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

SCHEDULE 14A

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

Filed by the Registrant Filed by a Party other than the Registrant      

CHECK THE APPROPRIATE BOX:
  Preliminary Proxy Statement
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Definitive Proxy Statement
  Definitive Additional Materials
Soliciting Material Under Rule 14a-12

PTC Inc.

(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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Notice of 2019 Annual
Meeting of Stockholders

Wednesday, March 6, 2019
8:00 a.m.
Eastern Standard Time
PTC Inc.
121 Seaport Boulevard
Boston, MA 02210

Proposals to be Voted on at the Annual Meeting

Proposal        Board Recommendation
Elect nine directors to serve until the 2020 Annual Meeting of Stockholders. FOR
Approve an increase in the number of shares available for issuance under our 2000 Equity Incentive Plan. 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

Other matters that are properly brought before the meeting may also be considered.

Stockholders at the close of business on January 7, 2019 are entitled to vote.

Please vote your shares before the meeting, even if you plan to attend the meeting.

Your broker will not be able to vote your shares on the election of directors, the say-on-pay or the equity plan proposal unless you have given your broker specific instructions to do so.

 

By Order of the Board of Directors

AARON C. VON STAATS
Secretary

Boston, Massachusetts
January 23, 2019

 

 

 

 

Important Notice of the Internet Availability of Proxy Materials
The Proxy Statement and our 2018 Annual Report are available to stockholders at www.proxyvote.com.

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Dear Fellow Stockholders:

Over the past year we again executed well across our key strategic and operational objectives. We are proud of the progress that we have made in transforming our business and we are excited about the company’s future.

In 2018, we continued to focus on increasing shareholder value through our three key strategic initiatives: revenue growth, transition to a subscription licensing model and margin improvement.

         

2018 Strategic Initiatives

    Revenue Growth       Subscription Transition       Margin Expansion    
Total revenue, total software revenue and total recurring revenue all grew in 2018 over 2017, reflecting strength across our business as our CAD and PLM businesses performed well and our IoT business continued to grow as we added new customers and existing customers expanded their implementations. Subscription revenue grew significantly in 2018 over 2017, reflecting growing demand for our subscription offerings around the globe and in our channel. Given our progress, we moved to a substantially subscription-only model worldwide in January 2019. Our operating margins and EPS expanded in 2018 over 2017 as we continued to focus on controlling expenses and prudently investing our resources to enable us to expand operating margins.

We also made important strides in extending our market reach and further differentiating our technology with strategic relationships we entered in 2018, including those with Rockwell Automation, Microsoft and ANSYS.

Given our pay for performance philosophy, approximately 50% of our executives’ target compensation for the year was tied to performance measures designed to advance our strategic initiatives. We believe this performance-based compensation orientation contributed to our operating success for the year.

You can find additional information about our business performance for the year in the proxy statement summary and in our Annual Report on Form 10-K, which accompanies this proxy statement.

We thank you for your continued support of PTC.


Sincerely,

ROBERT SCHECHTER
Chairman of the Board

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Proxy Statement Summary

This summary highlights information contained elsewhere in this proxy statement and does not contain all the information you should consider. You should read the entire proxy statement before voting. For more complete information regarding PTC’s 2018 performance, you should read our Annual Report on Form 10-K, which accompanies this proxy statement.

(All references to 2018 and 2017 refer to PTC’s fiscal years ended September 30, 2018 and 2017, respectively, unless otherwise indicated.)

Matters to be Voted on at the Meeting

Proposal        Board Recommendation
Elect nine directors to serve until the 2020 Annual Meeting of Stockholders. FOR All Nominees
Approve an increase in the number of shares available for issuance under our 2000 Equity Incentive Plan. 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

Director Nominees

Nominee       Independence       Committees       Director Since
Robert Schechter,
Chairman of the Board
Independent Audit
Compensation
Strategic
Partnerships Oversight
2009
Janice Chaffin Independent Audit
Chair, Corporate Governance
Strategic
Partnerships Oversight
2013
Phillip Fernandez Independent Audit 2016
Donald Grierson Independent Chair, Compensation
Corporate Governance
1987
James Heppelmann President and CEO, PTC 2008
Klaus Hoehn Independent Corporate Governance 2015
Paul Lacy Independent Chair, Audit
Compensation
Corporate Governance
2009
Corinna Lathan Independent Audit 2017
Blake Moret Not Independent Corporate Governance(1)
Strategic
Partnerships Oversight
2018

(1) In connection with a significant investment in PTC by Rockwell Automation in 2018, Mr. Moret serves on our Board and the Corporate Governance Committee as the designee of Rockwell Automation.

All director nominees attended at least 90% of the meetings of the Board and of the committees on which they serve that were held during their tenure in the past year.

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Proxy Statement Summary

2018 Business Performance       Alignment of Pay and
Performance
 

3-Year: CEO Total Realizable Compensation vs TSR CAGR

 
 

3-Year: NEO Total Realizable Compensation vs TSR CAGR

 

Stock Performance Graph

Comparison of 5 Year Cumulative Total Return*



* $100 invested on 9/30/13 in stock or index, including reinvestment of dividends. Fiscal year ending September 30.

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Proxy Statement Summary

Corporate Governance Highlights

What We Do      

What We Don’t Do

Annual Election of All Directors
Majority Voting Policy for Uncontested Director Elections
9 Director Nominees / 7 Independent Director Nominees
Independent Board Chairman
Independent Audit, Compensation and Governance/Nominating Committee Chairs
Independent Audit and Compensation Committees
Regular Executive Sessions of Independent Directors
Robust Stock Ownership Requirements for Directors and Executive Officers
Stockholder Right to Call a Special Meeting
Pay-for-Performance Executive Compensation
Executive Incentive Compensation Clawback Policy
Annual Board and Individual Director Evaluations
No Stockholder Rights Plan (“Poison Pill”)
No Supermajority Voting Requirements in Charter or By-Laws
No Independent Director Related Party Transactions
No Hedging of Stock by Directors/Executives/Employees
No Pledging of Stock by Directors/Executives/Employees



2018 PricewaterhouseCoopers LLP Services and Fees

Type of Professional Service    Fiscal 2018       Fiscal 2017
Audit Fees $ 2,546,354 $ 2,427,219
Audit-Related Fees(1) $ 416,971 $ 160,848
Tax Fees(2) $ 2,185,977 $ 1,478,003
All Other Fees(3) $ 2,700 $ 1,800

(1) Consists principally of fees for 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 2018       Fiscal 2017
Tax compliance and preparation services (comprised of preparation of original and amended tax returns,
claims for refunds, and tax payment planning services)
$ 575,888 $ 288,717
Tax compliance services related to PTC’s expatriate employees $ 350,000 $ 530,805
Other tax services, including tax planning and advice services and assistance with tax audits $ 1,260,089 $ 658,482
Total $ 2,185,977 $ 1,478,003

(3) Consists of fees for accounting research and compliance software.

See Proposal 4 for more information about PricewaterhouseCoopers LLP’s services.

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Proxy Statement Summary

Corporate Responsibility

We recognize the close connection between our success and our ability to make a positive impact on our customers, our employees and the planet. Giving back to communities, embracing a culture of diversity and inclusion, sustaining the environment, and practicing sound ethics aren’t just the right thing to do. These efforts help make us an employer of choice, differentiate our brand, and support profitable and responsible growth.

Community Engagement      

Diversity & Inclusion

     

Sustainability

We engage in the global community and support our employees that do so as well.

In 2018, we founded the PTC Charitable Foundation to bring together all our giving initiatives under one umbrella. The Foundation supports important educational initiatives, including the For Inspiration and Recognition of Technology (FIRST) program, which engages children from kindergarten through high school worldwide in research and robotics programs, the City Year program in Boston, which pairs Americorps members to support local middle and high school students, Girls Who Code, which engages girls in software coding, and in-kind donations to educational institutions. The Foundation also provides a limited match to our employees’ charitable donations.

We also provide our employees with paid time off to volunteer with community organizations.

Inclusion and diversity are key to our success. We seek employees with diverse backgrounds and insights and are committed to creating a culture of innovation and inspiration where all employees feel a sense of ownership and pride in our success.

PTC was named a Top Place to Work by The Boston Globe in 2018 and 2017.

As a company that operates globally, we seek to reduce and mitigate our environmental impact through our sustainability initiatives.

Our sustainability initiatives include recycling programs, energy and resource conservation programs, and public transportation support programs.

Our new world headquarters building in the Boston Seaport has received LEED Platinum certification.

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Proxy Statement Summary       4
Information about the Annual Meeting and Voting 9
Proposal 1: Election of Directors 10
Election Process and Voting Standard 10
Director Nominations 10
Director Qualifications 10
Director Nominees 12
Corporate Governance 18
Board Leadership Structure 18
Board Meetings and Attendance at the Annual Meeting 18
The Committees of the Board 18
Risk Oversight 21
Communications with the Board 21
Director Compensation 22
Director Compensation Process and Decisions 22
Director Stock Ownership Policy; No Hedging or Pledging of PTC Stock 23
2018 Director Compensation 23
Proposal 2: Approve an Increase in the Number of Shares Available for Issuance under the 2000 Equity Incentive Plan 24
Why the 2000 EIP is Important 24
Potential Effects of the Amendment 24
Grant Practices; Program Dilution and Expense 24
Outstanding Equity Awards and Shares Available to Grant 26
Determination of the Amount of the Share Request 26
Board Recommendation 26
Summary of the Terms of the 2000 EIP 26
Potential U.S. Federal Tax Consequences of Awards 28
Our Executive Officers 29
Proposal 3: Advisory Vote on the Compensation of our Named Executive Officers 30
Why You Should Approve the Compensation of our Named Executive Officers 30
Effect of Say-on-Pay Vote 31
Compensation Discussion and Analysis 32
Executive Summary of Our Compensation Practices 32
Compensation Philosophy & Objectives 33
Compensation Committee Process 34
How We Determine the Total Amount of Compensation 34
2018 Compensation Design and Decisions 36
2018 Performance-Based Compensation 41
Severance and Change in Control Arrangements 42
Equity Ownership 43
Compensation Clawback Policy 43
Timing of Equity Grants 43
Tax and Accounting Considerations 44
Assessment of Risks Associated with our Compensation Programs 44
Compensation Committee Report 45
Executive Compensation 46
Summary Compensation Table 46
Grants of Plan-Based Awards 47
Outstanding Equity Awards at Fiscal Year-End 49
Option Exercises and Stock Vested 51
Potential Payments upon Termination or Change in Control 52
CEO Pay Ratio 54
Proposal 4: Advisory Vote to Confirm the Selection of PricewaterhouseCoopers LLP as our Independent Registered Public Accounting Firm for 2019 55
Engagement of Independent Auditor and Approval of Professional Services and Fees 55
PricewaterhouseCoopers LLP Professional Services and Fees 56
Report of the Audit Committee 57
Attendance at the Annual Meeting 57
Information about PTC Common Stock Ownership 58
Stockholders that Own at least 5% of PTC 58
Stock Owned by Directors and Officers 59
Our Directors and Executive Officers Meet their Stock Ownership Requirements 59
Section 16(a) Beneficial Ownership Reporting Compliance 60
Transactions with Related Persons 61
Review of Transactions with Related Persons 61
Transactions with Related Persons 61
Stock Performance Graph 62
Equity Compensation Plan Information 63
Stockholder Proposals and Nominations 64
How to Submit a Proposal 64
Information to be Provided in Connection with Director Nominations 64
Additional Information About the Annual Meeting and Voting 66
Effect of Abstentions and Broker Non-Votes 66
Voting by Proxy 66
Revoking Your Proxy 67
Confidentiality of Voting and Tabulation of the Votes 67
Announcement of Voting Results 67
Costs of Soliciting Proxies 67
Obtaining a Copy of Our Annual Report on Form 10-K 67
Questions 67
Operating Measures A-1
Annualized Recurring Revenue A-1
Subscription Bookings A-1
Subscription ACV A-1
Non-GAAP Financial Measures A-2
Adjusted Free Cash Flow A-2
Non-GAAP Operating Expense, Non-GAAP Operating Margins and Non-GAAP EPS A-2
Reconciliation of Non-GAAP Financial Measures A-3
2000 Equity Incentive Plan B-1
Reducing the Environmental Impact of our Solicitations
Electronic Delivery of Proxy Materials
Materials Sent to Stockholders Sharing the Same Surname and Address

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Information about the Annual Meeting and Voting

2019 Annual Meeting of Stockholders

     

Date and Time

Place

Wednesday, March 6, 2019

PTC Inc.

8:00 a.m.

121 Seaport Boulevard

Eastern Standard Time

Boston, MA 02210

Proposals to be Voted On at the Meeting

Proposal         Board Recommendation
Elect nine directors to serve until the 2020 Annual Meeting of Stockholders. FOR
Approve an increase in the number of shares available for issuance under our 2000 Equity Incentive Plan. 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

How You May Vote

All stockholders as of January 7, 2019 have the right to attend and vote at the Annual Meeting of Stockholders. You may vote by proxy in advance of the meeting. You may attend the meeting even if you have voted by proxy before the meeting. In order to establish a quorum and to facilitate the tabulation of votes, please vote before the meeting, even if you plan to attend the meeting.

VOTING BY PROXY

VOTING IN PERSON

To vote, you should follow the voting instructions in the notice or proxy card sent to you.

You may vote by Internet or, if you received a proxy card, by telephone or mail.

If you vote by proxy, your shares will be voted at the meeting as you instruct. If you submit your proxy but do not provide instructions, your shares will be voted 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, your shares will be voted in accordance with the designated proxies’ best judgment.

If you wish to vote in person, you must have the required documentation described below with you.

If you are a record holder (that is, you hold your shares directly and not through a brokerage account), you should bring a government issued document that identifies you (such as a Driver’s License or Passport).

If you are a beneficial holder (that is, you hold your shares through a brokerage account), you will need to obtain a legal proxy from the brokerage firm to enable you to vote at the meeting. You should also bring a government issued document that identifies you.

You have one vote for each share of common stock that you owned at the close of business on January 7, 2019. On that date, there were 118,657,288 shares outstanding. See ADDITIONAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING for additional information about voting and other administrative matters.

We made this proxy statement available to stockholders on January 23, 2019.

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Proposal 1
Election of Directors

The Board is elected by the stockholders to represent and protect their interest in PTC. The Board selects and oversees the members of senior management, who are responsible for conducting the business of PTC.

Election Process and Voting Standard

All directors stand for election each year. Directors are elected by a plurality of votes received. However, we maintain a Majority Voting Policy for uncontested director elections that requires a director who does not receive a majority of the votes cast for his or her proposed election to promptly tender his or her resignation from the Board. The Corporate Governance Committee will consider the resignation and recommend to the Board whether to accept the resignation. The Board will use its best efforts to act on the resignation and publicly disclose its decision and its rationale within 90 days following certification of the election results. The director who tenders his or her resignation may not participate in the decisions of the Corporate Governance Committee or the Board that concern the resignation.

Director Nominations

The Corporate Governance Committee is responsible for identifying and evaluating nominees for director and for recommending to the Board a slate of nominees for election at each Annual Meeting of Stockholders. Candidates may be suggested by directors, management, stockholders or a search firm retained by the Committee. Stockholders that wish to nominate a candidate may do so in accordance with the procedures described in STOCKHOLDER PROPOSALS AND NOMINATIONS. Candidates properly nominated by stockholders will be given the same consideration as other proposed candidates.

Director Qualifications

The Corporate Governance Committee’s mandate is to create and maintain a Board with a diversity of skills and attributes that is aligned with PTC’s current and anticipated future strategic needs. Beyond a few general requirements, the Corporate Governance Committee does not rely on a fixed set of qualifications for director nominees but considers the composition of the Board as a whole and the experience and skills each director nominee brings to the Board.

PTC values diversity and believes that diversity among the directors as to personal and professional experiences, opinions, perspectives and backgrounds, as well as diversity with respect to race, ethnicity, gender, age and cultural backgrounds, is desirable. The Committee does not maintain a diversity policy but seeks to achieve diversity through its thoughtful selection of qualified candidates.

Qualifications Required of All Directors

The Corporate Governance Committee considers each candidate’s character and professional ethics, judgment, leadership experience, business experience and acumen, familiarity with relevant industry issues, national and international experience and such other relevant skills and experience as may contribute to the Board’s effectiveness and PTC’s success. In addition, all candidates must be able to dedicate sufficient time and resources for the diligent performance of the duties required of a member of the Board of Directors and must not hold positions or interests that conflict with their responsibilities to PTC. Candidates must also comply with any other minimum qualifications for either individual directors or the Board as a whole mandated by applicable laws or regulations. The Committee will also consider whether the candidate is independent of PTC as at least a majority of members of the Board of Directors must qualify as independent in accordance with Nasdaq independence rules.

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Proposal 1

Specific Qualifications, Skills and Experience Required of the Board

The Committee believes that certain qualifications, skills and experience should be represented on the Board, as described below, although not every member of the Board must possess all such qualifications, skills and experience to be considered capable of making valuable contributions to the Board.

     

Leadership
Our business is complex and evolving rapidly. Individuals who have led companies or operating business units of significant size have proven leadership experience in developing and advancing a vision and making executive-level decisions.

Financial
Our business and financial model is complex and multinational. Individuals with financial expertise are able to identify and understand the issues associated with our business and financial model.

Software Industry
We are an enterprise software company. Those with enterprise software experience are better able to understand the risks and opportunities facing our business.

Strategy
Our success depends on successful development and execution of our corporate strategy, including successful selection and execution of strategic alliances and acquisitions.

Manufacturing
We primarily serve companies in the manufacturing industry. Understanding of this industry enhances understanding of how we can best address the needs of our customers.

Marketing
Our business depends on successfully creating awareness of our products and entering new markets. Persons with marketing experience can help us identify ways to do so successfully.

Research and Development
Our business depends on the success of our research and development efforts to develop our products and expand our offerings. Experience in this area enhances understanding of the challenges we face and best practices.

Global
We are a global company, with approximately 40% of our revenue coming from the Americas, 40% from Europe and 20% from the Asia-Pacific region. Global experience enhances understanding of the complexities and issues associated with running a global business and the challenges we face.

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Proposal 1

Director Nominees

All current directors are up for reelection. Information about each of the director nominees, including their qualifications, skills and experience 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. Information about their 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 seven of our nine director nominees – Mr. Schechter, Ms. Chaffin, Mr. Fernandez, Mr. Grierson, Mr. Hoehn, Mr. Lacy and Ms. Lathan – are independent under applicable Nasdaq rules. None of the independent directors, to our knowledge, has any business, financial, family or other type of relationship with PTC or its management that would impact the director’s independence.
 
The Board of Directors recommends that you vote FOR the election of all director nominees.
   

Janice Chaffin
Director since: 2013
Age: 64
Board Committees:
Corporate Governance (Chair)
Compensation
Strategic Partnerships Oversight
Other Public Company Boards:
Electronics for Imaging Inc.
Synopsys, Inc.
International Game Technology (2010-2015)
Informatica Corporation (2001-2008)

Ms. Chaffin served as Group President, Consumer Business Unit of Symantec, a global leader in providing cybersecurity solutions, from April 2007 until her retirement in March 2013 and as Chief Marketing Officer of Symantec from 2003 to 2007. Prior to that, she spent over twenty years at Hewlett-Packard Company, in management and marketing leadership positions.

Ms. Chaffin brings to the Board significant leadership experience with large global technology companies. Ms. Chaffin’s skills include financial and accounting expertise as a result of her positions at Symantec Corporation and Hewlett-Packard Company and her service on the Audit Committees of Synopsys, International Game Technology and Informatica. In 2015, Ms. Chaffin completed the requirements to become a NACD Fellow, the highest level of credentialing for corporate directors and corporate governance professionals by the National Association of Corporate Directors. To become a NACD Fellow, Ms. Chaffin demonstrated knowledge of the leading trends and practices that define exemplary corporate governance today and committed to developing professional insights through a comprehensive program of ongoing study.

Ms. Chaffin holds a Bachelor of Arts from the University of California, San Diego and a Master of Business Administration from the University of California, Los Angeles.

Skills and Attributes

Leadership

     

Financial

     

Software Industry

Strategy

 

Marketing

 

Global

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Proposal 1

Phillip Fernandez
Director since: 2016
Age: 58
Board Committees:
Audit
Other Public Company Boards:
Yext, Inc.
Marketo, Inc. (January 2006 – August 2016)
Tibco Software, Inc. (June 2014 – December 2014)

Mr. Fernandez was a Venture Partner at Shasta Ventures, a venture capital firm, from January 2017 until January 2018. Mr. Fernandez was a founder of Marketo, Inc., a global digital marketing software company, and served as its Chief Executive Officer and President from January 2006 to August 2016. Prior to that, he was with Epiphany, Inc., a marketing software company acquired by SSA Global Technologies, Inc., from 1999 to 2005, including as President and Chief Operating Officer from July 2003 until September 2005.

Mr. Fernandez has demonstrated leadership experience as a result of his service at Marketo, Inc. and at Epiphany, Inc. He has also gained significant marketing experience through his role at Marketo, Inc. Mr. Fernandez is also a well-known writer and speaker on topics related to digital marketing, marketing automation, big data, and entrepreneurialism, and is the author of Revenue Disruption: Game-Changing Sales and Marketing Strategies to Accelerate Growth (Wiley, 2012).

Mr. Fernandez holds a Bachelor of Arts in History from Stanford University.

Skills and Attributes

Leadership

     

Financial

     

Software Industry

     

Strategy

Manufacturing

 

Marketing

 

Research
and Development

 

Global


Donald Grierson
Director since: 1987
Age: 84
Board Committees:
Compensation (Chair)
Corporate Governance
 

Mr. Grierson served as Chief Executive Officer and President of ABB Vetco Gray, Inc., an oil services business, from September 2002 until his retirement in November 2004 and before that from 1991 to March 2001. He served as Executive Director of ABB Vetco Gray, Inc. from March 2001 to September 2002. Prior to that, Mr. Grierson was a Senior Vice President, Group Executive at General Electric Company and was involved with several high-tech venture capital companies.

Mr. Grierson has significant leadership, management and operating experience as a result of his service at ABB and General Electric. His skills also include financial and accounting expertise as a result of his positions at ABB, as well as his previous service on the PTC Audit Committee. Furthermore, Mr. Grierson has extensive knowledge of the markets in which PTC operates as a result of his tenure on the PTC Board and extensive knowledge of the manufacturing industry as a result of his experience at ABB, GE, and his service as a director of Cadence and Oracle.

Mr. Grierson holds a Master of Business Administration from Xavier University and a Bachelor of Science degree in Mechanical Engineering from Ohio University.

Skills and Attributes

Leadership

     

Financial

     

Software Industry

Strategy

 

Manufacturing

 

Global

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Proposal 1

James Heppelmann
Director since: 2008
Age: 54
Board Committees:
None
Other Public Company Boards:
Sensata Technologies Holding plc

Mr. Heppelmann has served as the President and Chief Executive Officer of PTC since October 2010. He 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.

Mr. Heppelmann brings to the Board significant leadership experience in the enterprise software industry as a result of his positions at PTC Inc. and his position at Windchill Technology, Inc., where he was the founder and President prior to its acquisition by PTC. Through his tenure at PTC, he has developed extensive knowledge of PTC’s history, technologies and the markets in which PTC operates. Additionally, Mr. Heppelmann has financial and marketing expertise as a result of his positions as Chief Executive Officer, Chief Operating Officer and Chief Product Officer of PTC. His skills also include technology and research and development expertise as a result of his positions as Chief Product Officer and Chief Technology Officer, and at Windchill Technology, Inc.

Mr. Heppelmann holds a bachelor’s degree in Mechanical Engineering from the University of Minnesota.

Skills and Attributes

Leadership

     

Financial

     

Software Industry

     

Strategy

Manufacturing

 

Marketing

 

Research
and Development

 

Global


Klaus Hoehn
Director since: 2015
Age: 67
Board Committees:
Corporate Governance
 

Mr. Hoehn serves as Senior Advisor, Innovation and Technology to the Office of the Chairman, Deere & Company, an agricultural, construction, commercial and consumer equipment manufacturer. Prior to that, he served as the Vice President, Advanced Technology and Engineering, at Deere & Company from January 2006 through November 2018. He joined Deere & Company in 1992 and has served in several engineering and product development roles at the company.

As a result of his positions at Deere & Company, Mr. Hoehn has extensive knowledge of manufacturing and the markets in which PTC operates, as well as extensive knowledge of PTC software, including as a user of PTC software. Mr. Hoehn’s experience at Deere, a customer of PTC, makes him uniquely qualified to serve as the “voice of the customer” on the Board. His skills also include technology and research and development expertise as a result of his positions at Deere, including in his current role, where he has corporate-level responsibility for directing advanced technology development and engineering services that support worldwide agricultural, construction, and commercial and consumer equipment design and manufacturing.

Mr. Hoehn holds a bachelor’s degree, a master’s degree, and a Doctorate degree in Mechanical and Agricultural Engineering from Rostock University in Germany.

Skills and Attributes

Leadership

     

Strategy

     

Manufacturing

Research
and Development

 

Global

 

 

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Proposal 1

Paul Lacy
Director since: 2009
Age: 71
Board Committees:
Audit (Chair)
Compensation
Corporate Governance
 

Mr. Lacy served as President of Kronos Incorporated, a global enterprise software company, from May 2006 until his retirement in June 2008. He served as President, Chief Financial and Administrative Officer, 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.

Mr. Lacy’s skills include extensive financial accounting and manufacturing expertise as a result of his positions at Kronos. During his tenure at Kronos, Kronos grew from a $26 million hardware company into a $662 million public global enterprise software company. Mr. Lacy also gained significant leadership and public company software experience as a result of his positions at Kronos Incorporated.

Mr. Lacy holds a Juris Doctor from Boston College Law School and Bachelor of Science in Accounting from Boston College.

Skills and Attributes

Leadership

     

Financial

     

Software Industry

Strategy

 

Manufacturing

 

Global


Corinna Lathan
Director since: 2017
Age: 51
Board Committees:
Audit
 

Dr. Corinna Lathan has been the Chief Executive Officer, Co-Founder and Chair of the Board of AnthroTronix, Inc., a biomedical engineering research and development company that creates diverse products in robotics, digital health, wearable technology, and augmented reality, since July 1999. Prior to that, Dr. Lathan was an Associate Professor of Biomedical Engineering at The Catholic University of America and an Adjunct Associate Professor of Aerospace Engineering at the University of Maryland, College Park.

Dr. Lathan has extensive experience as a leader and technology innovator as a result of her work at AnthroTronix and brings to the Board deep expertise in human-technology interfaces for robotics and mobile technology platforms. Her significant experience and expertise in augmented reality and other technologies enable her to help us advance our Internet of Things strategy.

Dr. Lathan holds a Bachelor of Arts degree in Biopsychology and Mathematics from Swarthmore College, and an S.M. in Aeronautics and Astronautics and Ph.D. in Neuroscience from MIT.

Skills and Attributes

Leadership

     

Financial

     

Software Industry

Strategy

 

Research
and Development

 

Global

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Proposal 1

Blake Moret
Director since: 2018
Age: 56
Board Committees:
Corporate Governance
Strategic Partnerships Oversight
Other Public Company Boards:
Rockwell Automation, Inc.

Mr. Moret has been the President and Chief Executive Officer of Rockwell Automation, Inc., a company focused on industrial automation and information, since July 2016, and Chairman of the Board since January 2018. He served as Senior Vice President, Control Products and Solutions, at Rockwell Automation from April 2011 until July 2016. Mr. Moret has been with Rockwell Automation for over 32 years, during which he served in various roles, including leadership roles in marketing, solutions, services and product groups.

Mr. Moret was appointed to the Board in connection with the formation of the strategic alliance between PTC and Rockwell Automation and a significant investment in PTC by Rockwell Automation in July 2018. In connection with those transactions, we agreed to appoint an individual proposed by Rockwell Automation and reasonably acceptable to us to the Board and to appoint that person to the Corporate Governance Committee. Rockwell Automation designated Mr. Moret as the initial designee. He is considered to be not independent due to the transactions between Rockwell Automation and PTC.

Mr. Moret brings significant leadership experience in factory automation and the factory automation market to the Board as a result of his experience at Rockwell Automation, an area that is a significant focus of our Internet of Things strategy for Smart, Connected Operations.

Mr. Moret holds a Bachelor’s degree in Mechanical Engineering from the Georgia Institute of Technology.

Skills and Attributes

Leadership

     

Financial

     

Software Industry

     

Strategy

Manufacturing

 

Marketing

 

Global

 

 


Robert Schechter
Chairman of the Board
Director since: 2009
Age: 70
Board Committees:
Audit
Compensation
Strategic Partnerships Oversight
Other Public Company Boards:
Mimecast Limited
Telaria, Inc.
EXA Corporation (2012 – 2017)
Unica Corporation (2005 - 2010)
Soapstone Networks, Inc. (2003 - 2009)

Mr. Schechter served as the Chief Executive Officer of NMS Communications Corporation, a global provider of hardware and software solutions for the communications industry from 1995 until his retirement in 2008.

Mr. Schechter brings to the board significant financial and accounting expertise as a result of his positions at NMS Communications Corporation and at Lotus Development Corporation, where he was the Chief Financial Officer. He was also a partner at Coopers & Lybrand LLP, an independent audit firm, and served as Chairman of its North East Region High Tech Practice. Through his position at NMS Communications Corporation, he gained relevant knowledge of the manufacturing market and process. He also acquired marketing experience as well as technology and research and development expertise as a result of his position as Senior Vice President at Lotus Development Corporation, where he was responsible for all sales, marketing, customer service and product development outside North America.

Mr. Schechter holds a Bachelor of Science from Rensselaer Polytechnic Institute and a Master of Business Administration from the Wharton School of the University of Pennsylvania.

Skills and Attributes

Leadership

     

Financial

     

Software Industry

     

Strategy

Manufacturing

 

Marketing

 

Research
and Development

 

Global

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Proposal 1

Summary of Director Nominees

Board Qualifications, Skills and Experience

The Board has a good balance of the qualifications, skills and experience that the Corporate Governance Committee and the Board have identified as contributing to the effectiveness of the Board.


Supermajority of Our Board is Independent

7 (including our Chairman)
Independent

2
Not Independent

Stockholder Interests are Protected

Seven of the nine director nominees are independent. Our President and CEO and Mr. Moret are not independent. Mr. Moret is the President and CEO of Rockwell Automation, Inc., with which PTC has a strategic alliance and which owns approximately 9% of outstanding PTC stock.

An independent board ensures that the directors exercise independent judgment, are willing to question management and are best suited to represent and protect the interests of stockholders.


Director Tenure is Balanced

4
Newer Directors (0 to 5 years)

3
Medium Tenured Directors (6 to 10 years)

2
Experienced Directors (over 10 years)

The Board has a Good Balance of Tenure

The Corporate Governance Committee and the Board strive to achieve a balance of service on the Board through a mix of new members and perspectives and members with longer tenure with institutional knowledge.

 

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Corporate Governance

Board Leadership Structure

Our Board is led by an independent Chairman, Mr. Schechter. We believe this Board leadership structure serves the company and our stockholders well by providing independent leadership of the Board. If we were to decide that combining the Chairman and CEO positions would better serve the company and our stockholders, our policy is to have a Lead Independent Director.

Board Meetings and Attendance at the Annual Meeting

The PTC Board holds regularly scheduled meetings over the course of the year and holds additional meetings as necessary. The Board met ten times in 2018. All directors attended all meetings held during their tenure in 2018, except for Mr. Fernandez, who was unable to attend one meeting.

We expect that each director will attend the Annual Meeting of Stockholders each year, barring other significant commitments or special circumstances. All directors attended the 2018 Annual Meeting of Stockholders.

The Committees of the Board

The Board has four standing committees: Audit, Compensation, Corporate Governance and, added in 2018, the Strategic Partnerships Oversight 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. Mr. Heppelmann, our CEO, does not serve on any committee.

All committee members attended all their respective committee meetings in 2018.

Director/Nominee Audit Compensation Corporate Governance Strategic Partnerships
Janice Chaffin, Independent
Phillip Fernandez, Independent
Donald Grierson, Independent
Klaus Hoehn, Independent
Paul Lacy, Independent 
Corinna Lathan, Independent
Blake Moret
Robert Schechter, Independent 
Total Meetings in 2018 8 7 3 1
 Chair            Member            Audit Committee Financial Expert

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Corporate Governance

Audit Committee
Committee Chair:
Paul Lacy

Committee Members:
Phillip Fernandez
Corinna Lathan
Robert Schechter
Responsibilities
Assists our Board in fulfilling its oversight responsibilities for accounting and financial reporting compliance and oversees our compliance programs.
Reviews 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.
Meets with management and with our independent auditor 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 reports on such matters to the Board.
Meets with the independent auditor, with and without PTC management present.
Appoints (and, if appropriate, replaces), evaluates, and establishes the compensation of, the independent auditor.
Reviews the independent auditor’s performance in conducting the annual financial statement audit and the audit of our internal control over financial reporting, assesses independence of the auditor, and reviews the auditor’s fees.
Reviews and pre-approves audit and non-audit related services that may be performed by the independent auditor.
Independence and Financial Expertise
All committee members are “independent directors” under both SEC rules and the Nasdaq Stock Market listing requirements.
No member has ever been an employee of PTC or any of its subsidiaries.
The Board of Directors has determined that Mr. Schechter and Mr. Lacy qualify as Audit Committee Financial Experts, as defined by the SEC.

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Corporate Governance

Compensation Committee
Committee Chair:
Donald Grierson

Committee Members:
Janice Chaffin
Paul Lacy
Robert Schechter
Responsibilities
Establishes the compensation levels for our executive officers.
Oversees our employee compensation programs, including the corporate bonus programs.
Sets performance goals for compensation of executive officers and evaluates performance against those goals.
Oversees our equity compensation plans.
May engage compensation consultants or other advisors to provide information and advice to the Committee.
Independence
All committee members are “independent directors” under The Nasdaq Stock Market listing requirements.

Corporate Governance Committee
Committee Chair:
Janice Chaffin

Committee Members:
Donald Grierson
Klaus Hoehn
Paul Lacy
Blake Moret
Responsibilities
Oversees the director recruitment process, including the assessment of qualifications and skills sought in new directors and the retention of search firms to assist in the identification of potential candidates.
Reviews the composition of the Board and makes recommendations regarding nominees for election to the Board.
Makes recommendations to the Board about the composition of committees of the Board.
Develops and recommends policies and processes regarding corporate governance.
Reviews and makes recommendations to the Board with respect to director compensation.
Maintains a CEO succession plan to ensure continuity of leadership for PTC.
Independence
All Committee members are “independent directors” under The Nasdaq Stock Market listing rules, other than Mr. Moret who serves under a permitted limited exemption under such rules.
As described above, Mr. Moret is the Chief Executive Officer and Chairman of Rockwell Automation, Inc., which entered into a strategic alliance with us in 2018 and purchased approximately 9% of outstanding PTC stock. Pursuant to the Securities Purchase Agreement under which such shares were purchased, we agreed to appoint Mr. Moret to the Board of Directors and to the Corporate Governance Committee. As we believed the investment by Rockwell Automation in the company was in the best interest of the company and its stockholders, we determined that the agreed appointment of Mr. Moret to the Corporate Governance Committee was also in the best interests of the company and its stockholders.

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Corporate Governance

Strategic Partnerships Oversight Committee
Committee Chair:
Robert Schechter

Committee Members:
Janice Chaffin
Blake Moret
Responsibilities
Oversee the implementation and operation of significant strategic relationships entered into by the company.
Independence
Mr. Schechter and Ms. Chaffin are independent directors; Mr. Moret is not considered independent.

Risk Oversight

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 ongoing operations and proposed actions and initiatives.

Board
The Board has ultimate responsibility for risk oversight and directly oversees all risks not addressed by a committee.
              

Audit

Compensation

Corporate Governance

Strategic Partnerships

PTC Financial Condition and Debt
Financial Accounting and Reporting
Cybersecurity and IT Programs
Taxes
Subscription Transition
Compliance Programs

Overall Compensation Practices, Policies and Programs

Director Nominations
Composition of the Board
CEO Succession Planning
Director Compensation

Implementation and Operation of Significant Strategic Relationships entered into by PTC.

Communications with the Board

Stockholders may send communications to the Board of Directors at: Chairman of the Board of Directors, PTC Inc., 121 Seaport Boulevard, Boston, MA 02210.

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Director Compensation

We pay our non-employee directors a mix of cash and equity compensation. The amounts established for the annual Board and committee cash and equity retainers for the most recent year are shown in the table below. No fees are paid for service on the Strategic Partnerships Oversight Committee. The retainers are the only compensation paid for service as a director; we do not pay meeting fees for attendance at board or committee meetings.

    Annual
Cash Retainer
    Annual
Equity Retainer
    Committee
Chair Retainer
    Committee
Member Retainer
   

Average Annual Retainer

Chairman of the Board          $ 115,000           $ 300,000
Other Directors $ 60,000 $ 250,000
Audit Committee            $ 15,000                $ 15,000
Compensation Committee $ 12,500 $ 12,500
Corporate Governance Committee $ 7,500 $ 7,500

Director Compensation Process and Decisions

Annual Compensation

The Board establishes the annual compensation for the directors at the meeting of the Board of Directors held directly after the Annual Meeting of Stockholders. In setting such compensation, the Board considers the recommendation of the Corporate Governance Committee. In making its recommendation for 2018, the Corporate Governance Committee considered a competitive assessment of the directors’ compensation with that of our compensation peer group (described in COMPENSATION DISCUSSION AND ANALYSIS) and reviewed each element of compensation to determine whether the compensation is competitive and reasonable for the services provided by the directors. Based on that review, the annual cash compensation for all directors, other than the Chairman, was increased by $10,000. For 2018, after inclusion of the cash compensation adjustment, the directors’ compensation was positioned at approximately the 50th percentile of the compensation peer group.

We provide a higher annual retainer for service as the Chairman of the Board given the additional work required by that position, but do not pay a committee chair retainer to the Chairman of the Board for service as the Chair of any committee. We provide different retainers for the Chairs and members of the various committees based on the anticipated level of work required with respect to the position and the committee.

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.

New Director Compensation

The Board establishes the compensation for a new director at the time of election. For the annual cash and equity compensation, that compensation is pro-rated based on the annual compensation amounts established for the other directors. We also make 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 our business.

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Director Compensation

Director Stock Ownership Policy; No Hedging or Pledging of PTC Stock

Because we believe our directors’ interests are best aligned with those of our stockholders if they maintain significant exposure to our stock, our directors:

Are required to attain and maintain an ownership level of PTC common stock. Our Director Stock Ownership Policy is available on the Investor Relations page of our website at www.ptc.com.

The required level is 5x their annual Board cash retainer (options and unvested restricted stock and RSUs are not counted toward the ownership requirement).

May not hedge or pledge PTC stock.

All our directors meet the applicable stock holding requirements.

2018 Director Compensation

The amounts shown in the Fees Earned or Paid in Cash column of the table are each director’s annual board and committee retainer fees. The amounts shown in the Stock Awards column of the table are the value of the restricted stock unit (RSU) awards made to the directors during the year.

Name(1)       Fees Earned or
Paid in Cash
($)
     Stock
Awards
($)(2)
    Total
($)
Robert Schechter
Chairman of the Board
          $ 147,500  $ 299,921 (3)   $ 447,421
Janice Chaffin
Chair, Corporate Governance Committee
$ 83,750 $ 249,974 (3)  $ 333,724
Phillip Fernandez $ 70,000 $ 249,974 (3)  $ 319,974
Donald Grierson
Chair, Compensation Committee
$ 87,500 $ 249,974 (3)  $ 337,474
Klaus Hoehn $ 62,500 $ 249,974 (3)  $ 312,474
Paul Lacy
Chair, Audit Committee
$ 105,000 $ 249,974 (3)  $ 354,974
Corinna Lathan $ 69,590 $ 249,974 (3)  $ 319,564
Blake Moret(4)  $ 7,860 $ 529,008 (4)  $ 536,868

(1) As an employee of 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) The number of outstanding RSUs held by each director as of September 30, 2018 is shown in the table below. No director held options.

Name       Restricted Stock Units
Janice Chaffin 3,113
Phillip Fernandez 3,113
Donald Grierson 3,113
Klaus Hoehn 3,113
Paul Lacy 3,113
Corinna Lathan 6,624
Blake Moret 5,452
Robert Schechter 3,735

(3) Grant date fair value of restricted stock units granted on March 8, 2018, calculated by multiplying the number of RSUs granted by the closing price of our common stock on the NASDAQ Stock Market on the grant date, $80.30 per share.
(4) Mr. Moret joined the Board on July 19, 2018 and was granted a one-time new director equity award of 3,864 RSUs, which award vests in two equal installments on the first and second anniversaries of his service as director, and a pro-rated annual equity award of 1,588 RSUs. 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 Stock Market on the grant date, $97.03 per share.

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Proposal 2
Approve an Increase in the Number of Shares Available for Issuance under the 2000 Equity Incentive Plan

We are seeking stockholder approval of an amendment to our 2000 Equity Incentive Plan (2000 EIP) to increase the number of shares authorized for issuance by 6,000,000 shares. Of the shares previously authorized, only 1,702,188 remained available for grant as of January 7, 2019. If approved, we expect to use the additional shares for continued periodic equity grants to employees (including executive officers), directors and consultants.

Why the 2000 EIP is Important

Our ability to attract, motivate and retain high-performing employees is vital to our ability to compete successfully in the market and to increase stockholder value. We believe our ability to grant equity incentives as an element of employee compensation is essential for us to remain competitive in attracting and retaining such employees. We believe equity incentives motivate high levels of performance and provide an effective means of recognizing employee contributions to the success of PTC. Moreover, equity incentives align the interests of the employees with the interests of our stockholders. Because the 2000 EIP is the only plan under which we can grant equity incentives, maintaining its viability by increasing the number of shares available for grant is essential for us to be able to continue to use equity incentives to attract, motivate and retain the employees necessary for our future success.

Summaries of the 2000 EIP terms and the U.S. federal income tax consequences for awards under the 2000 EIP are provided below.

Potential Effects of the Amendment

The proposed amendment would make an additional 6,000,000 shares available for issuance under the 2000 EIP, which would enable us to continue to offer equity incentives to our employees (including executive officers), directors and consultants. With the additional shares, our fully-diluted share overhang would be 8.2%. Because future grants and share prices are unknown, the economic dilution associated with the additional shares cannot be calculated. We are mindful of the dilution associated with equity awards and we repurchase outstanding shares in the open market, which helps to offset the dilution associated with equity awards.

Grant Practices; Program Dilution and Expense

We use restricted stock units as our principal equity award because they enable us to issue fewer shares than stock options to deliver comparable value, which reduces overhang and potential stockholder dilution. They also have a better potential retention effect because they retain value even if the stock price declines.

We also emphasize performance-based awards when making equity awards to our executive officers and other senior executives. These awards are structured so that the value delivered is conditioned on achievement of PTC’s important business objectives. If the performance targets are not achieved, the awards are forfeited. At least 50% of our annual equity incentive awards issued to executive officers are performance-based awards. As we discuss in COMPENSATION DISCUSSION AND ANALYSIS, approximately 50% of our executives’ target compensation for 2018 was performance-based, with the equity component comprising a significant portion of their performance-based compensation. Our use of equity as part of our performance-based compensation program challenges our executives to increase stockholder value and compensates them only to the extent that result is achieved. The value of the compensation ultimately earned is dependent on the value of the equity on the vest date, which further aligns our executives’ interests with those of stockholders.

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Proposal 2

We are committed to maintaining an equity incentive program that accomplishes our incentive and retention goals while being sensitive to our stockholders’ concerns about dilution and expense. As part of our efforts to ensure that our program does not unduly dilute stockholders or incur undue expense, we benchmark the program’s annual expense and share dilution (burn rate) against those of the companies we use to benchmark our executive compensation.

Benchmark of Equity Program Share Dilution / Burn Rate

For 2018, the share dilution (burn rate) associated with PTC’s equity program (calculated under the methodology in the first table below) was below the 25th percentile relative to peer companies.

The table below shows our net burn rate for the past three completed fiscal years calculated by including all awards (service-based and performance-based) in the year granted and subtracting awards that were forfeited or not earned.

Burn Rate for the Three Most Recent Completed Fiscal Years (All Awards Counted in Year Granted or Forfeited)

      Service-based
RSUs Granted
      Performance-Based
RSUs Granted
(1)
      Total RSUs
Granted(1)
      RSUs
Forfeited
      Weighted-Average
Shares Outstanding
      Burn
Rate(2)
FY 2018 (October 1, 2017 – 1,045,243 960,737 2,005,980 564,000 116,389,724 1.24 %
September 30, 2018)
FY 2017 (October 1, 2016 – 1,262,818 574,617 1,837,435 649,000 115,523,442 1.03 %
September 30, 2017)
FY 2016 (October 1, 2015 – 1,814,408 669,527 2,483,935 544,000 114,612,029 1.69 %
September 30, 2016)
Three Year Average FY 2016 – 2018 1.32 %

(1) Includes only Target value of performance-based awards without potential additional RSUs above Target that may be earned.
(2) Burn Rate =  Number of Service-Based and Performance-Based Awards Granted in the Year less Awards Forfeited
Weighted Average Number of Shares Outstanding for the Year

The table below shows our burn rate for the past three completed fiscal years calculated by including service-based awards in the year granted and performance-based awards to the extent earned in the year earned.

Burn Rate for the Three Most Recent Completed Fiscal Years (Performance-Based Awards Counted in Year Earned)

      Service-based
RSUs Granted
      Performance-Based
RSUs Earned
      Total RSUs Granted
and Earned
      Weighted-Average
Shares Outstanding
      Burn
Rate
(1)
FY 2018 (October 1, 2017 – 1,045,243 550,307 1,595,550 116,389,724 1.37 %
September 30, 2018)
FY 2017 (October 1, 2016 – 1,262,818 321,014 1,583,832 115,523,442 1.37 %
September 30, 2017)
FY 2016 (October 1, 2015 – 1,814,408 340,855 2,155,263 114,612,029 1.88 %
September 30, 2016)
Three Year Average FY 2016 – 2018 1.54 %

(1) Burn Rate =  Number of Service-based Awards Granted in the Year + Number of Performance-Based Awards Earned in the Year
Weighted Average Number of Shares Outstanding for the Year

Benchmark of Equity Program Expense

For 2018, the expense (recorded expense as a percentage of market capitalization) associated with PTC’s equity program was below the 25th percentile relative to peer companies.

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Proposal 2

Outstanding Equity Awards and Shares Available to Grant

The table below shows the number of shares under outstanding awards and the number of shares available for future grants under our 2000 Equity Incentive Plan, which is our only equity incentive plan, as of January 7, 2019.

2000 Equity Incentive Plan
(as of January 7, 2019)

      Number of Options
Outstanding
      Number of Restricted
Stock Units Outstanding
      Number of Other Equity
Awards Outstanding
      Shares Available
to Grant under Plan
2000 Equity Incentive Plan 2,930,394 1,702,188

Determination of the Amount of the Share Request

We use an intended dollar value to be delivered to determine the number of shares to be awarded to a program participant, rather than a fixed number of shares. Accordingly, the number of shares we use under the plan varies based on our stock price. We modeled our anticipated equity program needs for 2019, 2020 and 2021 (assuming a consistent program) and determined that we would need to grant equity with an aggregate value of approximately $110 million for each of those years. We modeled the effect the proposed number of shares would have on our share overhang and burn rate. This model yielded a fully-diluted share overhang of 8.2% and an average burn rate below 1.5% for those years. We believe these measures indicate that our equity incentive program is appropriate and fair to stockholders while enabling us to provide the equity compensation incentives necessary to obtain, retain and incent the personnel necessary to increase stockholder value.

Board Recommendation

The amendment to the 2000 EIP will provide PTC with the shares necessary to offer effective equity incentives, which are essential for PTC to attract, motivate and retain employees and to align PTC’s compensation needs with our stockholders’ interests. PTC has evidenced its ability and commitment to use equity wisely through its burn rate and expense experience. The Board of Directors believes that the amendment to the 2000 EIP promotes important corporate goals, balances those goals with the interests of stockholders, and is therefore in the best interests of PTC’s stockholders.

 
The Board of Directors recommends that you vote FOR the proposed amendment to the 2000 EIP.
   

Summary of the Terms of the 2000 EIP

The material terms of the 2000 EIP are described below. A copy of the 2000 EIP (reflecting the proposed increase) is included as Appendix B to this proxy statement.

Administration      

The plan is administered by the Compensation Committee of the Board of Directors. The Committee is composed of at least two members of our Board who meet certain tests under the U.S. tax and securities laws for independence from PTC management. If there are not at least two such members, then the entire Board serves as the Committee for purposes of the plan.

Types of Awards

The Committee may award restricted and unrestricted shares of common stock, restricted stock units, stock options and stock appreciation rights.

Eligibility

The Committee may make awards to employees, directors and consultants of PTC and its subsidiaries based upon their past or anticipated contributions to the achievement of our objectives and other relevant matters. As of January 7, 2019, eight non-employee directors and approximately 6,100 employees were eligible for awards under the plan.

Restricted Stock Units

The Committee may grant restricted stock units, which are rights to receive shares of common stock in the future. The Committee determines the period during which, and the conditions under which, the award may be forfeited and the other terms and conditions of such awards. Restricted stock units may be settled in shares of common stock or cash, as determined by the Committee at the time of grant or thereafter. Restricted stock units represent unfunded and unsecured obligations of PTC.

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Proposal 2

Restricted and
Unrestricted Stock
     

The Committee may make awards of common stock subject to forfeiture. The participant generally will forfeit the shares if specified conditions, such as the participant’s continued service with PTC or achievement of certain company performance goals, are not met. The participant is entitled to vote the shares during the restricted period. The Committee may also award common stock without restrictions. The Committee determines what, if anything, the participant must pay to receive a stock award.

Stock Options

The Committee may award incentive stock options and nonstatutory stock options. The Committee determines the terms of the option awards, including the amount, exercise price, vesting schedule and term, which may not exceed ten years for incentive stock options. The exercise price of an option may not be less than the fair market value of a share of common stock on the date of grant. A participant may pay the exercise price of an option in cash or, if permitted by the Committee, other consideration, including by surrender of common stock the participant holds.

Stock Appreciation Rights

The Committee may grant stock appreciation rights, which are rights to receive any excess in value of shares of common stock over the exercise price. The exercise price may not be less than the fair market value of a share of common stock on the date of grant. The Committee determines at or after the time of grant whether stock appreciation rights are settled in cash, common stock or other securities of PTC, awards or other property and may define the manner of determining the excess in value of the shares of common stock.

Limitations on
Individual Grants

In any fiscal year, the Committee may not grant to any person options, stock appreciation rights, restricted stock units or restricted stock with respect to which performance goals apply for more than 800,000 shares of common stock. This limit is subject to adjustment for changes in our structure or capitalization that affect the number of shares of common stock outstanding.

No Repricing of
Outstanding Awards

The Committee may not, without stockholder approval, amend any outstanding option to reduce the exercise price or replace it with an option at a lower exercise price or exchange it for cash.

No Payment or
Accumulation of Dividends
on Unvested Awards or
Outstanding Options

No dividends or dividend equivalents may accumulate or be paid with respect to any unvested portion of an Award or with respect to any Option, whether vested or unvested. This plan provision may be amended only with the approval of the stockholders of the Company.

Amendment of
Outstanding Awards

The Committee may otherwise amend, modify or terminate any outstanding award, provided that the participant’s consent to such action is required if such action (1) would terminate or reduce the number of shares issuable under an option and the participant does not have the opportunity to exercise the option or be compensated for the lost shares, or (2) taking into account any related action, would materially and adversely affect the participant.

Transferability

Participants may not transfer unvested awards and may not transfer stock options, whether vested or unvested.

Performance Goals

The Committee may grant awards subject to achievement of previously established performance goals. The performance goals may be particular to a participant or may be based, in whole or in part, on the performance of the business unit in which the participant works or on the performance of PTC as a whole. The performance goals the Committee may use may be based on one or more of the performance measures described in the plan.

Number of Shares
Issuable; Change
in Capitalization

As of January 7, 2019, 1,702,188 shares of common stock were available for issuance under the plan. If there is a change in our equity structure that affects the outstanding common stock, the aggregate number of shares that are reserved for issuance under the plan, as well as the number of shares subject to outstanding awards, together with exercise prices with respect to any of the foregoing, will be adjusted by the Committee to preserve the benefits intended to be provided under the plan.

Change in Control

The Committee may act to preserve a participant’s rights under an award in the event of a change in control of PTC by, among other things, accelerating any time period relating to the exercise or payment of the award, causing the award to be assumed by another entity, or providing for compensating payments to the participant.

Amendments

The Board of Directors may amend, suspend or terminate the plan, subject to any stockholder approval it deems necessary or appropriate. Under current NASDAQ Stock Market rules, the Board may not increase the number of shares of common stock issuable under the plan (except in the case of a recapitalization, stock split or similar event) without stockholder approval.

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Proposal 2

Potential U.S. Federal Tax Consequences of Awards

Below is a summary of the material U.S. federal income tax consequences for participants and PTC with respect to awards under the 2000 Equity Incentive Plan.

Restricted Stock Units. A participant will generally realize ordinary income in an amount equal to the fair market value of the shares (or the amount of cash) distributed to settle the restricted stock units at the time of settlement, which is generally upon vesting of the restricted stock units. In certain limited circumstances, a settlement date may be later than the vesting date, in which case the settlement would be made in a manner intended to comply with the rules governing non-qualified deferred compensation arrangements. In either case, we would receive a corresponding tax deduction at the time of settlement. If the restricted stock units are settled in shares, then upon sale of those shares, any subsequent appreciation or depreciation would be treated as short-term or long-term capital gain or loss to the participant and would not result in any further tax deduction by us.

Restricted Stock. Generally, a participant will be taxed at the time the restrictions on the shares lapse. The excess of the fair market value of the shares at that time over the amount paid, if any, by the participant for the shares will be treated as ordinary income. The participant may instead elect at the time of grant to be taxed (as ordinary income) on the excess of the then fair market value of the shares over the amount paid, if any, for the shares. In either case, we would receive a tax deduction for the amount reported as ordinary income to the participant. Upon the participant’s disposition of the shares, any subsequent appreciation or depreciation is treated as a short or long-term capital gain or loss and will not result in any further tax deduction by us.

Incentive Stock Options. A participant does not realize taxable income upon the grant or exercise of an ISO under the 2000 EIP. If a participant does not dispose of shares received upon exercise of an ISO for at least two years from the date of grant and one year from the date of exercise, then (1) upon sale of the shares, any amount realized in excess of the exercise price is taxed to the participant as long-term capital gain and any loss sustained will be a long-term capital loss and (2) we may not take a deduction for Federal income tax purposes. The exercise of ISOs gives rise to an adjustment in computing alternative minimum taxable income that may result in alternative minimum tax liability for the participant.

If shares of common stock acquired upon the exercise of an ISO are disposed of before the end of the one and two-year periods described above (a “disqualifying disposition”), the participant would recognize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of the shares at exercise (or, if less, the amount realized on a sale of such shares) over the exercise price. We would be entitled to a tax deduction for the same amount. Any further gain realized by the participant would be taxed as a short-term or long-term capital gain and would not result in any deduction for us. A disqualifying disposition in the year of exercise will generally avoid the alternative minimum tax consequences of the exercise of an ISO.

Nonstatutory Stock Options. No income is realized by the participant at the time a nonstatutory option is granted. Upon exercise, the participant will recognize ordinary income in an amount equal to the difference between the exercise price and the fair market value of the shares on the date of exercise. We would receive a tax deduction for the same amount. Upon disposition of the shares, appreciation or depreciation after the date of exercise is treated as a short-term or long-term capital gain or loss to the participant and will not result in any further tax deduction by us.

Excess Parachute Payments. A participant who receives any accelerated vesting or exercise of options or stock appreciation rights or accelerated lapse of restrictions on restricted stock or restricted stock units in connection with a change in control might be deemed to have received an “excess parachute payment” under federal tax law. In such cases, the participant may be subject to an excise tax and we may be denied a tax deduction.

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Our Executive Officers

    
James Heppelmann
Information about Jim Heppelmann is provided in “Director Nominees” above.
Andrew Miller
Executive Vice President, Chief Financial Officer     Age 58
Andy has been our Executive Vice President, Chief Financial Officer since February 2015 when he joined PTC. Andy was Executive Vice President, Chief Financial Officer of Cepheid, a publicly-traded medical technology company from April 2008 to February 2015. Prior to that, Andy was employed by Autodesk Inc., a publicly-traded software company, where he was the Vice President of Finance and Chief Accounting Officer.
Barry Cohen
Executive Vice President, Chief Strategy Officer     Age 74
Barry has been our Executive Vice President, Chief Strategy Officer since October 2010. Prior to that, Barry served in various roles in the company, including in our Corporate Strategy and Global Services groups. Barry is the father of Matt Cohen. Barry joined PTC in 1998.
Matthew Cohen
Executive Vice President, Field Operations     Age 42
Matt has been our Executive Vice President, Field Operations since February 2018. Matt was Executive Vice President, Customer Success from July 2016 to February 2018, Executive Vice President, Global Services from April 2014 through July 2016, and Divisional Vice President, Global Services from October 2013 to March 2014. Before that, Matt held various positions in our Global Services group. Matt is the son of Barry Cohen. He joined PTC in 2001.
Kathleen Mitford
Executive Vice President, Products     Age 46
Kathleen became our Executive Vice President, Products in February 2018. Kathleen was our Executive Vice President, Products and Market Strategy from October 2017 to February 2018, Executive Vice President, Segments from February 2017 to October 2017, Corporate Vice President, Corporate Strategy from July 2014 to February 2017, and Senior Vice President, Corporate Strategy from October 2011 to July 2014. Before that, she served in various roles in our product, market and corporate strategy groups. Kathleen joined PTC in 2006.
Aaron Von Staats
Executive Vice President, General Counsel and Secretary     Age 53
Aaron became Executive Vice President, General Counsel and Secretary in September 2018. Aaron was Corporate Vice President, General Counsel and Secretary from March 2008 to September 2018. Prior to that, he served in a number of roles in the company’s Legal group. Aaron joined PTC in 1997.

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Proposal 3
Advisory Vote on the Compensation of our Named Executive Officers

This advisory vote on the compensation of our Chief Executive Officer and our 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 for 2018. 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 their compensation is discussed in COMPENSATION DISCUSSION AND ANALYSIS and in 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. A significant portion of the compensation of our named executive officers is comprised of performance-based pay. For 2018, 51% of our CEO’s target compensation was performance-based and 49% of our other named executive officers’ target compensation was performance-based. The executives may also earn amounts above their target compensation, up to a cap, for performance above target performance. Conversely, if the performance measures are not achieved, those performance-based amounts are not earned or paid.

     
2018 Target Compensation

Our compensation programs provide a strong correlation between pay and performance as demonstrated by our performance against our strategic goals and achievement against our short-term and long-term incentive plan targets in 2018. The alignment of pay and performance is further demonstrated in the realizable pay to performance alignment charts in COMPENSATION DISCUSSION AND ANALYSIS – Executive Summary of Our Compensation Practices – We Pay for Performance, which show strong alignment between realizable pay and actual performance over the past three-year period.

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Proposal 3

The table below shows the performance measures for the 2018 cash bonus plan, the upside annual equity and the long-term performance-based equity, and achievement under those performance measures.

2018 Performance-Based Compensation

Component       Performance Measure          Threshold       Target       Upside Target       % Achieved and
Earned
(2)

Annual Cash Bonus

Ending Annualized Recurring
Revenue (ARR)(1)

96.10%

New IoT and Connected
Applications Bookings(1)

Non-GAAP
Operating Expense(1)

Annual Upside Equity

New IoT and Connected
Applications Bookings

0%

Long-Term
Performance-Based
Equity

New Software Subscription
Annual Contract Value (ACV)(1)

93.34%(3)


(1) Our ARR, ACV and Bookings operating measures and non-GAAP operating expense financial measure are described on Appendix A.
(2) Payouts under the annual cash bonus plan were capped at 125% and payouts under the long-term performance-based equity were capped at 200%, even if performance exceeded the upside targets. No amounts could be earned for performance above target under the Annual Upside Equity.
(3) The ACV performance targets were established based on an assumed subscription mix of 80%. Actual subscription mix for the year was 76%, which adversely affected our ACV results; if our actual bookings had come in at the assumed mix, the target performance measure would have been exceeded.

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 (RSUs) that vests over three years. Moreover, our executives are subject to substantial stock ownership requirements and to clawback of incentive compensation in certain circumstances. These elements serve to align our executives’ interests with those of our stockholders in the long-term value of PTC.

THREE-YEAR
VESTING OF RSUs

+

SUBSTANTIAL
STOCK OWNERSHIP
REQUIREMENTS

+

CLAWBACK
PROVISIONS

=

ALIGNED INTERESTS
BETWEEN OUR
EXECUTIVES AND
STOCKHOLDERS

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 hold such a vote each year.

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Compensation Discussion and Analysis

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 2018 for our Chief Executive Officer, our Chief Financial Officer, and the other executive officers and former executive officers named in the Summary Compensation Table.

Executive Summary of Our Compensation Practices

We Pay for Performance

Our results for 2018 reflect the continuing successful execution of our business transformation to a subscription company with expanding margins. Our Internet of Things business, which we view as a significant growth opportunity, continued to grow as we added new customers and existing customers expanded their implementations over the year. Our performance over the year and the past three years reflects the success and efficacy of aligning executive compensation with our strategic plan. This pay-for-performance approach has resulted in exceptional pay and performance alignment and will continue to be the centerpiece of our executive compensation programs.

3-Year: CEO Total Realizable Compensation vs TSR CAGR       3-Year: NEO Total Realizable Compensation vs TSR CAGR

We are Responsive to Stockholders

We received strong stockholder
support for our executives’
compensation for 2017.
 
Approval of over 90% of
shares voted

     
Over recent years we have made significant changes to our executive compensation programs in response to say-on-pay votes, comments from stockholders and changes to perceived best practices. These changes include:
Adopting separate performance measures for our annual cash bonus and our long-term performance-based equity;
Introducing multiple performance periods for our long-term performance-based equity;
Adopting a clawback policy; and
Eliminating all single-trigger vesting in connection with a change in control.

We considered that vote when making executive compensation decisions for 2018. Based on the strong support we received, we believe stockholders support how we have structured our executives’ compensation overall, and we did not make any changes to the structure of our executives’ target compensation for 2018.

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Compensation Discussion and Analysis

Our Compensation Practices Protect Stockholders

Our long-term performance-based equity awards have performance measures that cover 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 stockholder value.
The amounts our executives can earn under our performance-based incentive plans are capped.
We have a compensation clawback policy under which performance-based compensation paid to executive officers that is subsequently determined not to have been earned due to restatement of prior period financial results may be recovered.
We design our compensation policies and practices to mitigate risk to the company that could be posed by those policies and practices.
We do not provide perquisites or supplemental retirement benefits to our executives.
We have robust stock ownership requirements for our executives to ensure that their interests are even more effectively linked to those of our stockholders.
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.
All our executives are employed “at will.”
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 vesting of any equity is accelerated; and
Provide only limited severance benefits, and no equity acceleration, upon termination without cause absent a change in control.
Our 2000 Equity Incentive Plan prohibits the payment or accumulation of dividends or dividend equivalents with respect to the unvested portion of any award, including RSUs and options, whether vested or unvested.

Compensation Philosophy & Objectives

Our executive compensation programs are designed to attract, motivate and retain our executives. We have a pay-for-performance philosophy for executive compensation and emphasize performance-based compensation tied to strategic initiatives designed to create long-term stockholder value. We believe that equity incentives that vest over multiple years provide an important motivational and retentive aspect to the executives’ overall compensation and align our executives’ interest in the long-term performance of PTC with that of our stockholders. Accordingly, a substantial portion of our executives’ compensation consists of performance-based and service-based RSUs that vest over multiple years, with an emphasis on performance-based RSUs.

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Compensation Discussion and Analysis

Compensation Committee Process

The Compensation Committee, which is comprised entirely of independent directors, establishes and reviews the compensation for our executive officers annually.

Independent Compensation Consultant

The Committee engaged Pearl Meyer & Partners, LLC as its independent compensation consultant for 2018. The Committee 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 no other services to PTC and consults with PTC’s management only as necessary to provide the services described below.

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, 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.

Consultation with Management

Members of management, including our Chief Executive Officer, participate in Committee meetings as requested by the Committee to discuss the materials provided, including recommendations on executive pay, competitive market practices and performance measures. Although the members of management provide their views, 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.

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 Pearl Meyer & Partners (we refer to this as the “competitive analysis”);

Analysis of the scope of each executive’s responsibilities; and
Internal pay equity among the executives.

We use the competitive analysis to 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 to our stockholders. We generally target compensation opportunities for our executives at the median of the market as an initial benchmark. While we use the competitive analysis as a starting point, we also consider the qualitative dimensions of an executive’s role, internal pay equity among our executives and tenure in the position when setting our executives’ compensation as we do not believe an external benchmark should be the only determinant of compensation.

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Compensation Discussion and Analysis

Benchmarking and Survey Data

Benchmarking

The peer group used for the competitive analysis consists of publicly-traded U.S. companies in the software industry, most of which are in the enterprise software space, that have revenues and market capitalizations in a range we believe is appropriate. 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 these parameters if there is strong product and/or service similarity. We believe this group represents the competition for executive talent in our industry. We review the peer group on an annual basis to ensure that the companies in the peer group remain relevant and provide meaningful compensation comparisons.

The 2018 peer group consisted of the companies listed below. The 2018 peer group differed from the 2017 peer group due to the removal of Rackspace Hosting, Inc. and Mentor Graphics Corporation following their respective acquisitions and the addition of Splunk Inc. to balance those removals.

2018 Peer Group

Company       Product or Service
Similarity
      Revenue
$600M – $2,300M
      Market Capitalization
$2.3B – $19.6B
ACI Worldwide, Inc.
Akamai Technologies, Inc.
Ansys, Inc.
Autodesk, Inc.
Cadence Design Systems, Inc.
Citrix Systems, Inc.
Fair Isaac Corporation
Nuance Communications, Inc.
Open Text Corporation
Pegasystems Inc.
Red Hat, Inc.
Splunk Inc.
SS&C Technologies Holdings Inc.
Synopsys, Inc.
Verint Systems Inc.

Survey Data

We also use survey data for additional perspective. For 2018, 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 and that the data is appropriate to PTC. The survey represented 46 software companies with median revenue of $1.7 billion.

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Compensation Discussion and Analysis

2018 Compensation Design and Decisions

Our executives’ compensation consisted of a mix of base salary, annual incentive cash bonus, and performance-based and service-based equity. We believe these components provide an appropriate mix of fixed compensation and at-risk compensation that promotes short-term and long-term performance and rewards our executives appropriately for their performance. With this mix, we provide a competitive base salary and service-based equity that vests over multiple years while providing our executives the opportunity to earn additional compensation through short-term and long-term performance-based incentives designed to drive company performance and create long-term stockholder value. This mix is weighted toward at-risk pay (an annual performance-based bonus and performance-based RSUs that vest over multiple years).

2018 Target Annual Compensation

     

Base Salary
Provide a base level of competitive cash compensation.

Service-Based RSUs
Align the executive’s long-term interests with the long-term interests of stockholders and retain the executive, with performance-based upside to focus the executives on specific exceptional performance goals for the current fiscal year.

Annual Incentive Bonus
Focus the executive on achieving specific performance goals related to PTC’s business plan for the current fiscal year.

Long-Term Performance-Based RSUs
Align the executive’s long-term interests with the long-term interests of PTC and stockholders by focusing the executive on achieving performance goals critical to PTC’s long-term success.

     
CEO Compensation
Components

Other
NEO Compensation
Components

2018 Annual Target Compensation

We set the executives target compensation for 2018 as set forth below. The target compensation for the role was determined at the beginning of the year or when the person assumed that role, if later. Target compensation includes only the elements shown below and does not include the Annual Upside Performance-Based RSUs as those are not considered part of the executives’ target compensation, but rather an upside opportunity that could be earned for exceptional performance beyond that contemplated by our business plan.

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Compensation Discussion and Analysis

James Heppelmann,
President and Chief Executive Officer
Considerations
We evaluated Mr. Heppelmann’s 2017 compensation against our compensation peer group as to individual elements and as to total target compensation and his performance to determine whether to make any additional changes to his target compensation for 2018. Given his performance and his compensation relative to his peers, we believed an increase in his compensation was warranted. As we prefer to use equity that vests over multiple years rather than cash to further align executive compensation with the interests of our stockholders, we made this change to his target long-term equity compensation, with the increase split equally between performance-based RSUs and service-based RSUs.

During the year, we also made a long-term performance-based grant to Mr. Heppelmann that is not part of his target annual compensation. This grant is described below under “Long-Term Performance-Based Grant for CEO and CFO.”
 
2018 Target Compensation


Andrew Miller,
Chief Financial Officer
Considerations
We evaluated Mr. Miller’s performance and his 2017 compensation against our compensation peer group as to individual elements and as to total target compensation to determine whether to make any additional changes to his target compensation for 2018. Given his performance in driving the transformation of our business, we believed an increase in his compensation was warranted. As with Mr. Heppelmann, we made this increase through his target long-term equity compensation, with the increase split equally between performance-based RSUs and service-based RSUs.

During the year, we also made a long-term performance-based grant to Mr. Miller that is not part of his target annual compensation. This grant is described below under “Long-Term Performance-Based Grant for CEO and CFO.”
2018 Target Compensation

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Compensation Discussion and Analysis

Barry Cohen,
Chief Strategy Officer
Considerations
Mr. Cohen has a unique position for which there is no appropriate match in the peer group or survey data. Given the breadth and responsibilities of his position, and considering internal pay equity among our executives, we believed an increase in his compensation was warranted. As with Mr. Heppelmann and Mr. Miller, we made this increase through his target long-term equity compensation, with the increase split equally between performance-based RSUs and service-based RSUs.
2018 Target Compensation


Matthew Cohen,
Executive Vice President, Field Operations
Considerations
Mr. Cohen was promoted to Executive Vice President, Field Operations in February 2018. His initial compensation for 2018 was set when he was Executive Vice President, Customer Success, in the context of that role, and fell within our parameters. Upon his promotion, we reviewed his compensation in light of his expanded responsibilities and determined that his compensation was not competitive. Accordingly, we increased his base salary by $15,000 and his annual target long-term equity by $335,000, which brought him into the target competitive range. We also made an additional RSU grant valued at $600,000 in recognition of his expanded responsibilities. The additional equity granted will vest in three substantially equal annual tranches over three years.
2018 Target Compensation

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Compensation Discussion and Analysis

Kathleen Mitford,
Executive Vice President, Products
Considerations
Ms. Mitford was promoted to Executive Vice President, Products in March 2018. Her initial compensation for 2018 was set when she was not an executive officer and the scope of her responsibilities as Executive Vice President, Products and Segments was not as broad. Upon her promotion, we reviewed her compensation in light of her significantly expanded responsibilities and determined that her compensation was not competitive for peers in similar roles. Accordingly, we increased all elements of her compensation, increasing her base salary by $50,000, her annual target bonus by $125,000 and her annual target long-term equity by $1.025 million, which brought her into the target competitive range. We also made an additional RSU grant valued at $200,000 in recognition of her expanded responsibilities. The additional equity granted will vest in three substantially equal annual tranches over three years.
2018 Target Compensation

Considerations for Tony Dibona, Former Executive Vice President, Focused Solutions

Mr. DiBona also had a unique position for which there was no appropriate match in the peer group or survey data. Accordingly, when setting target compensation amounts for Mr. DiBona for 2018, we considered his performance and his compensation as compared to our other executives, including consideration of the scope of his responsibilities compared to our other executives. As we believed his compensation remained appropriate, we made no changes to his compensation for 2018. In connection with Mr. DiBona’s decision to retire in March 2019, in light of his long service tenure and performance, we modified his outstanding RSUs to provide that such RSUs would continue to vest over time after his retirement, with all performance-based RSUs remaining subject to the performance measures and forfeiture.

Considerations for Craig Hayman, Former Chief Operating Officer

We evaluated Mr. Hayman’s performance and his 2017 compensation against our compensation peer group as to individual elements and as to total target compensation to determine whether any changes should be made to his 2018 compensation. Because Mr. Hayman had joined PTC in 2016 and we provided an attractive and competitive compensation package for him at that time, his compensation remained competitive relative to our compensation peer group and we made no changes to his compensation for 2018. Mr. Hayman left PTC in February 2018 to pursue another opportunity and all unvested equity was forfeited.

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Compensation Discussion and Analysis

Long-Term Performance-Based Grant for CEO and CFO

During the course of the year, based on the success of our business transformation that put us ahead of our long-term plan targets for 2021, in June 2018 we announced new long-term financial targets for 2021 and 2023. The targets, if achieved, represent significant growth and profitability of our business that we expect will benefit our stockholders. Our performance and the 2023 long-range targets we announced demonstrate that we are committed to outstanding results.

Given the significant contributions of Mr. Heppelmann and Mr. Miller in driving our current performance and achievements to date, we believed it was important to motivate both executives to drive achievement of the new long-term targets. In accordance with our pay for performance philosophy and preference to weight compensation toward equity incentives to further align our executives’ interests with those of our stockholders, we made a long-term performance-based RSU grant to each of them tied to achievement of the announced 2021 and 2023 adjusted cash flow targets, valued at $40 million on the date of grant for Mr. Heppelmann and $10 million for Mr. Miller. We selected the adjusted free cash flow targets as the performance measures under the grants as they align to the long-range plan and given the importance of this performance measure to our stockholders and the expected increase in the valuation of the company achievement of those measures would drive.

Adjusted Free Cash Flow Targets under the Equity Grants*

 

*

In October 2018, we reduced the long-term plan FY2021 adjusted free cash flow target to $585 million to reflect the anticipated effect of a higher subscription mix than we anticipated when we announced the original targets in June 2018. We did not, however, modify the equity grants to reflect this reduced target as the FY2023 adjusted cash flow target did not change and we wanted to ensure we drove performance through FY2023. Our adjusted free cash flow measure is described on page A-2.

The RSUs become eligible to vest in three equal tranches for 2021, 2022 and 2023 if and to the extent the performance measure for the period is met. The value of the awards made is equal to approximately 5x the value of the executives’ respective 2018 annual long-term equity awards. Using a multiple of 5x their respective annual awards was consistent with external compensation data we reviewed, including case studies of companies that have provided similar awards to their executives, and aligns with the five-year performance period under the awards. We believe that these performance awards provide a compelling incentive to the executives to drive achievement of our long-range plan and drive outstanding results for our shareholders.

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Compensation Discussion and Analysis

2018 Performance-Based Compensation

The performance measures we develop and use for our performance-based compensation are designed to drive and measure our performance against our short-term and long-term business plans and objectives and create value for our stockholders.

For 2018, we continued to use separate performance measures for the annual cash incentive plan and the long-term performance-based RSUs, and multiple performance measures in the annual cash incentive plan. As our business model transformation had matured, we returned to using a strategic performance measure for our long-term performance-based RSUs. We had used relative TSR as our long-term performance measure in 2015 – 2017 during our business model transformation due to the challenge in setting appropriate performance targets during such a transformation. We decided to use a strategic performance measure for 2018 as we believed it would better serve to motivate our executives and drive our long-term business objectives.

We continued to incentivize significant performance beyond our financial plan and performance compensation targets with annual upside performance-based RSUs. We selected New IoT and Connected Applications Bookings as the performance measure for the annual upside RSUs given the importance of increasing these bookings to our longer-term revenue growth and margin expansion. This performance target was a significant stretch target that, if achieved, would represent over 50% growth in new IoT and Connected Applications bookings over 2017. We first implemented an annual upside equity opportunity in 2016 because we provide limited upside opportunity in our annual cash bonus plan relative to our peers. We elected to use equity for the annual upside opportunity to further align our executives’ interests with those of our stockholders and motivate executives to focus on important transformative aspects of our business, including our Internet of Things business.

Alignment of Corporate Goals and 2018
Performance-Based Compensation

Goal Compensation Plan and Performance Measure
Increase Recurring Revenue Annual Cash Bonus Plan
Annualized Recurring Revenue (ARR)
Drive Growth in loT and loT Solutions Annual Cash Bonus Plan
New IoT and Connected Applications Bookings
Annual Upside Equity
New IoT and Connected Applications Bookings above Plan

Expand Operating Margins

Annual Cash Bonus Plan
Non-GAAP Operating Expense

Increase Customer Adoption of Subscription Licensing

Long-Term Performance-Based Equity
New Subscription ACV through 2020

2018 Performance–Based Compensation and Achievement

The performance targets for the 2018 performance-based compensation and achievement under those plans are set forth below.

The annual cash bonus plan had three equally-weighted components, with 63.3% of the target bonus eligible to be earned upon achievement of threshold under all the performance measures and 100% at achievement of target under all the performance measures. Upside amounts could be earned but were capped at 125% of the target bonus, which is generally lower the than the upside opportunity provided by our peers.

The long-term performance-based equity is eligible to vest in three substantially equal tranches in 2018, 2019 and 2020 if and to the extent the performance measure for the applicable year is achieved. The performance measures for all three years are set upon grant and all are tied to increasing New Subscription ACV over the three-year period. The performance target for 2018

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Compensation Discussion and Analysis

is set forth below, with 50% of the RSUs eligible to be earned for the period vesting on achievement of the threshold and the full 100% eligible for the period vesting on achievement of the target. Additional RSUs could be earned up to 200% of the target RSUs eligible to vest in the period for performance above the target (so, if 3,000 RSUs were granted, 1,000 could be earned for each of 2018, 2019 and 2020, and up to an additional 1,000 RSUs could be earned for each period). RSUs not earned for 2018 or 2019 can be earned for 2020 as the intended long-term increase in new subscription ACV would be achieved, but in no event can the aggregate number of RSUs earned for all three periods exceed the total number of RSUs eligible to be earned multiplied by the 2020 achievement level.

The annual upside equity has a one-year performance measure and RSUs earned would vest in three substantially equal tranches in 2018, 2019 and 2020. RSUs not earned would be, and all were, forfeited. No additional RSUs could be earned for performance above the target.

Component Performance Measure     Threshold
(in millions)
    Target
(in millions)
    % Earned
Annual Cash Bonus Ending Annualized Recurring
Revenue (ARR)(1)
$1,000 $1,040
New IoT and Connected
Applications Bookings(1)
$110 $138.5 96.1%
Non-GAAP
Operating Expense(1)
$743 $733
Long-Term Equity New Software
Subscription ACV(1)
$158 $180 93.34%(2)
Annual
Upside Equity
New IoT and Connected
Applications Bookings(1)
$166.2 0%

(1) Our ARR, Bookings and ACV operating measures and Non-GAAP Operating Expense are described on Appendix A.
(2) The ACV performance targets were established based on an assumed subscription mix of 80%. Actual subscription mix for the year was 76%, which adversely affected our ACV results; if our actual bookings had come in at the assumed mix, the target performance measure would have been exceeded.

Severance and Change in Control Arrangements

Agreements and Conditions

We maintain severance and change in control arrangements with our executives. The agreements require the executive to execute a non-compete 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 agreements are described in more detail under Potential Payments upon Termination or Change in Control.

Annual Review

The Compensation Committee reviews these agreements each year to determine if these agreements should be maintained, modified or terminated. For 2018, the Committee reviewed current market practices and the terms of the agreements with the Committee’s compensation consultant. Based on this review, the Committee decided that it was appropriate to maintain the agreements.

Rationale

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’s employment 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 executives, is an appropriate bridge to subsequent employment if the person’s employment 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.

Importance in Connection with a Potential Change in Control

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 have “double triggers” before vesting of any equity is accelerated, so that no equity is accelerated upon a change in control but is accelerated only if the executive is terminated in connection with a change in control. 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, 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. 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 5x and 1x, 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.

Equity Ownership Requirements

Chief Executive Officer

Other Executive Officers

     

5x Base Salary

     

1x Base Salary

Compensation Clawback Policy

We maintain an executive compensation recoupment policy that is intended to enable 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 an anticipated 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, annual 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 July.

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Compensation Discussion and Analysis

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 24 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 after the end of the quarter before results are announced, and only up to established values set by the Compensation Committee.

Tax and Accounting Considerations

Tax Considerations

The Compensation Committee considers the tax consequences of our executive compensation plans when designing the plans. Through 2017, Section 162(m) of the Internal Revenue Code limited 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 was performance-based. Through 2017, our executives’ annual incentive bonuses and performance-based equity awards were provided under stockholder approved plans and were designed to enable deductibility under Section 162(m) as performance-based compensation. With the enactment of the Tax Cuts and Jobs Act, compensation, including performance-based compensation, paid to our chief executive officer, chief financial officer and each of our three highest paid executive officers in excess of $1 million, will not be tax deductible, with the exception of the FY18 cash bonus, performance-based RSUs granted to the chief executive officer and the named executive officers prior to November 2, 2017 and service-based RSUs granted to the chief financial officer prior to November 2, 2017, which qualify for transition relief applicable to certain arrangements in place as of November 2, 2017. Given our preference for performance-based compensation, we have not altered our executives’ compensation in response to the law.

Accounting Considerations

We consider the stock-based compensation expense associated with equity awards to executives as part of the expense associated with our overall equity compensation program. The expense associated with the equity awards is equal to the fair value of the equity issued and is amortized over the vesting period of the award. 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 2018, stock-based compensation expense as a percentage of our market capitalization was below the 25th percentile relative to our peer group.

Assessment of Risks Associated with our Compensation Programs

We assess our compensation plans and programs for employees, including our executives, annually 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 plans and programs do not create risks that are reasonably likely to have a material adverse effect on PTC.

For 2018, we reviewed our compensation plans and programs for any changes from 2017 and assessed the risks associated with those changes. We then reviewed performance against the plans to determine whether the performance was achieved and whether any unexpected risks had materialized for those plans. Our assessment concluded that our plans and programs do not create material risks and are appropriate. 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.

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Compensation Discussion and Analysis

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 Compensation Committee or executive 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;

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 performance measures that are designed to support our long-term financial goals, rather than changing measures to take advantage of changing market conditions;

We use different performance measures for our annual incentive plans and our long-term incentive plans;

Our long-term performance-based equity contains performance measures for each of the three years of the term of the award;

Our long-term performance-based equity contains a catch-up provision which discourages short-term risk taking based on the duration of the performance measurement period;

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 stockholders 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;

Upside earning opportunity in our annual cash compensation plans is limited to 25%. In addition, our performance-based equity plans are capped at a level commensurate with the industry.

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;

Our compensation clawback policy enables us to recover incentive compensation paid to an executive officer for 2014 and thereafter if it is subsequently determined not to have been earned due to restatement of prior period financial results due to misconduct of the executive officer, thus reducing any incentive to engage in misconduct to meet financial targets.

We maintain effective controls and procedures to ensure that amounts are earned and paid in accordance with our plans and programs.

Compensation Committee Report

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
Janice Chaffin
Paul Lacy
Robert Schechter

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Executive Compensation

The discussion, table and footnotes below describe the total compensation for 2018 for our named executive officers (our Chief Executive Officer, our Chief Financial Officer, our three other most highly compensated executive officers, and two former 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 consists of a base salary and an incentive plan bonus (Non-Equity Incentive Plan Compensation). We do not generally pay discretionary cash bonuses to these executives. Annual equity compensation (Stock Awards) consists of restricted stock units (RSUs) (50% of which are performance based and 50% of which are service based) that are eligible to vest over three years from the date of grant. Additional equity compensation (Stock Awards) may also include special purpose grants.

We do not provide these executives with pensions or the ability to defer compensation or any 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. Those amounts for Mr. Miller and Mr. Hayman also include relocation payments and relocation tax preparation payments, as applicable.

Summary Compensation Table

Name and Principal Position       Year       Salary
($)
      Bonus
($)
      Stock
Awards
($)(1)
      Non-Equity
Incentive Plan
Compensation
($)
      All Other
Compensation
($)(2)
      Total
($)
James Heppelmann
President and Chief
Executive Officer
2018 $ 800,000 $ $ 48,199,913 (3)         $ 961,000             $ 8,250 $ 49,969,163
2017 $ 800,000 $ $ 9,126,767 $ 1,000,000 $ 8,100 $ 10,934,867
2016 $ 750,000 $ $ 6,608,881 $ 1,115,000 $ 7,950 $ 8,481,877
Andrew Miller
EVP, Chief Financial Officer
2018 $ 415,000 $ $ 12,499,911 (3)  $ 336,350 $ 8,250 $ 13,259,511
2017 $ 415,000 $ $ 2,780,614 $ 350,000 $ 8,100 $ 3,553,714
2016 $ 415,000 $ $ 2,626,270 $ 334,500 $ 147,935 $ 3,523,705
Barry Cohen
EVP, Chief Strategy Officer
2018 $ 415,000 $ $ 2,499,911 $ 336,350 $ 8,250 $ 3,259,511
2017 $ 415,000 $ $ 2,780,614 $ 350,000 $ 1,396 $ 3,547,010
2016 $ 415,000 $ $ 2,626,270 $ 334,500 $ $ 3,375,770
Matthew Cohen
EVP, Field Operations
2018 $ 409,115 $ $ 2,934,865 $ 336,350 $ 8,250 $ 3,688,580
 
Kathleen Mitford
EVP, Products
2018 $ 355,385 $ $ 1,769,419 $ 248,258 $ 9,138 $ 2,382,200
 
Craig Hayman
Former EVP, Chief
Operating Officer
2018 $ 245,192 $ $ 2,999,893 $ $ 109,964 $ 3,355,050
2017 $ 625,000 $ $ 3,650,610 $ 475,000 $ 108,694 $ 4,859,304
2016 $ 625,000 $ 500,000 (4)  $ 7,434,187 (5)  $ 529,625 $ 74,753 $ 9,163,565
Anthony DiBona
Former EVP,
Focused Solutions
2018 $ 363,000 $ $ 5,842,714 (6)  $ 288,300 $ 8,100 $ 6,502,114
2017 $ 363,000 $ $ 1,992,031 $ 300,000 $ 7,958 $ 2,662,989
2016 $ 363,000 $ $ 1,881,497 $ 278,300 $ 7,950 $ 2,531,197

(1) 

Aggregate grant date fair value of awards plus, for 2016, the value of award modifications made for the year. Assumptions made in the valuation of these awards are described in Note K to our financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. For service-based RSUs, the grant date fair value is equal to the number of RSUs granted multiplied by the closing price of our stock on the Nasdaq Stock Market on the grant date. For the 2018 performance based RSUs, the grant date fair value is equal to the number of RSUs granted multiplied by the closing price of our stock on the Nasdaq Stock Market on the given date, assuming achievement at 100%; the maximum potential value of these RSUs is 200% of the target RSUs granted. For the performance-based TSR RSUs granted for 2016 and 2017, the value was determined using a Monte Carlo methodology that takes into account the probability of achievement of the performance measures at the time of grant. For the 2018 Annual Upside RSUs (described in COMPENSATION DISCUSSION AND ANALYSIS and listed in the GRANTS OF PLAN-BASED AWARDS TABLE), the value included in the Stock Awards column for each Named Executive Officer is $0 because achievement of the performance goal on the date of grant was not probable. The Annual Upside RSUs were tied to achieving a challenging performance measure for 2018, that, if achieved, represented significant performance above our financial plan and that we believed would result in significant stockholder value creation. The maximum potential value of the Annual Upside RSUs was 100%

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Executive Compensation

of the Annual Upside RSUs granted. Assuming that achievement of the performance measures for the 2018 Performance Based RSUs and the Annual Upside RSUs had been probable on the grant date, the grant date fair value of the 2018 Performance Based RSUs and the Annual Upside RSUs would have been as set forth below. For 2018, 93.34% of the target Performance-Based RSUs that could be earned for 2018 were earned. No portion of the Annual Upside RSUs were earned and all such Annual Upside RSUs were forfeited.

Named Executive Officer       Number of Target
Performance-Based
RSUs
      Maximum Value of
Performance-Based
RSUs based on Closing
Price on
Grant Date
      Maximum
Number of
Upside
Annual RSUs
      Maximum Value of Upside
Annual RSUs based on
Closing Price on Grant Date
James Heppelmann 64,142                       $ 8,199,913 128,285                             $ 8,199,977
Andrew Miller 19,555 $ 2,499,911 19,555 $ 1,249,956
Barry Cohen 19,555 $ 2,499,911 19,555 $ 1,249,956
Matthew Cohen 15,644 $ 1,999,929 15,644 $ 999,964
Kathleen Mitford 3,911 $ 499,982 3,911 $ 249,991
Craig Hayman 23,466 $ 2,999,893 23,466 $ 1,499,947
Anthony DiBona 12,805 $ 1,636,991 12,805 $ 818,496

(2) 

Amounts shown are matching contributions under PTC’s 401(k) Savings Plan. For 2018 and 2017, amounts for Mr. Hayman also include relocation benefits of $107,801 and $56,4320, respectively. For 2016, amounts for Mr. Miller and Mr. Hayman include relocation benefits of $136,633 and $73,210, respectively, and, for Mr. Hayman, relocation tax preparation payments of $1,520.

(3) 

Includes grant date value of long-term performance-based equity award with performance measures for 2021, 2022 and 2023 tied to our long-term financial plan targets in the amount of $40 million for Mr. Heppelmann and $10 million for Mr. Miller.

(4) 

Sign-on bonus paid upon hire to compensate him for unvested cash compensation left behind at his prior employer to join PTC and subject to pro-rata forfeiture if he voluntarily terminated his employment in the first year.

(5) 

Includes a sign-on equity grant valued at approximately $4,000,000 upon hire to compensate him for unvested equity left behind at his prior employer, half of which vested in November 2016 and the remaining half of which vested in November 2017.

(6) 

Includes $4,205,723 related to modifications made to his outstanding equity awards in connection with his retirement.

Grants of Plan-Based Awards

As discussed in COMPENSATION DISCUSSION AND ANALYSIS above, we tie a substantial portion of our executives’ compensation to PTC’s performance through plan-based awards. For 2018, these awards consisted of:

An annual cash bonus plan (Non-Equity Incentive Plan Awards),

Performance-based RSUs that vest to the extent earned in each of the three performance periods over three years (Equity Incentive Plan Awards),

Performance-based RSUs that vest over three years to the extent earned for the 2018 performance period (Equity Incentive Plan Awards), and

Service-based RSUs that vest over three years (Other Stock Awards).

Equity Incentive Plan Awards for 2018 for Mr. Heppelmann and Mr. Miller also include a long-term performance-based RSU award with performance measures for 2021, 2022 and 2023 tied to our long-term financial plan targets as described above.

We describe our compensation decisions for 2018, including the rationale for these awards and the performance measures, in COMPENSATION DISCUSSION AND ANALYSIS above.

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2018 Grants of Plan-Based Awards

Estimated Possible Payouts
Under Non-Equity Incentive
P
lan Awards
Estimated Possible Payouts
Under Equity Incentive
P
lan Awards
All Other
Stock Awards:
Number of
Securities
Underlying
Grant Date
Fair Value
of Stock
Name    Grant Date    Resolution
Date
   Threshold
($)
   Target
($)
   Maximum
($)
   Threshold
(#)
   Target
(#)
   Maximum
(#)
   Stock or Units
(#)
   Awards(1)
($)
James Heppelmann
President and Chief
Executive Officer
11/15/2017 (2)  11/15/2017  $ 633,000 $ 1,000,000 $ 1,250,000
11/15/2017 (3)  11/15/2017 32,071 64,142 128,284 $ 4,099,957
11/15/2017 (4)  11/15/2017 128,285 128,285 $ 0
11/15/2017 (5)  11/15/2017 64,142 $ 4,099,957
6/20/2018 (6)  6/7/2018 120,012 400,040 400,040 $ 40,000,000
Andrew Miller
EVP, Chief
Financial Officer
11/15/2017 (2)  11/15/2017 $ 221,550 $ 350,000 $ 437,500
11/15/2017 (3)  11/15/2017 9,778 19,555 39,110 $ 1,249,956
11/15/2017 (4)  11/15/2017 19,555 19,555 $ 0
11/15/2017 (5)  11/15/2017 19,555 $ 1,249,956
6/20/2018 (6)  6/7/2018 30,003 100,010 100,010 $ 10,000,000
Barry Cohen
EVP, Chief
Strategy Officer
11/15/2017 (2)  11/15/2017 $ 221,550 $ 350,000 $ 437,500
11/15/2017 (3)  11/15/2017 9,778 19,555 39,110 $ 1,249,956
11/15/2017 (4)  11/15/2017 19,555 19,555 $ 0
11/15/2017 (5)  11/15/2017 19,555 $ 1,249,956
Matthew Cohen
EVP, Field
Operations
11/15/2017 (2)  11/15/2017 $ 221,550 $ 350,000 $ 437,500
11/15/2017 (3)  11/15/2017 7,822 15,644 31,288 $ 999,964
11/15/2017 (4)  11/15/2017 15,644 15,644 $ 0
11/15/2017 (5)  11/15/2017 15,644 $ 999,964
3/7/2018 (7)  3/7/2018 11,741 $ 934,936
Kathleen Mitford
EVP, Products
11/15/2017 (2)  11/15/2017 $ 189,900 $ 300,000 $ 375,000
11/15/2017 (3)  11/15/2017 1,956 3,911 7,822 $ 249,991
11/15/2017 (4)  11/15/2017 3,911 3,911 $ 0
3/7/2018 (5)  3/7/2018 3,911 $ 249,991
11/15/2017 (7)  11/15/2017 15,383 $ 1,224,948
11/15/2017 (8)  11/15/2017 696 $ 44,488
Craig Hayman
Former EVP, Chief
Operating Officer
11/15/2017 (2)  11/15/2017 $ 300,675 $ 475,000 $ 593,750
11/15/2017 (3)  11/15/2017 11,733 23,466 46,932 $ 1,499,947
11/15/2017 (4)  11/15/2017 23,466 23,466 $ 0
11/15/2017 (5)  11/15/2017 23,466 $ 1,499,947
Anthony DiBona
Former EVP,
Focused Solutions
11/15/2017 (2)  11/15/2017 $ 189,900 $ 300,000 $ 375,000
11/15/2017 (3)  11/15/2017 6,403 12,805 25,610 $ 818,496
11/15/2017 (4)  11/15/2017 12,805 12,805 $ 0
11/15/2017 (5)  11/15/2017 12,805 $ 818,496

(1) 

The grant date fair value was calculated by multiplying the number of RSUs granted by the closing price of a share of our common stock on the Nasdaq Stock Market on the grant date and applying the likelihood of any performance measures being achieved (100% for all performance-based awards other than the annual upside performance-based RSUs, which was assumed at 0%). The closing price on November 15, 2017 was $63.92, on March 7, 2018 was $79.63, and on June 20, 2018 was $99.99.

(2) 

Awards under our annual cash incentive plan. The performance measures were met at the 96.1% level and 96.1% of the target bonus was earned and paid.

(3) 

Performance-based RSUs eligible to vest over three years to the extent the performance measures are met for each of 2018, 2019 and 2020, with any RSUs not earned in 2018 and 2019 eligible to be earned in 2020. Only one-third of the RSUs granted are eligible to be earned for each of 2018 and 2019. The performance measure for 2018 was met at the 93.34% level and 93.34% of the RSUs for 2018 were earned and vested.

(4) 

Annual upside performance-based RSUs eligible to vest over three years to the extent the performance measure for 2018 was achieved. Amounts could be earned on a linear basis to the maximum after crossing the target, with no amount earned upon achievement of target. The performance measure was not met and all the RSUs were forfeited.

(5) 

Service-based RSUs. One third of these RSUs vested on November 15, 2018 and the remaining two-thirds will vest in substantially equal installments on November 15, 2019 and November 15, 2020.

(6) 

Long-term performance-based incentive award eligible to vest in November 2021, November 2022, and November 2023 to the extent that the performance measure for the applicable year is met. RSUs not earned for 2021 and 2022 may be earned for 2023.

(7) 

Service-based promotion Award that vests in three substantially equal installments in March 2019, March 2020 and March 2021.

(8) 

Common stock issued based on achievement of performance measures for 2017.

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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, 2018. The equity awards in the table are restricted stock units granted in 2015 through 2018. No options were outstanding.

Outstanding Equity Awards at Fiscal Year-End

Stock Awards
Equity Incentive Plan Awards
Name(1)        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
26,502 (4)   $ 2,814,247 38,612 (8)          $ 4,100,208
52,698 (5)  $ 5,596,001 65,206 (9)  $ 6,924,225
64,142 (6)  $ 6,811,239 64,142 (10)  $ 6,811,239
51,584 (7)  $ 5,477,705 128,285 (11)  $ 13,622,584
400,040 (12)  $ 42,480,248
Andrew Miller
Executive Vice President, Chief Financial Officer
10,531 (4)  $ 1,118,287 15,344 (8)  $ 1,629,379
16,055 (5)  $ 1,704,880 19,866 (9)  $ 2,109,571
19,555 (6)  $ 2,076,545 19,555 (10)  $ 2,076,545
7,898 (7)  $ 838,689 19,555 (11)  $ 2,076,545
100,010 (12)  $ 10,620,062
Barry Cohen
Executive Vice President, Chief Strategy Officer
10,531 (4)  $ 1,118,287 15,344 (8)  $ 1,629,379
16,055 (5)  $ 1,704,880 19,866 (9)  $ 2,109,571
18,890 (6)  $ 2,005,929 19,555 (10)  $ 2,076,545
7,898 (7)  $ 838,689 19,555 (11)  $ 2,076,545
Matthew Cohen
Executive Vice President, Field Operations
6,107 (4)  $ 648,502 8,899 (8)  $ 944,985
10,890 (5)  $ 1,156,409 13,476 (9)  $ 1,431,016
15,644 (6)  $ 1,661,236 15,644 (10)  $ 1,661,236
5,356 (7)  $ 568,754 15,644 (11)  $ 1,661,236
11,741 (13)  $ 1,246,777
Kathleen Mitford
Executive Vice President, Products
1,843 (4)  $ 195,708 1,530 (9)  $ 162,471
4,918 (5)  $ 522,242 3,911 (10)  $ 415,309
3,911 (6)  $ 415,309 3,911 (11)  $ 415,309
15,383 (13)  $ 1,633,521
Craig Hayman
Former Executive Vice President, Chief
Operating Officer
(14)  $ (14)  $
Anthony DiBona
Former Executive Vice President,
Focused Solutions
7,545 (4)  $ 801,204 10,993 (8)  $ 1,167,347
11,502 (5)  $ 1,221,397 14,232 (9)  $ 1,511,296
12,805 (6)  $ 1,359,763 12,805 (10)  $ 1,359,763
5,658 (7)  $ 600,823 12,805 (11)  $ 1,359,763

See footnotes on following page.

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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.
(2) The market value of unvested RSUs was calculated as of September 30, 2018 based on the closing price of a share of our common stock on the NASDAQ Global Select Market on September 28, 2018 of $106.19.
(3) The unvested RSUs shown in this column are subject to performance-based vesting.
(4) Service-based RSUs granted on November 2, 2015 that vested on November 15, 2018.
(5) Service-based RSUs granted on October 31, 2016 that vest in two substantially equal annual installments on November 15, 2018 and 2019.
(6) Service-based RSUs granted on November 15, 2017 that vest in three substantially equal installments on November 15, 2018, 2019 and 2020.
(7) Performance-based RSUs granted on October 31, 2016 that could be earned only to the extent the performance measure for 2017 was met. The performance measure was met in part and these RSUs now vest in two substantially equal installments on November 15, 2018 and 2019.
(8) Performance-based-TSR RSUs granted on November 2, 2015 that could be earned only to the extent the established performance criteria was met for the remaining performance period ended September 30, 2018. The performance measure for the 2018 performance period was met at 200% and these RSUs vested on November 15, 2018.
(9) Performance-based-TSR RSUs granted on October 31, 2016 (for Ms. Mitford, on February 28, 2017) that may be earned only to the extent the established performance measures were met for each of the two remaining performance periods ending September 30, 2018 and September 30, 2019. The amount shown is the Target number of shares; additional shares up to 100% of the Target shares may be earned for performance above Target performance. Only one-third of the Target shares, plus an additional 100% of such Target shares, were eligible to be earned for 2018. Shares not earned in earlier performance periods can be earned in the third performance period. The 2018 performance measure was met at the 200% level and 200% of the Target RSUs for the period vested on November 15, 2018.
(10) Performance-based RSUs granted on November 15, 2017 that can be earned only to the extent the performance measure for each of the three performance periods ending September 30, 2018, 2019 and 2020 are met. The amount shown is the Target number of shares; additional shares up to 100% of the Target shares may be earned for the performance above Target performance. Only one-third of the Target shares, plus an additional 100% of such Target shares, were eligible to be earned for 2018. Shares not earned for the first or second performance periods can be earned in the third performance period. The 2018 performance measure was achieved at 93.34% and 93.34% of the Target RSUs for the period were earned.
(11) Annual upside performance-based RSUs granted on November 15, 2017 that could be earned only to the extent the performance measure for 2018 was achieved. The performance measure was not met and these RSUs were forfeited.
(12) Long-term performance-based RSUs granted on June 20, 2018 that can be earned only to the extent the performance measures for each of the performance periods ending September 20, 2021, 2022 and 2023 are met. RSUs not earned in the first or second performance periods can be earned for the third performance period.
(13) Service-based promotion RSUs granted on March 7, 2018 that vest in three substantially equal installments in March 2019, March 2020 and March 2021.
(14) Craig Hayman left PTC in February 2018, at which time all his unvested equity was forfeited. Accordingly, he held no unvested equity at the end of 2018.

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Executive Compensation

Option Exercises and Stock Vested

The following table shows the value realized by executive officers upon vesting of restricted stock units during 2018. None of the named executive officers owned or exercised options in 2018.

Stock Awards
Name       Number of
Shares
Acquired on
Vesting
(#)(1)
      Value
Realized
on Vesting
($)(1)
James Heppelmann,
President and Chief Executive Officer
238,927  $ 15,272,214
Andrew Miller,
Executive Vice President, Chief Financial Officer
85,071 $ 5,437,738
Barry Cohen,
Executive Vice President, Chief Strategy Officer
82,163 $ 5,251,859
Matthew Cohen,
Executive Vice President, Field Operations
47,268 $ 3,021,371
Kathleen Mitford,
Executive Vice President, Products
8,936 $ 571,189
Craig Hayman,
Former Executive Vice President, Chief Operating Officer
125,747 $ 8,037,748
Anthony DiBona,
Former Executive Vice President, Focused Solutions
58,921 $ 3,766,230

(1) The table below shows the dates the RSUs that vested in 2018 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.

Grant Date     Grant Date
per Share
Value
    Vest Date     Value     James
Heppelmann
    Andrew
Miller
    Barry
Cohen
    Matthew
Cohen
    Kathleen
Mitford
    Craig
Hayman
    Anthony
DiBona
11/10/2014        $ 37.07 11/15/2017 $ 63.92 71,114 28,070 13,475 2,994 20,118
2/9/2015 $ 33.67 11/15/2017 $ 63.92 30,906
11/2/2015 $ 36.16 11/15/2017 $ 63.92 75,347 29,943 29,943 17,362 1,843 21,451
11/23/2015 $ 36.42 11/15/2017 $ 63.92 93,946
10/31/2016 $ 47.44 11/15/2017 $ 63.92 92,466 24,222 23,485 16,431 2,459 31,801 17,352
2/28/2017 $ 53.89 11/15/2017 $ 63.92 944
11/15/2017 $ 63.92 11/15/2017 $ 63.92 665 696

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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.

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 the agreement and the terms of the executive’s Non-Disclosure, Non-Competition and Invention Agreement with PTC, which remains in effect after the termination of the executive’s employment.

Summary of Executive Agreement Terms
Compensation on Change-in-Control and Certain Terminations

Event or 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 3 Years
following a
Change in
Control
     Disability
or Death
James Heppelmann
President & Chief Executive Officer
Base Salary 2x 3x
Target Bonus 2x 3x
Pro-Rated Target Bonus 1x Pro-Rated
Accelerated Equity 100% at Target (1)  100% at Target
Benefits Continuation(2) 2x 2x
Payment Term 2 Years Upon Event Upon Event Upon Event
Gross-Up Payment
 
All Other Named Executive Officers(3)
Andrew Miller
Barry Cohen
Matthew Cohen
Kathleen Mitford
Base Salary 1x 1x
Target Bonus 1x 1x
Pro-Rated Target Bonus 1x Pro-Rated
Accelerated Equity 100% at Target (1)  100% at Target
Benefits Continuation(2) 1x 1x
Payment Term Upon Event Upon Event Upon Event Upon Event
Gross-Up Payment

(1) Awards prior to FY2017 at Target; FY2017 and FY2018 awards at greater of Target and estimated achievement at time of change in control.
(2) Continued participation in PTC’s medical, dental, vision and basic life insurance benefit plans or payment in lieu thereof is such participation is not permissible until the executive becomes eligible for such benefits under another employer’s plans.
(3) As Craig Hayman was not employed by the company at year end and Tony DiBona had announced his retirement before year end, neither was entitled to any benefits upon termination or a change in control.

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Executive Compensation

Potential Payments on Termination or Change in Control
Had a Termination Event or a Change-In-Control Occurred on September 30, 2018

Event or Circumstances of Termination
Name       Termination
without Cause
      Termination for
Cause or
Voluntary
Resignati
on
     Change in
Control
      Termination
without Cause
or Resignation
for Good Reason
within 3 Years
following a Change
in Control
(1)
     Disability
or Death(1)
James Heppelmann
President & Chief Executive Officer
Base Salary         $ 1,600,000            $ 2,400,000
Target Bonus $ 2,000,000 $ 3,000,000
Pro-Rated Target Bonus  $ 1,000,000
Accelerated Equity $ 94,666,367  $ 94,666,367
Benefits Continuation $ 122,859 $ 122,859
Total $ 3,722,682                  $ 0 $ 1,000,000 $ 100,189,226 $ 94,666,367
Andrew Miller
Executive Vice President, Chief Financial Officer
Base Salary $ 415,000 $ 415,000
Target Bonus $ 350,000 $ 350,000
Pro-Rated Target Bonus $ 350,000
Accelerated Equity $ 24,250,504 $ 24,250,504
Benefits Continuation $ 62,047 $ 62,047
Total $ 827,047 $ 0 $ 350,000 $ 25,077,551 $ 24,250,504
Barry Cohen
Executive Vice President, Chief Strategy Officer
Base Salary $ 415,000 $ 415,000
Target Bonus $ 350,000 $ 350,000
Pro-Rated Target Bonus $ 350,000
Accelerated Equity $ 13,559,826 $ 13,559,826
Benefits Continuation $ 54,773 $ 54,773
Total $ 819,773 $ 0 $ 350,000 $ 14,379,599 $ 13,559,826
Matthew Cohen
Executive Vice President, Field Operations
Base Salary $ 415,000 $ 415,000
Target Bonus $ 350,000 $ 350,000
Pro-Rated Target Bonus $ 350,000
Accelerated Equity $ 10,980,152 $ 10,980,152
Benefits Continuation $ 42,177 $ 42,177
Total $ 807,177 $ 0 $ 350,000 $ 11,787,329 $ 10,980,152
Kathleen Mitford
Executive Vice President, Products
Base Salary $ 375,000 $ 375,000
Target Bonus $ 300,000 $ 300,000
Pro-Rated Target Bonus $ 300,000
Accelerated Equity $ 3,759,869 $ 3,759,869
Benefits Continuation $ 42,074 $ 42,074
Total $ 717,074 $ 0 $ 300,000 $ 4,476,943 $ 3,759,869

(1) Equity is valued based on a closing stock price of $106.19 on September 28, 2018.

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CEO Pay Ratio

The Dodd-Frank Act requires us to disclose the annual total compensation of our median paid employee, the annual total compensation of our CEO and the ratio between the two. We identified our median employee using a consistently applied compensation measure (CACM) approximating total direct compensation (base salary + short-term incentive target + long-term incentive target + 401(k) Plan Match) for 2018 for each of our worldwide employees as of September 27, 2018 (the final month in our 2018 fiscal year), excluding our CEO. We did not exclude any portion of our total worldwide employee population from this analysis. We applied the CACM in accordance with the applicable rules governing inclusion of part-time and temporary employees and prohibiting annualization of seasonal or temporary contracts. All employee compensation was converted to the U.S. dollar equivalent based on applicable exchange rates for the period, based on the September 27, 2018 date on which the worldwide employee data was collected. After identifying the median employee using this methodology, we calculated the annual total compensation for this employee using the same methodology we used for our CEO set forth in the 2018 Summary Compensation Table in this proxy statement.

We determined that the total annual compensation for our CEO for 2018 (including the special performance-based equity grant described below) was $49,969,162.88 and the total annual compensation of our median employee for 2018 was $77,180.84, resulting in a ratio of 647:1. Our CEO’s compensation for 2018 included a long-term performance-based equity grant that covers a five-year performance period tied to achievement of FY2021, FY2022 and FY2023 adjusted free cash flow targets. This grant is not considered part of his annual compensation or his target total annual compensation. (This equity grant is described in COMPENSATION DISCUSSION AND ANALYSIS – Long-Term Performance-Based Equity Grant to CEO and CFO.) If that equity grant is excluded from our CEO’s total annual compensation for 2018, his total annual compensation for 2018 would have been $9,969,163.28, resulting in a ratio of 129:1.

To put these ratios into context, we note that we have a worldwide employee population, with approximately 65% of our employees located outside the U.S. where the competitive amounts we pay differ by country and region. The competitive compensation rates we pay in those countries significantly impact the pay ratio.

We also note that the SEC rules for identifying the median employee and calculating the pay ratio based on that employee's annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions and to make reasonable estimates and assumptions that reflect their compensation practices. As such, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have a different geographic distribution of employees, different employment and compensation practices and may use different methodologies, exclusions, estimates and assumptions in calculating their pay ratios.

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Proposal 4
Advisory Vote to Confirm the Selection of PricewaterhouseCoopers LLP as our Independent Registered Public Accounting Firm for 2019

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, 2019.

Although stockholder confirmation of the selection of PricewaterhouseCoopers LLP is not required by law or our by-laws, and this vote is only advisory, the Board 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 2019.
   

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.

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Proposal 4

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.

PricewaterhouseCoopers LLP Professional Services and Fees

The table below shows the fees we paid for professional services rendered by PricewaterhouseCoopers LLP for 2018 and 2017. All of the fees disclosed below were pre-approved by the Audit Committee in accordance with the policy described above.

PricewaterhouseCoopers LLP Services and Fees

Type of Professional Service      Fiscal 2018      Fiscal 2017
Audit Fees  $ 2,546,354  $ 2,427,219
Audit-Related Fees(1) $ 416,971 $ 160,848
Tax Fees(2) $ 2,185,977 $ 1,478,003
All Other Fees(3) $ 2,700 $ 1,800

(1)

Consists principally of fees for services related to 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 2018         Fiscal 2017
  Tax compliance and preparation services (comprised of preparation of original and amended tax returns, claims for refunds, and tax payment planning services)  $ 575,888 $ 288,717
  Tax compliance services related to PTC’s expatriate employees $ 350,000 $ 530,805
  Other tax services, including tax planning and advice services and assistance with tax audits $ 1,260,089 $ 658,482
  Total $ 2,185,977  $ 1,478,003

(3)

Consists of fees for accounting research and compliance software.

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Proposal 4

Report of the Audit Committee

The Audit Committee:

Reviewed and discussed the audited financial statements for 2018 with management and with PricewaterhouseCoopers LLP;
Discussed with PricewaterhouseCoopers LLP the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees, issued by the Public Company Accounting Oversight Board;
Discussed with PricewaterhouseCoopers LLP its independence from PTC and its management, including the matters in the letter and written disclosures received from PricewaterhouseCoopers LLP as required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor’s communications with the Audit Committee concerning independence; and
Considered whether the independent auditor’s provision of the non-audit related services to PTC that are described above is compatible with maintaining independence.

Based on the Committee’s review and discussions with management and PricewaterhouseCoopers LLP and the Committee’s review of the independent auditor’s report to the Committee, the Committee recommended to the Board of Directors that the audited financial statements be included in PTC’s Annual Report on Form 10-K for the year ended September 30, 2018 for filing with the Securities and Exchange Commission.

Audit Committee

Paul Lacy, Chairman
Phillip Fernandez
Corinna Lathan
Robert Schechter

Attendance at the Annual Meeting

Representatives of PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting and will have the opportunity to make a statement if they so desire and will also be available to respond to appropriate questions from stockholders.

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Information about PTC Common Stock Ownership

Stockholders that Own at least 5% of PTC

The following table shows all persons we believe to be beneficial owners of more than 5% of PTC common stock as of November 30, 2018. “Beneficial owners” of PTC common stock are those who have the power to vote or to sell that stock. Our information is based in part on reports filed with the Securities and Exchange Commission (SEC) by the firms listed in the table below. If you wish, you may obtain these reports from the SEC.

Stockholder       Number of Shares
Beneficially Owned
(1)
      Percentage of
Common Stock
Outstanding
(2)
FMR LLC 13,852,752 (3) 11.67 %
Abigail P. Johnson
245 Summer Street
Boston, MA 02210
Rockwell Automation, Inc. 10,582,010 (4) 8.92 %
1201 South Second Street
Milwaukee, WI 53204
BlackRock, Inc. 9,866,951 (5) 8.31 %
55 East 52nd Street
New York, NY 10022
The Vanguard Group 9,668,585 (6) 8.15 %
100 Vanguard Boulevard
Malvern, PA 19355

(1)

Shares beneficially owned based on information available to us and applicable regulations. This does not constitute an admission by any stockholder that such stockholder beneficially owns the shares listed. Unless otherwise indicated, each stockholder referred to above has sole voting and investment power over the shares listed.

(2)

For purposes of determining the percentage of common stock outstanding, the number of shares deemed outstanding consists of the 118,675,519 shares outstanding as of November 30, 2018.

(3)

As reported on Schedule 13G filed on April 10, 2018, FMR LLC has sole voting power over 1,121,102 of such shares and, with Ms. Johnson, sole dispositive power over all 13,852,752 shares. The Schedule 13G reports that FMR LLC is a parent holding company for investment management companies whose client accounts hold such shares and that one such subsidiary, FMR Co., Inc., is the beneficial owner of 5% or greater of PTC common stock.

(4)

As reported on Schedule 13D filed on July 30, 2018, Rockwell Automation Inc. has sole voting and dispositive power over all 10,582,010 shares.

(5)

As reported on Schedule 13G filed January 29, 2018, BlackRock, Inc. is a parent holding company that has beneficial ownership of the shares reported through its subsidiaries. BlackRock has sole voting power over 9,459,936 of such shares and sole dispositive power over all 9,866,951 shares.

(6)

As reported on Schedule 13G filed February 9, 2018, The Vanguard Group is an investment adviser that has sole voting power over 64,635 of such shares, shared voting power over 13,524 of such shares, sole dispositive power over 9,599,521 of such shares and shared dispositive power over 69,064 of such shares.

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Information about PTC Common Stock Ownership

Stock Owned by Directors and Officers

The following table shows the PTC common stock beneficially owned by PTC’s current directors and named executive officers, as well as all current directors and executive officers as a group, as of November 30, 2018.

Director or Executive Officer       Number of Shares
Beneficially
Owned
(1)
      Percentage of
Common Stock
Outstanding
(2)
Janice Chaffin 41,670 0.04 %
Phillip Fernandez 20,412 0.02 %
Donald Grierson 51,784 0.04 %
Klaus Hoehn 25,011 0.02 %
Paul Lacy 62,070 0.05 %
Corinna Lathan 4,644 0.00 %
Blake Moret 10,582,010 (3) 8.92 %
Robert Schechter 67,207 0.06 %
James Heppelmann 713,098 0.60 %
Andrew Miller 47,601 0.04 %
Barry Cohen 55,002 0.05 %
Matthew Cohen 59,485 0.05 %
Kathleen Mitford 9,828 0.01 %
All directors, nominees for director, and current executive officers as a group (14 persons) 11,762,603 9.91 %

(1) Shares beneficially owned based on information available to us and applicable regulations. This does not constitute an ad