around the world, shifted the vast majority of our employees to work from home, and instituted travel bans and restrictions. We also adopted new employee benefits and wellbeing initiatives, including physical, emotional, mental, and social programming, global pandemic leave, work from home reimbursements, regular mental wellbeing sessions, morale initiatives, and new wellbeing platforms.

 

   Supporting our Communities. In the face of the pandemic, we enhanced our Ciena Cares program, which provides corporate matching for employee charitable donations and volunteer service, to increase our corporate match three-fold. Our employees’ support for neighbors, communities and front-line health care workers has been truly inspiring. We’ve contributed in innovative ways, using 3-D printers and engineering know-how to make and design face shields and components for health care workers. We also created a new community initiative focused on promoting digital inclusion, providing greater opportunities for underserved students through access, technology and digital skills, and have collaborated on community projects with business partners as part of this program.

 

   Commitment to Board Refreshment, Diversity and Governance. Refreshment and diversity are important to Ciena’s success. In 2020, we appointed a new independent director and a new executive officer, adding further gender and ethnic diversity to our leadership. We also created and resourced new, dedicated functions focused on Diversity, Inclusion & Belonging initiatives as well as Corporate Compliance & Ethics, and we’re excited to see the output of these new levels of focus.

 

I encourage you to read more about our Board of Directors, corporate governance practices and executive compensation in the attached proxy statement. I am confident that you will recognize our commitment to best practices in these areas. Thank you for your continued support of Ciena and your participation in this year’s Annual Meeting.

 

On behalf of the Board of Directors,

 

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Patrick H. Nettles, Ph.D.


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Ciena Corporation

7035 Ridge Road

Hanover, Maryland 21076

Notice of Annual Meeting of Stockholders

 

  Date:

 

            April 1, 2021

  

Record Date:

 

            February 4, 2021

 
        

  Time:

 

            3:00 p.m. Eastern Time

  

Attendance:

 

             www.virtualshareholdermeeting.com/CIEN2021

 

 

To the Stockholders of Ciena Corporation:

The 2021 Annual Meeting of Stockholders of Ciena Corporation will be held on April 1, 2021 at 3:00 p.m. Eastern Time. Our Annual Meeting will be a virtual meeting held over the Internet. You will be able to attend the Annual Meeting, vote your shares electronically and submit your questions during the live webcast of the meeting by visiting www.virtualshareholdermeeting.com/CIEN2021 and entering your 16-digit control number included in the notice containing instructions on how to access Annual Meeting materials, your proxy card, or the voting instructions that accompanied your proxy materials.

 

 

 

  Items of Business

 

 

 

1.  Elect four members of the Board of Directors from the nominees named in the attached proxy statement to serve as Class III directors for three-year terms ending in 2024, or until their respective successors are elected and qualified, including one director previously appointed by the Board of Directors to fill a newly created vacancy in Class III.

 

2.  Approve the amendment and restatement of the Employee Stock Purchase Plan to (a) extend the term thereof to April 1, 2031, (b) increase the number of shares available for issuance thereunder by 8.7 million shares, (c) eliminate the evergreen mechanism thereunder, and (d) make such other changes described in these proxy materials.

 

3.  Ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal 2021.

 

4.  Conduct an advisory vote on our named executive officer compensation, as described in these proxy materials.

 

5.  Consider and act upon such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.

 

These matters are more fully described in the proxy statement accompanying this notice. You are entitled to notice of, and are eligible to vote at, this year’s Annual Meeting if you were a stockholder of record as of the close of business on February 4, 2021.

In accordance with Securities and Exchange Commission rules, we are furnishing these proxy materials and our Annual Report to Stockholders for fiscal 2020 via the Internet. On February 18, 2021, we mailed to stockholders as of the record date a notice with instructions on how to access our Annual Meeting materials and vote via the Internet, or by mail or telephone.

We believe that your vote, and the vote of every Ciena stockholder, is important. Whether or not you plan to participate in the Annual Meeting, we encourage you to review the accompanying proxy statement for information relating to each of the proposals and to cast your vote promptly.

 

  By Order of the Board of Directors,
 

 

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  David M. Rothenstein
  Senior Vice President, General Counsel and Secretary

Hanover, Maryland

February 18, 2021


Table of Contents

 

Proxy Statement Summary

     1  

Voting Roadmap

     6  

Proposal No. 1

Election of Class III Directors

     7  

Information Regarding Nominees and Continuing Directors

     9  

Corporate Governance and the Board of Directors

     15  

Independent Directors

     15  

Communicating with the Board of Directors

     15  

Environmental, Social and Governance Practices

     15  

Principles of Corporate Governance, Bylaws and Other Governance Documents

     19  

Codes of Ethics

     20  

Board Leadership Structure

     20  

Board Oversight of Strategy

     21  

Board Oversight of Risk

     21  

Composition and Meetings of the Board of Directors and its Committees

     22  

Compensation Philosophy and Objectives

     26  

Compensation Consultant

     26  

Compensation Committee Interlocks and Insider Participation

     26  

Director Compensation

     27  

Fiscal 2020 Board Compensation

     27  

Director Compensation Table

     28  

Outstanding Equity Awards for Directors at Fiscal Year-End

     29  

Deferral of Director Compensation

     29  

Proposal No. 2

Amendment and Restatement of Ciena’s Employee Stock Purchase Plan

     30  

Proposal No. 3

Ratification of Appointment of Independent Registered Public Accounting Firm

     33  

Relationship with Independent Registered Public Accounting Firm

     34  

Audit Committee Report

     35  

Ownership of Securities

     36  

Delinquent Section 16(a) Reports

     37  

Compensation Discussion and Analysis

     38  

Compensation Committee Report

     58  

Executive Compensation Tables

     59  

Summary Compensation Table

     59  

Grants of Plan-Based Awards

     60  

Outstanding Equity Awards at Fiscal Year-End

     63  

Stock Vested

     64  

Nonqualified Deferred Compensation

     65  

Potential Payments Upon Termination or Change in Control

     65  

CEO Pay Ratio Disclosure

     71  

Proposal No.  4

Annual Advisory “Say-on-Pay” Vote to Approve Named Executive Officer Compensation

     72  

Policy for Related Person Transactions

     73  

Equity Compensation Plan Information

     74  

Stockholder Proposals for 2022 Annual Meeting

     75  

General Information

     76  

Frequently Asked Questions

     77  

Annual Report on Form 10-K

     80  

Householding of Proxy Materials

     80  

Electronic Delivery of Future Proxy Materials

     80  

Non-GAAP Measures

     81  

Annex A – Form of Amended and Restated Employee Stock Purchase Plan

     A-1  
 

 


Proxy Statement Summary

This summary highlights information that is contained elsewhere in this proxy statement. It does not include all information necessary to make a voting decision, and you should read this proxy statement in its entirety before casting your vote.

 

  

 

Our COVID-19 Response

 
  

 

Employee Safety and Wellbeing

 

  Prioritized employee health and safety, following Centers for Disease Control and Prevention and other relevant guidelines

 

  Temporarily closed offices globally

 

  Required vast majority of employees to work from home

 

  Instituted business travel bans and restrictions

 

  Adopted new pandemic leave and work from home benefits

 

  Launched wellbeing initiatives focusing on mental health

 

 

Business Continuity

 

  Established COVID-19 business continuity planning team

 

  Implemented business continuity plans to minimize business disruption

 

  Mitigated supply chain disruption, including through multi-sourcing

 

  Met customer fulfillment needs despite disruptions in ability to provide services and access sites

 

  Invested significantly in digital platforms and virtual collaboration, enabling a smooth transition to remote working

 
  

Financial Resiliency

 

  Increased profitability despite slowdowns in customer spending and business velocity that negatively impacted annual revenue

 

  Demonstrated resilient operating model and ability to continue to invest in innovation leadership

 

  Strengthened balance sheet and generated cash flow

 

  After a temporary pause, reinstated stock repurchase plan in first quarter of fiscal 2021

 

Community Outreach and Support

 

  Tripled corporate matching for employee charitable donations and volunteering through Ciena Cares program

 

  Donated personal protective equipment

 

  Designed and 3-D printed face shields and components for healthcare workers

 

  Launched digital inclusion commitment to provide greater opportunities for underserved students through access, technology, and digital skills

 

  Participated in joint digital inclusion community projects with business partners

 

 

 

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Ciena at a Glance

Industry-leading, global networking systems, services and software company

 

     

 

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$3.5B

FY20 Annual Revenue

  

$1.3B

Cash Position

at FYE 20

  

#1 or #2

Market Position

in the markets in which we operate*

 

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80+

Countries

in which we sell products

 

  

7,000+

Employees

  

1,800+

Customers

* As cited by Omdia, Dell’Oro Group and Cignal AI for different markets

 

Foundational Strengths

 

   

Strategic Initiatives

 

 

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Leading Technology & Innovation

 

we own the key enabling technologies for our solutions and use our significant investment capacity to push the pace of innovation in our industry

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Grow

 

grow our core networking platforms and services businesses and extend innovation leadership through offerings that leverage our Adaptive NetworkTM vision

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Diversification

 

we have a broad-based business that spans a diverse set of customer segments, a wide range of solutions and applications, and multiple geographies

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Develop

 

embrace multiple consumption models and offer a range of networking solutions across these models to drive the evolution of next-generation network infrastructures and promote choice

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Global Scale

 

we have significant talent and deep resources in engineering, sales, services and customer support that advance our global business

 

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Expand

 

promote broader adoption of our Blue Planet software and services portfolio to transform network operations and management

 

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Business Highlights

Our fiscal 2020 performance highlights the strength and durability of our business model, which allowed us to deliver solid performance despite the impact of the COVID-19 pandemic.

 

Fiscal 2020 Financial Performance

(approximate)

 

 

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annual revenue

 

decreased from approximately $3.57B in fiscal 2019

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total stockholder

return (TSR)

 

increased from approximately 19% in fiscal 2019

Year-Over-Year Increases (FY19 to FY20)

(approximate)

 

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increase in adjusted operating margin

 

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increase in adjusted EBITDA

 

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increase in adjusted earnings per share

 

 

Contained above, and elsewhere in this proxy statement, are certain non-GAAP measures of Ciena’s financial performance for fiscal 2019 and 2020. These measures, along with their corresponding GAAP measures and reconciliations thereto, have been previously disclosed in exhibits to Ciena’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on December 10, 2020. Also see “Non-GAAP Measures” below for more information about these measures and how they are used.

Fiscal 2020 Business Performance

 

 

   Delivered solid financial results, with a significant increase in profitability measures, in spite of the global pandemic

 

   Generated $411 million in free cash flow

 

   Ended fiscal 2020 with $1.3 billion in cash and investments

 

   Grew by more than 300% the number of customers adopting MCP, our domain control software

 

 

   Pushed the pace of innovation with our Adaptive Network approach, including general availability of the industry’s first single-wavelength 800G product and several deployments of our Adaptive IP solutions

 

   Developed footprint-optimized WaveLogic 5 Nano 100G-400G coherent pluggable transceivers

 

   Completed acquisition of Centina Systems to strengthen Blue Planet’s closed-loop automation portfolio

 

   Added new customers and expanded relationships for our Blue Planet software automation portfolio

 

 

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Fiscal 2020 Compensation Highlights

 

COVID-19 Compensation Considerations

 

   Compensation decisions for fiscal 2020 were made by the Compensation Committee in December 2019, following Ciena’s outstanding business and financial performance in fiscal 2019 and prior to the onset of the global COVID-19 pandemic

 

   Although our sales orders and annual revenue were negatively impacted by COVID-19, our profitability and TSR increased meaningfully in fiscal 2020

 

 

   The Compensation Committee determined not to make any adjustments to the fiscal 2020 objectives or payouts under incentive compensation programs due to the COVID-19 pandemic

 

   In light of ongoing macro and industry conditions, at the end of 2020, the Compensation Committee determined not to increase any element of compensation for the NEOs for fiscal 2021

 

Base Salaries

 

   

Equity Award Values

 

Increased the base salary of the CEO and the other NEOs in order to better align with the market median for their positions and to reflect their and Ciena’s strong performance

   

Delivered annual equity awards for the CEO and the other NEOs that represented meaningful year-over-year increases in target value in order to keep pace and ensure alignment with the market and to reflect their and Ciena’s strong performance

 

Target Cash Incentives

 

   

Equity Award Structure

 

Increased the target cash incentive opportunity for the NEOs other than the CEO to better align with the market median and to reflect their and Ciena’s strong performance

 

Made no adjustments to objectives or payouts for fiscal 2020 cash incentives, despite slowdowns in customer spending and business velocity due to the COVID-19 pandemic

   

Structured equity awards so that 60% of the target award value for the CEO, and 50% of the target award value for the other NEOs, was allocated to at-risk, performance-based equity in the form of PSUs and MSUs

 

Made no adjustments to objectives or payments for fiscal 2020 equity awards, despite slowdowns in customer spending and business velocity due to the COVID-19 pandemic

 

Pay-for-Performance Alignment

 

CEO Fiscal 2020

Target Total Direct Compensation Mix

 

    

NEO Fiscal 2020

Target Total Direct Compensation Mix

 

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Corporate Governance and Stockholder Outreach

Stockholder Outreach and Engagement

We believe that strong corporate governance practices should include regular outreach and conversations with our stockholders, with whom we regularly discuss our business, financial performance, industry dynamics, governance, compensation, and ESG matters. These regular engagements allow us to obtain feedback on stockholders’ perception and understanding of our markets, business and industry. They have also influenced our communications, which include detail on key elements of our corporate strategy and an articulation of our capital allocation priorities. In addition, in connection with our proposal at last year’s annual meeting to increase the number of shares available under our 2017 Omnibus Incentive Plan, we reached out to a number of our largest stockholders to discuss our current equity practices and receive feedback. Since the 2020 annual meeting, we have also provided updates with respect to our environmental, social and governance practices through an investor presentation available on the “Investors” section of our website at www.ciena.com. Information contained on or available through our website is not incorporated by reference in or made part of this proxy statement.

Fiscal 2020 Governance Changes

 

Board Composition

 

   

Policies and Charters

 

Continued our commitment to refreshment and diversity:

 

•  Appointed a new independent director

•  50% of directors bring gender or ethnic diversity to the Board

•  Reduced average tenure of non-employee directors from 12.1 to 9.7 years from end of fiscal 2016 to end of fiscal 2020

 

   

Updated to ensure alignment with governance best practices:

 

•  Principles of Corporate Governance

•  Code of Ethics for Directors

•  Charters of standing Board committees

 

Existing Strong Governance Structure

 

   Eight of ten directors are independent

   Lead Independent Director

   Separate Chairman and CEO roles

   Code of Ethics for Directors

   Standing committees are comprised solely of independent directors

 

   Annual Board and committee self-assessments

   Proxy access bylaw

   Majority voting in uncontested director elections

   Limits on annual director compensation

   Independent directors regularly meet without management present

 

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Voting Roadmap

This section highlights selected information about the items to be voted on at the annual meeting. It does not contain all information that you should consider in deciding how to vote. You should read the entire proxy statement carefully before voting.

 

Proposal

 

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Elect 4 Class III Director Nominees

 

 
see page 7   The Board recommends a vote FOR each nominee

 

         Independent    Director
Since
  Committees and Board
Leadership
 

Hassan M. Ahmed, Ph.D.

Former Chairman of the Board and Chief

Executive Officer of Affirmed Networks, Inc.

 

 

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   June 2020  

•   Compensation

•   Governance and Nominations

 

Bruce L. Claflin

Former President and Chief Executive

Officer of 3Com Corporation

 

 

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   August 2006  

•   Audit

•   Compensation

 

T. Michael Nevens

Senior adviser to Permira Advisers, LLC

 

 

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   February 2014  

•   Audit

 

Patrick T. Gallagher

Chairman of Harmonic Inc.

 

 

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   May 2009  

•   Lead Independent Director

•   Compensation

•   Governance and Nominations (Chair)

 

Proposal

 

 

 

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Approve the amendment and restatement of our Employee Stock Purchase Plan

 

 
see page 30   The Board recommends a vote FOR this proposal
 

 

   Promotes stock ownership culture and alignment of interest between our employees and stockholders

   Represents important compensation element for employee recruitment, retention and motivation

   Aligns with best practices and promotes broad-based, cross-border participation

 

Proposal

 

 

 

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Ratify PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal 2021

 

 
see page 33   The Board recommends a vote FOR this proposal
 

 

   Independent firm with reasonable fees and significant financial reporting expertise

   PwC has audited our consolidated financial statements annually since our incorporation in 1992

   Audit Committee annually evaluates PwC and has determined that its appointment continues to be in the best interests of our stockholders

 

Proposal

 

 

 

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Say-on-Pay: Advisory vote on named executive officer compensation

 

 
see page 72   The Board recommends a vote FOR this proposal
 

 

   At last year’s annual meeting, approximately 94% of stockholder votes cast were in favor of our executive compensation program

   The key elements of our executive compensation program remain essentially unchanged

   We employ core compensation principles and practices to promote pay for performance and alignment of executive and stockholder interests

   Our overall fiscal 2020 executive compensation was reasonable and appropriate in light of our business and financial performance

 

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Proposal No. 1

Election of Class III Directors

Overview

Our Board of Directors currently consists of ten directors divided into three classes. Each class of our Board of Directors serves a staggered three-year term. At the Annual Meeting, four directors will be elected to fill positions in Class III, whose term expires at the Annual Meeting. Hassan M. Ahmed, Ph.D., Bruce L. Claflin, Patrick T. Gallagher, and T. Michael Nevens, our current Class III directors, are nominees for election at the Annual Meeting. Each of the nominees for Class III, if elected, will serve for a three-year term expiring at the 2024 Annual Meeting, or until his successor is elected and qualified, or until such director’s earlier death, resignation or removal from the Board.

Effective June 30, 2020, the Board of Directors increased the size of the Board from nine to ten directors and appointed Dr. Ahmed to fill the newly created vacancy in Class III of the Board. Dr. Ahmed was initially identified as a possible candidate for Board service by our CEO and was subsequently recommended to the Board following a vetting process conducted by a third-party search firm engaged by the Board and the Governance and Nominations Committee In accordance with our bylaws, Dr. Ahmed’s term of office continues until this year’s Annual Meeting, the first annual meeting following his appointment.

The nomination of these directors to stand for election at the Annual Meeting has been recommended by the Governance and Nominations Committee and approved by the Board of Directors.

Director Qualifications

The Governance and Nominations Committee reviews candidates for service on the Board and recommends nominees for election to fill vacancies on the Board of Directors, including nomination for re-election of directors whose terms are due to expire. The Governance and Nominations Committee endeavors to identify, recruit and nominate candidates who possess a combination of wisdom, sound judgment, excellent business skills, maturity and high integrity. In particular, the Governance and Nominations Committee seeks individuals with a record of accomplishment and senior leadership experience in their chosen fields who display the independence of mind and strength of character to be committed to representing the long-term interests of various stakeholders, including our stockholders, customers, partners, employees and community.

The Governance and Nominations Committee also seeks to ensure that the Board of Directors is composed of individuals of diverse backgrounds, including with respect to gender, ethnicity, race, nationality and age, who have a variety of complementary experience, skills and relationships relevant to Ciena’s business and industry. This diversity of background and experience includes ensuring that the Board includes individuals with experience or skills sufficient to meet the requirements of the various rules and regulations of The New York Stock Exchange (the “NYSE”) and the SEC, such as the requirements to have a majority of independent directors and an audit committee financial expert. As required by the Governance and Nominations Committee Charter, the Committee has developed and uses criteria for maintaining a balanced board of directors representing a diversity of characteristics and recommends criteria, establishes procedures for, and conducts an annual review of the Board and the diversity and other characteristics of individual directors and reports to the Board on the results of the review.

In nominating candidates to fill vacancies created by the expiration of the term of a director, the Governance and Nominations Committee determines whether the incumbent director is willing to stand for re-election. If so, the Governance and Nominations Committee evaluates his or her performance to determine suitability for continued service, taking into consideration, among other things, each director’s contributions to the Board, the value of the continuity of his or her service, and the individual’s familiarity with Ciena’s markets, business and operations.

 

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Board Composition and Diversity

 

Skills and

Experience

    

Board Tenure

Non-Executive Directors

 

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0 to 3

Years

 

 

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4 to 12

Years

 

 

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13+

Years

 

 

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Independence and Diversity

 

 

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The above charts reflect information for all nominees and continuing directors. Each of the nominees has consented to serve if elected. However, if any of the persons nominated by the Board of Directors fails to stand for election, or declines to accept election, or is otherwise unavailable for election prior to our Annual Meeting, proxies solicited by our Board of Directors will be voted by the proxy holders for the election of any other person or persons as the Board of Directors may recommend, or our Board of Directors, at its option, may reduce the number of directors that constitute the entire Board of Directors.

 

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Information Regarding Nominees and Continuing Directors

Director Nominees

Class III Director Nominees with Terms Expiring in 2024

 

Hassan M. Ahmed, Ph.D.

    
 

 

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Director Since June 2020

 

  Compensation Committee

  Governance and Nominations Committee

 

Age 62

 

Other Public Boards: 0

 

 

 

Skills and Qualifications

 

   Prior service as a Chief Executive Officer of a technology company in an adjacent space provides the Board with a high level of expertise and experience in our industry

   Provides the Board with strategic insights across a range of corporate functions

   Previous management and oversight experience within the industry

   Significant industry knowledge and expertise in NFV solutions

 

Other Current Board Experience

 

   Oxefit, Inc. (private)

   Vesper Technologies, Inc. (private)

 

Previous Board Experience

 

   Affirmed Networks, Inc., Chairman

  

 

Professional Highlights

 

Dr. Ahmed most recently served as Chairman of the Board and Chief Executive Officer of Affirmed Networks, Inc., which was acquired by Microsoft in April 2020. Before founding Affirmed Networks, Inc. in 2010, he was a senior advisor at Charles River Ventures. From 1998 to 2008, Dr. Ahmed served as Chairman and Chief Executive Officer of Sonus Networks, Inc. Prior to that time, he served in various executive roles at Ascend Communications, Inc., Cascade Communications Corporation and Analog Devices, Inc.. He also served as President and founder of WaveAccess, Inc. and founded and served as director of the VLSI Systems Group of Motorola Codex. Dr. Ahmed previously served as Associate Professor of Electrical, Computer and Systems Engineering and Associate Professor of Finance at Boston University.

 

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Bruce L. Claflin

    
 

 

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Director Since August 2006

 

  Audit Committee

  Compensation Committee

 

Age 69

 

Other Public Boards: 1

 

 

 

Skills and Qualifications

 

   Prior service as a Chief Executive Officer of a technology company in an adjacent industry provides the Board with a high level of expertise and experience in the operations of a global, high technology company

   Provides the Board with strategic insights across a range of corporate functions

   Previous management and oversight experience relating to sales, marketing, research and development, supply chain management and manufacturing

   Experience in international business transactions, risk management, executive compensation and a business-oriented approach to resolving operational challenges

   Service as a fellow on the National Association of Corporate Directors and as a director of a public technology company

 

Other Current Board Experience

 

   IDEXX Laboratories, Inc., Chair of the Nominating and Governance Committee (public)

  

 

Previous Board Experience

 

   Advanced Micro Devices, Inc. (AMD)

 

Professional Highlights

 

Mr. Claflin served as President and Chief Executive Officer of 3Com Corporation from January 2001 until his retirement in February 2006. Mr. Claflin joined 3Com as President and Chief Operating Officer in August 1998. Prior to 3Com, Mr. Claflin served as Senior Vice President and General Manager, Sales and Marketing, for Digital Equipment Corporation. Mr. Claflin also worked for 22 years at IBM Corporation, where he held various sales, marketing and management positions, including general manager of IBM PC Company’s worldwide research and development, product and brand management, as well as president of IBM PC Company Americas.

 

T. Michael Nevens

    
 

 

LOGO

 

Director Since February 2014

 

  Audit Committee

 

Age 71

 

Other Public Boards: 1

 

 

 

Skills and Qualifications

 

   Substantial experience with and exposure to a wide variety of companies and their corporate strategies, both as a private equity adviser and management consultant, provides the Board with expertise in the areas of strategic and long-term business planning and competitive strategy

   Provides the Board with insight on corporate governance changes affecting public companies

   Experience as a director of other global, high technology companies

 

Other Current Board Experience

 

   NetApp, Inc., Chairman (public)

 

Previous Board Experience

 

   Altera Corporation

  

 

Professional Highlights

 

Since 2006, Mr. Nevens has served as senior adviser to Permira Advisers, LLC, an international private equity fund. From 1980 to 2002, Mr. Nevens held various leadership positions at McKinsey & Co., most recently as a director (senior partner) and as managing partner of the firm’s Global Technology Practice. He also served on the board of the McKinsey Global Institute, which conducts research on economic and policy issues. Mr. Nevens has been an adjunct professor of Corporate Governance and Strategy at the Mendoza College of Business at the University of Notre Dame.

 

10   LOGO     2021 Proxy Statement


Patrick T. Gallagher

    
 

 

LOGO

 

Director Since May 2009

 

  Lead Independent Director

  Compensation Committee

  Governance and Nominations Committee (Chair)

 

Age 66

 

Other Public Boards: 1

 

 

 

Skills and Qualifications

 

   Extensive international business experience provides the Board with expertise and an important perspective regarding international transactions and markets

   Experience as a senior executive of major European telecommunications service providers offers the Board insight into carrier customer perspectives as well as industry opportunities, marketing and sales strategies and operational challenges outside of the United States

   Industry knowledge and prior management expertise provide the Board with significant industry knowledge and expertise in submarine and wireless network applications and strategic growth market opportunities for Ciena

   Experience as a public company director in both the U.S. and Europe provides strong background as lead independent director and Chair of the Governance and Nominations Committee

  

 

Other Current Board Experience

 

   Harmonic, Inc., Chairman (public)

   Intercloud SAS, Chairman (private)

   Mirabeau SAS, Chairman (private)

 

Previous Board Experience

 

   Sollers JSC

 

Professional Highlights

 

Since October 2007, Mr. Gallagher has served as Chairman of Harmonic Inc., a global provider of high-performance video solutions to the broadcast, cable, telecommunications and managed service provider sectors. From March 2008 until April 2012, Mr. Gallagher was Chairman of Ubiquisys Ltd. From January 2008 until February 2009, Mr. Gallagher was Chairman of Macro 4 plc, and from May 2006 until March 2008, served as Vice Chairman of Golden Telecom Inc. From 2003 until 2006, Mr. Gallagher was Executive Vice Chairman and served as Chief Executive Officer of FLAG Telecom Group Ltd. and, prior to that role, held various senior management positions at British Telecom.

Continuing Directors

Class I Directors with Terms Expiring in 2022

 

Lawton W. Fitt

    
 

 

LOGO

 

Director Since November 2000

 

  Audit Committee (Chair)

 

Age 67

 

Other Public Boards: 3

 

 

 

Skills and Qualifications

 

   Substantial investment banking experience and expertise in structuring and negotiating acquisition and financing transactions

   Understanding of the capital markets

   Brings a strong financial background to her service as Chair of the Audit Committee

   Significant experience in the areas of raising capital, financial oversight and enterprise risk analysis

   Executive management experience

   Service as a director and member of the audit committee of other companies

 

Other Current Board Experience

 

   The Carlyle Group Inc. (public)

   Micro Focus International PLC (public)

   The Progressive Corporation, Chairperson (public)

 

  

 

Previous Board Experience

 

   ARM Holdings PLC

   Thomson Reuters Corporation

 

Professional Highlights

 

From October 2002 to March 2005, Ms. Fitt served as Director of the Royal Academy of Arts in London. From 1979 to October 2002, Ms. Fitt was an investment banker with Goldman Sachs & Co., where she was a partner from 1994 to October 2002.

 

LOGO     2021 Proxy Statement   11


Devinder Kumar

    
 

 

LOGO

 

Director Since August 2019

 

  Audit Committee

 

Age 64

 

Other Public Boards: 0

 

 

 

Skills and Qualifications

 

   Strong financial background including as Chief Financial Officer of a public company

   Senior leadership experience managing a global finance organization, global corporate services and facilities

   International and global experience with a multinational organization, including time spent in Asia

   More than 35 years in the technology industry

 

  

 

Professional Highlights

 

Mr. Kumar currently serves as Senior Vice President, Chief Financial Officer and Treasurer of Advanced Micro Devices, Inc., in which capacity he is responsible for Advanced Micro Devices, Inc.’s global finance organization as well as global corporate services and facilities. He was appointed Chief Financial Officer in January 2013 and Treasurer in April 2015.

 

Patrick H. Nettles, Ph.D.

    
 

 

LOGO

 

Director Since April 1994

 

  Executive Chairman

 

Age 77

 

Other Public Boards: 1

 

 

 

Skills and Qualifications

 

   Founder and former Chief Executive Officer of Ciena

   Significant institutional and industry knowledge

   Provides key insight and advice in the Board’s consideration and oversight of corporate strategy and management development

   Experience as a public company director

   Executive management experience with Ciena, along with operational management experience and technical expertise, provide the Board a unique perspective and enable him to make significant contributions to the Board

 

Other Current Board Experience

 

   The Progressive Corporation (public)

   Trustee for the California Institute of Technology

 

  

 

Previous Board Experience

 

   Axcelis Technologies, Inc., Independent Chairman of the board

   Apptrigger, Inc.

   Optiwind Corp.

   Trustee for the Georgia Tech Foundation, Inc.

 

Professional Highlights

 

Dr. Nettles has served as Executive Chairman of the Board of Directors since May 2001. From October 2000 to May 2001, Dr. Nettles was Chairman of the Board of Directors and Chief Executive Officer of Ciena, and he was President and Chief Executive Officer from April 1994 to October 2000.

 

12   LOGO     2021 Proxy Statement


Class II Directors with Terms Expiring in 2023

 

Judith M. O’Brien

    
 

 

LOGO

 

Director Since July 2000

 

  Compensation Committee (Chair)

  Governance and Nominations Committee

 

Age 70

 

Other Public Boards: 0

 

 

 

Skills and Qualifications

 

   Experience working in a private law firm focused on technology companies

   Service as a venture capital professional and as in-house general counsel

   Important perspective with respect to the overall technology sector and in identifying and assessing legal and regulatory risks

   Expertise in assessing and structuring strategic transactions, including capital raising opportunities, intellectual property matters, acquisitions, joint ventures and strategic alliances

   Brings extensive knowledge and experience in the areas of executive compensation and corporate governance to her service as Chair of the Compensation Committee and her membership on the Governance and Nominations Committee

 

Other Current Board Experience

 

   MagicCube, Inc., Chairman (private)

   Theatro Labs, Inc. (private)

   LightDeck Diagnostics, Inc. (private)

 

  

 

Previous Board Experience

 

   Adaptec, Inc.

   Inform, Inc.

 

Professional Highlights

 

From November 2012 until her retirement in December 2019, Ms. O’Brien served as a partner and head or co-head of the Emerging Company Practice Group at the law firm of King & Spalding LLP. Ms. O’Brien served as Executive Vice President and General Counsel of Obopay, Inc., a provider of mobile payment services, from November 2006 through December 2010. From February 2001 until October 2006, Ms. O’Brien served as a Managing Director at Incubic Venture Fund, a venture capital firm. From August 1980 until February 2001, Ms. O’Brien was a lawyer with Wilson Sonsini Goodrich & Rosati, where, from February 1984 to February 2001, she was a partner specializing in corporate finance, mergers and acquisitions, and general corporate matters.

 

Joanne B. Olsen

    
 

 

LOGO

 

Director Since October 2018

 

  Compensation Committee

  Governance and Nominations Committee

 

Age 62

 

Other Public Boards: 2

 

 

 

Skills and Qualifications

 

   Significant industry experience and knowledge of cloud infrastructure applications

   Senior leadership experience with large, multinational technology companies

   International business experience and insight into doing business in key international markets

   Executive management experience across a range of sales, services and alliances

   Experience as a public company director

 

Other Current Board Experience

 

   Teradata Corporation (public)

   Keysight Technologies, Inc. (public)

 

  

 

Professional Highlights

 

Ms. Olsen previously served as Executive Vice President of Global Cloud Services and Support at Oracle Corporation from 2016 until her retirement in August 2017. In that role, she drove Oracle’s cloud transformation services and support strategy, partnering with leaders across all business units. Ms. Olsen previously served as Senior Vice President and leader of Oracle’s applications sales, alliances, and consulting organizations in North America from 2012 through 2016, and from 2010 through 2012 served in various general management positions at Oracle. Ms. Olsen began her career with IBM, where, between 1979 and 2010, she held a variety of executive management positions across sales, global financing and hardware.

 

LOGO     2021 Proxy Statement   13


Gary B. Smith

    
 

 

LOGO

 

Director Since October 2000

 

Age 60

 

Other Public Boards: 1

 

 

 

Skills and Qualifications

 

   As Chief Executive Officer of Ciena for over 19 years, provides the Board with leadership skills, industry experience and comprehensive knowledge of Ciena’s business, strategy, operations and financial position

   Unique perspective on the strategic and operational challenges and opportunities faced by Ciena

   Almost 30 years of experience in the telecommunications industry, during which time he has lived and worked on four continents

   Global industry sales and marketing experience provide the Board an important perspective into Ciena’s markets and business and selling strategies

 

Other Current Board Experience

 

   CommVault Systems, Inc. (public)

 

Previous Board Experience

 

   Avaya, Inc.

 

  

 

Professional Highlights

 

Mr. Smith joined Ciena in 1997 and has served as President and Chief Executive Officer since May 2001. Prior to his current role, his positions with Ciena included Chief Operating Officer and Senior Vice President, Worldwide Sales. Mr. Smith previously served as Vice President of Sales and Marketing for INTELSAT and Cray Communications, Inc.

 

Mr. Smith is a member of the President’s National Security Telecommunications Advisory Committee; serves on the Wake Forest University Advisory Council for the Center for Innovation, Creativity and Entrepreneurship; and participates in initiatives with the Center for Corporate Innovation.

 

 

Proposal No. 1 — Recommendation of the Board of Directors

 

 

 

The Board of Directors recommends that you vote

FOR

the election of the four Class III nominees listed above

 

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Corporate Governance and the Board of Directors

Ciena has adopted a number of policies and practices that highlight our commitment to sound corporate governance principles and sustainability. We maintain a corporate governance page on our website that includes additional related information, as well as governance documents such as our bylaws, codes of conduct, principles of corporate governance, and the charters for each of the standing committees of the Board of Directors. This information and documentation can be found on the “Governance” page of the “Investors” section of our website at www.ciena.com.

Independent Directors

In accordance with the current NYSE listing standards, the Board of Directors, on an annual basis, affirmatively determines the independence of each director or nominee for election as a director. The Board of Directors has determined that, with the exception of Dr. Nettles and Mr. Smith, both of whom are employees and executive officers of Ciena, all of its members during fiscal 2020 are or during their tenure were “independent directors,” using the definition of that term in the NYSE listed company manual. Also, as more fully described below, all members of the Board’s standing Audit, Compensation and Governance and Nominations Committees are independent directors, and all members of the Board’s standing Audit and Compensation Committees are independent directors in accordance with the additional listing standards applicable to those committees.

Communicating with the Board of Directors

The Board of Directors has adopted a procedure for receiving and addressing communications from all interested parties, including Ciena’s stockholders. Interested parties may send written communications to the entire Board of Directors (or any committee thereof), Ciena’s Lead Independent Director, or all of the independent directors serving on the Board, by addressing communications to:


Ciena Corporation

7035 Ridge Road

Hanover, Maryland 21076

Attention: Corporate Secretary

Please address any communication by e-mail to ir@ciena.com with “Attention: Corporate Secretary” in the subject line.

Our General Counsel serves as Corporate Secretary and determines, in his discretion, whether the nature of the communication is such that it should be brought to the attention of the Board of Directors or a committee thereof, the Lead Independent Director, or all of the independent directors. As a general matter, the Corporate Secretary does not forward spam, junk mail, mass mailings, job inquiries, surveys, business solicitations or advertisements, or offensive or inappropriate material.

Environmental, Social and Governance Practices

Our corporate social responsibility practices are designed to help position Ciena as a supplier of choice to our customers, an employer of choice to our existing and prospective employees, and a neighbor of choice in our communities around the globe. Though our practices are broad and evolve over time, we continue to focus on our people and culture, environmental stewardship, community outreach and support, and strong corporate governance. Highlights of our current practices in these areas are described below.

 

       

 

LOGO         

   LOGO    LOGO            LOGO

 

   People & Culture        

  

 

  Environmental &
  Sustainability

 

  

 

    Community Outreach &
    Support

 

 

 

        Corporate Governance

 

LOGO     2021 Proxy Statement   15


 

   LOGO

  

 

People & Culture

 

Our “People Promise,” launched in fiscal 2020, focuses on fostering a workplace environment where our employees are empowered, feel included and have an opportunity to make a difference through their work at Ciena. In so doing, we seek to cultivate for employees a culture of vibrancy, belonging and happiness, while enabling us to be an attractive employer of choice within our markets. Our “people strategy” is annually reviewed by and discussed with our Board.

 

   

 

Employee Wellbeing and Engagement

 

We prioritize supporting the overall wellbeing of our employees from a physical, emotional, financial and social perspective.

 

•   regular broad employee satisfaction surveys (ESAT)

•   pulse surveys on specific issues

•   promote environment where employees are engaged, satisfied, productive, and possess a strong understanding of business goals

•   long-standing practice of remote and flexible working arrangements

•   flexible paid time off in the U.S. and Canada

•   life planning and retirement readiness programming

•   wellness platforms and expense reimbursement benefits

•   fitness challenges and rewards

•   24x7 crisis support and employee assistance program

•   mental health coaching

 

Diversity and Inclusion

 

We promote an inclusive and diverse workplace, where all individuals are respected and feel they belong regardless of their age, race, national origin, gender, religion, disability, sexual orientation or gender identity.

 

•   recruiting outreach to extend diverse representation

•   internal networking and resource groups include our Women@Ciena group, Black & African Heritage group, and Pride@Ciena LGBT+ group

•   new dedicated function focused on Diversity, Inclusion & Belonging initiatives

•   inclusivity networks

•   mentoring programs

 

Growth and Development

 

We focus on creating opportunities for employee growth, development, training and education.

 

•   “Inside First” initiatives look at opportunities to cultivate talent for new roles from within

•   “Ciena Next” program for early in career employees and new graduate hiring

•   management and leadership development programs

•   mentoring programs

•   employee learning and training initiatives

•   support for continuing education through tuition reimbursement

 

  

 

Competitive Compensation and Pay Equity

 

We strive to ensure that our employees receive competitive, fair and transparent compensation and innovative benefits offerings.

 

•   gender pay fairness assessments

•   incentives tied to business and individual performance

•   competitive parental, caregiver, and adoption leave

•   meaningful retirement benefits

•   employee stock purchase plan

•   equity compensation pushed deeper into the organization in fiscal 2019 and 2020

 

Employee Recognition

 

We believe that providing rewards and recognition programs helps drive strong employee performance.

 

•   annual “Spirit of Ciena” awards to recognize employees who best exemplify Ciena’s core values

•   “bravo” and “applause” programs for spot awards and recognition of employee contributions throughout the year

•   patent incentive and distinguished engineer awards

•   “Ciena Cares” awards recognizing employees and teams who exemplify our commitment to communities and volunteerism

 

   
  

 

COVID-19 Response

 

We have been prioritizing the safety and wellbeing of our employees during this unprecedented period, including:

 

•   temporary office closures around the world, with limited exceptions for employees in certain roles

•   large-scale employee work from home arrangements on a regular basis

•   instituted travel bans and restrictions

•   meaningful precautions in accordance with CDC and relevant guidelines

•   new employee benefits and wellbeing initiatives

•   physical, emotional, mental, and social programming

•   global pandemic leave

•   work from home reimbursement benefit

•   new wellbeing platforms, including regular mental wellbeing sessions and morale initiatives

•   comprehensive set of global site reopening guidelines

 

   
      
      

 

Recognition

 

   

•   “Great Place to Work” certified in the U.S., India, and Canada

 

  

•   Recognized as one of Fortune’s “Most Admired Companies” in each year, 2017 through 2021

 

   

 

16   LOGO     2021 Proxy Statement


 

   LOGO

  

 

 

Environmental & Sustainability

 

We believe sustainability is more than a corporate responsibility – it is a fundamental part of our strategy and key to achieving our goals and success in our markets.

 

 

Sustainability in Our Products and Suppliers

 

Our technology innovation reduces the environmental impact of network infrastructures in a time of significant traffic and service expansion.

 

•   our WaveLogic coherent modem solutions have yielded immense contributions to sustainability for over 10 years:

•   through the end of fiscal 2019, energy efficient product innovation related to our first four generations of this technology has helped network operators avoid over three million metric tons of CO2 emissions

•   WaveLogic 5 extreme, launched in fiscal 2020, yields a 50 percent improvement in power and floorspace per bit as compared to our fourth generation WaveLogic Ai solution

•   member of the Responsible Business Alliance (“RBA”)

•   we have adopted, and seek to ensure that our key direct suppliers adopt, the standards and principles set forth in the RBA Code of Conduct

•   TL9000 certified product lifecycle management process

•   sustainability assessments with suppliers representing significant spend

•   supplier diversity program

•   engagement with key customers on sustainability opportunities in products and fulfillment

 

 

 

Climate Change

 

Addressing climate change is a priority at Ciena. Mitigating climate risks and reducing our greenhouse gas (GHG) emissions are integrated into our long-term strategic planning and operations management.

 

•   committed to be carbon neutral across our global operations by 2023

•   participate in CDP climate change and water disclosures

•   partnered with Tree-Nation to offset certain operational emissions by planting a tree for each employee at Ciena

•   rapid adoption of flexible and remote working and collaborative tools

•   pursuing opportunities to reduce water, light and power consumption in our offices worldwide

•   5 locations LEED certified or certifiable

 

Reporting and Recognition

 

•   RBA / Responsible Minerals Initiative / TIA sustainability membership

•   Published initial Corporate Social Responsibility (“CSR”) Report in December 2018

 

 

 

•   AT&T Diversity Supplier Award

•   Completed global Environment, Health and Safety Management System Certification

•   Platinum rating by EcoVadis

 

 

 

LOGO     2021 Proxy Statement   17


 

 

   LOGO

 

 

 

Community Outreach & Support

 

We believe it is important to give back and promote community outreach and support through corporate giving, charitable matching, and robust employee volunteerism in the communities in which we live and work.

 

 

Encourage Opportunities to Volunteer Time

 

We support and encourage our employees’ passion for giving back to the community through Ciena Cares, our comprehensive, best-in-class community program.

 

•   local “Ciena Cares Champions” across the globe promote engagement in our communities

•   volunteering time off and flexible volunteering during work time

•   matching rewards for volunteer hours served provide further charity benefits that can be directed by employees

•   joint community projects with customers and business partners

•   opportunities for employees to volunteer in person or virtually

 

Charitable Donation Matching

 

We believe it is important to invest resources to positively impact the communities in which we live and work.

 

•   online charitable giving portal to promote employee donation and corporate matching program

•   new employee stipend to donate to their favorite charities

•   up to $5,000 annual matching for employee donations

 

 

Support for Employees

 

We offer support to employees through:

 

•   disaster relief programs for employees, customers and natural disaster response

•   support for STEM education

 

   
 

 

COVID-19 Response

 

We and our global workforce have undertaken a range of volunteering and charitable actions to support our neighbors, communities and front-line health care workers during this challenging time.

 

•   enhanced by three times our corporate charitable matching program for employee donations and volunteering

•   donated personal protective equipment

•   3-D printed and designed face shields and components for health care workers

•   created new community initiative focused on promoting digital inclusion and providing greater opportunities for underserved students through access, technology and digital skills

•   have undertaken joint community projects with business partners as part of the digital inclusion program

 

   
         

We maintain a Corporate Social Responsibility Policy and an Environmental, Health and Safety Policy which, along with our CSR Report, can be found on the “Corporate social responsibility” page of the “About us” section of our website, and additional information about our people promise can be found on the “CienaLife” page of the “About us” section of our website at www.ciena.com.

 

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   LOGO

  

 

Corporate Governance

We believe that good corporate governance and high ethical standards are a duty that we owe to our investors, customers and employees, and are essential to Ciena’s success.

 

 

Board of Directors

 

Refreshment

 

•  appointed new independent director in each of the past four years

•  appointed new Lead Independent Director and Chair of Governance and Nominations Committee in 2017

•  reduced average tenure of non-employee directors from 12.1 to 9.7 years from end of fiscal 2016 to end of fiscal 2020

 

Gender and Diversity

 

•  three female directors

•  two ethnically diverse directors

•  two of three Board committee chairs are female

 

Compensation

 

•  maintain limits on annual compensation for non-employee directors

 

 

Commitment to Investors

 

Outreach and Engagement

 

•  regular outreach to stockholders on business and financial performance and industry dynamics

•  outreach to stockholders on our environmental, social and governance practices, including executive compensation, in fiscal 2019

 

Return of Capital and Dilution

 

•  $500 million share repurchase program (temporarily paused in March 2020 due to COVID-19 related considerations and resumed in December 2020)

•  repurchase and retire shares to satisfy tax withholding on vesting of employee equity awards

 

Adopted Proxy Access and Majority Vote in Uncontested Elections

 

 

 

Strong Governance

 

Stock Ownership Guidelines

 

•  strong minimum ownership requirements for directors and officers, including 5x base salary for CEO and 5x cash retainer for non-employee directors

•  50% holding requirement until relevant minimum ownership level is achieved

 

Corporate Governance Vehicles

 

•  annually update Code of Ethics for Directors

•  annually update Principles of Corporate Governance

•  annually refresh all Board Committee Charters

 

Created new dedicated Corporate Compliance & Ethics function in 2020

Principles of Corporate Governance, Bylaws and Other Governance Documents

The Board of Directors has adopted Principles of Corporate Governance and other corporate governance policies that supplement certain provisions of our bylaws and relate to the composition, structure, interaction and operation of the Board of Directors. Copies of our Principles of Corporate Governance, bylaws, stock ownership guidelines and other governance documents can be found on the “Governance” page of the “Investors” section of our website at www.ciena.com. You should review these documents for a complete understanding of these corporate governance practices, but some of the key elements of our strong governance policies and practices are summarized below:

 

    Proxy access

provision in our bylaws by which eligible stockholders may nominate director candidates for inclusion in our proxy statement and proxy card

 

    Majority vote standard

in uncontested director elections with a mandatory resignation policy that requires incumbent directors and nominees to submit an irrevocable resignation that becomes effective upon the failure to receive a majority vote and the Board’s acceptance of the resignation

 

    “Overboarding” and service on other boards

limited to three other public companies for directors not serving as an executive officer of a public company, and one other public company for a director serving as an executive officer of a public company

 

    Changes affecting independence

including a change to a director’s principal occupation, require the director to tender resignation and Board to consider whether to accept the director’s resignation

 

    No term limits or mandatory retirement age

to allow the skill set and perspectives of the Board’s members to remain sufficiently current and broad in dealing with current and changing business dynamics

 

    Robust annual assessment process

to address refreshment and ensure that our Board and its committees are performing effectively and in the best interests of Ciena and its stockholders

    Stock ownership guidelines

require our executive officers and directors to hold shares as follows:

 

   
Position  

Stock Ownership

Requirement

CEO

  5x base salary

Executive Chairman

  5x base salary

Executive Officers

  2x base salary

Non-Employee Directors

  5x cash retainer

 

    Prohibition against pledging Ciena securities and hedging transactions

for all employees and directors, in accordance with Ciena’s Insider Trading Policy

 

    Term limit for directors elected to fill vacancies

from the period from election by the Board until the first annual meeting following election

 

    Executive sessions

of independent directors meet regularly without employee-directors or other executive officers present

 

    Outside advisors and consultants

may be retained by the Board or its committees at their discretion and at Ciena’s expense, without consent of management

 

 

 

 

LOGO     2021 Proxy Statement   19


Codes of Ethics

Code of Business Conduct and Ethics

We maintain a Code of Business Conduct and Ethics that sets standards of conduct for all of Ciena’s directors, officers and employees. The Code of Business Conduct and Ethics reflects Ciena’s policy of dealing with all persons, including our customers, employees, investors, and suppliers, with honesty and integrity. All new employees are required to complete training on our Code of Business Conduct and Ethics, and we conduct recurring employee affirmations with respect to our Code of Business Conduct and Ethics and periodic training and communication related to specific topics contained therein.

Code of Ethics for Directors

We maintain a Code of Ethics for Directors, which supplements the obligations of directors under the Code of Business Conduct and Ethics and sets additional standards of conduct for our directors. The Code of Ethics for Directors outlines responsibilities of our directors with respect to their fiduciary duties, conflicts of interest, treatment of confidential Ciena information, communications and other compliance matters.

Code of Ethics for Senior Financial Officers

In accordance with the Sarbanes-Oxley Act of 2002, we maintain a Code of Ethics for Senior Financial Officers that specifically applies to Ciena’s Chief Executive Officer, Chief Financial Officer and Controller. Its purpose is to deter wrongdoing and to promote honest and ethical conduct, and compliance with the law, particularly as it relates to the maintenance of Ciena’s financial records and the preparation of financial statements filed with the SEC.

Each of these documents can be found on the “Governance” page of the “Investors” section of our website at www.ciena.com. Copies of these documents may also be obtained without charge by writing to: Ciena Corporation, 7035 Ridge Road, Hanover, Maryland 21076, Attention: Corporate Secretary.

Board Leadership Structure

Lead Independent Director

Mr. Gallagher serves as Ciena’s Lead Independent Director. The Lead Independent Director is responsible for coordinating the activities of the other independent directors and has the authority to preside at all meetings of the Board of Directors at which the Executive Chairman is not present, including executive sessions of the independent directors. The Lead Independent Director serves as principal liaison on Board-wide issues between the independent directors and the Executive Chairman, approves meeting schedules and agendas and monitors the quality of information sent to the Board. The Lead Independent Director may also recommend the retention of outside advisors and consultants who report directly to the Board of Directors. If requested by stockholders and as appropriate, the Lead Independent Director will also be available, as the Board’s liaison, for consultation and direct communication. The Lead Independent Director also assists the Governance and Nominations Committee in guiding both the Board’s annual self-assessment and the CEO succession planning process.

Separation of Chairman and CEO Roles

Although the Board of Directors does not have a formal policy on separation of the roles of Chief Executive Officer and Chairman, Ciena has kept these positions separate since 2001. Separating the Executive Chairman and Chief Executive Officer roles allows us efficiently to develop and implement corporate strategy that is consistent with the Board’s oversight role, while facilitating strong day-to-day executive leadership. Mr. Smith currently serves as Chief Executive Officer and Dr. Nettles, who served as Chief Executive Officer until Mr. Smith assumed that role in 2001, serves as Executive Chairman.

The Board believes that its leadership structure is appropriate for Ciena. Through the role of the Lead Independent Director, the independence of the Board’s committees, and the regular use of executive sessions of the independent directors, the Board is able to maintain independent oversight of our business strategies, annual operating plan and other corporate activities. These features, together with the role and responsibilities of the Lead Independent Director described above, ensure a full and free discussion of issues that are important to Ciena and its stockholders. At the same time, the Board is able to take advantage of the unique blend of leadership, experience and knowledge of our industry and business that Dr. Nettles brings to the role of Executive Chairman.

 

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Board Oversight of Strategy

The Board of Directors believes that it is important to be deeply involved in overseeing and reviewing Ciena’s short- and long-term strategy. The Board oversees and reviews Ciena’s long-term strategic plan, annual operating plan, and strategy and approach toward environmental, social and governance matters. Because employee engagement, development and retention are critical elements of our strategy, the Board annually reviews our “people strategy,” a comprehensive overview of compensation, benefits, support for employees, growth and development opportunities, inclusion and diversity. Strategy-related matters are discussed regularly at Board meetings, as well as at the Committee level when appropriate. Such matters include:

 

 

Long-term financial targets

 

Three-year strategic plan

 

Annual financial and operating plan

 

Key functional strategic initiatives

 

Corporate development and strategic transactions

 

Alignment of executive compensation with strategic and operating goals

 

Human capital, talent management strategy and succession planning

Board Oversight of Risk

The Board of Directors believes that risk management is an important part of establishing, updating and executing Ciena’s business strategy. The Board, as a whole and at the committee level, has oversight responsibility relating to risks that could affect the corporate strategy, business objectives, compliance, operations and the financial condition and performance of the company. The Board focuses its oversight on the most significant risks facing Ciena and on its processes to identify, prioritize, assess, manage and mitigate those risks.

With respect to fiscal 2020, the Board played an important oversight role in Ciena’s business continuity planning and execution in the face of the COVID-19 pandemic, including overseeing the management by our executive team of risks relating to employees and benefits, health and safety, research and development, supply chain, services and fulfillment, IT operations and financial controls.

The Board also annually reviews and considers Ciena’s long-term strategic plan, its annual financial and operating plan, and its enterprise risk management program. The Board and its committees also receive regular reports from members of senior management on areas of material risk to the company, including strategic, operational, financial, legal and regulatory risks. While the Board has an oversight role, management is principally tasked with direct responsibility for management and assessment of risks and the implementation of processes and controls to mitigate their effects on the company.

The Board’s leadership structure, with a Lead Independent Director, separate Executive Chairman and CEO, independent Board committees with strong Chairs, the active participation of committees in the oversight of risk, and open communication with management, supports the risk oversight function of the Board. Each standing committee of the Board has risk oversight responsibilities and provides regular reports to the Board on at least a quarterly basis, as more fully described below under “Composition and Meetings of the Board of Directors and its Committees.”

 

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Composition and Meetings of the Board of Directors and its Committees

The table below details the composition of Ciena’s standing Board committees as of the end of fiscal 2020 and the number of Board and committee meetings held during fiscal 2020. Mr. Smith and Dr. Nettles do not serve on standing committees of the Board of Directors.

 

Name   Class    Principal Occupation   Independent     Committee
Memberships
  Other
  Current  
Public
Boards
  AC   CC   GNC

  Hassan M. Ahmed, Ph.D.

 

III (2021)

  

Former CEO, Affirmed Networks, Inc.

   

 

LOGO

 

 

 

   

 

 

0

  Bruce L. Claflin

 

III (2021)

  

Former CEO, 3Com Corporation

 

 

 

LOGO

 

 

 

 

 

   

1

  Lawton W. Fitt

 

  I (2022)

  

Chairperson, The Progressive Corporation

 

 

 

LOGO

 

 

 

 

     

3

  Patrick T. Gallagher

 

III (2021)

  

Chairman, Harmonic, Inc.

 

 

 

LOGO

 

 

 

   

 

 

1

  Devinder Kumar

 

  I (2022)

  

SVP, CFO and Treasurer, Advanced Micro Devices, Inc.

 

 

 

LOGO

 

 

 

 

     

0

  Patrick H. Nettles, Ph.D.

 

  I (2022)

  

Executive Chairman, Ciena Corporation

         

1

  T. Michael Nevens

 

III (2021)

  

Senior Advisor, Permira Advisors, LLC

 

 

 

LOGO

 

 

 

 

     

1

  Judith M. O’Brien

 

 II (2023)

  

Former Partner, King & Spalding LLP

 

 

 

LOGO

 

 

 

   

 

 

0

  Joanne B. Olsen

 

 II (2023)

  

Former EVP Global Cloud Services & Support, Oracle Corporation

 

 

 

LOGO

 

 

 

   

 

 

2

  Gary B. Smith

 

 II (2023)

  

CEO, Ciena Corporation

         

1

  Fiscal 2020 Meetings

 

 

Board: 8

 

 

8

 

8

 

7

   
                                  

Chairperson

Each of our directors attended 100% of the total number of meetings of the Board of Directors and the committees on which he or she served during fiscal 2020. Ciena encourages, but does not require, members of the Board of Directors to attend the Annual Meeting, and all of Ciena’s then nine directors participated in the virtual Annual Meeting last year.

The Board of Directors has three standing committees: the Audit Committee, the Compensation Committee and the Governance and Nominations Committee. Each committee meets regularly and has a written charter that can be found on the “Governance” page of the “Investors” section of our website at www.ciena.com. At each regularly scheduled Board meeting, the Chair or a member of each committee reports on any significant matters addressed by the committee.

Partly as a result of COVID-19’s impact on in-person meetings in fiscal 2020, the Board of Directors recently collaborated with management to develop and approve a revised approach to its annual meeting calendar and engagement framework for fiscal 2021 and beyond, including an increased number of meetings of shorter duration. The revised calendar is designed to operate in either a hybrid (virtual and physical) model or a fully virtual and remote environment, and is intended to enable more frequent engagement between the Board and management, optimize the productivity and efficiency of Board operations, and space out work for the Board and management throughout the year

 

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Audit Committee

 

Chair

 

 

Members

Lawton W. Fitt                       

Devinder Kumar

Bruce L. Claflin

T. Michael Nevens

 

 

Qualifications, as determined by the Board:

 

   “Is a separately designated standing audit committee” in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)

   Each member meets both the independence criteria established by the SEC under Rule 10A-3 under the Exchange Act and qualifies under the general independence standards of the NYSE

   Each member is financially literate

   Each of Mr. Claflin, Ms. Fitt and Mr. Kumar is an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K of the Exchange Act and each member qualifies as an independent director under the NYSE listing standards for purposes of audit committee service

 

Among its responsibilities, the committee:

 

   Appoints and establishes the compensation for Ciena’s independent registered public accounting firm

   Approves in advance all engagements with Ciena’s independent registered public accounting firm to perform audit and non-audit services

   Reviews and approves the procedures used by Ciena to prepare its periodic reports

   Reviews and approves Ciena’s critical accounting policies and matters

   Discusses audit plans and reviews results of audit engagements with Ciena’s independent registered public accounting firm

   Obtains and reviews a report of Ciena’s independent registered public accounting firm describing certain matters required by the NYSE listing standards

   Reviews the independence of Ciena’s independent registered public accounting firm

   Oversees Ciena’s internal audit function and Ciena’s accounting processes, including the adequacy of its internal controls over financial reporting

   Where it determines to do so, makes recommendations to the Board of Directors with respect to rotation of the lead partner of the independent registered public accounting firm

   Reviews and considers any related person transactions in accordance with our Policy on Related Person Transactions and applicable NYSE rules

 

Ciena’s independent registered public accounting firm and internal audit department report directly to the Audit Committee

 

 

Risk Oversight

 

Oversee management of financial risks associated with:

 

   accounting matters

   liquidity and credit risks

   corporate tax positions

   insurance coverage

   cash investment strategy

   financial results

 

Oversee financial and business process systems

 

Oversee management of risks relating to the performance of the company’s internal audit function and its independent registered public accounting firm

 

Oversee whistleblower complaints and internal investigations

 

Oversee the company’s systems of internal controls and disclosure controls and procedures

 

Oversee IT risk management, cybersecurity matters and data privacy

 

 

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Governance and Nominations Committee

 

Chair

 

 

Members

Patrick T. Gallagher              

Hassan M. Ahmed, Ph.D.

Judith M. O’Brien

Joanne B. Olsen

 

 

Qualifications, as determined by the Board:

 

   The members of the Governance and Nominations Committee are all independent directors under applicable rules of the NYSE

 

Among its responsibilities, the committee:

 

   Reviews, develops and makes recommendations regarding various governance matters related to the Board of Directors, including its size, composition, standing committees and practices

   Reviews and implements corporate governance policies, practices and procedures

   Conducts an annual review of the performance and effectiveness of the Board of Directors, its standing committees, and its individual members

   Makes recommendations to the Board of Directors regarding the composition and independence of its non-employee members

   Provides oversight and direction for our compliance and ethics program and sustainability practices

 

The committee considers recommendations for nomination from other sources and interested parties, including Ciena’s officers, directors and stockholders. When appropriate, the Governance and Nominations Committee may retain executive recruitment firms to assist in identifying suitable candidates. In considering these recommendations, the committee:

 

   Applies the same standards described in “Director Qualifications” above

   Considers the current size and composition of the Board

   Considers the needs of the Board and its committees

 

 

Risk Oversight

 

Oversee management of risks associated with:

 

   corporate governance practices and sustainability

   compliance and ethics program

   director independence

   Board composition

   Board performance

   annual assessment of Board effectiveness

 

Review and assess allocation of responsibility for risk oversight among the Board and its standing committees

 

 

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Compensation Committee

 

Chair

 

 

Members

Judith M. O’Brien  

Hassan M. Ahmed, Ph.D.

Bruce L. Claflin

Patrick T. Gallagher

Joanne B. Olsen

 

Qualifications, as determined by the Board:

 

   The members of the Compensation Committee qualify as “non-employee directors” within the meaning of Rule 16b-3 under the Exchange Act

   The members are independent directors under the NYSE listing standards for purposes of compensation committee service

 

Among its responsibilities, the committee:

 

   Has authority and oversight relating to the development of Ciena’s overall compensation strategy and compensation programs

   Establishes our compensation philosophy and policies

   Oversees compensation plans for our executive officers and non-executive employees

   Has oversight responsibility for the compensation program for Ciena’s non-employee directors

   Receives information and advice from its compensation consultant, as described below

   Reviews and has final authority to approve and make decisions with respect to the compensation of our executive officers

 

In determining compensation of our executive officers, the committee:

 

   Annually evaluates the performance of our CEO and our Executive Chairman

   Considers evaluations by or recommendations from our CEO regarding our other executive officers

 

The Board has delegated limited authority to our CEO to make equity awards to employees who are not part of the executive leadership team, within certain parameters and guidelines related to the size, terms and conditions of such awards. The Compensation Committee regularly reviews quarterly and year-to-date grant activity pursuant to this delegated authority.

 

Risk Oversight

 

Oversee management of risks associated with:

 

   executive compensation

   overall compensation and benefit strategies

   compensation and benefit plans and arrangements

   compensation practices and policies

   Board of Directors’ compensation

 

 

LOGO     2021 Proxy Statement   25


Compensation Philosophy & Objectives

The Compensation Committee seeks to ensure that our compensation policies and practices promote stockholder interests and support our compensation objectives and philosophy. Ciena’s compensation program for our executive officers focuses on addressing the following principal objectives:

 

   

attract and retain talented executives by offering competitive compensation packages;

   

motivate our executive officers to achieve strategic and tactical objectives, including the profitable growth of Ciena’s business;

   

align executive compensation with stockholder interests;

   

reward our executive officers for individual, functional and corporate performance; and

   

promote a pay-for-performance culture.

In making compensation decisions, the Compensation Committee also seeks to promote teamwork among and high morale within our executive team.

Compensation Consultant

To assist in carrying out its responsibilities, the Compensation Committee is authorized to retain the services of independent advisors. For purposes of advice and consultation with respect to the compensation of our executive officers during fiscal 2020, the Committee engaged Compensia, Inc., a national compensation consulting firm. Prior to engaging Compensia, the Committee considered and assessed Compensia’s independence. To ensure Compensia’s continued independence and to avoid any actual or apparent conflict of interest, the Committee does not permit Compensia to be engaged to perform any services for Ciena beyond those services provided to the Committee. The Committee has sole authority to retain or terminate Compensia as its executive compensation consultant and to approve its fees and other terms of engagement. The Committee regularly, but not less than annually, considers the independence of its compensation consultant and determines whether any related conflicts of interest require disclosure.

In establishing executive compensation for fiscal 2020, the Compensation Committee relied upon Compensia to:

 

   

assist in the selection of a group of peer companies;

   

provide information on compensation paid by such peer companies to their executive officers;

   

analyze compensation survey data to supplement publicly available information on compensation paid by peer companies;

   

advise on alternative structures or forms of compensation and allocation considerations;

   

advise on appropriate levels of compensation for the NEOs and the other members of the executive team; and

   

prepare “tally sheets” showing, for each executive officer, all elements of compensation received in previous fiscal years, equity grant detail, the projected value of vested and unvested equity awards outstanding, and a comparative analysis of compensation relative to the peer group.

In addition to its advisory work regarding executive compensation during fiscal 2020, Compensia was engaged by the Compensation Committee to provide assistance in evaluating the compensation of the non-employee directors as set forth below, to participate in and provide assistance with respect to the Committee’s annual compensation risk assessment, to review Ciena’s methodology for calculating its CEO pay ratio measure, and to review the “Compensation Discussion and Analysis” included in this proxy statement.

Compensation Committee Interlocks and Insider Participation

Dr. Ahmed, Mses. O’Brien and Olsen, and Messrs. Claflin and Gallagher, who comprised the Compensation Committee as of the end of fiscal 2020, are independent directors and were not, at any time during fiscal 2020, or at any other time, officers or employees of Ciena. During fiscal 2020, no member of the Compensation Committee was an executive officer of another entity on whose compensation committee or board of directors an executive officer of Ciena served.

 

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Director Compensation

Our director compensation program is designed both to attract and to fairly compensate highly qualified, non-employee directors to represent our stockholders on the Board of Directors and to act in the stockholders’ best interests. The director compensation program for fiscal 2020 was recommended by the Compensation Committee and approved by our Board of Directors. Our executive officers do not play any role in determining or recommending the amount of non-employee director compensation, except that Mr. Smith and Dr. Nettles vote on the recommendations of the Compensation Committee in their capacities as members of the Board of Directors.

Our Board of Directors includes two Ciena executive officers: Dr. Nettles, who serves as our Executive Chairman of the Board, and Mr. Smith, who serves as our Chief Executive Officer. Dr. Nettles does not receive cash compensation for his service as a director, and Mr. Smith does not receive any compensation for his service as a director. Information regarding equity compensation to Dr. Nettles during fiscal 2020 can be found in the tabular disclosure below. Information regarding the determination of Mr. Smith’s compensation can be found in the “Compensation Discussion and Analysis” and “Executive Compensation Tables” below.

Fiscal 2020 Board Compensation

For the purpose of determining non-employee director compensation for fiscal 2020, the Compensation Committee engaged Compensia to assist in evaluating the competitiveness of our director compensation program. The Compensation Committee considered an overview of the corporate governance environment, as well as recent trends and developments relating to director compensation. The Compensation Committee also specifically considered the amounts payable under and the various components of our director compensation program, as well as the aggregate director compensation cost, in comparison to the boards of directors of the same group of peer companies that the Compensation Committee used in determining executive compensation. After considering those factors and based on the recommendation of the Compensation Committee, in order to better align with the market median for certain compensation elements, for fiscal 2020 the Board of Directors increased the annual retainer for the non-employee directors from $60,000 to $70,000 and increased the target delivered value of initial and annual director equity awards from $210,000 to $220,000.

Cash Compensation

Our cash compensation program for non-employee directors for fiscal 2020 was as follows:

 

   

Cash Compensation

 

Amount

Annual Retainer — Non-Employee Director

  $  70,000

Additional Annual Retainer — Lead Independent Director

  $  30,000

Additional Annual Retainer — Audit Committee

  $  35,000 (Chair)

$  15,000 (other members)

Additional Annual Retainer — Compensation Committee

  $  25,000 (Chair)

$  10,000 (other members)

Additional Annual Retainer — Governance and Nominations Committee

  $  15,000 (Chair)

$    6,000 (other members)

Under this program, our non-employee directors are not entitled to receive meeting attendance fees unless the Board, or any standing Board committee, is required to hold an unusually high number of meetings. In the event that the Board or a standing Board committee holds more than ten meetings in a fiscal year, each non-employee director (as applicable) will be entitled to receive an additional $1,500 per meeting for the Chair, or an additional $1,000 per meeting for other members. In the event that the Board, or a standing Board committee, creates a special committee or subcommittee that holds more than three meetings in a fiscal year, each non-employee director serving on that committee or subcommittee will be entitled to receive an additional $1,000 per meeting. Directors are also reimbursed for reasonable out-of-pocket expenses incurred in connection with attendance at Board and committee meetings.

The retainer fees set forth above are paid in quarterly installments. Meeting attendance fees, when applicable, generally are paid promptly following the end of the fiscal year.

 

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Equity Compensation

Our equity compensation program for non-employee directors and Dr. Nettles for fiscal 2020 was as follows:

 

   

Equity Compensation

  

Target Delivered Value ($)        

Initial RSU Award — Upon Director Election or Appointment

    

$

  220,000          

Annual RSU Award — Non-Employee Directors and Executive Chairman

    

$

  220,000          

In order to control for possible volatility in our stock price on any one particular trading day, the actual number of shares underlying restricted stock unit (“RSU”) awards granted to directors is determined based on the average closing price of Ciena’s common stock over the 30-day period immediately prior to the date of grant. Initial equity awards are made in connection with initial election or appointment to the Board of Directors, with the target delivered value prorated for the fiscal year based on the date of election or appointment. Initial equity awards vest on or about the one-year anniversary of the grant date. Annual equity awards are made on the date of each Annual Meeting of Stockholders and vest on or about the one-year anniversary of the grant date. Vesting of the RSU awards is subject to acceleration upon the director’s death, disability, retirement, or upon or in connection with a change in control of Ciena. Delivery of the shares upon vesting is subject to any applicable instruction provided by the director under the Deferred Compensation Plan described below.

Director Compensation Limits

Our 2017 Omnibus Incentive Plan (the “2017 Plan”) imposes a $500,000 limit on the compensation that can be awarded to a non-employee director in any given fiscal year, including the sum of (i) cash compensation and (ii) the grant date fair value of equity compensation under the 2017 Plan. This limitation, however, would not apply to the extent a non-employee director has been or becomes an employee of Ciena during such fiscal year. In addition, the Board retains discretion to provide further exceptions for one or more individual non-employee directors in extraordinary circumstances, such as service on a special transaction or litigation committee of the Board, provided that the director that is the subject of such exception may not participate in any decision with respect thereto.

Director Compensation Table

The following table and the accompanying footnotes describe the “total compensation” earned by our non-employee directors and Dr. Nettles during fiscal 2020:

Fiscal 2020 Director Compensation Table

 

Name   

Fees Earned

or

Paid in Cash

($) (1)

  

Stock Awards

($) (2)

  

All Other

Compensation

($) (3)

  

Total

($)

Patrick H. Nettles, Ph.D.

    

 

    

$

230,640

    

$

  162,377

    

$

393,017

  

Hassan M. Ahmed, Ph.D.

    

$

43,000

    

$

164,789

    

 

    

$

207,789

Bruce L. Claflin

    

$

95,000

    

$

230,640

    

 

    

$

325,640

Lawton W. Fitt

    

$

  105,000

    

$

230,640

    

 

    

$

335,640

Patrick T. Gallagher

    

$

  125,000

    

$

  230,640

    

 

    

$

  355,640

Devinder Kumar

    

$

85,000

    

$

230,640

         

$

315,640

T. Michael Nevens

    

$

85,000

    

$

230,640

    

 

    

$

315,640

Judith M. O’Brien

    

$

101,000

    

$

230,640

    

 

    

$

331,640

Joanne B. Olsen

    

$

86,000

    

$

230,640

    

 

    

$

316,640

 

  (1)

Reflects the aggregate dollar amount of all cash compensation earned for service as a director, including the retainers and meeting attendance fees described in “Cash Compensation” above.

 

  (2)

The amounts set forth in the “Stock Awards” column represent the aggregate grant date fair value of RSU awards granted during fiscal 2020, computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. The aggregate grant date fair value is calculated using the closing price of Ciena common stock on the grant date as if all of the shares underlying these awards were vested and delivered on the grant date. For each director other than Dr. Ahmed, the aggregate grant date fair value in the above table was calculated using the closing price of Ciena common stock on April 2, 2020, the grant date for each such director’s annual award. Each of these awards was granted under the 2017 Plan and vests on the one-year anniversary of the grant date. For Dr. Ahmed, the aggregate grant date fair value in the above table was calculated using the closing price of Ciena common stock on July 1, 2020, the grant date for his initial

 

28   LOGO     2021 Proxy Statement


 

equity award. This award was granted under the 2017 Plan and vests on September 20, 2021. The aggregate grant date fair values will likely vary from the actual amount ultimately realized by any director based on a number of factors, including the number of shares that ultimately vest, the effect of any deferral elections, the timing of any sale of shares, and the market price of Ciena common stock at the time of disposition.

 

  (3)

Non-employee directors do not receive any perquisites or other personal benefits or property as part of their compensation. Dr. Nettles does not receive cash compensation for his service as a director; the amount reported as “All Other Compensation” for Dr. Nettles reflects (a) his annual base salary for service as an executive officer of Ciena during fiscal 2020, (b) Section 401(k) plan matching contributions paid by Ciena and available to all full-time U.S. employees on the same terms, and (c) reimbursement of costs associated with financial planning and tax preparation services generally made available to all executive officers.

Outstanding Equity Awards for Directors at Fiscal Year-End

The following table sets forth, on an aggregate basis, information related to the outstanding unvested RSU awards held by each of the non-employee directors and Dr. Nettles as of the end of fiscal 2020.

Outstanding Equity Awards at Fiscal Year-End

 

              Stock  Awards          
Name   

        Aggregate          

        Number of          

        Unvested          

        Shares          

        or Units          

        (#)          

Patrick H. Nettles, Ph.D.

    

 

        5,678        

Hassan M. Ahmed, Ph.D.

    

 

        3,075        

Bruce L. Claflin

    

 

        5,678        

Lawton W. Fitt

    

 

        5,678        

Patrick T. Gallagher

    

 

        5,678        

Devinder Kumar

    

 

        5,678        

T. Michael Nevens

    

 

        5,678        

Judith M. O’Brien

    

 

        5,678        

Joanne B. Olsen

    

 

        5,678        

Deferral of Director Compensation

We maintain the Ciena Corporation Deferred Compensation Plan, which allows our U.S.-based directors (as well as certain U.S.-based senior management employees) to defer elements of their annual compensation. Directors may defer up to 100% of their annual cash retainer and annual equity compensation.

Generally, deferral elections may only be made for awards to be granted in a subsequent calendar year. Directors can elect the amount deferred, the deferral period, and the form of distribution of their compensation. If a director elects to defer any portion of an RSU award, upon the vesting of that award, we credit a stock account with the amount deferred. All such accounts are distributed in shares of Ciena common stock. Distributions may be made in a lump sum or installments, as designated by the participating director, subject to early distribution of vested awards in a lump sum in the event of the participant’s death or termination of service, a change in control of Ciena or termination of the plan.

 

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Proposal No. 2

Amendment and Restatement of Ciena’s Employee Stock Purchase Plan

Executive Summary

 

  Purpose of Proposal

   

 Why You Should Vote for the Proposal

 

  Extend term of expiring ESPP to April 1, 2031

 

  Increase shares available for issuance under ESPP by 8,700,000 shares

 

  Eliminate evergreen feature

 

  Make other clarifying and administrative changes to the ESPP, as described below

 

 

  

 

 

  Promotes stock ownership culture and alignment of interest between our employees and stockholders

 

  Important compensation element for employee recruitment, retention and motivation

 

  Aligns with best practices and promotes broad-based, cross-border participation

Overview

We are asking our stockholders to approve the amendment and restatement of our Employee Stock Purchase Plan (the “ESPP”), which will (a) extend the term thereof to ten years from the date of stockholder approval; (b) increase the number of shares of Ciena common stock available for issuance thereunder by 8,700,000 shares; (c) eliminate the evergreen mechanism under which the shares available under the ESPP are automatically refreshed each year; and (d) make such other changes described below. A copy of the ESPP, as proposed to be modified by the amendment and restatement, is attached to this Proxy Statement as Annex A.

The ESPP allows all full-time and certain part-time employees of Ciena and of designated parents and subsidiaries (as defined in the ESPP) to purchase shares of Ciena common stock at a discount to fair market value. However, the Compensation Committee has restricted executive officers from participating. Employees purchase shares in June and December of each year using funds deducted from paychecks during the preceding six months. The ESPP is an important component of the benefits package that Ciena offers to its employees and of our employee recruitment, retention and motivation efforts. Our ESPP promotes broad employee participation and we believe that it plays an important role in aligning the interests of our employees and stockholders in the long-term success of Ciena.

The Board of Directors believes it is in the best interest of Ciena and its stockholders that the proposed amendment and restatement be approved. The amended and restated ESPP was approved by the Board of Directors on January 29, 2021, and will not be effective unless and until it is approved by Ciena’s stockholders.

Without stockholder approval of the amendment and restatement of the ESPP, the ESPP will expire pursuant to its terms on January 20, 2022, prior to the anticipated date of next year’s annual meeting. The Board of Directors believes that the amendment and restatement of the ESPP as proposed is necessary to avoid the premature termination of the ESPP and to ensure that the ESPP will continue to have a positive impact on employee recruitment, retention and motivation. As of January 1, 2021, 4,535,200 shares remained available for issuance under the ESPP. Assuming approval of the amendment and restatement, the number of shares available for issuance under the ESPP will be immediately increased by 8,700,000 shares following the Annual Meeting. In addition, the term of the ESPP will be extended to April 1, 2031.

In addition to the proposed increase in shares available for issuance under the ESPP, the extension of the term thereof, and the removal of the evergreen feature, the proposed amendment and restatement includes certain additional, and generally administrative, changes as set forth on Annex A. Among other things, as amended and restated, the ESPP clarifies that (a) qualifying employees of both designated parents and subsidiaries may participate in the ESPP, (b) employees who customarily work no more than 20 hours per week are ineligible to participate, and (c) that participants generally may not purchase shares following a termination of employment.

A copy of the ESPP, as proposed to be amended and restated, is attached hereto as Annex A. A summary of the principal features of the ESPP follows.

Summary of the ESPP

Administration. The ESPP is administered under the direction of the Compensation Committee of the Board of Directors. The Committee has authority to interpret the ESPP and to make all other determinations necessary or advisable in administering it.

 

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Eligibility. All full-time, and certain part-time, employees with at least three months of continuous service are eligible to participate in the ESPP, although the Compensation Committee currently restricts the participation to non-executive employees. Part-time employees whose customary employment is for less than five months in any calendar year, or whose customary employment is not more than 20 hours per week, are ineligible to participate. Employees who, after exercising their rights to purchase shares under the ESPP, would own shares representing 5% or more of the voting power of Ciena’s common stock, are also ineligible to participate. As of January 1, 2021, approximately 6,600 employees were eligible to participate in the ESPP.

Participation in the ESPP is at the election of each eligible employee and the amounts received by a participant under the ESPP depend on the fair market value of Ciena’s common stock on future dates; therefore, the benefits or amounts that will be received by any participant if the ESPP is approved are not currently determinable. Moreover, in recent years, the Compensation Committee has restricted executive officers from participating.

Shares Available for Issuance. As of January 1, 2021, 4,535,200 shares remained available for issuance under the ESPP. Assuming the amendment and restatement is approved by stockholders at the Annual Meeting, 8,700,000 shares would be added and there would be 13,235,200 shares available for issuance under the ESPP (approximately 8.53% of Ciena’s outstanding shares as of the record date). Stockholders previously approved an evergreen mechanism under which the shares available under the ESPP were automatically refreshed each year. The amendment and restatement would remove this evergreen mechanism in its entirety.

Participation. To participate in the ESPP, an eligible employee authorizes payroll deductions in an amount not less than 1% nor greater than 10%, or a flat dollar amount, of his or her “eligible earnings” (i.e., regular base pay, not including overtime pay, bonuses, employee benefit plans or other additional payments) for each full payroll period in the offering period. To ensure that IRS share limitations are not exceeded, we do not accept contributions from an individual participant in excess of $21,250 per year.

Purchases. Eligible employees currently enroll in a 12-month offering period during the open enrollment period prior to the start of that offering period. A new offering period begins approximately every June 16 and December 16. Each offering period consists of two six-month purchase periods, during which payroll deductions are accumulated and used to purchase shares of Ciena’s common stock from Ciena.

Shares are purchased at a price equal to 85% of the fair market value (the “FMV”) of Ciena’s common stock with the actual purchase price 15% less than the FMV on either the trading day immediately preceding the “Offer Date,” which is the first day of an offering period, or on the “purchase date,” which is the last day of a purchase period, whichever is lower. If the FMV on a purchase date is lower than the FMV on the trading day immediately preceding the applicable Offer Date, continuing participants are enrolled automatically in a new offering period on the next Offer Date. The closing price of Ciena’s common stock on December 31, 2020, as quoted on the NYSE under the symbol “CIEN,” was $52.85 per share.

Termination of Employment. If a participating employee voluntarily resigns or is terminated by Ciena prior to the last day of the purchase period, the employee’s option to purchase terminates and the amount in the employee’s account is returned to the employee.

Adjustments Upon Change in Capitalization. In the event of a recapitalization, reclassification, stock split, reverse split, combination of shares, exchange of shares, stock dividend, or similar event, the number and kind of shares that may be purchased under the ESPP is adjusted proportionately such that the proportionate interest of participating employees remains the same, to the extent practicable.

Participation Adjustment. If the number of unsold shares that remains available for purchase under the ESPP is insufficient to permit exercise of all rights deemed exercised by all participating employees, a participation adjustment will be made, and the number of shares purchasable by all participating employees is reduced proportionately. Any funds remaining in a participating employee’s account after such exercise are refunded to the employee.

Effect of Change of Control. In the event of a dissolution or liquidation of Ciena, or a merger or other similar transaction in which Ciena is not the surviving entity (or which results in a person or entity owning more than 80 percent of the combined voting power of all classes of stock of Ciena), or upon a sale of all or substantially all of Ciena’s assets, the ESPP and all outstanding rights thereunder terminate unless provision is made in writing in connection with the transaction for the continuation of the ESPP and/or the assumption of the rights granted under it, or for the substitution for those rights of new rights covering the stock of a successor corporation, with appropriate adjustments as to the number and kind of shares and exercise prices. In that event, the ESPP continues in the manner and under the terms provided. In the event of any such termination of the ESPP, all current purchase periods and offering periods shall be deemed to have ended on the last trading day prior to such termination, and the rights of each participating employee then outstanding shall be deemed to be automatically exercised on such last trading day.

Amendment. The Board of Directors may amend the ESPP at any time and in any respect. An amendment to the ESPP shall be contingent on approval of the stockholders only to the extent required by applicable law, regulations or rules or as provided by the Board of Directors.

Termination. The Board of Directors may terminate the ESPP at any time and for any reason or for no reason, provided that no termination shall impair any rights of participating employees that have vested at the time of termination. Without approval of the

 

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proposed amendment and restatement, the ESPP shall terminate on January 20, 2022. As amended, the ESPP would terminate on April 1, 2031, provided the ESPP would terminate earlier, at such time as all shares of common stock that may be made available for purchase under the ESPP have been issued.

Rule 16b-3. Transactions under the ESPP are intended to comply with all applicable conditions of Rule 16b-3 under the Exchange Act or any successor provision.

Material U.S. Federal Income Tax Consequences. The ESPP, and the rights of participant employees to make purchases thereunder, are designed to qualify for treatment under the provisions of Sections 421 and 423 of the Internal Revenue Code. The Compensation Committee may also establish purchase rights under the ESPP that are not intended to so qualify.

Under the qualification provisions, no income will be taxable to a participant until the shares purchased under the ESPP are sold or otherwise disposed of.

Upon sale or other disposition of the shares, the participant will generally be subject to tax and the amount of the tax will depend upon the holding period. If the shares are sold or otherwise disposed of more than two years from the first day of the relevant offering period (and more than one year from the date the shares are purchased), then the participant generally will recognize ordinary income measured as the lesser of:

(i)    the excess of the fair market value of the shares at the time of such sale or disposition over the purchase price, or

(ii)    an amount equal to 15% of the fair market value of the shares as of the first day of the applicable offering period.

Any additional gain would be treated as long-term capital gain.

If the shares are sold or otherwise disposed of before the expiration of this holding period, the participant will recognize ordinary income generally measured as the excess of the fair market value of the shares on the date the shares are purchased over the purchase price. Any additional gain or loss on such sale or disposition will be long-term or short-term capital gain or loss, depending on the holding period.

Under nonqualified offerings, a participant will generally recognize ordinary income on the difference between the fair market value of the shares at purchase and the purchase price, subject to withholding. Upon the sale or disposition of shares purchased under a nonqualified offering, the participant will generally recognize a capital gain or loss on any increase or decrease in the value of the shares from the fair market value at purchase. This gain or loss will be long-term or short-term, depending on the holding period.

Ciena generally is entitled to a deduction for amounts taxed as ordinary income to a participant, subject to the limits of Code section 162(m). In all other cases, no deduction is allowed to Ciena.

The foregoing tax discussion is a general description of certain expected U.S. federal income tax results under current law. No attempt has been made to address any state, local, foreign or estate and gift tax consequences that may arise in connection with participation in the ESPP.

New Awards

The amounts that may be received under the ESPP in the future are not determinable because participation in the ESPP is voluntary and the number of shares that may be purchased depends in part on the market value of Ciena common stock.

Registration with the SEC

If the amendment and restatement of the ESPP is approved by our stockholders, we intend to file a Registration Statement on Form S-8 relating to the amended and restated ESPP with the SEC pursuant to the Securities Act of 1933, as amended.

 

 

Proposal No. 2 — Recommendation of the Board of Directors

 

 

 

The Board of Directors recommends that you vote

FOR

the amendment and restatement of our Employee Stock Purchase Plan

 

 

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Proposal No. 3

Ratification of Appointment of Independent Registered Public Accounting Firm

The Audit Committee of the Board of Directors has appointed PricewaterhouseCoopers LLP (“PwC”) as our independent registered public accounting firm to audit Ciena’s consolidated financial statements for fiscal 2021, and is asking stockholders to ratify this appointment at the Annual Meeting.

PwC has audited our consolidated financial statements annually since Ciena’s incorporation in 1992. A representative of PwC is expected to attend this year’s Annual Meeting. He or she will have the opportunity to make a statement, if desired, and will be available to respond to appropriate questions. In making its recommendation to the Board of Directors to select PwC as Ciena’s independent registered public accounting firm for fiscal 2021, the Audit Committee considered whether the non-audit services provided by PwC are compatible with maintaining the independence of PwC, and determined that retention of PwC is in the best interests of Ciena and its stockholders. Information regarding fees billed by PwC for our 2019 and 2020 fiscal years is set forth under “Relationship with Independent Registered Public Accounting Firm” below.

Our bylaws do not require that stockholders ratify the appointment of our independent registered public accounting firm. We are seeking ratification because we believe it is a matter of good corporate governance. In the event that stockholders fail to ratify the appointment, the Audit Committee will reconsider whether to retain PwC, but may ultimately determine to retain PwC as our independent registered public accounting firm. Even if the appointment is ratified, the Audit Committee, in its sole discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that it is advisable to do so.

 

Proposal No. 3 — Recommendation of the Board of Directors

 

 

 

The Board of Directors recommends that you vote

FOR

the ratification of the appointment of PwC as our independent registered public accounting firm for fiscal 2021

 

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Relationship with Independent Registered Public Accounting Firm

The following table shows the fees that PwC billed to Ciena for professional services rendered for fiscal years 2019 and 2020.

 

Fee Category   

Fiscal

2019

    

Fiscal

2020

 
   

Audit Fees

   $   3,800,000      $   3,975,000  
   

Audit-Related Fees

     200,000         
   

Tax Fees

     121,650        87,500  
   

All Other Fees

             
   

Total Fees

   $ 4,121,650      $ 4,062,500  

Audit Fees. This category of the table above includes fees for the integrated audit of our annual financial statements, review of financial statements included in our quarterly reports on Form 10-Q, and services that are normally provided by PwC in connection with statutory and regulatory filings or engagements, and services that generally only PwC as the independent registered public accounting firm can provide, such as services for comfort letters and consents. The preparation of Ciena’s audited financial statements includes compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and the preparation by PwC of a report expressing its opinion regarding the effectiveness of our internal control over financial reporting. Audit fees reflect PwC’s integrated audits of financial statements for Ciena.

Audit-Related Fees. This category of the table above includes fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not included above under “Audit Fees.” The audit-related fees in fiscal 2019 reflect fees related to our compliance with the new Accounting Standards Codification 842 - Leases.

Tax Fees. This category of the table above includes fees for tax compliance, tax advice, tax planning, and other general tax consulting fees.

All Other Fees. This category of the table above includes fees for services provided by PwC that are not included in the other fee categories reported above. There were no other fees in fiscal 2019 or fiscal 2020.

Pre-Approval of Services

The Audit Committee pre-approves all services provided by our independent registered public accounting firm, including audit services (such as statutory audit engagements as required under local law of foreign jurisdictions) and non-audit services. For audit services with respect to Ciena, each year our independent registered public accounting firm provides the Audit Committee with an engagement letter outlining the scope of the audit services proposed to be performed during the year, which must be accepted by the Audit Committee before the audit commences. Our independent registered public accounting firm also submits an audit services fee proposal, which must be approved by the Audit Committee before the audit commences.

Each year, management also submits to the Audit Committee certain non-audit services for which it recommends the independent registered public accounting firm be engaged to provide, and an estimate of the fees to be paid for each. Management and the independent registered public accounting firm must each confirm to the Audit Committee that the performance of the non-audit services on the list would not compromise the independence of our registered public accounting firm and would be permissible under applicable legal requirements. The Audit Committee must approve both the list of non-audit services and the budget for each such service before commencement of the work. Our management and our independent registered public accounting firm report to the Audit Committee at each of its regular meetings as to the non-audit services actually provided by the independent registered public accounting firm and the approximate fees incurred by Ciena for those services.

To ensure prompt handling of unexpected matters, the Audit Committee has authorized its Chair to amend or modify the list of approved permissible non-audit services and fees. If the Chair exercises this delegation of authority, she reports the action taken to the Audit Committee at its next regular meeting.

In compliance with the Audit Committee’s internal policy and auditor independence rules of the SEC, all audit and permissible non-audit services provided by PwC to Ciena for the fiscal years 2019 and 2020 were pre-approved by the Audit Committee.

 

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Audit Committee Report

 

The Audit Committee is composed entirely of non-management directors. The members of the Audit Committee meet the independence and financial literacy requirements of the NYSE and additional, heightened independence criteria applicable to members of the Audit Committee under SEC and NYSE rules. The Audit Committee assists the Board in fulfilling its oversight responsibilities, including by assessing and monitoring the quality and integrity of Ciena’s accounting systems and practices, financial information and financial reporting practices, potential financial, legal and regulatory exposures, systems of internal controls, internal audit function and the independent audit process. Ciena’s management is responsible for Ciena’s financial statements, and its independent registered public accounting firm is responsible for planning and conducting an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Audit Committee operates under a written charter that describes the scope of its responsibilities, and which is available on the “Governance” page of the “Investors” section at www.ciena.com.

 

During fiscal 2020, the Audit Committee discussed with PricewaterhouseCoopers LLP (“PwC”), Ciena’s independent registered public accounting firm, the overall scope and plans for the audit. The Audit Committee met regularly with PwC, with and, at times, without management present, to discuss the results of PwC’s examinations, evaluations of Ciena’s internal control over financial reporting and the overall quality of Ciena’s financial reporting practices. The Audit Committee also met with Ciena’s management during fiscal 2020 to consider Ciena’s internal control over financial reporting and Ciena’s disclosure controls and procedures.

 

In this context, the Audit Committee hereby reports as follows:

 

1. The Audit Committee has reviewed and discussed Ciena’s audited financial statements for fiscal 2020 with management and with PwC.

 

2. The Audit Committee has discussed with PwC the matters required to be discussed under the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the SEC.

 

3. The Audit Committee has received from PwC the written disclosures and the letter required by applicable requirements of the PCAOB regarding PwC’s communications with the Audit Committee concerning independence, and has discussed with PwC its independence.

 

4. Based on its review and discussions described in this report, the Audit Committee recommended to the Board of Directors that the audited financial statements for fiscal 2020 be included in Ciena’s Annual Report on Form 10-K for fiscal 2020, for filing with the SEC.

 

Submitted by the members of the Audit Committee:

 

Lawton W. Fitt (Chair)

Bruce L. Claflin

Devinder Kumar

T. Michael Nevens

 

 

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Ownership of Securities

The following table sets forth, as of February 4, 2021, the beneficial ownership of Ciena’s common stock for the following persons:

 

   

each stockholder (including any group as such term is used in Section 13(d)(3) of the Exchange Act) known by us to beneficially own more than 5% of our common stock;

   

our Chief Executive Officer and each other Named Executive Officer (as that term is defined in the “Executive Compensation Tables” below);

   

each of our directors and director nominees; and

   

all of our directors and executive officers as a group.

Certain information in the table concerning beneficial owners other than our directors and executive officers is based on information contained in filings made by such beneficial owners with the SEC.

Under SEC rules, beneficial ownership of a class of capital stock includes any shares of such class as to which a person, directly or indirectly, has or shares voting power or investment power and also any shares as to which a person has the right to acquire such voting or investment power within 60 days through the exercise or conversion of any stock option, stock award, or other similar right. If two or more persons share voting power or investment power with respect to specific securities, each such person is deemed to be the beneficial owner of such securities. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of such acquisition rights. As a result, the percentage of outstanding shares held by any person in the table below does not necessarily reflect the person’s actual voting power. As of February 4, 2021, there were 155,158,402 shares of Ciena common stock outstanding.

 

Name of Beneficial Owner

Number of

Shares

Owned (1)

Right to

Acquire (2)

Beneficial

Ownership

Total (3)

Percent of

Outstanding

Shares (%)

   

More than 5% Stockholders

 

 

 

 

 

 

 

 

 

 

 

 

   

BlackRock, Inc. (4)

  14,792,049     14,792,049   9.53 %
   

The Vanguard Group, Inc. (5)

  14,561,776     14,561,776   9.39 %
   

 

Directors & Named Executive Officers

 

 

 

 

 

 

 

 

 

 

 

 

   

Patrick H. Nettles, Ph.D. (6)

  238,523   12,178   250,701   *
   

Gary B. Smith

  225,926   22,946   248,872   *
   

James E. Moylan, Jr.

  235,462   1,237   236,699   *
   

Scott A. McFeely

  48,655   5,891   54,546   *
   

Jason M. Phipps

  26,846   6,340   33,186   *
   

David M. Rothenstein

  224,908   5,433   230,341   *
   

Hassan M. Ahmed, Ph.D.

        *
   

Bruce L. Claflin

  40,895   29,893   70,788   *
   

Lawton W. Fitt

  3,928   103,308   107,236   *
   

Patrick T. Gallagher

  35,779   5,678   41,457   *
   

Devinder Kumar

    5,678   5,678   *
   

T. Michael Nevens

  24,675   5,678   30,353   *
   

Judith M. O’Brien (6)

  1   59,314   59,315   *
   

Joanne B. Olsen

    378   378   *
   

 

All executive officers and directors (18 persons)

  1,211,407   275,572   1,486,979   *

 

*

Represents less than 1% of outstanding shares.

 

(1)

Excludes shares that may be acquired through the exercise of stock options, the vesting of restricted stock units or other convertible equity incentive awards.

 

(2)

Except as otherwise set forth in the footnotes below, for our executive officers, represents shares of common stock that can be acquired upon the vesting of restricted stock units within 60 days of the date of this table. For our executive officers and

 

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directors, amounts reported also include shares underlying vested restricted stock units deferred pursuant to our Deferred Compensation Plan.

 

(3)

Except as indicated in the footnotes to this table or as set forth in the SEC reports identified below, we believe the persons named in this table, based on information they have furnished to us or the SEC, have sole voting and investment power with respect to all shares of common stock reported as beneficially owned by them, subject to community property laws where applicable.

 

(4)

Stockholder’s address is 55 East 52nd Street, New York, NY 10055. Ownership information is based solely on a Schedule 13G/A filed by stockholder with the SEC on January 1, 2021 and reflects beneficial ownership by stockholder in its capacity as a parent holding company and with respect to certain of its subsidiaries. Stockholder has sole voting power with respect to 14,032,610 shares and sole dispositive power with respect to 14,792,049 shares.

 

(5)

Stockholder’s address is 100 Vanguard Blvd, Malvern, PA 19355. Ownership information is based solely on a Schedule 13G/A filed by stockholder with the SEC on February 12, 2020 and reflects beneficial ownership by stockholder in its capacity as investment advisor and with respect to certain of its subsidiaries. Stockholder has sole voting power with respect to 79,660 shares, shared voting power with respect to 31,271 shares, sole dispositive power with respect to 14,470,982 shares and shared dispositive power with respect to 90,794 shares.

 

(6)

Voting and investment power is shared with spouse.

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires Ciena’s directors, executive officers, and beneficial owners of more than 10% of our common stock to file reports with the SEC indicating their holdings of, and transactions in, Ciena’s equity securities. Based solely on a review of copies of these reports, we believe that all of our executive officers, directors, and 10% owners timely complied with all Section 16(a) filing requirements for fiscal 2020 except for one late Form 4 reporting one transaction for Andrew C. Petrik with respect to a sale of Ciena’s common stock on March 25, 2020, which was filed with the SEC on March 30, 2020.

 

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Compensation Discussion and Analysis

 

Executive Summary

     39  

Fiscal 2020 Compensation Overview

     40  

Decision-Making Framework

  

Executive Compensation Best Practices

     41  

Participants in Compensation-Setting Process

     41  

Comparative Framework

     41  

Qualitative Factors

     43  

Elements of Compensation

        

Principal Elements of Compensation

     45  

Pay Mix

     46  

Cash Compensation

        

Base Salary

     46  

Annual Cash Incentive Opportunity

     47  

Target Total Cash Compensation

     47  

Annual Cash Incentive Bonus Plan

     47  

Attainment of Fiscal 2020 Cash Incentive Bonus

     50  

Equity Compensation

        

Factors and Process in Determining Equity Awards

     51  

Equity Awards

     51  

Attainment of Fiscal 2020 PSUs

     54  

Attainment of Fiscal 2018 MSUs

     55  

Equity Award Practices

     55  

Other Program Elements and Pay Practices

        

Risk Assessment of Compensation Practices

     56  

Stock Ownership Guidelines

     56  

Deferred Compensation Plan

     57  

U.S. Executive Severance Benefit Plan

     57  

Change in Control Severance Agreements

     57  

Clawback Policy

     58  

Perquisites Policy

     58  

Required Reimbursement Policy

     58  

Anti-Hedging and Pledging Policy

     58  

Contained below and elsewhere in this proxy statement are certain non-GAAP measures of Ciena’s financial performance for fiscal 2019 and 2020. These measures, along with their corresponding GAAP measures and reconciliations thereto, have been previously disclosed in exhibits to Ciena’s Current Reports on Form 8-K furnished with the SEC on December 12, 2019 and December 10, 2020. Also see “Non-GAAP Measures” below for more information on the use of these measures.

 

This Compensation Discussion and Analysis describes our executive compensation program, the compensation-setting process followed by the Compensation Committee of the Board of Directors (the “Committee”), and the compensation of our named executive officers (“NEOs”) for fiscal 2020:

 

 
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Gary B. Smith

President and CEO

 
  LOGO  

 

James E. Moylan, Jr.

Senior Vice President and

Chief Financial Officer

 
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Scott A. McFeely

Senior Vice President,

Global Products and Services

 
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Jason M. Phipps

Senior Vice President,

Global Customer Engagement

 
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David M. Rothenstein

Senior Vice President,

General Counsel and Secretary

 
 

 

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Executive Summary

 

   
COMPENSATION DECISIONS RELATIVE TO COVID-19    
   

  The compensation-related decisions for fiscal 2020 were made in December 2019, following Ciena’s outstanding business and financial performance in fiscal 2019 and prior to the onset of the global COVID-19 pandemic. Although our sales orders and revenue were negatively impacted by COVID-19 due to slowdowns in customer spending and business velocity in the second half of fiscal 2020, our profitability increased as a result of higher gross margins and lower operating expense due to resulting business dynamics

   
   

  Against this backdrop, the Committee determined not to make any adjustments to the fiscal 2020 objectives or payouts for the NEOs under the incentive compensation programs

   
   

  Subsequently, in light of ongoing macro and industry conditions, at the end of 2020, the Committee agreed not to increase any element of compensation for the NEOs for fiscal 2021

   

 

FISCAL 2020 EXECUTIVE COMPENSATION     FISCAL 2020 BUSINESS PERFORMANCE

   80% of CEO target total direct compensation was in the form of equity awards and 59% was “at risk” and performance-based

 

   Increased the base salary of the CEO and the other NEOs, and the target cash incentives for the other NEOs, in order to better align with the market median for their positions and to reflect their and Ciena’s strong performance

 

   Delivered annual equity awards for the CEO and the other NEOs that represented meaningful year-over-year increases in grant date value in order to keep pace and ensure alignment with the market and to reflect their and Ciena’s strong performance

 

   Based on performance against fiscal 2020 objectives, the NEOs received annual cash incentive payments at 90% of target and earned PSUs at 91.5% of target

 

   Allocated a component of fiscal 2020 performance-based equity to MSUs with a relative TSR goal measured over a three-year performance period; based on relative TSR performance from fiscal 2018 through fiscal 2020, the NEOs earned MSUs previously awarded in December 2017 at 200% of target

   

   Delivered solid financial results in spite of the global pandemic, including significant year-over-year increases in adjusted operating income (32%), adjusted EBITDA (28%) and adjusted earnings per share (40%)

 

   Generated $411 million in free cash flow, representing 66% of adjusted operating income, and ended the year with $1.3 billion in cash and investments

 

   Forced the pace of innovation with our Adaptive Network approach, including general availability of the industry’s first single-wavelength 800G product, new customers and expanded relationships for our Blue Planet software automation portfolio, and several deployments of our Adaptive IP solutions

 

   Supported our employees through wellbeing, inclusion and diversity, and empowerment programs, and instituted a range of volunteering and charitable activities to provide greater resources and opportunities for underserved students in our communities

Say-on-Pay Results

 

LOGO    We provide stockholders with the opportunity to cast an annual advisory vote on the compensation of our NEOs. From time to time, we seek input from our stockholders relating to executive compensation matters and expect to continue to consider input from stockholders, as well as the outcome of our annual say-on-pay votes when making future executive compensation decisions. Last year, approximately 94% of the stockholder votes cast on this proposal were voted in favor of the proposal. The Committee believes that this substantial majority of votes cast affirms stockholders’ support for our approach to executive compensation. See “Proposal No. 4” below for this year’s say-on-pay proposal.

 

LOGO     2021 Proxy Statement   39


Fiscal 2020 Compensation Overview

 

  Base Salaries  

 

    Equity Award Values

Increased the base salary of the CEO and the other NEOs in order to better align with the market median for their positions and to reflect their and Ciena’s strong performance

   

Delivered annual equity awards for the CEO and the other NEOs that represented meaningful year-over-year increases in target value in order to keep pace and ensure alignment with the market and to reflect their and Ciena’s strong performance

  Target Cash Incentives  

 

    Equity Award Structure

Increased the target cash incentive opportunity for the NEOs other than the CEO to better align with the market median and to reflect their and Ciena’s strong performance

 

Made no adjustments to objectives or payouts for fiscal 2020 cash incentives, despite slowdowns in customer spending and business velocity due to the COVID-19 pandemic

   

Structured equity awards to include PSUs and MSUs and so that 60% of the target award value for the CEO, and 50% of the target award value for the other NEOs, was allocated to at-risk, performance-based equity

 

Made no adjustments to objectives or earnouts for fiscal 2020 equity awards, despite slowdowns in customer spending and business velocity due to the COVID-19 pandemic

 

LOGO    LOGO

of our CEO’s target total direct compensation

was in the form of equity awards

  

of our CEO’s target total direct compensation

was “at-risk” based on our performance

against measurable objectives

 

CEO Fiscal 2020

Target Total Direct Compensation Mix

 

 

LOGO

A detailed discussion relating to each element of executive compensation and the decisions summarized above is included in “Elements of Compensation” below.

 

40   LOGO     2021 Proxy Statement


Decision-Making Framework

Executive Compensation Best Practices

The Committee’s fiscal 2020 compensation decision-making reflects the following core compensation principles and practices that we employ to align executive compensation with stockholder interests. Also listed below are certain compensation practices that we do not employ because we believe they would not serve our stockholders’ long-term interests.

 

 

 

 

WHAT WE DO          

 

 

 

        

 

 

 

 

 

WHAT WE DON’T DO          

 

LOGO

  Ensure independence in establishing our executive compensation program     LOGO   Offer income tax gross-ups

LOGO

 

 

Align pay with performance

    LOGO   Permit “single trigger” change in control benefits

LOGO

 

Align compensation with stockholder interests

    LOGO   Provide excise tax gross-ups

LOGO

 

Maintain stock ownership requirements

    LOGO   Allow for hedging or pledging of company securities

LOGO

 

Use rigorous performance goals

     

LOGO

 

Maintain a compensation recovery (“clawback”) policy

     

LOGO

  Assess risks relating to our executive compensation program      

LOGO

 

Provide only a limited number of executive perquisites

     

Participants in Compensation-Setting Process

Compensation Committee. The Committee oversees Ciena’s compensation programs and has final authority to approve and make decisions with respect to the compensation of Ciena’s executive officers. For a discussion regarding the Committee’s compensation philosophy and the principal objectives of our compensation programs, see “Governance and the Board of Directors – Composition and Meetings of the Board of Directors and its Committees – Compensation Committee” above.

Independent Compensation Consultant. In its annual review and determination of executive compensation, the Committee is assisted by Compensia, Inc., a national compensation consulting firm. Compensia is engaged by the Committee and, in order to maintain its independence, does not perform additional consulting or other services for Ciena or its management. The Committee assesses the independence of its compensation advisor on an annual basis. For a discussion regarding Compensia, the scope of its engagement by the Committee and its involvement in our compensation-setting process, see “Governance and the Board of Directors – Composition and Meetings of the Board of Directors and its Committees – Compensation Committee” above.

Chief Executive Officer. Our executive officers, including our CEO and our Executive Chairman, do not participate in the determination of their own compensation. Our CEO works with the Chair of the Committee to develop proposed compensation packages for our other executive officers, including the other NEOs. Based on his review and assessment of each executive officer’s overall performance, success in executing against corporate and functional goals, criticality of function, experience, expertise, retention concerns, existing equity holdings, and compensation relative to other executive officers, as well as the Market Data (as defined below), our CEO provides recommendations to the Committee with respect to the base salary, target bonus percentage, and annual equity award for each executive officer. Because our CEO works most closely with and supervises our executive team, the Committee believes that his input provides critical insight in evaluating their performance. Our CEO also provides the Committee with additional information regarding the effect of market or competitive forces, changes in strategy or priorities upon an individual’s performance, and any other specific challenges faced or overcome by each person or the function that they lead during the prior fiscal year.

Comparative Framework

Peer Group. To assist in the selection of a group of peer companies against which to compare existing and proposed executive compensation levels for fiscal 2020, Compensia used several quantitative and qualitative criteria, including the primary selection and refinement criteria listed below, which were identical to those used in the previous year. Compensia noted its view that, given the limited number of similarly sized business competitors due to industry consolidation, the revenue criterion has the highest relevance in selecting peer companies for purposes of comparing compensation.

 

LOGO     2021 Proxy Statement   41


Following Compensia’s analysis, the Committee:

 

   

Removed five companies from the existing peer group: ARRIS Group because of its acquisition by CommScope Holding; CA because of its acquisition by Broadcom; CommScope Holding because its revenue had increased above the target range following the acquisition of ARRIS Group; Finisar because of its then-pending acquisition by II-VI; and NETGEAR because its revenue and market capitalization had dropped below the target ranges; and

 

   

Added five new companies – II-VI, Harris, Keysight Technologies, NetApp and Synopsys – because each met several of the applicable criteria and together, given their larger revenues and the presence in the existing peer group of several companies with smaller revenues than Ciena, would continue to position Ciena close to the peer group market median for revenue.

Based on this analysis and the selection process set forth below, the Committee determined that the following peer group constituted an appropriate comparative reference for determining executive compensation in fiscal 2020 (the “Peer Group”):

 

LOGO

 

The following charts illustrate a comparison of Ciena to the Peer Group based on the assessment criteria of revenue, market capitalization and employee headcount, measured as of the date of the Committee’s assessment in June 2020, with the revenue comparison based on revenue over the four fiscal quarters preceding the assessment.

 

Peer Group Comparison

 

 

LOGO

The Committee noted that Ciena was slightly above the median of the Peer Group for the revenue criterion (54%) and significantly below the medians of the Peer Group for the market capitalization criterion (16%) and the headcount criterion (18%). The Committee believed that this represented a reasonable and appropriate balance among the key quantitative criteria, particularly given its view that revenue has the highest relevance in selecting peer companies for purposes of comparing compensation.

 

42   LOGO     2021 Proxy Statement


Market Data. As a comparative framework in establishing executive compensation for our NEOs, Compensia uses compensation data from public filings, compensation surveys such as the Radford High Technology Executive Compensation Survey and the IPAS Global High Technology Survey, and other published market data relating to comparable executive positions in the Peer Group (collectively, the “Market Data”). In considering the Market Data, the Committee recognizes that executive officers in different companies can play different roles, with different responsibilities and scopes of work, even though they may hold similar titles or nominal positions. Moreover, qualitative factors that influence compensation, such as each executive officer’s performance during the period under consideration or their perceived importance to their respective companies’ business, strategy and objectives are not easily discernible from the Market Data. Accordingly, the Market Data is just one of a number of factors used by the Committee in determining executive compensation and it serves as a frame of reference for compensation.

Qualitative Factors

In any given year, and for any particular NEO, the Committee may consider a range of subjective or qualitative factors in setting his or her compensation, including:

 

   

the role the executive plays and the importance of such individual to Ciena’s business strategy and objectives;

   

differences in each executive’s tenure and experience;

   

the responsibilities and particular nature of the functions performed or managed by the executive;

   

our CEO’s recommendations and his assessment of the executive’s performance;

   

the risk that such individual would leave Ciena if not appropriately compensated and motivated; and

   

the likely cost and difficulty that would be encountered in recruiting a replacement.

The Committee’s consideration of any particular factor may range from inapplicable to significant, depending upon the individual and period under consideration. The Committee does not assign relative weights or rankings to such factors. Rather, the Committee relies upon its members’ knowledge and judgment in assessing the various qualitative and quantitative inputs it receives as to each individual and makes compensation decisions accordingly.

In determining fiscal 2020 executive compensation, and in addition to the assessment of the Market Data and other specific factors described in the below discussion of the individual elements of compensation, the Committee broadly considered the following qualitative factors in making its compensation decisions for each NEO. Given their tenure, track record and experience, the Committee considered the NEOs to be highly desirable executives and thus potential candidates for recruitment by other companies.

 

 

LOGO

    

Gary B. Smith

 

    

   Has successfully served as our CEO for over 19 years

 

    

   One of the longest-tenured CEOs in the telecommunications industry

 

    

   Continued to demonstrate outstanding strategic leadership of and direction for Ciena, including strong leadership of our executive team and our company

 

    

   Focused the organization on executing against a proven strategy of delivering industry-leading technology innovation, diversifying the business across market segments and geographies, and leveraging global scale

 

    

   Against the backdrop of a global pandemic and resulting macroeconomic uncertainty and industry challenges, presided over Ciena’s delivery of a strong year of profitability

 

 

LOGO

    

James E. Moylan, Jr.

 

    

   Maintained excellent relationships with the financial community and our stockholders

 

    

   Provided effective management and leadership over the finance and accounting, global business operations, information technology, internal audit, investor relations, tax and treasury organizations

 

    

   Supervised the ongoing strengthening of our balance sheet, including a substantial increase in free cash flow

 

    

   Effectively managed our operating expense to enable incremental investment across the business, including in our products, infrastructure and people

 

    

   Served as the executive sponsor of several cross-functional, longer-term projects to enable integrated business processes and improve operating efficiencies

 

LOGO     2021 Proxy Statement   43


 

LOGO

     Scott A. McFeely
    

   Exhibited strong leadership of the Global Products & Services organization

    

   Oversaw industry-leading technology innovation from the engineering organization, including the industry’s first single-wavelength 800G product

    

   Ensured that the product line management and supply chain organizations continued to drive meaningful product design and transformation cost reductions

    

   Successfully focused on developing and deploying our MCP domain controller platform and Adaptive IP solutions

    

   Enabled improvement of critical customer experience metrics relating to supply chain operations and global services delivery, despite COVID-related challenges

 

 

LOGO

     Jason M. Phipps
    

   Led the Global Customer Engagement (formerly Global Sales & Marketing) organization to deliver increased gross margin and global optical market share

    

   Achieved these positively differentiated results during a continued period of variable customer spending and intense competition within our industry sector

    

   Oversaw several new strategic customer wins across our entire solutions portfolio

    

   Supported initiatives during the pandemic to enhance our customer engagement model and virtual customer collaboration tools

    

   Focused on expanding internal go-to-market resources in the areas of IP and automation

 

 

LOGO

     David M. Rothenstein
    

   Demonstrated strong performance as General Counsel and Secretary

    

   Substantially revised the annual meeting calendar and engagement framework with our Board of Directors

    

   Established and led our COVID-19 business continuity planning team, including recommendations relating to office closures, travel restrictions and site reopening guidelines

    

   Supervised our corporate social responsibility program, including establishment of our digital inclusion commitment and corporate environmental goals

    

   Continued to serve as the Chair of our Disclosure Committee and our Corporate Compliance Committee, and as executive sponsor of our enterprise risk management program

Internal Equity. The Committee seeks to promote strong teamwork and high morale within our executive team. While the Committee does not use any quantitative formula or multiple for comparing or establishing compensation among our executive officers, it is mindful of internal pay equity considerations, and assesses the relationship of the compensation of each executive officer to other members of the executive team. Each fiscal year, the Committee also considers, on a relative basis, the aggregate portion of equity awards, in terms of economic value and allocation of shares, made to the executive team, in comparison to other eligible employees.

 

44   LOGO     2021 Proxy Statement


Elements of Compensation

Principal Elements of Compensation

The principal elements of compensation of our executive officers, including our NEOs, include:

 

                 
Element     

 

  Type     

 

  Form     

 

   Key Characteristics     

 

   Purpose
                      
         
         Base Salary                      Fixed            Cash               Annual adjustments based on individual performance, relative to market pay level and internal pay equity           Attracts, retains and rewards NEOs by providing a competitive fixed amount of compensation for service that reflects skill, responsibility and experience
                      
         

Annual Cash    

Incentive    

    Variable       Cash          Variable cash compensation, based on pre-established financial, strategic and operational goals and individual performance     

Focuses NEOs on achievement of our short-term financial and operational goals

 

Aligns interests of NEOs with stockholders by promoting strong revenue and operating income growth and achievement of other key corporate objectives

                      

Long-Term    

Equity    

Incentive    

    Variable      

Restricted    

Stock Units    

    

 

RSU equity awards based on continued service vest in quarterly increments over a four-year period

    

Retains NEOs through multi-year vesting of equity awards

 

Motivates and rewards NEOs for the achievement of long-term corporate performance

 

Aligns NEO and stockholder interests

            
     

Performance    

Stock Units    

    

 

PSU equity awards based on pre-determined financial, strategic and/or operational goals have a one-year performance period and vest in equal increments over two years

 
            
     

Market    

Stock Units    

    

 

MSU equity awards based on TSR relative to a comparison index over a three-year period, and vest in full at end of period

 

We also provide severance and change in control related payments and benefits for our NEOs, and other benefits such as a 401(k) plan, health and wellness benefits including an annual physical examination, and financial planning and tax preparation services. In addition, our NEOs participate in the Deferred Compensation Plan available to other senior management employees and standard employee benefit plans and programs available to our other employees.

 

LOGO     2021 Proxy Statement   45


Pay Mix

In determining the mix of compensation among these elements, the Committee does not assign specific ratios or other relative measures that dictate the total compensation mix to be awarded or targeted to the executive team, or the portion that is either at-risk or otherwise subject to performance. Nevertheless, as illustrated by the charts below, the Committee continued to structure executive compensation in fiscal 2020 so that a significant portion of the target total direct compensation of the CEO and the other NEOs was “at-risk” or performance-based, with the actual value realized subject to the achievement of short-term or long-term corporate and financial performance goals. Approximately 59% of our CEO’s target total direct compensation for fiscal 2020 was structured as “at-risk” performance-based. By linking a significant portion of our executives’ compensation to performance, the Committee emphasized incentive-based variable pay, which is consistent with our pay-for-performance philosophy and creates a strong alignment with long-term stockholder value.

 

CEO FY 2020 Target

Total Direct Compensation Mix

    

NEO FY 2020 Target

Total Direct Compensation Mix

LOGO   LOGO    LOGO

Target Total Direct Compensation reflects annual base salary, annual cash incentive opportunity and grant date fair value of fiscal 2020 equity awards.

Cash Compensation

Base Salary

In determining base salaries for fiscal 2020, the Committee not only recognized the changes in the composition of the Peer Group but also considered that the overall market had experienced year-over-year increases in cash compensation, both collectively and at the individual executive level, which were significantly greater than the year-over-year increases in cash compensation for Ciena’s executives. As a result, the Market Data showed that the base salaries for all of the executives in the aggregate had decreased from the 50th to the 35th percentile of the market, and that the base salary for each of the NEOs was either at or below the 40th percentile of executives in equivalent positions at the time of the Committee’s assessment. The Committee was concerned about the continuing market competitiveness of Ciena’s cash compensation for its executives, particularly in light of Ciena’s outstanding business and financial performance and the factors for each individual executive described in the “Qualitative Factors” described above, and therefore sought to better align the fiscal 2020 base salaries of the NEOs with the approximate median of the Market Data for their respective positions by approving the increases set forth below. In addition, the Committee considered that Messrs. McFeely and Phipps had each been promoted into executive leadership roles in recent years and continued to have meaningful expansions of their roles and oversight of important strategic and operational initiatives. The Committee believed that these increases were reasonable and appropriate under the circumstances. By way of example, even after the increase for Mr. Smith, his base salary still remained below the 50th percentile of the market for chief executive officers.

Annual Base Salary

 

   
  

 

   Annual Base Salary ($)
   
Name   

Fiscal

2019

    

Fiscal

2020

    

Percentage

Increase

   

Gary B. Smith

   $   950,000      $   1,000,000        5.3%
   

James E. Moylan, Jr.

   $ 560,000      $ 575,000        2.7%
   

Scott A. McFeely

   $ 440,000      $ 500,000      13.6%
   

Jason M. Phipps

   $ 440,000      $ 500,000      13.6%
   

David M. Rothenstein

   $ 485,000      $ 515,000        6.2%

 

46   LOGO     2021 Proxy Statement


The above salary increases were made effective as of Ciena’s second quarter of fiscal 2020, in order to coincide with the timing of Ciena’s broad-based merit increase for non-executive employees.

Annual Cash Incentive Opportunity

The annual incentive cash opportunity for our employees, including the NEOs, is expressed as a percentage of base salary. Because of this correlation, the Committee typically looks at base salary and annual cash incentive compensation in combination, and considers the effect modifications to either such element have on the “target total cash compensation” for each individual. The Committee considers potential incentive payments to each NEO at the “target” level (as reflected in “Annual Cash Incentive Bonus Plan” below), together with base salary, in determining the “target total cash compensation” payable to each executive.

The Committee considered that, for the same reasons set forth above with respect to base salaries, the Market Data showed that, if fully paid at the target level, the overall target total cash compensation of the executives in the aggregate had decreased from the 60th to the 40th percentile of the market, with variance by individual executive, at the time of the Committee’s assessment. The Committee noted that, after application of the increase to his base salary, Mr. Smith’s target total cash compensation approximated the market median for chief executive officers and determined not to increase his target cash incentive opportunity for fiscal 2020. However, the Committee recognized that, even after the base salary increases for the other NEOs, their target total cash compensation remained below the 50th percentile of their equivalent positions in the market. Accordingly, in order to increase the continuing market competitiveness of their cash compensation, the Committee decided to increase the fiscal 2020 target cash incentive opportunities for the NEOs other than Mr. Smith and Mr. Phipps, as set forth below.

Annual Cash Incentive Opportunity

 

   
  

 

  

Target Cash Incentive Compensation

(as a percentage of base salary)

   
Name    Fiscal 2019   Fiscal 2020  

Percentage

Increase

   

Gary B. Smith

   125%   125%   0%
   

James E. Moylan, Jr.

     85%     90%   6%
   

Scott A. McFeely

     85%     90%   6%
   

Jason M. Phipps

   100%   100%   0%
   

David M. Rothenstein

     75%     80%   7%

Target Total Cash Compensation

The Committee’s decisions with respect to annual base salaries and annual cash incentive bonus opportunities for fiscal 2020 resulted in target total cash compensation for the NEOs as set forth below.

Target Total Cash Compensation

 

   
  

 

   Target Total Cash Compensation ($)
   
Name    Fiscal 2019      Fiscal 2020     

Percentage

Increase

   

Gary B. Smith

   $   2,137,500        $   2,250,000          5.3%
   

James E. Moylan, Jr.

   $ 1,036,000        $ 1,092,500          5.5%
   

Scott A. McFeely

   $ 814,000        $ 950,000        16.7%
   

Jason M. Phipps

   $ 880,000        $ 1,000,000        13.6%
   

David M. Rothenstein

   $ 848,750        $ 927,000          9.2%

The amounts in the table above represent target total cash compensation for fiscal 2019 and fiscal 2020. For amounts actually earned or received by our NEOs during fiscal 2020, see “Summary Compensation Table” in the “Executive Compensation Tables” below.

Annual Cash Incentive Bonus Plan

Full-time employees, excluding our employees who receive sales commissions, generally are eligible to participate in our annual cash incentive bonus plan, which pays out a bonus upon the achievement of performance objectives established by the Committee. This plan is the mechanism for delivering the annual cash incentive opportunity discussed above. The bonus plan, which

 

LOGO     2021 Proxy Statement   47


is more fully described in the “Grants of Plan-Based Awards” section of the “Executive Compensation Tables,” provides the Committee with the flexibility to establish corporate, departmental or individual performance objectives upon which bonus payments are contingent.

The bonus plan is structured to focus and incent our executive officers on the achievement of a pre-established set of short-term financial and corporate performance objectives. The payout percentage under the bonus plan is determined by multiplying the average payout based on levels of achievement of the financial objectives by a multiplier based on the level of achievement of the corporate objectives.

 

 

LOGO

Fiscal 2020 Structure. In designing the fiscal 2020 bonus plan, the Committee decided to retain the existing structure from the previous year, including the use of two financial objectives and a set of defined corporate objectives to determine the applicable bonus funding percentage. Revenue and adjusted operating income were again selected as the financial objectives in order to reflect Ciena’s overall emphasis on balancing both top-line revenue growth and bottom-line profitability. These financial objectives were weighted equally and their performance averaged to determine the total financial funding percentage. In turn, the financial funding percentage was multiplied by the corporate objectives multiplier, which included an upside multiplier based on overperformance against the corporate objectives, to derive the total bonus funding percentage. However, the Committee made two changes to the pay-for-performance table for the adjusted operating income financial objective: (i) increased the minimum performance threshold from 70% to 80% of target; and (ii) modified the slope for performance below target from 1-to-1 to 1.5-to-1, such that, the resulting target bonus earned for 90% performance against target would decrease from 90% to 85%. These changes were made to reflect Ciena’s larger adjusted operating income target and its historical performance against that target, and to better balance risk and reward for adjusted operating income performance below target by avoiding the possibility of a meaningful bonus payout in the event of Ciena’s average or below-average financial performance. The Committee considered that, based on Ciena’s historical performance against the financial targets in its annual operating plan, the likely range of outcomes on the financial objectives would result in a fiscal 2020 bonus payout representing a percentage of Ciena’s profit that was reasonably consistent with that in recent years.

The applicable bonus funding percentage under the fiscal 2020 bonus plan is calculated as set forth below, with the maximum amount that could be paid equaling 216% of the target bonus ((200% x 50%) + (160% x 50%) x 1.2). The Committee elected to use the same objectives for all eligible employees, including our NEOs, in order to align the interests of our employee base and to promote teamwork and morale. Overall, the fiscal 2020 bonus plan was designed to balance and align the interests of our employees and stockholders, while incentivizing the company’s workforce to drive toward improved profitability and stockholder return.

 

     

Fiscal 2020

Revenue

   

 

 

Fiscal 2020

Adjusted Operating Income

   

 

  Corporate Objectives  Multiplier
           

Performance

Against Target

(%)

 

Total Target

Bonus Earned

(%)

  LOGO  

Performance

Against Target

(%)

 

Total Target

Bonus Earned

(%)

  LOGO  

Objectives

Achieved

(#)

  Multiplier
           

< 90%

      0%  

 

  < 80%       0%  

 

  < 4   0.0x
           

   90%

    50%  

 

     80%     70%  

 

     4   0.8x
           

   95%

    75%  

 

     90%     85%  

 

     5   0.9x
           

 100%

  100%  

 

   100%   100%  

 

     6   1.0x
           

 105%

  150%  

 

   110%   120%  

 

     7     1.1x *
           

³110%

  200%  

 

   120%   140%  

 

     8     1.2x *
   

 

 

 

 

 

  ³130%   160%  

 

  * Only applies if achieve minimum
           

performance threshold of each Financial Objective; otherwise reverts to 1.0x

 

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Bonus payments are interpolated for performance results falling between the designated levels set forth above. For illustrative purposes only and by way of example, if Ciena had achieved 98% of the revenue target, 90% of the adjusted operating income target and seven of its eight corporate objectives, the applicable annual cash incentive award would have been 96% ((90% x 50%) + (85% x 50%) x 1.1) of the target bonus opportunity.

Financial Objectives. As noted above, the Committee believed that the use of two financial performance-based metrics – revenue and adjusted operating income – would provide the most comprehensive and effective indicator of Ciena’s overall operating performance, reduce dependency on a single financial objective, and balance emphasis on top-line and bottom-line performance. The Committee recognized that those measures were two of the most important and frequently reviewed metrics used by our CEO and executive team in managing Ciena’s business. In calculating adjusted operating income, the Committee gives effect to certain adjustments to our GAAP results generally consistent with those reported in our quarterly earnings releases, as well as the cost of the annual incentive bonus plan and any sales incentive compensation paid to our global field organization in excess of that budgeted in our annual operating plan.

 

   

The fiscal 2020 revenue target was $3,800 million.

 

   

The fiscal 2020 adjusted operating income target was $645 million in the aggregate, after taking into account the above adjustments.

Each of the above targets was taken directly from our fiscal 2020 operating plan approved by the Board of Directors.

Corporate Objectives. The fiscal 2020 corporate objectives were aligned with Ciena’s execution imperatives for the fiscal year, as follows:

 

 

Optical & MCP

   

  Achieve general availability of at least three of four defined Packet-Optical product releases or feature content

   
 
Packet / IP & 5G    

  Achieve general availability of at least three of four defined Packet Networking product releases or feature content

 

  Generate $320M in orders from Packet Networking portfolio

   
 

Blue Planet

   

  Generate $90M in orders from Blue Planet portfolio, of which 50% are derived from certain named customers

   
 
Go-to-Market    

  Generate 12% year-over-year aggregate increase in orders from international sales regions

 

  Deploy an Adaptive IP solution based on new Service-Aware Operating System release with three customers

   
 
Customer Experience    

  Maintain and improve customer experience by attaining defined levels of product delivery by original promise date and deployment project completion on-time

 

  Implement two internal project initiatives relating to new Salesforce.com platform release and a “no touch” customer purchase order booking process

 

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Attainment of Fiscal 2020 Cash Incentive Bonus

Ciena had a solid year of business and financial performance in fiscal 2020 against the backdrop of the COVID-19 pandemic and its resulting business and economic impacts. The company significantly underachieved against the revenue target as a direct result of the material slowdown in both customer spending and business velocity around the world due to COVID-19. At the same time, the company overachieved against the adjusted operating income target due to higher gross margins associated with deriving a larger percentage of revenue from existing business instead of new design wins and early-in-life projects, as well as lower operating expense due to reduced travel and other costs resulting from the ongoing pandemic.

 

 

Revenue

(50%)

      

 

Adjusted Operating Income

(50%)

Target

($MM)

 

Actual

($MM)

 

% Bonus

Payout

             

Target

($MM)

 

Actual

($MM)

 

% Bonus

Payout

$  3,800

  $ 3,532   65%      $ 645   $ 694   115%

Based on the payout-for-performance structure described above, this resulted in a bonus earned at 90% of target ((65% + 115%) / 2). Separately, Ciena achieved six of the eight corporate performance objectives for fiscal 2020, after falling short on both the Blue Planet orders and international orders growth objectives for the reasons set forth above, which resulted in application of a 1.0x multiplier. Notwithstanding the impact of those factors outside of Ciena’s control, the Committee determined not to make any adjustments to either the objectives or the payout under the fiscal 2020 incentive bonus plan. As a result, the NEOs earned and were awarded a bonus equal to 90% of the annual target bonus opportunity (90% x 1.0), which resulted in the cash incentive bonus payments as set forth below.

Attainment of Fiscal 2020 Cash Incentive Bonus

 

Name   

Fiscal 2020

Cash Incentive Bonus

 
   

Gary B. Smith

   $   1,125,000  
   

James E. Moylan, Jr.

   $ 465,750  
   

Scott A. McFeely

   $ 405,000  
   

Jason M. Phipps

   $ 450,000  
   

David M. Rothenstein

   $ 370,800  

 

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Equity Compensation

Factors and Process in Determining Equity Awards

In determining equity compensation for fiscal 2020, the Committee considered that the year-over-year market increases in annual equity values were slightly higher than those provided to Ciena’s executive officers. The Market Data showed that, as a result of these market increases, the overall average equity value of awards granted to our executive officers as compared to the market decreased year-over-year, from the 50th to the 45th percentile of the market at the time of the Committee’s assessment. The Committee noted that this overall average in equity value fell below the bottom of its target range of between the 50th and 75th market percentiles for the value delivered to similar executives. As previously discussed, Ciena primarily competes with and hires executives from companies that are substantially larger in all relevant comparator metrics, and therefore are not appropriate to include in the Peer Group. This dynamic requires the Committee to develop a peer group of industry-related companies with whom the Company does not directly compete but who represent an aggregate financial profile that places Ciena at or about the market median, with revenue as the most relevant criterion. As a result, in order to better reflect market dynamics and Ciena’s resulting challenge in attracting and retaining top executives, the Committee believes that it is appropriate to establish equity values for our executive officers using a target range at or above median for the values delivered to similar executives in the Peer Group.

Based on Compensia’s analysis, as well as Ciena’s strong business and financial performance and the factors for each individual executive described in “Qualitative Factors” above, our CEO prepared recommendations for target equity values for each of the NEOs (other than himself) for the Committee’s consideration.

In determining fiscal 2020 equity compensation, and in addition to the qualitative factors described above, the Committee considered, among other things, the following:

 

   

our CEO’s assessment of the overall responsibilities, performance, experience, expertise and value to Ciena of each individual, as well as the criticality of each position and any concerns with respect to retaining the individual;

   

the existing, unvested equity holdings of each individual and assumptions relating to future values;

   

the potential impact of awards at the target equity values on key compensation governance metrics, including current and three-year average burn rate, equity overhang levels, and equity grant expense as a percentage of market capitalization;

   

the specific number of shares resulting from the proposed target equity values using a range of possible grant date Ciena stock prices; and

   

the number of shares remaining available for issuance under the 2017 Plan.

The Committee made its own evaluation for our CEO, based upon its assessment of his responsibilities, performance, experience and value to Ciena, as well as consideration of the above additional factors.

Equity Awards

As described above, based on the Market Data, the overall average equity value for awards to our executives was below the bottom of the Committee’s target range for the value delivered to similar executives, with variation by executive. The Committee agreed that, after taking steps in recent years to align executive equity compensation with the Peer Group, and particularly in the context of Ciena’s strong business and financial performance in recent years, it was important to ensure that equity compensation for our executives kept pace with the market and that of similarly situated executives in the Peer Group. Accordingly, the Committee established values for the fiscal 2020 equity awards to Mr. Smith and the other NEOs that represented meaningful year-over-year increases in grant date value, with variance by individual executive based on market benchmarking for the applicable position, in order to maintain alignment with the market.

By way of example, the Committee noted that Mr. Smith’s equity value only approximated the market median of equity values awarded to chief executive officers in the Peer Group. Consequently, the Committee granted him a fiscal 2020 equity award with a grant date value representing a 21% year-over-year increase. Given the continued overall market increase in CEO equity values, however, this award still only served to position Mr. Smith’s equity value slightly above the market median and at the lowest end of the Committee’s target range. Similarly, the year-over-year increases in grant date values of the fiscal 2020 equity awards to the other NEOs largely served to maintain their existing market positioning at approximately at or around the median of equity values awarded to similar executives. Overall, the Committee believed that the values of the equity awards to the NEOs were reasonable and appropriate.

 

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In order to ensure continued alignment between the compensation of our executives and Ciena’s business and financial performance relative to the applicable market, the Committee decided to use the same equity allocation as in recent years. Specifically, the fiscal 2020 equity awards for our executive officers included a combination of restricted stock units (RSUs), performance stock units (PSUs) and market stock units (MSUs), the key elements of which are set forth below.

 

                     
Equity Vehicle    

 

  Weighting
(CEO)
   

 

  Weighting
(Other NEOs)
   

 

  Metric(s)    

 

 

Performance

Period

   

 

  Vesting
                   

 

Restricted

Stock Units

 

 

 

  40%  

 

  50%  

 

  None  

 

  N/A  

 

 

Quarterly (1/16th)

over four years

                   

 

Performance

Stock Units

 

              36%                30%     Sales Orders and Adjusted EPS    

One Year

(Fiscal 2020)

   

50% after first year and

50% after second year

                   

 

Market

Stock Units

 

    24%     20%     Relative TSR    

Three Years

(Fiscal 2020 – 2022)

    100% after third year

Based on the trailing 30-day average of Ciena’s closing stock price prior to the grant date, the individual equity values established by the Committee were calculated into a specific number of shares of Ciena’s common stock underlying each equity award, and then allocated as set forth above. The table below sets forth the specific number of shares underlying the equity awards, with the PSU and MSU awards at target level based on achievement of the goals described below, and the aggregate grant date delivered value of such awards based on Ciena’s closing stock price of $40.89 on the grant date of December 17, 2019. The grant date delivered values set forth below reasonably reflect the Committee’s intent and practice in establishing the target equity award values and resulting equity awards for the NEOs. Please refer to the Summary Compensation Table below and its accompanying footnotes for more information on the grant date fair value calculated in accordance with FASB ASC Topic 718.

Fiscal 2020 Annual Equity Awards

 

         
Name   

RSUs

(#)

      

Target
PSUs

(#)

      

Target

MSUs

(#)

  

Grant Date

Delivered
Value

($)

 
   

Gary B. Smith

     85,516          76,964        51,309    $   9,077,393  
   

James E. Moylan, Jr.

     24,052          14,431          9,621    $ 2,029,894  
   

Scott A. McFeely

     24,052          14,431          9,621    $ 2,029,894  
   

Jason M. Phipps

     24,052          14,431          9,621    $ 2,029,894  
   

David M. Rothenstein

     20,043          12,026          8,017    $ 1,691,548  

RSUs. The Committee used its standard four-year vesting period for the RSUs – one-sixteenth of the grant amount vesting each calendar quarter over a four-year period – in order to promote long-term alignment with stockholders and longer-term decision making that provides an effective balance to the shorter-term incentive measures used in setting cash incentive bonus awards.

PSUs. The Committee structured the PSUs with a fiscal 2020 performance period. In selecting a one-year period, the Committee sought to achieve a balance between the desire to incorporate a specific performance-based component in the long-term incentive compensation for our executive officers with an acknowledgment of the difficulties inherent in establishing long-term performance goals in an uncertain macroeconomic environment and a volatile sector of the telecommunications industry. Although the Committee carefully considered the implications of using a one-year performance period instead of a longer period for its long-term incentive compensation, it ultimately determined that any related issues were outweighed by the desire to avoid any unintended consequences of motivating the wrong behavior or limiting Ciena’s flexibility as a result of outdated or inapplicable long-term goals in future years. In recognition of the one-year performance period, the Committee incorporated an additional retention element to the performance equity compensation, whereby any PSU shares that were earned during the fiscal 2020 performance period would be subject to a staggered vesting and delivery schedule in two equal installments over the 12 months following the fiscal 2020 performance period, subject to the individual executive’s continued service with Ciena. In establishing this performance equity structure, the Committee was significantly influenced by the fact that it had been using a similar structure for the past several years and that the structure successfully achieved the Committee’s desired objectives for both company performance and long-term incentive compensation for our executives. The Committee also considered this structure to be reasonable and appropriate in light of the use of longer-term MSUs as part of the overall equity allocation for the executives.

 

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In establishing goals for the PSUs, the Committee sought to align the interests of our executive officers with our stockholders by focusing their efforts on ensuring the longer-term growth of our business while achieving growing profitability. The Committee also sought to avoid any overlap between the goals for the annual cash incentive bonus plan and the long-term equity compensation for the executive officers. Accordingly, the PSUs were based on two goals for fiscal 2020: the aggregate sales orders target of $3,928 million and the adjusted earnings per share target of $2.71. Each of these goals was derived directly from the targets set forth in our fiscal 2020 operating plan, which was reviewed and approved by the Board of Directors. The PSUs were allocated equally between the two goals, and the Committee considered the prospects for attainment and non-attainment of the PSU performance goals to be equally likely.

Any portion of the PSUs not earned by the end of the performance period would be forfeited. The PSUs were designed such that 100% of the shares underlying the award would be earned upon the achievement of 100% of both the sales orders target and the adjusted EPS target. Consistent with our pay-for-performance philosophy, and to closely align the interests of our executive officers with our stockholders and to further incentivize them to overachieve against our fiscal 2020 operating plan, the Committee incorporated upside earning potential to the PSUs for extraordinary performance and downside risk for under-performance against each of the two goals. Specifically, the Committee established the following minimum performance thresholds and maximum number of additional PSUs that could be earned for achievement against the sales orders and adjusted earnings per share targets, as set forth below:

 

 

Aggregate Sales Orders
(50%)

       

 

Adjusted Earnings Per Share

(50%)

Aggregate Sales
Orders

($MM)

  

Total Target

PSUs Earned

(%)

  

        

  

Adjusted EPS

($)

  

Total Target
PSUs Earned

(%)

       

< $  3,535

       0%       < $  2.17        0%
       

   $  3,535

     50%          $  2.17      80%
       

   $  3,928

   100%          $  2.71    100%
       

³ $   4,321

   200%   

 

   ³ $  3.79    200%

The percentages of target PSUs earned are interpolated on a straight-line basis for results falling between the designated levels set forth above. Based on the above table, the maximum amount of PSUs that could be earned was 200% of the target number of shares underlying the PSU award.

MSUs. For the third consecutive year, the Committee incorporated a relative performance goal as part of the annual equity awards for our executive officers. The MSUs are based on Ciena’s total stockholder return (“TSR”) – i.e., its stock price appreciation – as compared to the total reported return (the “Return”) of the S&P North American Technology-Multimedia Networking Index (the “S&P Networking Index”) over a three-year measurement period covering Ciena’s fiscal 2020 through fiscal 2022 (the “Measurement Period”). The Committee selected the S&P Networking Index as the appropriate comparator index both because it is directly relevant to our business, consisting of several companies in our sector and including Ciena as a constituent, and because its overall performance has been closely correlated to that of Ciena in recent years. For purposes of determining the TSR for Ciena and the Return for the S&P Networking Index, and in order to mitigate the potential impact of stock price volatility, the beginning and ending values for each measure will be determined on an average basis over a period of 90 calendar days prior to both the beginning and the end of the Measurement Period. For the same reasons as with the PSUs, the Committee incorporated upside earning potential to the MSUs for outperformance against the S&P Networking Index and downside risk for underperformance against the S&P Networking Index. Specifically, the applicable percentage of the target number of MSUs earned will be determined based on the absolute percentage point difference between Ciena’s TSR as compared to the Return for the S&P Networking Index during the Measurement Period, as set forth below:

 

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Fiscal 2020 MSU Performance Goal

 

Fiscal 2020-22

Relative TSR

    (absolute percentage
point difference)

  

Target MSUs       

Earned       

(%)       

(50)%

  

    0%       

(40)%

  

  20%       

(30)%

  

  40%       

(20)%

  

  60%       

(10)%

  

  80%       

Equal

  

100%       

  10%

  

120%       

  20%

  

140%       

  30%

  

160%       

  40%

  

180%       

³ 50%

  

200%       

The percentage of target MSUs earned is interpolated on a straight-line basis for results falling between the designated levels set forth above. Based on the above table, the maximum amount of MSUs that can be earned is 200% of the target number of shares underlying the MSU award. However, if Ciena’s TSR during the Measurement Period is negative (as a result of a decline in our stock price during such period), then the awardee will earn less than 100% of the target number of shares underlying the MSU award. To the extent earned, the MSUs will vest in full in December 2022 following the end of the Measurement Period, subject to the individual executive’s continued service with Ciena through the vesting date. Any portion of the MSUs not earned at the end of the Measurement Period will be forfeited.

Overall, the Committee believed that nearer-term goals focused on top-line growth and bottom-line cash generation (via the PSU goals of sales orders and adjusted earnings per share), complemented by a longer-term goal focused on relative TSR, is an effective combination that will closely align the interests of our executive officers with those of stockholders and thereby enhance stockholder value.

Attainment of Fiscal 2020 PSUs

As noted above, Ciena had a solid year of business and financial performance in fiscal 2020 against the backdrop of the COVID-19 pandemic and its resulting impacts. The company significantly underachieved against the aggregate sales orders target and overachieved against the adjusted earnings per share in fiscal 2020, as set forth below:

 

 

Aggregate Sales Orders
(50%)

       

 

Adjusted Earnings Per Share

(50%)

Target

($MM)

 

Actual

($MM)

   % PSUs
earned
  

      

  

Target

($)

  

Actual

($)

   % PSUs
earned
       

$  3,928

 

$  3,623

   61%   

 

   $  2.71    $  2.95    122%

Based on the equal weighting of the two goals, approximately 91.5% of the total PSUs were earned as set forth below. One-half of the PSUs earned during fiscal 2020 vested in December 2020, and the remaining one-half of the PSUs earned will vest in December 2021, subject to continued service.

Fiscal 2020 PSU Awards Earned

 

Name   

PSUs

Earned

(#)

         

 

 

Gary B. Smith

  

 

70,422

 

      

James E. Moylan, Jr.

  

 

13,203

 

      

Scott A. McFeely

  

 

13,203

 

      

Jason M. Phipps

  

 

13,203

 

      

David M. Rothenstein

  

 

11,004

 

          

 

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Attainment of Fiscal 2018 MSUs

The MSUs granted in December 2017 applied to the three-year measurement period covering Ciena’s fiscal 2018 through fiscal 2020. During that period, Ciena’s stock price significantly increased from $22.53 at the beginning of the measurement period to $47.72 at the end of the measurement period, thereby generating a TSR of 111.34%. During that same period, the stock price of the S&P Networking Index increased from $192.97 to $211.32, thereby generating a Return of 9.51%. Based on that performance, Ciena’s TSR outperformed the S&P Networking Index’s Return over the measurement period by 101.83%, which resulted in 200% of the total MSUs being earned as set forth below. By their terms, the MSUs vested in their entirety in December 2020.

 

Fiscal 2018-2020

Comparative TSR Performance

Ciena TSR

(%)

  

Index TSR

(%)

   % MSUs
earned

111.34%

  

9.51%

  

200%

Fiscal 2018 MSU Awards Earned

 

Name   

MSUs

Earned

(#)

         

 

 

Gary B. Smith

  

 

149,210

 

      

James E. Moylan, Jr.

  

 

28,694

 

      

Scott A. McFeely

  

 

22,956

 

      

Jason M. Phipps

  

 

19,130

 

      

David M. Rothenstein

  

 

22,956

 

          

Equity Award Practices

We apply a consistent approach in our equity award practices by granting annual equity awards to our executive officers and directors at or around the same time each year. Annual equity awards to our NEOs are made by the Committee, and the grant date of these awards is the same day that the Committee meets to approve the awards. The Committee generally meets, approves and grants annual equity awards to our executive officers promptly following Ciena’s release of earnings for the fourth quarter and fiscal year. This practice began in fiscal 2007 and continued for annual equity awards in fiscal 2020, with the fourth quarter earnings release on December 12, 2019 and executive and non-executive awards granted on December 17, 2019.

 

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Other Program Elements and Pay Practices

Risk Assessment of Compensation Practices

During fiscal 2020, at the Committee’s request and direction, management conducted an assessment of the risks associated with Ciena’s compensation policies and practices, including:

 

   

review of plans, policies and procedures relating to the components of our compensation programs

   

review of incentive-based cash and equity compensation features

   

identification of any regional or functional distinctions in our compensation programs

   

identification of compensation design features that could potentially encourage excessive or imprudent risk taking, and identification of business risks that these features could potentially encourage

   

consideration of the presence or absence of appropriate controls, oversight or other factors that mitigate potential risks

   

consideration of risks related to our compensation policies and practices and the potential for such risks to result in a material adverse effect on Ciena as a whole

The Committee paid particular attention to any additions, modifications or revisions to our compensation programs during the current and preceding fiscal years, and how these changes affected the strengths, weaknesses or controls related to such programs. The Committee also focused its assessment on performance-based incentive compensation programs involving variable payouts and compensation programs impacting our executive team. In substantially all cases, compensation programs were found to be centrally designed and administered and, excluding sales incentive compensation, substantially identical across function and geography. And, the objectives used to determine incentive compensation were found to be based primarily on Ciena’s reported financial results and other performance-based corporate performance goals used to manage the business or derived from Ciena’s annual operating plan approved by the Board of Directors.

In addition, the assessment identified significant controls and other mitigating factors that serve to offset elements of Ciena’s compensation policies and practices that may introduce risk, including:

 

   

oversight of major incentive compensation programs and decision-making by the Committee, which, in most cases, retains the ability to adjust elements of incentive compensation in its discretion

   

robust internal controls over financial reporting and compensation practices regularly reviewed and/or tested by internal auditors and subject to testing as part of the annual independent integrated audit by our external auditors

   

appropriate segregation of duties

   

Audit Committee oversight and review of financial results and non-GAAP adjustments used in certain components of incentive compensation

   

presence of and training relating to corporate standards of business conduct and ethics

   

substantial alignment of compensation and benefits for executive and non-executive salaried employees

   

a recoupment or “clawback” feature for incentive compensation awarded under Ciena’s 2017 Plan that, in addition to being applicable to those executive officers covered by the requirements of the Sarbanes-Oxley Act of 2002, is applicable to any award recipient who knowingly, or through gross negligence, engages in or fails to prevent misconduct resulting in material non-compliance with financial reporting requirements under the securities laws

Based on the assessment and factors described above, the Committee determined that the risks associated with Ciena’s compensation policies and practices are not reasonably likely to result in a material adverse effect on Ciena.

Stock Ownership Guidelines

To align the interests of our executive officers and directors with those of our stockholders, and to promote our commitment to sound corporate governance, the Board has established stock ownership guidelines for our executive officers and non-employee directors. The guidelines require such persons to hold shares of Ciena common stock of a value equal to a multiple of their annual base salary or annual cash retainer, as applicable, as follows:

 

   
Position    Stock Ownership Requirement

CEO

  

5x base salary

Executive Chairman

  

5x base salary

Executive Officers

  

2x base salary

Non-Employee Directors

  

  5x cash retainer

 

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We also have a requirement that our executive officers and non-employee directors hold 50% of all shares of Ciena common stock acquired from Ciena equity awards (net of any shares withheld for taxes or payment of exercise price) until they achieve the applicable minimum ownership level.

Each executive officer and non-employee director is subject to these guidelines, provided he or she has five years to attain the requisite stock ownership from the date such individual first becomes subject to the guidelines. Shares that count toward satisfaction of the stock ownership guidelines include: (i) shares owned outright by the person or his or her immediate family members residing in the same household; (ii) shares held in trust for the benefit of the person or his or her family; (iii) shares held through our Deferred Compensation Plan; and (iv) shares purchased on the open market. Unexercised stock options, whether or not vested, unvested restricted stock units, and unearned and unvested performance stock units or market stock units, do not count toward the satisfaction of the guidelines. The guidelines may be waived, at the Compensation Committee’s discretion, if compliance would create hardship or prevent compliance with a court order.

Deferred Compensation Plan

We maintain the Ciena Corporation Deferred Compensation Plan, which allows a select group of management employees in the United States (including our NEOs) to defer up to 75% of base salary and up to 100% of other compensation, including cash incentive bonuses, commissions and RSU awards. The plan also allows non-employee directors to defer up to 100% of their annual cash retainer and annual RSU awards. The plan does not provide for any matching or discretionary contributions to participants except for restorative matching payments of foregone matching contributions that a participant would have received under the terms of our 401(k) Plan but for the participant’s deferrals into the plan.

U.S. Executive Severance Benefit Plan

We maintain a U.S. Executive Severance Benefit Plan as part of our efforts to continue to attract and retain top executive talent. This plan, which is governed by the Employee Retirement Income Security Act of 1974, as amended, provides certain U.S.-based employees, including the NEOs and employees of the rank of vice president or above, with certain severance payments and benefits in the event of an involuntary separation of service by Ciena without “cause.” For additional information about the severance payments and benefits payable under this plan, as well as the estimated value of these payments and benefits, see “Payments Upon Involuntary Separation of Service for Other than Cause” below.

Change in Control Severance Agreements

Each of our executive officers has a change in control severance agreement with Ciena. We have entered into these agreements upon the initial hiring of senior employees, upon promotion of existing employees to senior executive roles, and when the Compensation Committee determines it to be important for the retention of other key employees. The current change in control severance agreements are effective through November 2022, unless earlier terminated. We believe that these severance arrangements are important for retention of key employees and necessary to attract qualified executive officers, who may otherwise be deterred from taking a position with us by the possibility of being dismissed following a change in control, particularly given the level of acquisition activity in our industry.

Except for the conversion of certain performance-based equity into time-based awards, (i) the CEO receives no benefits under this agreement unless his employment is terminated without cause, or by him for good reason, within 90 days prior to or 18 months following the effective date of a change in control transaction, and (ii) the other NEOs receive no benefits under these agreements unless their employment is terminated without cause, or by the executive for good reason, within 90 days prior to or 12 months following the effective date of a change in control transaction. We believe this so-called “double trigger” structure strikes an appropriate balance between the potential compensation payable to executive officers and the corporate objectives described above. We also believe that were Ciena to engage in discussions or negotiations relating to a corporate transaction that our Board of Directors deems in the interest of stockholders, these agreements would serve as an important tool in ensuring that our executive team remains focused on the consummation of the transaction, without significant distraction or concern relating to personal circumstances such as continued employment. Should any severance payment or benefit be subject to excise tax imposed under federal law, or any related interest or penalties, such severance payments or benefits shall be either (a) paid in full by us or (b) paid in a lesser amount such that no portion of the payments would be subject to the excise tax, whichever results in receipt by the executive of a greater amount. Under this “best choice” mechanism, Ciena would not pay any excise taxes or make any gross-up or similar reimbursement payments related to excise taxes resulting from any severance payment or benefit.

For additional information about the payments and benefits payable under these agreements, as well as the estimated value of these payments and benefits, see “Potential Payments Upon Termination or Change in Control” below.

 

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Clawback Policy

We maintain a compensation recoupment or “clawback” policy that applies to equity incentive awards under our 2017 Plan, annual cash incentive plan awards, and sales incentive compensation. This policy, which is broader than currently required by applicable law, provides for recoupment of certain benefits in the event that Ciena is required to prepare an accounting restatement due to material noncompliance, as a result of misconduct, with any financial reporting requirement under applicable securities laws. Specifically, those executive officers subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002, and any other recipient of covered incentive compensation who knowingly engaged in such misconduct, was grossly negligent in engaging in the misconduct, knowingly failed to prevent the misconduct or was grossly negligent in failing to prevent the misconduct, is required to reimburse Ciena the amount of any payment in settlement of such award earned or accrued during the 12-month period following the first public issuance or filing with the SEC (whichever first occurred) of the financial document that contained such material noncompliance.

Perquisites Policy

Under our perquisites policy, our executive officers are eligible for the same benefits as salaried employees and receive only limited perquisites, generally consisting of annual physical examinations as well as tax preparation and financial planning services, both of which are made available to other senior employees.

Required Reimbursement Policy

We maintain a policy requiring our executive officers to reimburse certain costs associated with any personal use of items such as corporate tickets to sporting or cultural events and personal use of any corporate membership at a golf or similar club. Specifically, any executive officer who makes personal use of such tickets is required to reimburse Ciena for the face value of the tickets used. Any executive who makes personal use of a club in which Ciena has a corporate membership must reimburse Ciena for the cost of any meals, merchandise, greens fees, lessons and other charges associated with his or her use and, in addition, reimburse Ciena for a pro-rata share of the annual membership dues for each day on which he or she makes personal use of the facilities. To date, any personal usage has been extremely limited as corporate memberships are maintained predominately in order to use these facilities for business-related functions. The annual dues for each of the three executive officers named individually on club memberships used by Ciena generally range from $8,000 to $19,900.

Anti-Hedging and Pledging Policy

In accordance with our Insider Trading Policy, and as set forth in “Principles of Corporate Governance, Bylaws and Other Governance Documents” above, our employees (including executive officers) and directors are prohibited from pledging Ciena securities and engaging in hedging transactions with respect to Ciena securities.

 

 

Compensation Committee Report

 

 

 

The Compensation Committee has reviewed and discussed the “Compensation Discussion and Analysis” with management, and, based on this review and discussion, has recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this proxy statement and incorporated into Ciena’s Annual Report on Form 10-K for fiscal 2020 by reference from this proxy statement.

 

Submitted by the members of the Compensation
Committee:

 

Judith M. O’Brien (Chair)

Hassan M. Ahmed, Ph.D.

Bruce L. Claflin

Patrick T. Gallagher

Joanne B. Olsen

 

 

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Executive Compensation Tables

The following tabular information, accompanying narrative disclosure and footnoted detail provide compensation-related information for our named executive officers (“Named Executive Officers” or “NEOs”) as of the end of fiscal 2020. These executive compensation tables include all compensation awarded to or earned by each NEO for the fiscal years indicated below in which they served as an executive officer.

Summary Compensation Table

The Summary Compensation Table below presents compensation earned by our Named Executive Officers for each of the last three fiscal years during which they served as executive officers in accordance with SEC rules.

Fiscal 2020 Summary Compensation Table

 

Name and Principal Position    Year   

Salary

($) (1)

  

Bonus

($)

  

Stock

Awards

($) (2)

  

Non- Equity

Incentive Plan

Compensation

($) (3)

  

All Other

Compensation

($) (4)

  

Total

($)

Gary B. Smith

    

 

2020

    

$

988,462

    

 

    

$

9,077,393

    

$

1,125,000

    

$

11,400

    

$

11,202,255

President and CEO

    

 

2019

    

$

  1,010,344

    

 

    

$

  8,030,246

    

$

  1,959,375

    

$

16,400

    

$

  11,016,365

      

 

2018

    

$

917,307

    

 

    

$

6,797,777

    

$

1,406,250

    

$

8,250

    

$

9,129,584

James E. Moylan, Jr.

    

 

2020

    

$

571,888

    

 

    

$

2,029,894

    

$

465,750

    

$

  18,921

    

$

3,086,453

SVP and CFO

    

 

2019

    

$

597,270

    

 

    

$

1,917,075

    

$

785,400

    

$

15,907

    

$

3,315,652

      

 

2018

    

$

535,096

    

 

    

$

1,565,279

    

$

557,813

    

$

12,597

    

$

2,670,785

Scott A. McFeely

    

 

2020

    

$

486,154

    

 

    

$

2,029,894

    

$

405,000

    

$

21,400

    

$

2,942,448

SVP, Global Products and Services

    

 

2019

    

$

490,769

    

 

    

$

1,578,769

    

$

617,100

    

$

49,564

    

$

2,736,202

      

 

2018

    

$

438,462

    

 

    

$

1,252,250

    

$

412,500

    

$

13,415

    

$

2,116,627

Jason M. Phipps

    

 

2020

    

$

486,154

    

 

    

$

2,029,894

    

$

450,000

    

$

18,181

    

$

2,984,229

SVP, Global Customer Engagement

    

 

2019

    

$

473,846

    

 

    

$

1,578,769

    

$

726,000

    

$

16,369

    

$

2,794,984

                                      

David M. Rothenstein

    

 

2020

    

$

508,077

    

 

    

$

1,691,548

    

$

370,800

    

$

11,303

    

$

2,581,728

SVP, General Counsel and Secretary

    

 

2019

    

$

528,846

    

 

    

$

1,578,769

    

$

600,188

    

$

8,400

    

$

2,716,203

      

 

2018

    

$

458,654

    

 

    

$

1,252,250

    

$

421,875

    

$

8,250

    

$

2,141,029

 

(1)

Ciena has a 52 or 53-week fiscal year, which ends on the Saturday nearest to the last day of October in each year. Ciena’s fiscal 2020 and fiscal 2019 consisted of a 52-week period. Ciena’s fiscal 2018 consisted of a 53-week period. For fiscal 2019, salary for each NEO includes a one-time payout of accumulated vacation time resulting from a change in policy relating to vacation accrual for all employees in the U.S. and Canada.

 

(2)

The amounts set forth in the “Stock Awards” column represent the aggregate grant date fair value of RSU, PSU and MSU awards granted during the fiscal years noted above, computed in accordance with FASB ASC Topic 718. Aggregate grant date fair values reported above do not reflect sale or forfeiture of shares to fund tax withholding in accordance with the terms of the award agreement and will likely vary from the actual amount ultimately realized by any NEO based on a number of factors, including the number of shares that are earned and ultimately vest, the timing of vesting, the timing of any sale of shares and the market price of Ciena common stock at that time. For RSUs, we calculate grant date fair value by multiplying the number of shares underlying the award by the closing price per share of Ciena common stock on the grant date. Assumptions used in determining the grant date fair value of PSUs and MSUs are set forth in Note 23 to our consolidated financial statements included in our Annual Report on Form 10-K for fiscal 2020. Assuming the maximum future payout under the PSUs and MSUs, the aggregate grant date fair value in the “Stock Awards” column above for fiscal 2020 would have been as follows: $14,658,037 for Mr. Smith, $3,076,302 for Mr. Moylan, $3,076,302 for Mr. McFeely, $3,076,302 for Mr. Phipps, and $2,563,537 for Mr. Rothenstein. See the “Grants of Plan-Based Awards” table below for information relating to RSU, PSU and MSU awards granted during fiscal 2020 under our 2017 Plan.

 

(3)

Non-Equity Incentive Plan Compensation reflects amounts earned by each NEO under Ciena’s annual cash incentive bonus plan for fiscal 2020. See the “Grants of Plan-Based Awards” table below for information relating to cash incentive awards granted during fiscal 2020 under our annual cash incentive bonus plan.

 

(4)

All other compensation includes the following for each NEO (as applicable) during fiscal 2020:

 

  a.

For each NEO, Section 401(k) plan matching contributions paid by us and generally available to all full-time U.S. employees, together with payments made in fiscal 2020 in lieu of 401(k) matching contributions that would have been for calendar year 2019 absent IRS limitations. Includes $11,400 for each of Messrs. Smith and McFeely, $11,303 for Mr. Rothenstein, and $10,721 for Mr. Moylan.

 

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  b.

For Messrs. Moylan, McFeely, and Phipps, reimbursement of costs associated with financial planning and tax preparation services generally made available to all executive officers, subject to a $10,000 annual limit per tax year on such services.

Grants of Plan-Based Awards

Non-Equity Incentive Plan Awards. Non-equity incentive plan awards for fiscal 2020, which are identified as “Incentive Cash” in the “Grant of Plan-Based Awards” table below, represent the estimated range of potential payouts possible under our annual cash incentive bonus plan at the time of award. The actual cash incentive bonus earned by the NEOs during fiscal 2020 is set forth in the “Non-Equity Incentive Compensation” column of the “Summary Compensation Table” above. The design of the plan for fiscal 2020, including the use of a combination of (i) financial objectives consisting of our fiscal 2020 revenue target and our fiscal 2020 adjusted operating income target and (ii) corporate objectives consisting of eight corporate performance goals, to derive the total bonus payout percentage, is set forth in the table below and more fully described in “Compensation Discussion and Analysis” above.

 

 

LOGO

 

     

Fiscal 2020

Revenue

     

Fiscal 2020

Adjusted Operating Income

      Corporate Objectives Multiplier

Performance

Against Target

(%)

 

Total Target

Bonus Earned

(%)

  LOGO  

Performance

Against Target

(%)

 

Total Target

Bonus Earned

(%)

  LOGO  

Objectives

Achieved

(#)

  Multiplier

 < 90%

 

   0%

   

< 80%

 

     0%

   

< 4

 

0.0x

    90%

 

  50%

   

   80%

 

  70%

   

   4

 

0.8x

    95%

 

  75%

   

   90%

 

  85%

   

   5

 

0.9x

  100%

 

100%

   

  100%

 

100%

   

   6

 

1.0x

  105%

 

150%

   

  110%

 

120%

   

   7

 

  1.1x *

³110%

 

200%

   

  120%

 

140%

   

   8

 

  1.2x *

     

³130%

 

160%

    * Only applies if achieve minimum
performance threshold of each
Financial Objective; otherwise
reverts to 1.0x
         
         

Based on the level of achievement of the fiscal 2020 financial objectives and corporate objectives, bonuses under the cash incentive bonus plan would have been payable at each of the “threshold,” “target” and “maximum” levels as set forth below, with payments interpolated for results falling between the designated levels:

 

     Fiscal 2020
Cash Incentive Bonus Plan
    
     Revenue
Objective
Achieved
  

Adjusted
Operating
Income

Objective

Achieved

   Corporate
Objectives
Achieved
  

Target    

Bonus    

Payable    

    

“Threshold”

 

    90%

  

  < 80%

  

4

  

  20%    

   

“Target”

 

  100%

  

   100%

  

6

  

100%    

   

“Maximum”

 

³ 110%

  

³ 130%

  

8

  

216%    

   

The “threshold,” “target” and “maximum” values in the table below are calculated by multiplying each NEO’s base salary for fiscal 2020 by his respective target bonus opportunity (expressed as a percentage of annual base salary) by the applicable target bonus payable factor above. See “Compensation Discussion and Analysis — Annual Cash Incentive Bonus Plan.”

 

60   LOGO     2021 Proxy Statement


Equity Awards. Equity awards during fiscal 2020 consisted of RSU, PSU and MSU awards. Each such stock award represents a contractual right to receive one share of our common stock. RSU awards granted to the NEOs in fiscal 2020 vest over a four-year term, with one-sixteenth of the grant amount vesting quarterly.

PSU awards granted to the NEOs in fiscal 2020 were structured such that 100% of the shares underlying the award would be earned upon the achievement of 100% of both the sales orders target and the adjusted earnings per share target, as more fully described in “Compensation Discussion and Analysis — Equity Award Allocation and Structure — PSUs” above. The PSU awards incorporate upside earning potential to the PSUs for extraordinary performance and downside risk for under-performance against each of the two goals. Specifically, the PSU awards are subject to the following minimum performance thresholds and maximum number of additional PSUs that could be earned for achievement against the sales orders and adjusted earnings per share targets, as set forth below:

Fiscal 2020 PSU Performance Goals

 

 

Aggregate Sales Orders
(50%)

       

 

Adjusted Earnings Per Share

(50%)

Aggregate Sales
Orders

($MM)

  

Total Target

PSUs Earned

(%)

  

        

  

Adjusted EPS

($)

  

Total Target
PSUs Earned

(%)

       

< $  3,535  

       0%       < $  2.17        0%
       

   $  3,535  

     50%          $  2.17      80%
       

   $  3,928  

   100%          $  2.71    100%
       

³ $   4,321  

   200%   

 

   ³ $  3.79    200%

MSU awards granted to the NEOs in fiscal 2020 were based on Ciena’s TSR – i.e., its stock price appreciation – as compared to the total reported return (the “Return”) of the S&P Networking Index over a three-year measurement period covering Ciena’s fiscal 2020 through fiscal 2022 (the “Measurement Period”). For purposes of determining the TSR for Ciena and the Return for the S&P Networking Index, the beginning and ending values for each measure will be determined on an average basis over a period of 90 calendar days prior to both the beginning and the end of the Measurement Period. The MSU awards incorporate upside earning potential to the MSUs for outperformance against the S&P Networking Index and downside risk for underperformance against the S&P Networking Index. Specifically, the applicable percentage of the target number of MSUs earned will be determined based on the absolute percentage point difference between Ciena’s TSR as compared to the Return for the S&P Networking Index during the Measurement Period, as set forth below:

Fiscal 2020 MSU Performance Goal

 

Fiscal 2020-22

Relative TSR

    (absolute percentage    
point difference)

  

Target MSUs       

Earned       

(%)       

(50)%

  

    0%       

(40)%

  

  20%       

(30)%

  

  40%       

(20)%

  

  60%       

(10)%

  

  80%       

Equal

  

100%       

  10%

  

120%       

  20%

  

140%       

  30%

  

160%       

  40%

  

180%       

³ 50%

  

200%       

The percentage of target MSUs earned is interpolated on a straight-line basis for results falling between the designated levels set forth above. Based on the above table, the maximum amount of MSUs that can be earned is 200% of the target number of shares underlying the MSU award. However, if Ciena’s TSR during the Measurement Period is negative (as a result of a decline in our stock price during such period), then the maximum number of shares than can be earned is 100% of the target number of shares underlying the MSU award. To the extent earned, the MSUs will vest in full in December 2022 following the end of the Measurement Period, subject to the individual executive’s continued service with Ciena through the vesting date. Any portion of the MSUs not earned at the end of the Measurement Period will be forfeited.

 

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The following table sets forth information regarding non-equity incentive awards and equity awards granted to each of the NEOs during fiscal 2020. For information regarding the performance criteria applicable to PSUs and MSUs granted in fiscal 2020, see “Compensation Discussion and Analysis” above. For each equity award made to our NEOs during fiscal 2020, the date that the award was approved by our Compensation Committee was the same as the grant date.

Fiscal 2020 Grants of Plan-Based Awards

 

             
             Estimated Possible
Payouts Under
Non-Equity Incentive
Plan Awards (1)
    Estimated Future
Payouts Under
Equity Incentive
Plan Awards
   

All Other

Stock

Awards:

Number

of Shares

of Stock or

Stock Units

(#)

 

Full Grant    

Date Fair    

Value (3)    

($)    

 
Name   Type of Award   Grant Date  

Threshold

($)

   

Target

($)

   

Maximum

($)

   

Threshold

(#) (2)

 

Target

(#)

   

Maximum

(#)

 

Gary B. Smith

 

PSU

 

12/17/2019

       

19,241

 

 

76,964

 

 

 

153,928

 

   

$

  3,147,058  

 

   

RSU

 

12/17/2019

             

85,516

 

$

 3,496,749  

 

   

MSU

 

12/17/2