DEF 14A

DEF 14A 1 d293912ddef14a.htm DEF 14A DEF 14A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

(RULE 14a-101)

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant To Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No. )

Filed by the Registrant ☒

Filed by a Party other than the Registrant ☐

Check the appropriate box:


☐		Preliminary Proxy Statement
☐		Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2))
☒		Definitive Proxy Statement
☐		DefinitiveAdditional Materials
☐		Soliciting Material under § 240.14a-12

CADENCE DESIGN SYSTEMS, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check all boxes that apply):


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☐		Fee paid previously with preliminary materials
☐		Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11


		NOTICE OF 2022 ANNUAL MEETING OF STOCKHOLDERS

The 2022 Annual Meeting of Stockholders of CADENCE DESIGN SYSTEMS, INC., a Delaware corporation, will be held as follows:


When:		Where:

May 5, 2022 1:00 p.m. Pacific Time		Virtual Meeting www.meetnow.global/MMZY44F

Items of Business:

The purpose of the 2022 Annual Meeting of Stockholders is to consider and take action on the following:

To elect the eleven directors named in the proxy statement to serve until the 2023 Annual Meeting of Stockholders and until their successors are elected and qualified, or until the directors’ earlier death, resignation or removal.

To vote on an advisory resolution to approve named executive officer compensation.

To ratify the selection of PricewaterhouseCoopers LLP as the independent registered public accounting firm of Cadence for its fiscal year ending December 31, 2022.

To vote on a stockholder proposal regarding special meetings, if properly presented at the meeting.

To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

These items of business are more fully described in the proxy statement accompanying this notice.

Record Date:

Holders of Cadence Design Systems, Inc. common stock at the close of business on March 7, 2022 are entitled to notice of and to vote at the 2022 Annual Meeting of Stockholders and any adjournment or postponement thereof.

How to Vote:

Your vote is important to us. Please cast your vote promptly via the internet, telephone or mail. Specific instructions on how to vote are included in the Notice of Internet Availability of Proxy Materials that Cadence will mail to its stockholders as of the Record Date on or about March 22, 2022. You will also be able to vote your shares electronically during the virtual 2022 Annual Meeting.

How to Attend:

Cadence’s 2022 Annual Meeting will be held online at www.meetnow.global/MMZY44F via live audio webcast. Stockholders will be able to attend and participate in the annual meeting online, vote their shares electronically, view the list of registered stockholders as of the Record Date and submit questions through the virtual meeting platform during the meeting. Please refer to the “Information About the Annual Meeting” section of this proxy statement for detailed instructions on how to register for and attend the 2022 Annual Meeting.

By Order of the Board of Directors,

LOGO

San Jose, California

March 22, 2022

Alinka Flaminia

Senior Vice President, Chief Legal Officer and Corporate Secretary

TABLE OF CONTENTS


Proxy Statement			1

Letter from our Executive Chair and Lead Independent Director			1

Corporate Governance			3

Board of Directors			8

Stockholder Engagement			20

Matters to Be Considered at the Annual Meeting			22

Proposal 1: Election of Directors			22

Proposal 2: Advisory Resolution to Approve Named Executive Officer Compensation			33

Proposal 3: Ratification of the Selection of the Independent Registered Public Accounting Firm			34

Report of the Audit Committee			35

Fees Billed to Cadence by the Independent Registered Public Accounting Firm During Fiscal 2021 and 2020			36

Proposal 4: Stockholder Proposal			37

Security Ownership of Certain Beneficial Owners and Management			42

Compensation Discussion and Analysis			45

Compensation Committee Report			60

Compensation Committee Interlocks and Insider Participation			61

Compensation of Executive Officers			62

Potential Payments Upon Termination or Change in Control			70

Equity Compensation Plan Information			77

Pay Ratio Disclosure			78

Certain Transactions			80

Information About the Annual Meeting			83

Other Matters			90

PROXY STATEMENT

LETTER FROM OUR EXECUTIVE CHAIR AND LEAD INDEPENDENT DIRECTOR

Dear fellow Cadence stockholders:

On behalf of our entire board, we want to thank you for your continued support and trust in our management team overseeing the execution of Cadence’s business strategy. Cadence has a mission to help solve technologies’ toughest challenges in order to make a lasting, positive impact on our world. Generational trends such as 5G, hyperscale computing and artificial intelligence/machine learning are propelling the digital transformation of multiple end markets and fueling a golden era for semiconductors and electronic systems. With robust design activity providing a strong tailwind, we expect our innovative solutions to continue driving broad based business momentum in 2022, accelerating revenue growth and profitability. Our culture of innovation drives our socially responsible business practices and supports the long-term success of our company, employees and communities. We are pleased to communicate with you about several of the board’s priorities and actions since the 2021 annual meeting.

Appointment of new Chief Executive Officer, Executive Chair and Lead Independent Director and Continued Board Succession Planning

In August 2021, Anirudh Devgan, Ph.D., was appointed to the board, and in December 2021, Dr. Devgan assumed the role of Chief Executive Officer of Cadence. At the same time, Lip-Bu Tan, our former Chief Executive Officer, became our Executive Chair, with John Shoven, Ph.D., our former Chair of the Board, becoming our Lead Independent Director. This was a smooth transition and further strengthened the Cadence leadership team, by expanding the depth of knowledge and breadth of experience in our board and our executive management.

We remain committed to seeking diverse leaders who can apply their unique and valuable experiences to the stewardship of our company.

To that end, in January 2022, we appointed Mary Louise Krakauer to the board. Ms. Krakauer brings to our board her extensive experience at several global technology companies which will provide Cadence with additional key strategic and operational insights. In the past two years, we have added three directors to the board, and each of those directors enhances the diversity of our board through his or her distinct professional experiences, gender and ethnicity.

Business Strategy and Risk Management

Cadence continued its rich history of more than 30 years of computational software expertise by showcasing in 2021 the strength of our team and innovation with the launch of 13 significant, differentiated products across our business groups that enable the next wave of technology advancements and sustainable innovation in intelligent system design. We believe these products will be key drivers of our future growth and will enable design teams to develop products of the future that are smarter, smaller form factors and much more power efficient—advancing sustainability in end-product systems.

The board and management of Cadence continued to place the utmost importance on safeguarding the health and well-being of our employees, customers, vendors and our broader communities as we faced the ongoing Covid-19 pandemic, with a vast majority of employees continuing to work from home since March 2020 through the present.

Corporate Social Responsibility and Human Capital Management

The power of Cadence’s innovation is our people. Our employees’ dedication and resilience in the face of the ongoing challenges presented by the pandemic have enabled us to continue to grow our business, deliver strong


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financial results and advance sustainability efforts that benefit our customers, investors and communities. Our One Cadence–One Team culture underpins our firm belief that the best ideas come from inclusive collaboration, and that a diverse, highly supported and engaged workforce is critical to the foundation of our business success.

We are also committed to our global community. Climate change continues to be one of the greatest challenges of our time, and Cadence is committed to enhancing our actions to combat climate change and taking steps to lessen the environmental impact of our facilities and business operations. We have made strong progress to date and have exceeded our 2025 target in 2021. We want to accelerate our efforts by setting more aggressive targets to reduce our carbon footprint. In line with the ambitious science-based global warming goals of the Paris Agreement, we are targeting to reduce Scope 1 and Scope 2 greenhouse gas emissions 50% by 2030 over our 2019 baseline. Additionally, through innovation and targeted investment, we anticipate reaching net zero emissions across our operations by 2040. Further, we expect to secure carbon neutral certification for 2021. And, as technology innovators, we aim to contribute to the sustainability of our planet by advancing technologies that enable the design of high-performance systems which optimize power, space and energy needs.

We encourage you to review the Corporate Social Responsibility section of this proxy statement, as well as our 2021 Sustainability Report, which will be available on the Corporate Social Responsibility page at www.cadence.com, for more information on our environmental, social and governance initiatives.

Focus on Corporate Governance and Stockholder Engagement

We regularly review our corporate governance in light of common practices at fellow S&P 500 companies, investor guidelines and alignment with Cadence’s strategy and needs. As our stockholders play an important role in governance, Cadence maintains a robust stockholder engagement program to better understand your viewpoints on topics such as sustainable business practices, board composition and refreshment, our COVID-19 response and experience, climate change, culture, diversity, equity and inclusion and executive compensation. Our stockholders also have the opportunity to communicate their views at Cadence’s annual meeting or by writing to us at the address provided in the section of this proxy statement entitled “Communication with Directors.”

We encourage you to read this proxy statement and vote your shares, irrespective of whether you plan to attend the annual meeting. Your vote is important to us.

Thank you for your continued support of Cadence.

Sincerely,



Lip-Bu Tan		John B. Shoven, Ph. D.
Executive Chair of the Board		Lead Independent Director


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CORPORATE GOVERNANCE

CORPORATE GOVERNANCE HIGHLIGHTS



Board:

✓ An independent director serving as Lead Director of the Board of Directors of Cadence (the “Board”) coupled with the breadth of experience and depth of knowledge of our Executive Chair ✓ Substantial majority of independent directors – nine of the eleven director nominees are independent ✓ Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee comprised entirely of independent directors ✓ Regular executive sessions of the independent directors ✓ Annual Board and committee evaluations – overseen by the Corporate Governance and Nominating Committee ✓ Board refreshment and succession planning ✓ Annual CEO and senior leadership succession review		✓ Robust Code of Business Conduct ✓ Robust insider trading and related party transactions policies ✓ Committee authority to retain independent advisors ✓ Stock Ownership Guidelines – (i) the Executive Chair required to hold Cadence shares valued at a minimum of 3x annual base salary within five years of appointment or earlier under certain circumstances and (ii) each non-employee director required to hold Cadence shares valued at a minimum of $375,000 within five years of appointment or election ✓ Proactive, ongoing and responsive stockholder engagement program, including direct involvement by the Board ✓ Board continuing education – new director orientation and continuing education on critical topics and issues

Stockholder Rights:		Compensation:

✓ No “poison pill” (stockholders’ rights plan) ✓ No dual class common stock structure ✓ Ability to act by written consent ✓ Ability to call a special meeting ✓ Proxy access ✓ No supermajority voting requirements ✓ Robust stockholder engagement program ✓ Directors elected by majority vote in an uncontested election ✓ All directors elected annually (no classified Board structure)		✓ Annual Say-on-Pay stockholder vote ✓ Clawback Policy ✓ Prohibition on hedging of Cadence securities ✓ Use of an independent compensation consultant ✓ Stock Ownership Guidelines – each executive officer required to hold Cadence shares valued at a minimum of (i) 3X annual base salary for the CEO and (ii) 1X annual base salary for all other executive officers, in each case within five years of appointment


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CORPORATE GOVERNANCE PRACTICES

Cadence is governed by the Board and the committees of the Board, which meet throughout the year. Cadence and its Board are committed to sound corporate governance which helps Cadence compete more effectively, sustain its success and build long-term stockholder value. The Board and management regularly review and evaluate Cadence’s corporate governance practices. Cadence’s corporate governance documents, including the charters of the Audit Committee, Compensation Committee, Corporate Governance and Nominating Committee and Finance Committee, the Code of Business Conduct, the Related Party Transaction Policies and Procedures and the Board’s Corporate Governance Guidelines, are available on the Corporate Governance page at www.cadence.com. Paper copies of these documents are also available to stockholders upon written request directed to Cadence’s Corporate Secretary at our corporate offices located at 2655 Seely Avenue, Building 5, San Jose, California 95134.

Corporate Governance Guidelines

The Board has adopted Corporate Governance Guidelines, which cover various topics relating to the Board and its activities, including the selection and composition of the Board, Board leadership, compensation of directors, responsibilities of directors, Board access to senior management and outside advisors, meeting procedures, Board and committee responsibilities and other matters. The Corporate Governance and Nominating Committee annually reviews the Corporate Governance Guidelines, which may be amended by the Board at any time and were most recently amended in February 2022.

Code of Business Conduct

Cadence has adopted a Code of Business Conduct to provide standards for ethical conduct in dealing with customers, suppliers, agents, government officials and others. The Code of Business Conduct applies to Cadence’s directors, officers and employees (and those of its subsidiaries), including Cadence’s Chief Executive Officer and Chief Financial Officer. The Code of Business Conduct also applies to certain independent contractors and consultants who work at Cadence’s facilities or at Cadence’s direction. Compliance with the Code of Business Conduct is a condition to continued service or employment with Cadence. The Code of Business Conduct covers topics including integrity, diversity and inclusion, health and safety, confidentiality of assets and information, conflicts of interest, anonymous reporting of non-compliance, compliance with federal and state securities laws, employment practices, political contributions, payment practices and compliance with competition, anti-corruption and other laws and regulations.

Any waiver of a provision of the Code of Business Conduct with respect to a director or an executive officer may only be made by the Board. Any waivers for other employees may be granted only by the Chief Executive Officer or the Chief Legal Officer or their respective designees. To the extent required under applicable U.S. Securities and Exchange Commission (the “SEC”) or Nasdaq Stock Market (“Nasdaq”) rules, Cadence will disclose material amendments to the Code of Business Conduct and any waiver of its provisions with respect to any director or executive officer by posting such information on its website at www.cadence.com.

Stock Ownership Guidelines

The Board has adopted Stock Ownership Guidelines for Cadence’s directors and executive officers to further align the interests of the directors and executive officers with the interests of stockholders and to reinforce Cadence’s commitment to sound corporate governance. Each non-employee member of the Board is required to hold shares of Cadence common stock with a value of at least $375,000 within five years of the date of his or her initial appointment or election to the Board. Cadence’s Executive Chair is required to hold shares of Cadence common stock with a value of at least three times his or her annual base salary within the following time period: (1) if the Executive Chair currently serves, or most recently served, as Cadence’s Chief Executive Officer, within five years of the date of his or her initial appointment as Chief Executive Officer; (2) if the Executive Chair currently serves, or


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most recently served, as an Executive Officer (as defined below) of Cadence other than the Chief Executive Officer, within the later of (a) five years of the date of his or her initial appointment as Executive Officer or (b) three years of the date of his or her initial appointment as Executive Chair; and (3) in any other case, within five years of the date of his or her initial appointment as Executive Chair. Cadence’s Chief Executive Officer is required to hold shares of Cadence common stock with a value of at least three times his or her annual base salary within five years of the date of his or her appointment, and Cadence’s other executive officers are required to hold shares of Cadence common stock with a value of at least his or her annual base salary within five years of the date of his or her appointment.

As of the Record Date, all directors and executive officers met the stock ownership guidelines applicable to them.

Anti-Hedging Policy and Trading Restrictions

Cadence’s Securities Trading Policy restricts certain transactions in Cadence securities and prohibits Cadence’s directors, executive officers and all other Cadence employees (and their respective family and household members) from hedging their ownership of Cadence securities (regardless of whether such securities were granted as compensation or are otherwise held, directly or indirectly, by such employee or director), including by purchasing financial instruments such as prepaid variable forward contracts, equity swaps, collars and exchange funds, or trading in publicly-traded options, puts, calls or other derivative instruments related to Cadence securities. Cadence’s Securities Trading Policy also prohibits short-sales and similar transactions and requires pre-approval by Cadence of pledges of Cadence stock or deposits of Cadence stock in margin accounts. None of Cadence’s executive officers currently or in the last fiscal year has pledged any Cadence common stock under this policy.

CORPORATE SOCIAL RESPONSIBILITY

Cadence’s commitment to corporate social responsibility and its environmental, social and governance (“ESG”) initiatives create value for the company and all of its stakeholders. Our employees’ dedication and resilience in the face of the ongoing challenges presented by the pandemic has enabled us to continue to grow our business, deliver strong financial results and advance sustainability efforts that benefit our customers, investors and communities. We believe that as a global leader in electronic design whose offerings enable the world’s most innovative companies to bring to market products that transform the way people live, work and play, Cadence has an opportunity and a responsibility to be an organization that positively impacts society. As we work towards this goal, Cadence is committed to building ethical and sustainable business operations and supply chains and to maintaining governance structures that are in line with the best practices of our peers.

Environmental Sustainability

Climate change continues to be one of the greatest challenges of our time and we are committed to enhancing our actions to combat climate change and taking steps to lessen the environmental impact of our facilities and business operations. In line with the ambitious science-based global warming goals of the Paris Agreement, we are targeting to reduce Scope 1 and Scope 2 greenhouse gas emissions 50% by 2030 over our 2019 baseline. Additionally, through innovation and targeted investment, we anticipate reaching net zero emissions across our operations by 2040. Further, we expect to secure carbon neutral certification for 2021. And, as technology innovators, Cadence aims to contribute to the sustainability of our planet by advancing technologies that enable the design of high-performance systems which optimize power, space and energy needs.

LOGO

Net Zero GHG Reduced Scope 1 and 2 emissions by 32% in 2021 over 2019 baseline achieving our 2025 target early Set a target to reduce Scope 1 and 2 emissions 50% by 2030 Set a target to be Net Zero across all operations by 2040


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Diversity, Equity and Inclusion

Embracing diversity and fostering inclusion are key tenets of our One Cadence–One Team culture. We believe diversity plays a crucial role in bringing strengths and talents to the workplace, leading to broad and creative thinking and, ultimately, innovation. We recognize that gender and racial disparities remain a challenge in our industry and Cadence is deeply committed to addressing this issue. Our key programs and initiatives, which are described in more detail in our 2021 Sustainability Report which will be located at www.cadence.com, are focused on improving diversity in our hiring pipeline, increasing recruiting and engagement efforts in underrepresented communities, providing career support for top women, Black and Latinx talent, maintaining pay equity among our employees, raising awareness of unconscious biases in management and nurturing an inclusive community. For example, we partner with organizations such as the National GEM Consortium, National Society of Black Engineers, Society of Hispanic Professional Engineers and Society of Women Engineers to advance our inclusion efforts and provide scholarships to women and Black and Latinx students in technology in order to promote a broad and diverse candidate pool. Cadence also provides diverse top talent with specialized coaching, mentorship and other career development and support. We are building an inclusive workplace community for all of our employees, including sponsoring inclusion groups for Black, Latinx, LGBTQ+, veterans and women employees in the United States to foster dialogue and promote awareness, and providing unconscious bias training to our managers globally. We bring awareness to barriers, like unconscious bias, through training and engagement. To this end, 96% of our management team in North America has completed inclusive leadership training to elevate inclusiveness and promote equity in the workplace.

2021 Human Capital Highlights



Pay Equity				Company-Wide Attraction & Retention

Cadence maintained global salary pay parity based on gender and U.S. salary pay parity based on race and ethnicity.				Our 31% headcount growth over the last five years and average tenure of 6.8 years reflect our efforts to create an environment that attracts and retains high-performing talent. Approximately half (49%) of all Cadence hires were early career employees.


Great Place to Work				Hiring and Retention of Women

We have been recognized as one of the top places to work by Fortune magazine for the past seven years and by the Great Place to Work Institute in 13 countries where we participate. Additionally, we ranked #7 on Newsweek’s inaugural Most Loved Workplaces list for 2021. Of employees surveyed, 93% say they are proud to tell others they work at Cadence and 91% say Cadence is a great place to work.				Twenty five percent of all new hires were women and 28% of early career* and intern hires were women. Women comprised 23% of our global workforce and filled 20% of our technical roles, 46% of our non-technical roles and 17% of all management positions. * under the age of 30 working in entry-level positions


100 Best ESG Companies				Human Rights Campaign Foundation for LGBTQ+ Equality

We have been named to Investor’s Business Daily 100 Best Environmental, Social, and Corporate Governance Companies list, which considers both financial profitability and socially responsible business practices.				We have been named one of the Best Places to Work for LGBTQ+ Equality by the Human Rights Campaign Foundation with a perfect score of 100 on their Corporate Equality Index.


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COVID-19 Response and Action

Cadence has a people-first philosophy that shapes our company culture and drives how we run our business. For two years, Cadence has successfully enabled our workforce in a new remote environment. Our One Team values have guided our approach to navigating the challenges presented to our business and our employees by the COVID-19 pandemic. By prioritizing our employees’ health and well-being, we enabled their success and the success of our business. Our people-first approach will continue to influence how we sustain high levels of productivity while we transition back to the office. We have learned a lot over the course of the pandemic – including how resilient and agile the Cadence team is and how important both in-person and remote work experiences are for each individual and for our culture. Our goal is to continue to focus on employee safety while balancing the benefits of workplace flexibility with the importance of face-to-face collaboration to give our employees the optimal environment to succeed.

Supply Chain Management

Cadence is committed to doing business honestly and ethically and we expect the same from our suppliers. We partner with suppliers that share our values and aim to build long-lasting relationships that are mutually beneficial and create value for society beyond our respective organizations.

We extended our rigorous governance standards across our value chain with our Supplier Code of Conduct which we introduced in 2020 and shared with all new suppliers in 2021. To identify diversity in our supply chain and better understand our upstream ESG risks and opportunities over 100 of our key suppliers were asked to participate in our supplier sustainability questionnaire that covers issues including governance of climate change, natural resources, labor, data security, ethics and integrity. In line with our commitment to diversity and inclusion, we are developing programs to engage with and empower these value chain partners, and to grow our share of diverse suppliers.

Oversight and Management of Corporate Social Responsibility

Our Board, through its Corporate Governance and Nominating Committee, oversees Cadence’s corporate social responsibility program and the progress of our environmental (including climate-related risks and opportunities), social (including health, wellness and safety) and governance efforts, matters and initiatives. The Corporate Governance and Nominating Committee formally reviews our environmental, social and governance efforts, including climate-related matters, at every regular meeting and regularly reports to the Board on such programs. The Board and its Compensation Committee formally review the benefits provided to our employees, including health and wellness, once a year.

For more information on Cadence’s ESG strategy, programs and activities, see Cadence’s 2021 Sustainability Report, which will be available on the Corporate Social Responsibility page at www.cadence.com. The contents of Cadence’s Sustainability Report and website are not part of or incorporated by reference into this proxy statement.


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BOARD OF DIRECTORS

OVERVIEW AS OF THE RECORD DATE

LOGO

DIRECTOR EXPERTISE Compensation/Talent Management 11 Corporate Governance 10 Cybersecurity 7 Financial Expertise 9 Government/Regulatory/Public Policy 3 International 10 Marketing 8 Operations 8 Risk Management 11 Strategic Planning 11 Technology/Semiconductor/EDA 7

LOGO

BOARD COMPOSITION AT A GLANCE Ethnic Diversity Gender Diversity 6 5 8 3 Non-White White Women Men Independence Tenure 2 9 3 3 5 Independent 0-5 Years 6-10 Years Not Independent 11+ Years

LOGO

BOARD REFRESHMENT Additions to the Board Since the Beginning of 2021: 2 1 1 1 1 new directors independent directors women directors ethnically diverse directors lead independent director

BOARD MEMBERSHIP

The Board currently consists of eleven members: Mark W. Adams, Ita Brennan, Lewis Chew, Anirudh Devgan, Mary Louise Krakauer, Julia Liuson, James D. Plummer, Alberto Sangiovanni-Vincentelli, John B. Shoven, Young K. Sohn and Lip-Bu Tan. Susan L. Bostrom served on the Board in the first part of fiscal 2021 but did not stand for re-election at the 2021 Annual Meeting of Stockholders (the “2021 Annual Meeting”). Dr. Devgan was appointed to the Board in August 2021, and Ms. Krakauer was appointed to the Board in January 2022.

The size of the Board was increased to ten members in August 2021 in connection with Dr. Devgan’s appointment and was further increased to eleven members in January 2022 in connection with Ms. Krakauer’s appointment. Cadence remains committed to ensuring the Board is composed of directors who bring diverse viewpoints and perspectives, exhibit a variety of skills, professional experience and backgrounds and effectively represent the long-term interests of stockholders. See “Director Qualifications and Diversity of Background” below for more information.

DIRECTOR INDEPENDENCE

The Board determines director independence in accordance with the Corporate Governance Guidelines, which require that at least a majority of the Board be “independent” within the meaning of the Nasdaq listing standards.


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To be “independent” under the Nasdaq listing standards, among other bright line tests enumerated in the standards, a director must not be an executive officer or employee of the company and must not have a relationship that, in the opinion of the Board, would interfere with his or her exercise of independent judgment in carrying out the responsibilities of a Cadence director. In determining each director’s independence, the Board considers all relevant facts and circumstances in conjunction with the guidelines provided by the Nasdaq listing standards.

CURRENT INDEPENDENT DIRECTORS

Among the current members of the Board, the Board has determined that Directors Adams, Brennan, Chew, Krakauer, Liuson, Plummer, Sangiovanni-Vincentelli, Shoven and Sohn are independent directors within the meaning of the Nasdaq listing standards. Dr. Devgan, the President and Chief Executive Officer of Cadence, and Mr. Tan, our Executive Chair and the former Chief Executive Officer of Cadence, are not deemed independent. The Board previously determined that Ms. Bostrom, who served on the Board until the 2021 Annual Meeting, was an independent director within the meaning of the Nasdaq listing standards.

BOARD LEADERSHIP

Dr. Devgan serves as President and Chief Executive Officer, and Mr. Tan, the former Chief Executive Officer, serves as Executive Chair. While the Corporate Governance Guidelines permit the roles of the Chair and the Chief Executive Officer to be filled by the same or different individuals, a lead independent director is required if the roles are combined. This provides the Board with flexibility to determine whether the two roles should be combined in the future based on the Board’s assessment of Cadence’s needs and leadership from time to time.

In connection with Mr. Tan transitioning from the role of Chief Executive Officer to Executive Chair effective December 15, 2021, the independent directors of the Board appointed Dr. Shoven, the Board’s former Chair, to serve as Lead Independent Director. Dr. Shoven plays a significant role in Board leadership and meetings of our independent directors. The Board believes that at this time, Cadence and its stockholders are best served by this leadership structure because it is valuable to have the breadth of experience and depth of knowledge of our Chief Executive Officer and our Executive Chair counterbalanced by the significant role of our Lead Independent Director, all working together to assist the Board in fulfilling its role of overseeing management and Cadence’s risk management practices.

PROCESS FOR SELECTING DIRECTOR NOMINEES AND CANDIDATES

The Corporate Governance and Nominating Committee evaluates and recommends director candidates for nomination by the full Board. The Corporate Governance and Nominating Committee regularly discusses and annually reviews as a committee and with the Board the appropriate skills and characteristics required of directors (such as integrity, experience, judgment, diversity of background (including, among other factors, race, ethnicity and gender), independence, ability to commit sufficient time and attention to Board activities, understanding of Cadence’s products, technologies and strategy, and the specific skills set forth under “Director Nominee Qualifications, Skills and Experience” below in Proposal 1 regarding the election of directors) in the context of the current composition of the Board and its committees.

STOCKHOLDER RECOMMENDATIONS OF DIRECTOR CANDIDATES

Stockholders who wish to recommend a prospective candidate for the Board must notify Cadence’s Corporate Secretary in writing with the supporting materials required by Cadence’s Bylaws as described under “Information About the Annual Meeting” below and any other material the stockholder considers necessary or appropriate in order for their recommended candidate to be considered by the Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee will evaluate any such candidate in the same manner as it evaluates candidates recommended from other sources.


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DIRECTOR ATTENDANCE

During the fiscal year ended January 1, 2022, the Board held six meetings, in addition to taking actions by unanimous written consent in lieu of a meeting. Each of our current directors attended at least 75% of the meetings of the Board and the committees on which he or she served that were held during the period for which he or she was a director or committee member during fiscal 2021. The Corporate Governance Guidelines encourage directors to attend the annual meeting of stockholders, and all of Cadence’s then-serving directors attended the 2021 Annual Meeting.

INDEPENDENT DIRECTOR MEETINGS

Pursuant to the Corporate Governance Guidelines, Cadence’s independent directors meet separately at least twice each year. Dr. Shoven, our Lead Independent Director, presides over meetings of the independent directors.

BOARD EVALUATIONS

The Board is committed to reviewing its performance through an annual evaluation process. Through the evaluations, the Board assesses its processes, meetings, planning and overall effectiveness. The directors provide feedback on the Board and its committees through questionnaires and interviews with an independent third party. Each year, the independent third party reviews the results and feedback provided by the directors and follows up with the directors regarding their evaluations and presents to the full Board. Any findings that require additional consideration are addressed at subsequent Board and committee meetings, as appropriate.

BOARD SUCCESSION PLANNING

Board succession planning is a regular topic for discussion at Board meetings. The Corporate Governance and Nominating Committee reviews with the Board at least annually the appropriate experience, skills and characteristics required of Board members in the context of the current composition of the Board, with a focus on ensuring that the Board has the expertise, integrity, experience, skills, judgment and diversity of background (including, among other factors, race, ethnicity and gender) needed to govern Cadence now and in the future. New directors undergo a robust orientation process overseen by the Corporate Governance and Nominating Committee that includes a series of briefings with senior management and other experts designed to enable new directors to quickly become active, knowledgeable and effective members of the Board. The briefings include profiles on Cadence’s business, industry, technology, financial landscape, people and culture, as well as corporate governance and regulatory matters.

CEO AND MANAGEMENT SUCCESSION PLANNING

The Board is actively engaged and involved in the succession planning of Cadence’s management. The Compensation Committee regularly discusses and annually reports to the Board with respect to CEO succession planning, including policies for CEO selection and succession in the event of incapacitation, emergency situations, operational needs, retirement or removal of the CEO and evaluations of and development plans for potential successors to the CEO. In addition, the Compensation Committee, in consultation with the CEO, regularly discusses and annually reviews senior leadership succession planning and reports to the Board with respect to Cadence’s management development program and succession planning.


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BOARD RISK OVERSIGHT

The Board exercises its risk oversight function through the Board as a whole and through certain of its committees. The Board and the relevant committees seek to understand and oversee the most critical risks facing Cadence. The Board does not view risk in isolation but considers risk as part of its regular consideration of business decisions and business strategy. The Board as a whole has the ultimate responsibility for the oversight of risk management but has delegated the oversight of certain risks to the Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee as set forth in the table below.



Committee		Primary Areas of Risk Oversight

Audit Committee		Cadence’s financial condition, financial statements, financial reporting process, accounting, internal control and cybersecurity matters

Compensation Committee		Cadence’s overall compensation and senior leadership succession planning practices, policies and programs

Corporate Governance and Nominating Committee		Cadence’s corporate governance, the composition, structure and evaluation of, and succession planning for, the Board and its committees, ESG practices, and review and approval of related party policy and transactions

The Board and the relevant committees review with Cadence’s management the risk management practices for which they have oversight responsibility. Since overseeing risk is an ongoing process and inherent in Cadence’s strategic decisions, the Board and the relevant committees also discuss risk throughout the year in relation to specific proposed actions.


We have implemented critical measures in response to the COVID-19 pandemic and the shift to remote work to promote the continued safety, health and well-being of our employees, customers and extended communities. Accordingly, the Board has taken an active role in overseeing the company’s and its management’s response to the pandemic. At least quarterly, the Board and management hold formal discussions on the impact of the ongoing pandemic on Cadence’s employees, operations, business and global communities, as well as the company’s risk mitigation strategies.

In particular, cybersecurity risks have increased during the ongoing COVID-19 pandemic as more companies and individuals are working remotely through less secure network connections. Cadence is committed to the protection of our customers’, vendors’, partners’ and employees’ personal information and our Information Security team works to identify and prevent cybersecurity risks through enhanced privacy and data cybersecurity initiatives. Our Chief Information Security Officer administers our data privacy and cybersecurity program with oversight by the Audit Committee and regularly updates the Board and Audit Committee on our cybersecurity performance and risk profile. In 2021, with a vast majority of employees continuing to work from home during the pandemic, the Audit Committee and our senior management maintained a focus on ensuring that Cadence has secure remote access with endpoint security controls and infrastructure resiliency. As part of this process, we enhanced our security incident response procedures to address risks specific to remote working conditions and enhanced our verification controls to further ensure only trusted devices can access Cadence’s network. In the event of a data breach, we have documented response procedures and a cybersecurity insurance policy to cover certain losses from a data breach. We also review and further revise as necessary the company’s mandatory data privacy and cybersecurity training for employees, which we use to train our employees on these important matters. Overall, we believe in implementing effective cybersecurity practices to counteract evolving risks, and we structure our data privacy and security program to align with the EU, National Institute of Standards and Technology (NIST 800-*), Cloud Security Alliance (CSA) and ISO 27001 standards and are ISO/IEC 27001:2013 certified.


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COMMITTEES OF THE BOARD

The Board currently has the following committees: Audit Committee, Compensation Committee, Corporate Governance and Nominating Committee and Finance Committee. Each of these committees meets regularly, reports on its activities to the full Board, is authorized to engage external advisors and has a written charter that is approved by the Board and available on the Corporate Governance page at www.cadence.com. The table below shows the current composition of the committees.



Director	Audit	Compensation	Corporate Governance and Nominating	Finance

Mark W. Adams				✓

Ita Brennan	✓		✓

Lewis Chew

Anirudh Devgan

Julia Liuson		✓	✓

Mary Louise Krakauer

James D. Plummer	✓	✓

Alberto Sangiovanni-Vincentelli			✓

John B. Shoven	✓	✓	✓	✓

Young K. Sohn

Lip-Bu Tan

LOGO Committee Chair ✓ Member

Audit Committee

The Board has determined that all four members of the Audit Committee are “independent” as defined by the Nasdaq listing standards applicable to audit committee members and Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Board has also determined that Ms. Brennan, Mr. Chew and Dr. Shoven are “audit committee financial experts” as defined in rules promulgated by the SEC.

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The Audit Committee charter was last amended in February 2021 and complies with the Nasdaq listing standards. The duties and responsibilities of the Audit Committee include: Appointing, retaining, compensating, evaluating, overseeing and discharging Cadence’s independent registered public accounting firm;

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Pre-approving (or where permitted by SEC rules, subsequently approving) all audit and permissible non-audit services to be provided by the independent registered public accounting firm and establishing policies and procedures for such pre-approval;

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Engaging in dialogues with the independent registered public accounting firm with respect to any relationships or services between Cadence and the independent registered public accounting firm that may impact the objectivity and independence of the independent registered public accounting firm;

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Reviewing audit and internal quality control procedures, the results of the annual audit and any audit problems, difficulties or significant disagreements with management;

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Reviewing Cadence’s annual and quarterly financial statements, annual reports on Form 10-K and quarterly reports on Form 10-Q, and recommending to the Board whether the financial statements should be included in Cadence’s annual report on Form 10-K;


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Reviewing and assessing the adequacy and effectiveness of Cadence’s internal controls and procedures, disclosure controls and procedures, and Cadence’s guidelines, policies and practices with respect to risk assessment and risk management as they relate to Cadence’s financial condition, financial statements, financial reporting process and accounting matters, cybersecurity, and overseeing financial risk exposures; and

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Establishing and overseeing procedures for the receipt, retention and treatment of complaints received by Cadence regarding accounting, internal controls, auditing or violations of federal securities law matters.

The Audit Committee held six meetings during fiscal 2021. See “Report of the Audit Committee” below for more information.

Compensation Committee

The Compensation Committee is currently comprised of four members, each of whom the Board has determined to be “independent” as defined by the Nasdaq listing standards applicable to compensation committee members and satisfies the applicable independence standards under the Exchange Act for compensation committee service. All Compensation Committee members are also “non-employee directors” within the meaning of Rule 16b-3 of the Exchange Act.

The Compensation Committee may delegate its authority over certain matters to management when it deems it to be appropriate and in the best interests of Cadence. In fiscal 2021, the Compensation Committee did not delegate any authority with respect to the consideration and determination of executive officer compensation in fiscal 2021 and does not currently expect to delegate any such authority in the future. At or near the beginning of each fiscal year, the Compensation Committee typically establishes base salary levels and target bonuses for the CEO and other executive officers of Cadence. In addition, the Compensation Committee administers and, if deemed necessary, may amend Cadence’s Senior Executive Bonus Plan, Cadence’s equity-based compensation plans and stock purchase plans, and Cadence’s deferred compensation plans. The Compensation Committee also reviews and recommends to the Board the compensation of Cadence’s directors, and the Compensation Committee did not delegate any authority with respect to the consideration and determination of director compensation in fiscal 2021.

The Compensation Committee charter was last amended in February 2021. The duties and responsibilities of the Compensation Committee include:

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Identifying, reviewing and approving corporate goals and objectives relevant to the compensation of the CEO and any director who is also a Cadence employee, and evaluating the performance of the CEO and any employee director in light of those goals and objectives;

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Overseeing the evaluation of Cadence’s management;

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Reviewing at least annually Cadence’s senior leadership succession planning in consultation with the CEO;

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Reviewing compensation programs and determining the compensation of Cadence’s executive officers;

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Overseeing Cadence’s overall compensation practices, policies and programs, assessing whether Cadence’s compensation structure establishes appropriate incentives for management and employees, assessing the risks associated with such practices, policies and programs, and assessing the results of Cadence’s most recent advisory vote on executive compensation;

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Reviewing annually an assessment of any potential conflicts of interest raised by the work of compensation consultants, whether retained by the Compensation Committee or management, who are involved in determining or recommending executive or Board compensation; and


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Assessing the independence of any consultants or other outside advisors that the Compensation Committee selects or receives advice from, and being directly responsible for the appointment, compensation and oversight of the work of any consultants and advisors retained by the Compensation Committee.

The Compensation Committee believes that having an outside evaluation of executive officer salary, bonus and equity compensation is a valuable tool for the Compensation Committee and Cadence stockholders. In fiscal 2021, the Compensation Committee retained the services of a compensation consultant, Semler Brossy Consulting Group, LLC, for advice regarding the compensation of Cadence’s executive officers and Board. The Compensation Committee retained Semler Brossy for a number of purposes, including constructing and reviewing peer groups for compensation comparison purposes, performing a competitive assessment of Cadence’s compensation programs, practices and levels for its executive officers and certain other employees and providing information on typical industry practices concerning employment, equity practices, severance and change in control agreements. Semler Brossy has not been engaged to perform any other work for Cadence. Pursuant to the factors set forth in Item 407 of Regulation S-K promulgated by the SEC and the Nasdaq listing standards, the Compensation Committee has reviewed the independence of Semler Brossy and conducted a conflicts of interest assessment, and has concluded that Semler Brossy is independent and Semler Brossy’s work for the Compensation Committee has not raised any conflicts of interest.

In determining the compensation of Cadence’s executive officers, including Cadence’s named executive officers (as defined below in “Compensation Discussion and Analysis”), the Compensation Committee considers the competitive assessments provided by and through consultation with Semler Brossy. In addition, Cadence’s CEO typically makes assessments and recommendations to the Compensation Committee on whether there should be adjustments to the annual base salary, annual cash incentive compensation and equity incentive compensation of executive officers other than himself based upon an assessment of certain factors described in “Compensation Discussion and Analysis” below. The Compensation Committee reviews such assessments and recommendations and determines whether or not to approve or modify the CEO’s recommendations. The Compensation Committee’s decisions are made, however, by the Compensation Committee in its sole discretion. See “Compensation Discussion and Analysis” below for more information.

The Compensation Committee, in consultation with Semler Brossy, reviews Cadence’s compensation practices, policies and programs for all employees, including the named executive officers, to assess the risks associated with such practices, policies and programs. The risk-mitigating factors considered by the Compensation Committee include the following:

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The use of different types of compensation that provide a balance of short-term and long-term incentives with fixed and variable components;

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Cadence’s Securities Trading Policy, which restricts certain transactions in Cadence’s securities, prohibits hedging by members of the Board and all employees and requires executive officers and members of the Board to obtain permission from the Chief Legal Officer before trading any shares of Cadence common stock, except those transactions expressly permitted in such policy;

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Cadence’s Clawback Policy, which, in the event of a restatement of Cadence’s reported financial results, allows Cadence to seek to recover or cancel performance-based bonuses and equity awards made to executive officers to the extent that performance goals would not have been met under such restated financial results;

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Caps on bonus awards to limit windfalls; and

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The consideration of ethical behavior, which is integral in assessing the performance of all executive officers, including the named executive officers.

The Compensation Committee held six meetings during fiscal 2021.


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Corporate Governance and Nominating Committee

The Board has determined that all five members of the Corporate Governance and Nominating Committee are “independent” as defined by the Nasdaq listing standards.

The Corporate Governance and Nominating Committee charter was last amended in February 2021. The duties and responsibilities of the Corporate Governance and Nominating Committee include:

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Determining the Board’s criteria for selecting new directors and recommending to the Board director nominees for election at the next annual or special meeting of stockholders at which directors are to be elected or to fill any vacancies or newly created directorships that may occur between such meetings;

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Considering potential director candidates recommended by Cadence’s management and stockholders in the same manner as nominees identified by the Corporate Governance and Nominating Committee; provided that, with respect to those candidates recommended by stockholders, such stockholders have provided Cadence with a notice that sets forth information as to such stockholders and director candidates in accordance with Cadence’s Bylaws;

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Overseeing the annual evaluation of the Board and its committees, and considering the results of the annual evaluation;

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Retaining, terminating and approving the fees and retention terms with respect to any search firm employed to identify director candidates;

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Evaluating, at least annually, each director’s performance and effectiveness and determining whether the Board desires his or her continued service;

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Overseeing the administration of the Code of Business Conduct and administering the Code of Business Conduct with respect to Cadence’s directors and executive officers;

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Reviewing and approving any related party transactions and recommending to the full Board for approval policies and procedures for the review, approval and ratification of such transactions and amendments to such policies and procedures;

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Reviewing whether it is appropriate for a director to continue to serve as a member of the Board if his or her business responsibilities or personal circumstances change and making a recommendation to the Board as to any action to be taken with respect to such change;

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Determining whether to approve any director (a) accepting employment, directorship, consulting engagement, advisory board position or any other affiliation with another company or (b) starting a new business which may be, or give the appearance of, a conflict of interest;

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Overseeing the orientation program that Cadence provides to new directors and making recommendations regarding director continuing education programs; and

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Overseeing Cadence’s policies and practices regarding corporate social responsibility and sustainability programs, including environmental / climate-related, social and governance (ESG) matters and initiatives, and reporting to the Board at least annually on such programs.

The Corporate Governance and Nominating Committee regularly discusses and annually reviews the appropriate size of the Board, whether any vacancies on the Board are expected due to retirement or otherwise, and the need for particular expertise on the Board. If vacancies on the Board are anticipated or otherwise arise, the committee considers potential director candidates, which may come to the committee’s attention through a variety of channels, including current directors, officers, professional search firms, stockholders or other persons. The Corporate Governance and Nominating Committee makes a recommendation to the full Board as to the persons who should be nominated or elected by the Board, and the Board determines whether to reject, elect or nominate the candidate, as the case may be, after considering the recommendation of the committee.

The Corporate Governance and Nominating Committee held four meetings during fiscal 2021.


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SEC Form DEF 14A filed by Cadence Design Systems Inc.