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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No.     )

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  Soliciting Material pursuant to §240.14a-12

IDEXX Laboratories, Inc.
 
(Name of Registrant as Specified in its Charter)
 
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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March 24, 2016

Jonathan W. Ayers

President, Chief Executive Officer and
Chairman of the Board of Directors


   

Dear Fellow Stockholders,

It was an exciting and busy 2015 for all of us at IDEXX. During the year, we stayed true to our core values and extended our track record of organic growth and sound financial performance through disciplined product innovation and strategic geographic expansion.

Throughout the year, we continued to execute our strategy and create value for our stockholders by:

Growing our business by enhancing the health and well-being of pets, people and livestock through innovative diagnostic and software technology products and services;

 

Increasing our enduring and profitable recurring revenue streams, which comprise approximately 90% of our total revenues;

 

Investing in new product development to bring a steady stream of advanced innovations to the pet healthcare and other markets, which create and grow new product markets; and

 

Expanding our profits and cash flow, supported by disciplined capital allocation.

 

Last year, we worked toward promoting and sustaining long-term growth in the pet healthcare market and in the other markets we serve through intelligent, disciplined innovation. We also significantly strengthened our commercial presence, both in the U.S. and abroad.

Enhancing the Health and Well-Being of Pets through Innovative Diagnostic and Software Technologies

We believe that our innovative diagnostic and software technology products and services enhance the health and well-being of pets by elevating the standard of care that veterinary healthcare providers can deliver. Additionally, we believe that our software solutions improve the efficiency, management and performance of veterinary practice operations. Through our diagnostic innovations such as IDEXX SDMA™, which detects the irreversible progression of kidney disease months to years earlier than traditional methods, we are transforming the standard of care that veterinarians can utilize to help prevent and treat diseases. Through our software offerings, we help veterinarians improve the management of their practices, thereby increasing staff productivity, improving access to diagnostic and medical information, and improving practice economics. Elevating the standard of care and supporting a veterinary practice’s medical and business processes allows us to grow our business while also assisting in the growth of the veterinary diagnostic segment of the pet healthcare market.

 

Pet Healthcare Market

Although we serve a number of markets, pet healthcare is our primary market, representing 85% of our total revenues in 2015. The long-term growth of the pet healthcare market is driven by:

The enduring bond between pets and their owners

 

Pet owners’ ever-increasing desire to invest in the health and well-being of their beloved family members

 

Veterinary care providers’ ability to provide an ever-advancing standard of care to pet owners, and their ability to communicate this value to pet owners, who are generally the payers of pet care worldwide

 

The long-term growth of the veterinary diagnostic segment of the pet health market is driven by:

Innovations that increase the available standard of care

 

Educating pet owners on the value of diagnostic testing in the delivery of pet care, including preventive care

 

Increasing our Enduring, Profitable Recurring Revenue Streams

Because many of the products and services in our Companion Animal Group (or CAG) business (which represented 85% of our total 2015 revenue), including instrument consumables, test kits and reference lab services, generate revenue each time they are used, they represent recurring revenue streams. Recurring diagnostic revenue (which represented 72% of our total 2015 revenue) is profitable, scalable, and reduces the risk of stagnant or declining revenues. Given these growing revenue streams, an expanding pet healthcare market and broader adoption of our products and services, we have the opportunity to continue to deliver strong value for stockholders as we grow and scale the business.



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We believe that developing and maintaining strong relationships with our veterinarian customers drives broader adoption of our products and services and maintains a high level of customer loyalty. To foster strong, personal relationships with the veterinarians we serve, we transitioned to an all-direct sales strategy in the U.S. on January 1, 2015, and have launched similar all-direct strategies in various international markets in the past few years. We believe that these transitions have positioned us well for sustained growth of our CAG revenues in both the near- and long-term.

While we faced some industry headwinds in early 2015 during the transition to our all-direct domestic strategy, we successfully implemented our new sales strategy, which is already generating strong results. In 2015, we placed 4,944 Catalyst® analyzers globally, an increase of 59% year over year and more than double the number of placements two years ago. In addition, the all-direct domestic strategy, and the resulting increase in our commercial presence with veterinarians, helped drive a successful launch of the IDEXX SDMA test, resulting in 1.6 million tests run in the U.S. in 2015.

We also continued to expand our global footprint to capitalize on the opportunity to enhance pet healthcare worldwide. While there are a growing number of pets outside the U.S., international companion animal diagnostics markets are typically much smaller in proportion to their respective number of pets than the U.S. market. As a result, we believe that investing in our international businesses to support the expansion of those markets will be an important driver of long-term value creation for IDEXX stockholders.

Growing and Creating New Product Markets through Investing in Innovation

We believe that intelligent, disciplined innovation, fostered by a culture that supports and rewards an entrepreneurial spirit, is fundamental to our success. Through our close connections to our veterinarian customers, and our significant, industry-leading, annual investments in research and development (R&D), we are able to offer innovative solutions that enable veterinary care providers to practice advanced medical care, demonstrate the value of diagnostics to pet owners and better manage their veterinary practices.


This significant investment in research and development led to the introduction of several innovative CAG products that we hope will continue to grow our profitable recurring diagnostic revenues for many years:

IDEXX Catalyst One® – IDEXX Catalyst One, our next generation chemistry analyzer, offers the capability of our Catalyst Dx® platform to a broader audience. We had a highly successful first year of Catalyst One shipments, driving strong placements of our Catalyst analyzers.

 

The IDEXX SDMA Kidney Screening Test – The IDEXX SDMA test transforms the way that veterinarians diagnose and treat kidney disease, which we believe is as significant a health condition to pets as heart disease is to humans. With the ability to

 



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detect kidney disease much earlier, veterinarians have more options to treat and manage the illness. We believe the IDEXX SDMA test highly differentiates IDEXX’s diagnostic offering, and will generate above-market growth for our CAG Diagnostics recurring revenues for many years to come.

Fecal Antigen Test – With the addition of our fecal antigen test, veterinarians are able to detect almost twice as many infections from three of the most common intestinal parasites – hookworm, roundworm and whipworm – than from traditional methods alone. By detecting a far higher percentage of these parasitic infections, veterinarians can greatly advance the standard of care in the annual wellness exam, providing more effective parasitic containment and faster treatment.

 

In addition, our focus on innovation has allowed us to respond quickly when immediate needs arise in the veterinarian community. For example, in response to the H3N2 virus outbreak in dogs in Chicago early in 2015, our scientists rapidly developed a test for the virus, which we added to our relevant canine respiratory disease panel at no additional charge. This allowed for rapid, reliable and specific testing for a disease which can present in a variety of ways, helping veterinarians contain the highly contagious virus.

Each of these innovations, along with our many other 2015 advancements in diagnostics and veterinary software applications, elevates our integrated portfolio and differentiates our products and services from those of our competitors.

Expanding our Profits and Cash Flow, Supported by Disciplined Capital Allocation

Our continued focus on investing to grow our attractive, core businesses has enabled us to consistently drive high growth in earnings per share and strong free cash flow. Despite facing challenging headwinds from the strengthening of the U.S. dollar, we increased diluted earnings per share by approximately 14.5% in 2015.1 Solid profit growth, cash flow generation and optimization of our capital structure supported an allocation of $400 million to share repurchases. Over the last three years, we have advanced investment in our high-return core businesses, while at the same time returning approximately $1.4 billion to stockholders through our share repurchase program, supporting a 16% compounded annual increase in our stock price despite the significant strengthening of the U.S. dollar in 2015.2

A full review of our 2015 financial performance can be found in the financial statements contained in our 2015 Annual Report on

Form 10-K, which is accessible on our company’s website (www.idexx.com) and has been filed with the SEC.

Governance and Executive Compensation Practices

We believe our strong governance and executive compensation practices support long-term stockholder value. A more comprehensive discussion of our governance and executive compensation practices can be found beginning on pages 21 and 42, respectively.

Looking Ahead

2015 was a significant year of accomplishment for IDEXX, which should position us for sustained revenue growth and continued profitability in the years to come. We launched several key innovations and significantly advanced our sales model and commercial presence in the U.S. and in international markets. We enter 2016 extraordinarily well-positioned to continue our innovative approach to the veterinary diagnostic market.

All of us at IDEXX remain committed to our Purpose: To be a great company that creates exceptional long term value for our customers, employees and shareholders by enhancing the health and well-being of pets, people and livestock.

Sincerely,


 

 

1

This increase in our diluted earnings per share reflects the effect of the two-for-one split of our common stock effected in the form of a common stock dividend paid on June 15, 2015 (the “Stock Split”).

2

This increase in our stock price has been adjusted for the effect of the Stock Split on share price.

 

 



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Table of Contents

 

         

 

Page

PROXY SUMMARY

  

NOTICE OF 2016 ANNUAL MEETING OF STOCKHOLDERS

  

CORPORATE GOVERNANCE

  

 

Proposal One - Election of Directors

  

 

Director Nomination Process

  

 

Director Nominees and Board Biographies

  

 

Corporate Governance at a Glance

  

 

Director Independence

  

 

Related Person Transactions

  

 

Lead Director

  

 

Annual Board Self-Assessment

  

 

Talent Management and Succession Planning

  

 

Board’s Role in Risk Oversight

  

 

Board Committees

  

 

Corporate Governance Guidelines and Code of Ethics

  

 

Anti-Hedging and Short Sale and Anti-Pledging Policies

  

 

Communications from Stockholders

  

 

Director Compensation

  

STOCK OWNERSHIP INFORMATION

  

 

Stock Ownership of Directors and Officers

  

 

Director and Officer Stock Ownership Guidelines

  

 

Stock Ownership of Certain Beneficial Owners

  

 

Section 16(a) Beneficial Ownership Reporting Compliance

  

AUDIT COMMITTEE MATTERS

  

 

Proposal Two - Ratification of Appointment of Independent Registered Public Accounting Firm

  

 

Audit Committee Report

  

 

Independent Auditors’ Fees

  

 

 

 

Audit Committee Pre-Approval Policy

 

 

 

EXECUTIVE COMPENSATION

  

 

Proposal Three - Advisory Vote to Approve Executive Compensation

  

 

Executive Officers

  

 

Compensation Discussion and Analysis

  

 

Executive Summary and Overview

  

 

Elements of Executive Compensation Program

  

 

2015 Executive Compensation Determinations

  

 

Compensation Committee Report

  

 

Executive Compensation Tables

  

 

Equity Compensation Plan Information

  

 

Stock Incentive Plans

  

 

Executive Bonus Recovery Policy

  

 

Potential Payments Upon Termination or Change-in-Control

  

GENERAL INFORMATION ABOUT THE 2016 ANNUAL MEETING AND VOTING

  

 

The Proxy Statement and How Proxies Work

  

 

Who Can Vote

  

 

Notice of Internet Availability (Notice and Access)

  

 

How to Vote

  

 

Conduct of the 2016 Annual Meeting

  

 

Webcast of the 2016 Annual Meeting

  

 

Voting on Other Matters

  

 

Solicitation of Proxies

  

 

Householding of Annual Meeting Materials

  

REQUIREMENTS FOR SUBMISSION OF PROXY PROPOSALS, NOMINATION OF DIRECTORS AND OTHER BUSINESS OF STOCKHOLDERS

  

FORWARD LOOKING STATEMENTS AND OTHER MATTERS

  

*    *    *    *

BASIS OF PRESENTATION

IDEXX Laboratories, Inc. is a Delaware corporation incorporated in 1983 with principal executive offices located at One IDEXX Drive, Westbrook, Maine 04092. Unless the context indicates otherwise, references in this Proxy Statement to “we”, “us”, “our”, the “Company” or “IDEXX” refer to IDEXX Laboratories, Inc. and its consolidated subsidiaries. Our website is located at



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Proxy Summary

This summary highlights selected information that is contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider prior to voting your shares. You should carefully read both the entire Proxy Statement and our 2015 Annual Report on Form 10-K filed with the SEC on February 17, 2016 before voting.

2016 Annual Meeting Information

Date and Time: Wednesday, May 4, 2016, 10:00 a.m., Eastern time

Location: Portland Marriott Hotel, 200 Sable Oaks Drive, South Portland, Maine 04106

Webcast: Available on our website www.idexx.com.

Stockholder Voting Matters Summary

Proposal

Board Vote Recommendation

Page Number for More Information

Proposal One – Election of Directors

FOR each nominee

14

Proposal Two – Ratification of Appointment of Independent Registered Public Accounting Firm

FOR

37

Proposal Three – Advisory Vote to Approve Executive Compensation

FOR

40

How to Vote

It is important that your shares be represented and voted at the 2016 Annual Meeting. You cannot vote your shares via the webcast described above, and even if you plan to attend the 2016 Annual Meeting in person, please vote early. You can submit a proxy by telephone or Internet. Alternatively, you may request a paper proxy card by calling the appropriate number set forth below, which you may complete, sign and return by mail.

For registered holders:

For beneficial owners:

(Your shares are registered in your name with our transfer agent American Stock Transfer & Trust Company)

(You hold your shares in a brokerage account or by a bank or other holder of record (that is, in “street name”))


BY TELEPHONE
In the U.S., you can vote your shares toll-free by calling 1-800-Proxies (1-800-776-9437).*


BY TELEPHONE
You can vote your shares toll-free by calling 1-800-454-8683.**

 

Outside the U.S., you can vote your shares by calling 1-718-921-8500.* Standard rates apply.

 

 


BY INTERNET
You can vote your shares online at


BY INTERNET
You can vote your shares online at


BY MAIL
You can vote by mail using a paper proxy card which you may request by calling 1-800-937-5499 in the U.S. or 1-718-921-8500 outside the U.S.


BY MAIL
You can vote by mail by using the paper proxy card or voting instruction form requested by calling 1-800-579-1639.

* You will need your 11-digit control number available from the Notice sent to you from American Stock Transfer & Trust Company.

** You will need your 12-digit control number available from the Notice sent to you from Broadridge.

If you plan to attend the 2016 Annual Meeting in person, you must bring photo identification to be admitted. If you are a beneficial owner, you also must bring a letter from your nominee confirming your beneficial ownership of your shares and, if you intend to

vote the shares, a proxy permitting you to vote them. To request a proxy, follow the instructions at www.proxyvote.com.

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Proxy Summary

 

Proposal One

 

Election of Directors

The Board has nominated Mr. Jonathan W. Ayers, Dr. Barry C. Johnson and Ms. M. Anne Szostak to serve as Class III Directors with a term expiring at the 2019 Annual Meeting.

Name

Age

Director Since

Independent

Committees

Other Current Public
Company Board Service

Jonathan W. Ayers
Chairman, President and Chief Executive Officer of IDEXX

59

January 2002

-

-

-

Barry C. Johnson, PhD
former Dean, College of Engineering – Villanova University

72

March 2006

Finance (Chair)

-

M. Anne Szostak
Founder and Chief Executive Officer – Szostak Partners, LLC

65

July 2012

Audit

Compensation (Chair)

Dr. Pepper Snapple Group, Inc.

Tupperware Brands Corporation

The Board of Directors recommends a vote FOR the three director nominees up for election

>> See page 16 for further information about our director nominees

Notable Corporate Governance Highlights

We believe that a commitment to high ethical standards and good governance practices contributes to increasing stockholder value by:

Strengthening Board and management accountability;

 

Promoting alignment with the long-term interests of our stockholders; and

 

Helping to maintain our stockholders’ trust in our company.

 

Our engaged, diverse and independent Board has implemented and maintained strong corporate governance policies, including prohibitions on pledging, hedging and short sales and in 2015 adopted a majority-voting standard in uncontested elections. We believe that our strong corporate governance policies and practices are an important component of our continued success in driving stockholder value.

For more information about our corporate governance policies and practices, please see the Corporate Governance section of this Proxy Statement beginning on page 14.


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Proxy Summary

Proposal Two

 

Ratification of Appointment of Independent Registered Public Accounting firm

PricewaterhouseCoopers LLP (“PwC”) has been appointed to serve as our independent registered public accounting firm for 2016, and while not required by law, the Board believes that it is advisable to give stockholders an opportunity to ratify this selection. The following table summarizes the fees for services provided by PwC during 2015 and 2014.

         

 

Fiscal Years Ended
December 31,

 

2015

2014

Audit fees

$

1,914,115

 

$

1,854,306

 

Audit-related fees

 

   

 

Tax fees

 

454,052

   

358,755

 

All other fees

 

   

10,000

 

 

$

2,368,167

 

$

2,223,061

 

The Board of Directors recommends a vote FOR this item

>> See page 37 for further information about our independent auditors

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Proxy Summary

 

Proposal Three

 

Advisory Vote to Approve Executive Compensation (“say-on-pay”)

We are asking our stockholders to approve, on an advisory (non-binding) basis, the compensation of our named executive officers as disclosed herein. At our 2015 Annual Meeting, our stockholders voted 99.14% in favor of approving the compensation of our named executive officers, which approval percentage is the highest among the peer group of companies utilized by the Compensation Committee for competitive benchmarking purposes.

The Board of Directors recommends a vote FOR this item

>> See below and page 40 for further information about our executive compensation program

2015 Financial Performance Highlights

The following is an overview of our 2015 financial performance highlights and our Total Stockholder Return since 2010. For more complete information, please review our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on February 17, 2016. The Total Stockholder Return graph compares our total stockholder returns, the Standard & Poor’s (“S&P”) MidCap 400 Index, the S&P MidCap 400 Health Care Index and the Total Return Index for the NASDAQ Stock Market (U.S. Companies) prepared by the Center for Research in Security Prices (the “NASDAQ Index”). This graph assumes the investment of $100 on December 31, 2010 in IDEXX’s common stock, the S&P MidCap 400 Index, the S&P MidCap 400 Health Care Index and the NASDAQ Index and assumes dividends, if any, are reinvested.


*

Total Stockholder Return is defined as: (adjusted close share price end of period – adjusted close share price start of period) / share price start of period. Measurement points are the last trading days of the years ended December 2010, 2011, 2012, 2013, 2014 and 2015.

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Proxy Summary

Executive Compensation Highlights

These executive compensation highlights should be read in connection with the Executive Compensation section of this Proxy Statement, including the Compensation Discussion and Analysis section, for additional information about our executive compensation philosophy and program and the compensation awarded to each of our named executive officers, beginning on page 42.

Our Executive Compensation Philosophy and Program

Our executive compensation philosophy is simple – we want to attract, motivate and retain talented executives who are aligned with and passionate about our purpose: to be a great company that creates exceptional long-term value for our customers, employees and stockholders by enhancing the health and well-being of pets, people and livestock.

We believe that executing this philosophy through our executive compensation program and practices, including a strong focus on pay-for-performance based compensation elements, will support long-term stockholder value creation through driving our strategy of innovation, continued revenue growth, margin improvement and efficient capital allocation.

Key Elements of Our Executive Compensation Program

Our executive compensation program consists of three key elements, which in total are targeted at the median of our competitive market. Because it relates most directly to the creation of stockholder value over time, variable compensation is a higher percentage of total compensation for our named executive officers than for our other employees.


Executive Compensation Mix

The total 2015 direct compensation mix for our Chief Executive Officer and our other named executive officers is:


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Proxy Summary

Performance-Based Cash Bonus

The target amount of the performance-based cash bonus award for each named executive officer is a percentage of his or her annual base salary, and the award amount is capped at 200% of this target.

Performance-based cash bonuses are calculated based on the achievement of both financial and non-financial performance goals.

Our financial performance goals measure our executives’ performance against measurements of stockholder value drivers, including normalized organic revenue growth, operating profit and earnings per share, and collectively constitute 50% of the bonus award factor determination.

 

Our non-financial performance goals are designed to support near-term performance of our long-term business objectives, including implementation of commercial strategies, advancement of key talent and engagement initiatives and hiring and development of key leadership talent, including gender and ethnically diverse talent, and collectively constitute 50% of the bonus award factor determination.

 

In 2015, the overall performance-based award factor was calculated as 95% based on achievement of the financial and non-financial performance metrics. Accordingly, performance-based cash bonus payment to the named executive officers equaled 95% of their target bonus amounts.


Equity Based Long-Term Incentives

Our equity-based long-term incentives consist of stock options and restricted stock units. These equity incentives have a five-year vesting schedule, which is longer than typical market practice, and are more heavily weighted in the form of stock options for our senior executives. We believe that these types of equity incentives drive closer alignment with our stockholders’ long-term interests.

Starting in 2016, we are adding performance-based restricted stock units to our long-term equity incentive program. These performance-based restricted stock units are intended to be eligible to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code. The vesting of all restricted stock units granted to our named executive officers in February 2016 is subject to the achievement of a 2016 financial performance target. If this target is not met in 2016, then these awards will be forfeited.

CEO Compensation and Equity Ownership

Component

Description

Chief Executive Officer’s 2015 Total Direct Compensation

Base Salary – $800,000 (no increase over 2014).

 

Performance-Based Cash Bonus Award – $950,000 (95% of target).

 

Equity-Based Long-Term Incentives –149,888 stock options granted with 5-year vesting schedule ($2,996,921 award date fair value).

 

Total Direct Compensation: $4,746,921.

 

Chief Executive Officer’s Beneficial Stock Ownership

As of March 1, 2016, 1,913,363 shares of common stock (approximately 2.14% of the total shares outstanding).1

 

As of March 1, 2016, the value of Mr. Ayers's beneficial ownership was $144,420,639,2 which is over 30x greater than what is required under our stock ownership guidelines.

 

1 Includes 906,902 shares of common stock that may be acquired within 60 days after March 1, 2016 upon the exercise of stock options.

2 Based on the closing price of $75.48 per share of our common stock on March 1, 2016.

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Proxy Summary

Executive Compensation Program at a Glance

In addition to the key elements described above, our executive compensation program includes the following objectives, practices and policies:

“Pay-for-Performance” Executive Compensation Program Design

Approximately 74% of 2015 target total direct compensation for our CEO and other named executive officers is in the form of annual performance-based cash bonuses and long-term equity incentives. The value of these forms of compensation is variable and directly tied to our performance.

In 2016, performance-based restricted stock units, instead of solely time-based restricted stock units, were granted to each of our named executive officers other than our CEO, who received only stock options.

Diversity

We actively seek highly qualified diverse candidates (including gender and ethnically diverse candidates) to include in the pool for potential senior management.

Rigorous, Annual Benchmarking of Executive Compensation

We review our designated proxy peer group on an annual basis to ensure that our compensation program is properly benchmarked against our market peers.

We annually assess our total executive compensation against peer group and other market data to determine whether it is competitive and appropriate.

Stock Ownership Guidelines

We require our CEO and other named executive officers to satisfy strict and meaningful stock ownership guidelines.

“Clawback” Policy

Our compensation recoupment policy allows us to recover both incentive and equity compensation from our executive officers under certain circumstances if we are required to restate our financial results, other than a restatement due to changes in accounting principles or applicable law.

Anti-Hedging and Short Sale Policy

Our executives and other employees are prohibited from engaging in any short sale of common stock, any transaction that results in profits from short-term speculative swings in the value of our securities or purchases of financial instruments that are designed to hedge or offset any decrease in the market value of our securities.

Anti-Pledging Policy

In December 2015, we adopted a policy prohibiting our senior executives from pledging or otherwise encumbering equity securities they own in our Company as collateral for indebtedness, including holding shares in a margin or similar account.

Modest Perquisites

We offer only limited benefits and perquisites to our named executive officers that are not otherwise made available to our other salaried employees.

No Tax Gross Ups

We do not administer tax gross ups with respect to perquisites to our named executive officers (except in the case of overseas assignments), or with respect to excise taxes related to “parachute payments” under Section 280G of the Internal Revenue Code.

Compensation Program Risk Assessment

Our Compensation Committee annually reviews our compensation programs to determine whether our programs subject us to risks that may have a material adverse effect on our Company.

Favorable Annual “Say-On-Pay” Votes Since 2011

Favorable “say-on-pay” votes each year since 2011:

The lowest favorable vote was 97% in 2011.

 

More than 99% in favor of executive compensation in 2015 – the highest favorable approval percentage among our 2015 peer group.

 

 

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One IDEXX Drive
Westbrook, Maine 04092

Notice of 2016 Annual Meeting of Stockholders

NOTICE IS HEREBY GIVEN that the 2016 annual meeting of stockholders (“2016 Annual Meeting”) of IDEXX Laboratories, Inc. will be held:

DATE AND TIME

Wednesday, May 4, 2016, 10:00 a.m., Eastern time

LOCATION

Portland Marriott Hotel
200 Sable Oaks Drive
South Portland, Maine 04106

PURPOSE OF 2016 ANNUAL MEETING

1.

Election of Directors. To elect the three Class III Directors listed in the attached proxy statement for three-year terms (Proposal One);

2.

Ratification of Appointment of Independent Registered Public Accounting Firm. To ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the current fiscal year (Proposal Two);

3.

Advisory Vote to Approve Executive Compensation. To approve a nonbinding advisory resolution on the Company’s executive compensation (Proposal Three); and

4.

Other Business. To conduct such other business as may properly come before the 2016 Annual Meeting or any adjournments thereof, including approving any such adjournment, if necessary.

RECORD DATE

The Company’s Board of Directors has fixed the close of business on March 8, 2016 as the record date for the determination of stockholders entitled to notice of and to vote at the 2016 Annual Meeting.

By order of the Board of Directors,


Jacqueline L. Studer

Corporate Vice President,
General Counsel and Corporate Secretary
Westbrook, Maine
March 24, 2016



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Corporate Governance

Proposal One – Election of Directors

Our Board of Directors is divided into three classes, and members of each class hold office for three-year terms:

Class I Directors – currently three Directors whose terms expire at the 2018 Annual Meeting;

 

Class II Directors – currently three Directors whose terms expire at the 2017 Annual Meeting; and

 

Class III Directors – currently three Directors whose terms expire at the 2016 Annual Meeting.

 

Upon recommendation of the Nominating and Governance Committee, the Board has nominated Mr. Jonathan W. Ayers, Dr. Barry C. Johnson and Ms. M. Anne Szostak – our current Class III Directors – to be Class III Directors, and stockholders are being asked to elect them for three-year terms expiring at the 2019 Annual Meeting.

This section includes additional information about the Director nomination process, including requisite criteria, experiences, qualification and skills, as well as the Class III Director nominees and the Board.

 

Recommendation of the Board of Directors

The Board of Directors recommends that you vote “FOR” the election of Mr. Ayers, Dr. Johnson and Ms. Szostak.

Director Nomination Process

The Nominating and Governance Committee identifies, evaluates, recruits and makes recommendations to the Board regarding candidates to fill vacancies on the Board using the criteria described below. The process followed by the Nominating and Governance Committee includes:

Receiving recommendations from the Board, management and stockholders;

 

Holding meetings to evaluate biographical information and background material relating to potential candidates; and

 

Interviewing selected candidates.

 

In addition, the Nominating and Governance Committee, in some instances, will engage an executive search firm to assist in recruiting candidates. In such cases, the search firm assists the Nominating and Governance Committee in:

Identifying potential candidates that fit the Board’s search criteria;

 

Obtaining candidate resumes and other biographical information;

 

Conducting initial interviews to assess candidates’ qualifications, fit and interest in serving on the Board;

 

Scheduling interviews with the Nominating and Governance Committee, other members of the Board, and management;

 

Performing reference checks; and

 

Assisting in finalizing arrangements with candidates who receive an offer to join the Board.

 

Criteria and Experiences, Qualifications and Skills


To be considered for nomination to the Board a candidate must meet the following minimum criteria:

Reputation for integrity, honesty and adherence to high ethical standards;

 

Demonstrated business acumen, experience and ability to exercise sound judgment in matters that relate to our current and long-term objectives;

 

Willingness and ability to contribute positively to our decision-making process;

 

Skills in one or more areas that are relevant to us and our operations, including familiarity with science and technology, finance and accounting, marketing and product development, strategy, government regulation and affairs and/or corporate governance;

 


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Commitment to understanding us and our industry and regularly attending and participating in Board and Committee meetings;

 

Interest and understanding of the sometimes conflicting interests of our various constituencies, which include stockholders, employees, customers, government entities, creditors and the general public, and to act in the interests of all stockholders; and

 

Absence of any conflict of interest, or appearance of a conflict of interest, that would impair the Director’s ability to represent the interests of all of our stockholders and to fulfill the responsibilities of a Director.

 

The Nominating and Governance Committee and the Board are also focused on ensuring that a wide range of backgrounds and experiences are represented on our Board and consider the value of diversity of all types in the Director nomination process. For more information, please see the discussion under “Diversity” on page 25.

In addition, in evaluating potential candidates, the Nominating and Governance Committee considers other applicable requirements under the Corporate Governance Guidelines, including the Director independence requirements described under “Director Independence” beginning on page 22 and the maximum number of directorships generally permitted for our Directors. The Corporate Governance Guidelines provide that, unless an exception has been granted by the Board:

Directors cannot serve on more than four other public company boards;

 

Audit Committee members cannot serve on more than two other public company audit committees; and

 

Directors who are Chief Executive Officers of other companies cannot serve on more than two other public company boards (including the board of their employer).

 

Stockholder Recommendation and Nomination of Directors

Stockholders who want to recommend a nominee for Director should submit the name of the nominee to our Corporate Vice President, General Counsel and Corporate Secretary at our principal executive offices, together with biographical information and background material sufficient for the Nominating and Governance Committee to evaluate the recommended candidate based on its selection criteria, and a statement as to whether the stockholder or group of stockholders making the recommendation has beneficially owned more than 5% of our common stock for at least a year as of the date the recommendation is made.

Assuming that appropriate biographical and background material has been provided on a timely basis, the Nominating and Governance Committee will apply the same criteria, and follow substantially the same process, in considering each qualifying stockholder recommendation as it does in considering other candidates. Stockholders also have the right under our Amended and Restated By-Laws to nominate Director candidates directly, without any action or recommendation on the part of the Nominating and Governance Committee or the Board, by following the procedures described under “Requirements for Submission of Proxy Proposals, Nomination of Directors and Other Business of Stockholders” beginning on page 70.

If the Board determines to nominate a stockholder-recommended candidate and recommends his or her election, then his or her name will be included on the proxy card for our next Annual Meeting. Candidates nominated by stockholders in accordance with the procedures set forth in our Amended and Restated By-Laws will not be included on our proxy card for the next Annual Meeting, but may be included on proxies the nominating stockholders seek independently.

Majority Voting and Director Resignation


Our Amended and Restated By-Laws provide that, in an election of Directors where the number of nominees does not exceed the number of Directors to be elected, a nominee who does not receive a majority of votes cast with respect to his or her election will not be elected.

Pursuant to our Director Resignation Policy included in our Corporate Governance Guidelines, a Director who is not re-elected is required to promptly tender his or her resignation, and the Nominating and Governance Committee would make a recommendation to the Board as to whether to accept the resignation. Following the Nominating and Governance Committee’s recommendation, the Board would determine whether or not to accept that Director’s resignation, considering any factors it deems relevant. Under this policy, the Board is required to act on the recommendation of the Nominating and Governance Committee within 90 days of the certification of the stockholder vote.


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Director Nominees and Board Biographies

Upon recommendation of the Nominating and Governance Committee, the Board has nominated Mr. Jonathan W. Ayers, Dr. Barry C. Johnson and Ms. M. Anne Szostak – our current Class III Directors – to be Class III Directors, and stockholders are being asked to elect them for three-year terms expiring at the 2019 Annual Meeting. Each of the nominees, other than Mr. Ayers, who is our Chief Executive Officer, meets NASDAQ independence requirements.

Each of Mr. Ayers, Dr. Johnson and Ms. Szostak has indicated a willingness to serve, if elected. If any of the Director nominees becomes unable to serve, proxies can be voted for a substitute nominee, or the Board may choose to reduce the number of Directors on the Board. Dr. Johnson will reach the age of 73 in 2016, and under our Corporate Governance Guidelines, when a Director reaches the age of 73, he or she is expected to retire at the next Annual Meeting. Accordingly, if our stockholders elect Dr. Johnson as a Class III Director at the 2016 Annual Meeting, he is expected to retire at the conclusion of the 2017 Annual Meeting.

In February 2016, the Nominating and Governance Committee reviewed the experience, qualifications, attributes and skills of each of the current Directors and the Class III Director nominees and concluded that each Class III Director nominee has the requisite background, qualifications and personal characteristics to serve as a Director in light of the Company’s business and structure.

In support of this conclusion, the Nominating and Governance Committee believes that:

All of the Class III Director nominees hold, or have held, senior leadership positions in significant organizations, including U.S. public companies, multinational corporations or educational institutions;

 

These experiences have honed their analytical skills, and each Class III Director nominee brings significant expertise in core disciplines that enables effective execution of his or her oversight responsibilities; and

 

Each Class III Director nominee contributes to a diverse and well-functioning Board.

 

There are no family relationships among the executive officers or Directors of IDEXX.



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Class III Director Nominees Whose Terms Would Expire in 2019



Jonathan W. Ayers

Chairman of the Board, President
and Chief Executive Officer

Age:  59

Director since:  January 2002

Committees:  None

Mr. Ayers has been the Chairman of the Board, President and Chief Executive Officer of IDEXX since January 2002. Before joining IDEXX, Mr. Ayers held various positions at United Technologies Corporation and its business unit Carrier Corporation, including serving as President of Carrier Corporation from 1999 to 2001, President of Carrier’s Asia Pacific Operations from 1997 to 1999, and Vice President, Strategic Planning at United Technologies from 1995 to 1997. Prior to joining United Technologies, from 1986 to 1995, Mr. Ayers held various positions at Morgan Stanley & Co. in mergers and acquisitions and corporate finance. Mr. Ayers holds an undergraduate degree in molecular biophysics and biochemistry from Yale University and graduated from Harvard Business School in 1983 with high distinction. We value Mr. Ayers’s successful leadership since arriving at IDEXX in 2002, consistently generating exceptional, above-market returns for our stockholders during this extended period. We also value Mr. Ayers’s significant and diverse experience in many relevant areas including global business management, finance and strategic planning, business development, marketing, product development, software technology and managing international operations.



Barry C. Johnson, PhD

Independent Director

Age:  72

Director since:  March 2006

Committees:  Finance (Chair)

Former public company director service:

Cytec Industries, Inc. (2003 to 2015)

 

Rockwell Automation, Inc. (2005 to 2016)

 

Dr. Johnson served as Dean, College of Engineering, Villanova University from August 2002 until his retirement in May 2006. Before joining Villanova University, Dr. Johnson served as Senior Vice President and Chief Technology Officer of Honeywell International, Inc. from July 2000 to April 2002. Before joining Honeywell, from 1976 to 2000, Dr. Johnson served in several roles at Motorola, Inc., including Corporate Vice President and Chief Technology Officer for that company’s Semiconductor Product Sector. Dr. Johnson holds an undergraduate degree in Mechanical Engineering from Villanova University and a Ph.D. and M.S. in metallurgical engineering and materials science from Carnegie-Mellon University. We value Dr. Johnson’s substantial experience as a senior executive for, and director of, various technology companies and for his expertise in scientific research and product development.



M. Anne Szostak

Independent Director

Age:  65

Director since:  July 2012

Committees:  Audit

Compensation (Chair)

Other current public company director service:

Dr. Pepper Snapple Group, Inc. (since 2008)

 

Tupperware Brands Corporation (since 2000)

 

Former public company director service:

Belo Corp. (2004 to 2013)

 

ChoicePoint Corporation (2005 to 2008)

 

SFN Group (2005 to 2011)

 

Ms. Szostak founded Szostak Partners, LLC, an executive coaching and human resources consulting firm, in 2004, and she has served as its Chief Executive Officer since 2004. Before founding Szostak Partners, Ms. Szostak had a 31-year career with Fleet/Boston Financial Group (now Bank of America), a diversified financial services company, including serving as Chairman and Chief Executive Officer of Fleet Bank-Rhode Island from 2001 to 2003, Chairman, President and Chief Executive Officer of Fleet-Maine from 1991 to 1994, and Corporate Executive Vice President and Chief Human Resources Officer of FleetBoston Financial Group from 1998 to 2004. Ms. Szostak holds an undergraduate degree from Colby College, and she has completed several executive education programs at Harvard Business School. We value Ms. Szostak’s significant background in management, finance and human resources, as well as her extensive public company board experience.

 



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Class II Directors Whose Terms Expire in 2017



Thomas Craig

Independent Director

Age:  61

Director since:  December 1999

Committees:  Audit

Compensation

Former public company director service:

GraceKennedy Group (1998 to 2004)

 

Mr. Craig has been Chairman and Chief Executive Officer of Shockwave International, a firm whose mission is to work with principal investors and startup companies to help create competitive advantage by combining ideas, human assets, capital, networks and asymmetric intelligence, since 2012. Before joining Shockwave International, Mr. Craig co-founded Monitor Group (formerly Monitor Company), a global management consulting firm, in 1983, and he was a Director/Partner at Monitor Group from 1983 to 2012. Mr. Craig received his undergraduate degree from Princeton University and an M.B.A., with high distinction, from Harvard Business School. We value Mr. Craig’s extensive experience in impartial counseling, leadership and human asset development, global enterprise, growth strategies, and entrepreneurial endeavors.



Rebecca M. Henderson, PhD

Independent Director

Age:  55

Director since:  July 2003

Committees:  Finance

Nominating and Governance (Chair)

Other current public company director service:

Amgen, Inc. (since 2009)

 

Dr. Henderson has been the John and Natty McArthur University Professor at Harvard University since 2011 and is the Co-Director of the Business and Environment Initiative at Harvard Business School. From 2009 to 2011, Dr. Henderson served as the Senator John Heinz Professor of Environmental Management at Harvard Business School. Before joining Harvard’s faculty, Dr. Henderson served as the Eastman Kodak Professor of Management, Sloan School of the Massachusetts Institute of Technology from 1998 to 2009. Since 1995, Dr. Henderson has also been a research fellow at the National Bureau of Economic Research. Dr. Henderson holds an undergraduate degree from the Massachusetts Institute of Technology and a Ph.D. in business economics from Harvard University. We value Dr. Henderson’s substantial experience in corporate strategy and governance with a focus on high-technology businesses.



Sophie V. Vandebroek, PhD

Independent Director

Age:  54

Director since:  July 2013

Committees:  Finance

Nominating and Governance

Former public company director service:

Analogic Corporation (2008 to 2016)

 

Dr. Vandebroek has been an executive with Xerox Corporation since 2002, and she has served as Chief Technology Officer and Corporate Vice President of Xerox Corporation, and President of the Xerox Innovation Group, since 2006. Dr. Vandebroek is responsible for overseeing Xerox’s research centers in Europe, Asia, Canada and the U.S., including the Palo Alto Research Center, for which she has served as sole director since 2008. Before her current positions, Dr. Vandebroek was Chief Engineer and Vice President of Xerox and Vice President of the Xerox Engineering Center from 2002 to 2005. Dr. Vandebroek has been a Fellow of the Institute of Electrical & Electronics Engineers since 2005 and a Fulbright Fellow and a Fellow of the Belgian-American Educational Foundation since 1986. Dr. Vandebroek holds an undergraduate degree in engineering and a master’s degree in electro-mechanical engineering from Katholieke Universiteit Leuven, Leuven, Belgium, and a Ph.D. in electrical engineering from Cornell University. We value Dr. Vandebroek’s depth of knowledge and experience in technology and business processes, as well as her track record of innovation and managing balanced research and development portfolios for large global enterprises.

 



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Class I Directors Whose Terms Expire in 2018



Bruce L. Claflin

Independent Director

Age:  64

Director since:  July 2015

Committees:  Audit

Nominating and Governance

Other current public company director service:

Advanced Micro Devices, Inc. (since 2003)
Chairman of the Board (since 2009)

 

Ciena Corporation (since 2006)

 

Former public company director service:

3Com Corporation (2001 to 2006)

 

Time Warner Telecom (2000 to 2003)

 

Mr. Claflin has served as a member of the board of directors of Advanced Micro Devices, Inc. since 2003, including as Chairman of the Board since 2009. Mr. Claflin served as President, Chief Executive Officer and a member of the board of directors of 3Com Corporation from January 2001 until his retirement in 2006, and he served as President and Chief Operating Officer of 3Com from August 1998 to January 2001. Before joining 3Com, Mr. Claflin worked at Digital Equipment Corporation as Senior Vice President, Sales and Marketing from 1997 to 1998 and as Vice President and General Manager of the PC Business Unit from 1995 to 1997. Before joining Digital Equipment Corporation, Mr. Claflin also worked at International Business Machines Corporation (IBM) for 22 years, where he held various senior management positions in sales, marketing, research and development and manufacturing. Mr. Claflin holds an undergraduate degree in Political Science from Pennsylvania State University. We value Mr. Claflin’s extensive management and oversight experience especially relating to manufacturing, operations and international business transactions and his extensive public company board experience.



William T. End

Independent Lead Director

Age:  68

Director since:  July 2000

Committees:  Compensation

Nominating and Governance

Former public company director service:

Eddie Bauer Holdings, Inc. (2005 to 2009)
Chairman of the Board (2005 to 2009)

 

Hannaford Bros. Co. (1980 to 1990; 1995 to 2000)

 

Land’s End, Inc. (1991 to 1995)

 

New England Business Service, Inc. (2000 to 2003)

 

 

Mr. End was Chairman and Chief Executive Officer of Cornerstone Brands, Inc., a privately-held catalog retailer, from 1995 to 2001, and Executive Chairman of that company from 2001 until his retirement in 2002. Before joining Cornerstone, Mr. End held various positions at Land’s End, Inc., including President and Chief Executive Officer from 1993 to 1995, President and Chief Operating Officer from 1992 to 1993 and Executive Vice President of Marketing and Corporate Planning from 1991 to 1992. From 1975 to 1991, Mr. End held various positions at L.L. Bean, Inc., including Executive Vice President and Chief Marketing Officer. He also has been a director of several non-public companies. Mr. End holds an undergraduate degree from Boston College and an MBA from Harvard Business School. We value Mr. End’s extensive management and oversight experience, particularly in public and private company board service and his general management experience in sales and marketing.



Daniel M. Junius

Independent Director

Age:  63

Director since:  March 2014

Committees:  Audit (Chair)

Finance

Other current public company director service:

GlycoMimetics, Inc. (since 2016)

 

ImmunoGen, Inc. (since 2008)

 

 

Mr. Junius has been President and Chief Executive Officer of ImmunoGen, Inc. since 2009. Before that, he served as President and Chief Operating Officer and Acting Chief Financial Officer of ImmunoGen from July 2008 to December 2008, Executive Vice President and Chief Financial Officer from 2006 to July 2008 and Senior Vice President and Chief Financial Officer from 2005 to 2006. Before joining ImmunoGen, Mr. Junius was Executive Vice President and Chief Financial Officer of New England Business Service, Inc. from 2002 until its acquisition by Deluxe Corporation in 2004 and Senior Vice President and Chief Financial Officer of New England Business Services from 1998 to 2002. Before joining New England Business Services, Mr. Junius was Vice President and Chief Financial Officer of Nashua Corporation from 1996 to 1998. Mr. Junius joined Nashua Corporation in 1984 and held various financial management positions of increasing responsibility before becoming Chief Financial Officer of Nashua Corporation in 1996. Mr. Junius holds an undergraduate degree in Political Science from Boston College and a Masters in Management from Northwestern University’s Kellogg School of Management. We value Mr. Junius’s depth of executive leadership, strategic thinking and financial expertise, as well as his extensive experience in the biotechnology field.

 



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Board Composition and Skills





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Our Corporate Governance Framework

We are proud of our commitment to sound corporate governance and high ethical standards, and we believe that this commitment has contributed to our success in building long-term value for our stockholders.

Our corporate governance framework includes our corporate governance policies and practices and provides the structure that enables our Board to provide effective oversight and counsel for IDEXX.

Please visit the Corporate Governance section of our website

Corporate Governance Guidelines

 

Code of Ethics

 

Certificate of Incorporation

 

Amended and Restated By-Laws

 

Charter for each of our Board Committees

 

Hard copies of these documents may be obtained upon request by contacting our Corporate Vice President, General Counsel and Corporate Secretary at IDEXX Laboratories, Inc., One IDEXX Drive, Westbrook, Maine 04092.

Information on our website does not constitute part of this Proxy Statement.

Corporate Governance at a Glance

Independence

8 of 9 of our Directors are independent.

Our Board Committees are composed exclusively of independent Directors.

Executive Sessions

Our independent Directors held executive sessions at every Board and Committee meeting in 2015. 

Board Accountability

Majority voting for Directors in uncontested elections.

Rigorous annual self-assessment of the Board, its Committees and the Directors conducted.

Robust Director nominee selection process.

Director retirement at the next Annual Meeting after reaching age 73, absent certain circumstances approved by the Board.

Diversity

Actively seek highly-qualified diverse candidates (including gender and ethnically diverse candidates) to include in the pool of potential Board nominees.

Independent Lead Director

A lead independent Director selected annually by the other independent Directors.

Risk Management, Strategy and CEO Succession Planning

Risk oversight by the Board and its Committees.

Annual corporate strategy review by the Board.

Active Board participation in CEO succession planning.

Stock Ownership Guidelines

The target ownership level for our:

Independent Directors – 6 times the annual cash retainer payable to each Director (currently $390,000);

 

Chief Executive Officer – 6 times annual base salary;

 

Executive Vice Presidents – 3 times annual base salary; and

 

Corporate Vice Presidents – 1 times annual base salary.

 

Additional Policies that Promote Alignment with Interests of Stockholders

Anti-Hedging and Short Sale policy for Directors and employees.

Recently adopted Anti-Pledging policy for Directors and executive officers.

Clawback policy tied to incentive compensation.

 



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Board of Directors

Our Board currently has nine members. The Board meets throughout the year on a set schedule, and also holds special meetings and acts by written consent from time to time as appropriate. The Board has delegated various responsibilities and authority to its four standing Committees: the Audit Committee, the Compensation Committee, the Nominating and Governance Committee and the Finance Committee. For more information regarding the Board Committees, see the discussion under “Board Committees” beginning on page 26.

The Board is responsible for monitoring the overall performance of IDEXX. Among other things, the Board, directly and through its Committees:

Oversees the conduct of our business and the management of risk;

 

Reviews and approves our key financial and other objectives, the annual budget and other significant actions and transactions;

 

Oversees our processes for maintaining the integrity of our financial statements and other public disclosures and our compliance with law and ethics;

 

Reviews the performance of the Chief Executive Officer and determines the compensation of our executive officers;

 

Reviews plans for CEO succession and management’s succession planning for other key executive officers; and

 

Reviews our long-term strategic plans.

 

In accordance with general corporate legal principles applicable to corporations organized under the laws of Delaware, the Board does not manage the day-to-day operations of IDEXX.

Board Meetings and Attendance

Directors are responsible for attending Board and Committee meetings and for devoting the time needed to discharge their responsibilities properly. The Board held six meetings in 2015, and the Committees held a total of 22 meetings in 2015.

Each of our Directors attended at least seventy-five percent of the meetings of the Board and Committees on which he or she served in 2015. It is our policy to schedule Board and Committee meetings to coincide with the Annual Meeting, and Directors are expected to attend the 2016 Annual Meeting. Last year, all of the individuals then serving as Directors attended our 2015 Annual Meeting.

Director Independence

Under our Corporate Governance Guidelines, a majority of our Directors must be “independent” as defined by the rules of the NASDAQ Stock Market (“NASDAQ”). Each Committee’s charter requires its members to be independent as defined by NASDAQ rules.

Under the Audit Committee charter, each Audit Committee member is also required to satisfy the independence criteria set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934.

 

Under the Compensation Committee charter, each Compensation Committee member is also required to satisfy the heightened independence standard described in NASDAQ Rule 5605(d)(2)(A).

 

The Board, in consultation with the Nominating and Governance Committee, determines the independence of each Director. In February 2016, the Board determined that:

Each of the Directors other than Mr. Ayers, who is our President and Chief Executive Officer, is independent under NASDAQ rules;

 

After taking into consideration the applicable factors, each Compensation Committee member satisfies the independence criteria of NASDAQ rules; and

 

Each Audit Committee member satisfies the independence criteria of Rule 10A-3(b)(1) under the Securities Exchange Act of 1934.

 



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In determining Dr. Vandebroek’s independence, the Nominating and Governance Committee considered Dr. Vandebroek’s position as an executive officer of Xerox Corporation (“Xerox”), a provider of office technology equipment and other related services for the Company. The Nominating and Governance Committee considered several factors including, among other things:

The fact that the Company’s relationship with Xerox predated Dr. Vandebroek joining Xerox;

 

That Dr. Vandebroek did not participate in the negotiation of any transactions with Xerox for its services;

 

That such services were provided on arm’s length terms and conditions and in the ordinary course of business; and

 

That the services provided by Xerox were routine and limited in scope (the Company paid Xerox approximately $236,000 in 2014 and approximately $124,000 in 2015 for office technology equipment and other related services).

 

Based on the factors considered by the Nominating and Governance Committee, it concluded that these transactions would not affect Dr. Vandebroek’s independence.

Related Person Transactions

Our Board has adopted a written Related Person Transaction Policy under which the Audit Committee is required to review and approve any transaction involving more than $120,000 in which the Company is a participant and in which any related person has or will have a direct or indirect material interest. The Audit Committee may approve any such transaction only if it determines that, under all of the circumstances, the transaction is not inconsistent with the best interests of the Company.

A related person under this policy is:

Any executive officer;

 

A Director, or nominee for Director;

 

A holder of 5% or more of our common stock; or

 

An immediate family member of any of those persons.

 

The policy provides that a “direct or indirect material interest” does not arise solely from the related person’s position as an executive officer of another entity involved in a transaction with the Company, where:

The related person owns less than a 10% equity interest in such entity;

 

The related person and his or her immediate family members are not involved in the negotiation of the terms of the transaction and do not receive any special benefits as a result of the transaction;

 

The amount involved in the transaction equals less than the greater of $200,000 or 5% of the annual gross revenue of the other entity involved in the transaction; and

 

The amount involved in the transaction equals less than 2% of the consolidated gross revenues of the Company for its most recent fiscal year.

 

Since January 1, 2015, there have been no related person transactions requiring review and approval by the Audit Committee under the Related Person Transaction Policy.

Board Leadership Structure

The Board is led by Mr. Ayers, who serves as the Chairman of the Board, and by Mr. End, an independent Director, who serves as the Lead Director. Mr. Ayers has been the Chairman of the Board since joining the Company as Chief Executive Officer in 2002. Under our Corporate Governance Guidelines, when the Chairman of the Board is not an independent Director, the independent Directors annually elect a Lead Director from among the independent Directors.

The Chairman of the Board has no greater nor lesser vote on matters considered by the Board than any other Director. All Directors, including the Chairman, are bound by fiduciary obligations imposed by law. As discussed above under “Director Independence,” each Director other than Mr. Ayers is an independent director under NASDAQ rules, and every member of each standing Committee is also independent under those rules.

The Board is free to select the Chairman of the Board and the Chief Executive Officer in any way it deems best for our stockholders at any point in time, and the Board does not have a predetermined policy as to whether or not the roles of Chairman of the Board and Chief Executive Officer should be combined or separate. Pursuant to our Corporate Governance Guidelines, the Nominating and Governance Committee annually assesses the Board’s leadership structure, including



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whether the offices of Chairman of the Board and Chief Executive Officer should be combined or separate and why the Board’s leadership structure is appropriate given the specific characteristics or circumstances of the Company.

In February 2016, the Nominating and Governance Committee assessed the Board’s leadership structure and determined that a combined full-time Chairman of the Board and Chief Executive Officer, subject to oversight by the Company’s independent Directors, including an independent Lead Director, is appropriate for the following reasons:

First, the Chief Executive Officer is responsible for the day-to-day management of the Company and the development and implementation of the Company’s strategy, and has access to the people, information and resources necessary to facilitate Board functions. As such,

 

the Board believes that the Chief Executive Officer is best positioned to develop the agenda for the Board supported by regular consultation and input from the Lead Director, and to lead discussions at Board meetings regarding the Company’s strategy, operations and results;

Second, it is the Board’s opinion that Mr. Ayers’s interests, including through a meaningful and growing ownership of our common stock, are aligned with the interests of our stockholders; and

 

Third, as described above, oversight of the Company is the responsibility of the Board as a whole, which is composed entirely of independent Directors, other than Mr. Ayers, including an independent Lead Director, whose responsibilities include those described below.

 

Lead Director

The position of Lead Director has significant authority and responsibilities under the Corporate Governance Guidelines, including:

Board Meetings and Executive Sessions

Scheduling executive sessions of the independent Directors.

Chairing the executive sessions of the independent Directors, which occur at each regularly scheduled Board meeting to discuss, among other things, the performance of the Chief Executive Officer.

Communications with Management

Facilitating communications between Board members and the Chairman of the Board and/or Chief Executive Officer (although any Director is free to communicate directly with the Chairman of the Board and Chief Executive Officer).

Agendas

Working with the Chairman of the Board and the Chief Executive Officer in preparing the agenda for each Board meeting.

Corporate Governance

Consulting with and advising the Chairman of the Board and/or the Chief Executive Officer on matters relating to corporate governance and Board functions.

Annual Board Self-Assessment

The Nominating and Governance Committee is responsible for evaluating the performance of the Board, its Committees and each of the Directors. The purpose of this evaluation is to identify ways to enhance the effectiveness of the Board, its Committees and the Directors.

The evaluation process includes completion of questionnaires and interviews with each Director to solicit candid feedback and gather additional suggestions for improvement. The responses and comments of the Directors are then compiled and presented by the Lead Director to the Nominating and Governance Committee and the Board for discussion and action.


Talent Management and Succession Planning

Succession planning and talent development are an integral part of our long-term strategy for sustained stockholder value creation. The Nominating and Governance Committee is responsible for annually reviewing succession plans for the Chief Executive Officer. In addition, the Board is responsible for ensuring the existence of appropriate succession plans for all our executive officers.

The Chief Executive Officer is responsible for preparing an annual report to the Board regarding succession planning for himself, and as part of this annual report, our Chief Executive Officer provides his evaluations and recommendation of potential future candidates for the position of Chief Executive Officer, including possible timing. In addition, the Board, both directly and through the Compensation Committee, also


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reviews plans for identifying and developing potential future candidates for other senior leadership roles, and the Board members interact with many of these candidates in formal and informal settings during the year.

Diversity

We believe that diversity among our employees and senior management including, but not limited to, gender and ethnic diversity helps drive both innovation and a better understanding of our increasingly global customer base. Throughout our Company, we seek to employ a broad representation of gender, ethnic, and racial backgrounds in all levels of management and on the Board. We believe that senior management and Directors with a variety of backgrounds, experiences, education, skills and business

knowledge will contribute to our Company’s effectiveness and, thus, we are focused on ensuring that a wide range of backgrounds and experiences are represented in our Company and on our Board. We actively seek out highly qualified diverse candidates (including gender and ethnically diverse candidates) to include in each pool of potential senior management and Board nominees, and we consider the value of diversity of all types when evaluating nominees and assessing our Board members and senior-level management.

Board’s Role in Risk Oversight

Management is responsible for risk management on a day-to-day basis. The Board oversees the risk management activities of management directly and through its Committees by discussing with management the policies and practices they utilize in assessing and managing risks and providing input on those policies and practices.

In general, the Board oversees risk management activities relating to business strategy, acquisitions, capital allocation and structure, legal, compliance and regulatory risk, and operational risks. The Committees oversee certain areas of risk management too, including:

the Audit Committee oversees risk management activities related to accounting, auditing, internal control, information system controls and security, compliance and insurance matters;

 

the Finance Committee oversees risk management activities relating to investment policy, foreign currency hedging activities and financial instruments;

 

the Compensation Committee oversees risk management activities relating to the Company’s compensation policies and practices and organizational risk; and

 

the Nominating and Governance Committee oversees risk management activities relating to Board composition and function.

 

Each Committee reports to the full Board on a regular basis, including with respect to its risk oversight activities as appropriate.

We conduct an annual enterprise risk assessment as part of our annual strategic planning process. The risk assessment process involves an identification and assessment by senior line of business and functional leaders of the particular risks relevant to their lines of business and functional areas, the materiality of those risks and plans to mitigate them to the extent prudent and feasible. The identified risks are ranked based on probability of occurrence and severity of impact. Management shares the result of this annual risk assessment with the full Board in conjunction with the Board’s discussion of the Company’s annual strategic plan. Certain risks and related mitigation plans are also reviewed throughout the year either by the Board or its Committees.

We also conduct a compliance risk assessment, the results of which are shared by management with the Audit Committee. This risk assessment involves an identification and assessment by functional leaders of the particular legal and regulatory compliance risks relevant to their areas of responsibility. The risks are ranked based on materiality and maturity of controls by functional leaders. Plans to mitigate the top risks are also shared and discussed with the full Board at various times of the year as part of normal business discussions.

The Audit Committee reviews linkages between the critical risk findings, management preparedness or plans to address those risks, and internal audit’s tests of those plans. The Audit Committee seeks to ensure that the internal audit department can perform its function by reviewing the charter, plans, activities, staffing and organizational structure of the internal audit department, and approving the appointment, replacement, reassignment or dismissal of the Director of Internal Audit.

The Audit Committee also provides an open channel of communication between internal audit and the Board; meets independently with the Company’s internal auditors, independent auditors and management; and discusses with management the Company’s major policies with respect to risk assessment and risk management, including an annual review of the Company’s insurance coverage.



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Corporate Governance


Board Committees

The Board has established four standing committees - an Audit Committee, a Compensation Committee, a Nominating and Governance Committee and a Finance Committee, each of which is described briefly below. Each Committee acts pursuant to a written charter that is approved by the Board and reviewed annually by the applicable Committee, the Nominating and Governance Committee and the Board. Current copies of each Committee’s charter can be accessed on the Corporate

Governance section of our website www.idexx.com or by contacting our Corporate Vice President, General Counsel and Corporate Secretary at the Company’s principal executive offices.

Members of the Committees, as of March 1, 2016, are named below:

Board Member

Audit

Compensation

Nominating & Governance

Finance

Jonathan W. Ayers

-

-

-

-

Bruce L. Claflin (2)

-

-

Thomas Craig

-

-

William T. End (1)

-

-

Rebecca M. Henderson, PhD

-

-

(Chair)

Barry C. Johnson, PhD

-

-

-

(Chair)

Daniel M. Junius (2)

(Chair)

-

-

M. Anne Szostak (2)

(Chair)

-

-

Sophie V. Vandebroek, PhD

-

-

Number of meetings in 2015

9

5

6

2

(1) Lead Director

(2) Audit Committee Financial Expert as defined under SEC rules.

Audit Committee

Members
Mr. Junius (chair)
Mr. Claflin
Mr. Craig
Ms. Szostak

Meetings held in 2015 - 9

Committee Responsibilities
The Audit Committee is responsible for overseeing the accounting, internal control, financial reporting, information system controls and security, compliance and audit processes of the Company, including the selection, retention and oversight of the Company’s independent auditors. The Audit Committee also oversees elements of the Company’s risk management activities and reviews and approves all related person transactions. The Audit Committee meets from time to time with the Company’s financial personnel, other members of management, internal audit staff and independent auditors regarding these matters.

The Nominating and Governance Committee has determined that each Audit Committee member is financially literate and that Mr. Junius, Mr. Claflin and Ms. Szostak are each an Audit Committee Financial Expert as defined under the SEC rules. Each of the Audit Committee members is independent as defined by NASDAQ rules.

The Audit Committee has established policies and procedures for the pre-approval of all services provided by the independent auditors, which are described on page 39. The Audit Committee has also adopted procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission of any concerns regarding questionable accounting or auditing matters. The Audit Committee may retain independent counsel, accountants, or others to assist it in the conduct of any investigation, and the Company will provide appropriate funding for payment of such services, as determined by the Audit Committee.

 

The Audit Committee Report is included on page 38.



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Compensation Committee

Members
Ms. Szostak (chair)
Mr. Craig
Mr. End

Meetings held in 2015 - 5

Committee Responsibilities
The Compensation Committee:

Oversees the management compensation philosophy and practices of IDEXX;

 

Evaluates the performance of the Chief Executive Officer;

 

Determines the compensation of the Chief Executive Officer and approves the compensation of the other senior executives;

 

Reviews management’s overall leadership development plan;

 

Oversees the Company’s equity compensation and benefit plans;

 

Determines any stock ownership and retention guidelines applicable to the Company’s executives and Directors and reviews compliance with those guidelines;

 

Reviews compensation of Directors;

 

Oversees the Company’s policies on structuring compensation programs to preserve tax deductibility;

 

Analyzes the risks associated with the Company’s compensation practices; and

 

Reviews the Compensation Discussion and Analysis required to be included in the Company’s annual proxy statement.

 

The Compensation Committee charter does not provide for any delegation of these duties except to a sub-committee or individual members of the Committee as the Compensation Committee may determine. The Compensation Committee has delegated to its chair the authority to grant equity awards to new officers of the Company between scheduled meetings of the Committee, following consultation with our Chief Executive Officer. Each of the Compensation Committee members is independent as defined by NASDAQ rules.

The Compensation Committee reviews Director compensation periodically and makes a recommendation to the Board. The Chief Executive Officer; the Corporate Vice President, General Counsel and Corporate Secretary; the Corporate Vice President and Chief Human Resources Officer and the Committee’s outside compensation consultant assist the Compensation Committee in its review of Director compensation by providing information and preparing meeting materials. Other than the Chief Executive Officer; the Corporate Vice President, General Counsel and Corporate Secretary; and the Corporate Vice President and Chief Human Resources Officer, no executive officer is involved in the Board’s review and determination of Director compensation.

 

The Compensation Committee Report is included on page 53.

Committee Procedures. Compensation Committee meetings are scheduled and agendas determined through consultation among our Chief Executive Officer; our Corporate Vice President, General Counsel and Corporate Secretary; our Corporate Vice President and Chief Human Resources Officer, and the Compensation Committee chair.

In February of each year, the Compensation Committee meets to:

Approve the bonus amounts for the Chief Executive Officer,

 

Review and approve the Chief Executive Officer’s recommended bonuses for other executive officers, making such changes as it deems appropriate

 

Determine the annual equity award and current year base salary for the Chief Executive Officer, and

 

Review and approve the Chief Executive Officer’s recommendations for equity awards and current year base salaries for the other executive officers, making such changes as it deems appropriate.

 

The Compensation Committee meets at other times during the year as needed to review executive compensation and otherwise to perform the duties described in its charter.

Use of Compensation Consultants. The Compensation Committee has the authority to engage advisers to support its work at the Company’s expense, taking into consideration the applicable factors affecting the independence of such advisers that are required by SEC and NASDAQ rules. The Compensation Committee has engaged Frederic W. Cook & Co., Inc. (“FW Cook”) to serve as a consultant, with the following duties generally:



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Providing the Compensation Committee with analysis pertaining to executive and Director compensation program design, including industry survey analysis, explanation of trends, best practices and regulatory changes;

 

Analyzing peer companies’ annual executive and director compensation to assist the Compensation Committee in determining the appropriateness and competitiveness of our executive and Director compensation and recommending a relevant group of peer companies against which to benchmark the competitiveness and appropriateness of our executive and Director compensation;

 

Reviewing any proposed changes to executive and Director compensation program design;

 

Analyzing our compensation practices to assist the Compensation Committee in determining whether risks arising from such practices are reasonably likely to have a material adverse effect on the Company; and

 

Providing specific analysis periodically as requested by the Compensation Committee.

 

During 2015, the Compensation Committee engaged FW Cook to, among other things:

Analyze and modify the relevant group of peer companies used to benchmark the competitiveness and assess the appropriateness of our executive compensation;

 

Review competitiveness and appropriateness of the total compensation of our executive officers;

 

Review the appropriateness of our Director compensation;

 

Review compensation disclosure materials;

 

Analyze our compensation practices to assist the Compensation Committee in determining whether risks arising from such practices are reasonably likely to have a material adverse effect on the Company; and

 

Update and advise the Compensation Committee on general trends and regulatory developments in executive and Director compensation with respect to total compensation, forms of compensation and stock compensation.

 

FW Cook provides no services to us other than those provided to the Compensation Committee. The chair of the Compensation Committee reviews and approves all invoices pertaining to services provided by FW Cook. Members of management work with FW Cook only to the extent necessary to provide FW Cook with information necessary for its consulting work and to prepare materials for Committee and Board review.

In February 2016, the Compensation Committee considered whether its work with FW Cook raised any conflicts of interest in light of the factors regarding a compensation adviser’s independence described in SEC and NASDAQ rules. Based on these factors, the Compensation Committee determined that the work of FW Cook and the individual compensation advisors employed by FW Cook who provided services to the Compensation Committee have not created any conflict of interest.

Analysis of Risk Associated with Compensation Practices. The Compensation Committee engaged FW Cook to conduct an analysis of our compensation practices in order to assist the Compensation Committee in determining whether those practices created risks that were reasonably likely to have a material adverse effect on the Company. The results of this analysis were presented by FW Cook to the Compensation Committee in December 2015. Based on this analysis, the Compensation Committee determined that our compensation practices were not reasonably likely to have a material adverse effect on the Company.

Role of Company Executives. As provided by the Compensation Committee charter, the Chief Executive Officer is responsible for recommending to the Compensation Committee annual compensation for the rest of the executive officers. The Compensation Committee approves compensation for these executive officers and may make such changes as it deems appropriate. The Compensation Committee charter also provides that the Compensation Committee determines the Chief Executive Officer’s annual compensation and meets without the presence of any executive officers of the Company when approving or deliberating on Chief Executive Officer compensation.

In addition to the Chief Executive Officer, our Corporate Vice President, General Counsel and Corporate Secretary and our Corporate Vice President and Chief Human Resources Officer also work with the Compensation Committee chair to set agendas, prepare materials for Compensation Committee meetings, and generally attend meetings and prepare meeting minutes. However, members of management, including the Chief Executive Officer, are not present in Compensation Committee meetings when matters related to their individual compensation are under discussion. No other executive officer is involved in supporting Compensation Committee activities or executive compensation recommendations.

Compensation Committee Interlocks and Insider Participation. Ms. Szostak (chair), Mr. Craig and Mr. End served on the Compensation Committee during 2015. There were no Compensation Committee interlocks or insider (employee) participation during 2015.



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Corporate Governance


Nominating and Governance Committee

Members
Dr. Henderson (chair)
Mr. Claflin
Mr. End
Dr. Vandebroek

Meetings held in 2015 - 6

Committee Responsibilities
The Nominating and Governance Committee advises and makes recommendations to the Board with respect to corporate governance practices, including Board organization, function, membership and performance, and succession planning for the Chief Executive Officer. The Nominating and Governance Committee may retain, at the Company’s expense, independent counsel or other advisors as it deems necessary. Each of the Nominating and Governance Committee members is independent as defined by NASDAQ rules.

The Nominating and Governance Committee identifies, evaluates, recruits and makes recommendations to the Board regarding candidates to fill vacancies on the Board as described on pages 14 and 15.

The Nominating and Governance Committee annually reviews the performance of the Board, its Committees and each of the Directors, as described under “Annual Board Self-Assessment” on page 24. The Nominating and Governance Committee is also responsible for annually reviewing with the Board the requisite skills and criteria for all Board members, as well as the composition of the Board as a whole, and annually assessing, for each Director or person nominated to become a Director, the specific experience, qualifications, attributes and skills, including described on pages 17 to 20, that lead the Nominating and Governance Committee to conclude that such Director or nominee should serve as a Director in light of our business and structure.

 

 

Finance Committee

Members
Dr. Johnson (chair)
Dr. Henderson
Mr. Junius
Dr. Vandebroek

Meetings held in 2015 - 2

Committee Responsibilities
The Finance Committee advises the Board with respect to financial matters and capital allocation, including capital structure, debt financing strategies, investment practices, major financial commitments, financial risk management, acquisitions and divestitures, stock repurchase strategy and dividend policy. Each of the Finance Committee members is independent as defined by NASDAQ rules.

In addition, the Finance Committee monitors our liquidity and financial condition, oversees our financial risk management activities (including foreign currency hedging and transactions involving derivatives), reviews and approves proposed acquisitions and divestitures requiring Board approval and having values up to $40 million and reviews and approves non-budgeted capital expenditures in excess of $5 million.

 

 

Corporate Governance Guidelines and Code of Ethics


The Board has adopted Corporate Governance Guidelines and a Code of Ethics, both which can be accessed on the

Corporate Governance section of our website www.idexx.com. Hard copies may be obtained by contacting our Corporate Vice President, General Counsel and Corporate Secretary at the Company’s principal executive offices.


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The Code of Ethics applies to all of our employees, officers and Directors. In addition, we intend to post on our website all disclosures that are required by law or NASDAQ listing standards concerning any amendments to, or waivers from, any provision of the Code of Ethics.

Anti-Hedging and Short Sale and Anti-Pledging Policies

The Board has adopted a Policy on Short Sales, Derivative Transactions and Hedging. This anti-hedging and short sale policy generally prohibits any Director, officer or employee, or any family member or affiliate of any of the foregoing, from engaging in (i) any short sales of the Company’s securities, (ii)purchases or sales of puts, calls or other derivative securities based upon the Company’s securities, or (iii) purchases of financial instruments that are designed to hedge or offset any decrease in the market value of the Company’s securities.

In December 2015, the Board adopted a Policy on Pledging of Company Stock that prohibits our Directors and executive officers from pledging or otherwise encumbering the equity securities they own in our Company as collateral for indebtedness, including holding shares in a margin or similar account that would subject our equity securities to margin calls.

Communications from Stockholders

Written communications to any individual Director, the Lead Director or the full Board may be submitted by electronic mail to contactdirectors@idexx.com or by writing to the Office of the Corporate Secretary at One IDEXX Drive, Westbrook, Maine 04092. The Chair of the Nominating and Governance Committee will review all such communications.

Director Compensation

Non-Employee Director Compensation

Our non-employee Directors are annually compensated for their Board service as described in the chart below:

Compensation Element

Non-Employee Director Compensation Program

Cash compensation (1)

 

Annual Retainer

$65,000

Committee Chair Retainer

$15,000 for the Audit Committee

 

$15,000 for the Compensation Committee

 

$10,000 for the Finance Committee

 

$10,000 for the Nominating and Governance Committee

Audit Committee Member Retainer

$5,000

Lead Director Retainer

$25,000

Meeting Fees

Not applicable; no fees are paid for meeting attendance

Equity compensation (2)

 

Deferred stock units

$43,750 in target value (3)

Non-qualified stock options

$131,250 in value (4)

Total

$175,000

Director stock ownership guidelines (5)

Target ownership of our common stock (including vested deferred stock units credited to a Director’s investment account) equal to six times the Annual Retainer

(1) All retainers are paid in quarterly installments, and each non-employee Director may, at his or her option, defer all or any portion of any retainer in the form of fully vested deferred stock units under our Director Deferred Compensation Plan (the“ Director Plan”).

(2) We annually grant deferred stock units and non-qualified stock options to each non-employee Director on the date of the Annual Meeting. A non-employee Director who joins the Board after the date of an Annual Meeting receives a pro rata grant based on the number of months remaining until the next year’s grant.



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(3) The number of deferred stock units granted equals the target value, divided by the price of our common stock on the grant date, rounded to the nearest whole share. Any non-employee Director who meets the target ownership under the stock ownership guidelines at the time of the annual grant may elect to receive restricted stock units (“RSUs”), in lieu of deferred stock units. The number of RSUs granted is calculated in the same manner as deferred stock units granted. For more information regarding RSUs, please see the discussion under “Compensation Discussion and Analysis” beginning on page 42.

(4) The value of the granted non-qualified stock options is calculated using the Black-Scholes-Merton option pricing model. This model is consistent with the valuation approach used to value executive awards.

(5) All non-employee Directors complied with the stock ownership guidelines as of December 31, 2015.

Equity Compensation

Deferred stock units and non-qualified stock options are granted to non-employee Directors annually on the date of the Annual Meeting. The most recent grant date was May 6, 2015, and the next grant date is scheduled to be on May 4, 2016, the date of the 2016 Annual Meeting.

In May 2015, the Board, on the recommendation of the Compensation Committee, modified the non-employee Director compensation program to increase the total annual equity award from $150,000 to $175,000, with 25% of the annual equity award in the form of a deferred stock unit grant and 75% in the form of a non-qualified stock option grant.

Deferred Stock Units. Deferred stock units granted on the date of the Annual Meeting are issued under the Director Plan and fully vest on the earlier of one year from the date of grant or the date of the next Annual Meeting. These vested deferred stock units are credited to a hypothetical investment account established in the non-employee Director’s name and will be distributed as an equal number of shares of our common stock one year following the termination of the non-employee Director’s Board service. For more information regarding the deferred stock units and the Director Plan, please see the discussion below under “Director Plan.”

If a non-employee Director is eligible to elect to receive RSUs in lieu of deferred stock units and makes this election, then he or she will receive RSUs that fully vest on the earlier of one year from the date of grant or the date of the next Annual Meeting.

Non-Qualified Stock Options. Non-qualified stock options are granted under our 2009 Stock Incentive Plan (the“2009 Plan”) and have the following terms:

Exercise price equal to the last reported sales price for a share of our common stock on the grant date.

 

Fully vests and is exercisable on the earlier of one year from the date of grant or the date of the next Annual Meeting.

 

Expires on the day immediately prior to the 10th anniversary of the grant date, except for options granted between 2006 and the day before the date of the 2013 Annual Meeting, which expire on the day immediately prior to the seventh anniversary of the grant date.

 

Accelerated vesting upon a change in control of the Company as described in the discussion under “Stock Incentive Plans” beginning on page 61.

 


Director Plan

Each non-employee Director may defer all or any portion of any cash compensation in the form of fully vested deferred stock units, which are issued under the Director Plan and are subject to the terms of the 2009 Plan. The payment of cash compensation in the form of deferred stock units is considered deferred compensation for federal income tax purposes.

A hypothetical investment account is established in the name of each non-employee Director, and vested deferred stock units are credited as follows:

Any cash compensation deferred by him or her is credited to the account as the number of vested deferred stock units equal to the aggregate value of the deferred compensation divided by the price of a share of common stock on the date of the applicable deferral.

 

When the grant of deferred stock units made on the date of an Annual Meeting (or any prorated grant of deferred stock units made when he or she joins the Board) vests, those vested deferred stock units also are credited to this account.

 

Director Plan account balances are not subject to any interest or other investment returns, other than returns produced by fluctuations in the price of a share of common stock affecting the value of the deferred stock units in the account.

Deferred stock units are distributed in the form of an equal number of shares of our common stock as follows:

Deferred Stock Units from Deferred Cash Compensation. A non-employee Director may elect to receive his or her distribution in either:

 



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A single lump sum one year after his or her last day of Board service; or

 

For deferrals made on or after January 1, 2011, in:

 

A single sum on a nondiscretionary and objectively determinable fixed date; or

 

Equal annual installments over four years on or after such fixed date.

 

Annual Grant of Deferred Stock Units. Shares are distributed one year following the termination of his or her Board service.

 

Emergency Distribution. If the administrator of the Director Plan determines that a non-employee Director has suffered an unforeseeable emergency, the administrator may authorize the distribution of all or a portion of his or her deferred stock units.

 

Unvested deferred stock units will vest immediately under the following circumstances:

Death or Disability. Unvested deferred stock units will vest immediately upon the non-employee Director’s death or disability.

 

Change in Control. Unvested deferred stock units will vest immediately upon a change in control of the Company. The

 

shares of common stock in a Director’s account will be distributed in a single lump sum as soon as practicable after a change in control.

 

A change in control under the Director Plan occurs when:

 

Any person or group acquires direct or indirect beneficial ownership of stock possessing 35% or more of the total voting power of the Company’s stock; or

 

A majority of the Board members is replaced during any 12-month period by new Directors whose appointment or election is not approved by a majority of the Board members serving immediately before the appointment or election of any of these new directors; or

 

A change in the ownership of a substantial portion of our assets occurs on the date that any person or group acquires assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of our assets immediately prior to such acquisition.

 


Other Compensation

All Directors are reimbursed for reasonable travel expenses incurred in connection with Board and committee meetings. We also extend coverage to them under our directors’ and officers’ indemnity insurance policies. We do not provide any other benefits, including retirement benefits or perquisites, to our non-employee Directors.


Director Stock Ownership Guidelines

Our stock ownership guidelines set a target level of ownership of our common stock for each non-employee Director equal to six times the annual retainer, which is $390,000 in stock value, at the end of each calendar year.

Shares that are owned by, or held in trust for the benefit of, a non-employee Director or immediate family members residing in the same household and vested deferred stock units credited to his or her investment account are included in calculating stock ownership.

Until the value of a non-employee Director’s common stock exceeds this target level at the end of a calendar year, he or she must retain:

At least 75% of our common stock received upon the exercise of options or the vesting and release of RSUs or deferred stock units during the following year, after payment or withholding of any applicable exercise price and taxes; and

 

All other shares of our common stock held by him or her.

 



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A non-employee Director complies with these stock ownership guidelines if his or her stock ownership equals or exceeds the target level at the end of the year or if he or she has complied with the applicable retention requirements under the stock ownership guidelines.

2015 Non-Employee Director Compensation Table

The table below shows compensation for each of our non-employee Directors. Mr. Ayers, who is an employee, receives no additional compensation for his Board service. For information regarding Mr. Ayers’s compensation, please see the discussion under “Executive Compensation Tables” beginning on page 54.

                 

Name

Fees Earned Or
Paid In Cash

Stock Awards $ (1)

Option Awards $ (2)

Total
Compensation

Bruce L. Claflin (3)

$

35,527

 

$

35,482

(4)

$

106,350

(4)

$

177,358

 

Thomas Craig

 

70,000

(5)

 

43,742

   

131,104

   

244,846

 

William T. End

 

90,000

   

43,742

   

131,104

   

264,846

 

Rebecca M. Henderson, PhD

 

75,000

   

43,742

   

131,104

   

249,846

 

Barry C. Johnson, PhD

 

75,000

   

43,742

   

131,104

   

249,846

 

Daniel M. Junius

 

80,000

(6)

 

43,742

   

131,104

   

254,846

 

M. Anne Szostak

 

85,000

   

43,742

   

131,104

   

259,846

 

Sophie V. Vandebroek, PhD

 

65,000

   

43,742

   

131,104

   

239,846

 

(1) Stock awards to non-employee Directors are issued as deferred stock units (“DSUs”) pursuant to the Company’s Director Plan. The amount shown excludes DSUs received in lieu of deferred compensation as described in footnotes 5 and 6 and reflects the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 (calculated by rounding $43,750 to the nearest share on the date of deferral). See Note 4 in the notes to the consolidated financial statements included in our 2015 Annual Report on Form 10-K for the relevant assumptions used to determine the valuation of our stock awards. As discussed under “Equity Compensation” above on page 31, non-employee Directors receive only one DSU and option grant during the fiscal year. As of December 31, 2015, the following are the aggregate number of DSUs accumulated in each non-employee Director’s deferral account for all years of service as a Director, including DSUs issued for deferred fees as well as DSUs issued as annual grants to non-employee Directors: Mr. Claflin, 503, Mr. Craig, 36,198; Mr. End, 19,476; Dr. Henderson, 30,986; Dr. Johnson, 19,246; Mr. Junius, 1,561; Ms. Szostak, 2,690 and Dr. Vandebroek, 1,916.

(2) Reflects the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. See Note 4 in the notes to consolidated financial statements included in our 2015 Annual Report on Form 10-K for the relevant assumptions used to determine the valuation of our option awards. As of December 31, 2015, each non-employee Director had the following number of stock options outstanding: Mr. Claflin, 5,629; Mr. Craig, 48,570; Mr. End, 46,516; Dr. Henderson, 46,516; Dr. Johnson, 55,570; Mr. Junius, 14,594; Ms. Szostak 28,392 and Dr. Vandebroek, 16,648.

(3) Mr. Claflin was appointed to the Board effective July 14, 2015.

(4) Consists of a prorated equity grant made to Mr. Claflin with respect to the period from his election to the Board on July 14, 2015 to May 4, 2016, the scheduled date of the next annual equity grant to be made to all non-employee Directors, consisting of DSUs having a grant date fair value of $35,482 and nonqualified stock options having a grant date fair value of $106,350.

(5) Includes compensation in the amount of $70,000 deferred and issued as 1,000 DSUs pursuant to the Director Plan.

(6) Includes compensation in the amount of $15,000 deferred and issued as 223 DSUs pursuant to the Director Plan.



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Stock Ownership Information

Stock Ownership of Directors and Officers

The table below shows the number of shares of our common stock beneficially owned as of March 1, 2016 by each of our Directors, each of our named executive officers named in the Summary Compensation Table and all of our Directors and executive officers as a group. The table below also includes information about stock options and vesting restricted stock units granted to our Directors and executive officers. Unless otherwise indicated, each person listed below has sole voting and investment power with respect to the shares and other securities listed.

                 

Beneficial Owner

Shares
Owned

Options
Exercisable
and RSUs
Vesting (1)

Total Number of
Shares Beneficially
Owned (2)

Percentage of
Common Stock
Outstanding (3)

Jonathan W. Ayers

 

1,006,461

(4)

 

906,902

   

1,913,363

   

2.14

%

Bruce L. Claflin (5)

 

   

   

   

 

*

Thomas Craig

 

2,140

   

38,794

   

40,934

   

 

*

William T. End

 

50,468

   

38,794

   

89,262

   

 

*

Rebecca M. Henderson, PhD

 

6,754

   

38,794

   

45,548

   

 

*

Barry C. Johnson, PhD

 

   

38,794

   

38,794

   

 

*

Daniel M. Junius

 

2,000

   

6,872

   

8,872

   

 

*

M. Anne Szostak

 

16,000

(6)

 

20,670

   

36,670

   

 

*

Sophie V. Vandebroek, PhD

 

6,000

   

8,926

   

14,926

   

 

*

Brian P. McKeon

 

13,629

   

70,291

   

83,920

   

 

*

Jay Mazelsky

 

10,911

   

56,416

   

67,327

   

 

*

Jacqueline L. Studer (8)

 

1,208

   

4,122

   

5,330

   

 

*

Michael J. Williams, PhD

 

27,021

   

129,056

   

156,077

   

 

*

All Directors and executive officers as of March 1, 2016 as a group (13 persons)

 

1,142,592

   

1,358,431

   

2,501,023

   

2.79

%

* Less than 1%

We also grant deferred stock units to our non-employee Directors as annual equity grants or voluntary deferrals of annual fees. Deferred stock units are not included in the table above because they do not represent a right to acquire shares of our common stock within 60 days after March 1, 2016. Although deferred stock units carry no voting rights and individuals holding fully vested deferred stock units are at risk as to the price of our common stock in their investment accounts, vested deferred stock units are included for purposes of determining satisfaction of target stock ownership levels under our stock ownership guidelines. Accordingly, the table below shows the total numbers of shares and fully vested deferred stock units owned as of March 1, 2016 by each of our Directors, each of our named executive officers and all our Directors and executive officers as a group.



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Stock Ownership Information


 

             

Beneficial Owner

Shares
Owned

DSUs (7)

Total Number
of Shares and
DSUs Owned

Jonathan W. Ayers

 

1,006,461

(4)

 

59,164

   

1,065,525

 

Bruce L. Claflin (5)

 

   

   

 

Thomas Craig

 

2,140

   

35,764

   

37,904

 

William T. End

 

50,468

   

18,792

   

69,260

 

Rebecca M. Henderson, PhD

 

6,754

   

30,302

   

37,056

 

Barry C. Johnson, PhD

 

   

18,562

   

18,562

 

Daniel M. Junius

 

2,000

   

948

   

2,948

 

M. Anne Szostak

 

16,000

(6)

 

2,006

   

18,006

 

Sophie V. Vandebroek, PhD

 

6,000

   

1,232

   

7,232

 

Brian P. McKeon

 

13,629

   

34,708

   

48,337

 

Jay Mazelsky

 

10,911

   

   

10,911

 

Jacqueline L. Studer (8)

 

1,208

   

   

1,208

 

Michael J. Williams, PhD

 

27,021

   

12,990

   

40,011

 

All Directors and executive officers as of March 1, 2016 as a group (13 persons)

 

1,142,592

   

214,468

   

1,357,060

 

(1) Consists of options to purchase shares of common stock exercisable, and RSUs vesting, on or within 60 days after March 1, 2016.

(2) The number of shares beneficially owned by each person or group as of March 1, 2016 includes shares of common stock that such person or group had the right to acquire on or within 60 days after March 1, 2016, including but not limited to, upon the exercise of stock options or vesting of RSUs, but excluding DSUs.

(3) For each individual and group included in the table, percentage of ownership is calculated by dividing the number of shares beneficially owned by such person or group as described above by the sum of 89,603,657 shares of common stock outstanding on March 1, 2016 and the number of shares of common stock that such person or group had the right to acquire on or within 60 days after March 1, 2016, including but not limited to, upon the exercise of stock options or vesting of RSUs, but excluding DSUs.

(4) Includes 98,000 shares held by the Ayers Family Trust.

(5) Mr. Claflin was appointed to the Board effective July 14, 2015.

(6) Includes 6,600 shares held by the 2014 Szostak IDEXX GRAT and 8,816 shares held by the M. Anne Szostak Trust.

(7) Consists of DSUs that are vested as of March 1, 2016.

(8) Ms. Studer was appointed Corporate Vice President, General Counsel and Corporate Secretary effective September 1, 2014.

Director and Officer Stock Ownership Guidelines

We maintain stock ownership guidelines for our Directors and executives, including our executive officers. For more information regarding our Director stock ownership guidelines, please see the discussion under “Director Stock Ownership Guidelines” on page 32, and for more information regarding our executive stock ownership guidelines, please see the discussion under “Compensation Policies and Practices” beginning on page 46.



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Stock Ownership Information


Stock Ownership of Certain Beneficial Owners

Based solely on our review of filings made under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, the only persons or entities known to us to beneficially own more than 5% of our common stock as of December 31, 2015 were:

         

Beneficial Owner

Number of Shares
Beneficially Owned

Percentage of Common Stock
Outstanding (1)

T. Rowe Price Associates, Inc. (2)
100 East Pratt Street
Baltimore, Maryland 21202

 

8,226,897

   

9.18

%

Ruane, Cunniff & Goldfarb Inc. (3)
9W 57th Street, Suite 5000
New York, New York 10019

 

8,027,368

   

8.96

%

Baron Capital Group, Inc. (4)
767 Fifth Avenue, 49th Floor
New York, New York 10153

 

6,891,469

   

7.69

%

BlackRock, Inc. (5)
55 East 52nd Street
New York, New York 10022

 

6,560,868

   

7.32

%

The Vanguard Group (6)
100 Vanguard Blvd.
Malvern, Pennsylvania 19355

 

6,331,556

   

7.06

%

(1) For each group included in the table, percentage ownership is calculated by dividing the number of shares beneficially owned by such group on December 31, 2015, as reflected in the most recent filing by such group of statements of beneficial ownership with the SEC, by the 89,603,657 shares of common stock outstanding on March 1, 2016. Therefore, the percentage ownership may differ from the percentage ownership reported in such statements of beneficial ownership, which reflect ownership as of an earlier date.

(2) Based solely upon information derived from a Schedule 13G/A filed by T. Rowe Price Associates, Inc. (“T. Rowe Price”) with the SEC on February 11, 2016, it has the sole power to vote 2,139,941 shares and sole power to dispose of 8,226,897 shares. These shares are owned by various individual and institutional investors for which T. Rowe Price serves as investment adviser with power to direct investments and/or sole power to vote the shares. For purposes of reporting requirements of the Securities Exchange Act of 1934, T. Rowe Price is deemed to be a beneficial owner of such securities; however T. Rowe Price expressly denies that it is, in fact, the beneficial owner of such securities.

(3) Based solely upon information derived from a Schedule 13G/A filed by Ruane, Cunniff & Goldfarb Inc. with the SEC on February 16, 2016, it has sole voting power and sole dispositive power of 8,027,368 shares.

(4) Based solely upon information derived from a Schedule 13G/A filed with the SEC on February 16, 2016 by Baron Capital Group, Inc., BAMCO, Inc., a subsidiary of Baron Capital Group, Inc., Baron Capital Management, Inc., a subsidiary of Baron Capital Group, Inc., and Ronald Baron, who owns a controlling interest in Baron Capital Group, Inc., (i) Baron Capital Group, Inc. reported that it has shared voting power of 6,547,069 shares and shared dispositive power of 6,891,469 shares; (ii) BAMCO, Inc. reported that it had shared voting power of 6,123,319 shares and shared dispositive power of 6,467,619 shares; (iii) Baron Capital Management, Inc. reported that it has shared voting power and shared dispositive power of 423,850 shares; and (iv) Mr. Baron reported that he has shared voting power of 6,547,069 shares and shared dispositive power of 6,891,469 shares.

(5) Based solely upon information derived from a Schedule 13G/A filed by BlackRock, Inc. with the SEC on January 22, 2016, it has sole power to vote 6,238,494 shares and sole power to dispose of 6,560,868 shares.

(6) Based solely upon information derived from a Schedule 13G/A filed by The Vanguard Group with the SEC on February 11, 2016, it has the sole power to vote 67,542 shares, sole power to dispose of 6,264,414 shares and shared power to dispose of 67,142 shares.

Section 16(a) Beneficial Ownership Reporting Compliance 

Under Section 16(a) of the Securities Exchange Act of 1934, our Directors, executive officers and any person holding more than 10% of our outstanding common stock are required to report their initial ownership of Common Stock and any subsequent changes in their ownership to the SEC. We are not aware of any person holding more than 10% of our outstanding common stock.

Based solely on our review of copies of Section 16(a) reporting forms that we received from reporting persons for transactions occurring during our 2015 fiscal year and written representations from our Directors and executive officers, we believe that no reporting person failed to timely file any report required by Section 16(a) during the 2015 fiscal year.



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Audit Committee Matters

Proposal Two - Ratification of Appointment of Independent Registered Public Accounting Firm

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the Company’s independent registered public accounting firm. The Audit Committee has appointed PricewaterhouseCoopers LLP (“PwC”) to serve as our independent registered public accounting firm for 2016, subject to ratification by stockholders.

In taking this action, the Audit Committee considered carefully PwC’s performance as the Company’s independent registered public accounting firm, its independence with respect to the services to be performed and its general reputation for adherence to professional auditing standards. A new lead audit partner has been designated, and in conjunction with the mandated rotation of the lead audit partner, the Audit Committee and its Chair were directly involved in this selection.

The Audit Committee and the Board believe that the continued retention of PwC as our independent registered public accounting firm is in the best interests of the Company and our stockholders.

Because the members of the Audit Committee value the views of our stockholders on our independent auditors, even though ratification is not required by law, stockholders will have an opportunity to ratify this selection at the 2016 Annual Meeting. Representatives of PwC will be present at the 2016 Annual Meeting, will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions. If this proposal is not approved at the 2016 Annual Meeting, the Audit Committee may reconsider its selection of PwC. Even if the appointment is ratified, the Audit Committee, in its discretion, can direct the appointment of a different firm at any time during the year if the Audit Committee determines that such a change would be in the Company’s and our stockholders’ best interests.

 

Recommendation of the Board of Directors

The Board of Directors recommends that you vote “FOR” the ratification of PwC as our independent registered public accounting firm for 2016.

 



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Audit Committee Matters


Audit Committee Report

The Audit Committee is responsible for overseeing the accounting, internal control and financial reporting processes and the audit processes of the Company. As set forth in the Audit Committee’s charter, which is available at the Company’s

website at https://www.idexx.com/corporate/corporate-governance.html, the Company’s management is responsible for the preparation, presentation and integrity of the Company’s financial statements, the Company’s accounting and financial reporting principles, and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The Company has a full-time internal audit department that reports to the Audit Committee and management and is responsible for, among other things, objectively reviewing and assessing the adequacy and effectiveness of the Company’s internal controls and procedures.

At each of its nine regularly scheduled meetings in 2015, the Audit Committee met as a group with the Company’s management, the Company’s independent registered public accounting firm PwC and internal audit. In addition, in performing its oversight function, the Audit Committee held separate private sessions with senior management, the independent auditors and internal audit to assure that all were carrying out their respective responsibilities. Both PwC and the Director of Internal Audit had full access to the Audit Committee, including regular meetings during which members of management were not present.

In addition, the Audit Committee:

Reviewed the Company’s audited financial statements for the fiscal year ended December 31, 2015 and discussed them with management and PwC;

 

Discussed with PwC various communications that PwC is required to provide to the Audit Committee, including matters required to be discussed by Auditing Standard No. 16, Communications with Audit Committees; and

 

Received the written disclosures and the letter from PwC required by applicable requirements of the Public Company Accounting Oversight Board regarding the registered public accounting firm’s communications with the Audit Committee concerning independence and discussed with PwC their independence.

 

Based on the review and discussion referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements referred to above be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 for filing with the Securities and Exchange Commission.

Audit Committee

Daniel M. Junius, Chair
Bruce L. Claflin
Thomas Craig
M. Anne Szostak

Independent Auditors’ Fees

The following table summarizes the fees of PwC billed to us for each of the last two fiscal years for audit services, and billed to us in each of the last two fiscal years for other services. For fiscal year 2015, audit fees also include an estimate of amounts not yet billed.

         

 

Fiscal Years Ended
December 31,

 

2015

2014

Audit fees

$

1,914,115

 

$

1,854,306

 

Audit-related fees

 

   

 

Tax fees

 

454,052

   

358,755

 

All other fees

 

   

10,000

 

 

$

2,368,167

 

$

2,223,061

 



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Audit Committee Matters


Audit Fees. Consists of fees billed for professional services rendered for the audit of our annual financial statements and review of the interim financial statements included in quarterly reports; the audit of the effectiveness of our internal controls over financial reporting; statutory audits or financial audits for our subsidiaries or affiliates; services associated with periodic reports and other documents filed with the SEC; consultation concerning accounting or disclosure treatment of transactions or events and actual or potential impact of final or proposed rules, standards or interpretations by the SEC, the Financial Accounting Standards Board or other regulatory or standard setting bodies; and assistance with and review of documents provided to the SEC in responding to SEC comments.

Audit-Related Fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include due diligence services pertaining to potential acquisitions.

Tax Fees. Consists of tax compliance fees ($75,031 and $144,549 in 2015 and 2014, respectively), and tax advice and tax planning fees ($379,021 and $214,206 in 2015 and 2014, respectively). These services included U.S. federal, state and local tax planning and compliance advice; international tax planning, structure and compliance advice; and review of federal, state, local and international income, franchise and other tax returns.

All Other Fees. Consists of fees billed for services rendered in connection with an audit and certification of reporting to a third party vendor during 2014.

Out-of-Pocket Expenses and Value-Added Taxes. Included in the fee schedule above as components of each of Audit Fees, Tax Fees and All Other Fees are amounts billed by the independent auditors for out-of-pocket expenses ($91,014 and $83,829 in 2015 and 2014, respectively) and value-added taxes ($62,846 and $57,443 in 2015 and 2014, respectively).

Audit Committee Pre-Approval Policy

The Audit Committee has adopted a policy for the pre-approval of audit and non-audit services performed by our independent auditor, and the fees paid by us for such services, in order to assure that the provision of such services does not impair the auditor’s independence. Under the policy, at the beginning of the fiscal year, the Audit Committee pre-approves the engagement terms and fees for the annual audit. Certain types of other audit services, audit-related services and tax services have been pre-approved by the Audit Committee under the policy. Any services that have not been pre-approved by the Audit Committee as previously described must be separately approved by the Audit Committee prior to the performance of such services.

Pre-approved fee levels for all pre-approved services are established periodically by the Audit Committee. The Audit Committee then periodically reviews actual and anticipated fees for the pre-approved services against the pre-approved fee levels. Any anticipated fees exceeding the pre-approved fee levels require further pre-approval by the Audit Committee. With respect to each service for which separate pre-approval is proposed, the independent auditor will provide a detailed description of the services to permit the Audit Committee to assess the impact of the services on the independence of the independent auditor.

The Audit Committee may delegate pre-approval authority to one or more of its members and has delegated such authority to its chair. The Audit Committee member to whom such authority is delegated must report any pre-approval decisions to the Audit Committee at the next scheduled meeting. The Audit Committee does not delegate its pre-approval responsibilities to management.

During the last two fiscal years, no services were provided by PwC that were approved by the Audit Committee pursuant to the de minimis exception to pre-approval contained in the SEC’s rules.



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Executive Compensation

Proposal Three - Advisory Vote to Approve Executive Compensation

We are asking our stockholders to approve, on an advisory, non-binding basis, the compensation of our named executive officers as described in this Proxy Statement at the 2016 Annual Meeting. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this Proxy Statement. This proposal is commonly referred to as “say-on-pay.”

At the 2011 Annual Meeting, more than 93% of the votes cast by our stockholders were in favor of an annual advisory “say-on-pay” vote. Accordingly, since the 2011 Annual Meeting, we have annually submitted a “say-on-pay” proposal to our stockholders and received overwhelming stockholder support each year. At the 2015 Annual Meeting, our “say-on-pay” proposal was approved by our stockholders with 99.14% of the votes cast in favor of approving the compensation of our named executive officers, which is the highest among our peer group. The Board believes that this vote affirmed our stockholders’ support of our executive compensation program.

In deciding how to vote on this proposal, our stockholders are encouraged to read the Executive Compensation section of this Proxy Statement, including the Compensation Discussion and Analysis section, which discusses in detail our executive compensation program and how it implements our executive compensation philosophy, how our executive compensation program helps drive our business and other corporate strategies, the compensation decisions the Compensation Committee has made under our executive compensation program and some recent changes made to our compensation program.

Our Board recommends that our stockholders approve the following resolution:

RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed in this Proxy Statement for the 2016 Annual Meeting pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby approved on an advisory basis.

As an advisory vote, it will not binding. However, our Compensation Committee and Board of Directors value the opinions expressed by our stockholders in their vote on this proposal and will consider the outcome of this vote when making future compensation decisions for our named executive officers.

 

Recommendation of the Board of Directors

The Board of Directors recommends that you vote “FOR” the approval of the advisory resolution on executive compensation.

 



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Executive Compensation


Executive Officers

Set forth below are the names, ages, and current positions of our executive officers as of March 24, 2016 other than Mr. Ayers whose biographical information is located under “Proposal One – Election of Directors” on page 14:

Name

Age

Title

Jonathan W. Ayers

59

Chairman of the Board of Directors, President and Chief Executive Officer

Brian P. McKeon

53

Executive Vice President, Chief Financial Officer and Treasurer

Jay Mazelsky

55

Executive Vice President

Jacqueline L. Studer

57

Corporate Vice President, General Counsel and Corporate Secretary

Michael J. Williams, PhD

48

Executive Vice President

Brian P. McKeon. Mr. McKeon has been Executive Vice President, Chief Financial Officer and Treasurer since January 2014. He leads our finance, business development and worldwide operations functions. Mr. McKeon served as a Director of IDEXX from July 2003 through December 2013, including serving as Chair of the Audit Committee and as a member of the Compensation Committee. Mr. McKeon served as Executive Vice President of Iron Mountain Incorporated from April 2007 to December 2013 and Chief Financial Officer of Iron Mountain from April 2007 to October 2013. Mr. McKeon was also Executive Vice President and Chief Financial Officer of The Timberland Company from March 2000 to April 2007. From 1991 to 2000, Mr. McKeon held several finance and strategic planning positions with PepsiCo Inc., serving most recently as Vice President, Finance at Pepsi-Cola, North America. Mr. McKeon holds a bachelor’s degree from the University of Connecticut and an MBA with high distinction from Harvard University.

Jay Mazelsky. Mr. Mazelsky has been an Executive Vice President since joining us in August 2012. He oversees our Companion Animal Group Commercial Organization, which includes our IDEXX VetLab® in-house diagnostics, U.S. Diagnostic Imaging, Information Management, BioResearch and Telemedicine lines of business. Previously, Mr. Mazelsky was a Senior Vice President and General Manager from 2010 to 2012 of Computed Tomography, Nuclear Medicine and Radiation Therapy Planning at Philips Healthcare, a subsidiary of Royal Philips Electronics. Previously he held a series of other leadership roles with increasing responsibilities during his tenure at Philips beginning in 2001. Prior to joining Philips, Mr. Mazelsky was at Agilent Technologies, where he was an Executive in Charge from 2000 to 2002, leading the integration of Agilent’s Healthcare Group into Philips. He also served as a General Manager of the Medical Consumables Business Unit from 1997 to 2000 at Agilent Technologies. From 1988 to 1996, he was in a number of roles at Hewlett Packard in finance, marketing and business planning. Mr. Mazelsky holds a bachelor’s degree in mathematics from the University of Rochester and an M.B.A. from the University of Chicago.

Jacqueline L. Studer. Ms. Studer has been Corporate Vice President, General Counsel and Corporate Secretary since September 2014. She leads the Company’s legal, compliance, regulatory affairs and quality assurance groups. Before joining the Company, Ms. Studer was Vice President, General Counsel and Secretary of Blue Health Intelligence, a healthcare data and analytics company. Prior to that, from June 2011 to October 2012, Ms. Studer served as Executive Vice President and General Counsel of Allscripts Healthcare Solutions. From December 2002 to June 2011, Ms. Studer held various leadership positions at GE Healthcare, a medical technology company, including General Counsel of the GE Healthcare IT & Performance Solutions division. Ms. Studer has also held leadership roles in entrepreneurial organizations and with The Dow Chemical Company earlier in her career. Ms. Studer holds a bachelor’s degree in management from Purdue University and a J.D. from Columbia University School of Law.

Michael J. Williams, PhD. Dr. Williams has been an Executive Vice President since July 2012. He is responsible for oversight of our international operations as well as the Livestock, Poultry and Dairy and the Water segments and, since January 2007, our OPTI Medical Systems line of business. He was previously Corporate Vice President of our IDEXX VetLab® in-house diagnostics line of business from September 2006 to July 2012 and General Manager of that line of business from 2004 to 2012. From 2003 to 2004, Dr. Williams was Vice President and General Manager of our chemistry instruments and consumables business. Prior to joining us in 2003, Dr. Williams was a healthcare strategy consultant at McKinsey & Company from 1995 to 2002, and a senior research associate at the Scripps Research Institute from 1992 to 1995. Dr. Williams holds a bachelor’s degree in biochemistry from the University of Bristol, United Kingdom and a Ph.D. in biochemistry from the University of Oxford, United Kingdom.



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Executive Compensation


Compensation Discussion and Analysis

This discussion, together with the other compensation information (including the Executive Compensation Tables) and the information regarding the Compensation Committee contained elsewhere in this Proxy Statement, explains the Company’s executive compensation program with respect to fiscal year 2015 for our Chief Executive Officer, Chief Financial Officer, and the three other most highly compensated executives (collectively, our “named executive officers”):

Name

Position

Jonathan W. Ayers

Chairman, President and Chief Executive Officer

Brian P. McKeon

Executive Vice President, Chief Financial Officer and Treasurer

Jay Mazelsky

Executive Vice President

Jacqueline L. Studer

Corporate Vice President, General Counsel and Corporate Secretary

Michael J. Williams, PhD

Executive Vice President

Executive Summary and Overview


Executive Compensation Philosophy

The Company’s executive compensation philosophy is to attract, motivate and retain talented executives who are aligned and passionate about the Company’s purpose: to be a great company that creates exceptional long-term value for our customers, employees and stockholders by enhancing the health and well-being of pets, people and livestock.

In furtherance of this philosophy, our executive compensation program is based on a pay-for-performance philosophy designed to achieve three key objectives:

Attract, motivate and retain highly skilled executives;


Create alignment between management and stockholder interests by establishing a strong connection between compensation, stock ownership and creation of stockholder value; and


Reward executives for building a highly engaged, high-performance culture that corresponds with our Company’s guiding principles of:

sustaining market leadership;

 

exceeding the expectations of our customers;

 

empowering and rewarding our employees;

 

innovating with intelligence;

 

cultivating entrepreneurial spirit; and

 

contributing to our communities.

 

 



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Executive Compensation


Overview of Our Executive Compensation Program

We highlight below some of the key principles and objectives of our executive compensation program, as well as the compensation practices we have not implemented because we believe that they would not serve the long-term interests of our stockholders.

 

 

 


What We Do

Align pay with our performance Our executive compensation program is designed to align executive pay with our financial performance. For 2015, 74% of target total direct compensation for our named executive officers is in the form of annual performance-based cash bonuses and long-term equity incentives, the value of which is variable and directly tied to the Company’s performance. Determination of the annual performance-based cash bonus for each of our named executive officers is based on the achievement of Company-wide financial and non-financial goals selected as a measure of the Company’s overall performance. Additionally, in 2015 the Compensation Committee approved the addition of performance-based RSUs to the Company’s long-term equity incentive program in lieu of solely time-vested RSUs, which will serve to further align executive compensation with overall Company performance and stockholder return. Specifically, the time-vesting of all RSUs granted to our senior executives in February 2016 is subject to the achievement of a financial performance goal for 2016.

 

Review our peer group annually We review our designated proxy peer group on an annual basis to ensure that our compensation program is properly benchmarked against our market peers.

 

Strive to set executive compensation at the median of our peer group We generally seek to set target total direct compensation of our CEO and the other named executive officers around the median level as compared to our peer group.

 

Cap incentive awards Performance-based cash bonuses are capped at 200% of target.

 

Require our named executive officers to satisfy strict and meaningful stock ownership guidelines We maintain stock ownership guidelines that encourage our CEO and the other named executive officers to own meaningful amounts of Company stock and serve to align the interests of our executives and our stockholders.

 

Maintain a clawback policy Our compensation recoupment policy allows us to recover both incentive and equity compensation from our executive officers under certain circumstances if we are required to restate our financial results, other than a restatement due to changes in accounting principles or applicable law.

 

Hire an independent compensation consulting firm Frederic W. Cook & Co. (“FW Cook”) provides independent compensation consultation to our Compensation Committee. The Compensation Committee verifies FW Cook’s independence on an annual basis.

 

Conduct an annual compensation program risk assessment Our independent compensation consultant, FW Cook, conducts an annual assessment of our compensation programs to identify risk or potential for unintended consequences in the design of the Company’s compensation programs. FW Cook’s assessment has consistently concluded that there is a low risk that our compensation programs will have a material adverse effect on the Company. The Compensation Committee annually reviews and discusses this risk assessment with FW Cook and has determined that the risks associated with our compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.

 

Provide only modest perquisites We provide limited benefits and perquisites to our named executive officers that are not otherwise made available to our other salaried employees.

 

 


What We Don’t Do

No Employment Contracts other than with our CEO Other than an employment agreement with our CEO and change in control agreements with our executives, we do not have employment contracts with our executives.

 

No Tax Gross-ups of perquisites or 280G Excise Taxes We do not administer tax gross-ups with respect to perquisites and benefits provided to our named executive officers, with the exception of standard tax gross-ups for expatriates, or with respect to excise taxes related to any payment or benefit determined to be a “parachute payment” under Section 280G of the Internal Revenue Code.

 

No Pledging, Short Sales, Derivative Transactions, or Hedging Our senior executives are not permitted to pledge our equity securities as collateral for indebtedness or engage in any transaction in which they may profit from short-term speculative swings in the value of our equity securities.

 

No Supplemental Executive Retirement Plan Consistent with our philosophy of only providing modest perquisites to our executives, we do not have a Supplemental Executive Retirement Plan (SERP) in place for any of our executives.

 



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Executive Compensation


We encourage you to read this Compensation Discussion and Analysis in its entirety, along with other information contained in this Proxy Statement regarding our Compensation Committee and executive compensation, for a detailed discussion and analysis of our executive compensation program and the 2015 compensation of the named executive officers.

Elements of Executive Compensation Program

In support of our executive compensation philosophy and objectives, our executive compensation program consists of the following three key elements, which in total are targeted at the median of our competitive market:


Compensation Key Elements

Objective

Base salary

To provide a fixed amount of compensation which is positioned generally at the median of the competitive market for similar positions as well as individual skills, abilities and performance, which supports our compensation philosophy of attracting and retaining talented individuals.

Performance-Based Cash Bonus
(at risk)

To motivate executives to achieve annual corporate financial goals as well as other annual senior executive team goals that strengthen the business and position the Company for longer term performance. Target bonus percentages are positioned at the median of the competitive market for similar positions.

Equity-Based Long-Term
Incentives (at risk)

To motivate long-term performance and align the interests of management and stockholders, which supports our compensation philosophy of rewarding long-term performance and sustained stockholder value creation in a way that attracts and retains talented executives. In general, long-term incentive opportunities vest over five years and are targeted so that when combined with salary and target bonus opportunity, total direct compensation is approximately at the median of the market.

For senior executives, including the named executive officers, the Company believes that variable compensation, such as performance-based cash bonuses and equity-based compensation, should be a higher percentage of total compensation than for other employees. The Company also believes that variable compensation relates most directly to the creation of stockholder value over time by providing strong incentives to achieve strategic and financial objectives, as well as serving as a form of compensation that will motivate and retain executives. In general, the total direct compensation mix for our Chief Executive Officer and our other named executive officers for 2015 is as follows:




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Executive Compensation


In making decisions with respect to each element of an executive’s compensation, the Compensation Committee also considers the total compensation that may be awarded to the executive. Overall, the Compensation Committee’s goal is to award compensation that corresponds with the Company’s compensation philosophy and objectives when all the elements of the compensation program are considered individually and in total.

2015 “Say-on-Pay” Advisory Vote on Executive Compensation

At our 2015 Annual Meeting, our stockholders voted 99.14% (represented by 39,718,557 votes) in favor of approving the compensation of our named executive officers and 0.86% (represented by 344,080 votes) against. This approval percentage is the highest among the peer group of companies utilized by the Compensation Committee for competitive benchmarking purposes when it made executive compensation determinations for 2015. The Compensation Committee considered these results in determining compensation policies and decisions and concluded that the compensation paid to our named executive officers and the Company’s overall pay practices are strongly supported by our stockholders.

Competitive Benchmarking of Compensation

The Compensation Committee believes that market data is essential to determining compensation targets and the actual awards for executives in an effort to attract and retain highly talented senior executives. Market data is used to assess the competitiveness of the Company’s compensation packages relative to similar companies and to ensure that the Company’s compensation program is consistent with its compensation philosophy. The Compensation Committee’s objective is to provide executives with target total direct compensation that generally corresponds with the market median.

On an annual basis, the Compensation Committee engages FW Cook, an independent executive compensation consulting firm, to conduct a market benchmarking study for our senior executives, including the named executive officers. FW Cook does not provide any services to management and has received no compensation from the Company, other than for the services to the Compensation Committee. For more information regarding the Compensation Committee’s engagement of FW Cook, see the discussion under “Use of Compensation Consultants” on page 27.

The Company’s executive compensation program is benchmarked against a group of medical device, technology and healthcare services companies that are similar to the Company in size as measured by revenues, net income, market capitalization, price to earnings multiple and number of employees. In February 2015, when the Compensation Committee set 2015 base salaries and made 2015 equity awards, the companies in the market competitive analysis included the following firms.


IDEXX Proxy Peer Group

Alere, Inc.

Hologic Inc.

Align Technology Inc.

ResMed Inc.

Bio-Rad Laboratories Inc.

Sirona Dental Systems, Inc.

Charles River Labs International, Inc

Stericycle, Inc.

The Cooper Companies Inc.

STERIS Corporation

C.R. Bard

Teleflex Incorporated

DENTSPLY International Inc.

Varian Medical Systems, Inc.

Edwards Lifesciences Corporation

VCA Inc.

Haemonetics Corporation

Waters Corporation

Hill-Rom Holdings, Inc.

West Pharmaceutical Services, Inc.

This peer group did not change from the peer group that the Compensation Committee referenced when it determined 2014 compensation.



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Executive Compensation


Certain information regarding the size and value of the peer group companies relative to the Company as of October 2014 (which is when the peer group was selected by the Compensation Committee) is set forth below.

                     

Peer Group Comparisons*
($ in Millions)

 

Revenue (1)

Market
Capitalization (2)

Net
Income (1)(3)

P/E Ratio (4)

Employees (5)

Peer Group 75th Percentile

$

2,458

 

$

8,105

 

$

328

   

30.3

   

11,175

 

Peer Group Median

 

1,844

   

4,632

   

159

   

26.8

   

7,300

 

Peer Group 25th Percentile

 

1,537

   

3,552

   

107

   

21.4

   

5,878

 

IDEXX Laboratories, Inc.

 

1,488

   

6,838

   

199

   

34.3

   

5,700

 

* All data in this table, including with respect to the Company, was compiled by FW Cook from Standard & Poor’s Compustat database.

(1) Most recently reported four quarters publicly available as of October 31, 2014.

(2) As of October 31, 2014. Calculated using the most recently reported shares outstanding and stock price publicly available as of October 31, 2014.

(3) Excludes extraordinary items.

(4) Calculated by dividing the market capitalization as of October 31, 2014 by net income for the most recently reported four quarters publicly available as of October 31, 2014, excluding extraordinary items.

(5) Fiscal year employee number based upon the most recently filed Annual Report on Form 10-K as of October 31, 2014.

The composition of the peer group is based on recommendations by FW Cook and is reassessed annually, and the Compensation Committee approves all changes to the group. We supplement the peer group data with national survey data gathered from the Towers Watson General Industry and the Radford Global Life Sciences surveys. The survey data is blended to recognize the manufacturing aspects of our business and the fact that many companies in the Radford Life Sciences Survey have different business models.

Compensation Policies and Practices

The following table summarizes certain policies and practices utilized by the Company in connection with its executive compensation program.

 

Summary

Executive Stock Ownership and Retention

The Company maintains stock ownership guidelines intended to ensure that the interests of executives are economically aligned with those of our stockholders. These guidelines establish target levels of ownership of the Company’s common stock that is calculated based on the following multiples of annual base salary:

Chief Executive Officer – a multiple of 6 times annual base salary;

 

Executive Vice Presidents – a multiple of 3 times annual base salary; and

 

Corporate Vice Presidents – 1 times annual base salary.

 

The Compensation Committee believes that the higher target multiples applicable to the Chief Executive Officer and our Executive Vice Presidents are appropriate given the greater relative scope of responsibilities relating to long-term stockholder value creation associated with those positions.

These target levels determine whether the executive must retain additional stock acquired upon the vesting and release of restricted stock units (“RSUs”), deferred stock units (“DSUs”) or the exercise of options. Specifically, unless and until the value of the Company’s common stock held by an executive equals or exceeds his or her target level at the end of a calendar year, this executive must retain:

At least 75% of the Company’s common stock received upon the exercise of options or the vesting and release of RSUs or DSUs during the following year, after payment or withholding of any applicable exercise price and taxes; and

 

All other shares of the Company’s common stock held by the executive.

 

The Company does not apply the value of stock options or unvested RSUs towards satisfying these guidelines, as the Compensation Committee believes that these guidelines are meant to encourage outright ownership of the Company’s common stock. An executive is in compliance with these guidelines if the value of the shares of common stock held by the executive (including shares of common stock underlying vested DSUs and shares owned outright by, or held in trust for the benefit of, the executive or his or her immediate family members residing in the same household) equals or exceeds his or her target level at the end of the year, or if he or she has complied with the applicable retention requirements under the guidelines during the year. Each executive’s compliance with the guidelines is measured annually as of December 31 and reviewed by the Compensation Committee. All named executive officers were in compliance with the guidelines as of December 31, 2015.



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Executive Compensation


 

Summary

Recovery of Incentive Compensation (Clawback Policy)

Under the Company’s Policy of Recovery of Incentive Compensation, or “clawback” policy, the Company may seek to recover certain annual performance-based incentive compensation granted to executives in the event the Company is required to restate its financial results for any of the three most recent fiscal years completed after March 3, 2010, other than a restatement due to changes in accounting principles or applicable law. In March 2014, the clawback policy was amended to include all incentive-based equity compensation granted after the date of the amendment.

Policy on Short Sales, Derivatives and Hedging

Pursuant to our Policy on Short Sales, Derivative Transactions and Hedging, no employee of the Company may engage in short sales of Company securities, purchases or sales of puts, calls or other derivative securities based on Company securities, or purchases of financial instruments that are designed to hedge or offset any decrease in the market value of Company securities.

Anti-Pledging Policy

In December 2015, we adopted a Policy on Pledging of Company Stock that prohibits our Directors and senior executives from pledging or otherwise encumbering our equity securities as collateral for indebtedness, including holding shares in a margin or similar account that would subject our equity securities to margin calls.

CEO Employment Agreement

Our Chief Executive Officer has an employment agreement that stipulates severance terms if he were to be terminated by the Company other than for cause. Cause is defined in the employment agreement as willful, material misconduct, gross negligence in the performance of his duties on behalf of the Company, or a breach of his invention and non-disclosure agreement or non-compete agreement with the Company.

Change in Control Agreements

Each of the named executive officers and certain other executives has a change in control agreement with the Company. The purpose of these agreements is to ensure that these executives act in the best interest of stockholders before, during and after any change in control transaction by providing them with security in the event their employment is terminated or materially changed following a change in control. The agreements generally provide a lump sum payment of salary and bonus, and the payment of benefits for two years (or three years in the case of the Chief Executive Officer), following a qualifying termination. The agreements also provide for immediate vesting of equity awards in the event of a change in control followed by a qualifying termination. The change in control agreements renew annually unless the Company provides notice of its intent not to renew. The Compensation Committee believes these terms are reasonable and consistent with market practice.

The Compensation Committee periodically reviews the change in control agreements and obtains updated industry benchmarking advice from FW Cook to assist in determining whether any modifications to the agreements are necessary or whether the Company should permit renewal.

Determination of Executive Compensation

The Compensation Committee determines the compensation of the Chief Executive Officer and, in consultation with the Chief Executive Officer, approves the compensation for each of the other named executive officers. The Chief Executive Officer does not participate in the Compensation Committee’s deliberations or decisions with regard to his compensation. All three Compensation Committee members are independent directors of the Company. The Compensation Committee reviews, at least annually, the base salary, annual cash performance-based bonus, long-term equity awards and other material benefits, direct and indirect, of the named executive officers. These responsibilities are identified in the Compensation Committee charter.

In making compensation determinations with respect to the named executive officers, the Compensation Committee gives primary consideration to the named executive officer’s impact on the Company’s results and scope of responsibility, in addition to past accomplishments, prior experience and other factors, including data on prevailing compensation levels. Considerable weight is also given to the Chief Executive Officer’s evaluation of the other named executive officers because of his direct knowledge of each named executive officer’s performance, responsibilities and contributions. For each named executive officer, the Compensation Committee determines each component of compensation based on the Company’s overall achievement of its financial and non-financial performance goals.



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Executive Compensation


Base Salary

Base salary levels are reviewed and approved by the Compensation Committee annually, typically in the first fiscal quarter, as part of the Company’s compensation planning process. The Compensation Committee targets base salary toward the median for the peer group proxy data and survey compensation data. Individual executive base salary levels may vary on either side of the median when factoring in the Company’s overall financial performance and an individual’s strengths, level and scope of responsibilities, skills, experience, past performance and potential.

For detail regarding the base salary paid to each of our named executive officers for fiscal year 2015, see the discussion under “2015 Base Salary” on page 51.


Annual Performance-Based Cash Bonus

Bonuses for the Chief Executive Officer and the other named executive officers are paid pursuant to the Company’s Senior Executive Team Incentive Plan (the “SET Incentive Plan”). Each named executive officer has a target annual performance-based cash bonus opportunity, which is determined annually by the Compensation Committee and based on a percentage of the executive’s base salary, with a maximum payout of 200% of the target. These target percentages are intended to provide an appropriate mix of fixed and variable compensation and to maintain an appropriate weighting of annual versus longer-term incentives consistent with the Company’s compensation philosophy.

As depicted in the following table, the annual performance-based cash bonus paid pursuant to the SET Incentive Plan is calculated using two equally weighted factors: (i) the Company’s financial performance measured against specific metrics selected by the Compensation Committee, and (ii) achievement of non-financial performance goals focused on strengthening and positioning the Company for sustained future growth and profitability:


The financial goals used to calculate the financial performance factor are established annually by the Compensation Committee. The non-financial performance factor is determined by the Compensation Committee by measuring achievement of annual goals approved by the Board. The establishment of these goals is intended to support the achievement of near-term performance of the Company’s long-term business objectives.

The mechanics of the SET Incentive Plan informed the Compensation Committee’s exercise of its “negative discretion” in reducing the maximum cash performance bonus amount payable to our named executive officers under our 2014 Incentive Compensation Plan (the “2014 Plan”) for 2015. For detail regarding the calculation of performance-based cash bonuses paid to each of our named executive officers for fiscal year 2015 under the SET Incentive Plan, see the discussion under “2015 Annual Performance-Based Cash Bonus” on page 51.



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Executive Compensation


Long-Term Equity Incentive Compensation

The Company believes that granting equity-based awards provides a strong financial incentive to maximize stockholder returns over the long term. The Company also believes that the practice of granting equity-based awards is important in recruiting and retaining the key talent necessary to ensure the Company’s continued success. The following table summarizes the key aspects of the Company’s equity compensation awards:

Aspect of Equity Awards

Description

Types of Equity Awards Granted

The Company’s equity awards may include:

Annual equity awards to qualifying employees; and

 

Equity hiring awards granted to attract highly talented individuals to the Company.

 

Mix of Equity Incentive Compensation

Annual equity awards may consist of stock options, restricted stock units (“RSUs”) or a combination of both. Because stock options have value only to the extent the Company’s stock price increases in comparison to the stock price on the date of the grant, and generally vest ratably over five years with seven or ten year terms, they directly reward creation of long-term stockholder value after the grant date. RSUs vary in value depending on the stock price of our common stock prior to vesting, but generally will have some value in the long term, which encourages retention and rewards the creation of stockholder value over time. Given the different risk/reward characteristics of these two types of awards and our executive compensation philosophy, the Compensation Committee believes that the equity awards granted to executives should have a greater proportion of stock options relative to RSUs. Executives have the most direct impact on Company performance and should bear the highest risk, and realize the highest potential reward, associated with that performance. Accordingly, executives (other than the Chief Executive Officer) generally receive 75% of their equity award value in the form of stock options and 25% of their award value in the form of RSUs and, since 2015, the Chief Executive Officer has received 100% of his annual equity award in the form of stock options.

Vesting and Expiration

All equity awards generally have a five-year vesting schedule. The Compensation Committee believes that a five-year vesting schedule for both options and RSUs, which is longer than typical market practice, further aligns the interests of our executives with the long-term interest of stockholders while also providing a retention benefit for the Company. Depending on the grant date, stock option awards expire on the seventh or tenth anniversary of their grant date. Annual stock option awards granted between 2006 and the date of our 2013 Annual Meeting generally expire on the day immediately prior to the seventh anniversary of their grant date. Annual stock option awards granted on or after the date of our 2013 Annual Meeting generally expire on the day immediately prior to the tenth anniversary of their grant date.

Equity Hiring Awards

Hiring awards are granted in certain cases in order to attract highly talented individuals to the Company. Hiring awards typically consist of RSUs, but may also include a combination of RSUs and stock options. Generally, hiring awards for newly-hired executive officers are granted on one of four established grant dates annually, and vest proportionally in annual increments over a five-year period.

Equity Grant Procedures

The Board has adopted an equity award granting process that determines when and how equity awards are granted by the Compensation Committee. This methodology provides for fixed award dates that occur outside the quarterly quiet periods during which the Company’s executives and Directors are precluded from trading in the Company’s securities. Most equity awards, including all annual awards to the named executive officers, are made on or about February 14 of each year, which shortly follows the February Compensation Committee meeting at which prior year performance-based cash bonuses and current year salary determinations are made, as well as the Company’s earnings announcement for the fourth quarter of the prior year. All annual equity awards to our named executive officers require the approval of the Compensation Committee. All other equity grants are typically authorized by the Compensation Committee, but for certain new hire equity awards such authority may be delegated to the Chief Executive Officer.

In determining the size of equity awards to each named executive officer, the Compensation Committee begins with a competitive assessment based upon the proxy peer group and market data. The determination of the equity award is based on the responsibilities of each named executive officer’s position and, relative to cash compensation, is intended to support the Company’s philosophy that variable pay should constitute a significant portion of total compensation. The size of annual award value is determined based on the executive’s job scope, long-term leadership potential, the size of prior awards, total compensation relative to median total compensation for market comparable positions, and the impact of the equity award values in total on stockholder dilution and stockholder value transfer in relation to the average of such totals for the proxy peer group.

The exercise price of all stock options granted by the Compensation Committee equals the closing sale price of the common stock on the date of grant and in any case will not be less than such price. The number of stock options granted is determined based on the Black-Scholes value of an option with respect to our common stock on the applicable grant date. The number of RSUs granted is determined based on the closing price of our common stock on the applicable grant date.

For detail regarding the long-term equity incentive compensation granted to each of our named executive officers for fiscal year 2015, see the discussion under “2015 Long-Term Equity Incentive Awards” on page 53.



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Executive Compensation


Benefits and Perquisites

The Company provides health and welfare benefits to its salaried employees, including the named executive officers, including healthcare, life and disability insurance. In addition, the Company offers all full-time employees of the Company and its domestic subsidiaries that have been employed for at least one month an opportunity to participate in our 1997 Employee Stock Purchase Plan, pursuant to which such employees can purchase shares of common stock through payroll deductions.

In 2015, the only benefits available exclusively to executives were Company-funded, elective supplemental disability coverage and annual executive physical exams and wellness coaching, which have a combined value of under $10,000 per executive. The supplemental disability coverage is provided for additional financial security in the case of disability. Annual physical exams and wellness coaching are provided because the health of the Company’s executives is critical to their performance. In addition, in 2015 the Company reimbursed the Chief Executive Officer and each of the other named executive officers for tax return preparation and planning services in an amount that that did not exceed $6,000. The tax preparation and planning service is provided to the Chief Executive Officer and other senior executives to maximize the amount of time that they are able to spend on Company business rather than personal financial matters. We do not gross up executives' perquisites and benefits to compensate for any taxes due on the value of these perquisites and benefits, with the exception of executives on expatriate assignments, as detailed below.

In 2013, in furtherance of our goal to expand the Company’s international footprint, the Company requested that Dr. Williams and his family relocate to the Netherlands office on an expatriate assignment. As a result of this expatriate assignment, Dr. Williams received certain allowances in 2015 that are consistent with allowances typically afforded by the Company to expatriate employees and their families, such as housing, tuition and car allowances. The Company also provided tax equalization benefits to Dr. Williams due to increased taxes and imputed income from his overseas assignment, including gross-ups of such amounts, which is also consistent with the Company’s common practice for expatriates.


Deductibility of Annual, Performance-Based Compensation Under Section 162(m)

Section 162(m) of the Code disallows a tax deduction to public companies for certain compensation in excess of $1 million paid to a company’s Chief Executive Officer and three other officers (other than the Chief Financial Officer) whose compensation is required to be reported to our stockholders pursuant to the Securities Exchange Act of 1934. Pursuant to Section 162(m), certain “qualified performance-based compensation” that is approved by our stockholders and otherwise satisfies the requirements of Section 162(m) is not subject to the deduction limit. The Compensation Committee believes it is in the best interest of the Company and its stockholders for the Company to provide annual, performance-based compensation to executives that preserves the flexibility to grant awards intended to be deductible by the Company for federal income tax purposes.

Accordingly, annual cash bonuses for our named executive officers are typically awarded pursuant to the Company’s 2014 Plan, with the intent that these bonuses will qualify as performance-based compensation under Section 162(m). In addition, in February 2016 the Compensation Committee added a performance component to the RSUs awarded to our senior executives as part of their annual equity incentive awards for fiscal year 2016. This new feature is intended to allow the awards to be eligible to qualify as performance-based compensation pursuant to Section 162(m), as contemplated under our 2009 Stock Incentive Plan. Specifically, these RSUs will vest and become payable only if the Compensation Committee certifies that the Company achieves consolidated operating income, as adjusted to eliminate the effects of discrete items such as acquisition- and litigation-related expenses and restructuring charges, for fiscal year 2016 that is at least 55% of this metric in the Company’s approved 2016 budget. In the event the Compensation Committee certifies that this performance goal is achieved for fiscal year 2016, these RSUs will vest ratably over five years, with one-fifth of the shares underlying the RSU award vesting in February of each year beginning in 2017. If the performance goal is not met in fiscal year 2016, the RSUs will be forfeited, and the recipients will not be eligible for replacement awards in connection with such forfeiture.



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The rules and regulations relating to Section 162(m) are complicated and may change from time to time, sometimes impacting prior awards. There can therefore be no guarantee that any award intended to qualify as “qualified performance-based compensation” within the meaning of Section 162(m) will in fact qualify. In addition, the Compensation Committee reserves the flexibility to grant cash bonuses, RSUs and other awards that would not qualify as performance-based compensation if the Compensation Committee determines it is appropriate to do so.

2015 Executive Compensation Determinations

The following is a discussion of the determinations of base salary, annual performance-based cash bonus and long-term equity awards for the named executive officers for fiscal year 2015 and the specific factors considered in making such determinations.


Compensation for Fiscal 2015 Performance Table

The table below provides an overview of total direct compensation paid to our named executive officers for fiscal year 2015, including a breakdown of each of the three key elements of total direct compensation and with respect to performance based cash bonus comparing the 2015 target against the actual amount of compensation.

                     

 

 

Performance Based
Cash Bonus

Long Term
Incentives

Total Direct
Compensation

 

Base Pay

Target

Actual

Actual (1)

Actual

Jonathan W. Ayers

$

800,000

 

$

1,000,000

 

$

950,000

 

$

2,996,921

 

$

4,746,921

 

Brian P. McKeon

$

520,000

 

$

390,000

 

$

370,500

 

$

999,304

 

$

1,889,804

 

Jay Mazelsky

$

436,800

 

$

305,760

 

$

290,500

 

$

749,478

 

$

1,476,778

 

Jacqueline L. Studer

$

364,000

 

$

218,400

 

$

207,500

 

$

549,530

 

$

1,121,030

 

Michael J. Williams, PhD

$

436,800

 

$

305,760

 

$

290,500

 

$

749,478

 

$

1,476,778

 

(1) Represents actual grant date fair value computed in accordance with FASB ASC Topic 718.


2015 Base Salary

Mr. Ayers’s 2015 base salary was $800,000, which is the same base salary paid to Mr. Ayers in 2014. The Compensation Committee approved base salary increases of 4% in 2015 for each of the other named executive officers to more closely align the base salaries to the median of the proxy peer group and market survey data for these positions.


2015 Annual Performance-Based Cash Bonus

In February 2015, the Compensation Committee selected each of the named executive officers as participants in the 2014 Plan for the 2015 fiscal year, with the intent to make cash bonuses payable to the named executive officers for fiscal year 2015 eligible to qualify as “performance-based compensation” under Section 162(m). The Compensation Committee established operating income, as adjusted to eliminate the effects of differences between actual and budgeted foreign currency exchange rates in 2015 and to eliminate the effects of discrete items such as acquisition- and litigation-related expenses and restructuring charges, as the performance goal applicable to the participants in the 2014 Plan. The Committee then fixed the maximum amount payable to Mr. Ayers for fiscal year 2015 as 1.5% of operating income (as adjusted), and fixed the maximum amount payable to each of the other named executive officers for fiscal year 2015 as 0.75% of operating income (as adjusted), subject in each case to the limitations under the 2014 Plan and to an overall cap equal to 200% of each named executive officer’s target bonus. In the event the Company did not achieve positive operating income (adjusted as described above) for fiscal year 2015, the selected participants would not be eligible to receive an annual, performance-based cash bonus for fiscal year 2015 under the 2014 Plan.

In February 2016, the Compensation Committee certified that 1.5% of the Company’s operating income for fiscal year 2015, as adjusted, equaled $4,824,000 and that 0.75% of the Company’s operating income for fiscal year 2015, as adjusted, equaled $2,412,000. The Compensation Committee then exercised its “negative discretion”, as permitted under Section 162(m), to determine the actual annual performance-based cash bonuses awarded to each of the named executive officers for performance during 2015, using the guidelines and performance criteria set forth in the SET Incentive Plan.



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Executive Compensation


Pursuant to the SET Incentive Plan parameters for 2015, 50% of the annual performance-based cash bonus for the named executive officers is based on an equal weighting of three financial metrics selected by the Compensation Committee, and 50% is determined by the Compensation Committee based on the achievement of non-financial performance goals approved by the Board, as described above under “Annual Performance-Based Cash Bonus” on page 48.

For the financial performance goals in 2015, the SET Incentive Plan included three equally-weighted factors: normalized organic revenue growth, operating profit, and earnings per share, as depicted below:


Each of the three Company financial performance metrics that comprise the financial performance factor is subject to a rating calculated on a sliding scale, ranging from 50% to 180%, using the approved budget goal for the applicable factor as 100% of target payout.

The Company’s performance versus adjusted budget with respect to each financial metric selected by the Compensation Committee for the SET Incentive Plan for 2015, and the resulting calculation of the financial performance factor, is illustrated in the table below:


                         

 

2015 Actual

2015
Adjusted
Budget (1)

Variance
to
Adjusted
Budget

Payout
Rating
(2)

Weighting

Weighted
Average
Percentage

Normalized Organic Revenue Growth (3)

 

11.3

%

 

13.5

%

(

2.2

%)

 

69.2

%

 

33

%

 

22.8

%

Operating Profit

$

299.9

 

$

306.1

 

(

$6.2

)

 

84.5

%

 

33

%

 

27.9

%

Earnings per Share (Diluted)

$

2.05

 

$

2.08

 

(

$0.03

)

 

88.7

%

 

33

%

 

29.3

%

2015 Financial Performance Factor (%)

 

 

   

 

   

 

   

 

   

 

   

80.0

%

(1) In evaluating financial performance, the Compensation Committee reviewed the 2015 budget as adjusted to eliminate the effects of changes in foreign currency exchange rates during 2015, as compared to the rates assumed in the budget, as adjusted for the impact of acquisitions, a non-recurring impairment charge and certain restructuring costs which were not assumed in the budget.

(2) Achievement of the Company’s approved budget for each of the financial metrics equates to 100% payout, with separate pre-defined performance scales for each financial metric resulting in an increase or decrease in the percentage payout.

(3) Normalized organic revenue growth is not a measure defined by generally accepted accounting principles in the United States of America (“GAAP”), otherwise referred to herein as a non-GAAP financial measure. In calculating normalized organic revenue growth, we exclude the effect of changes in foreign currency exchange rates because changes in foreign currency exchange rates are not under management’s control, are subject to volatility and can obscure underlying business trends. We also exclude the effect of acquisitions because the nature, size and number of acquisitions can vary dramatically from period to period and therefore can also obscure underlying business trends. We also exclude the effect of changes in our significant distributors’ inventory levels which may not be directly related to underlying end-user demand for our products.

The non-financial goals for 2015 for the SET Incentive Plan covered the following objectives:

Implementation of certain commercial strategies, including the continuing transition to an all-direct sales model in the U.S., development of the international commercial organization, and achievement of global instrument placement goals;

 

Development, commercialization and launch of certain products, including our SNAP Pro Mobile Device, Catalyst One Chemistry Analyzer and IDEXX SDMA test;

 

Hiring and developing key leadership talent, including gender and ethnically diverse talent;

 

Achievement of specific product development and key operational milestones; and

 

Increase of employee engagement and related talent initiatives.

 

With respect to the non-financial performance factor, the Compensation Committee considered exceptional performance with respect to the non-financial goals applicable to the SET Incentive Plan and determined a non-financial performance factor of 110% of target which, taken together with the financial performance factor, resulted in an overall performance-based factor of 95% of target for each of the named executive officers. The Compensation Committee believes this overall performance-based factor is appropriate due to the Company’s strong performance in 2015 against the financial and non-financial performance goals described above. With respect to the named executive officers other than Mr. Ayers, the



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Compensation Committee also consulted with the Chief Executive Officer regarding his performance assessment of these named executive officers.

The following table provides greater detail regarding the performance-based cash bonus awarded to each named executive officer for fiscal year 2015:


                 

Named Executive Officer

Target Bonus
(as a % of Annual
Base Salary)

Target Bonus ($)

Overall
Performance-
Based Bonus
Factor (1)

Actual
Performance
Based
Cash Bonus (1)

Jonathan W. Ayers

 

125

%

$

1,000,000

   

95

%

$

950,000

 

Brian P. McKeon

 

75

%

$

390,000

   

95

%

$

370,500

 

Jay Mazelsky

 

70

%

$

305,760

   

95

%

$

290,500

 

Jacqueline L. Studer

 

60

%

$

218,400

   

95

%

$

207,500

 

Michael J. Williams, PhD

 

70

%

$

305,760

   

95

%

$

290,500

 

(1) Determined based upon a combination of the three financial performance metrics (measured against adjusted budget) and non-financial performance ratings applicable to the SET Incentive Plan for fiscal year 2015.


2015 Long-Term Equity Incentive Awards

In February 2015, the Compensation Committee granted Mr. Ayers’s stock options with an aggregate grant value of approximately $3,000,000 that vest ratably over five years. Although the Compensation Committee considered the peer group proxy and market data in making this equity award, the committee did not target any particular percentage of the median total direct compensation and determined the amount of the award in its discretion.

In February 2015, the Compensation Committee granted stock options and RSUs with an aggregate grant value of approximately $1,000,000 to Mr. McKeon, $750,000 to each of Mr. Mazelsky and Dr. Williams and $550,000 to Ms. Studer in each case, that vest ratably over five years. In determining the size of equity awards granted to these named executive officers in 2015, the Compensation Committee reviewed compensation summaries for each that summarized the value of outstanding vested and unvested stock options and vesting of RSUs and the cumulative value realized by the executives upon exercise of stock options and vesting of RSUs since commencement of employment. As with the determination of Mr. Ayers’s equity award, the Compensation Committee considered the peer group proxy and market data in making these equity awards, but did not target any particular percentage of the median total direct compensation and determined the amounts of the awards in its discretion.

The Compensation Committee also reviewed an analysis of the Company’s aggregate share usage and aggregate fair value of equity compensation awarded, relative to the Company’s prior levels and in relation to the peer group. The aggregate fair value of equity compensation awarded in 2015 was below the median of the latest year of peer group data and below the median for the average of the past three years. The Compensation Committee considered this information as well as Mr. Ayers’s advice and recommendation regarding the prospects for long-term contribution by each of the named executive officers, other than Mr. Ayers, in making these 2015 equity awards.

Compensation Committee Report

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis set forth in this Proxy Statement for the year ended December 31, 2015. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors, and the Board of Directors has approved, the inclusion of the Compensation Discussion and Analysis in this Proxy Statement.

Compensation Committee

M. Anne Szostak, Chair
Thomas Craig
William T. End



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Executive Compensation


Executive Compensation Tables

Summary Compensation Table

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