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. )

 

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Filed by a Party other than the Registrant o

 

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þ  Definitive Proxy Statement

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o  Soliciting Material Pursuant to §240.14a-12

 

 

ADVANCED ENERGY INDUSTRIES, 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 ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 4, 2011

 

To Our Stockholders:

 

The 2011 Annual Meeting of Stockholders of Advanced Energy Industries, Inc. (“Advanced Energy” or the “Company”) will be held on Wednesday, May 4, 2011, at 10:00 a.m. Mountain Daylight Time, at Advanced Energy’s corporate offices, 1625 Sharp Point Drive, Fort Collins, Colorado 80525. At the meeting, you will be asked to vote on the following matters:

 

1. Election of eight (8) directors.

 

2. Ratification of the appointment of Grant Thornton LLP as Advanced Energy’s independent registered public accounting firm for 2011.

 

3. Advisory vote on executive compensation.

 

4. Advisory vote on the frequency of future advisory votes on executive compensation.

 

5. Any other matters of business properly brought before the meeting.

 

Each of the matters 1 through 4 is described in detail in the accompanying proxy statement, dated March 16, 2011.

 

If you owned common stock of Advanced Energy at the close of business on Monday, March 7, 2011, you are entitled to receive this notice and to vote at the meeting.

 

All stockholders are cordially invited to attend the meeting in person. If you do not plan to attend the meeting and vote your shares of common stock in person, please authorize a proxy to vote your shares in one of the following ways:

 

 

Any proxy may be revoked at any time prior to its exercise at the annual meeting.

 

By Order of the Board of Directors,

 

Thomas O. McGimpsey

Senior Vice President, General Counsel & Corporate Secretary

 

Fort Collins, Colorado

March 16, 2011

 

 

 

 

Please come to our 2011 Annual Meeting of Stockholders to learn about Advanced Energy, what we have accomplished in the last year and our plans for 2011. The meeting will be held:

 

Wednesday, May 4, 2011
10:00 a.m. Mountain Daylight Time
Advanced Energy’s Corporate Offices
1625 Sharp Point Drive
Fort Collins, Colorado 80525

 

This proxy statement describes the matters that management of Advanced Energy intends to present to the stockholders for approval at the annual meeting. Accompanying this proxy statement are Advanced Energy’s 2010 Annual Report to Stockholders and a form of proxy. All voting on matters presented at the annual meeting will be by proxy or by ballot in person, in accordance with the procedures described in this proxy statement. Instructions for voting are included in the proxy statement. Your proxy may be revoked at any time prior to the meeting in the manner described in this proxy statement.

 

I look forward to seeing you at the meeting.

 

 

Hans Georg Betz

Chief Executive Officer

 

This proxy statement and the accompanying proxy card are first being sent to stockholders on or about March 16, 2011.

 

GENERAL

 

This proxy statement and the accompanying materials are being sent to stockholders of Advanced Energy as part of a solicitation for proxies for use at the 2011 Annual Meeting of Stockholders. The Board of Directors of Advanced Energy (the “Board of Directors” or the “Board”) is making this solicitation for proxies. By delivering the enclosed proxy card by any of the methods described on the card, you will appoint each of Hans Georg Betz and Thomas O. McGimpsey as your agent and proxy to vote your shares of common stock at the meeting. In this proxy statement, “proxy holders” refers to Dr. Betz and Mr. McGimpsey in their capacities as your agents and proxies.

 

Advanced Energy’s principal executive offices are located at 1625 Sharp Point Drive, Fort Collins, Colorado 80525. The telephone number is (970) 221-4670.

 

Proposals

 

We intend to present four (4) proposals to the stockholders at the meeting:

 

1. Election of eight (8) directors.

 

2. Ratification of the appointment of Grant Thornton LLP as Advanced Energy’s independent registered public accounting firm for 2011.

 

3. Advisory vote on executive compensation.

 

4. Advisory vote on the frequency of future advisory votes on executive compensation.

 

We do not know of any other matters to be submitted to the stockholders at the meeting. If any other matters properly come before the meeting, the proxy holders intend to vote the shares they represent as the Board of Directors may recommend.

 

Record Date and Share Ownership

 

If you owned shares of Advanced Energy common stock in your name as of the close of business on Monday, March 7, 2011, you are entitled to vote on the proposals that are presented at the meeting. On that date, which is referred to as the “record date” for the meeting, 43,499,787 shares of Advanced Energy common stock were issued and outstanding and were held by approximately 540 stockholders of record, according to the records of American Stock Transfer & Trust Company, Advanced Energy’s transfer agent.

 

Voting Procedures

 

Each share of Advanced Energy common stock that you hold entitles you to one vote on each of the proposals that are presented at the annual meeting. The inspector of the election will determine whether or not a quorum is present at the annual meeting. A quorum will be present at the meeting if a majority of the shares of common stock entitled to vote at the meeting are represented at the meeting, either by proxy or by the person who owns the shares. Advanced Energy’s transfer agent will deliver a report to the inspector of election in advance of the annual meeting, tabulating the votes cast by proxies returned to the transfer agent. The inspector of election will tabulate the final vote count, including the votes cast in person and by proxy at the meeting.

 

If a broker holds your shares, this proxy statement and a proxy card have been sent to the broker. You may have received this proxy statement directly from your broker, together with instructions as to how to direct the broker concerning how to vote your shares. Under the rules for Nasdaq-quoted companies, brokers cannot vote on certain matters without instructions from you. If you do not give your broker instructions or discretionary authority to vote your shares on such matters and your broker returns the proxy card without voting on a proposal, your shares will be recorded as “broker non-votes” with respect to the proposals on which the broker does not vote.

 

Broker non-votes and abstentions will be counted as present for purposes of determining whether a quorum is present. If a quorum is present, directors will be elected by a plurality of the votes present and each of the other matters described in this proxy statement will be approved by a majority of the votes cast on the proposal. Broker non-votes and abstentions will have no effect on the outcome of any of the matters described in this proxy statement.

The following table reflects the vote required for each proposal and the effect of broker non-votes and abstentions on the vote, assuming a quorum is present at the meeting:

 

 

If any other proposals are properly presented to the stockholders at the meeting, the number of votes required for approval will depend on the nature of the proposal. Generally, under Delaware law and the By-laws of Advanced Energy, the number of votes that may be required to approve a proposal is either a majority of the shares of common stock represented at the meeting and entitled to vote, or a majority of the shares of common stock represented at the meeting and casting votes either for or against the matter being considered. The enclosed proxy card gives discretionary authority to the proxy holders to vote on any matter not included in this proxy statement that is properly presented to the stockholders at the annual meeting.

 

Costs of Solicitation

 

Advanced Energy will bear the costs of soliciting proxies in connection with the annual meeting. In addition to soliciting your proxy by this mailing, proxies may be solicited personally or by telephone or facsimile by some of Advanced Energy’s directors, officers and employees, without additional compensation. We may reimburse our transfer agent, American Stock Transfer & Trust Company, our proxy agent, Mediant Communications, brokerage firms and other persons representing beneficial owners of Advanced Energy common stock for their expenses in sending proxies to the beneficial owners.

 

Delivery and Revocability of Proxies

 

You may vote your shares either by (i) marking the enclosed proxy card and mailing it in the enclosed postage prepaid envelope, (ii) voting online at www.proxypush.com/aeis, or (iii) voting by telephone at (866) 390-9955. If you mail your proxy, please allow sufficient time for it to be received in advance of the annual meeting.

 

If you deliver your proxy and change your mind before the meeting, you may revoke your proxy by delivering notice to our Corporate Secretary at Advanced Energy Industries, Inc., 1625 Sharp Point Drive, Fort Collins, Colorado 80525, stating that you wish to revoke your proxy or by delivering another proxy with a later date. You may vote your shares by attending the meeting in person but, if you have delivered a proxy before the meeting, you must revoke it before the meeting begins. Attending the meeting will not automatically revoke your previously-delivered proxy.

 

Delivery of Documents to Stockholders Sharing an Address

 

If two or more stockholders share an address, Advanced Energy may send a single copy of this proxy statement and other soliciting materials, as well as the 2010 Annual Report to Stockholders, to the shared address, unless Advanced Energy has received contrary instructions from one or more of the stockholders sharing the address. If a single copy has been sent to multiple stockholders at a shared address, Advanced Energy will deliver a separate proxy card for each stockholder entitled to vote. Additionally, Advanced Energy will send an additional copy of this proxy statement, other soliciting materials and the 2010 Annual Report to Stockholders, promptly upon oral or written request by any stockholder to Investor Relations, Advanced Energy Industries, Inc., 1625 Sharp Point Drive, Fort Collins, Colorado 80525; telephone number (970) 221-4670. If any stockholders sharing an address receive multiple copies of this proxy statement, other soliciting materials and the 2010 Annual Report to Stockholders and would prefer in the future to receive only one copy, such stockholders may make such request to Investor Relations at the same address or telephone number.

 

PROPOSAL NO. 1

 

ELECTION OF DIRECTORS

 

A board of eight (8) directors is to be elected at the annual meeting. The Board of Directors has nominated for election the persons listed below. Each of the nominees is currently a director of Advanced Energy. In the event that any nominee is unable to or declines to serve as a director at the time of the meeting, the proxy holders will vote in favor of a nominee designated by the Board of Directors, on recommendation by the Nominating and Governance Committee to fill the vacancy. We are not aware of any nominee who will be unable or who will decline to serve as a director. The term of office of each person elected as a director at the meeting will continue from the end of the meeting until the next Annual Meeting of Stockholders (expected to be held in the year 2012), or until a successor has been elected and qualified or until such director’s earlier resignation or removal.

 

NOMINEES

 

 

 

 

The Board of Directors has determined that each of the nominees, other than Douglas S. Schatz and Hans Georg Betz, is an “independent director” within the meaning of the Nasdaq Stock Market rules. To be considered independent, the Board must affirmatively determine, among other things, that neither the director nor any immediate family member of the director has had any direct or indirect material relationship with the Company within the last three years. The Board of Directors has made an affirmative determination that none of the independent directors has had any relationship with Advanced Energy or with another director that would interfere with the exercise of his independent judgment in carrying out his responsibilities as a director. In making this independence determination, the Board considered the potential effects of two of our directors concurrently providing management and consulting services to a company other than Advanced Energy, two of our directors concurrently serving on the board of directors of a company other than Advanced Energy and a proposed joint research effort between a company affiliated with one of our directors and Advanced Energy. The independent directors, if all of them are elected at the annual meeting, will constitute a majority of the Board of Directors. There is no family relationship amongst any of the directors and executive officers of the Company. The Company’s executive officers serve at the discretion of the Board.

 

Qualifications

 

The Board respects its responsibility to provide oversight, counseling and direction to the management of the Company in the interest and for the benefit of the stockholders. Accordingly, it seeks to be comprised of directors with diverse skills, experience, qualifications and characteristics. It is critical that directors understand the markets in which the company operates, particularly in the semiconductor capital equipment and solar equipment industries. It is equally important that, collectively, the directors have successful experience in each of the primary aspects of our business, including engineering, research and development, finance and audit, product strategy and development, customer relations, supply chain management and sales and marketing. The following are qualifications, experience and skills for Board members which are important to the Company’s business and its future:

 

 

Douglas S. Schatz, our chairman, co-founder and former chief executive officer, brings to the Board significant experience in and a deep understanding of the thin-film equipment markets and of the Company itself. Additionally,

his more recent involvement in the solar equipment industry provides the Board with insight to this market and the technologies being developed. The Board and senior management also benefit from Mr. Schatz’s technological and engineering perspective and understanding. In addition to his technical qualifications, Mr Schatz’s experience as Chief Executive Officer and President of the Company provides expertise in senior leadership and financial management. As chairman of the board of a solar panel manufacturer, Mr. Schatz also provides experience as a director on other boards.

 

Hans Betz, our chief executive officer, brings to the Board an extensive technical background, as well as broad experience in senior management and as a venture capitalist in the electronics and other technology industries. Dr. Betz also has particular skills and experience in engineering, research and development, product strategy and development, customer relations and doing business in Europe. Dr. Betz’s experience as the Chief Executive Officer of a German-based venture capital company provides global expertise in the high-technology industry.

 

Fred Ball brings to the board his extensive experience in senior management, operations, finance and auditing, as he is currently the Chief Financial Officer of a software security solutions provider and has served as Chief Financial Officer, Chief Operating Officer and Senior Vice President of various software providers. Mr. Ball’s 10 years of expertise as an accountant with PriceWaterhouseCoopers also provides finance and accounting expertise. In addition, he also serves on another public company board and its audit committee. Mr. Ball’s balance of experience enables him to work very productively with both the board and senior management, particularly on strategic, finance and audit and executive compensation matters.

 

Richard Beck brings to the Board significant knowledge of the Company’s history and operations as he has been with the Company for 18 years. Mr. Beck served initially as our chief financial officer and remaining as a director following his retirement. Mr. Beck also has significant experience serving on other public company boards, as chairman of one as well as audit committee chair and nominations and corporate governance committees. Within the past several years, Mr. Beck has attended a number of corporate governance conferences and other educational programs. He has led the Board in establishing policies and procedures that have greatly improved the organization and functioning of the committees and the Board.

 

Trung Doan brings to the Board managerial experience in both start-up companies and leading, established technology companies. He shares with the Board and senior management his deep understanding of technology and engineering and how they relate to product strategy and development. Mr. Doan also has extensive experience doing business in Asia, which has been and continues to be important to the Company’s transition of high volume manufacturing to, and increasing supply chain and customer base in, Asia.

 

Edward Grady brings to the Board his knowledge and experience in both the semiconductor capital equipment and solar equipment industries, as he currently serves on a part-time basis as Chairman and Chief Executive Officer of an early stage solar equipment company, and has served as Chief Executive Officer of two companies providing services to the semiconductor industry. He shares with the Board and senior management the insight and understanding he has developed from his leadership at several companies, including in the areas of product strategy and development, service and organizational development. Mr. Grady also currently serves on the board of three technology companies, providing cross-board experience.

 

Thomas Rohrs brings to the Board executive management and operations experience in the semiconductor capital equipment industry, particularly in the areas of research and development, supply chain management and product development. The Board and senior management benefit from his strategic thinking and continued involvement in the semiconductor capital equipment and solar equipment industries. Mr. Rohrs also has significant experience serving on several other public company boards, where he has been Chairman of the Board, as well as a member of the compensation and nominating committees.

 

Terry Hudgens, brings to the Board a wealth of experience in the renewable energy and utility industries. He provides the Board and senior management with insight in respect of these industries, including doing business with regulated entities in the U.S. and Europe. Mr. Hudgens also brings senior leadership experience, having served as President and Chief Executive Officer of a renewal energy company, in addition to various management and operations positions with a number of utilities and energy companies.

Required Vote

 

The eight (8) nominees will be elected to the Board upon receipt of a favorable vote (FOR) of a plurality of the votes cast at the meeting. Stockholders do not have the right to cumulate their votes for the election of directors. Unless otherwise instructed, the proxy holders will vote the proxies received by them FOR each of the eight (8) nominees. Votes withheld from a nominee will be counted for purposes of determining whether a quorum is present, but will not be counted as an affirmative vote for such nominee.

 

The Board of Directors recommends a vote “FOR” the election of each of the nominees named above.

 

Director Compensation

 

Director compensation for the fiscal year ended December 31, 2010 was as follows:

 

 

Restricted stock units awarded to non-employee directors will vest as to 25% of the underlying shares on each annual anniversary of the grant date until fully vested on the fourth anniversary of the grant date.

 

In October 2010, the Compensation Committee reviewed an analysis of director compensation prepared by its compensation consultant. Based on benchmark data and after carefully considering the requirements of Board members, the Compensation Committee recommended and the Board approved changes from an activity-based to a role-based compensation structure effective for directors in 2011 as follows:

 

 

The Compensation Committee established a guideline that (i) directors hold equity for a period of three (3) years subject to extraordinary events or departure from the board, and (ii) that a director should target a stock ownership guideline of three (3) times his or her annual cash retainer.

 

The following table shows director compensation information for 2010.

 

2010 Director Compensation

 

 

 

 

Board of Directors Meetings

 

The Board of Directors held 10 meetings in 2010. In 2010, the Board of Directors had an Audit and Finance Committee, a Nominating and Governance Committee and a Compensation Committee. In 2010, each incumbent director attended at least 75% of the aggregate number of meetings of the Board of Directors (held during the period for which he was a director) and the committees (held during the period for which he served on such committees) on which he served.

 

Members of the Board of Directors are welcomed and encouraged, but not required, to attend the Company’s annual stockholder meetings. The annual meeting of the Company’s stockholders held on May 4, 2010 was attended by 3 members of the Board, Messrs. Betz, Grady and Doan.

 

Audit and Finance Committee

 

Composition and Meetings

 

The Company has a separately-designated standing audit committee established in accordance with section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. In 2010, the Audit and Finance Committee consisted of Messrs. Ball (Chairman), Beck, Doan and Rohrs. The Board determined that each of

the members of the Audit and Finance Committee is “independent” in accordance with the Nasdaq Stock Market rules and the Securities Exchange Act of 1934, as amended. The Board of Directors has evaluated the credentials of Messrs. Beck and Ball and determined that they are “audit committee financial experts” as defined under the SEC rules. The Audit and Finance Committee met 5 times in 2010.

 

Policy on Audit and Finance Committee Approval of Audit and Permissible Non-Audit Services of the Independent Registered Public Accounting Firm

 

The Audit and Finance Committee approves all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit related services, tax services and other services. Approval is provided on a service-by-service basis. In 2010, the Audit and Finance Committee approved all of the audit services provided by Advanced Energy’s independent registered public accounting firm.

 

Audit and Finance Committee Charter and Responsibilities

 

The Audit and Finance Committee is governed by a written charter, which is available on our website at www.advancedenergy.com. The Audit and Finance Committee is responsible for, among other things:

 

 

The Audit and Finance Committee also conducts financial reviews with Advanced Energy’s independent registered public accounting firm prior to the release of financial information in the Company’s Forms 10-K and 10-Q.

 

Management has primary responsibility for Advanced Energy’s financial statements and the overall reporting process, including systems of internal controls. The independent registered public accounting firm audits the annual financial statements prepared by management, expresses an opinion as to whether those financial statements fairly present the financial position, results of operations and cash flows of Advanced Energy in conformity with accounting principles generally accepted in the United States and discusses with the Audit and Finance Committee any issues they believe should be raised.

 

Report of the Audit and Finance Committee

 

The Audit and Finance Committee has reviewed Advanced Energy’s audited financial statements, and met together and separately with both management and Grant Thornton LLP, the Company’s current independent registered public accounting firm, to discuss Advanced Energy’s quarterly and annual financial statements and

reports prior to issuance. In addition, the Audit and Finance Committee has discussed with the independent registered public accounting firm the matters outlined in Statement on Auditing Standards No. 61, as amended (Communication with Audit Committees), to the extent applicable and received the written disclosures and the letter from the independent registered public accounting firm required by the applicable requirements of the Public Company Accounting Oversight Board. The Audit and Finance Committee has also discussed with the independent registered public accounting firm the independent accountant’s independence.

 

Based on its review and discussion of the foregoing matters and information, the Audit and Finance Committee recommended to the Board of Directors that the audited financial statements be included in Advanced Energy’s 2010 Annual Report on Form 10-K. The Audit and Finance Committee has recommended the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for 2011.

 

The Audit and Finance Committee

Frederick A. Ball, Chairman
Richard P. Beck
Trung T. Doan
Thomas M. Rohrs

 

Nominating and Governance Committee

 

Composition and Meetings

 

The Nominating and Governance Committee consists of Messrs. Beck (Chairman), Grady and Hudgens. Each of the members of the Nominating and Governance Committee was and is an “independent director” within the meaning of the Nasdaq Stock Market rules. The Nominating and Governance Committee met 3 times in 2010.

 

Nominating and Governance Committee Charter and Responsibilities

 

The Nominating and Governance Committee is governed by a written charter and Corporate Governance Guidelines that are available on our website at www.advancedenergy.com.

 

The Nominating and Governance Committee is responsible for:

 

 

Director Nominations

 

The Nominating and Governance Committee evaluates and interviews potential director candidates. All members of the Board may interview the final candidates. The Nominating and Governance Committee of the Board considers candidates for director nominees proposed by directors and stockholders, as described in more detail below. This committee may retain recruiting professionals to assist in identifying and evaluating candidates for director nominees. The Nominating and Governance Committee has no stated specific or minimum qualifications that must be met by a Board candidate. However, as set forth in the Company’s Board Governance Guidelines, the Nominating and Governance Committee strives for a mix of skills and diverse perspectives (functional, cultural and geographic) that is effective for the Board. In selecting nominees, the Board assesses the independence, character and acumen of candidates. The Board also endeavors to establish a number of areas of collective core competency of the Board. Therefore, the Board assesses whether a candidate possesses skills including business judgment, leadership, strategic vision and knowledge of management, accounting, finance, industry, technology, manufacturing, international markets and marketing. Additional criteria include a candidate’s personal and professional ethics, integrity and values, as well as his or her willingness to devote sufficient time to prepare for and attend meetings and participate effectively on the Board.

 

The Corporate Governance Guidelines provide that the Nominating and Governance Committee is responsible for reviewing with the Board from time to time the appropriate skills and characteristics required of Board members in the context of the current make-up of the Board. This assessment should include issues of diversity in numerous factors such as age; understanding of and experience in manufacturing, technology, finance and marketing; and international experience. These factors, and others as considered useful by the Board, are reviewed in the context of an assessment of the perceived needs of the Board at a particular point in time.

 

The Nominating and Governance Committee will consider any and all director candidates recommended by our stockholders. The Nominating and Governance Committee will apply the same processes and criteria in evaluating director candidates recommended by stockholders as it applies in evaluating director candidates recommended by directors, members of management or any other person. If you are a stockholder and wish to recommend a candidate for nomination to the Board of Directors, you should submit your recommendation in writing to the Nominating and Governance Committee, in care of the Corporate Secretary of Advanced Energy at 1625 Sharp Point Drive, Fort Collins, Colorado 80525. Your recommendation should include your name and address, the number of shares of Advanced Energy common stock that you own, the name of the person you recommend for nomination, the reasons for your recommendation, a summary of the person’s business history and other qualifications as a director of Advanced Energy and whether such person has agreed to serve, if elected, as a director of Advanced Energy. Please also see the information under “Proposals of Stockholders” on page 38 of this proxy statement.

 

Compensation Committee

 

Composition and Meetings

 

The Compensation Committee consists of Messrs. Rohrs (Chairman), Doan, Grady and Hudgens. Each of the members of the Compensation Committee is a “non-employee director” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, an “outside director” within the meaning of Section 162(m) under the Internal Revenue Code and an “independent director” within the meaning of the Nasdaq Stock Market rules. The Compensation Committee met 5 times in 2010.

 

Committee Charter and Responsibilities

 

The Compensation Committee is governed by a written charter, which is available on our website at www.advancedenergy.com. The Compensation Committee is responsible for recommending salaries, incentives and other compensation for directors and officers of Advanced Energy, administering Advanced Energy’s incentive compensation and benefit plans and recommending to the Board of Directors policies relating to such compensation and benefit plans. The Compensation Committee has also, from time to time, retained an independent compensation consultant to assist and advise the Compensation Committee in fulfilling these responsibilities.

Board Governance Structure

 

The Corporate Governance Guidelines set forth the Board’s policy that the positions of Chairman of the Board and Chief Executive Officer should be held by separate persons as an aid in the Board’s oversight of management. The Company believes this board leadership structure is most appropriate for the Company because it provides the Board with increased independence.

 

Senior management manages material risks and reports directly to the Board. As part of its general oversight role, the Board reviews business reports from management that routinely outlines operational risks that may exist from time to time. In addition, for risks related more specifically to the financial operations of the Company, such as credit risk and liquidity risk, the Audit Committee examines reports from management and reviews such risks in light of the Company’s business operations.

 

PROPOSAL NO. 2

 

RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

On February 28, 2011, the Audit and Finance Committee approved the continued appointment of Grant Thornton LLP for 2011 as the Company’s independent registered public accounting firm. If the stockholders fail to ratify the appointment of Grant Thornton LLP, the Audit and Finance Committee will reconsider its selection. Even if the selection is ratified, the Audit and Finance Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit and Finance Committee feels that such a change would be in the best interests of Advanced Energy and our stockholders.

 

A representative of Grant Thornton LLP is expected to be present at the meeting and will have an opportunity to make a statement if he or she so desires. Moreover, the representative is expected to be available to respond to appropriate questions from the stockholders.

 

Audit Fees

 

The following table presents fees paid by Advanced Energy for professional services rendered by Grant Thornton, LLP for 2009 and 2010. We did not pay any fees to Grant Thornton, LLP for tax compliance, tax advice, tax planning or other services during 2009 or 2010. All of the fees in the following table were approved by the Audit Committee in conformity with its pre-approval process. Pre-approval generally is provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and generally is subject to a specific budget. The independent registered public accounting firm and Advanced Energy’s management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, including the fees for the services performed to date. In addition, the Audit Committee also may pre-approve particular services on a case-by-case basis, as required.

 

 

Audit Fees consisted of fees for (a) professional services rendered for the annual audit of Advanced Energy’s consolidated financial statements and internal controls over financial reporting, (b) review of the interim consolidated financial statements included in quarterly reports, and (c) services that are typically provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements.

 

Audit-Related Fees consisted of fees for assurance and related services that were reasonably related to the performance of the audit or review of Advanced Energy’s consolidated financial statements and are not reported under “Audit Fees.”

 

Required Vote

 

Ratification of the appointment of Grant Thornton LLP as the independent registered public accounting firm for Advanced Energy for 2011 requires the affirmative (FOR) vote of a majority of the shares of common stock cast on the matter. For purposes of determining the number of votes cast on the matter, only those cast “For” or “Against” are included. Abstentions and broker non-votes are not included.

 

The Board of Directors recommends a vote “FOR” the ratification of the appointment of Grant Thornton LLP as Advanced Energy’s independent registered public accounting firm.

 

PROPOSAL NO. 3

 

ADVISORY VOTE ON EXECUTIVE COMPENSATION

 

We are providing our stockholders an opportunity to indicate whether they approve of our named executive officer compensation as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables and narrative discussion in this proxy statement. The proposal is required pursuant to Section 14A of the Securities Exchange Act of 1934, as amended. Although this vote is advisory and is not binding on the Company, the Compensation Committee of the Board will take into account the outcome of the vote when considering future executive compensation decisions. Accordingly, stockholders are being asked to vote “FOR” the following resolution:

 

“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.”

 

This advisory vote, commonly referred to as “say on pay,” is not intended to address any specific item of compensation, but instead relates to the Compensation Discussion and Analysis, the tabular disclosures regarding named executive officer compensation, and the narrative disclosure accompanying the tabular presentation. These disclosures allow you to view the trends in our executive compensation program and the application of our compensation philosophies for the years presented.

 

Advanced Energy’s compensation program is designed and administered by the Compensation Committee, which is composed entirely of independent directors. We carefully consider many different factors, as described in the Compensation Discussion and Analysis, in order to provide appropriate compensation for our executives. Our executive compensation program is intended to attract, motivate and reward the executive talent required to achieve our corporate objectives and increase stockholder value. The Compensation Committee has designed our compensation program to be competitive with the compensation offered by those peers with whom we compete for executive talent. Targets for base salaries, annual cash incentive and long-term incentive awards for executives factor in competitive data. A large proportion of our executive officers’ total potential compensation is performance-based in order to align their interests with those of our stockholders and place more of their compensation at risk and emphasize a long-term strategic view. The Compensation Committee deliberately designs compensation objectives in order to allocate a significant percentage of each of our named executive officers’ compensation to performance-based measures. As discussed in the Compensation Discussion and Analysis beginning on page 22 of this proxy statement, we believe that our executive compensation program properly links executive compensation to Company performance and aligns the interests of our executive officers with those of our stockholders. For example:

 

 

Required Vote

 

The votes on Proposal No. 3 are advisory in nature and, therefore, are not binding on Advanced Energy. For purposes of determining the number of votes cast on the matter, only those cast “For” or “Against” are included. Abstentions and broker non-votes are not included.

Unless otherwise indicated, properly executed proxies will be voted in favor of Proposal No. 3 to approve the compensation of Advanced Energy’s named executive officers as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the related disclosure contained in this proxy statement set forth under the caption “Executive Compensation” of this proxy statement.

 

The Board of Directors recommends a vote “FOR” the Approval of the compensation of Advanced Energy’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables and narrative discussion.

 

PROPOSAL NO. 4

 

ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE

COMPENSATION.

 

We are seeking an advisory vote on the frequency with which say-on-pay votes, similar to Proposal 3 in this proxy statement, should be held in the future. This advisory vote is commonly referred to as “say on frequency” or “say when on pay.” This proposal is required pursuant to Section 14A of the Securities Exchange Act of 1934, as amended. Because this proposal is advisory, it will not be binding on the Company, and the Board and the Compensation Committee may determine to hold an advisory vote on executive compensation more or less frequently than the option selected by our stockholders. However, the Board values our stockholders’ opinions, and the Board will consider the outcome of the vote when determining the frequency of future advisory votes on executive compensation. Stockholders may vote to indicate their preference for conducting a say-on-pay vote:

 

 

Stockholders may also abstain from voting on this proposal.

 

The Board believes that a three-year advisory vote on executive compensation is the best approach for Advanced Energy based on a number of considerations, including the following:

 

 

Required Vote

 

The votes on Proposal No. 4 are advisory in nature and, therefore, are not binding on Advanced Energy. For purposes of determining the votes cast on the matter, abstentions and broker non-votes are not included. In addition, since shareowners have several voting choices, it is possible that no single choice will receive a majority or plurality of the votes cast. In light of the foregoing, the Board will consider the outcome of the vote when determining the frequency of holding the say on pay vote. While the Board is making a recommendation with respect to this proposal, shareowners are being asked to vote on the choices specified above, and not whether they agree or disagree with the Board’s recommendation.

 

Unless otherwise indicated, properly executed proxies will be voted on Proposal No. 4 to include an advisory vote on the compensation of Advanced Energy’s named executive officers pursuant to Section 14A of the Securities Exchange Act of 1934, as amended, every 3 years.

 

The Board of Directors recommends that you vote to hold an advisory vote on executive compensation every three (3) years.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth the beneficial ownership of Advanced Energy common stock as of February 1, 2011 by:

 

 

 

 

 

 

 

 

 

Pledged Shares

 

In November 2002, Douglas S. Schatz, our Chairman of the Board, his wife and the family trust of Mr. Schatz and his wife entered into a revolving line of credit with Silicon Valley Bank. The family trust pledged Advanced Energy common stock under a pledge and security agreement as collateral for the line of credit. Since November 2002, the credit limit on the line of credit has fluctuated and has been secured by the same pledge and security agreement. During 2010, the number of shares subject to the pledge and security agreement has fluctuated from 4.03 million to 5.64 million and other affiliates of Mr. Schatz have pledged certain real estate assets as additional collateral. As of March 8, 2011 the number of shares subject to the pledge and security agreement is 4,034,642 million shares, approximately 9.3% of the Advanced Energy common stock currently outstanding. The credit line, currently outstanding in the amount of $2.1 million, is renewable from year to year.

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Overview of 2010 Compensation

 

A significant portion of the compensation for executive officers varies with Company performance. In addition, the value of a portion of the compensation for executive officers is tied to the price of Company stock.

 

The Compensation Committee evaluates risks and rewards associated with the Company’s overall compensation philosophy and structure. Management discusses with the Compensation Committee the practices that have been put in place to identify and mitigate, as necessary, potential risks.

 

The Compensation Committee has been monitoring the ongoing economic conditions. For 2010, the Compensation Committee decided to restore compensation that had been reduced in 2009.

 

Compensation Philosophy and Objectives

 

Our Company’s long-term success depends on our ability to fulfill the expectations of our customers in a competitive environment and deliver value to stockholders. To achieve these goals, it is critical that we are able to attract, motivate, and retain highly talented individuals at all levels of the organization who are committed to the Company’s values and objectives.

 

The Company strives to provide compensation that is (a) linked to shareholder value creation, (b) reflective of the overall performance of the Company and each individual executive, and (c) considerate of the competitive market levels of compensation needed to continuously drive executive behaviors and recruit, retain and motivate top executive talent, while remaining consistent with the other objectives.

 

The Company’s executive compensation program is based on the same objectives that guide the Company in establishing all of its compensation programs:

 

 

Overview of Executive Compensation Program

 

The Compensation Committee

 

In 2010, the Compensation Committee consisted of Messrs. Rohrs, Doan, Grady and Hudgens. Each of the members of the Compensation Committee was and is a “non-employee director” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, an “outside director” within the meaning of Section 162(m)

under the Internal Revenue Code and an “independent director” within the meaning of the Nasdaq Stock Market rules. The Compensation Committee met 5 times in 2010.

 

The Compensation Committee has responsibility for establishing, implementing and monitoring adherence with the Company’s compensation philosophy. Accordingly, the Compensation Committee strives to develop and maintain competitive, progressive programs that attract, retain and motivate high-caliber employees, foster teamwork, and maximize the long-term success of Advanced Energy by appropriately rewarding our employees for their achievements. Pursuant to the Compensation Committee Charter, the Compensation Committee may form and delegate authority to subcommittees when appropriate.

 

The Compensation Committee has the authority to engage independent advisors to assist in making determinations with respect to the compensation of executives and other employees. In 2008, the Compensation Committee engaged Compensation Strategies Inc. to conduct a competitive review of executive compensation, analyzing the primary elements of compensation for the officers of the Company. In 2010, the Compensation Committee engaged Radford, an AON Consulting company, to conduct a competitive review of executive compensation, analyzing the primary elements of compensation for the officers of the Company. Information regarding the competitive review is provided below under the heading “Benchmarking Against Peer Companies.” The Radford review also included competitive information in connection with the hiring of Danny C. Herron as Chief Financial Officer and the promotion of Yuval Wasserman to President and Chief Operating Officer. Neither Compensation Strategies nor Radford has provided any other services to the Company or the Compensation Committee and neither has received compensation other than with respect to the services provided to the Compensation Committee.

 

Role of Executive Officers in Compensation Decisions

 

The Compensation Committee meets with the Company’s Chief Executive Officer and other senior executives in order to obtain recommendations with respect to the Company’s compensation programs and practices for executives and other employees. The Chief Executive Officer annually reviews the performance of each executive officer, other than himself. The Chief Executive Officer’s performance is reviewed by the Compensation Committee which makes recommendations to the full Board.

 

With support from market compensation data, performance reviews and other information, management makes recommendations to the Compensation Committee on the base salaries, bonus targets and equity compensation for the executive officers and other employees. The Compensation Committee takes management’s recommendations into consideration, but is not bound by management’s recommendations with respect to executive compensation.

 

While management attends certain meetings of the Compensation Committee, the Compensation Committee also holds executive sessions not attended by any members of management or by non-independent directors. The Compensation Committee makes all compensation decisions in respect of the executive officers and approves recommendations regarding equity awards to all employees of the Company.

 

Benchmarking Against Peer Companies

 

One factor that the Compensation Committee considers when making compensation decisions is the compensation paid to executives of a peer group of companies. The Compensation Committee also considers, and generally relies more heavily upon, other factors discussed below under the heading “Components of Executive Compensation.” Because the comparative compensation information is just one of several factors used to determine executive compensation, and such information is not collected every year, the Compensation Committee has broad discretion as to the extent to which it uses such information.

 

In initially setting 2010 compensation for our executive officers, the Compensation Committee reviewed the comparative analysis provided by Compensation Strategies in October 2008. The Compensation Committee also reviewed the Radford analysis in setting compensation for the newly appointed President and Chief Operating Officer as well as the newly appointed Chief Financial Officer. Further, the Compensation Committee reviewed the comparative analysis provided by Radford in July and October of 2010 to assess the compensation to our executive

officers as compared to executive officers in comparable positions at companies that the Compensation Committee, in consultation with Radford, considered to be our peers, although no adjustments were made to 2010 compensation following this review.

 

The peer companies utilized for the comparative review were chosen to represent direct competitors of Advanced Energy, companies in the semiconductor and electronic equipment industries and companies with which Advanced Energy competes for executive talent. The peer companies consist of the following 21 publicly traded companies from the semiconductor, electronic equipment and solar industries of roughly similar size to Advanced Energy:

 

 

The peer group has been updated significantly from the 2008 Compensation Strategies peer group to reflect Advanced Energy’s growing business. The Radford analysis indicated that, on average, Advanced Energy’s executive officers are compensated in the 50th percentile among the peer group. The Compensation Committee has determined that, beginning in 2011, it will consider compensation paid at the 50th percentile of the peer group, for each component of executive officer compensation, as a factor in setting compensation for the Advanced Energy’s executive officers. The Compensation Committee continues to retain broad discretion as to the extent to which it uses such information.

 

Components of Executive Compensation

 

For 2010, the principal components of compensation for named executive officers were: (1) Base Salary, (2) Performance-Based Incentive Compensation, (3) Long-Term Equity Incentive Compensation, (4) Personal Benefits, and (5) Other Compensation. In determining the amount and relative allocation among each component of compensation for each named executive officer, the Compensation Committee considered, among other factors, the Company’s and each executive officer’s performance during 2009, historical rates of executive compensation, data obtained from management’s recruitment activities, the comparative review provided by Compensation Strategies in October 2008, the analysis by Radford with respect to the President and Chief Operating Officer as well as the Chief Financial Officer positions and alignment with the Company’s overall compensation philosophy.

 

Base Salary

 

Base salaries are set at levels that the Compensation Committee deems to be sufficient to attract and retain highly talented executive officers capable of fulfilling the Company’s key objectives. Base salaries are also set with the goal of rewarding executive officers on a day-to-day basis for their time and services while encouraging them to strive for performance-based and long-term incentives.

 

For 2010, the Compensation Committee decided to restore base salary levels that had been reduced in 2009. The 2010 base salary for each of our executive officers was not adjusted from the restored 2009 levels after reviewing each officer’s historical compensation, individual performance, the scope of his responsibilities and experience, an internal review of the executive’s current total compensation, both individually and relative to other executive officers; and the financial performance of the Company during the prior year. A base salary was established for the new position of President and Chief Operating Officer of $374,000 based on the same factors used to set the other executive officers’ compensation, including his historical compensation as Executive Vice President and Chief Operating Officer, his historical performance as Executive Vice President and Chief Operating Officer and his increased responsibilities in his new position. A base salary was established for the newly appointed Chief Financial Officer of $305,000 based on factors similar to those used to set the other executive officers’ compensation, including historical compensation levels of the position, market rates and the executive’s past experience. The Chief Executive Officer’s 2010 base salary was $573,000, although he received a lower actual

salary as the salary restoration took effect in the first quarter of 2010. Base salaries paid to our executive officers in 2010 were, on average, at approximately the 50th percentile in relation to the peer companies according to the Radford analysis.

 

Annual Performance-Based Incentive Compensation

 

In 2010, the executive officers were eligible to participate in the Leadership Corporate Incentive Plan (“LCIP”), under which incentive awards were distributed from a bonus pool based upon the Company’s operating results in 2010 and each executive officer’s individual performance. Under the LCIP, the Company funded a bonus pool equal to nineteen percent (19%) of the Company’s 2010 operating income because 2010 annual operating income thresholds had been met. The bonus pool was shared between the LCIP and the Company’s Employee Corporate Incentive Plan, in which the Company’s executive officers do not participate.

 

In March 2011, in consideration of the applicable performance objectives, the Compensation Committee approved the amount of bonus award recommended by the Chief Executive Officer with respect to the bonus payments for the President and Chief Operating Officer and the Chief Financial Officer. Accordingly, the Compensation Committee determined to award a bonus of $392,700 to the President and Chief Operating Officer and a bonus of $91,000 to the Chief Financial Officer. Additionally, the Compensation Committee recommended and the Board determined to award a bonus of $773,550, to the Chief Executive Officer. These bonus awards represent 150% of the executive officers’ target bonuses. The Chief Financial Officer’s bonus was prorated to reflect the partial year served.

 

The Compensation Committee sought to provide relatively high incentive compensation opportunities that reward goal achievement but that also take into consideration business cyclicality. After considering the proposed amounts of base salary, equity incentive and other compensation as well as the stockholder value that would be created upon achievement of the performance targets of the LCIP, the Compensation Committee determined to maintain the target bonuses for the executive officers in 2010 at their 2009 levels and establish a target bonus for the newly created position of President and Chief Operating Officer as follows:

 

 

Upon funding of the bonus pool, individual performance objectives applicable to each participant were considered to determine the amount of the bonus payable to each executive officer. Individual performance objectives are set to reward exceptional individual performance with bonus modifiers based on the individual’s performance above target amounts, up to a maximum of one hundred fifty percent (150%) of such participant’s target bonus. In accordance with the goal of retaining key talent, an executive was required to be employed by the Company through the end of the fiscal year to be eligible for any award under the LCIP. In accordance with the goal of rewarding individual performance, an executive was required to be employed in the eligible role as of October 1 of the fiscal year to be eligible for any award under the LCIP.

 

Individual performance objectives for the Company’s executive officers are set by the Compensation Committee based upon the perceived needs and goals of the Company. The individual performance objectives for the named executive officers are based upon each named executive officer’s individual contributions to the Company’s overall execution of its initiatives in the categories of (1) revenue growth, (2) long-term strategic planning and execution, (3) organizational development and succession planning, (4) business and financial process development and (5) management of acquisitions or divestitures. The Chief Executive Officer also had individual performance objectives with respect to investor relations, enhancing stockholder return and maintaining quality controls. In addition, for 2010, the Chief Executive Officer and President and Chief Operating Officer each had individual performance objectives with respect to year-over-year revenue growth. The revenue growth performance objectives exceeded the revenue growth anticipated in the 2010 annual operating plan and, accordingly, were deemed to be very difficult to meet at the time they were set, particularly in light of general economic circumstances. The Chief Executive Officer also had individual performance objectives with respect to broadening of the Company’s solar inverter product line, generation of cash from operations and executive succession planning.

The President and Chief Operating Officer also had an individual performance objective with respect to the launch of a one megawatt Solaron inverter. At the time the objectives were set, the Board believed the Chief Executive Officer’s and President and Chief Operating Officer’s other performance objectives to be difficult to meet, with some of the obstacles being at least in part beyond the executive’s control, but potentially achievable. The Compensation Committee maintained the discretion to evaluate each executive officer’s performance against these objectives.

 

On October, 15, 2010, certain employees of the Company, including Yuval Wasserman, received spot bonuses for the successful completion of the disposition of the Company’s Mass Flow Controller product line. Mr. Wasserman was awarded a $10,000 bonus. The Compensation Committee considered the additional efforts required by these employees in connection with the disposition, which were not anticipated at the time the initial compensation structure was established.

 

Long-Term Equity Incentive Compensation

 

The Company grants stock options and restricted stock units to the executive officers under the Company’s 2008 Omnibus Incentive Plan, as long-term incentives in order to align the executive officers’ performance with the interests of the Company’s stockholders and also encourage retention. At the beginning of 2010, the Compensation Committee determined an equity incentive compensation target for each executive officer, with equity awards granted in equal quarterly installments. The Compensation Committee retains the discretion to change the amount of any installment, based upon any factors it deems to be appropriate, including the Company’s or individual officer’s performance.

 

Previously, the Compensation Committee had aimed to set the executive officers’ equity incentive compensation targets between the 60th and 70th percentile of the equity incentive compensation for similarly situated officers at the peer companies. Once the amount of equity incentive compensation targets are determined, the Compensation Committee generally awards approximately 70% of such equity in the form of stock options and approximately 30% of such equity in the form of restricted stock units. The Compensation Committee chose this mix of equity awards to provide a combination of retention value and incentive to executive officers to increase shareholder value. Grants are made on a pre-determined, quarterly schedule.

 

For 2010 awards, the Compensation Committee considered the proposed amounts of base salary, annual incentive compensation potential and other compensation for each executive officer, his individual performance and accomplishments, Company performance and global economic conditions. Based upon such considerations, the Compensation Committee left the equity incentive compensation of the executive officers unchanged from 2009. Accordingly, in 2010, the Chief Executive Officer was awarded 15,000 restricted stock units and 105,000 options in respect of shares of common stock; the President and Chief Operating Officer was awarded 9,000 restricted stock units and 63,000 options in respect of shares of common stock; and each of the other executive officers was awarded 7,500 restricted stock units and 52,500 options in respect of shares of common stock. Such awards were, on average, at approximately the 60th percentile from a value perspective and below the 50th percentile from a percentage of equity perspective in relation to the peer companies.

 

Personal Benefits

 

As U.S. employees, the executives were eligible to participate in health and welfare benefits, as offered to our U.S. workforce, designed to attract and retain a skilled workforce in a competitive marketplace. These benefits help ensure that the Company has a healthy and focused workforce through reliable and competitive health and other personal benefits. These benefits were considered in relation to the total compensation package, but did not materially impact decisions regarding other elements of executive officer compensation.

 

All U.S. employees of the Company, including the executive officers, are eligible to participate in the Company’s 401(k) savings plan and are eligible to receive matching contributions by the Company of fifty percent (50%) of the first six percent (6%) of compensation contributed to the plan by the employee. In 2010, the Compensation Committee determined to reinstate the Company’s matching contributions under the 401(k) savings plan which had been discontinued in January 2009.

All U.S. employees of the Company, including the executive officers, are eligible to participate in the Company’s Employee Stock Purchase Plan (“ESPP”), which allows for employees to purchase shares of the Company’s common stock with funds withheld directly from their pay. The ESPP also provides participants with a right to purchase a limited number of shares of common stock of the Company at a purchase price equal to the lesser of eighty five percent (85%) of the fair market value of the stock on either the opening or closing date of an offering period under the plan. In 2010, the Company determined to reinstate this discount and look-back under the ESPP, which had been discontinued in February 2009.

 

Other Compensation

 

The Company is party to a change in control (“CIC”) agreement with each of the executive officers, entered into the later of 2008 or the time of the executive officer’s hire. The CIC agreements provide each of the executive officers with severance payments and certain benefits in the event of a termination without Cause (as defined in the CIC agreements) or other involuntary termination following an actual or during a pending change in control. The Company entered into the CIC agreements and established the payment amounts thereunder in order to keep management focused on the Company’s stated corporate objectives irrespective of whether the achievement of such objectives makes the Company attractive for acquisition, and to avoid the distraction and loss of key management that could occur in connection with a rumored or actual change in corporate control.

 

Under the CIC agreements, in the event of an executive’s termination without cause following an actual or during a pending change in control, the executive is entitled to receive: (a) all then accrued compensation and a pro-rata portion of executive’s target bonus for the year in which the termination is effected, (b) a lump sum payment equal to the executive’s then current annual base salary plus his or her target bonus for the year in which the termination is effected (or in the case of the Chief Executive Officer, two times such amount), (c) continuation of insurance and other benefits for 18 months following the date of termination, (d) an amount equal to the contributions that would have been made to the company’s retirement plans on behalf of executive, if the executive had continued to be employed for twelve (12) months following the date of termination, (e) reimbursement, up to $15,000, for outplacement services, and (f) full vesting and right to exercise all stock options and other equity awards then held by the executive so terminated. The terms of the CIC agreements were determined by the Compensation Committee based on consideration of marketplace benchmark data and the Company’s retention objectives.

 

Tax and Accounting Implications

 

Section 162(m) of the Internal Revenue Code of 1986 generally limits to $1 million the corporate deduction for compensation paid to certain executive officers, unless the compensation is “performance-based” (as defined in Section 162(m)). Each of the members of the Board of Directors and the Compensation Committee carefully considers the potential impact of the limitation on executive compensation and considers it to be in the best interests of Advanced Energy and the stockholders to seek to qualify as tax deductible virtually all executive compensation. The Board of Directors and the Compensation Committee also recognize the need to consider factors other than tax deductibility in making compensation decisions and thus reserve the flexibility to award compensation that is not necessarily performance-based. During 2010, none of the executive officers of the Company had non-performance-based compensation in excess of $1,000,000.

 

Compensation Committee Interlocks and Insider Participation

 

The current members of the Compensation Committee are Messrs. Rohrs (Chairman), Doan, Grady and Hudgens. None of such directors is or has been an officer or employee of Advanced Energy. There are no interlocking relationships as defined in the applicable SEC rules.

 

During 2010, no executive officer of Advanced Energy served as a member of the board of directors or compensation committee of another company that has any executive officers or directors serving on Advanced Energy’s Board of Directors or its Compensation Committee.

Compensation Committee Report

 

The information contained in this report shall not be deemed to be “soliciting material” or “filed” with the SEC or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that the Company specifically incorporates such information by reference in a document filed under the Securities Act or the Exchange Act.

 

The Compensation Committee of the Board has reviewed and discussed with management the Compensation Discussion and Analysis for fiscal year 2010. Based upon the review and discussions, the Compensation Committee recommended to the Board, and the Board has approved, that the Compensation Discussion and Analysis be included in the Company’s Proxy Statement for its 2011 Annual Meeting of Stockholders.

 

This report is submitted by the Compensation Committee.

 

Thomas M. Rohrs, Chairman
Trung T. Doan
Edward C. Grady
Terry Hudgens

 

Management

 

Summary Compensation

 

The following table shows compensation information for fiscal 2008, 2009 and 2010 for the named executive officers.

 

 

 

 

Grants of Plan-Based Awards

 

The following table shows all plan-based awards granted to the named executive officers during 2010. The option awards and the unvested portion of the stock awards identified in the table below are also reported in the Outstanding Equity Awards at 2010 Year-End Table on the following page.

 

2010 Grants of Plan-Based Awards

 

 

 

 

Outstanding Equity Awards

 

The following table shows all outstanding equity awards held by the named executive officers at the end of 2010. The following awards identified in the table below are also reported in the Grants of Plan-Based Awards Table on the previous page.