2018 Guide to Effective Proxies

2.3 Table of contents | 59 6 TH EDITION | GUIDE TO EFFECTIVE PROXIES MICROSOFT CORPORATION MSA SAFETY, INC. NASDAQ, INC. PAYCOM SOFTWARE, INC. Proxy Statement table of contents Proxy summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 Corporate governance at Microsoft Corporategovernanceprinciplesandpractices ...................... 7 Ourcorporategovernancecyclepromoteseffectiveshareholder engagement .................................................. 7 Annualcorporategovernancecycle ............................ 7 Ourprogressivecorporategovernanceframework ............... 8 WehaveanindependentChairmanoftheBoard ................ 8 OurBoardisindependent...................................... 9 WehaveindependentBoardcommitteeswithappropriate expertise ..................................................... 9 Wehaveprogressiveshareholderrights......................... 9 Ourapproachtoriskoversight ................................. 10 Keypoliciesensureaccountabilityandalignmentwithshareholder interests ..................................................... 10 Directorsreceiveorientationandcontinuingeducation .......... 10 Boardandcommitteesannuallyevaluatetheireffectiveness ...... 10 Ourapproachtocorporatesocialresponsibility.................. 10 Politicalcontributionstransparency ............................. 12 HowtocommunicatewithourBoard ............................... 12 2 Board of Directors Proposal1:Electionofdirectors .................................... 13 Directorselectionandqualifications ................................ 13 WeselectBoardmembersthroughadisciplinedprocess ......... 13 Boardmembershipcriteria ..................................... 14 Keyboardqualifications,expertise,andattributes ............... 15 Shareholderrecommendationsandnominationsofdirector candidates .................................................... 16 Ourdirectornominees ............................................. 17 Directorindependence............................................. 24 Directorattendance................................................ 24 Boardcommittees ................................................. 25 AuditCommittee .............................................. 25 CompensationCommittee ..................................... 26 GovernanceandNominatingCommittee ........................ 27 RegulatoryandPublicPolicyCommittee ........................ 27 Directorcompensation ............................................. 28 Compensationstructurefordirectors ........................... 28 Fiscalyear2017directorcompensation ......................... 29 Certainrelationshipsandrelatedtransactions........................ 30 vi Total of 03 pages in section TABLEOFCONTENTS PROXYSUMMARY FREQUENTLYASKEDQUESTIONS PROXYSTATEMENT 1 VOTINGSECURITIESANDRECORDDATE 1 PROPOSALNOS.1AND2–ELECTIONOFDIRECTORS 2 DirectorIndependence 5 CorporateGovernanceMatters 7 BoardCommittees 9 RiskOversight 10 CompensationofDirectors 11 CompensationCommitteeInterlocksandInsiderParticipation 12 ReviewandApprovalorRatificationofRelatedPartyTransactions 12 NominatingandCorporateGovernanceCommitteeProcedures 13 BoardRecommendationandRequiredVote 13 EXECUTIVECOMPENSATION 14 CompensationDiscussionandAnalysis 14 ExecutiveSummary 15 CompensationOversightProcess 19 DeterminationofExecutiveCompensationAmounts 21 AdditionalConsiderationsRelatingtotheCEO 28 OtherCompensationandRetirementPolicies 31 CompensationCommitteeReport 34 CompensationTables 35 PayRatioDisclosure 47 AUDITCOMMITTEEREPORT 49 STOCKOWNERSHIP 50 BeneficialOwnershipofManagementandDirectors 50 5%BeneficialOwners 51 BeneficialOwnershipofRyanFamily 51 Section16(a)BeneficialOwnershipReportingCompliance 51 PROPOSALNO.3–SELECTIONOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM 52 BoardRecommendationandRequiredVote 52 PROPOSALNO.4–ADVISORYVOTETOAPPROVEEXECUTIVECOMPENSATION 53 BoardRecommendation 53 OTHERMATTERS 53 ANNUALREPORTONFORM10-K 54 2019SHAREHOLDERPROPOSALS 54 SHAREHOLDERCOMMUNICATIONS 54 EXPENSESOFSOLICITATION 54 Table of Contents SummaryofProposals ................................................................. 1 AbouttheAnnualMeeting .............................................................. 2 Proposal1:ElectionofDirectors ......................................................... 7 VoteRequired ........................................................................... 7 RecommendationoftheBoardofDirectors ................................................... 7 BoardofDirectorsCompositionandIndependence ............................................ 8 DirectorSkills,ExperienceandBackground ................................................... 9 CorporateGovernance ................................................................. 12 BoardLeadershipStructure ................................................................ 12 BoardofDirectorsMeetings ............................................................... 12 Committees ............................................................................. 12 CompensationCommitteeInterlocksandInsiderParticipation.................................... 14 RiskOversight ........................................................................... 14 DirectorQualifications .................................................................... 14 DirectorNominationProcedures ............................................................ 15 CommunicationswiththeBoardofDirectors.................................................. 15 CodeofBusinessConductandEthics ....................................................... 16 DirectorCompensation.................................................................... 16 AuditCommitteeMatters ............................................................... 19 AuditCommitteeReport .................................................................. 19 FeestoIndependentRegisteredPublicAccountingFirm ........................................ 19 PolicyonAuditCommitteePre-approvalofAuditandNon-auditServicesPerformedbyIndependent RegisteredPublicAccountingFirm .......................................................... 20 Proposal2:RatificationoftheAppointmentofOurIndependentRegisteredPublicAccountingFirm .... 21 VoteRequired ........................................................................... 21 RecommendationoftheBoardofDirectors ................................................... 21 Management ......................................................................... 22 CompensationDiscussionandAnalysis ................................................... 24 ExecutiveSummary ...................................................................... 24 CompensationPhilosophy ................................................................. 25 CompensationReviewandDetermination .................................................... 25 CashCompensation ...................................................................... 29 Long-TermIncentiveCompensation ......................................................... 33 OtherCompensationComponentsandConsiderations.......................................... 36 CompensationCommitteeReport ........................................................... 38 i Total of 02 pages in section 13 Table of Contents Table of Contents VotingMatters andBoardRecommendations ....................................................................................................... 15 PerformanceHighlights .................................................................................................................................................. 16 DirectorNominees ............................................................................................................................................................ 17 EngagingwithOur Stockholders ................................................................................................................................. 20 Executive CompensationHighlights .......................................................................................................................... 22 CorporateGovernanceHighlights ............................................................................................................................... 23 CorporateGovernance Framework ............................................................................................................................ 25 CorporateResponsibility, Corporate Culture and Focus on Entrepreneurship ......................................... 32 Stockholder CommunicationwithDirectors ........................................................................................................... 34 Proposal1:ElectionofDirectors ................................................................................................................................ 37 Board Committees ............................................................................................................................................................ 44 Director Compensation . ................................................................................................................................................. 49 Proposal2:Approvalof theCompany’sExecutiveCompensationon anAdvisoryBasis .................... 53 CompensationDiscussion andAnalysis ................................................................................................................... 54 BusinessPerformanceHighlights ........................................................................................................................ 55 Decision-Making Framework ................................................................................................................................. 55 WhatWePay andWhy: Elements of Executive Compensation ............................................................... 61 RiskMitigation andOtherPayPractices ........................................................................................................... 73 Management Compensation CommitteeReport .................................................................................................... 76 Management Compensation Committee Interlocks and InsiderParticipation .......................................... 76 Executive Compensation Tables .................................................................................................................................. 77 2017 Summary Compensation Table ................................................................................................................. 77 2017Grants ofPlan-BasedAwards Table ........................................................................................................ 79 2017Outstanding EquityAwards at FiscalYear-End Table ...................................................................... 80 2017Option Exercises and StockVested Table ............................................................................................. 81 RetirementPlans ........................................................................................................................................................ 81 2017PensionBenefits Table ................................................................................................................................. 82 2017NonqualifiedDeferred Compensation Table ....................................................................................... 82 EmploymentAgreements ............................................................................................................................................... 83 PotentialPayments upon Termination or Change in Control ........................................................................... 84 CEOPayRatio ..................................................................................................................................................................... 88 Proposal3:Approvalof theEquityPlan, asAmended andRestated .................................................................. 91 Audit CommitteeReport .............................................................................................................................................. 105 Annual Evaluation and2018 Selection of IndependentAuditors ............................................................... 106 Proposal4:Ratificationof theAppointmentofErnst&Young LLP asOur Independent RegisteredPublicAccounting Firm for the FiscalYearEndingDecember31,2018 ........................... 109 Proposal5: StockholderProposal – ShareholderRight toActbyWrittenConsent ............................. 111 OtherBusiness ................................................................................................................................................................ 113 Section16(a)BeneficialOwnershipReporting Compliance ........................................................................... 114 SecurityOwnership of CertainBeneficialOwners andManagement ........................................................ 114 ExecutiveOfficers .......................................................................................................................................................... 117 CertainRelationships andRelated Transactions ................................................................................................ 119 Questions andAnswersAbout ourAnnualMeeting ......................................................................................... 121 AnnexA:Non-GAAP FinancialMeasures .............................................................................................................. 129 AnnexB:ProposedAmended andRestated EquityPlan ................................................................................ 132 ProxySummary CorporateGovernance Board ofDirectors NamedExecutive OfficerCompensation AuditCommitteeMatters Other Items Annexes