ProxyStatementv12


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 14A
 
(Rule 14a-101)
 
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
 
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Soliciting Material Pursuant to § 240.14a-12
 
PTC INC.
(Name of Registrant as Specified in Its Charter)
 
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PTC INC.
NOTICE OF 2014 ANNUAL MEETING OF STOCKHOLDERS

Wednesday, March 5, 2014
8:00 a.m. Eastern Standard Time
The Ritz-Carlton Hotel & Resort
280 Vanderbilt Beach Road
Naples, Florida 34108

Proposals to be voted on at the Annual Meeting
Proposal
Board Recommendation
Elect three directors to serve for the next three years.
FOR
Advisory vote to approve the compensation of our named executive officers (say-on-pay).
FOR
Advisory vote to confirm the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the current fiscal year.
FOR
Approve an amendment to our By-Laws requiring certain stockholder lawsuits to be tried in Massachusetts.
FOR
Other matters that are properly brought before the meeting may also be considered.
Stockholders at the close of business on January 6, 2014 are entitled to vote.
Please vote your shares in advance of the meeting, even if you plan to attend the meeting. Your broker will not be able to vote your shares with respect to the election of directors or the say-on-pay vote unless you have given your broker specific instructions to do so. You may vote your shares by Internet, by telephone or, if you have requested a proxy card, by mail.
By Order of the Board of Directors
AARON C. VON STAATS
Secretary
Needham, Massachusetts
January 22, 2014

Directions to the Ritz-Carlton Hotel & Resort  Naples  Florida
From the North:
I-75 South to Exit 111 (Immokalee Road). Take Exit 11. Turn right onto Immokalee Road (State Road 846). Proceed 3 1/2 miles west until you reach the intersection of Immokalee Road and U.S. 41 (Tamiami Trail). Turn left onto U.S. 41; proceed one mile to the Vanderbilt Beach Road Intersection. Turn right onto Vanderbilt Beach Road. Proceed for one mile. Turn left onto Ritz-Carlton Drive. The hotel will be on the right.
From the East:
I-75 North (toward Naples) to Exit 107 (Pine Ridge Road). Take Exit 107 and turn left onto Pine Ridge Road. Proceed until you reach the intersection of Airport Pulling Road. Turn right onto Airport Pulling Road. Turn left onto Vanderbilt Beach Road and proceed for three miles. Turn left onto Ritz-Carlton Drive. The hotel will be on the right.
Important Notice of the Internet Availability of Proxy Materials
The Proxy Statement and our 2013 Annual Report are available to stockholders at www.proxyvote.com.






TABLE OF CONTENTS
 
Page 
 
Compensation Philosophy & Objectives
20
Components of Compensation for 2013
21
How We Determine the Total Amount of Compensation
22
Benchmarking and Survey Data
22
Analysis of Compensation Decisions for 2013
23
2013 Performance-Based Compensation
23
Severance and Change in Control Arrangements
27
Equity Ownership
28
Compensation Clawback Policy
28
Timing of Equity Grants
28
Tax and Accounting Considerations
28
Report of the Compensation Committee
29


PTC Inc. Proxy Statement        Page | i



 
Page 
 
Grants of Plan-Based Awards Table
33
Outstanding Equity Awards at Fiscal Year-End
34
Option Exercises and Stock Vested
36
Potential Payments upon Termination or Change in Control
37
Potential Payments upon Termination or Change in Control Table
40

We made this proxy statement available to stockholders on January 22, 2014.




PTC Inc. Proxy Statement        Page | ii



2014 PROXY STATEMENT SUMMARY
This summary highlights information contained elsewhere in this proxy statement and does not contain all of the information you should consider. You should read the entire proxy statement before voting. For more complete information regarding PTC’s 2013 performance, you should read our Annual Report on Form 10-K, which accompanies this proxy statement.

MATTERS TO BE VOTED ON AT THE MEETING
PROPOSAL
BOARD RECOMMENDATION
PAGE NO.
Elect three directors to serve for the next three years.
FOR 
ALL NOMINEES
5
Advisory vote to approve the compensation of our named executive officers (say-on-pay).
FOR
15
Advisory vote to confirm the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the current fiscal year.
FOR
41
Approve an amendment to our By-Laws requiring certain stockholder lawsuits to be tried in Massachusetts.
FOR
43

DIRECTOR NOMINEES
NOMINEE
INDEPENDENCE
COMMITTEES
DIRECTOR SINCE
Janice Chaffin
Independent
None
2013
Paul Lacy
Independent
Chair, Corporate Governance Committee
Audit Committee
Compensation Committee
2009
James Heppelmann
Not Independent
President and CEO PTC
None
2008
All director nominees attended at least 99% of the meetings of the Board and of
the committees on which they serve held during their current term.



PTC Inc. Proxy Statement        Page | 1

2014 Proxy Statement Summary


2013 EXECUTIVE COMPENSATION(1)

EXECUTIVE

FISCAL 2013

FISCAL 2012

% CHANGE
James Heppelmann
President, Chief Executive Officer
$6,507,640
$6,909,766
(5.820)%
Jeffrey Glidden
EVP, Chief Financial Officer
$2,597,628
$2,965,575
(12.410)%
Barry Cohen
EVP, Strategy
$2,589,978
$2,958,075
(12.440)%
Marc Diouane
EVP, Global Services and Partners
$2,065,121
$2,211,760
(6.630)%
Robert Ranaldi
EVP, Global Sales and Distribution
$2,057,640
(2)
(2)
(1) Compensation for PTC’s CEO, CFO and three most highly compensated officers for 2013 (“named executive officers” or “NEOs”). Compensation consists of salary paid, performance-based bonus paid, grant date value of RSUs granted, 401(k) Plan matching contributions and, for Mr. Diouane, amounts associated with his overseas service. Refer to “Compensation Discussion and Analysis” on page xx and “Executive Compensation” on page xx for more detailed information.
(2) Mr. Ranaldi was not a named executive officer for 2012.


PRICEWATERHOUSECOOPERS LLP SERVICES AND FEES
TYPE OF PROFESSIONAL SERVICE
FISCAL 2013
FISCAL 2012
Audit Fees
   $ 3,886,500
$
3,497,800

Audit-Related Fees(1)
   $ 747,800
$
390,000

Tax Fees(2)
   $ 2,390,800
$
1,838,800

All Other Fees(3)
   $ 1,800
$
1,800

(1) Consists principally of fees for services related to financial due diligence in connection with acquisition targets and consultations concerning financial accounting and reporting standards.
(2) Consists principally of fees related to tax compliance, tax planning and tax advice services and tax compliance services related to PTC’s expatriate employees (including assistance with individual tax compliance that PTC provides as a benefit to these employees) as follows:


Type of Tax Service
Fiscal 2013
Fiscal 2012
Tax compliance and preparation services (comprised of preparation of original and amended tax returns, claims for refunds, and tax payment planning services)
$
567,300

$
356,900

Tax compliance services related to PTC's expatriate employees
713,100

725,000

Other tax services including tax planning and advice services and assistance with tax audits
1,110,400

756,900

Total
$
2,390,800

$
1,838,800

 
(3) Consists of fees for accounting research software.
Refer to Proposal 3 on page 41 for more information about PricewaterhouseCoopers LLC’s services.



PTC Inc. Proxy Statement        Page | 2



INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Why This Proxy Statement Was Made Available to You.  As a stockholder, you have the right to attend and vote at the Annual Meeting of Stockholders. If you attend the meeting, you may vote your shares directly. Whether or not you attend, you may vote by proxy, by which you direct another person to vote your shares at the meeting on your behalf. The PTC Board of Directors is soliciting your proxy to encourage your participation in voting at the meeting and to obtain your support for the proposals presented. The proxy statement explains the proposals to be voted on at the Annual Meeting.
You have one vote for each share of common stock that you owned at the close of business on the record date, January 6, 2014. On that date, there were xxx,xxx,xxx shares of our common stock outstanding. Common stock is our only class of voting stock.
Proposals to be Voted on at the Meeting; Votes Required. The proposals scheduled to be voted on at the meeting, the Board’s recommendations for how you should vote, the votes required on each of the proposals, and whether broker discretionary voting on the proposal is allowed are set forth below.


Proposal

Board Recommendation


Vote Required
Broker Discretionary Voting Allowed
Elect three directors to serve for the next three years.
FOR
        Plurality(1)
No
Advisory vote to approve the compensation of our named executive officers.
FOR
   Majority Votes Cast
No
Confirm the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the current fiscal year.
FOR
   Majority Votes Cast
Yes
Approve an amendment to our By-Laws requiring certain stockholder lawsuits to be tried in Massachusetts.
FOR
Majority Shares Outstanding
Yes
(1) PTC has a majority voting policy under which a director that receives more “Withhold” votes than “For” votes is required to tender his or her resignation and the board is required to evaluate the proposed resignation and announce its decision with respect to such resignation.
“Plurality” means that the nominees for director receiving the greatest number of votes will be elected.
“Majority Votes Cast” means that a proposal that receives an affirmative majority of the votes cast will be approved.
"Majority Shares Outstanding" means that a proposal that receives an affirmative majority of the shares outstanding will be approved.
“Broker Discretionary Voting” occurs when a broker does not receive voting instructions from the beneficial owner and votes those shares in its discretion on any proposal on which it is permitted to vote.
Effect of Abstentions and Broker Non-Votes. If you abstain from voting on any of the proposals, or if your broker or bank does not vote on any proposal because it has not received instructions from you and is not permitted to vote in its discretion (a broker non-vote), it will not count as a vote for or against any proposal.
Voting by Proxy.  You may vote by proxy using the Internet or the telephone by following the instructions on your notice or your proxy card, as applicable. If you requested a printed set of materials, you may also vote by mail by signing, dating and returning the proxy card.
Please note that there are separate telephone and Internet arrangements depending on whether you are a registered stockholder (that is, if you hold your stock in your own name) or you hold your shares in “street name” (that is, in the name of a brokerage firm or bank that holds your securities account). In either case, you must follow the procedures described on your notice or proxy card.
When you vote, you are giving your “proxy” to the individuals we have designated to vote your shares at the meeting as you direct. If you do not make specific choices, they will vote your shares in accordance with the Board’s recommendations as set forth above. If any matter not listed in the Notice of Meeting is properly presented at the Annual Meeting, they will vote your shares in accordance with their best judgment. As of the date hereof, we knew of no matters that needed to be acted on at the meeting other than as discussed in this proxy statement.


PTC Inc. Proxy Statement        Page | 3

Information About the Annual Meeting and Voting

Whether you plan to attend the Annual Meeting or not, we encourage you to vote promptly. Voting promptly will not affect your right to attend the Annual Meeting. If you wish to vote at the Annual Meeting despite having voted previously, you may do so by following the procedure described below under “Revoking Your Proxy” and “How You May Vote in Person.”
Revoking Your Proxy.  You may change your vote after you have voted as described below.
Registered Stockholders. You may revoke your proxy by following any of these procedures:
If you voted by Internet or telephone, vote again using the Internet or telephone (which will supersede your earlier vote); or
If you voted by executing a proxy card, send in another signed proxy card with a later date; or
Send a letter revoking your proxy to PTC’s Secretary at the address indicated under “Stockholder Proposals and Nominations,” or
Attend the Annual Meeting, notify us in writing that you are revoking your proxy and vote in person.
Street Name Holders. You must follow the procedures required by the brokerage firm or bank through which you hold your shares to revoke your proxy. You should contact that firm or bank directly for more information on those procedures.
Voting in Person.  You may attend the Annual Meeting and vote by ballot. If your shares are held in street name, you will need to obtain a “legal proxy” from the holder of record in order to be able to vote at the Annual Meeting.
Confidentiality of Voting and Tabulation of the Votes.  We keep all the proxies, ballots and voting tabulations confidential. The Inspector of Election will forward to management any written comments that you make on the proxy card without providing your name.
Disclosure of Voting Results.  We will provide the voting results in a Current Report on Form 8-K filed with the Securities and Exchange Commission within four business days after the Annual Meeting.
Costs of Soliciting Proxies.  PTC will pay all the costs of soliciting proxies. In addition to mailing the notices and providing these proxy materials, our directors and employees may solicit proxies by telephone, fax or other electronic means of communication, or in person. We will reimburse banks, brokers, nominees and other fiduciaries for the expenses they incur in forwarding the proxy materials to you.
Obtaining a Copy of Our Annual Report on Form 10-K. A copy of our Annual Report on Form 10-K for the year ended September 30, 2013 was made available with this proxy statement. You may obtain another copy of our Annual Report on Form 10-K free of charge on our website at www.ptc.com or by contacting PTC Investor Relations at:
Investor Relations                 
PTC Inc.
140 Kendrick Street
Phone:  (781) 370-5000
Needham, MA 02494-2714
Email:  ir@ptc.com
Questions?  If you have any questions about the Annual Meeting or your ownership of PTC common stock, please contact PTC Investor Relations by telephone at (781) 370-5000 or e-mail at IR@ptc.com.
Stockholders Sharing the Same Surname and Address.  In some cases, stockholders holding their shares in a brokerage or bank account who share the same surname and address received only one copy of the notice or materials. This practice reduces duplicate mailings and saves printing and postage costs and natural resources. If you would like to receive a separate copy of the notice, our annual report and/or proxy statement or to receive separate copies of future mailings, please submit your request to the address or phone number that appears on your notice or proxy card. We will deliver such additional copies promptly upon receipt of such request. Stockholders receiving multiple copies at the same address may request that they receive only one. To do so, please submit your request to the address or phone number that appears on your notice or proxy card.


PTC Inc. Proxy Statement        Page | 4



PROPOSAL 1: ELECTION OF DIRECTORS
Our Board of Directors is divided into three classes with staggered three-year terms. The terms of the Class III directors – Janice Chaffin, James Heppelmann, and Paul Lacy – expire at this year’s annual meeting. The Corporate Governance Committee has recommended to the Board, and the Board has nominated, Ms. Chaffin and Messrs. Heppelmann and Lacy for reelection to a three year term expiring at the 2017 Annual Meeting of Stockholders. The Class I and Class II directors will continue in office following the Annual Meeting.
Information about Our Directors. Information about each of the director nominees and continuing directors, including their experience, qualifications and skills that led the Corporate Governance Committee and the Board to conclude that the director should serve as a director of the company, is discussed below. Also discussed is the selection process for Ms. Chaffin, who was elected to the Board in August 2013. Additional information about the Corporate Governance Committee’s process for selecting and evaluating director nominees is described under “CORPORATE GOVERNANCE, Corporate Governance Committee.” Information about the directors’ PTC stock ownership is set forth in “INFORMATION ABOUT PTC COMMON STOCK OWNERSHIP, Stock Owned by Directors and Officers.”
Independence of Our Directors. Our Board of Directors has determined that all of our directors except Mr. Heppelmann (our President and Chief Executive Officer) and Professor Porter (who has a consulting agreement with PTC as described in “Transactions with Related Persons”) are “Independent” under applicable NASDAQ rules. None of the independent directors, to our knowledge, had any business, financial, family or other type of relationship with PTC or its management, other than as a director and stockholder, that would impact their independence.
The Board of Directors recommends that you vote FOR the election of Janice Chaffin, James Heppelmann and Paul Lacy as Class III directors.
 
 
 
Nominees for Election at the 2014 Annual Meeting of Stockholders

Class III Directors
 
Director 
Since 
 
Term 
Expires 
 
Janice D. Chaffin, age 59
2013
2014
Group President, Consumer Business Unit (Retired), Symantec Corporation, a provider of security, backup and availability solutions. Ms. Chaffin served as Group President, Consumer Business Unit of Symantec from April 2007 to March 2013. Prior to that, she served as Chief Marketing Officer of Symantec from 2003 to 2007.
Ms. Chaffin is also a director of International Game Technology, a position she has held since September 2010.
Ms. Chaffin was elected in August 2013 after a search conducted by the Corporate Governance Committee. The search was conducted with the assistance of a professional search firm retained by the Committee. The search firm used the criteria provided by the Committee, which included technology industry and marketing experience, to identify potential candidates. Members of the Committee, the Board and executive management met with Ms. Chaffin to assess the qualifications and experience she would bring to the Board. All concurred that Ms. Chaffin is well-qualified to serve on the board as a result of her experience at Symantec and, prior to that, her experience at Hewlett-Packard Company (1981 to 2003), where she held a variety of marketing and business management positions. Ms. Chaffin has leadership and management skills and significant marketing experience that the Board believes will be valuable to the Board and PTC.
Ms. Chaffin attended 100% of the Board meetings held during her current term.
James E. Heppelmann, age 49
2008
2014
President and Chief Executive Officer of PTC since October 2010. Mr. Heppelmann was President and Chief Operating Officer of PTC from March 2009 to September 2010, Executive Vice President and Chief Product Officer of PTC from February 2003 to February 2009, and Executive Vice President, Software Solutions and Chief Technology Officer of PTC from June 2001 to January 2003. Mr. Heppelmann joined PTC in 1998.
Through his positions with PTC and through his significant prior experience in the product development software industry (including as founder and President of Windchill Technology, which was acquired by PTC), Mr. Heppelmann has gained significant leadership, management and operating experience, extensive knowledge of PTC’s products and services and of the markets in which PTC competes, and technical, financial, strategic and marketing expertise. In his first year as President and Chief Executive Officer of PTC (2011), PTC achieved its then highest revenue year in PTC’s history and improved operating margins. He has also established a management team to support his vision and drive for excellence. Mr. Heppelmann was instrumental in identifying and achieving the successful acquisitions of Servigistics, Inc. and MKS Inc., key strategic acquisitions for PTC in fiscal 2013 and 2011.
Mr. Heppelmann attended 100% of the Board meetings during his current term.



PTC Inc. Proxy Statement        Page | 5

Proposal 1: Election of Directors



Class III Directors, Cont’d.
 
Director 
Since 
 
Term 
Expires 
 
Paul A. Lacy, age 66
2009
2014
President (Retired), Kronos Incorporated, a global enterprise software company. Mr. Lacy served as President and Secretary of Kronos from May 2006 through June 2008. Prior to that, Mr. Lacy served as President, Chief Financial and Administrative Officer, Treasurer and Secretary of Kronos from November 2005 through April 2006, and as Executive Vice President and Chief Financial and Administrative Officer of Kronos from April 2002 through October 2005.
During his tenure at Kronos, Kronos grew from a $26 million hardware company into a $662 million public global enterprise software company and Mr. Lacy gained significant public company software experience. As a result of his experience at Kronos, Mr. Lacy possesses leadership, management and operating experience and significant financial, accounting and corporate governance expertise.
Mr. Lacy attended 100% of the meetings of the Board and 98% of the meetings of the committees on which he serves during his current term (missing one re-scheduled meeting due to a prior commitment).
 
 
Continuing Directors

Class I Directors
 
Director 
Since 
 
Term 
Expires 
 
Donald K. Grierson, age 79
1987
2015
Chief Executive Officer (Retired), ABB Vetco International, an oil services business. Mr. Grierson was Chief Executive Officer and President of ABB Vetco Gray, Inc. from September 2002 to November 2004 and from 1991 to March 2001. Mr. Grierson served as Executive Director of ABB Vetco Gray, Inc. from March 2001 to September 2002.
Mr. Grierson has significant leadership, management and operating experience, as well as financial, strategic and corporate governance expertise as a result of his service as the chief executive officer of ABB Vetco International and ABB Vetco Gray. He also has a deep understanding of the manufacturing industry generally (the key industry served by PTC’s products). Given his tenure as a director of PTC since 1987, Mr. Grierson has extensive knowledge of PTC’s business and the markets in which PTC operates. As Chairman of the Board and the former Lead Independent Director, Mr. Grierson has been instrumental in developing Board meeting agendas and serving as a liaison between and among the directors and management.
Mr. Grierson attended 100% of the meetings of the Board and of the committees on which he serves during his current term.
 
 
Renato M. Zambonini, age 67
2011
2015
President and Chief Executive Officer (Retired) of Cognos Incorporated, a global leader in corporate performance management solutions. Mr. Zambonini was Chief Executive Officer of Cognos from September 1995 to June 2004 and President of Cognos from January 1993 to April 2002.
Mr. Zambonini is also a director at CA, Inc., a position he has held since 2005. Mr. Zambonini served as a director of Cognos Incorporated from 1994 to 2008, and as its Chairman of the Board from 2004 to 2008. He also served as a director at Emergis Inc. from 2005 to 2008.
In his position as Chief Executive Officer of Cognos, Mr. Zambonini is credited with having led Cognos’s transformation from a specialized business intelligence software tools provider to a global leader in corporate performance management solutions, demonstrating significant leadership and strategic vision. We believe this experience is a valuable asset as PTC has undergone a similar transformation from a CAD tools provider to an enterprise software company. In addition, as result of his experiences at Cognos and as a director of other software companies, Mr. Zambonini has leadership, management and operating experience, a deep understanding of software technology and the software industry, and significant financial, strategic and corporate governance expertise.
Mr. Zambonini attended 97% of the meetings of the Board and of the committees on which he serves during his current term (missing one special meeting due to a prior commitment).



PTC Inc. Proxy Statement        Page | 6

Proposal 1: Election of Directors




Class II Directors
 
Director 
Since 
 
Term 
Expires 
 
Thomas F. Bogan, age 62
2011
2016
Venture Partner of Greylock Partners, a venture capital firm, since January 2010, and a Partner of Greylock Partners from May 2004 to December 2009. Prior to that, Mr. Bogan was President of Rational Software Corporation, an S&P 500 enterprise software company.
Mr. Bogan also serves as Chairman of the Board of Directors of Citrix Systems, Inc. and as a director at Rally Software Development Corp.
Mr. Bogan brings to the Board senior leadership and operational experience in the software industry as a result of his experience at Rational Software. In addition, his experience at Rational in Application Lifecycle Management (ALM) is an asset as PTC integrates MKS, an ALM company acquired by PTC in 2011. Mr. Bogan also has significant strategic expertise as a result of his experience at Rational and as a venture capital investor at Greylock Partners, and significant financial and accounting expertise as a result of his positions as a financial officer in public and private companies and positions in public accounting earlier in his career. Mr. Bogan also has corporate governance expertise as a result of his position as Chairman of the Board of Directors of Citrix.
Mr. Bogan attended 100% of the meetings of the Board and the committees on which he serves during his current term.
 
 
 
 
 
Michael E. Porter, age 66
1995
2016
Bishop William Lawrence University Professor based at Harvard Business School. Professor Porter has been a Professor at Harvard Business School since 1973 and has been a University Professor since 2001.
As a professor of competitive strategy at Harvard Business School and a leading expert in the business strategy field, Professor Porter brings significant strategic expertise to the Board. As a director of PTC since 1995, Professor Porter has extensive knowledge of PTC’s business.
Professor Porter is also a director of Scotts Miracle-Gro Company and Merrimack Pharmaceuticals, positions he has held since January 2013 and December 2010, respectively. Professor Porter was a director of Thermo Fisher Scientific Inc. from July 2001 to May 2012.
Mr. Porter attended 88% of the meetings of the Board and of the committee on which he serves during his current term (missing one special meeting due to a prior commitment).
 
 
 
Robert P. Schechter, age 65
2009
2016
Chief Executive Officer (Retired), NMS Communications Corporation, a provider of hardware and software solutions for the communications industry. Mr. Schechter served as Chairman and Chief Executive Officer of NMS from 1995 to 2008.
As a result of his experience at NMS and at other companies in the software and technology industries, Mr. Schechter has significant leadership, management, international operating and sales and marketing experience, as well as significant corporate governance expertise. He also has significant financial and accounting expertise as a result of those experiences and as a former partner at Coopers & Lybrand LLP and Chairman of its North East Region High Tech Practice.
Mr. Schechter is also a director of Tremor Video Inc., a position he has held since June 2013, and of EXA Corporation, a position he has held since June 2008. Mr. Schechter was a director of Unica Corporation from January 2005 to October 2010 and of Soapstone Networks, Inc. from June 2003 to July 2009.
Mr. Schechter attended 94% of the meetings of the Board and of the committees on which he serves during his current term (missing one special meeting due to a prior commitment).




PTC Inc. Proxy Statement        Page | 7



CORPORATE GOVERNANCE
Board Meetings and Attendance at the Annual Meeting
PTC’s Board currently schedules five regular meetings during each fiscal year, but will meet more often if necessary. The Board met nine times in 2013. All directors attended all regularly scheduled meetings held during their terms in 2013 and all attended the four special meetings held during their terms in 2013 except for Messrs. Porter, Schechter and Zambonini, each of whom was unable to attend one special meeting (not all missed the same special meeting) due to a prior commitment. We expect that each director will attend the Annual Meeting of Stockholders each year, barring other significant commitments or special circumstances. All of the then current directors attended the 2013 Annual Meeting of Stockholders.
The Committees of the Board
The Board has four standing committees:
the Audit Committee,
the Compensation Committee,
the Corporate Governance Committee, and
the Corporate Development Committee.
Each of the committees acts under a written charter, all of which are available on the Investor Relations page of our website at www.ptc.com.
Audit Committee
The Audit Committee assists our Board in fulfilling its oversight responsibilities for accounting and financial reporting compliance. This includes reviewing the financial information provided to stockholders and others, PTC’s accounting policies, disclosure controls and procedures, internal accounting and financial controls, and the audit process. The Committee meets with management and with our independent registered public accounting firm to discuss our financial reporting policies and procedures, our internal control over financial reporting, the results of the independent auditor’s examinations, PTC’s critical accounting policies and the overall quality of PTC’s financial reporting, and the Committee reports on such matters to our Board. The Committee meets with the independent auditor with and without PTC management present.
The Committee is directly responsible for the appointment (and, if appropriate, replacement), evaluation and compensation of the independent auditor. The Committee reviews the independent auditor’s performance in conducting


PTC Inc. Proxy Statement        Page | 8

Corporate Governance


the annual financial statement audit and the audit of our internal control over financial reporting, assesses the independence of the auditor, and reviews the auditor’s fees. The Committee is also responsible for pre-approving audit and non-audit related services that may be performed by the independent auditor. Further information about the services and fees of PricewaterhouseCoopers LLP, our independent auditor, is provided in “PROPOSAL 3: CONFIRM THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2014, PricewaterhouseCoopers LLP Professional Services and Fees.”
All Committee members are “independent directors” under both SEC rules and the listing requirements of The NASDAQ Global Select Market governing the qualifications of members of the Audit Committee, and none of them has ever been an employee of PTC or any of its subsidiaries. The Board of Directors has determined that Mr. Schechter, Mr. Bogan and Mr. Lacy qualify as Audit Committee Financial Experts, as defined by the SEC. All members attended all meetings held during their terms.
Compensation Committee
The Compensation Committee establishes the compensation levels for our executive officers and oversees our employee compensation programs, including the corporate bonus programs. This includes setting performance goals relevant to compensation of executive officers and evaluating performance against those goals. The Committee is also responsible for administering our equity compensation plans. It also reviews and makes recommendations to the Board with respect to director compensation.
All Committee members are “independent directors” under The NASDAQ Global Select Market listing requirements. All members attended all meetings held during their terms.
Outside Advisors; Role of the Compensation Consultant. The Committee may engage compensation consultants or other advisors to provide information and advice to the Committee. The costs of such engagements are paid by PTC.
The Committee engaged Pearl Meyer & Partners, LLC as its independent compensation consultant for 2013. The Committee has assessed the independence of Pearl Meyer and determined that Pearl Meyer is independent of PTC and has no relationships that could create a conflict of interest with PTC. As part of its assessment, the Committee considered the fact that Pearl Meyer provides only minimal other services to PTC and consults with PTC’s management only as necessary to provide the services described below. PTC paid $205,616 to Pearl Meyer for services performed for the Committee and $17,500 for acquisition-related services for PTC during 2013.
Pearl Meyer provides a range of services to the Committee to support the Committee in fulfilling its responsibilities, including providing legislative and regulatory updates, peer group compensation data so that the Committee can set compensation for executives, advice on the structure and competitiveness of our compensation programs, and advice on the consistency of our programs with our executive compensation philosophy. Pearl Meyer attends Committee meetings, reviews compensation data with the Committee, and participates in discussions regarding executive compensation issues. The Committee meets with Pearl Meyer with and without PTC management present. Pearl Meyer does not determine or recommend the amount or form of compensation established.
Consultation with Management; Committee Decisions. Members of management, including our Chief Executive Officer and President, our Chief Financial Officer, our Executive Vice President, Strategy (who is responsible for Human Resources), our Corporate Vice President, Corporate Human Resources, and our Corporate Vice President and General Counsel, participate in Compensation Committee meetings as requested by the Committee to present and discuss the materials provided, including recommendations to be considered relative to executive pay and competitive market practices. These members of management primarily assist the Committee in understanding PTC’s business plan and long-term strategic direction, developing the performance targets for our performance-based compensation programs, and understanding the technical or regulatory considerations as well as the motivational factors of the decisions that are intended to drive executive and company performance. Although the Committee solicits input and perspective from management with respect to executive compensation, decisions on executive compensation are made solely by the Committee and, in the case of the Chief Executive Officer’s compensation, without the presence of the Chief Executive Officer.


PTC Inc. Proxy Statement        Page | 9

Corporate Governance

Delegation under the Equity Plan. The Committee is authorized to delegate to executive officers the power to make awards under the 2000 Equity Incentive Plan other than to directors and executive officers and to make all determinations under the Plan with respect thereto, provided that the Committee establishes the aggregate and individual maximum amounts of such awards. The Committee has delegated to our Chief Executive Officer the authority to make awards to employees under the 2000 Equity Incentive Plan within established parameters. (See “Timing of Equity Grants” on page XX for such parameters.)
Additional Information. For more information about the responsibilities and decisions of the Committee, including the processes for determining director and executive compensation, see “Director Compensation,” “Compensation Discussion and Analysis” and “Executive Compensation” in this proxy statement.
Corporate Governance Committee
The Corporate Governance Committee is responsible for corporate governance, including compliance, and the nomination of directors. The Corporate Governance Committee is appointed by the Board to:
develop and recommend policies and processes regarding corporate governance,
oversee the company’s implementation and administration of its compliance programs,
make recommendations regarding potential nominees for election to the Board and membership on committees of the Board, and
maintain a CEO succession plan in order to ensure continuity of leadership for PTC.
All Committee members are “independent directors” under The NASDAQ Global Select Market listing requirements. All members attended all meetings held during their term.
The Corporate Governance Committee’s responsibilities regarding director nominations are to:
determine the desired Board skills and attributes for directors;
consider and recruit candidates to fill positions on the Board;
review candidates recommended by stockholders;
conduct the appropriate and necessary evaluations of the backgrounds and qualifications of possible director candidates; and
recommend director nominees for approval by the Board or the stockholders.
The Committee may obtain recommendations from director search firms engaged for the purpose of recruiting new directors, or through their contacts. Director search firms engaged by the Committee will generally be paid a retainer to identify and screen candidates meeting specifications established by the Committee for a particular search. Such specifications will change from one search to another based on the Committee’s determination of the Board’s needs at the time.
Qualifications for Director Nominees and Diversity
The Corporate Governance Committee does not rely on a fixed set of qualifications for director nominees. The Committee’s primary mandate with respect to director nominees is to create a Board with a diversity of skills and attributes that is aligned with PTC’s strategic needs. The minimum qualifications for director nominees are that they:
be able to dedicate the time and resources sufficient for the diligent performance of the duties required of a member of the Board of Directors;
not hold positions or interests that conflict with their responsibilities to PTC; and
comply with any other minimum qualifications for either individual directors or the Board as a whole mandated by applicable laws or regulations.
Additionally, PTC’s Corporate Governance Guidelines require that at least a majority of members of the Board of Directors qualify as independent directors in accordance with NASDAQ independence rules.


PTC Inc. Proxy Statement        Page | 10

Corporate Governance

Evaluation and Nomination Process
The Corporate Governance Committee’s process for evaluating nominees for director is to consider an individual’s skills, character and professional ethics, judgment, leadership experience, business experience and acumen, familiarity with relevant industry issues, national and international experience, and such other relevant criteria as may contribute to the Board’s effectiveness and PTC’s success. This evaluation is performed in light of the Committee’s view that diversity among the directors as to personal and professional experiences, opinions, perspectives and backgrounds is desirable. The Committee also strives to identify qualified women and minority candidates. The Committee does not foreclose any sources when identifying potential candidates.
The Corporate Governance Committee reviews candidates recommended by stockholders in the same manner and using the same general criteria as candidates recruited by the Committee and/or recommended by the Board. The Committee will consider persons recommended by stockholders for nomination as a director in accordance with the procedures described under “STOCKHOLDER PROPOSALS AND NOMINATIONS.”
Corporate Development Committee
The Corporate Development Committee evaluates corporate development opportunities, including mergers and acquisitions, and assists management in developing strategies and processes regarding such initiatives. The Committee is authorized to approve transactions within parameters established by the Board from time to time. All members attended the two meetings held in 2013.
Board Leadership Structure
Our Board is currently led by an independent Chairman (Mr. Grierson). Our policy is to have a Lead Independent Director if the Chairman is not independent. We believe the current Board leadership structure serves us and our stockholders well by having an independent Chairman to provide independent leadership of the Board.
Risk Oversight
The Board exercises its oversight responsibilities with respect to the risks facing PTC at the Board level and through its committees, in particular, the Audit, Corporate Governance, and Compensation Committees.
The Audit Committee is responsible for overseeing risk management as it relates to PTC’s financial condition, financial statements, financial reporting process and accounting matters.
The Corporate Governance Committee oversees PTC’s compliance programs.
The Compensation Committee is responsible for overseeing PTC’s overall compensation practices, policies and programs and assessing the risks associated with such practices, policies and programs. (See “ASSESSMENT OF RISKS ASSOCIATED WITH OUR COMPENSATION PROGRAMS” for a description of our assessment of those risks.)
The Board and the relevant committees review with PTC’s management the risk management practices for which they have oversight responsibility. Since overseeing risk is an ongoing process and inherent in PTC’s strategic decisions, the Board and the relevant committees do not view risk in isolation, but discuss risk throughout the year in relation to proposed actions and initiatives.
Communications with the Board
Stockholders may send communications to the Board of Directors in the manner described in “Contact Information” and “Contact the Board” on the Investor Relations page of our website, www.ptc.com.



PTC Inc. Proxy Statement        Page | 11



DIRECTOR COMPENSATION
We pay our non-employee directors a mix of cash and equity compensation. The amounts established for the annual cash and equity retainers for 2013 are shown in the table below.
Director Annual Retainers
Director Name
Chair Position
Annual Retainer
Committee Chair Retainer
Annual Equity Retainer Value
Donald Grierson
Chairman of the Board
Compensation Committee
$115,000
--
--

$300,000

Thomas Bogan
 
$50,000
-



$215,000

Janice Chaffin
 
$29,167 (1)
--
$125,396 (1)
Paul Lacy
Corporate Governance Committee
$50,000
$5,000

$215,000

Michael Porter
Corporate Development Committee
$50,000
$5,000

$215,000

Robert Schechter
Audit Committee
$50,000
$15,000

$215,000

Renato Zambonini
 
$50,000
 

$215,000

(1) Pro-rated for the year based on election to the Board in August 2013.
Director Compensation Process and Decisions.
New Director Compensation. In connection with the election of a new director, such as Ms. Chaffin in 2013, in addition to establishing pro-rated compensation for the year, the Board makes a one-time equity grant that vests over two years in an amount determined in accordance with the company’s prior practice and a competitive assessment of director compensation practices. The award is meant to increase the director’s stock ownership over time to further align the director’s interests with those of PTC stockholders and to compensate the director for the investment of time the director will make in understanding the company’s business.
Annual Compensation. At the meeting of the Board of Directors held directly after the Annual Meeting of Stockholders, the Compensation Committee recommends to the Board the compensation to be paid to the directors for the year. The Board, after considering this recommendation, then establishes the annual compensation for the directors. In making its recommendation, the Committee considers a competitive assessment of the directors’ compensation with that of the compensation peer group (shown on page XX) and reviews each element of director compensation, including the annual retainer, the committee chair retainer, meeting fees and equity awards, to determine whether the amounts are competitive and reasonable for the services provided by the directors. For 2013, the directors’ compensation was positioned at the median of the compensation peer group.
We provide higher annual retainers for service as the Chairman of the Board and for service as the Chair(s) of the Audit and the Compensation Committees given the additional work required by those positions. We do not pay a committee chair retainer to the Chairman of the Board for service as the Chair of any committee.
For 2013, we eliminated meeting fees for attendance at board meetings and in lieu thereof increased the amount of the annual board retainer by $15,000. We retained committee meeting fees ($2,000 for attendance at each committee meeting of which the director is a member) as we believe it correlates the amount of work required with the compensation paid.
We also believe that providing a majority of our directors’ annual retainer compensation in the form of equity rather than cash serves to further align the interests of our directors with our stockholders as they become stockholders themselves.



PTC Inc. Proxy Statement        Page | 12

Director Compensation

2013 Director Compensation

The amounts shown in the “Fees Earned or Paid in Cash” column of the table reflect each director’s annual board and committee retainer fees and meeting fees. The amounts shown in the “Stock Awards” column of the table reflect the value of the equity awards made to the directors in the year.

Name(1)
 
Fees Earned or
Paid in Cash
($)
 
 
Stock
Awards
(2)(3) 
($)
 
All Other
Compensation
($)
 
 
Total 
($) 
 
Donald Grierson
$
153,000
 
$ 299,978(4)
$ —  
$
452,978

Chairman of the Board
Chair, Compensation Committee
 
 
 
 
Thomas Bogan
$
80,000
 
$ 214,998(4)
$ —  
$
294,998

Janice Chaffin
$
29,167
 
$ 447,870(5)
$ —  
$
477,037

Paul Lacy
$
97,000
 
$ 214,998(4)
$   
$
311,998

Chair, Corporate Governance Committee
 
 
 
 
Michael Porter
$
65,000
 
$ 214,998(4)
$ 30,000(6)
$
309,998

Chair, Corporate Development Committee
 
 
 
 
Robert Schechter
$
99,000
 
$ 214,998(4)
$ —   
$
313,998

Chair, Audit Committee
 
 
 
 
Renato Zambonini
$
74,000
 
$ 214,998(4)
$ 11,225(7)
$
300,223

(1)
Due to his employment relationship with PTC, Mr. Heppelmann, our President and Chief Executive Officer, receives no compensation for his service as a director and, accordingly, is not shown in the Director Compensation table.
(2)
Grant date fair value of restricted stock units. The grant date fair value is equal to the number of RSUs granted multiplied by the closing price of our common stock on The NASDAQ Global Select Market on the grant date.
(3)
The number of outstanding stock options, shares of restricted stock and RSUs held by each named director as of September 30, 2013 is shown in the table below.

Name
 
Options
 
Shares of Restricted Stock 
 
Restricted Stock Units

 
Donald Grierson
   --
   --
12,249
 
Thomas Bogan
   --
   --
8,779
 
Janice Chaffin
   --
   --
16,551
 
Paul Lacy
   --
   --
8,779
 
Michael Porter
   10,000*
4,701
8,779
 
Robert Schechter
   --
   --
8,779
 
Renato Zambonini
   --
4,701
8,779
 
* All options are vested and exercisable.
(4)
Grant date fair value of RSUs granted on March 6, 2013 at $24.49 per share.
(5)
Grant date fair value of RSUs granted on August 16, 2013 at $27.06 per share.
(6)
The amount represents one speaking engagement fee under a consulting agreement with PTC (described in “Transactions with Related Persons”).
(7)
The amount represents reimbursement of accountant fees and administrative penalties associated with reporting of stock-based compensation.


PTC Inc. Proxy Statement        Page | 13

Director Compensation

Director Stock Ownership Policy; Hedging; Pledging. Because we believe our directors’ interests are best aligned with those of our stockholders if they maintain significant exposure to our stock, our non-employee directors are required to attain and maintain an ownership level of PTC common stock with a value equal to five times their respective annual Board cash retainer (the value of unvested restricted stock, options and pledged stock is not included in this calculation). All our directors exceed the minimum holding requirements under the policy. Our Director Stock Ownership Policy is available on the Investor Relations page of our website at www.ptc.com. We also prohibit hedging of our stock. Because it does not reduce a director’s exposure to our stock, we permit our directors to pledge our stock, subject to limits that we believe minimize the potential impact of any forced sale of the pledged stock.
 


PTC Inc. Proxy Statement        Page | 14



PROPOSAL 2: ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
This advisory vote on the compensation of our Chief Executive Officer, Chief Financial Officer and three other executive officers named in the Summary Compensation Table (our “named executive officers”) gives stockholders the opportunity to express their views on our named executive officers’ compensation. This “say-on-pay” vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers. Additional information about such compensation is discussed in “Compensation Discussion and Analysis” and “Executive Compensation.”
The Board of Directors recommends that you vote FOR the approval of the compensation of our named executive officers as disclosed in “Compensation Discussion and Analysis” and the tables and related disclosures contained in “Executive Compensation.”
Why You Should Approve the Compensation of Our Named Executive Officers
Our compensation programs are designed to pay for performance. We significantly redesigned our executive compensation program in 2013 by adopting a long-term approach for our performance-based equity awards and implementing separate performance measures within our short- and long-term incentive programs. We believe these changes demonstrate responsiveness to shareholders, support our philosophy of paying for performance, and motivate our executives to drive long-term financial performance and increase shareholder value.
In accordance with our pay-for-performance philosophy, a large portion of the compensation of our named executive officers is comprised of performance-based pay. For 2013, 45% of our CEO’s target compensation was performance-based (versus 33% of CEO compensation for our peer group) and 41% of our other named executive officers’ target compensation was performance-based (in line with our peer group). Our compensation programs are designed so that if the performance-based compensation is earned in full, total compensation earned by the executives will be between the second and third quartiles of the compensation paid by our peer group.
For 2013, the executives’ cash bonus was tied to achievement of a 10% increase in non-GAAP operating margin percent and their performance-based equity was tied to achievement of a 20% increase in non-GAAP operating margin dollars. PTC achieved a 13.2% increase in non-GAAP operating margin percent for 2013 and the executives earned 100% of their cash bonus. PTC achieved a 16.5% increase in non-GAAP operating margin dollars, being 97.1% of the target, and the executives earned 85.4% of their performance-based equity that could be earned for 2013. (As described further on page 26, the 2013 performance-based equity has three performance periods, with approximately one-third of the equity awarded eligible to be earned for each of 2013, 2014 and 2015, with amounts not earned in a year eligible to be earned in the next.)(Additional information about the 2013 cash bonus plan is described on page 25 and information about the relationship between our GAAP results and the non-GAAP calculations under the performance plans is set forth on Appendix A.)
Our compensation programs are designed to align our executives’ interests with our stockholders’ interests. In addition to weighting our executives’ compensation to performance-based pay, a substantial portion of their compensation is in the form of equity that vests over three years. Moreover, our executives are subject to substantial stock ownership requirements (excluding stock options and unvested equity). These elements serve to align our executives’ interests with those of our stockholders in the long-term value of PTC stock.


PTC Inc. Proxy Statement        Page | 15

Proposal 2: Advisory Vote on the Compensation of our Named Executive Officers

Our compensation programs are developed by independent directors advised by an independent consultant. Our Compensation Committee is comprised only of independent directors and retains an independent compensation consultant to advise it on appropriate compensation practices.
Effect of Say-on-Pay Vote
This say-on-pay vote, which is required by Section 14A of the Securities Exchange Act of 1934, is advisory only and is not binding on the company, the Compensation Committee or our Board of Directors. Although the vote is advisory, we, our Compensation Committee and our Board of Directors value the opinions of our stockholders and will consider the outcome of this vote when establishing future compensation for our executive officers. We will hold such a vote each year.



PTC Inc. Proxy Statement        Page | 16



COMPENSATION DISCUSSION AND ANALYSIS

As discussed in Proposal 2, we are conducting a “say-on-pay” vote that asks you to approve the compensation of our named executive officers as described in this section and in the tables and accompanying narrative contained in “Executive Compensation.”
The Compensation Committee of our Board of Directors determines the compensation for our executives. We discuss below our executive compensation program and the compensation decisions made for 2013 for our Chief Executive Officer, our Chief Financial Officer, and the three other executive officers named in the Summary Compensation Table (collectively, our “named executive officers”).
                                                        
Executive Summary of Our Compensation Programs
We design our compensation programs to support PTC’s financial goals and increase shareholder value. We significantly redesigned our executive compensation program in 2013 by adopting a long-term approach for our performance-based equity awards and implementing separate performance measures within our short- and long-term incentive programs. We believe these changes demonstrate responsiveness to shareholders, support our philosophy of paying for performance, and motivate our executives to drive long-term financial performance and increase shareholder value.
The performance measures we select for our long-term performance-based equity and our performance-based cash bonus are designed to support our goals of expanding our non-GAAP operating margin and achieving significant annual growth in non-GAAP EPS. We believe this will increase the value of the company and increase our share price, both of which will benefit stockholders.
Accordingly, for 2013, our executives’ annual cash bonus was tied to company achievement of 10% non-GAAP operating margin percent growth over 2012 and their performance-based equity was tied to company achievement of 20% non-GAAP operating margin dollar growth over 2012 in 2013 and subsequent equal increases in non-GAAP operating margin dollars in 2014 and 2015.
We pay for performance. The core of our executive compensation philosophy is pay for performance. Accordingly, a significant portion of our executives’ compensation is comprised of performance-based pay. Our executives’ compensation for 2013 reflects this linkage.
2013 was another successful year for PTC. We increased our non-GAAP operating margin percent by 12.6%, our non-GAAP operating margin dollars by 16.0%, and non-GAAP EPS by 19.6%. These results reflect our progress toward delivering our goal of non-GAAP operating margin expansion.
Our executives’ target compensation for 2013 consisted of a base salary, a performance-based cash bonus and performance- and service-based equity awards. Based on the mix of these items, 45% of our CEO’s and 41% of our other named executives’ target compensation was performance-based for 2013, which for our CEO was a higher percentage than the average of our peers.



PTC Inc. Proxy Statement        Page | 17

Compensation Discussion and Analysis

Based on PTC’s achievement of 13.2% non-GAAP operating margin percent growth (as calculated under the bonus plan) against a target of 10% non-GAAP operating margin percent growth, the executives earned 100% of their cash bonus.
Based on PTC’s achievement of $287.4 million in non-GAAP operating margin dollars in 2013 (as calculated under the award, an increase of 16.5% over 2012) against a performance target of $296.1 million non-GAAP operating margin dollars, the executives earned 85.4% of the 2013 performance-based equity eligible to be earned for 2013.
Our performance in 2013 relative to 2012 is shown in the first table below and our executives’ compensation for 2013 relative to 2012 is shown in the second table below.
2013 Performance Compared to 2012
 
2013
2012
% Change
 
Non-GAAP(1)
GAAP
Non-GAAP(1)
GAAP
Non-GAAP(1)
GAAP
Operating Margin Dollars
$286.3 million
$127.3 million
$246.8 million
$128.1 million
16.0%
(0.60)%
Operating Margin
22.1%
9.8%
19.6%
10.2%
12.6%
(4)%
Earnings (Loss) per Share
$1.81
$1.19
$1.51
$(0.30)
19.6%
500%
Stock Price on September 30
$28.46
$21.77
31%
(1) A reconciliation between the Non-GAAP measures and GAAP results is located in Appendix A at the end of this proxy statement.

2013 NEO Compensation Compared to 2012
2013(1)
2012(1)
% Change
James Heppelmann
President and Chief Executive Officer
$6,507,640
$6,909,766
(5.82)%
Jeffrey Glidden
Executive Vice President, Chief Financial Officer
$2,597,628
$2,965,575
(12.41)%
Barry Cohen
Executive Vice President, Strategy
$2,589,978
$2,958,075
(12.44)%
Marc Diouane
Executive Vice President, Global Services and Partners
$2,065,121
$2,211,760
(6.63)%
Robert Ranaldi
Executive Vice President, Global Sales and Distribution
$2,057,640
(2)
(2)
(1)
Compensation for PTC’s CEO, CFO and three most highly compensated officers for 2013 (“named executive officers” or “NEOs”). Compensation consists of salary paid, performance-based bonus paid, grant date value of RSUs granted, 401(k) Plan matching contributions and, for Mr. Diouane, amounts associated with his overseas service. The amounts for each of 2013 and 2012 include the grant date value of performance-based restricted stock units that were subject to performance criteria for 2013 and are subject to performance criteria for 2014 and 2015 under the 2013 RSUs and for 2014 under the 2012 RSUs. The amounts for each of 2013 and 2012 also include the value of RSUs granted in the year that are subject to service conditions to vesting over three years from the date of grant.
(2)
Mr. Ranaldi was not a Named Executive Officer in 2012.
We are responsive to shareholder concerns.
In 2013, we received over 99% approval of our Say-on-Pay proposal, representing a significant increase over our 76% approval rating in 2012. We believe that increase and approval rating indicated stockholder approval of the changes we made in response to the 2012 vote, including adoption of different criteria for our short-term and long-term performance plans, adoption of three-year performance criteria for our long-term performance plans, and adoption of a compensation “clawback” policy. We considered the 2013 vote, and our belief that it indicated stockholder approval of the redesign of



PTC Inc. Proxy Statement        Page | 18

Compensation Discussion and Analysis

the compensation plans, and we made compensation decisions for 2013 accordingly. For 2014, we have revisited the performance-based and service-based equity mix to revert to a 50/50 split, replacing the 40/60 split we used for 2013 in connection with the redesign of our compensation plans.
We maintain compensation practices that benefit stockholders.
Our performance-based equity awards have performance measures that span up to three years and our service-based equity awards vest over a period of three years to ensure that our executives maintain a long-term view of shareholder value.
The amounts our executives can earn under our annual corporate performance-based incentive plans are capped. Accordingly, amounts earned under the annual plan are predictable and performance above incentive plan targets benefits stockholders.
We have a compensation “clawback” policy under which incentive compensation paid to our executive officers for 2013 and thereafter that is subsequently determined not to have been earned due to restatement of prior period financial results may be recovered from those officers whose misconduct led to the need for the restatement.
We design our compensation policies and practices to mitigate risks to the company that could be posed by those policies and practices. (See “ASSESSMENT OF RISKS ASSOCIATED WITH OUR COMPENSATION PROGRAMS.”)
Unvested and unexercised equity awards, including options, are not transferable.
We do not have a salary merit increase program for our executives.
We do not provide significant perquisites or supplemental retirement benefits to our executives.
We require our executives to maintain specified levels of ownership of our stock to ensure that their interests are even more effectively linked to those of our stockholders. (See “Equity Ownership” on page 28.)
We do not allow our executives to hedge their exposure to ownership of, or interest in, PTC stock; nor do we allow them to engage in speculative transactions with respect to PTC stock or to pledge their PTC stock.
Our executive agreements:
do not contain tax “gross-ups” on “golden parachute” payments in connection with a change in control, and we have committed that we will not include such a gross-up in any future executive agreements,
contain “double triggers” that require termination in connection with a change in control before most equity is accelerated, and
provide only limited severance benefits, and no equity acceleration, in connection with terminations without cause absent a change in control.
(See “Potential Payments on Termination or Change in Control” on page 37.)
Our Compensation Committee is comprised of four directors who are “independent” under NASDAQ Stock Market rules. (See “The Compensation Committee” on page 9.)
Our Compensation Committee’s independent compensation consultant, Pearl Meyer & Partners, is retained directly by the Committee, provides only minimal occasional other services to PTC and has no conflicts or potential conflicts of interest. (See “The Compensation Committee” on page 9.)


PTC Inc. Proxy Statement        Page | 19

Compensation Discussion and Analysis

Pearl Meyer & Partners attends Compensation Committee meetings, provides data and advice to the Committee, and participates in discussions regarding executive compensation issues, but does not determine or recommend the amount or form of compensation established, which is done solely by the Committee.
We aim to mitigate the potential dilutive effect of equity awards through a share repurchase program. (We repurchased 3 million shares in 2013 for $75 million.)
                                                            
Compensation Philosophy & Objectives
We believe that our compensation plans should align our executives’ interests with those of our stockholders and reward our executives for their contributions to the long-term success of PTC. We also believe that a substantial portion of our executives’ compensation should be performance-based to create appropriate incentives and rewards for achieving performance objectives established by the Committee.
Accordingly, we design our compensation plans and associated performance objectives to:
support the long-term financial plan and goals of PTC;
motivate our executives to advance the interests of PTC and increase shareholder value;
reward our executives for their contributions to the success of PTC; and
retain our executives.
We assess our executives’ compensation against the compensation paid to executives in similar positions in the peer group to ensure that the compensation we pay is competitive and fair to our executives and our stockholders. We seek to accomplish this by establishing target compensation generally within the second and third quartiles of the compensation paid by the peer group.


PTC Inc. Proxy Statement        Page | 20

Compensation Discussion and Analysis

Components of Compensation for 2013
Our executives’ compensation for 2013 consisted of the components described in the table below. We also describe why we use each component and the important features of that component.
Base Salary
Annual Performance-Based Cash Bonus
Long-Term Equity Awards
Objective
Provide a minimum, fixed level of cash compensation.
Focus the executive on achieving specific goals related to PTC’s business plan for the current fiscal year.
Promote alignment of the executive’s long-term personal interests with the long-term interests of PTC and its stockholders.
 
Provide a retention incentive.
Features
Set within the context of our annual competitive analysis.
Adjustments may be made to reflect market conditions for a position, changes in the status or duties associated with a position or internal equity.
Performance goals and target bonus amounts established at beginning of fiscal year.
Performance metric was non-GAAP operating margin percent and was established to align with PTC’s 2013 business plan.
Provided in the form of restricted stock units (RSUs).
40% of the award for 2013 is performance-based:(1)
Performance metric was non-GAAP operating margin dollars and aligned to PTC’s business plan.
Performance period extends over multiple fiscal years (2013, 2014 and 2015); approximately one-third of the award becomes eligible to vest in each of the periods, with amounts not earned in one period eligible to be earned in later periods.
Earned only to the extent the performance criteria are achieved.
60% of the award for 2013 is service-based:(1) 
Vests in three substantially equal annual installments over the three years following the date of grant if the executive remains employed by PTC on the vest date.
(1) For the 2014 long-term equity awards, 50% of the award is performance-based and 50% is service-based.


PTC Inc. Proxy Statement        Page | 21

Compensation Discussion and Analysis

Other Benefits; Absence of Perquisites
Our executives are eligible to participate in the standard benefits and programs available to all PTC employees on the same terms and conditions as all employees, including our 401(k) savings plan. We provide no other significant benefits or perquisites to our executives.
Mix of Compensation Components
We use the compensation components described in the table above because we believe they provide an appropriate mix of guaranteed compensation and at-risk compensation that promotes short-term and long-term performance and produces appropriate rewards. With this mix, we provide a competitive base salary and service-based equity while providing our executives the opportunity to earn additional compensation through short-term and long-term performance-based incentives designed to produce a targeted level of performance for PTC.
The mix of compensation for our executives is weighted toward at-risk pay (annual performance-based incentives and long-term performance-based equity incentives). Maintaining this pay mix results in a pay-for-performance orientation for all our executives.
We consider all pay elements and their impact on each executive’s target direct compensation when making determinations regarding the amount of each element. Our decisions regarding the pay mix also reflect our belief that long-term incentives, particularly equity awards, provide an important motivational and retentive aspect to the executive’s overall compensation package.

Our compensation mix for 2013 was designed to provide approximately 45% of total compensation through performance-based pay for our Chief Executive Officer, in contrast to our peer group where performance-based compensation made up an average of only 33% of CEO compensation, and approximately 41% of total compensation through performance-based pay for our other executives, which aligned with our peer group. Our annual service-based equity awards to these executives also include an at-risk element as they carry risks of forfeiture and market price decline.
How We Determine the Total Amount of Compensation
We make decisions regarding the amount and mix of compensation awarded to each of these executives based on:
objective data provided by our external compensation consultant, Pearl Meyer & Partners (we refer to this as the “competitive analysis”),
subjective analysis of the scope of each executive’s responsibilities, and
internal pay equity among the executives.
The competitive analysis provides detailed comparative data for our executive positions and assesses each component of compensation, including base salary, annual bonus, long-term incentives and total direct compensation, as well as the mix of compensation between base salary, annual bonus and long-term incentives. We compare this information to our executives’ compensation by similarity of position and generally align our executives’ target total direct compensation to be within the second and third quartiles of peer compensation.
 
Benchmarking and Survey Data
Benchmarking Data. The peer group we used to benchmark the elements of executive pay was made up of publicly-traded U.S. companies within the software industry, most of which are in the enterprise software space, that have revenues and market capitalizations in a range appropriate for PTC. In evaluating and selecting companies for inclusion in our peer group, we target companies with revenue within an approximately 0.5x to 2x multiple of PTC’s revenue and an approximately 0.3x to 3x multiple of PTC’s market capitalization. However, we may include companies with revenue and/or market capitalizations outside of these parameters if there is strong product and/or service similarity or if they were in our peer group in the prior year and they continue to meet at least one of the parameters. We believe this group represents competition for executive talent in our industry. We review the peer group on an annual basis to ensure that the companies constituting this peer group remain relevant and provide meaningful compensation comparisons.


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Compensation Discussion and Analysis

The 2013 peer group consisted of the companies listed below. The 2013 peer group differed from the 2012 peer group due to the removal of Novell Inc. and Lawson Software Inc. as a result of the acquisitions of those companies and the addition of Ansys, Inc. to balance those removals.

2013 Peer Group
 
 
 
 
Criteria Matched



Company
Revenue
$M
(1)
Market
Capitalization
$M
(1)
Product / Service
Similarity
Revenue 
$611M -
$2,443M
Market
Capitalization
 
$1,060M - $9,540M
 
 
 
 
 
 
PTC
$
1,221.3

$
3,180.1

 
 
 
Ansys, Inc.
$
691.4

$
5,861.9

x
 
x
Autodesk, Inc.
$
2,215.6

$
8,550.3

x
x
x
BMC Software Inc.
$
2,169.5

$
6,148.7

x
x
x
Cadence Design Systems, Inc.
$
1,149.8

$
3,224.7

x
x
x
Citrix Systems Inc.
$
2,206.4

$
13,870.0

x
x
 
Compuware Corporation
$
993.3

$
1,969.3

x
x
x
Mentor Graphics Corp.
$
1,104.6

$
1,658.8

x
x
x
MICROS Systems Inc.
$
1,054.3

$
4,150.7

 
x
x
Nuance Communications Inc.
$
1,375.6

$
7,988.7

x
x
x
Progress Software Corp.
$
533.7

$
1,439.5

x
 
x
Quest Software Inc.
$
857.4

$
1,670.3

x
x
x
Red Hat Inc...
$
1,080.9

$
9,552.6

 
x
 
Synopsys, Inc.
$
1,596.5

$
4,389.3

x
x
x
TIBCO Software, Inc.
$
920.2

$
4,827.3

x
x
x
Peer Group Median
$
1,067.6

$
4,608.3

 
(1) Revenue is trailing four quarters as of March 2012 and market capitalization is as of March 2012, contemporaneous with the period when we began developing compensation for 2013.
Survey Data. We also use survey data for additional perspective. For 2013, we used the Radford Global Technology survey. PTC participates in this survey and believes that it represents a good cross-section of the software industry. The data used was appropriate to PTC’s size and industry and represented 42 software companies with median revenue of $1.1 billion.
 
Subjective Analysis of Executive Responsibilities and Internal Pay Equity
While we use the objective market data as a starting point for determining the appropriate compensation for our executives, we recognize that circumstances could warrant a deviation from that data. Accordingly, for certain positions for which there are no comparable external benchmarks, we make our own judgments with regard to compensation levels. We consider both whether the amount seems appropriate given the responsibilities of the position and internal pay equity among the executives. Accordingly, when determining the compensation for Mr. Cohen, for whom there is no comparable position in our peer group, we looked to the scope of his responsibilities relative to his closest peer among our executives (Mr. Glidden) and established his compensation relative to Mr. Glidden’s compensation. Where benchmark data is available, we also consider internal pay equity among the executives as we do not believe an external benchmark should be the only determinant of compensation.
Analysis of Compensation Decisions for 2013
The target total direct compensation we established for each of the named executive officers is set forth in the table below. The considerations associated with establishing the target compensation for the executives are discussed below the table.


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Compensation Discussion and Analysis

2013 Target Compensation
 
 
Target Total Annual
Compensation

 
Target Long-Term Equity

 
 

 
 
Name
 
 
 
Salary

Target
Annual
Bonus

 
Performance-Based Equity

 
Service-Based
Equity 

Target Total
Direct
Compensation

Percentile Peer Group
James Heppelmann
President and Chief Executive Officer
$
750,000

$
1,000,000

$
1,900,000

$
2,850,000

$
6,500,000

45th
 
 
 
 
 
 
 
Jeffrey Glidden
Executive Vice President, Chief Financial Officer
$
415,000

$
300,000

$
750,000

$
1,125,000

$
2,590,000

55th
Barry Cohen
Executive Vice President, Strategy
$
415,000

$
300,000

$
750,000

$
1,125,000

$
2,590,000

N/A
Marc Diouane
Executive Vice President, Global Services and Partners
$
400,000

$
300,000

$
540,000

$
810,000

$
2,050,000

50th
Robert Ranaldi
$
400,000

$
300,000

$
540,000

$
810,000

$
2,050,000

45th
Executive Vice President, Global Sales
 
 
 
 
 
 
 
 

Overall Considerations
We set target compensation to be within the second and third quartiles (between the 25th and the 75th percentiles) of the peer group benchmark data (“target range”), subject to achievement of the performance objectives established by the Committee for the year. We believe that this competitive positioning of compensation enables us to attract and retain skilled executives. We also consider internal equity of compensation among our executives.
For 2013, we redesigned our long-term equity program to simplify the program and continue to drive long-term performance. Historically we had granted annual performance-based equity with one-year performance measures (and subsequent service-based vesting). The value of these grants was set such that, if earned and when combined with base salary and annual cash bonus, an executive’s total compensation would be within the target range. Periodically, including in 2012, we also awarded challenge grants with multi-year performance measures. The value of these grants was set such that, if earned and when combined with all other compensation, would bring total compensation to the higher end of the target range. In 2013, we redesigned our equity program to grant annual performance-based equity with three-year performance measures and eliminated the one-year performance measure followed by service-based vesting structure. At the same time, we reviewed the executives’ target total compensation against our peer group. In connection with this review, we determined that awarding equity at the annual target amount we had used historically (i.e., excluding amounts awarded as challenge grants) placed our executives’ target total compensation at the low end of our targeted percentiles relative to our peer group. Therefore, consistent with our pay-for-performance philosophy, we decided to increase the long-term equity component of the executives’ compensation by 25% from 2012. With this increase, each of our executives’ target total compensation remained at or below the 55th percentile of our peer group. Also, because multi-year performance equity awards are subject to greater risk of forfeiture, we changed the proportion of performance-based awards to service-based awards from our historical 50/50 split to 40/60 for 2013 as a transition measure. (As we now have experience with this type of performance-based award, we returned to our historical 50/50 split for the 2014 long-term equity awards.)
The changes to equity described above were applied to all executive officers. As described below, we also considered whether any additional individual adjustments were warranted based on an executive’s performance or the level of his target total compensation relative to his peer in the compensation peer group.
Considerations for Mr. Heppelmann, President and Chief Executive Officer
We evaluated Mr. Heppelmann’s 2013 target compensation, with the equity change described above, against our compensation peer group to determine whether any further changes should be made to his 2013 target compensation. Because his target compensation was at the 40th percentile of our compensation peer group for his position, and we


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Compensation Discussion and Analysis

believed his performance warranted an increase in positioning, in accordance with our pay-for-performance philosophy, we increased his annual target equity value by an additional 13% (which placed him at the 45th percentile for his peer group).
Considerations for Mr. Glidden, Executive Vice President, Chief Financial Officer
We evaluated Mr. Glidden’s 2013 target compensation, with the equity change described above, against our compensation peer group and our other executive officers to determine whether any further changes should be made to his 2013 target compensation. Because Mr. Glidden’s target compensation was at the 55th percentile of our peer group for his position, there was no change in his position or responsibilities, we believed the mix of compensation provided was appropriate, and we believed his compensation was appropriate when considering the compensation of our other executives, we made no further change to his target compensation for 2013.
Considerations for Mr. Cohen, Executive Vice President, Strategy
Mr. Cohen has a unique position for which there is no appropriate match in the peer group or survey data as the scope of his position is different from any specific position in the peer group or survey data. Mr. Cohen has responsibility for Corporate Strategy, Corporate Development, Customer Care and Technical Support, Global Education, and Human Resources. Accordingly, when setting target compensation amounts for Mr. Cohen, we considered internal equity by evaluating the scope and importance of his responsibilities compared to our other executives. Because we believed his compensation was appropriate when considering the compensation of our other executives, we made no further change to his target compensation for 2013.
Considerations for Mr. Diouane, Executive Vice President, Global Services and Partners
We evaluated Mr. Diouane’s 2013 target compensation, with the equity change described above, against our compensation peer group and our other executive officers to determine whether any further changes should be made to his 2013 target compensation. Although Mr. Diouane’s target compensation was within our target range relative to our compensation peer group for his position, we believed his performance, as well as internal equity when we compared the scope and importance of his responsibilities compared to our other executives, warranted an increase in compensation. Accordingly, consistent with our pay-for-performance philosophy, we increased Mr. Diouane’s annual target equity by an additional 10%. We evaluated his increased target total compensation against our compensation peer group for his position to ensure that his target compensation for 2013 remained within our target range, which it did at approximately the 50th percentile.
Considerations for Mr. Ranaldi, Executive Vice President, Global Sales
We evaluated Mr. Ranaldi’s 2013 target compensation, with the equity change described above, against our compensation peer group and our other executive officers to determine whether any changes should be made to his 2013 target compensation. Although Mr. Ranaldi’s target compensation was within our target range relative to our compensation peer group for his position, we believed his performance, as well as internal equity when we compared the scope and importance of his responsibilities compared to our other executives, warranted an increase in compensation. Accordingly, consistent with our pay-for-performance philosophy, we increased Mr. Ranaldi’s annual target equity by additional 10%. We evaluated his increased target total compensation against our compensation peer group for his position to ensure that his target compensation for 2013 remained within our target range, which it did at approximately the 45th percentile.
2013 Performance-Based Compensation
The performance measures we develop and use for our performance plans are designed to measure our success against our short-term and long-term business plans and objectives. These business plans and objectives are designed to create and deliver value to our stockholders over the long term.
For 2013, our performance-based incentives were:
a cash bonus plan tied to one year non-GAAP operating margin percent growth, and
equity awards (restricted stock units/RSUs) tied to three-year non-GAAP operating margin dollar growth.
2013 Annual Cash Bonus Plan
We selected non-GAAP operating margin percent growth as the performance measure for our annual cash bonus plan due to the importance of increasing our non-GAAP operating margins and non-GAAP earnings per share. Under the plan,


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Compensation Discussion and Analysis

our executives were required to deliver 10% non-GAAP operating margin percent growth for 2013 over 2012 to earn the target bonus, consistent with our goals of expanding non-GAAP operating margins.
No portion of the bonus would be earned unless the threshold of 2% growth in non-GAAP operating margin percent was achieved, at which point 50% of the bonus would be earned. Thereafter, up to the remaining 50% of the bonus could be earned based on the extent to which 10% growth in non-GAAP operating margin percent was achieved above 2% growth.
2013 Performance-Based Cash Bonus Plan Design and Achievement
Performance Criteria
 
Threshold 
(50% Earned)

Target 
(Up to an Additional
50% Earned)

Actual
Achievement
(2)

Actual Bonus
Percentage
Earned

Non-GAAP Operating Margin Percent Growth(1)   
2% Growth
10% Growth
13.2% Growth
100%
 
20% Non-GAAP
Operating Margin
21.6% Non-GAAP
Operating Margin
22.2% Non-GAAP
Operating Margin
 
(1)    FY2012 Non-GAAP Operating Margin Percent was 19.6%.
(2)    A reconciliation between the Non-GAAP compensation measures and GAAP results is located in Appendix A at the end of this proxy statement.
 
Amounts Earned under the 2013 Cash Bonus Plan. The table below shows the amount earned by each named executive officer under the 2013 cash bonus plan.

Annual Cash Bonus Plan Amounts Earned for 2013
 
 
Executive Officer
 
Target/Maximum
Annual Bonus
(1)

Percentage Earned

Amount Earned
under the Plan

James Heppelmann
$
1,000,000

100
%
$
1,000,000

Jeffrey Glidden
$
300,000

100
%
$
300,000

Barry Cohen
$
300,000

100
%
$
300,000

Marc Diouane
$
300,000

100
%
$
300,000

Robert Ranaldi
$
300,000

100
%
$
300,000

                                 
(1)
The Target bonus amount was also the maximum bonus amount that could be earned under the plan. No additional amounts could be earned under the plan.
2013 Performance-Based Equity
We selected non-GAAP operating margin dollars as the performance measure for the 2013 performance-based equity due to the importance of growing revenue and increasing our non-GAAP operating margins and non-GAAP earnings per share to our long-term plan. We selected non-GAAP operating margin dollars because this measure requires both revenue growth and expense management over the performance period to be sustainable, whereas non-GAAP operating margin percent growth can be achieved through expense management only. Our executives are required to deliver significant increases in non-GAAP operating margin dollars through 2015 to earn 100% of the equity (RSUs) granted, consistent with our goals of expanding non-GAAP operating margins.
Approximately one-third of the RSUs granted can be earned for each of the three measurement periods in the three-year term. RSUs not earned for a period can be earned for later measurement periods.
For the 2013 performance measurement period, no portion of the bonus would be earned unless the Threshold was achieved, at which point 25% of the RSUs eligible to be earned for 2013 would be earned. Thereafter, up to an additional 75% of the RSUs eligible to be earned for 2013 could be earned based on the extent to Interim and Target performance criteria were achieved.


PTC Inc. Proxy Statement        Page | 26

Compensation Discussion and Analysis

2013 Performance-Based Equity Design and Achievement for 2013 Measurement Period
 
 
 
Performance Criteria
 
Threshold 
(25% Earned)

Interim
(Up to an Additional 25% Earned)
Target 
(Up to an Additional
50% Earned)

Actual
Achievement
(1)

Percent 
 Target Achieved

Percent 
 Equity Earned

Non-GAAP Operating Margin Dollars   
$259.1 Million

$266.5 Million
$296.1 Million
$287.4 Million
97.1%
85.4%
(1) A reconciliation between the Non-GAAP compensation measures and GAAP results is located in Appendix A at the end of this proxy statement.
Performance-Based Equity Earned by the Executives for 2013. The table below shows (1) the number of performance-based RSUs issued under the 2013 performance-based equity awards corresponding to the target equity value for each executive, (2) the number of RSUs that could be earned for 2013 performance and (3) the actual number of RSUs earned for 2013. The RSUs earned vested on November 15, 2013.
Performance-Based Annual Equity Earned for 2013
Executive Officer
 
Target Annual
Equity Value
Number of 
Performance-Based RSUs Issued(1)(2)
Number of Performance-Based RSUs that could be Earned for 2013(3)


% Earned
Under Plan(4)

Number of
 Performance-Based RSUs Earned for 2013(4)
James Heppelmann
$
1,900,000

90,391
30,733
85.4
%
26,245
Jeffrey Glidden
$
750,000

35,680
12,132
85.4
%
10,360
Barry Cohen
$
750,000

35,680
12,132
85.4
%
10,360
Marc Diouane
$
540,000

25,690
8,736
85.4
%
7,460
Robert Ranaldi
$
540,000

25,690
8,736
85.4
%
7,460
 ___________________________
(1)
The number of RSUs issued was determined by dividing the Target Annual Equity Value by closing price on the grant date and rounding down to the nearest whole share. The number was based on the closing sale price of a share of PTC common stock of $21.0197 on November 5, 2012, the date the awards were made.
(2)
The number of performance-based RSUs issued is the maximum number of RSUs that can be earned by the executive under the award. No additional RSUs or other equity awards or amounts will be issued or paid for performance above target performance under the award (no “upside”).
(3)
This is the maximum number of RSUs that could be earned for 2013, representing 34% of the RSUs issued. No additional amounts could be earned for 2013.
(4)
RSUs not earned for 2013 can be earned for the 2014 and 2015 measurement periods.
Severance and Change in Control Arrangements
We maintain severance and change in control arrangements with our executives. The agreements require the executive to execute a noncompete agreement with PTC and to execute a general release of claims as a condition to receiving severance benefits. Each of the agreements has a one year term and renews automatically for successive one year terms if the Compensation Committee does not terminate the agreement. The Compensation Committee reviews these agreements each year to determine if these agreements should be maintained, modified or terminated. For 2013, the Committee reviewed current market practices and the terms of the agreements with the Committee’s compensation consultant and determined that such agreements and their terms were substantially consistent with the practices of our peers. The Committee also considered the continuing consolidation in the industry. As a result of its review, the Committee decided that it was appropriate to maintain the agreements.
The terms of these agreements are described in more detail under “Potential Payments upon Termination or Change in Control” on page 37.
The Committee believes that these agreements are important motivational and retention tools because, in a time of increased consolidation in our industry and increased competition for executive talent, they provide a measure of earnings security by offering income protection in the form of severance and continued benefits if the executive is terminated without cause, economic protection for the executive’s family if the executive becomes disabled or dies, and additional protections in connection with a change in control of PTC.


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Compensation Discussion and Analysis


The Committee believes that providing severance to PTC employees, including these executives, is an appropriate bridge to subsequent employment if the person is terminated without cause. This is particularly so for executive-level positions for which the opportunities are typically more limited and the job search lead time is longer. The agreements also benefit PTC by enabling executives to remain focused on PTC’s business in uncertain times without the distraction of potential job loss.
The Committee believes these agreements are even more important in the context of a change in control as it believes they will motivate and encourage the executives to be receptive to potential strategic transactions that are in the best interest of stockholders, even if the executive faces potential job loss. The agreements for our executives are structured substantially as “double triggers” in that most of their unvested equity would remain subject to continued vesting requirements after a change in control and vesting would be accelerated only upon termination or constructive termination within two years of a change in control. Equity that would otherwise vest beyond this two-year period vests upon the change in control to ensure the executives receive the benefit of that equity. The Committee believes this benefits PTC and any potential acquirer because it enables PTC to retain and motivate the executive while a potential change in control is pending and provides an acquirer with the ability to retain desired executives using existing equity incentives and does not provide a one-time benefit to the executive that could undermine those efforts.
Equity Ownership
Each year we examine the total equity ownership of our executive officers as part of the competitive analysis. Because we believe that the interests of our executives are more aligned with stockholders’ interests if they are stockholders themselves, we maintain a stock ownership policy for our executives. The policy requires the CEO and each of the other executives to attain and maintain an ownership level of PTC’s common stock equal to three times and one times, respectively, their individual annual salary through retention of vested equity (other than options). The Executive Stock Ownership Policy is available in the “Corporate Governance” section of the Investor Relations page of our website at www.ptc.com.
Compensation Clawback Policy
We maintain an executive compensation recoupment policy that enables us to recover incentive compensation paid to an executive officer if such compensation is subsequently determined to have been unearned due to a restatement of our financial results for the performance period as a result of the misconduct of the executive officer. The Executive Compensation Recoupment Policy is available in the “Corporate Governance” section of the Investor Relations page of our website at www.ptc.com.
Timing of Equity Grants
We do not time grants either to take advantage of a depressed stock price or in anticipation of an increase in stock price and have limited the amount of discretion that can be exercised in connection with the timing of awards. We generally make awards only on pre-determined dates to ensure that awards cannot be timed to take advantage of material non-public information. Typically, our annual executive awards are made in November after public release of the previous fiscal year’s financial results, awards to our Board of Directors are made on the day of the annual stockholders’ meeting and awards to our employees are made in November and May.
Awards to executive officers may be made only by the Compensation Committee. Other employee awards may be made by either the Compensation Committee or by our Chief Executive Officer pursuant to delegated authority. The Compensation Committee generally makes awards only at Committee meetings and generally does not make awards in trading blackout periods (the prophylactic period encompassing the last three weeks of each fiscal quarter through 48 hours after the earnings for that quarter are announced) unless special circumstances exist, such as a new hire or a contractual commitment. Our Chief Executive Officer may make awards only on the 15th of the month (or the next succeeding business day if the 15th is not a business day), other than in the months of January, April, July and October because the 15th of each of those months falls in a blackout period.



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Compensation Discussion and Analysis

Tax and Accounting Considerations
Tax Considerations. We consider the tax (individual and corporate) consequences of our executive compensation plans when designing the plans. Section 162(m) of the Internal Revenue Code limits deduction of compensation paid to the chief executive officer and three other most highly compensated executive officers of PTC (other than the chief financial officer) to $1,000,000 unless the compensation is performance-based. Our annual bonuses and performance-based equity awards are provided under shareholder approved plans and are designed to enable deductibility under Section 162(m). Performance-based RSUs are considered performance-based compensation under Section 162(m), while base salary and service-based RSUs are not. Because each executive’s base salary is not more than $1,000,000, any compensation that is not deductible is attributable to vesting of service-based RSUs. For 2013, only the following amounts associated with vesting of service-based RSUs were not deductible under Section 162(m): $1.4 million for Mr. Heppelmann, $0.2 million for Mr. Cohen, $61,303 for Mr. Diouane and $8,275 for Mr. Ranaldi. We believe that the cost associated with these awards in excess of the deductible amount is justified by the incentive and retention value provided by the equity award.
Accounting Considerations. We also consider the stock-based compensation expense associated with equity awards to executives as part of the expense associated with our overall equity compensation program. Under applicable accounting rules, equity awards result in a stock-based compensation charge to PTC. The charge is equal to the fair value of the equity issued and is amortized over the vesting period of the award. For RSUs, fair value is the closing price of our stock on the grant date times the number of RSUs granted. We monitor this expense as we develop our plans and strive to maintain a program that balances the goals of our equity program with the associated expense of the program. For 2013, stock-based compensation expense as a percentage of revenue was below the 40th percentile relative to our peer group.
Report of the Compensation Committee
The Compensation Committee has reviewed and discussed with management the foregoing Compensation Discussion and Analysis. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
Compensation Committee
Donald Grierson, Chairman
Paul Lacy
Robert Schechter
Renato Zambonini




PTC Inc. Proxy Statement        Page | 29



ASSESSMENT OF RISKS ASSOCIATED WITH OUR COMPENSATION PROGRAMS
We have assessed our compensation plans and programs for all employees, including our executives, to ensure alignment of the various plans and programs with our business plan and to evaluate the potential risks associated with those plans and programs. We have concluded that, although we maintain performance-based incentive plans, our compensation policies and practices do not create any risks that are reasonably likely to have a material adverse effect on PTC.
We completed an extensive review of our various compensation plans and programs in 2013. This review was undertaken by a cross-functional team of representatives from our Human Resources, Finance, Sales, Services and Global Support functions. They reviewed the structures of the plans and programs, the processes used with respect to those plans and programs, and the controls with respect to those plans and programs. They also validated our compensation mix against the compensation mix in the market. The results of this assessment were shared with the Compensation Committee, which concurred with the conclusions reached. As stated above, we did not identify any policies or practices that create risks reasonably likely to have a material adverse effect on PTC.
The Compensation Committee regularly considers the risks associated with executive compensation and corporate incentive plans when designing such plans. The elements described below with respect to such plans and programs have generally been implemented by or at the direction of the Compensation Committee and were considered by the assessment team and the Committee when assessing the risk associated with our compensation programs:
A detailed planning process with executive or Compensation Committee oversight exists for all compensation programs;
The proportion of an employee’s performance-based pay increases as the responsibility and potential impact of the employee’s position increases, which structure is in line with market practices;
Substantially all short-term incentive plans and commission plans are cash-based plans, which results in less total compensation being tied solely to stock performance;
We set performance goals that we believe are reasonable in light of past performance and market conditions;
We use a consistent corporate performance metric (non-GAAP operating margin percent or dollars) for our annual plans from year to year, rather than changing the metric to take advantage of changing market conditions, and use metrics designed to support our long-term financial goals;
We use restricted stock units rather than stock options for equity awards because restricted stock units retain value even if the stock price declines so that employees are less likely to take unreasonable risks to get, or keep, options “in-the-money”;
We use service-based vesting over three years for our long-term equity awards to ensure our employees’ interests are aligned with those of our shareholders for the long-term performance of PTC;
Assuming achievement of at least a minimum level of performance, payouts under our performance-based plans result in some compensation at levels below full target achievement, rather than an “all-or-nothing” approach;
All organizations have a component of their leadership incentive plans tied to overall PTC performance to ensure cross-functional alignment with PTC’s business plan;
Our executive stock ownership policy requires our executives to hold certain levels of stock (not options, restricted stock units or restricted stock), which aligns an appropriate portion of their personal wealth to the long-term performance of PTC; and
We maintain effective controls and procedures to ensure that amounts are earned and paid in accordance with our plans and programs.







PTC Inc. Proxy Statement        Page | 30



EXECUTIVE COMPENSATION
The discussion, table and footnotes below describe the total compensation paid for 2013 to our named executive officers (our Chief Executive Officer, our Chief Financial Officer, and our three other most highly compensated executive officers).
As described in “Compensation Discussion and Analysis” above and reflected in the Summary Compensation Table below, we pay these executive officers a mix of cash and equity compensation.
Cash Compensation. We paid these executives a base salary and a cash (non-equity) incentive plan bonus. We did not pay any discretionary cash bonuses to these executives.
Equity Compensation. We made annual equity awards to these executives in the form of restricted stock units (RSUs), 60% of which vest based on service and 40% of which are performance-based. (For 2011 and 2012, and again for 2014, this split was 50/50.)
Other Forms of Compensation. We do not provide these executives with pensions or the ability to defer compensation or significant perquisites. Amounts shown in the “All Other Compensation” column reflect the matching cash contribution under our 401(k) Savings Plan for those participating in the plan and, for Mr. Diouane, the relocation and other expenses described.  
Summary Compensation Table
Name and Principal Position
 
Year 
 
Salary ($) 
 
Stock Awards
($)(1)
 
 
Non-Equity Incentive Plan Compensation
($)
 
 
All Other
Compensation
($)(2)
 
 
Total ($) 
 
James Heppelmann
2013
$
750,000

$
4,749,990

$
1,000,000

$
7,650

$
6,507,640

President and Chief Executive Officer
2012
$
750,000

$
5,174,966

$
977,300

$
7,500

$
6,909,766

2011
$
750,000

$
10,557,112
(3)
$
984,340

$
7,350

$
12,298,802
 (3)
Jeffrey Glidden
2013
$
415,000

$
1,874,978

$
300,000

$
7,650

$
2,597,628

Executive Vice President, Chief Financial Officer
2012
$
415,000

$
2,249,975

$
293,100

$
7,500

$
2,965,575

2011
$
415,000

$ --

$
293,340

$
7,350

$
715,690

Barry Cohen
2013
$
415,000

$
1,874,978

$
300,000

$ --

$
2,589,978

Executive Vice President, Strategy
2012
$
415,000

$
2,249,975

$
293,100

$ --

$
2,958,075

 
2011
$
415,000

$
1,539,956

$
293,340

$ --

$
2,248,296

Marc Diouane
2013
$
400,000

$
1,349,990

$
300,000

$
15,131
 (4)
$
2,065,131

Executive Vice President, Global Services & Partners
2012
$
400,000

$
1,513,572

$
293,100

$
5,088

$
2,211,760

2011
$
350,000

$
1,390,003

$
294,135

$
154,249
 (4)
$
2,188,387

Robert Ranaldi(5)   
2013
$
400,000

$
1,349,990

$
300,000

$
7,650

$
2,057,640

Executive Vice President, Worldwide Sales
 
 
 
 
 
 

(1)
Aggregate grant date fair value of awards. The grant date fair value is equal to the number of RSUs granted multiplied by the closing price of our stock on the NASDAQ Global Select Market on the grant date. The grant date fair values of performance-based RSUs included in the table are the maximum amounts that can be earned under those awards, which amounts are the amounts recorded by us under the accounting rules at the time of grant and are disclosed in the “Grant Date Fair Value of Stock Awards” column in the “Grants of Plan-Based Awards” table. Assumptions made in the valuation of these awards are described in Note K to our financial statements for the fiscal year ended September 30, 2013.
(2)
Amounts shown are matching contributions under PTC’s 401(k) Savings Plan, plus, for Mr. Diouane, the items described in footnote 4.
(3)
“Stock Awards” for 2011 includes a one-time performance-based grant made upon his promotion to President and Chief Executive Officer on October 1, 2010. It was valued at approximately $7 million on the date of grant and must be earned based on PTC’s achievement of established performance criteria over the periods ending September 30, 2013, 2014 and 2015. One-third of the award vested in November 2013 based on achievement of the performance criteria, one-third is eligible to vest in November 2014 and one-third (plus any portion of the award not earned in 2014) is eligible to vest in November 2015.


PTC Inc. Proxy Statement        Page | 31

Executive Compensation

(4)
Amount in 2013 is for $8,308 of matching contributions under PTC’s 401(k) Savings Plan and $6,823 for reimbursement of certain medical expenses associated with non-U.S. service. Amount in 2011 is for relocation expenses of $112,370 paid in connection with his relocation to the United States from Europe upon his promotion to Executive Vice President, Global Services and Partners, tax gross-up reimbursement of $25,648 associated with such relocation expenses, a car allowance of $14,244, and $1,987 of matching contributions under PTC’s 401(k) Savings Plan.
(5)
Mr. Ranaldi was not a named executive officer for 2012 or 2011.
Grants of Plan-Based Awards
We tie a substantial portion of our executives’ compensation to PTC’s performance through plan-based awards. For 2013, these awards consisted of:
an annual cash bonus plan,
performance-based RSUs that vest to the extent earned over three years, and
service-based RSUs that vest over three years.
We describe our compensation decisions for 2013, including the rationale for these awards and the performance measures, more fully in “Compensation Discussion and Analysis” above.
Annual Incentive Plan
The amounts shown in the table below under “Estimated Possible Payouts under Non-Equity Incentive Plan Awards” are for our annual cash bonus plan.
Each of the awards under the 2013 Executive Incentive Plan could be earned as follows:
50% of the award would be earned based on PTC’s achievement of 2% non-GAAP operating margin percent growth in 2013; and
up to an additional 50% of the award could be earned based on achievement of non-GAAP operating margin percent growth between 2% and 10% in 2013, with the full amount being earned if 10% non-GAAP operating margin percent growth was achieved.
PTC achieved 13.2% non-GAAP operating margin percent growth under the plan for 2013 and these awards were earned in full.
Annual Equity Awards
Our annual equity awards for 2013 consisted of RSUs that are eligible to vest over three years, 40% of which are performance-based and 60% of which are service-based.
Performance-Based Restricted Stock Units.  The performance-based awards are shown in the table below under “Estimated Possible Payouts under Equity Incentive Plan Awards.” Up to 34% of the RSUs granted could be earned in 2013, 33% of the RSUs granted (plus any not earned in 2013) can be earned in 2014, and 33% of the RSUs granted (plus any not earned in 2013 or 2014) can be earned in 2015. Performance criteria for 2013 are described below; performance criteria for 2014 and 2015 require the same incremental increase in non-GAAP operating margin dollars in each year as for 2013 to achieve the target for the year.
The RSUs for 2013 could be earned as follows:
25% of the RSUs would be earned based on PTC’s achievement of $259.1 million non-GAAP operating margin dollars in 2013, with no RSUs being earned for performance below this Threshold;
up to an additional 25% of the RSUs could be earned based on achievement of non-GAAP operating margin dollars between $259.1 million and $266.5 million in 2013; and
up to an additional 50% of the RSUs could be earned for achievement of non-GAAP operating margin dollars between $266.5 million and $296.1 million, with the full amount being earned upon achievement of $296.1 million non-GAAP operating margin dollars.
PTC achieved $287.4 million non-GAAP operating margin dollars under the plan for 2013; accordingly, only 85.4% of the RSUs eligible to be earned for 2013 were earned as discussed in “Compensation Discussion and Analysis” above and in the footnotes to the Grants of Plan-Based Awards table below. The RSUs earned vested in November 2013.


PTC Inc. Proxy Statement        Page | 32

Executive Compensation

Service-based Restricted Stock Units. The awards shown in the table below under “All Other Stock Awards” are service-based restricted stock units. These RSUs vest in three substantially equal installments, the first of which vested in November 2013, and the remainder of which vest in November 2014 and November 2015 if the executive remains employed by us on the vest date.

Grants of Plan-Based Awards in 2013
 
 
 
Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards
Estimated Possible Payouts Under
Equity Incentive Plan Awards
All Other Stock Awards:
Number of Securities Underlying Stock or Units
(#)
Grant Date Fair Value of Stock Awards(1)
($)
Name
Grant Date
 
Threshold
($)
Target
($)
Maximum
($)
Threshold
(#)
Target
(#)
Maximum
(#)
 
 
 
 
 
 
 
 
 
 
 
James Heppelmann
11/5/2012
(2)
 
 
 
22,598
90,391
90,391
 
$
1,899,992

President and Chief
11/5/2012
(3)
 
 
 
 
 
 
135,587
$
2,849,998

Executive Officer
11/5/2012
(4)
$
500,000

$
1,000,000

$
1,000,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Jeffrey Glidden
11/5/2012
(2)
 
 
 
8,920
35,680
35,680
 
$
749,983

Executive Vice President,
11/5/2012
(3)
 
 
 
 
 
 
53,521
$
1,124,995

Chief Financial Officer
11/5/2012
(4)
$
150,000

$
300,000

$
300,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Barry Cohen
11/5/2012
(2)
 
 
 
8,920
35,680
35,680
 
$
749,983

Executive Vice President,
11/5/2012
(3)
 
 
 
 
 
 
53,521
$
1,124,995

Strategy
11/5/2012
(4)
$
150,000

$
300,000

$
300,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Marc Diouane
11/5/2012
(2)
 
 
 
6,423
25,690
25,690
 
$
539,996

Executive Vice President,
11/5/2012
(3)
 
 
 
 
 
 
38,535
$
809,994

Global Services and Partners
11/5/2012
(4)
$
150,000

$
300,000

$
300,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Robert Ranaldi
11/5/2012
(2)
 
 
 
6,423
25,690
25,690
 
$
539,996

Executive Vice President,
11/5/2012
(3)
 
 
 
 
 
 
38,535
$
809,994

Worldwide Sales
11/5/2012
(4)
$
150,000

$
300,000

$
300,000

 
 
 
 
 
(1) Aggregate grant date fair value calculated by multiplying the number of RSUs granted by the closing price of a share of our common stock on the NASDAQ Global Select Market on the grant date. For performance-based awards, the value determined at the grant date assumes that the award will be earned in full. The closing price on November 5, 2012 was $21.0197.
(2) Performance-based restricted stock units eligible to vest over three years to the extent the performance-based criteria are met for each of 2013, 2014 and 2015, with catch-up of amounts not earned in a year eligible to be earned in the next. Only 34% of the RSUs granted could be earned for 2013 (FY13 RSUs). The performance criteria were met in part for 2013 and 85.4% of the FY13 RSUs were earned, as follows: Mr. Heppelmann, 26,245 RSUs, Mr. Glidden, 10,360 RSUs, Mr. Cohen, 10,360 RSUs, Mr. Diouane, 7,460 RSUs, and Mr. Ranaldi, 7,460 RSUs. The RSUs earned vested on November 15, 2013.
(3) Service-based restricted stock units. One third of these RSUs vested on November 15, 2013 and the remaining two-thirds will vest in substantially equal installments on November 15, 2014 and November 15, 2015.
(4) Awards under our annual cash incentive plan. These awards were earned in full. 




PTC Inc. Proxy Statement        Page | 33

Executive Compensation

Outstanding Equity Awards at Fiscal Year-End
The following table shows the equity awards held by each named executive officer as of September 30, 2013. The equity awards in the table are restricted stock units granted in 2010 through 2013. No options were outstanding.
Outstanding Equity Awards at Fiscal Year-End
 
 
 
 
 
 
Stock Awards
 
 
 

Equity Incentive Plan Awards

Name
Number of 
Shares or 
Units of 
Stock
That Have
Not
 
Vested 
(#)(1) 
Market
Value of
Shares or
 
Units of 
Stock That 
Have Not 
Vested 
($)(2) 
Number of 
Unearned 
Shares, 
Units or 
Other 
Rights 
That Have 
Not
Vested
 
(#)(3)
Market or 
Payout 
Value of 
Unearned 
Shares,
Units or
 
Other 
Rights 
That Have 
Not Vested 
($)(2)
 
 
 
 
 
James Heppelmann
President and Chief Executive Officer
 
 
 
 
26,255
 (4)
$
747,217

360,082
 (7)
$
10,247,934

57,963
 (5)
$
1,649,627

86,945
 (9)
$
2,474,455

26,255
 (6)
$
747,217

90,391
 (11)
$
2,572,528

56,647
 (8)
$
1,612,174

 
 
135,587
 (10)
$
3,858,806

 
 
 
 
 
 
 
 
 
 
 
Jeffrey Glidden
Executive Vice President, Chief Financial Officer
 
 
 
 
25,201
 (5)
$
717,220

37,802
 (9)
$
1,075,845

24,628
 (8)
$
700,913

35,680
 (11)
$
1,015,453

53,521
 (10)
$
1,523,208

 
 
13,164
 (12)
$
374,647

 
 
13,164
 (13)
$
374,647

 
 
 
 
 
 
 
Barry Cohen
Executive Vice President, Strategy
 
 
 
 
11,366
 (4)
$
323,476

37,802
 (9)
$
1,075,845

25,201
 (5)
$
717,220

35,680
 (11)
$
1,015,453

11,366
 (6)
$
323,476

   
 
24,628
 (8)
$
700,913

 
 
53,521
 (10)
$
1,523,208

 
 
 
 
 
 
 
 Marc Diouane
Executive Vice President, Global Services and Partners
 
 
 
 
6,468
 (4)
$
184,079

21,421
 (9)
$
609,642

14,280
 (5)
$
406,409

25,690
 (11)
$
731,137

6,468
 (6)
$
184,079

3,780
 (17)
$
107,579

13,956
 (8)
$
397,188

 
 
38,535
 (10)
$
1,096,706

 
 
8,573
 (14)
$
243,988

 
 
2,462
 (15)
$
70,069

 
 
2,520
 (16)
$
71,719

 
 
 
 
 
 
 
Robert Ranaldi
Executive Vice President, Worldwide Sales
 
 
 
 
2,853
 (4)
$
81,196

25,201
 (9)
$
717,220

16,800
 (5)
$
478,128

25,690
 (11)
$
731,137

16,418
 (8)
$
467,256

 
 
38,535
 (10)
$
1,096,706

 
 
2,853
 (18)
$
81,196

 
 
3,653
 (19)
$
103,964

 
 
3,653
 (20)
$
103,964

 
 
6,210
 (21)
$
176,737

 
 
 
 
 
 
 
See Footnotes on following page.


PTC Inc. Proxy Statement        Page | 34

Executive Compensation

Footnotes to Outstanding Equity Awards at Fiscal Year End Table
(1) The unvested restricted stock unit (RSU) awards shown in this column are subject to service-based vesting. Some of these awards were subject initially to performance-based criteria, which were satisfied in whole or in part, and are now subject only to service-based vesting.
(2)    The market value of unvested RSUs was calculated as of September 30, 2013 based on the closing price of a share of our common stock on the NASDAQ Global Select Market on September 30, 2013 of $28.46.
(3)    The unvested RSUs shown in this column are subject to performance-based vesting.
(4)    Service-based RSUs granted on March 9, 2011. These RSUs vested on November 15, 2013.
(5)    Service-based RSUs granted on November 1, 2011. Half of these RSUs vested on November 15, 2013. The remaining RSUs will vest on November 15, 2014.
(6)    Performance-based RSUs granted on November 3, 2010 subject to subsequent service-based vesting. These RSUs vested on November 15, 2013.
(7)    Performance-based RSUs granted on October 1, 2010 that may be earned only to the extent the established performance criteria are met. The performance criteria for the first period were met and 120,028 RSUs vested on November 15, 2013. Half of the remaining RSUs can be earned for 2014 and all of the remaining RSUs can be earned for 2015. The RSUs earned for a year vest on the later of (i) November 15, 2014 or November 15, 2015, as applicable, and (ii) the date the Compensation Committee determines the extent to which the applicable performance criteria have been met.
(8)    Performance-based RSUs granted on November 1, 2011 subject to subsequent service-based restrictions. Half of these RSUs vested on November 15, 2013. The remaining RSUs will vest on November 15, 2014.
(9)    Performance-based RSUs granted on November 1, 2011 that may be earned only to the extent the established performance criteria are met. Half of the RSUs vested on November 15, 2013. Vesting of the remaining RSUs will occur on the later of November 15, 2014 and the date the Compensation Committee determines the extent to which the performance criteria have been achieved.
(10)    Service-based RSUs granted on November 5, 2012 that vest in three substantially equal annual installments on each of November 15, 2013, November 15, 2014 and November 15, 2015.
(11)    Performance-based RSUs granted on November 5, 2012 that may be earned only to the extent the established performance criteria are met. There are three measurement periods and up to 34% of the RSUs could be earned for 2013, up to 33% of the RSUs (plus any not earned for 2013) can be earned for 2014, and up to 33% of the RSUs (plus any not earned for 2013 and 2014) can be earned for 2015. RSUs earned vest on the later of (i) November 15, 2013, November 15, 2014 and November 15, 2015, as applicable, and (ii) the date the Compensation Committee determines the applicable performance criteria have been met. The performance criteria for 2013 were met only in part and 85.4% of the RSUs eligible to vest in 2013 vested on November 15, 2013.
(12)    Service-based RSUs granted on September 27, 2010. These RSUs vested on November 15, 2013.
(13)    Performance-based RSUs granted on September 27, 2010 subject to subsequent service-based vesting. These RSUs vested on November 15, 2013.
(14)    Service-based RSUs granted on October 5, 2010. These RSUs vested on November 15, 2013.
(15)    Performance-based RSUs granted on November 14, 2011. Half of these RSUs vested on November 15, 2013. The remaining RSUs will vest on November 15, 2014.
(16)    Time-based RSUs granted on November 14, 2011 subject to subsequent service-based restrictions. Half of these RSUs vested on November 15, 2013. The remaining RSUs will vest on November 15, 2014.
(17)    Performance-based RSUs granted on November 14, 2011 that may be earned only to the extent the established performance criteria are met. Half of these RSUs vested on November 15, 2013. Vesting of the remaining RSUs will occur on the later of November 15, 2014 and the date the Compensation Committee determines the extent to which the performance criteria have been achieved.
(18)    Service-based RSUs granted on November 3, 2010. These RSUs vested on November 15, 2013.
(19)    Service-based RSUs granted on May 4, 2011. These RSUs vested on November 15, 2013.
(20)    Performance-based RSUs granted on May 4, 2011 subject to subsequent service-based restrictions. These RSUs vested on November 15, 2013.
(21)    Service-based RSUs granted on May 6, 2011. These RSUs vested on November 15, 2013.


PTC Inc. Proxy Statement        Page | 35

Executive Compensation

Option Exercises and Stock Vested
The following table shows the value realized by executive officers upon option exercises, if any, and vesting of restricted stock units during 2013.
 
Option Awards
Stock Awards
Name
 
Number of Shares
Acquired on Exercise
(#)(1)
 
 
Value Realized
on Exercise ($)(1)
 
 
Number of Shares
Acquired on Vesting
(#)(2)
 
 
Value Realized
on Vesting
($)(2)
 
 
James Heppelmann,
    President and Chief Executive Officer
119,999

$
1,485,875

215,079
$
4,133,818
 
Jeffrey Glidden,
    Executive Vice President, Chief Financial Officer


51,246
$
984,948
 
Barry Cohen,
    Executive Vice President, Strategy
119,999

$
1,715,278

100,140
$
1,924,691
 
Marc Diouane,
    Executive Vice President, Global Services & Partners
   --

$ --

49,086
$
943,433
 
Robert Ranaldi,
    Executive Vice President, Worldwide Sales
   --

$ --

43,511
$
836,281
 
                 
(1)
The table below shows the dates the options exercised in fiscal 2013 were granted, the option exercise price, the dates on which they were exercised, the number of shares of each grant exercised and the per share values on exercise date for each executive.

Name
 
Option Grant Date

Option Exercise Price
 
Exercise Date
 
Shares Exercised
 
Exercise Date per Share Value
 
Value Realized on Exercise
 
James Heppelmann
3/3/2004
$
11.4750

11/5/2012
8,714
$
21.0200

$
83,173

 
3/3/2004
$
11.4750

11/5/2012
21,286
$
21.0200

$
203,168

 
3/3/2004
$
11.4750

2/1/2013
30,000
$
23.5500

$
362,250

 
3/3/2004
$
11.4750

5/1/2013
30,000
$
23.1300

$
349,650

 
3/3/2004
$
11.4750

8/1/2013
29,999
$
27.7300

$
487,634

 
 
 
 
 
 
 
Barry Cohen
3/3/2004
$
11.4750

1/29/2013
4,357
$
23.5000

$
52,393

 
3/3/2004
$
11.4750

1/29/2013
42,190
$
23.5000

$
507,335

 
3/3/2004
$
11.4750

1/31/2013
13,453
$
23.1800

$
157,467

 
3/3/2004
$
11.4750

8/13/2013
4,357
$
28.1100

$
72,479

 
3/3/2004
$
11.4750

8/13/2013
55,642
$
28.1100

$
925,605

 
 
 
 
 
 
 

(2)
The table below shows the dates the RSUs that vested in fiscal 2013 were granted, the dates on which they vested, the per share values on those dates, and the number of shares of each grant that vested for each executive.
(3)
Grant Date
 
Grant
Date per
Share
Value
 
 
Vest Date

Vest Date
per Share
Value
 
 
James
Heppelmann
 
 
Jeffrey
Glidden
 
Barry
Cohen
 
 
Marc 
Diouane
 
Robert
Ranaldi
 
11/3/2009
$
15.20

11/15/2012
$
19.22

105,261
   --
52,490
10,964
7,675
9/27/2010
$
18.99

11/15/2012
$
19.22

   --
26,330
   --
   --
   --
10/5/2010
$
19.97

11/15/2012
$
19.22

   --
   --
   --
8,573
   --
11/3/2010
$
21.90

11/15/2012
$
19.22

26,256
   --
11,367
6,469
2,854
3/9/2011
$
23.26

11/15/2012
$
19.22

26,256
   --
11,367
6,469
2,854
5/4/2011
$
22.81

11/15/2012
$
19.22

   --
   --
   --
   --
7,306
5/6/2011
$
22.73

11/15/2012
$
19.22

   --
   --
   --
   --
6,211
11/1/2011
$
19.84

11/15/2012
$
19.22

57,306
24,916
24,916
14,119
16,611
11/14/2011
$
21.04

11/15/2012
$
19.22

   --
   --
   --
2,492
   --
 
 
 
 
215,079
51,246
100,140
49,086
43,511


PTC Inc. Proxy Statement        Page | 36

Executive Compensation

Potential Payments upon Termination or Change in Control
We have agreements with our executive officers that provide the benefits described below in connection with certain terminations or a change in control of PTC. We describe our reasons for providing these benefits in “COMPENSATION DISCUSSION AND ANALYSIS — Severance and Change in Control Arrangements” on page 27.
To receive the payments and benefits described below, the executive must execute a release of claims against PTC. The executive also must continue to comply with the material terms of his agreement and the terms of his Non-Disclosure, Non-Competition and Invention Agreement with PTC, which remains in effect after his termination of employment for two years for Mr. Heppelmann and one year for each of the other executives with respect to the non-competition and non-solicitation provisions and indefinitely with respect to the other provisions.
Agreement with Mr. Heppelmann, President and Chief Executive Officer
Termination without Cause
If we terminate Mr. Heppelmann’s employment without cause other than in connection with a change in control, he will be entitled to:
payment of his base salary over the two years following such event, paid at the highest rate in effect during the six months preceding such event,
payment of an amount equal to two times the average annual bonuses paid to him for the two fiscal years preceding the year in which the termination occurs, paid over two years, and
continued participation in PTC’s medical, dental, vision and basic life insurance benefit plans (or payment in lieu thereof) for up to two years following such event.
Change in Control
Equity. Effective upon a change in control of PTC:
all performance criteria applicable to any equity award held by Mr. Heppelmann will be deemed to have been met in full, and
the vesting schedule applicable to any equity award held by Mr. Heppelmann will be amended to immediately vest any portion of such award scheduled to vest after the second anniversary of the change in control (unless the agreement is not assumed or replaced, in which case the equity award will become vested and exercisable in full).
These provisions are not applicable to any equity interests issued in connection with PTC’s annual incentive plan or other short-term incentive plans (“bonus equity”) or to any equity award specifically excluded from these provisions.
Annual Incentive Award/Annual Bonus Equity. In addition, upon a change in control, for any annual cash incentive award in effect for the year in which the change in control occurs and any bonus equity, all performance criteria will be deemed met in full and Mr. Heppelmann will be entitled to a lump sum payment of a pro-rata portion of any such annual cash incentive award and a pro-rata portion of any such bonus equity held by him will vest (such pro-rata portions to be based on the number of days elapsed in the applicable fiscal year).

Termination in Connection with a Change in Control
If within the two years following a change in control (or within the prior six months in certain circumstances) Mr. Heppelmann is terminated without cause or resigns for good reason (including, generally, a reduction in compensation, a reduction in authority or responsibilities, or relocation of our principal office by over 50 miles), Mr. Heppelmann will be entitled to:
a lump sum payment equal to three times his highest base salary in effect for the six months preceding such termination,
a lump sum payment equal to three times his highest annual target bonus in effect for the year in which the change in control occurred or after the change in control,
continued participation in PTC’s medical, dental, vision and basic life insurance benefit plans (or payment in lieu thereof) for up to two years following such event,



PTC Inc. Proxy Statement        Page | 37

Executive Compensation

accelerated vesting in full of all equity awards held by him (other than any bonus equity held by him), and
the option exercise period for each stock option held by him will be extended until the earlier of the second anniversary of his termination of employment or the original term of such option.
No Gross-Up Payment. Mr. Heppelmann is not under any circumstances entitled to a gross-up payment for any excise taxes to which he may be subject if any of the above payments and benefits are considered to be “parachute payments.”
Death or Disability
If Mr. Heppelmann’s employment terminates by reason of his death or disability:
all performance criteria applicable to all equity awards held by him will be deemed to have been met in full, and
all equity awards held by him will immediately become vested and exercisable in full.
These provisions are not applicable to any bonus equity held by him, which would terminate on such event if the restrictions with respect thereto had not lapsed before such event.
Agreements with Mr. Cohen, Mr. Glidden, Mr. DiBona and Mr. Diouane
Termination without Cause
If we terminate any of these executives’ employment without cause, the executive will be entitled to:
a lump sum payment in an amount equal to his highest annual salary (excluding bonuses) in effect during the six months immediately preceding the termination date, and
continued participation in PTC’s medical, dental, vision and basic life insurance benefit plans (or payment in lieu thereof) for up to one year following such termination.
Change in Control
Equity. Effective upon a change in control of PTC:
all performance criteria applicable to any equity award held by the executive will be deemed to have been met in full, and
the vesting schedule applicable to any equity award held by the executive, including restricted stock, will be amended to immediately vest any portion of such award scheduled to vest after the second anniversary of the change in control (unless the agreement is not assumed or replaced, in which case the equity award will become vested and exercisable in full).
These provisions are not applicable to any bonus equity held by the executive.
Annual Cash Incentive/Bonus Equity. In addition, upon a change in control, with respect to any annual cash incentive award in effect for the year in which the change in control occurs and any bonus equity, all performance criteria will be deemed met in full and each executive will be entitled to a lump sum payment of a pro-rata portion of any such annual cash incentive award and a pro-rata portion of any such bonus equity held by the executive will vest (such pro-rata portions to be based on the number of days elapsed in the applicable fiscal year).
 
Termination in Connection with a Change in Control
If within the two years following a change in control the executive is terminated without cause or resigns for good reason (including, generally, a reduction in compensation, a reduction in authority or responsibilities, or relocation of our principal office by over 50 miles), the executive will be entitled to:
the benefits he would have received if his employment was terminated without cause as described above,
a lump sum payment equal to his highest annual target bonus in effect for the year in which the change in control occurred or after the change in control, and
accelerated vesting in full of all equity awards held by him (other than any bonus equity held by him).



PTC Inc. Proxy Statement        Page | 38

Executive Compensation

No Gross-Up Payment. None of these executives is entitled under any circumstances to a gross-up payment for any excise taxes to which he may be subject if any of the above payments or benefits are considered to be “parachute payments.”
Termination upon Death or Disability
If the executive’s employment terminates due to his death or disability:
all performance criteria applicable to any equity awards held by him will be deemed to have been met in full, and
all equity awards held by him will immediately become vested and exercisable in full.
These provisions are not applicable to any bonus equity held by the executive, which would terminate on such event if the restrictions with respect thereto had not lapsed before such event.
Tabular Presentation of Benefits Provided
The table below shows the benefits that would have been provided under the agreements described above had a change in control and/or termination of each executive’s employment occurred on September 30, 2013.


PTC Inc. Proxy Statement        Page | 39

Executive Compensation


Potential Payments on Termination or Change in Control
 
Circumstances of Termination or Event
 
Name 
 
Termination
without Cause
 
 
Termination for
Cause or
Voluntary
Resignation
 
 
Change in
Control
 
 
Termination
without Cause
or Resignation
for Good Reason
within
2 Years following
a Change in
Control
 
 
Disability
or Death
 
 
James Heppelmann
 
 
 
 
 
President & Chief Executive Officer
 
 
 
 
 
Base Salary
$
1,500,000

$ —  
$ — 
$
2,250,000

$ —  
Bonus
1,977,300



3,000,000


Pro-Rated Bonus


1,000,000



Accelerated Equity


12,383,117
(1)(2)
11,526,841
(3)
23,909,958
(3)
Benefits Continuation
89,256



89,256


 
 
 
 
 
 
Total
$
3,566,556

$ —  
$
13,383,117

$
16,866,097

$
23,909,958

Jeffrey Glidden
 
 
 
 
 
Executive Vice President, Chief Financial Officer
 
 
 
 
 
Base Salary
$
415,000

$ —  
$ —  
$
415,000

$ —  
Bonus



300,000


Pro-Rated Bonus


300,000



Accelerated Equity


842,814
(1)
4,939,119
(3)
5,781,934
(3)
Benefits Continuation
62,455



62,455


 
 
 
 
 
 
Total
$
477,455

$ —  
$
1,142,814

$
5,716,574

$
5,781,934

Barry Cohen
 
 
 
 
 
Executive Vice President, Strategy
 
 
 
 
 
Base Salary
$
415,000

$ —  
$ —  
$
415,000

$ —  
Bonus



300,000


Pro-Rated Bonus


300,000



Accelerated Equity


842,814
(1)
4,836,777
(3)
5,679,591
(3)
Benefits Continuation
85,478



85,478


 
 
 
 
 
 
Total
$
500,478

$ —  
$
1,142,814

$
5,637,255

$
5,679,591

Marc Diouane
 
 
 
 
 
Executive Vice President, Global Services and Partners
 
 
 
 
 
Base Salary
$
400,000

$ —  
$ —  
$
400,000

$ —  
Bonus



300,000


Pro-Rated Bonus


300,000



Accelerated Equity


606,824
(1)
3,495,770
(3)
4,102,594
(3)
Benefits Continuation
32,940



32,940


 
 
 
 
 
 
Total
$
432,940

$ —  
$
906,824

$
4,228,710

$
4,102,594

Robert Ranaldi
 
 
 
 
 
Executive Vice President, Worldwide Sales
 
 
 
 
 
Base Salary
$
400,000

$ —  
$ —  
$
400,000

$ —  
Bonus



300,000


Pro-Rated Bonus


300,000



Accelerated Equity


606,824
(1)
3,430,682
(3)
4,037,506
(3)
Benefits Continuation
37,046



37,046


 
 
 
 
 
 
Total
$
437,046

$ —  
$
906,824

$
4,167,728

$
4,037,506


(1)
Value of unvested restricted stock units that would have vested from and after the second anniversary of the change in control that accelerate and become fully vested, based on a closing stock price of $28.46 on September 30, 2013.
(2)
Includes 100% of the promotion award granted October 1, 2010 that is not subject to the Change in Control provisions of his executive agreement.
(3)
Value of unvested restricted stock units that accelerate and become fully vested based on a closing stock price of $28.46 on September 30, 2013.


PTC Inc. Proxy Statement        Page | 40



PROPOSAL 3: ADVISORY VOTE TO CONFIRM THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2014
We are asking stockholders to confirm the Audit Committee’s selection of PricewaterhouseCoopers LLP, a registered public accounting firm, as PTC’s independent registered public accounting firm for the fiscal year ending September 30, 2014.
Although stockholder confirmation of the selection of PricewaterhouseCoopers LLP is not required by law or our
by-laws, and although this vote will not be binding on PTC, the Board of Directors believes that it is advisable to give stockholders an opportunity to provide guidance on this selection. If this confirmation is not received, the Board will request that the Audit Committee reconsider its selection of PricewaterhouseCoopers LLP.
The Board of Directors recommends that you vote FOR the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2014.
Engagement of Independent Auditor and Approval of Professional Services and Fees
The Audit Committee is responsible for the engagement of our independent auditor and for approving, in advance, all audit services and permitted non-audit services to be provided by the independent auditor. The Audit Committee has adopted a policy for the engagement of the independent auditor that is intended to maintain the independent auditor’s independence from PTC. In adopting the policy, the Audit Committee considered the various services that the independent auditor has historically performed or may be asked to perform in the future. The policy, which is reviewed and re-adopted at least annually by the Audit Committee:
approves the performance by the independent auditor of certain types of services (principally audit-related and tax), subject to restrictions in some cases, based on the Committee’s determination that engaging the auditor for such services would not be likely to impair the independent auditor’s independence from PTC;
requires that management obtain the specific prior approval of the Audit Committee for each engagement of the independent auditor to perform other types of permitted services;
prohibits the performance by the independent auditor of certain types of services due to the likelihood that its independence would be impaired; and
sets an aggregate expenditure limitation on fees for approved services and provides for fee caps on certain categories of approved services that may not be exceeded without the prior approval of the Committee.
Any approval required under the policy must be given by the Audit Committee, by the Chairman of the Committee in office at the time, or by any other Committee member to whom the Committee has delegated that authority. The Audit Committee does not delegate its responsibilities to approve services performed by the independent auditor to any member of management.
The standard applied by the Audit Committee in determining whether to grant approval of any engagement of the independent auditor is whether the services to be performed, the compensation to be paid therefor and other related factors are consistent with the independent auditor’s independence under guidelines of the Securities and Exchange Commission, the Public Company Accounting Oversight Board, and applicable professional standards. The Committee considers:
whether the work product is likely to be subject to, or implicated in, audit procedures during the audit of PTC’s financial statements;
whether the independent auditor would be functioning in the role of management or in an advocacy role;
whether performance of the service by the independent auditor would enhance PTC’s ability to manage or control risk or improve audit quality;
whether performance of the service by the independent auditor would increase efficiency because of the auditor’s familiarity with PTC’s business, personnel, culture, systems, risk profile and other factors; and
whether the amount of fees involved, or the proportion of the total fees payable for tax and other non-audit services, would tend to reduce the independent auditor’s ability to exercise independent judgment in performing the audit.


PTC Inc. Proxy Statement        Page | 41

Proposal 3: Advisory Vote to Confirm the Selection of PricewaterhouseCoopers LLP as our Independent Registered Public Accounting Firm for 2014


PricewaterhouseCoopers LLP Professional Services and Fees
The table below shows the fees we paid for professional services rendered by PricewaterhouseCoopers LLP, during 2013 and 2012. All of the fees disclosed below were pre-approved by the Audit Committee in accordance with the policy described above.

Type of Professional Service Fees