ASML is one of the world’s leading manufacturers of chip-making equipment. Headquartered in Veldhoven, the Netherlands, ASML employs more than 21,000 people.
In this section of the 2011 Statutory Annual Report of ASML Holding N.V. (“ASML” or the “Company”), the Supervisory Board reports on its activities in 2011, and on the information required to be provided in this report based on the Dutch Corporate Governance Code (the “Code”).
After 2010, 2011 continued to be a very good year for ASML in many aspects. Financially, because ASML’s revenues, margins, net income all showed record numbers, but also technologically, with for example progress in EUV, as ASML delivered five EUV pre-production tools to customers in 2011, in addition to the one shipped in 2010. On the other hand, challenges were again numerous in 2011, relating to among others ASML’s factory capacity / supply to demand; EUV and other leading-edge technologies; as well as the need for employees with the appropriate technical skills.
Furthermore, the increasing uncertainty of the macro-economic outlook in the second half of 2011 also led to some uncertainty for the semiconductor market in 2012, as a result of which the meetings in the later part of the year rather took the current macro-economic situation into consideration, while the meetings in the early part of 2011 focused on the challenges related to an upturn.
In 2011, ASML’s strategic direction for the coming years was discussed extensively with prime focus on: maintaining and further developing ASML’s position as a technology leader in semiconductor lithography. The goal of this strategy is to deliver lithography systems which enable customers to produce highest performance and lowest cost chips. The value of ownership offered to customers as a result of ASML’s strategy also maximizes ASML’s own financial performance, aligning the interests of ASML and our customers.
Another important topic of discussion in 2011 was the development and status of the EUV tool. The technological issues were discussed in-depth, especially in the Technology and Strategy Committee. But also the full Supervisory Board monitored (and will continue to do so) the progress in the development of this - technologically very advanced - tool.
As the current term of Mr. Meurice’s appointment as ASML’s President, Chief Executive Officer (“CEO”) and Chairman of the Board of Management expires per the 2012 Annual General Meeting of Shareholders (“AGM”), the Supervisory Board discussed and decided on the extension Mr. Meurice’s appointment term in 2011. In preparing this decision for the Supervisory Board, the Selection and Nomination Committee took into consideration ASML’s good technical, operational and financial performance during Mr. Meurice’s tenure. Subject to notification to the AGM, the Supervisory Board - in mutual agreement with Mr. Meurice - will extend the appointment term of Mr. Meurice for two more consecutive years until the AGM in 2014. Mr. Meurice will then have served as ASML’s President, CEO and Chairman of the Board of Management for a period of ten years. The appointment term can potentially be further extended by another two years.
The Supervisory Board held five - scheduled - physical meetings in 2011. In addition, three scheduled conference calls were held to specifically discuss the quarterly results and the press releases related thereto. In general, the physical meetings of the Supervisory Board and its committees are held during several days, thus creating more time for longer Supervisory Board meetings. The additional time available is spent on specific themes, such as management development, operational performance and strategy.
To continuously stay abreast of the developments in the semiconductor market, the Board of Management provides the Supervisory Board each meeting with an overview of the market situation at that moment, expectations for the near future, the development of ASML’s share price and investor / analyst feedback on ASML. Other topics frequently addressed during the 2011 Supervisory Board meetings were among others ASML’s business risks; investor relations; and the corporate objectives and targets. Twice per year, the Company’s budget is reviewed by the Supervisory Board.
The Supervisory Board also reviewed ASML’s sustainability strategy, including the actions (to be) implemented needed to achieve the targets set with respect to the sustainability strategy. Sustainability was also addressed in the Remuneration Committee as it is a short-term qualitative target for the members of the Board of Management.
No Supervisory Board member was absent more than once in 2011; the attendance rate was 97.0 percent.
In general, after each Supervisory Board meeting, the Supervisory Board members meet inter se to discuss for example the functioning of the Supervisory Board and of the Board of Management and its members; and any other topics deemed important at that time, such as the extension of Mr. Meurice’s appointment term.
During all physical meetings of the Supervisory Board, most Board of Management members were present. Also outside the meetings, members of the Supervisory Board and its committees interacted regularly with the Board of Management and the individual members. Also, several informal meetings and telephone calls took place among Supervisory Board members to consult with each other on various topics.
Each year, the Supervisory Board and each of its committees perform an evaluation related to the functioning of the Supervisory Board; its committees and the individual members, as well as the functioning of the Board of Management and the individual members in the past year. Also the composition of both bodies is addressed. In 2011, the evaluation of the Supervisory Board was done in one-on-one interviews between the Chairman and each individual Supervisory Board member. Besides the topics mentioned above, the discussions also focused on the recommendations and action items resulting from the 2010 evaluation and the follow up thereof, such as composition of the Supervisory Board, and additional topics to be addressed in the Supervisory Board meetings.
The evaluation of each committee was conducted by means of a questionnaire specifically developed for that committee, also including follow-up themes resulting from the evaluations performed the previous year. Each committee discussed the outcome of the evaluation among its own members. The main conclusions of the evaluation of the committees and of the Supervisory Board were discussed in a Supervisory Board-only meeting. The Supervisory Board has embedded the evaluation process in its processes and activities as the Supervisory Board attaches great value to the evaluations. They ensure continuous focus on the quality of the activities, composition and functioning of the Supervisory Board and its committees.
Furthermore, as is done each year, also in 2011 a delegation of the Supervisory Board met twice with the Works Council of ASML Netherlands B.V. The topics of these meetings mostly evolve around important internal and external developments relevant for the Company and its employees, the Company’s financial position and its strategy. The Supervisory Board considers these meetings a valuable contribution to its activities for ASML.
For further details on the structure, organization and responsibilities of the Supervisory Board, reference is made to the Corporate Governance Paragraph of this Statutory Annual Report.
Currently, the Supervisory Board consists of eight members. Four of the Supervisory Board members have the Dutch nationality, two members have the German nationality and two members have the United States nationality. Two of the eight Supervisory Board members are female. The average age is 65 years, whereby the ages vary from 51 to 73 years.
In 2011, J. (Jos) Westerburgen and W. (William) Siegle retired by rotation on April 20, 2011 and were both reappointed for a period of two years. In line with the Supervisory Board’s rotation schedule, Mr. Westerburgen has started his last term on ASML’s Supervisory Board and will therefore retire from ASML’s Supervisory Board in 2013. In 2012, Messrs. OB (OB) Bilous, F. (Fritz) Fröhlich and A. (Arthur) van der Poel will retire by rotation. These members have indicated to be available for reappointment.
The Supervisory Board has installed four committees: an Audit Committee, Remuneration Committee, Selection and Nomination Committee, and Technology and Strategy Committee. Each committee operates pursuant to its charter, which charter is based on the rules and regulations of the Code, but also reflects practices developed over the years. The responsibilities and authorities of the committees are based on a mandate of the Supervisory Board, whereas the Supervisory Board retains full responsibility for the activities of the four committees. The committees prepare the decisions to be made by the full Supervisory Board, each in its own field of expertise.
In the plenary Supervisory Board meetings, the Chairman of each committee provides a report, verbally and/or in writing, on the topics discussed during the committee meetings. In addition, the minutes of the committee meetings are available for all Supervisory Board members, so that they have all information sufficient to understand ASML’s current state of affairs, thus ensuring that the full Supervisory Board is able to make the appropriate decisions.
The current members of ASML’s Audit Committee are Mr. Fröhlich (Chairman), Mr. Van der Poel and Mr. Ziebart. The members of the Audit Committee are all independent, non-executive members of the Supervisory Board.
In 2011, the Audit Committee met four times and held four conference calls. Three calls were specifically held to discuss the quarterly results and the related press release; the other call was held for the purpose of discussing the results of the year-end audits (US GAAP and International Financial Reporting Standards, “IFRS”, respectively). The Audit Committee also continuously monitors the activities of the internal audit department with respect to ASML’s risk management and ASML’s internal controls, including the internal controls over financial reporting in light of Section 404 of the Sarbanes-Oxley Act of 2002. The Audit Committee reviews and approves the audit plans of the internal and external auditors and monitors their audit activities. Annually, the Audit Committee reviews ASML’s tax strategy, tax systems and tax planning; investor relations; ASML’s management of the IT landscape; and the activities of the Company’s Disclosure Committee. The Audit Committee also regularly discusses ASML’s financial position, and ASML’s financing and return policy. The Audit Committee (and Supervisory Board) endorses ASML’s conservative principles with respect to its financing policy and return policy, which helps ASML to respond properly to the highly cyclical nature of the semiconductor equipment industry.
In 2011, the Audit Committee conducted an extensive assessment with respect to the performance of the external auditor over the past four years. The evaluation was conducted by means of surveys which were completed by the various bodies within the Company who work with the auditor during their audit, and by the Audit Committee. The surveys addressed among others the quality, scope and planning of the audit; the independence of the auditor; the composition of the audit team; the fees and the reporting of the auditor. The result of the surveys was positive, with some minor attention points for the future such as recommendations with respect to maintaining continuity of ASML knowledge within the audit team.
To anticipate on the external developments with respect to the audit profession and to bring the auditor’s (re)appointment in line with current governance requirements, it was decided to change the current indefinite appointment of the auditor to an annual (re)appointment to be approved by the AGM, effective per the 2012 AGM. The proposal for (re)appointment shall include the main conclusions of the auditor’s evaluation for purposes of assessing the reappointment of the auditor. Furthermore, the Audit Committee decided to perform the extensive assessment as described above at least every two years instead of every four years.
Selection and Nomination Committee
The current members of ASML’s Selection and Nomination Committee are Mr. Westerburgen (Chairman), Mr. Bilous and Mr. Van der Poel. The Selection and Nomination Committee held five scheduled meetings and several additional meetings on an ad-hoc basis in 2011. As already previously mentioned, the Selection and Nomination Committee prepared the decision for the Supervisory Board to extend the appointment term of Mr. Meurice. Besides above topic, other discussion items in 2011 were the ’regular’ topics such as management development and talent management; the composition of the Supervisory Board and of the Board of Management; and the functioning of the individual members of the Supervisory Board and the Board of Management.
The Selection and Nomination Committee is also responsible for monitoring Corporate Governance developments. The main topics of discussion this year with respect to that topic were the possible consequences for ASML’s Board of Management and Supervisory Board in view of the expected enactment of the Bill on Management and Supervision on July 1, 2012; the possible consequences of the proposed Bill with respect to the amendment of bonus and profit participation of members of the Board of Management; and the 2011 report of the Monitoring Committee of the Dutch Corporate Governance Code.
The current members of ASML’s Remuneration Committee are Mr. Westerburgen (Chairman), Ms. Van den Burg and Ms. Van der Meer Mohr. In 2011, the Remuneration Committee met four times in physical meetings, two times via conference call and several times on an ad-hoc basis. The topics discussed in 2011 included: the share and option plans for the employees; the targets and remuneration package for the Board of Management; and the 2010 and 2011 Remuneration Reports. Also discussed were proposals for the revision of the 2010 Remuneration Policy, scheduled to be submitted for adoption to the AGM in 2013. Furthermore, in order to comply with the highest standards of corporate governance and to mitigate the potential benefit of a Change of Control under the long term incentive, the Remuneration Committee prepared a proposal with respect thereto for the Supervisory Board. The Supervisory Board agreed with the proposed arrangement, which entails that the share price will be fixed on the average of i) the average closing share price over a period of 15 trading days prior to the first public announcement of Change of Control negotiations, and ii) the average closing share price over a period of 30 trading days prior to closing of the transaction. This Change of Control arrangement was included in the employment contracts of the Board of Management members.
Another topic this year was the remuneration aspect in relation to the proposed extension of Mr. Meurice’s appointment term. As required by the Code, the main details of Mr. Meurice’s remuneration package will be provided at the time of publication of the relevant documents for the AGM, in March 2012.
In cooperation with the Audit Committee and the Technology and Strategy Committee, the Remuneration Committee reviewed and proposed to the Supervisory Board the 2011 targets for the Board of Management and also provided its recommendations to the Supervisory Board with respect to the achievement of the 2011 targets and related appropriate compensation levels for the Board of Management members over the financial year 2011.
Legal experts as well as experts in the field of remuneration for members of Boards of Management assisted the Remuneration Committee in its activities. These experts do not provide remuneration advice to the Board of Management.
Technology and Strategy Committee
The current members of ASML’s Technology and Strategy Committee are Mr. Siegle (Chairman), Mr. Bilous, Mr. Van der Poel and Mr. Ziebart. In addition, the Technology and Strategy Committee may appoint one or more advisors from within and/or from outside the Company. In 2011 three external advisors participated in committee meetings. The advisors to the Technology and Strategy Committee may be invited as guests to (parts of) the meetings of the Committee, but are not entitled to vote in the meetings. The Technology and Strategy Committee held five physical meetings and one conference call in 2011. In general, the physical meetings last a full day. One meeting and the conference call were held for the purpose of discussing the technology targets for the Board of Management and the achievements related thereto.
The Technology and Strategy Committee reviews the specific ASML technology matters important at that time and discusses the proposals for ASML’s future product- and technology strategies. The Technology and Strategy Committee is instrumental in preparing the decisions and/ or advice for the Supervisory Board related to these topics. Important topics this year were, as mentioned, ASML’s EUV development and production processes. To familiarize themselves with the technical demands and challenges related to the development and production of the EUV tool, the Technology and Strategy Committee members visited suppliers who develop important components of this tool as well as customers, to also understand the customer requirements. Besides EUV, other topics of discussion included matters related to Immersion and holistic lithography solutions (for example Brion products and metrology).
For a further description of the responsibilities of the Supervisory Board committees, reference is made to the Corporate Governance Paragraph of this Statutory Annual Report.
The remuneration of the Supervisory Board members is described in Note 30 to the Consolidated Financial Statements. In 2011, the AGM adopted the Supervisory Board’s proposal to increase the Supervisory Board’s remuneration in view of the continuing increase of responsibilities, workload and liabilities for the Supervisory Board members and its committees, as well as the growth of the Company over the past years. Furthermore the AGM approved to further increase the annual (fixed) fee with a maximum amount of EUR 5,000 depending on circumstances. In addition to their fee as member of the Supervisory Board, Supervisory Board members also receive a fee for each committee membership, as well as a net cost allowance. The Supervisory Board remuneration is not dependent on the financial results of the Company. None of the members of the Supervisory Board owns shares or options on shares of the Company. The Company has not granted any loans to, nor has it granted any guarantees in favor of, any of the members of the Supervisory Board.
The Board of Management currently consists of five members. As mentioned earlier in this report, the Supervisory Board will extend the appointment term of Mr. Meurice for two more consecutive years upon notification to the AGM to be held on April 25, 2012. For further details and a biography of the members of the Board of Management, see page 1 of this Statutory Annual Report.
In 2010, the General Meeting of Shareholders adopted an update of the Remuneration Policy for the Board of Management. This policy did not change in 2011. The Remuneration Committee oversees the development and implementation of compensation and benefit programs for the Board of Management, as well as the compensation levels for the individual members of the Board of Management.
The Remuneration Committee reviews the corporate objectives and targets relevant to the compensation of all members of the Board of Management, in cooperation with the Audit Committee and the Technology and Strategy Committee. The Remuneration Committee evaluates the achievements of the Board of Management with respect to those objectives and targets (again, in cooperation with the Audit Committee and the Technology and Strategy Committee), and provides recommendations to the Supervisory Board on the resulting compensation levels for the members of the Board of Management.
The external auditor performs agreed-upon procedures on the targets achieved to assess compliance with the Remuneration Policy.
The Supervisory Board has the discretionary power to adjust variable remuneration components both upwards and downwards if these would, in the opinion of the Supervisory Board, produce an unfair result due to extraordinary circumstances during the period in which the predetermined performance criteria have been or should have been achieved (Ultimum Remedium - provision II.2.10). Besides this, the Supervisory Board may recover from the Board of Management any variable remuneration awarded on the basis of incorrect financial or other data (claw back clause -provision II.2.11).
Outline 2011 remuneration report
In summary, total remuneration for members of the Board of Management is derived from the median level of the appropriate top executive pay market (a reference market consisting of a group of European companies mainly in the ICT and Technology sector) and consists of (i) base salary; (ii) short term performance incentives (in cash); (iii) long term performance incentives (in shares) and (iv) other benefits. The payout of the cash incentive and vesting of performance shares is dependent on the achievement of predetermined financial and non-financial performance criteria.
By applying the following ratio, the structure of Total Direct Compensation is aimed at balancing short and long term performance and to align remuneration with long term value creation: 100-75-80 for the CEO, where base salary is 100; the target short term performance related cash incentive is 75; long term performance shares are 80. For the other members of the Board of Management this ratio is 100-60-80. The maximum payout - in case of overachievement of pre-defined targets - for the performance shares is 146.25 percent for all members of the Board of Management.
The Supervisory Board would like to thank and recognize all ASML employees who have been able to again achieve so much this past year: the progress with EUV: the shipment of the 100th NXT1950i; the efforts made to supply to the demand. All your efforts resulted in a record year for ASML with respect to sales and profit. ASML’s Supervisory Board acknowledges the pressure that the extreme swings in demand put on ASML employees, and appreciates all the efforts and achievements of ASML employees throughout these years. And the Supervisory Board would especially like to thank the employees of ASML Japan, who remained so committed to ASML despite the natural and nuclear disaster which hit Japan in March of this year.
Presented below is the personal data of all Supervisory Board members that is required to be disclosed in this report in order to comply with the Code.
|profession||:||former General Manager and Vice President Worldwide Manufacturing of IBM’s Microelectronics Division|
|other relevant positions||:||Board member Nantero, Inc.|
|current term until||:||2012|
|H.C.J. van den Burg|
|profession||:||former member of the European Parliament|
|principal position||:||member of the Dutch Monitoring Committee Corporate Governance Code|
|other relevant positions||:||member of the Supervisory Board of APG Groep N.V., Chairperson of the Monitoring Foundation Dutch Insurance Companies, member of the Advisory Boards of the Dutch Data-Protection Authority and the Dutch National Register Supervisory Directors, member of the Advisory Scientific Committee European Systemic Risk Board (ECB Frankfurt) and member of the Advisory Council International Affairs Commission Human Rights (Dutch Ministry Foreign Affairs)|
|current term until||:||2013|
|profession||:||former Deputy Chairman and CFO of Akzo Nobel N.V.|
|other relevant positions||:||Chairman of the Supervisory Board of Randstad Holding N.V., member of the Supervisory Boards of Allianz Nederland N.V. and Rexel SA, member of the Board of Directors of Prysmian Group.|
|current term until||:||2012|
|P.F.M. van der Meer Mohr|
|profession||:||President of the Executive Board of the Erasmus University Rotterdam|
|other relevant positions||:||Member of the Supervisory Boards of Royal DSM N.V., Duisenberg School of Finance and Netherlands School for Public Governance|
|current term until||:||2013|
|A.P.M. van der Poel|
|profession||:||former member of the Board of Management of Royal Philips Electronics|
|other relevant positions||:||member of the Board of Directors of Gemalto Holding N.V., member of the Supervisory Boards of PSV N.V. and DHV Holding B.V.|
|current term until||:||2012|
|profession||:||former Senior Vice President and Chief Scientist of AMD, Inc.|
|other relevant positions||:||member of the Advisory Board of Acorn Technologies, Inc.|
|current term until||:||2013|
|profession||:||former Company Secretary and Head of Tax of Unilever N.V. and Plc.|
|other relevant positions||:||Vice Chairman of the Board of the Association Aegon|
|current term until||:||2013|
|profession||:||former President and CEO of Infineon Technologies A.G.|
|other relevant positions||:||member of the Board of Autoliv, Inc. and member of the Supervisory Board of Nordex SE|
|current term until||:||2013|
|Company Secretary||:||Mr. R.F. Roelofs|
|Deputy Company Secretary||:||Ms. G.C.M. Keizer|
The Supervisory Board,
Veldhoven, February 13, 2012