National Instruments DEF 14A 2008
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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NATIONAL INSTRUMENTS CORPORATION
Notice of Annual Meeting of Stockholders
May 13, 2008
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the 2008 Annual Meeting of Stockholders (the Annual Meeting) of National Instruments Corporation, a Delaware corporation (NI), will be held on May 13, 2008, at 9:00 a.m. local time, at NIs principal executive offices located at 11500 North Mopac Expressway, Building C, Austin, Texas, 78759 for the following purposes as more fully described in the Proxy Statement accompanying this Notice:
1. To elect three directors to the Board of Directors for a term of three years.
2. To transact such other business as may properly come before the meeting or any adjournment thereof.
Only stockholders of record at the close of business on March 17, 2008, are entitled to receive notice of and to vote at the meeting.
All stockholders are cordially invited to attend the Annual Meeting in person. However, whether or not you plan to attend the Annual Meeting, we hope that you will vote as soon as possible. You may vote on the Internet or by telephone by following the instructions provided in the Notice of Internet Availability of Proxy Materials you received in the mail. If you received a paper copy of a proxy card by mail in response to your request for a hard copy of the proxy materials for the Annual Meeting, you may also vote by Internet, telephone, or by completing, signing and dating your proxy card and mailing it in the postage-prepaid envelope enclosed for that purpose, in each case by following the instructions on the proxy card. Voting over the Internet, by telephone or by written proxy will ensure your representation at the Annual Meeting, if you do not attend in person. For specific instructions on how to vote your shares, please review the instructions on the Notice of Internet Availability of Proxy Materials you received in the mail or the proxy card if you received a paper copy of the proxy materials.
Stockholders attending the Annual Meeting may vote in person even if they have submitted a proxy. However, if you have submitted a proxy and wish to vote at the Annual Meeting, you must notify the inspector of elections of your intention to revoke the proxy you previously submitted and instead vote in person at the Annual Meeting. If your shares are held in the name of a broker, trustee, bank or other nominee, please bring a proxy from the broker, trustee, bank or other nominee with you to confirm you are entitled to vote the shares.
March 31, 2008
NATIONAL INSTRUMENTS CORPORATION
INFORMATION CONCERNING SOLICITATION AND VOTING
The National Instruments Corporation, a Delaware corporation (NI) Board of Directors (Board) has made proxy materials available to you on the Internet, or upon your request, has delivered printed versions of proxy materials to you by mail, in connection with the Boards solicitation of proxies for use at NIs 2008 Annual Meeting of Stockholders (the Annual Meeting) to be held on May 13, 2008, at 9:00 a.m., local time, or at any adjournments or postponements thereof, for the purposes set forth in this Proxy Statement and in the accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting will be held at NIs principal executive offices at 11500 North Mopac Expressway, Building C, Austin, Texas 78759. NIs telephone number is (512) 338-9119.
Under rules recently adopted by the U.S. Securities and Exchange Commission (SEC), NI is now furnishing proxy materials to NIs stockholders on the Internet, rather than mailing printed copies of those materials to each stockholder. If you received a Notice of Internet Availability of Proxy Materials by mail, you will not receive a printed copy of the proxy materials unless you request one. Instead, the Notice of Internet Availability of Proxy Materials will instruct you as to how you may access and review the proxy materials on the Internet. If you received a Notice of Internet Availability of Proxy Materials by mail and would like to receive a printed copy of our proxy materials, please follow the instructions included in the Notice of Internet Availability of Proxy Materials. We anticipate that the Notice of Internet Availability of Proxy Materials will be mailed to stockholders on or about March 31, 2008.
Record Date; Outstanding Shares
Stockholders of record at the close of business on March 17, 2008 (the Record Date) are entitled to receive notice of and vote at the Annual Meeting. On the Record Date, 78,111,994 shares of NIs common stock, $0.01 par value, were issued and outstanding.
Voting and Solicitation
Every stockholder of record on the Record Date is entitled, for each share held, to one vote on each proposal that comes before the Annual Meeting. In the election of directors, each stockholder will be entitled to vote for three nominees and the three nominees with the greatest number of votes will be elected.
Whether you hold shares directly as the stockholder of record or beneficially in street name, you may vote on the Internet, by telephone or if you received a paper copy of the proxy materials, by completing, signing and mailing the proxy card enclosed therewith in the postage-prepaid envelope provided for that purpose. Voting over the Internet, by telephone or by written proxy will ensure your representation at the Annual Meeting, if you do not attend in person. For specific instructions on how to vote your shares, please review the instructions on the Notice of Internet Availability of Proxy Materials you received in the mail or the proxy card if you received a paper copy of the proxy materials.
The cost of this solicitation will be borne by NI. NI may reimburse expenses incurred by brokerage firms and other persons representing beneficial owners of shares in forwarding solicitation materials to beneficial owners. Proxies may be solicited by certain of NIs directors, officers and other employees, without additional compensation, personally, by telephone or by email.
Treatment of Abstentions and Broker Non-Votes
Abstentions will be counted for purposes of determining (i) either the presence or absence of a quorum for the transaction of business and (ii) the total number of votes cast with respect to a proposal (other than the election of directors). Accordingly, abstentions will have no effect on the election of directors in Proposal One.
While broker non-votes will be counted for purposes of determining the presence or absence of a quorum for the transaction of business, broker non-votes will not be counted for purposes of determining the number of votes cast with respect to the particular proposal on which the broker has expressly not voted. A broker non-vote will not affect the outcome of the voting on Proposal One.
A broker will vote your shares only if the proposal is a matter on which your broker has discretion to vote (such as the election of directors in Proposal One), or if you provide instructions on how to vote by following the instructions provided to you by your broker.
Revocability of Proxies
Proxies given pursuant to this solicitation may be revoked at any time before they have been used. You may change or revoke your proxy by entering a new vote by Internet or by telephone or by delivering a written notice of revocation to the Secretary of NI or by completing a new proxy card bearing a later date (which automatically revokes the earlier proxy instructions). Attendance at the Annual Meeting will not cause your previously granted proxy to be revoked unless you specifically so request by notifying the inspector of elections of your intention to revoke your proxy and voting in person at the Annual Meeting.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Stockholders of NI may submit proper proposals for inclusion in NIs proxy statement and for consideration at the annual meeting of stockholders to be held in 2009 by submitting their proposals in writing to the Secretary of NI in a timely manner. In order to be considered for inclusion in NIs proxy materials for the annual meeting of stockholders to be held in 2009, stockholder proposals must be received by the Secretary of NI no later than December 1, 2008, and must otherwise comply with the requirements of Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the Exchange Act).
In addition, NIs bylaws establish an advance notice procedure with regard to business to be brought before an annual meeting, including stockholder proposals not included in NIs proxy statement. For director nominations or other business to be properly brought before NIs 2009 annual meeting by a stockholder, such stockholder must deliver written notice to the Secretary of NI at NIs principal executive office no later than January 30, 2009 and no earlier than December 31, 2008. If the date of NIs 2009 annual meeting is advanced or delayed by more than 30 calendar days from the first anniversary date of the 2008 Annual Meeting, your notice of a proposal will be timely if it is received by NI by the close of business on the tenth day following the day NI publicly announces the date of the 2009 annual meeting.
The proxy grants the proxy holders discretionary authority to vote on any matter raised at the Annual Meeting. If such a stockholder fails to comply with the foregoing notice provisions, proxy holders will be allowed to use their discretionary voting authority on such matter should the stockholder proposal come before the 2009 annual meeting.
A copy of the full text of the bylaw provisions governing the notice requirements set forth above may be obtained by writing to the Secretary of NI. All notices of proposals and director nominations by stockholders should be sent to National Instruments Corporation, 11500 N. Mopac Expressway, Building B, Austin, Texas 78759, Attention: Corporate Secretary.
ELECTION OF DIRECTORS
NIs Board of Directors is divided into three classes, with the term of office of one class expiring each year. The number of directors which constitutes the entire board of directors is eight, with two directors in Class I, three directors in Class II, and three directors in Class III. NI currently has seven directors with one vacancy in Class II. The terms of office of Class II directors Jeffrey L. Kodosky and Donald M. Carlton will expire at the Annual Meeting. Mr. Kodosky and Dr. Carlton will stand for re-election to the Board of Directors at the Annual Meeting and NIs Board of Directors has nominated John K. Medica for election as a Class II director. The terms of office of Class III directors Ben G. Streetman, R. Gary Daniels and Duy-Loan T. Le will expire at the 2009 annual meeting. The terms of office of Class I directors James J. Truchard and Charles J. Roesslein will expire at the 2010 annual meeting. After the election at the Annual Meeting, there will be eight directors, with two directors in one class and three directors in two classes. The Board of Directors has determined that each of Mr. Roesslein, Dr. Carlton, Dr. Streetman, Mr. Daniels, and Ms. Le is independent under applicable Nasdaq listing standards and Rule 10A-3 of the Securities Exchange Act of 1934.
The three nominees receiving the highest number of affirmative votes of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote in the election of directors shall be elected to the Board of Directors. Votes withheld from any director are counted for purposes of determining the presence or absence of a quorum, but have no legal effect under Delaware law. Cumulative voting is not permitted by NIs Certificate of Incorporation.
Unless otherwise instructed, the proxy holders will vote the proxies received by them for NIs three nominees named below. If any nominee of NI is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee who is designated by the present Board of Directors to fill the vacancy. It is not expected that any nominee will be unable or will decline to serve as a director. The Board of Directors recommends that stockholders vote FOR the nominees listed below.
Nominees for Election at the Annual Meeting
The Nomination and Governance Committee, consisting solely of independent directors as determined under applicable Nasdaq listing standards, recommended the three individuals set forth in the table below for nomination by our full Board of Directors. Messrs. Kodosky and Carlton are directors standing for re-election. Mr. Medica is a new director nominee recommended by the members of the Nomination and Governance Committee. Based on such recommendations, our Board of Directors nominated such directors for election at the Annual Meeting. The following sets forth information concerning the nominees for election as directors at the Annual Meeting, including information as to each nominees age as of the Record Date, position with NI and business experience.
Jeffrey L. Kodosky co-founded NI in 1976 and has been a member of NIs Board of Directors since that time. He was appointed Vice President of NI in 1978 and served as Vice President, Research and Development from 1980 to 2000. Since 2000 he has held the position of Business and Technology Fellow. Prior to 1976, he was employed at the Acoustical Measurements Division at Applied Research Laboratories (ARL), The University of Texas at Austin (UT Austin). Mr. Kodosky received his bachelors degree in Physics from Rensselaer Polytechnic Institute.
Donald M. Carlton, PhD, has been a member of NIs Board of Directors since 1994. From February 1996 until December 1998, Dr. Carlton served as the President and Chief Executive Officer of Radian International LLC, and from 1969 until January 1996, Dr. Carlton served as President and Chairman of the Board of Radian Corporation, both of which are environmental engineering firms. Dr. Carlton received his bachelors degree in Chemistry from the University of St. Thomas and his PhD in Chemistry from UT Austin. Dr. Carlton is currently a director of the following publicly traded companies: American Electric Power, and Temple-Inland, Inc.
John K. Medica retired as Senior Vice President and Co-Leader, Product Group from Dell Inc. in April 2007. In 1993, Mr. Medica joined Dell as Vice President, Portable Systems. During 1996, he served as President and Chief Operating Officer of Dells Japan division. He returned to the U.S. in August 1997 as Vice President, Procurement, and later served as Vice President, Web Products Group, and Vice President and General Manager, Transactional Product Group. Prior to joining Dell, he served as Project Leader for the Macintosh II, Director of the Macintosh CPU Projects Group and Senior Director of PowerBook Engineering with Apple Computer. Mr. Medica received his bachelors degree in Electrical Engineering from Manhattan College, and his masters degree in Business Administration from Wake Forest University.
INCUMBENT DIRECTORS WHOSE TERMS OF OFFICE
CONTINUE AFTER THE ANNUAL MEETING
The following sets forth information concerning the directors whose terms of office continue after the Annual Meeting, including information as to each directors age as of the Record Date, position with NI and business experience.
Ben G. Streetman, PhD, has been a member of NIs Board of Directors since 1997. He is the Dean of the Cockrell School of Engineering at UT Austin, as well as Professor of Electrical and Computer Engineering, Dula D. Cockrell Centennial Chair in Engineering, and Henry E. Singleton Research Fellow at IC2 Institute. From 1984 to 1996, Dr. Streetman served as Director of the Microelectronics Research Center at UT Austin. Dr. Streetman received his bachelors degree, masters degree, and PhD in Electrical Engineering, all from UT Austin.
R. Gary Daniels has been a member of NIs Board of Directors since 1999. Mr. Daniels retired in 1997 from his position as Senior Vice President and General Manager of the Microcontroller Technologies Group of Motorola, Inc. He joined Motorola in 1965 and helped design, develop, market and manage their microcontroller products, leading a global team that built the business to greater than two billion dollars per year in revenue. He was elected a Motorola Dan Noble Fellow, Motorolas highest technical recognition, and he has been awarded 12 patents. Prior to joining Motorola, Mr. Daniels began his engineering career at Sandia National Laboratories, from 1958 to 1964. Mr. Daniels has a bachelors degree in Electrical Engineering from the University of New Mexico.
Duy-Loan T. Le has been a member of NIs Board of Directors since September 2002. During her continuing 25-year career at Texas Instruments, Inc. (TI), in 2002, Ms. Le became the first woman at TI elected to the rank of Senior Fellow. Since 2000, she has been Digital Signal Processor (DSP) Advanced Technology Ramp Manager at TI, with responsibilities which include assisting with product execution on advanced technology nodes such as 180nm, 130nm, 90nm, 65nm, and 42nm. Ms. Le has been awarded 22 patents and has 8 pending applications. She holds a bachelors degree in Electrical Engineering from UT Austin and a masters degree in Business Administration from the University of Houston.
James J. Truchard, PhD, co-founded NI in 1976 and has served as its President and Chairman of the Board of Directors since inception. From 1963 to 1976, Dr. Truchard worked at ARL, UT Austin as Research Scientist and later Division Head. Dr. Truchard received his PhD in Electrical Engineering, his masters degree in Physics and his bachelors degree in Physics, all from UT Austin.
Charles J. Roesslein has been a member of NIs Board of Directors since July 2000. Since 2004, Mr. Roesslein has been Chief Executive Officer of Austin Tele-Services, LLC, which is in the secondary market for telecom and IT assets. During 2000, Mr. Roesslein served as the Chairman of the Board of Directors and President of Prodigy Communications Corporation, an internet service provider. He served as President of SBC-CATV, a cable television service provider, from 1999 until 2000, and as President of SBC Technology Resources, the applied research division of SBC Communications Inc., from 1997 until 1999. Prior to 1997, Mr. Roesslein served in executive officer positions with SBC Communications, Inc. and
Southwestern Bell. Mr. Roesslein holds a bachelors degree in Mechanical Engineering from the University of Missouri-Columbia and a masters degree in Finance from the University of Missouri-Kansas City. Mr. Roesslein is currently a director of Atlantic Tele-Network, Inc., a publicly traded company.
There is no family relationship between any director or officer of NI.
The following table sets forth the beneficial ownership of NIs common stock as of the Record Date (i) by all persons known to NI, based on statements filed by such persons pursuant to Section 13(d) or 13(g) of the Exchange Act, to be the beneficial owners of more than 5% of NIs common stock, (ii) by each of the executive officers named in the Summary Compensation Table under Executive Compensation, (iii) by each director, and (iv) by all current directors and executive officers as a group:
Board Meetings and Committees
The Board of Directors of NI held a total of 9 meetings, including one overnight retreat, during 2007. During 2007, the Board of Directors had a standing Audit Committee, Compensation Committee, and Nomination and Governance Committee.
No director attended fewer than 75% of the total number of meetings of the Board of Directors and the total number of meetings held by all committees of the Board of Directors on which he or she served. NI encourages, but does not require, its board members to attend NIs annual stockholders meeting. In 2007, all seven directors attended NIs annual stockholders meeting. NI plans to schedule future annual meetings so that at least a majority of its directors can attend the annual meeting.
Communications to the Board of Directors
Stockholders may communicate with members of the Board of Directors by mail addressed to the Chairman, any other individual member of the Board, to the full Board, or to a particular committee of the Board. In each case, such correspondence should be sent to the following address: 11500 North Mopac Expressway, Building B, Austin, Texas 78759, attention: Corporate Secretary. Correspondence received that is addressed to the members of the Board of the Directors will be reviewed by NIs general counsel or his designee, who will forward such correspondence to the appropriate members of the Board of the Directors.
The Audit Committee, which currently consists of directors Donald M. Carlton, Ben G. Streetman, R. Gary Daniels and Charles J. Roesslein, met 11 times during 2007. The Audit Committee appoints, compensates, retains and oversees the engagement of NIs independent registered public accounting firm, reviews with such independent registered public accounting firm the plan, scope and results of their examination of NIs consolidated financial statements and reviews the independence of such independent registered public accounting firm. The Audit Committee inquires about any significant risks or exposures and assesses the steps management has taken to minimize such risks to NI, including the adequacy of insurance coverage and the strategy for management of foreign currency risk. The Audit Committee also reviews NIs compliance with matters relating to antitrust, environmental, Equal Employment Opportunity Commission, export and SEC regulations. The Audit Committee has established procedures for the receipt, retention and treatment of complaints received by NI regarding accounting, internal accounting controls or auditing matters and for NI employees to submit concerns regarding such matters on a confidential and anonymous basis. The Board of Directors believes that each member of the Audit Committee is an independent director as that term is defined by the Nasdaq listing standards and Rule 10A-3 of the Securities Exchange Act of 1934. The Board of Directors has determined that each of Dr. Carlton and Mr. Roesslein is an audit committee financial expert within the meaning of SEC rules. The charter of the Audit Committee is available on NIs website at
Nomination and Governance Committee
The Nomination and Governance Committee, which currently consists of directors Donald M. Carlton, Ben G. Streetman, R. Gary Daniels, Charles J. Roesslein and Duy-Loan T. Le, each of whom is deemed to be an independent director as that term is defined by the Nasdaq listing standards, met once during 2007. The Nomination and Governance Committee recommends to the Board of Directors the selection criteria for board members, compensation of outside directors, appointment of board committee members and committee
chairmen, and develops board governance principles. The Nomination and Governance Committee will consider nominees recommended by stockholders provided such recommendations are made in accordance with procedures described in this Proxy Statement under Deadline for Receipt of Stockholder Proposals. When considering a potential director candidate, the Nomination and Governance Committee looks for demonstrated character, judgment, relevant business, functional and industry experience, and a high degree of acumen. The Nomination and Governance Committees process for identifying and evaluating nominees typically involves a series of internal discussions, review of information concerning candidates and interviews with selected candidates. There are no differences in the manner in which the Nomination and Governance Committee evaluates nominees for director based on whether the nominee is recommended by a stockholder. NI does not pay any third party to identify or assist in identifying or evaluating potential nominees. The charter of the Nomination and Governance Committee is available on NIs website at
The Compensation Committee, which currently consists of directors R. Gary Daniels, Ben G. Streetman, Charles J. Roesslein and Duy-Loan T. Le, each of whom is deemed to be an independent director as that term is defined by the Nasdaq listing standards, met 9 times during 2007. The charter of the Compensation Committee is available on NIs website at
The Compensation Committee seeks input from NIs President and Chief Executive Officer, Dr. Truchard, when discussing the performance of, and compensation levels for executives other than himself. The Compensation Committee also works closely with Dr. Truchard and NIs vice president of human resources and others as required in evaluating the financial, accounting, tax and retention implications of NIs various compensation programs. The vice president of human resources regularly attends the meetings of the Compensation Committee and, at such meetings, provides advice on compensation matters to the Compensation Committee. The vice president of human resources also provides guidance to the Compensation Committee concerning compensation matters as it relates to NIs executive officers. Neither Dr. Truchard nor the vice president of human resources nor any of NIs other executives participates in deliberations relating to his own compensation.
Under the terms of its charter, the Compensation Committee establishes the salary and bonus compensation of NIs Chief Executive Officer, evaluates the performance of NIs executive officers, and establishes the salaries and cash bonus compensation of the executive officers based on recommendations of the Chief Executive Officer. The Compensation Committee also periodically examines NIs compensation structure to evaluate whether NI is rewarding its officers and other personnel in a manner consistent with sound industry practices and makes recommendations on such matters to NIs management and Board of Directors. The Compensation Committee also administers NIs 2005 Incentive Plan, Employee Stock Purchase Plan and Amended and Restated 1994 Incentive Plan. The Board of Directors may by resolution prescribe additional authority and duties to the Compensation Committee.
The Compensation Committees charter does not contain a provision providing for the delegation of its duties to other persons. The Compensation Committee has not delegated any of its authority.
NI has not utilized compensation consultants in determining or recommending the amount or form of executive compensation. As discussed in the Compensation Discussion and Analysis, NI uses survey information and compares its executive compensation levels with those of other technology companies in such survey that NI believes to be comparable in terms of market capitalization and annual revenue.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are set forth in the Corporate Governance Compensation Committee section. During the most recent fiscal year, no NI executive officer served on the compensation committee (or equivalent), or the board of directors, of another entity whose executive officer(s) served on NIs Compensation Committee. During the most recent fiscal year, no NI executive officer served on the compensation committee (or equivalent) of another entity whose executive officer(s) served as a member of the NI Board of Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Related Persons
Except as discussed below with respect to NIs consulting arrangement with John K. Medica, a director nominee, NI had no related party transactions within the meaning of applicable SEC rules for the year ended December 31, 2007.
Pursuant to a consulting agreement dated May 22, 2007, NI engaged Mr. Medica in advisory capacity to provide guidance and recommendations on a number of mutually identified topics relating to product definition, design, development, sales, marketing, support, service, procurement and manufacturing. Pursuant to such agreement, Mr. Medica earned an aggregate of approximately $115,750, based on a billing rate of $2,500 per day for work performed pursuant to such consulting agreement. NI also reimbursed Mr. Medica approximately $4,500 for his travel expenses related to the performance of the services pursuant to the consulting agreement. NI anticipates renewing the consulting agreement for 2008 on substantially similar terms to the arrangement for 2007.
Policy and Procedures for Review, Approval, or Ratification of Related Party Transactions
Pursuant to its written charter, the Audit Committee is responsible for reviewing NIs policies relating to the avoidance of conflicts of interests and past or proposed transactions between NI, members of the Board of Directors of NI, and management. NI considers related person transactions to mean all transactions involving a related person, which under SEC rules means an executive officer, director or a holder of more than five percent of NIs common stock, including any of their immediate family members and any entity owned or controlled by such persons. The Audit Committee determines whether the related person has a material interest in a transaction and may approve, ratify, rescind or take other action with respect to the transaction in its discretion.
In any transaction involving a related person, NIs Audit Committee would consider the available material facts and circumstances of the transaction, including: the direct and indirect interests of the related person; the risks, costs and benefits of the transaction to NI; whether any alternative transactions or sources for comparable services or products are available; and in the event the related person is a director (or immediate family member of a director or an entity with which a director is affiliated) the impact that the transaction will have on a directors independence.
After considering such facts and circumstances, NIs Audit Committee determines whether approval, ratification or rescission of the related person transaction is in NIs best interests. NIs Audit Committee believes that all employees and directors should be free from conflicting interests and influences of such nature and importance as would make it difficult to meet their applicable fiduciary duties and loyalty to NI, and reviews all related party transaction against the foregoing standard.
NIs written policies and procedures for review, approval or ratification of transactions that pose a conflict of interest, including related person transactions, are set forth in its Code of Ethics, which contains, among other policies, a conflicts of interest policy for all employees, including NIs executives, and a conflicts of interest policy for non-employee directors.
Under NIs written conflicts of interest policy applicable to all employees, including NIs executives, every employee is required to report to NIs President any information regarding the existence or likely development of conflicts of interest involving themselves or others within NI. While NI provides examples of potential conflicts of interests, such as investments in enterprises that do business with NI, compensation for services to any person or firm which does business with NI, or gifts and loans and entertainment from any person or firm having current or prospective dealings with NI, the policy applicable to employees expressly states that the examples provided are illustrative only and that each employee should report any other circumstance which could be construed to interfere actually or potentially with loyalty to NI. Transactions involving potential conflicts of interests for employees are reviewed by NIs President, who makes a determination as to whether there exists any conflict of interest or relationship which violates NIs policies and the appropriate actions to take with respect to such relationship. On an annual basis, NIs General Counsel reports to the Audit Committee the conflict of interest reports received and acted upon by the President.
The written conflicts of interest policy applicable to all non-employee directors is substantially similar to the conflicts of interest policy applicable to NI employees, with the exception that every non-employee director is required to report potential conflict of interest situations to the Audit Committee, which is responsible for making the determination as to whether there exists any conflict of interest or relationship which violates such policy. If the Audit Committee determines that a conflict of interest exists, the non-employee director involved will be required to dispose of the conflicting interest to the satisfaction of the Audit Committee.
Determining Compensation for Non-Employee Directors in 2007
The Board of Directors, upon the recommendation of the Nomination and Governance Committee, sets non-employee directors compensation with the goal of retaining NIs directors. In developing its recommendations, the Nomination and Governance Committee considers director compensation at comparable publicly-traded companies and aims to structure director compensation in a manner that is transparent and easy for stockholders to understand.
The compensation of non-employee directors for the fiscal year ended December 31, 2007 is described in the table below.
For Fiscal Year Ended December 31, 2007
The grant date fair value of the 5,001 RSUs granted to each of the non-employee directors in 2007 was approximately $135,527. Grant date fair value is calculated using the closing price of the day immediately preceding the date of grant multiplied by the number of RSUs granted. In 2007 each independent director was granted 5,001 RSUs on April 25, and the grant date fair value of each RSU grant was based on the April 24 closing price of $27.10 per share.
Beginning in 2005, NI began to utilize RSUs as its principal equity compensation incentive for employees, executives and directors. In each of 2005, 2006 and 2007, NI granted to its non-employee directors 5,001 RSUs which vest over a three year period with 1/3 of the RSUs vesting on each anniversary of the vesting commencement date, which is May 1 of each year. As of December 31, 2007, the aggregate number of stock awards held by each of Mr. Roesslein, Dr. Carlton, Dr. Streetman, Mr. Daniels, and Ms. Le consisted of 5,001 shares of vested common stock and 10,002 unvested RSUs.
Prior to 2005, the long-term equity incentive component of NIs compensation program consisted solely of stock options. Each option granted in 2004 vests and becomes exercisable over a period of sixty (60) months from the date of grant and each option granted prior to 2004 vested and became exercisable over a period of thirty-six (36) months from the date of grant. As of December 31, 2007, the aggregate number of stock options held by each non-employee director is shown below:
Neither Dr. Truchard nor Mr. Kodosky has ever been granted any stock options by NI.
Discussion of Director Compensation
In 2007, the annual compensation for NIs non-employee directors was comprised of cash compensation in the form of an annual retainer and meeting and committee fees; and equity compensation in the form of RSUs. Each of these components is described below. An NI employee director does not receive any additional compensation for his service as a director.
Annual Board/Committee Retainer Fees
Non-employee directors are paid an annual cash retainer of $20,000 per year, with the Audit Committee Chair being paid an additional $5,000 annual retainer.
Non-employee directors also receive a fee of $1,500 for attending each Board meeting, $1,000 for each committee meeting attended in person and $150 for each Board or committee meeting attended telephonically. In addition, non-employee directors are paid $3,000 for attending overnight Board retreats.
Non-Employee Director Reimbursement Practice
Non-employee directors are reimbursed for travel and other out-of-pocket expenses connected to Board travel.
Restricted Stock Unit Awards
Under NIs 2005 Incentive Plan, non-employee directors are eligible to receive discretionary RSU grants. In 2005, 2006 and 2007, each non-employee director received a grant of 5,001 RSUs. Prior to 2005, non-employee directors received stock option grants under NIs Amended and Restated 1994 Incentive Plan. Non-employee directors may still exercise options previously granted to them.
The following sets forth information concerning the persons currently serving as executive officers of NI as of the Record Date, including information as to each executive officers age, position with NI and business experience. Officers of NI serve at the discretion of the Board.
See Election of Directors for additional information with respect to Dr. Truchard.
Timothy R. Dehne joined NI in 1987 and currently serves as Senior Vice President, Research and Development. He previously served as NIs Vice President, Engineering from November 1998 to December 2002; as Vice President, Marketing from January 1995 to October 1998; and as Vice President, Strategic Marketing from May 1994 to December 1994. His earlier positions with NI include Strategic Marketing Manager, GPIB Marketing Manager, GPIB Product Manager, and Applications Engineer. Mr. Dehne received his bachelors degree in Electrical Engineering from Rice University.
Peter Zogas, Jr. joined NI in 1985 and currently serves as Senior Vice President, Sales and Marketing. He previously served as NIs Vice President, Sales from July 1996 to December 2002. His earlier positions with NI include National Sales Manager, Business Development Manager, Regional Sales Manager, and Sales Engineer. Prior to joining NI, Mr. Zogas worked as an engineer at TI and, prior to that, at AT&T. Mr. Zogas received his bachelors degree in Electrical Engineering from Drexel University.
Alexander M. Davern joined NI in February 1994 and currently serves as Chief Financial Officer; Senior Vice President, IT and Manufacturing Operations; and Treasurer. He previously served as NIs Chief Financial Officer and Treasurer from December 1997 to December 2002; as Acting Chief Financial Officer and Treasurer from July 1997 to December 1997; and as Corporate Controller and International Controller. Prior to joining NI, Mr. Davern worked both in Europe and in the United States for the international accounting firm of Price Waterhouse, LLP. Mr. Davern received his bachelors degree in Business Administration and a diploma in professional accounting from University College in Dublin, Ireland. Mr. Davern is currently a director of SigmaTel, Inc., a publicly traded company.
Mark A. Finger joined NI in August 1995 as Director of Human Resources and was appointed Vice President, Human Resources in December 1996. Prior to joining NI, Mr. Finger was employed by Rosemount Inc. and Fisher Rosemount Systems Inc. (collectively, Rosemount) from 1981 to 1995 (both of which are process management companies). His positions held at Rosemount include Human Resources Manager, Staffing Manager, Senior Human Resources Representative, Compensation and Benefits Specialist, and Staffing Specialist. Mr. Finger received his bachelors degree in Marketing from St. Cloud University.
John M. Graff joined NI in June 1987 and currently serves as Vice President, Marketing, Customer Operations and Investor Relations. He previously served as NIs Vice President, Marketing from June 1999 to
December 2002 and as Acting Vice President, Marketing from November 1998 to May 1999. His earlier positions with NI include Director, Corporate Marketing, Corporate Marketing Manager, Product Marketing Manager, and Applications Engineer. Mr. Graff received his bachelors degree in Electrical Engineering from UT Austin.
Raymond C. Almgren joined NI in June 1987 and currently serves as Vice President, Product Marketing and Academic Relations. He previously served as NIs Vice President, Product Strategy from September 2001 to December 2002. His earlier positions with NI include Director of Engineering, Director of Marketing, Product Manager, and Applications Engineer. Mr. Almgren received his bachelors degree in Electrical Engineering from UT Austin.
David G. Hugley joined NI in 1991 as General Counsel, was appointed Secretary of NI in 1996, and became Vice President in January 2003. Mr. Hugley received his bachelors degree in Business Administration and JD from UT Austin and is a licensed attorney in Texas.
Robert R. Porterfield joined NI in April 1993 and currently serves as Vice President, Manufacturing. His earlier positions with NI include Director of International Operations and Global Supply Chain, Director of International Operations and Global Planning, Planning Manager, Materials Manager and Warehousing Supervisor. Mr. Porterfield received his bachelors degree in Aerospace Engineering from Auburn University and a masters degree in Business Administration from UT Austin.
Compensation Discussion and Analysis
Overview of Compensation Philosophy and Objectives
NIs philosophy towards compensation for its principal executive officer, principal financial officer, and the three most highly compensated executives other than the principal executive officer and the principal financial officer whose total compensation exceeded $100,000 (the named executives) and other executives reflect the following principles:
Determining Executive Compensation
In establishing NIs overall program for executive compensation, the Compensation Committee of the Board of Directors (the Compensation Committee) works closely with NIs senior management including its chief executive officer and vice president of human resources. However, NIs executives do not participate in any Board or Compensation Committee deliberations relating to their own compensation.
As described below, NI utilizes survey information to help determine that the total compensation package for its executives is competitive to comparable companies. NI exercises judgment in allocating compensation among specific programs in view of its overall compensation philosophy, objectives and business results.
Radford Surveys, a leading provider of survey information regarding executive compensation of technology companies, provides NI with executive compensation information of companies in the high technology industry that have annual revenues ranging from $200 million to $1 billion. NI believes the information from such range is appropriate because it affords an adequate sample size of comparable high technology companies and because the average annual revenue of the companies in such range is comparable to NIs annual revenue. NI compares the compensation of its executive officers with that of the executive officers in the Radford Surveys as a whole rather than any individual company within such survey.
NI believes that total compensation at or around the 50th percentile of the peer companies provided in the Radford Surveys as a group is the appropriate starting point for benchmarking the compensation of its executives. Though NI uses such 50th percentile as a reference point, NI does not target a specific percentile in the range of comparative information for each individual executive or for each component of compensation. Instead, NI structures a total compensation package in view of the comparative information and such other factors specific to the individual, including level of responsibility, prior experience and expectations of future performance. NI uses information obtained from Radford Surveys to test for reasonableness and competitiveness of its compensation package as a whole, but exercises judgment in allocating compensation among executives and within each element of an individuals total compensation package. Other than the use of the Radford Surveys described above, NI does not use peer group executive compensation information. Set forth on Exhibit A is each of the companies that are covered by the relevant portion of the Radford Surveys information utilized by NI.
NI does not have specific policies for allocating between long-term and currently paid out compensation nor policies for allocating between cash and non-cash compensation, and among different forms of non-cash compensation. Other than NIs President and Chief Executive Officer, who does not participate in the Annual Incentive Plan and has not received any equity awards, each NI executive receives a mix of compensation comprised of base salary, cash bonuses and equity awards. The amount of compensation allocated to each element of compensation is determined on a case-by-case basis.
With respect to each of the annual incentive cash bonus program and the long term incentive program, NI sets cash bonus targets based on information provided through the Radford Surveys regarding cash bonus levels of executives at similarly-situated companies, the recommendation of NIs Chief Executive Officer, and each executives function and past performance. The amount of cash bonus ultimately paid depends on the extent to which performance goals are achieved, in each case subject to adjustment at the discretion of the Compensation Committee.
As described in greater detail below in the Analysis of Elements of Executive Compensation, the Compensation Committees considers both NI performance and individual performance when determining the level of compensation for a number of the elements of executive compensation. For example, in determining the grants of RSUs and any increases in base salary, the Compensation Committee takes into consideration, among other things, the prior individual performance of an executive officer, as well as NIs performance. Similarly, the Annual Incentive Plan is an at risk bonus designed to induce NIs executive officers to accomplish a set of goals based upon individual performance and NIs business goals and reflects NIs philosophy that total compensation should be related both to individual performance and NIs performance. Amounts, if any, awarded under the discretionary cash program are determined solely on individual performance. For some of NIs other elements of executive compensation, such as the Annual Company Cash Performance Bonus Program and the long term incentive plan, NIs performance as whole is determinative of the compensation payable to the participants. The Compensation Committee believes that the various elements of executive compensation work together to promote NIs objective that total compensation should be related both to individual performance and NIs performance.
Elements of Executive Compensation
The components of NIs executive compensation are as follows:
A broad base of NIs employees participate in the compensation programs enumerated above with the exception of the annual incentive program for executives and the long term incentive plan for executives. In addition, NIs Senior Vice President, Sales and Marketing, participates in a sales commission program based upon growth and profitability performance measures approved by the Compensation Committee.
All of NIs executive and non-executive employees who meet the relevant eligibility requirements may also participate in the following programs:
NI seeks to reward shorter-term performance through base salary, its annual bonus programs and its discretionary bonus program. Longer-term performance is incentivized through RSU grants, the long term incentive plan and the service award program.
Analysis of Elements of Executive Compensation
NIs goal is to provide its executives with competitive base salaries. NI uses independent survey information to help evaluate the reasonableness and competitiveness of its base salaries. NI determines base salary for each executive based on the level of job responsibilities, consideration of the prior performance of the executive and the company, the executives experience and tenure, consideration of the expected future contributions of the executive, and general compensation trends and practices in the technology industry, including pay levels and programs provided by comparable companies. In setting base salaries, NI does not utilize any particular formula but instead exercises judgment in view of its overall compensation philosophy and objectives. Individual base salaries are reviewed annually.
Annual Cash Bonus Programs
NI rewards achievement of shorter term performance objectives through its cash bonus programs described below:
Annual Company Cash Performance Bonus Program. NI maintains a cash performance bonus program under which substantially all regular full-time and part-time employees, including executives, participate (the Annual Performance Bonus Program). To receive the maximum payout under the plan, NI must achieve pre-determined goals for revenue growth and profitability. These goals, as provided in the plan, were 40% year over year organic revenue growth and 18% operating profit as a percent of revenue. The same goals apply to all participants in the plan including executive and non-executive employees. The amount of the Annual Performance Bonus Program is based on a bonus payment percentage multiplied by the eligible earnings of each participant. Eligible earnings include base salary, overtime pay and commissions but exclude bonuses, equity awards, relocation payments and previous cash performance bonus payments. For 2007, the bonus payment percentage for executives was determined by multiplying 40% by two variables: (x) NIs actual organic revenue growth divided by the targeted level of revenue growth of 40% and (y) NIs actual operating profit as a percentage of revenue multiplied by the target operating profit of 18%. The bonus payments percentage for non-executives was determined in the same manner except that the multiplier is 15% not 40%. Expressed as a formula, the bonus calculation for executives is as follows:
For fiscal 2007, NI named executives received individual payments under the Annual Performance Bonus Program in the range of approximately $22,320 to $32,783. Amounts under the Annual Performance Bonus Program are made in two payments, one in the fourth quarter and the other upon the completion of the annual financial statement audit in the first quarter of the following year.
Annual Incentive Program. NI maintains an annual incentive cash bonus program (the AIP) under which only executives and Business and Technology Fellows and Research and Development Fellows participate. Dr. Truchard, NIs President and Chief Executive Officer, does not participate in the program. Under this program, payments are made based upon the achievement of individual performance criteria and NI business goals established by the NI Board. Program participants are designated by NIs President and approved by the Compensation Committee. The participants under the AIP and the AIP goals are determined annually.
The AIP is intended to increase stockholder value and promote NIs success by providing incentive and reward for the accomplishment of key objectives by NI executives. Under the AIP, an executive is eligible to receive a maximum amount equal to 30% of base salary for Senior Vice Presidents (or, in case of the Senior Vice President of Sales and Marketing, salary plus targeted commission) and a maximum of 20% of base salary for Vice President, Business and Technology Fellows, and Research and Development Fellows. For the purposes of the AIP, the base salary amount is the amount set by the Compensation Committee for base salaries effective as of October 1st of the year immediately preceding the applicable AIP year, and as such, the base salary amount utilized for calculating the maximum amount payable under the applicable AIP in a given year may be less than base salary actually paid to NI executives if the Compensation Committee subsequently raises base salary in October of the applicable AIP year. For example, although Mr. Daverns base salary was $293,750 for 2007, the maximum amount payable to Mr. Davern under the AIP for 2007 was $87,000, or 30% of his base salary of $290,000 effective as of October 1, 2006. Payments are made based on whether the individual executive has achieved his or her specified objectives for the year. Each executive typically has 5 or 6 objectives that are targeted to reward achievements in the executives functional area or NI business goals.
The objectives are presented and approved by NIs President and then submitted for approval each year to the NI Board. The amount of the bonus which is allocated to each specific objective is approved each year by the Compensation Committee.
Following the end of NIs fiscal year, NIs President reviews with each executive whether the objectives for such executive were met. Based on these reviews, the President makes recommendations to the Compensation Committee as to the amount (if any) to be paid to each AIP participant. The Compensation Committee reviews and considers these recommendations and approves the amount of the AIP payments. NIs President and the Compensation Committee, acting together, have the discretion to pay all or a portion of an amount to an AIP participant even if such participant did not met a particular objective if the President and the Compensation Committee believe that such payment is appropriate to achieve the objectives of the program.
For fiscal 2007, NI made cash bonus payments to named executives under the AIP in the range of approximately $37,600 to $79,953 per executive. In fiscal 2007, the Compensation Committee chose to not exercise its discretion and as result, the cash bonus payments made to named executives under the AIP were not adjusted to provide for additional compensation as was the case in the previous year.
The tables below set forth the performance criteria, potential and actual awards under the AIP as well as the weightings assigned to the objectives for 2007 for each of the named executives, except Dr. Truchard, NIs President and Chief Executive Officer, who does not participate in the program:
2007 Annual Incentive Program Goals and Awards for the Named Executives
Alexander Davern, Chief Financial Officer, Senior Vice President Manufacturing & IT
Timothy Dehne, Senior Vice President, Research & Development
Peter Zogas, Senior Vice President, Sales & Marketing
John Graff, Vice President, Marketing, Customer Operations and Investor Relations
In assessing performance against the objectives for each named executive participating in the AIP, NIs President considered the actual results for 2007 against the specific deliverables associated with each objective, the extent to which the objective was a significant stretch goal for the organization, and whether significant unforeseen obstacles or favorable circumstances altered the expected difficulty in achieving the desired results. Based on the foregoing factors, NIs President recommended, and the Compensation Committee approved, an amount of cash payment for each objective for each named executive. As demonstrated by the total amounts set forth under the column heading 2007 Actual Payout, the extent to which NIs named executive officers achieved the maximum payout applicable to them ranged from 58%-92% of the total amount they were eligible to receive under the AIP in 2007.
Sales Commission Program Applicable to Senior Vice President of Sales and Marketing. For 2007, Mr. Zogas annual target sales commission was set on September 20, 2006 at $50,000 by the Compensation Committee to be effective October 1, 2006. On September 19, 2007, the Compensation Committee reviewed the target of $50,000 and reaffirmed such target as the basis for determining actual payments to Mr. Zogas under the sales commission program for 2007. The amount of the sales commission actually paid to Mr. Zogas is based on two variables: (x) NIs actual quarterly year over year revenue growth compared to the target quarterly year over year revenue growth as set forth in the operating budget (revenue factor) and (y) NIs actual quarterly operating profit compared to the target quarterly operating profit as set forth in the operating budget (the profit factor). The profit factor may not exceed 1 for the purposes of computing the commission. NIs Board of Directors approves the operating budget which sets the target quarterly year over year revenue growth and target quarterly profit used for the purposes of calculating the actual commission payments made to Mr. Zogas. Expressed as a formula, the commission calculation for each quarter of the last fiscal year was as follows:
NI is not disclosing the specific target levels utilized in the formula set forth above for determining Mr. Zogas sales commission payouts because they represent confidential information that NI does not disclose to the public and NI believes that disclosure of such information would cause it competitive harm. The specific target levels were set to be a moderately difficult, or stretch goals, but not unachievable.
Under this sales commission program, Mr. Zogas earned for 2007 an aggregate of $48,060, which represents approximately 96.1% of the annual target commission amount of $50,000 set by the Compensation Committee.
Discretionary Cash Bonus Program
NI maintains a discretionary cash performance bonus program under which all employees, including executives, are eligible to receive awards. NIs President does not participate in the program. Under this program, awards are made in recognition of a special achievement by the employee. Awards under this program have typically been in the range of $100 to $2,000 per award. The average award under the discretionary cash performance program in 2007 for employees was approximately $878. The purpose of this program is to award a specific accomplishment that is not covered by NIs other compensation programs. The amount of the award for executives is determined by NIs President and the amount of the award for non-executive employees is determined by the departmental supervisors.
During 2007, none of the named executives received awards under this program.
Restricted Stock Unit (RSU) Awards
Determining the Overall Level of Equity Compensation Awards. NI uses equity compensation to incentivize a large number of its employees. In 2007, 44% of all U.S. based regular, full-time professional employees received equity based compensation. NIs use of stock based equity compensation for a large number of its employees is driven by NIs goal of aligning the long-term interests of its employees with its overall performance and the interests of its stockholders. NIs equity compensation program is also driven by NIs desire to be sensitive to the dilutive impact that such equity compensation will have on its stockholders. As a result, NIs overall level of equity awards for each year is linked to its revenue growth during the prior year. In this regard, the following table sets forth the relationship between the level of equity awards and NIs year over year revenue growth for the past several years:
Allocation of Equity Compensation Awards. In 2007, NI granted a total of 801,780 RSUs to all employees which represented 1.0% of NIs shares outstanding. Of such amount, a total of 35,000 RSUs were granted to NI named executives, representing 4.4% of all RSUs granted in 2007. RSUs granted to executives vest over a period of ten years, subject to acceleration based on NIs performance.
A set formula for allocating RSUs to executives as a group or to any particular executive is not utilized. Instead, NI exercises its judgment and discretion and considers, among other things, the role and responsibility of the executive, competitive factors, the amount of stock based equity compensation already held by the executive, the non-equity compensation received by the executive and the total number of RSUs to be granted to all participants during the year.
In 2007, NI issued a total of 35,000 RSUs to its named executives, the same total number of RSUs as was granted to the named executives in 2006. The number of RSUs granted to each named executive is set forth in the Grants of Plan-Based Awards Table. The value of such grants, as determined in accordance with FAS 123R for each individual named executive is set forth in the column entitled Full Grant Date Fair Value of Stock and Option Awards in the Grants of Plan Based Awards Table.
Timing of Equity Awards. The Compensation Committee grants RSUs to executives and current employees once per year. Such grants are made at a meeting of the Compensation Committee held in the second quarter of the year. RSU grants to new employees are typically made eight times per year at Compensation Committee meetings. NI does not have any program, plan or practice to time RSU grants in coordination with the release of material non-public information. NI does not time, nor does NI plan to time, the release of material non-public information for the purposes of affecting the value of executive compensation. NIs 2005 Incentive Plan provides that the value of RSUs be the market closing price of NI stock on the date immediately prior to the grant date.
Executive Equity Ownership. NIs President and Chief Executive Officer, Dr. Truchard, is NIs largest stockholder. NI encourages its executives to hold a significant equity interest in NI. However, NI does not have specific share retention and ownership guidelines for its executives. NI does not permit executives to sell short its stock. NI prohibits named executives from holding NI stock in a margin account and prohibits the purchase or sale of exchange traded options on its stock by executives.
Type of Equity Awards. Prior to 2005, the long-term equity incentive component of NIs compensation program consisted solely of stock options. Beginning in 2005, NI began to utilize RSUs as its principal equity compensation incentive. Under the 2005 Incentive Plan, NI is permitted to issue RSUs and restricted stock but not stock options.
Long Term Incentive Program
In 2004, the Compensation Committee established the NI Long Term Incentive Program (LTIP) as a further means of motivating and rewarding executives to maximize stockholder value over the longer-term. Under the LTIP, there is a five year performance period beginning on January 1, 2004 and ending on December 31, 2008. Only participants who are still employed by NI on the day of the bonus payout are eligible to receive payments under the program.
The incentive cash bonuses awarded under the LTIP are calculated by multiplying (i) the participants annualized salary (and, in the case of NIs Senior Vice President, Sales and Marketing, targeted commissions) on the effective date of the participants participation in the program by (ii) a percentage (Payout Factor) determined by a payout matrix based upon the compound annual revenue growth rate (CAGR) and NIs average operating profit during the performance period. The Compensation Committee constructed the payout matrix based upon the belief that if CAGR and operating profit over the performance period was less than 10% in each case, then no payments should be made from the LTIP. Upon the achievement of 10% CAGR and 10% operating profit over the performance period, LTIP participants earn a cash bonus equal to approximately 28% of the participants annualized salary on the effective date of the participants participation in the program. The payout matrix was structured so that with incrementally higher CAGR or operating profit results over the performance period, the Payout Factor increases incrementally up to a maximum of 333% of the participants annualized salary (and targeted commissions, as applicable) upon achieving a threshold of 40% CAGR and 20% operating profit. The payout matrix is targeted so that 18% operating profit over the performance period combined with 20% CAGR, 30% CAGR and 40% CAGR would yield a payout of 1X base salary, 2.0X salary and 3.0X base salary, respectively.
As soon as practicable following the performance period, the Compensation Committee will compile the CAGR and operating profit data for the performance period. The CAGR and operating profit for the performance period will initially be determined according to generally acceptable accounting principles. However, the Compensation Committee has the discretion to make adjustments to the CAGR and operating profit calculation as it deems appropriate. Such adjustments may exclude patent litigation or other extraordinary charges when determining operating profit and include/exclude incremental revenue growth during the performance period attributable to acquisitions or mergers. As a general guideline, the Compensation Committee is inclined to exclude from the CAGR calculation revenue growth during the performance period resulting from an acquisition or merger exceeding 1% of the previous years revenue.
Because the amount of an executives LTIP cash bonus is dependent upon the satisfaction of CAGR and operating profit over a five-year period, the exact amount of the payout (if any) to an executive under the program cannot be determined at this time. However, the maximum amounts that may be earned by the named executives under the LTIP range from approximately $649,000 to $799,000.
Service Award Program
NI maintains a service award bonus program under which all employees, including executives, are eligible to receive awards based on to the number of years of continued employment with NI. NIs President does not participate in the program. Under this program, an employee receives a cash award based upon achieving a five year period of continuous employment with NI and a $100 dinner gift certificate, as well as other non-monetary awards such as plaque or lunch with NIs President, Vice President of Human Resources or another NI executive. Awards under this program have historically been in the range of $100 to $1,000 in cash per award, with employees receiving $100 in cash at their 5th and 15th anniversary of service with NI and $1,000 in cash at their 10th and 20th anniversary of service with NI.
During 2007, two of the named executives, Mr. Dehne and Mr. Graff received awards under this program of $1,000 each for having reach 20 years of employment with NI.
Performance Based Compensation and Financial Restatement
To date, NI has not experienced a financial restatement and has not considered or implemented a policy regarding retroactive adjustments to any cash or equity based incentive compensation paid to its executives and other employees where such payments were predicated upon the achievement of certain financial results that would subsequently be the subject of a restatement.
Change of Control Considerations
All NI executives are employed at will and do not have employment agreements, severance payment arrangements or payment arrangements that would be trigged by a merger or other change of control of NI. However, NIs Amended and Restated 1994 Incentive Plan and 2005 Incentive Plan provide that in the event of a change of control of NI, all unvested RSUs and stock options held by executive and non-executive employees shall immediately vest in full.
Effect of Accounting and Tax Treatment on Compensation Decisions
In the review and establishment of NIs compensation programs, NI considers the anticipated accounting and tax implications to NI and its executives. In this regard, in 2005, the NI Board of Directors and Compensation Committee determined to change NIs equity compensation program from the use of stock options to the use of RSUs in response to changes in the accounting treatment of equity awards under FAS 123R. While NI considers the applicable accounting and tax treatment, these factors alone are not dispositive, and NI also considers the cash and non-cash impact of the programs and whether a program is consistent with NIs overall compensation philosophy and objectives.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code), imposes a limit on the amount of compensation that NI may deduct in any one year with respect to its chief executive officer and each of the next four most highly compensated executive officers, unless certain criteria are satisfied. Performance-based compensation, as defined in the Code, is fully deductible if the programs are approved by stockholders and meet other requirements. NI believes that grants of equity awards under its 2005 Incentive Plan qualify as performance-based for purposes of satisfying the conditions of Section 162(m), thereby permitting NI to receive a federal income tax deduction in connection with such awards. In general, NI has determined that it will not seek to limit executive compensation so that it is deductible under Section 162(m). However, from time to time, NI monitors whether it might be in its interests to structure its compensation programs to satisfy the requirements of Section 162(m). NI seeks to maintain flexibility in compensating its executives in a manner designed to promote its corporate goals and therefore the Compensation Committee has not adopted a policy requiring all compensation to be deductible. The Compensation Committee will continue to assess the impact of Section 162(m) on NIs compensation practices and determine what further action, if any, is appropriate.
Role of Executives in Executive Compensation Decisions
The Compensation Committee seeks input from NIs President and Chief Executive Officer, Dr. Truchard, when discussing the performance of, and compensation levels for executives other than himself. The Compensation Committee also works closely with Dr. Truchard and with NIs vice president of human resources and others, as required, in evaluating the financial, accounting, tax and retention implications of its various compensation programs. Neither Dr. Truchard nor any of NIs other executives participates in deliberations relating to his own compensation.
Summary Compensation Table
Summary Compensation Table. The following table shows the total compensation paid by NI during the years ended December 31, 2007 and December 31, 2006 to its named executives:
Summary Compensation Table
For Fiscal Years Ended December 31, 2007 and December 31, 2006
Other than the foregoing for 2007, NI did not provide its named executives with any form of compensation that would be reportable under Item 402(k)(2)(vii) of Regulation S-K. NI does not pay or accrue cash dividends on unvested RSUs.
Grants of Plan-Based Awards
For Fiscal Year Ended December 31, 2007
Summary Compensation Table and Grants of Plan-Based Awards Table Discussion
The level of salary and bonus in proportion to total compensation ranged from approximately 42% to 54% for each of the named executives in 2007, except for Dr. Truchard. Since Dr. Truchard does not receive RSU awards and has never received any grants of stock options by NI, his salary and bonus represented approximately 88% of his total compensation in 2007.
All NI employees, including executives, are employed at will and do not have employment agreements, severance payment arrangements or payment arrangements that would be trigged by a merger or other change of control of NI. However, NIs 2005 Incentive Plan and Amended and Restated 1994 Incentive Plan provide that in the event of a change of control of NI, all unvested RSUs and stock options held by executive and non-executive employees shall immediately vest in full.
NI has not repriced any stock options or made any material modifications to any equity-based awards to its executive officers.
Outstanding Equity Awards at Fiscal 2007 Year-End
Option Exercises and Stock Vested
For Fiscal Year Ended December 31, 2007
Pension Benefits and Nonqualified Deferred Compensation
NI does not have any pension plans, non-qualified defined contribution plans or non-qualified deferred compensation plans.
Potential Payments Upon Termination or Change of Control
As described in the Compensation Discussion and Analysis, NI does not have employment, severance or change in control agreements with its employees, including its named executives. However, NIs Amended and Restated 1994 Incentive Plan and 2005 Incentive Plan each provides for acceleration of all unvested stock options and RSUs, respectively, in the event of a change of control of NI or the award recipients death or disability (each, an acceleration event). A change of control under each of the Amended and Restated 1994 Incentive Plan and 2005 Incentive Plan means any of the following events:
In the case of disability, unvested stock options under the Amended and Restated 1994 Incentive Plan may only be exercised within the six month period following the date of disability and any award not exercised before the expiration of such period shall terminate. Unless an optionees legal representatives, heirs, legatees or distributee exercise outstanding awards issued under the Amended and Restated 1994 Incentive Plan in the six month period following the date of such optionees death, any unexercised awards shall terminate upon the expiration of such six month period.
In the case of unvested RSUs under the 2005 Incentive Plan, 100% of the RSUs that have not vested as of the date of death or disability will immediately vest.
The following table shows the estimated benefits that would have been received by the named executives if an acceleration event had occurred on December 31, 2007.
COMPENSATION COMMITTEE REPORT*
The Compensation Committee of NI has reviewed and discussed the Compensation Discussion and Analysis required by Regulation S-K Item 402(b) (the CD&A) with management and based upon such review and discussion, the Compensation Committee recommended to the Board of Directors that the CD&A be included in NIs Proxy Statement.
R. Gary Daniels
Ben G. Streetman
Charles J. Roesslein
Duy-Loan T. Le
* The foregoing Compensation Committee Report does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other NI filing under the Securities Act or the Exchange Act, except to the extent that NI specifically incorporates this Compensation Committee Report by express reference therein.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires NIs officers and directors, and persons who own more than 10% of a registered class of NIs equity securities, to file reports of ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the SEC. Such officers, directors and 10% stockholders are also required by SEC rules to furnish NI with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, NI believes that, during the fiscal year ended December 31, 2007, all Section 16(a) filing requirements applicable to its officers, directors and 10% stockholders were satisfied.
EQUITY COMPENSATION PLANS INFORMATION
The number of shares issuable upon exercise of outstanding options and restricted stock units granted to employees and non-employee directors, as well as the number of shares remaining available for future issuance, under NIs equity compensation plans as of December 31, 2007 are summarized in the following table:
REPORT OF THE AUDIT COMMITTEE*
The Audit Committee is composed of four independent directors and operates under a written charter adopted by the Board of Directors. The members of the Audit Committee are Donald M. Carlton, Chairman, Ben G. Streetman, R. Gary Daniels and Charles J. Roesslein. All members of the Audit Committee meet the independence standards of Rule 4200(a)(15) of the Nasdaq listing standards.
Management is responsible for National Instruments internal controls and the financial reporting process. National Instruments independent registered public accounting firm is responsible for performing an independent audit of National Instruments consolidated financial statements in accordance with standards of the Public Company Accounting Oversight Board (United States) and for issuing opinions on the conformity of those audited financial statements with U.S. generally accepted accounting principles, the effectiveness of NIs internal control over financial reporting and managements assessment of internal control over financial reporting. The Audit Committees responsibility is to monitor and oversee these processes.
The Audit Committee schedules its meetings and conference calls with a view to ensuring it devotes appropriate attention to all of its tasks. The Audit Committee met 11 times during fiscal 2007 to carry out its responsibilities. The Audit Committee regularly meets privately with NIs independent registered public accounting firm, internal audit personnel, and management, each of whom has unrestricted access to the Audit Committee. The Audit Committee evaluated the performance of the items enumerated in the Audit Committee Charter.
As part of its oversight of NIs financial statements, the Audit Committee reviewed and discussed with both management and the independent registered public accounting firm NIs quarterly and audited fiscal year financial statements, including a review of National Instruments Annual Report on Form 10-K. The Audit Committee also reviewed and approved the independent registered public accounting firms work plan, audit fees, and all non-audit services performed by the independent registered public accounting firm. The Audit Committee also discussed with the independent registered public accounting firm any matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended.
The Audit Committee has also received the written disclosures from Ernst & Young LLP required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the Audit Committee has discussed the independence of Ernst & Young LLP with that firm. The Audit Committee has implemented a procedure to monitor the independence of NIs independent registered public accounting firm.
Based upon the Audit Committees discussion with management and Ernst & Young LLP and the report of Ernst & Young LLP to the Audit Committee, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in National Instruments Annual Report on Form 10-K for the year ended December 31, 2007, which was filed with the SEC.
Donald M. Carlton, Chairman
Ben G. Streetman
R. Gary Daniels
Charles J. Roesslein
*The foregoing Report of the Audit Committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other NI filing under the Securities Act or the Exchange Act, except to the extent NI specifically incorporates this Report of the Audit Committee by express reference therein.
INDEPENDENT PUBLIC ACCOUNTANTS
In June 2005, Ernst & Young LLP (E&Y) was appointed as NIs independent registered public accounting firm. A representative of E&Y is expected to be available at the Annual Meeting to make a statement if such representative desires to do so and to respond to appropriate questions.
The aggregate fees billed for professional services rendered for the integrated audits of NIs annual financial statements for the fiscal years ended December 31, 2007 and 2006, for the reviews of the financial statements included in NIs Quarterly Reports on Form 10-Q for those fiscal years, for the testing of NIs internal control over financial reporting pursuant to Section 404(a) of the Sarbanes-Oxley Act of 2002 for those fiscal years, and for statutory audits in various countries were approximately $827,000 and $739,000, respectively.
The aggregate fees billed for other audit-related services were $26,000 and $21,000 in 2007 and 2006, respectively. The services rendered related to the audit of NIs benefit plans.
The aggregate fees billed for professional tax services rendered for 2007 and 2006 were approximately $153,000 and $128,000, respectively. Included in the foregoing tax fees are such services as tax compliance, tax advice and tax planning.
All Other Fees
The aggregate fees billed for all other services rendered for 2007 and 2006 were approximately $0 and $0, respectively.
The charter of the Audit Committee provides that the Audit Committee shall appoint, compensate, retain and oversee NIs independent registered public accounting firm. The Audit Committee has selected E&Y as its independent registered public accounting firm for NIs fiscal year ending December 31, 2008.
AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES
OF INDEPENDENT AUDITORS
The Audit Committees policy is to pre-approve all services provided by NIs independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. The Audit Committee may also pre-approve particular services on a case-by-case basis. The independent registered public accounting firm is required to periodically report to the Audit Committee regarding the extent of services provided by such firm in accordance with such pre-approval. The Audit Committee may also delegate pre-approval authority to one of its members. Such members(s) must report any decisions to the Audit Committee at the next scheduled meeting.
E&Y has not received approval to perform any prohibited activities as such term is defined in Section 201 of the Sarbanes Oxley Act of 2002. During 2007, the Audit Committee approved in advance all audit, audit-related, and tax services to be provided by E&Y.
CODE OF ETHICS
In March 2004, NIs Board of Directors adopted a Code of Ethics (Code) that applies to all directors and employees, including NIs principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Code incorporated several corporate policies which had been in effect since 1994. The Code is available on NIs website at www.ni.com/nati/corporategovernance/code_of_ethics.htm. NI intends to disclose future amendments to provisions of the Code, or waivers of such provisions granted to executive officers, on NIs website within four business days following the date of such amendment or waiver.
NI knows of no other matters to be submitted to the Annual Meeting. If any other matters properly come before the Annual Meeting, it is the intention of the persons named in the enclosed proxy to vote the shares they represent as the Board of Directors may recommend.
March 31, 2008
COMPANIES FROM RADFORD SURVEY INFORMATION
UTILIZED BY NATIONAL INSTRUMENTS CORPORATION
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
Important Notice Regarding Internet Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com.