ARRS Arris International Plc - Ordinary Shares

Item 11. Executive Compensation

COMPENSATION DISCUSSION AND ANALYSIS (“CD&A”)

Overview

This CD&A describes the major elements of our compensation program for the executive officers (the “named executive officers” or “NEOs”) included in the Summary Compensation Table included elsewhere in this Annual Report. This CD&A also discusses the objectives and philosophy decisions underlying the compensation of the NEOs. The CD&A should be read together with the executive compensation tables, including the summary compensation table, and related footnotes found later in this Report.

Authority over compensation our senior executives is within the province of the Compensation Committee. The Compensation Committee is comprised entirely of independent directors, as determined under the applicable NASDAQ listing standards, SEC requirements and the requirements for “outside directors” under Section 162(m) of the Internal Revenue Code. The Compensation Committee reviews and approves executive compensation programs and specific compensation arrangements for the executive officers. The Compensation Committee reports to the Board, and all compensation decisions with respect to the Executive Chairman and Chief Executive Officer are reviewed and approved by the whole Board, without participation by the Executive Chairman or Chief Executive Officer.

Programs and Objectives and Reward Philosophy

Our Compensation Committee is guided by the key objectives and reward philosophies in the design and implementation of our executive compensation program described below. We target to be competitive with the compensation provided to executives of companies within our peer group for the cash-based and equity compensation components. While we consider where elements of cash and equity compensation fall with respect to officers with similar responsibilities within the peer group, no formal benchmarking is used, as the Compensation Committee determines the amounts of the elements of compensation depending on, among other things, the responsibilities of the officer, his or her skillset and experience, how difficult it would be to replace and the relative importance of that particular skillset to the accomplishment of our business objectives, the officer’s ability to assume additional responsibility and his or her service time with the Company.

The principal elements of our executive compensation program are:

 Key Considerations

In applying these program objectives and reward philosophies, the Compensation Committee takes into account the key considerations discussed below.

Competitive Market Assessment.    We regularly, but not necessarily annually, conduct a competitive market assessment with an independent compensation consultant for each of the three primary elements of our executive compensation program. The Compensation Committee did not engage an independent compensation consultant to provide a broad market assessment in 2018.

In setting executive compensation levels, the Compensation Committee has historically reviewed market data from the following sources:

The Compensation Committee uses data with respect to the companies within the peer group to provide information on the overall competitiveness of elements of the Company’s compensation plan. As noted above, the Compensation Committee does not utilize formal benchmarking for either total compensation or any of the individual elements of the compensation program and, as a result, changes in the peer group do not impact any performance criteria used by the Company in its compensation programs.

The primary use of this data is to inform and confirm that the compensation and benefit level decisions of the Compensation Committee are consistent with industry levels generally and the Compensation Committee goals described in this Annual Report.

Our Financial and Strategic Objectives.    Each year our management team develops an annual operating target plan or budget for the next fiscal year for review and approval by our Board of Directors. The Compensation Committee utilizes the financial plan in the development of compensation plans and performance goals for our NEOs for the next target year.

Considerations for Mr. McClelland .   In setting the compensation arrangements for Mr. McClelland, the primary factors considered by the Compensation Committee included:

Considerations for Other Named Executive Officers.    The Compensation Committee considers the same factors in setting the compensation arrangements for each of the other NEOs as well as:

Pending Acquisition by CommScope . We entered into a Bid Conduct Agreement (the “Acquisition Agreement”) with CommScope Holding Company, Inc. (“CommScope”), pursuant to which CommScope has agreed to acquire all of the issued and to be issued ordinary shares of ARRIS (the “Acquisition”) for $31.75 in cash per ordinary share (the “Per Share Consideration”) by means of a court sanctioned scheme of arrangement under Part 26 of the Companies Act 2006.

Additional Information and Considerations

The Role of the Compensation Committee and Its Use of Advisors.   For information on the role and responsibilities of the Compensation Committee, we encourage you to review the Compensation Committee charter, which is available on our website at www.arris.com under the caption “Investors.” Annually, the Compensation Committee reviews the independence of each of its advisors and confirms that any executive compensation consultant used by the Committee is independent.

The Compensation Committee charter permits the Compensation Committee to engage independent outside advisors to assist the Compensation Committee in the fulfillment of its responsibilities. The Compensation Committee engages an independent executive compensation consultant for information, advice and counsel. Typically, the consultant assists the Compensation Committee by providing an independent review of:

As noted above, no independent compensation consultant was engaged in 2018 by the Compensation Committee to provide advisory services on the structure and design of our compensation program or to provide the Compensation Committee with market data. However, in considering whether and how to treat outstanding awards in connection with the Acquisition, the Compensation Committee was advised by Longnecker & Associates, Inc., who the Compensation Committee previously had determined was independent.

The Role of Executive Management in the Process of Determining Executive Compensation.    The Executive Chairman makes a recommendation to the Compensation Committee regarding executive compensation decisions for the Chief Executive Officer and the Chief Executive Officer makes a recommendation to the Compensation Committee regarding executive compensation decisions for the other NEOs. Vicki Brewster, our Senior Vice President, Human Resources, is responsible for administering our executive compensation program and Dave Potts, our Executive Vice President and Chief Financial Officer, provides information and analysis on various aspects of our executive compensation plans, including financial analysis relevant to the process of establishing performance targets for our annual cash incentive plan and the cost of long-term equity incentive plans. Although members of our management team participate in the process of determining executive compensation, the Compensation Committee also meets in executive session without any members of the management team present and may also meet independently with an independent compensation consultant. The Compensation Committee makes the final determination of the executive compensation package provided to each of our NEOs subject, in the case of Mr. McClelland, to full Board approval.

Equity Grant Timing. Historically , equity awards are granted annually, generally in March or April depending on Board meeting schedule, shareholder approval of new equity plans and other factors. The Compensation Committee believes that grant dates should occur as early as practicable after final budgets for the new year have been approved by the Board and after year-end results have been announced to the public. Equity grants, annual compensation adjustments, and incentive plan performance criteria generally will be decided simultaneously, although they may be implemented at various times. For example, base salary increases historically were effective April 1, while bonuses generally were paid earlier. The fair value for restricted stock is the closing price of the stock on the date of grant.

Primary Compensation Elements

Base Salaries

The annual base salary component of our compensation program provides each executive officer with a fixed level of annual cash compensation. We believe that providing annual cash compensation through a base salary is an established market practice and is a necessary component of a competitive compensation program. A minimum base salary is included in the employment agreement with each of our executive officers and adjustments to that contractual minimum are typically considered annually. Changes in base salaries are made taking into consideration factors such as the relative levels of individual experience, performance, responsibility and contribution to the results of our operations.

The 2018 base salary for each NEO is reported in the “Base Salary” column of the Summary Compensation Table appearing later in this Annual Report. In approving the base salary increases for the NEOs, the Compensation Committee considered, among other factors, each officer’s contributions to the Company during 2017, the NEO’s role in strategic initiatives, such as the integration of the Ruckus acquisition (which was completed in December 2017) and other merger and acquisition activities, the Company’s financial results for 2017 as compared to 2016 and the base salary increases made in 2017.

Annual Cash Incentives

Annual cash bonuses are tied to Company performance. Annual bonus targets for executive officers have been established as a percentage of base pay including the annual raise, if any, in the relevant years. For 2018, the bonus target for Mr. McClelland was 100% of base salary, the bonus target for Mr. Potts was 90% of base salary and the bonus targets for the remaining NEO’s annual bonus targets, other than Mr. Whiting, were 80%, the same as the targets used in 2017. Mr. Whiting’s annual bonus target was 70% of base salary. The maximum bonus payout for each of the NEOs is 200% of the annual bonus target.

The Compensation Committee seeks to establish variable pay in the form of an annual cash bonus opportunity within the market levels of our peer group based on the analysis described above. The Compensation Committee believes that the variable pay target should be set at a level and permit a payout ranging from 0% to 200% in order to strongly align executive pay with the performance of the Company.

For 2018, 100% of the annual incentives for the NEOs, other than Mr. Whiting, were to be based on targeted financial performance objectives developed by management and approved by the Board of Directors with any adjustments the Compensation Committee considered appropriate in setting the target metrics. In reviewing the budget, the Compensation Committee considers, in addition to the detailed budget as presented, expected capital expenditure trends within the Company’s industry and the Company’s market share and market share growth.

For 2018, we focused on both profitable growth and shareholder return. This required us to focus on both generation of profitable revenue growth and direct operating income and, importantly, cash generation which enabled us to make investments in our business (both organic and through acquisition) and fund programs, such as share repurchases, that return capital to our shareholders. Thus, in 2018, we added cash from operating activities as a third financial metric of our bonus program. In 2018, 40% of the total bonus continued to be based on adjusted direct operating income, 40% continued to be based on adjusted revenues and cash from operating activities made up the remaining 20%. Payouts continued to depend on the results achieved relative to established objectives for each component.

The adjusted direct operating income, adjusted revenue and cash from operating activities targets set by the Compensation Committee may vary from the amounts in the annual budget for the Company approved by the Board of Directors, if the Compensation Committee determines that such adjustments are appropriate to better reflect how such measures are used internally to track the performance of the Company (e.g., non-GAAP measures). No individually assigned objectives (“MBOs”) were considered in determining the amount of any bonus awarded to an NEO. Actual payouts depend on results relative to the established objectives as detailed in the table below with straight-line interpolation between levels.

The 2018 target for adjusted direct operating income (40% of the bonus) that would yield a 100% payout of this component of the targeted bonus was $721 million. Actual adjusted direct operating income performance for 2018 was approximately $638 million, which was 88% of the target performance, and, accordingly, would yield a 0% payout for this component of the bonus. The target adjusted revenue component (40% of the bonus) for 2018 was based on an adjusted revenue target of   $7,370 million. Actual 2018 performance was approximately $6,756 million, which was approximately 92% of target and would yield a 33% payout for the revenue component. The target cash from operating activities component (20% of the bonus) for 2018 was based on a cash from operating activities target of   $823 million. Actual 2018 performance was approximately $671 million, which was approximately 82% of target and would yield a 29% payout for the cash from operating activities component. As a result, the combined financial performance would yield a total bonus payout of 19% of target.

The Compensation Committee has the authority to adjust bonuses, including additions to the bonuses earned (or to pay bonuses when no bonus has been earned) under the bonus plan. The Committee may consider any of a number of elements such as individual performance, business unit performance, relative performance to competitors, strategic accomplishments, the level of work or sacrifice required in the relevant year, years of service with the Company and other factors. We do not have a formal policy for payments above the amounts established under the bonus plan. The Compensation Committee also may adjust the performance criteria if circumstances dictate (e.g., acquisitions, financings or other items that may not have been incorporated in the budget and therefore might require adjustment). As a result of the proposed Acquisition, the Compensation Committee discussed that the announcement and pendency of the Acquisition could create uncertainty amongst our customers that could have impacted the Company’s 2018 financial results and, therefore, the actual financial results were not necessarily reflective of the results that would have been achieved if the proposed Acquisition was not announced. As a result, the Compensation Committee (and the full Board with respect to bonus payable to Mr. McClelland) determined it to be in the best interests of our employees to pay out the financial portion of the bonuses based on the forecasted levels of Adjusted Direct Operating Income, Adjusted Revenues and Cash from Operating Activities presented to the Board in connection with its review of the Acquisition. Those combined forecasted levels used by the Compensation Committee resulted in a total bonus payout of 23%, notwithstanding the actual 2018 financial results. In light of the strong financial performance of the Network & Cloud segment in 2018, the Compensation Committee also agreed to use its discretion to increase the bonus payable to Mr. Whalen in recognition of his leadership of the segment in 2018.

Mr. Whiting was promoted to President of the Enterprise Networks segment effective July 1, 2018. As a result, for the period January 1, 2018 through June 30, 2018, Mr. Whiting was entitled to earn sales commissions, in addition to his base salary, in his role as head of sales for the Enterprise Networks segment. In connection with his promotion in July, we agreed that Mr. Whiting’s target cash bonus opportunity for the second half of 2018 would be based on the achievement of revenue targets previously set for the Enterprise Network’s segment (90% weighting and 84.2% of target actual payout for 2018), the achievement of the corporate financial metrics outlined above for the other NEOs (5% weighting and 23% of target actual payout for 2018) and Mr. Whiting’s achievement of individual performance objectives tied to his leadership of the Enterprise Networks segment (5% weighting and 125% of target actual payout for 2018). In addition, for 2018 Mr. Whiting also remained eligible to receive a retention bonus (the “Ruckus Retention Bonus Program”) agreed to in December 2017 as part of the Ruckus acquisition, the amount of which was based on revenues (50% weighting) and direct operating income (50% weighting) of the Enterprise Networks segment for the first year following the closing, with a floor under such program of 75% of the target amount. The Ruckus Retention Bonus Program paid out at the floor level of 75% of target.

The dollar amount of the annual cash incentive bonus paid in 2018 to each of our NEOs is reported in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table appearing later in this Annual Report.

Long-Term Equity Incentives

Annual Grants.    We make long-term equity incentive awards to our executive officers each year. The primary objectives of our equity incentive program are to:

The long-term incentive compensation for NEOs in recent years has consisted of grants of restricted stock units with both time-based and performance-based vesting. We used restricted stock units to reduce the share dilution associated with awards since restricted stock unit awards use fewer shares than comparably valued stock option awards. Moreover, recent changes in accounting standards require that stock options, as well as restricted stock, be expensed. Prior to these changes, the Company, like most companies, utilized primarily stock options to take advantage of the then-available favorable accounting treatment for stock options. We also have used restricted stock units instead of stock options to maintain a retention incentive even in challenging periods when our stock price may have been depressed. Under the terms of our restricted stock unit awards, the recipient is not entitled to vote the shares underlying the award or to receive dividends, if any are declared, until the restricted stock unit vests and shares are issued in settlement of the award.

The Compensation Committee establishes an aggregate value for equity grants for Company-wide distribution focusing on cost to be reflected in our financial statements, the annual grant level as a percent of shares outstanding and using the dollar value of the aggregate grants as a percentage of our total market capitalization, and factors in the advice of its executive compensation consultant. A value expressed in dollars was allocated to the NEOs based, in part, on the level of aggregate expense and dilution the Compensation Committee deemed appropriate. The value was awarded in restricted stock unit awards.

One-half of the restricted stock units awarded to the NEOs since 2008 have utilized performance vesting. The remaining restricted stock unit awards vest equally over a four-year period. If the Acquisition is completed, the Acquisition Agreement provides that each restricted stock unit or similar award (“ARRIS RSU”) will either be accelerated and converted into the right to receive the Per Share Consideration (the “Accelerated RSUs”) for each ordinary share subject to such Accelerated RSU or be assumed or replaced by CommScope (the “Assumed RSUs”) as described in “Treatment of ARRIS’s Equity-Based Awards in the Acquisition” below.

The performance criteria used for performance-based vesting awards compares our total shareholder return (“TSR”) to the shareholder return of the NASDAQ composite over a three-year period (the “TSR measurement”) beginning with the calendar year of grant. The TSR measurement allows for payment from 0% to 200% based on underperforming, meeting or exceeding the NASDAQ composite three-year return as set forth in the following table, with straight-line interpolation between levels.

Our TSR was 30.2 points below the NASDAQ Composite for the period from 2016 to 2018, which would have resulted in none of the performance-based awards granted in 2016 vesting in January 2019. However, under the terms of the Acquisition Agreement governing the Acquisition, if the Acquisition is completed, the performance-based awards granted in 2016 will be deemed to have been satisfied at 100% of target. For additional information of the treatment of the performance-based awards in the Acquisition, see “- Treatment of ARRIS’s Equity-Based Awards in the Acquisition” below.

The specific numbers of restricted stock that were granted to each of our NEOs in 2018 are set forth on the table entitled Grants of Plan-Based Awards in the executive compensation tables found later in this Annual Report.

Pursuant to the terms of the Acquisition Agreement, we have agreed that we will not grant additional equity awards to our employees in 2019, including the NEOs, without the prior consent of CommScope.

Executive Benefits and Perquisites

Our NEOs are eligible to participate in the same employee benefit plans in which all other eligible U.S. salaried employees participate. These plans include medical, dental, life insurance, disability and a qualified retirement savings plan.

No significant perquisites are provided to the named executive officers.

Risk Considerations

The Compensation Committee reviews whether our compensation program taken as a whole creates more incentive for officers and employees to take more risks than are appropriate from a sound business judgment perspective and that are reasonably likely to have a material adverse effect on the Company and concluded it does not. This analysis applies generally to the compensation program for all employees since all management employees (both executive officers and non-officers) above a certain level are provided with substantially the same mix of compensation as the NEOs. The compensation package provided to employees below this level is not applicable to this analysis as such compensation package does not provide sufficient incentive to take risks that could materially affect the Company.

There is no objective way to measure risk resulting from a company’s compensation program; therefore, this analysis is subjective in nature. We believe that the only elements of our compensation program that could incentivize risk-taking by employees, and therefore have a reasonable likelihood of materially adversely affecting the Company, are the annual cash incentive compensation and, for senior officers, including the NEOs, the portion of the long-term equity incentives where the payout is dependent on the achievement of certain performance levels by the Company. Based upon the value of each of these elements to the overall compensation mix and the relative value each has to the other, we believe our compensation program is appropriately balanced. We believe that the mix of short-term cash awards and long-term equity awards minimizes risks that may be taken, as any risks taken for short-term gains could ultimately jeopardize our ability to meet the long-term performance objectives and impact the value of shares held. Given the current balance of compensation elements, we do not believe our compensation program incentivizes unreasonable risk-taking by management. Additional factors that help mitigate inappropriate risk-taking also include the clawback policy and stock ownership guidelines described below. The Compensation Committee’s stock ownership guidelines require officers who participate in the long-term incentive compensation program to hold an amount of Company ordinary shares and other equity-related Company securities that varies depending upon such officers’ level. The guidelines require our executive officers to hold ordinary shares and other equity-related securities of the Company having a minimum fair market value ranging from 200% to 600% of base salary. The Compensation Committee believes these stock ownership guidelines further discourage unreasonable risk-taking by Company officers.

Executive Stock Ownership Guidelines; Prohibition on Hedging and Pledging

Our Share Ownership Guidelines require each senior executive to own shares having a value equal to a multiple of the senior executive’s annual base salary. The multiple is six times base salary for Mr. McClelland; four times base salary for Mr. Potts; and three times base salary for Messrs. Robinson, Whalen and Whiting. Each officer has five years to meet the guidelines, and generally must retain one-half of the shares, after tax, issuable upon vesting of restricted stock units. The five-year period to meet the guidelines also applies to changes in the required number of shares due to changes in the share price or applicable base salary. The Compensation Committee reviews compliance with the guidelines annually. As of December 31, 2018, all senior executives met the guidelines or were on track to reach compliance within the five-year period.

Under the terms of our insider trading policy, all officers, including the NEOs, and directors are prohibited from (1) hedging any of the Company’s equity securities (which include the Company’s ordinary shares and options or other securities exercisable for, convertible into, settled in or measured by reference to, any other equity security) or (2) pledging a significant number of the Company’s equity securities. For purposes of the policy, “hedging” includes any instrument or transaction, including put options, swaps and forward-sales contracts, through which the officer or director offsets or reduces exposure to the risk of price fluctuations in the corresponding equity security. With respect to the pledging prohibition, the amount of equity securities that is considered “significant” is the lesser of 1% of the Company’s outstanding shares and 50% of the equity securities held by the applicable officer or director.

Accounting, Tax and Financial Considerations

The Compensation Committee carefully considers the accounting, tax and financial consequences of the executive compensation and benefit programs implemented by us. These were important considerations in connection with the design of the following compensation programs:

Clawback Policy

In February 2009, the Board of Directors adopted the Executive Compensation Adjustment and Recovery Policy. This policy is a so-called “clawback policy” that enables the Company to recoup compensation paid to any president, vice president, secretary, treasurer or principal financial officer, comptroller or principal accounting officer, or any other officer routinely performing corresponding functions with respect to the Company when such compensation was based on financial results or operating metrics that were satisfied as the result of fraudulent or illegal conduct of any of the officers. The Board of Directors is entitled to recover compensation when it concludes that it is attributable to such officers’ conduct and would not have been awarded had such financial results or operating metrics not been satisfied. In addition, if an officer engaged in intentional misconduct that contributed in any material respect to the improper accounting or incorrect financial data, the Board of Directors may seek to recoup any profits realized from the officer’s sale of our securities during or subsequent to the impacted accounting period. A copy of the policy is available at www.arris.com under the caption “Investors.”

Employment Contracts and Termination of Employment and Change in Control Arrangements

The employment agreements with the NEOs generally are one-year agreements that automatically renew, and define initial salary, target bonus percentage, general employment benefits and business expense reimbursements. The agreements contain non-competition, non-solicitation and non-disclosure of trade secret provisions for periods of at least one year, unless such provisions are prohibited by applicable law. Under the agreements, the outstanding equity awards of executives terminating their employment who are 62 years old or older with ten or more years of experience will continue to vest and remain outstanding for their original term (notwithstanding such termination) provided they continue to comply with the non-competition and non-disclosure of trade secret provisions of the agreements.

The table below sets forth the approximate value of salary, bonus and accelerated equity payable to each NEO assuming a change in control or termination event had occurred on December 31, 2018. The outstanding equity awards are reflected under the Outstanding Equity Awards at 2018 Fiscal Year-End table. The table below does not reflect compensation for the NEOs that may be paid in connection with the Acquisition.

(12) Target bonus equal to 70% of annual base salary.

Treatment of ARRIS’s Equity-Based Awards in the Acquisition

Pursuant to the Acquisition Agreement, at the effective time of the Scheme (the “Effective Time”), the ARRIS RSUs will either be (i) accelerated and converted into the right to receive cash or (ii) be converted and assumed or replaced by CommScope as described below:

Accelerated RSUs

The following ARRIS RSUs outstanding immediately prior to the Effective Time will be considered “Accelerated RSUs”:

The Accelerated RSUs shall, at the Effective Time, automatically be cancelled and converted into the right to receive cash equal to the product of $31.75 multiplied by the number of ordinary shares subject to such Accelerated RSUs, less applicable taxes required to be withheld. For purposes of the foregoing, each Performance-Based RSU that is outstanding immediately prior to the Effective Time will be deemed to have satisfied its performance-based vesting conditions, (i) at the target level with respect to Performance-Based RSUs issued prior to 2018, and (ii) at a level that results in performance vesting at 150% of the target level with respect to Performance-Based RSUs issued in 2018. Any Performance-Based RSUs that would not vest based on those performance-based vesting requirements shall be cancelled as of the Effective Time without payment and shall have no further force or effect.

On December 18, 2018, ARRIS and CommScope agreed to accelerate a portion of the ARRIS RSUs held by three ARRIS executive officers, including Mr. McClelland, so that such ARRIS RSUs were settled in 2018 and also to pay those officers their projected 2018 bonuses in 2018 (rather than in early 2019), in order to (i) reduce the reduction in their awards that would be necessary to avoid the imposition of any excise tax under Section 280G of the Internal Revenue Code (the “Code”) and (ii) preserve certain tax deductions for ARRIS. These accelerated ARRIS RSUs include only ARRIS RSUs that would otherwise be considered Accelerated RSUs under the Acquisition Agreement, if not for the early settlement. The number of ARRIS RSUs accelerated for these purposes and the amount of the bonus pre-paid for Mr. McClelland were 44,029 ARRIS RSUs and $212,750 in bonus, respectively, as reflected in the compensation tables below.

Assumed RSUs

The ARRIS RSUs outstanding immediately prior to the Effective Time that are not Accelerated RSUs, the Assumed RSUs, will remain outstanding and shall, automatically at the Effective Time, be converted and assumed or replaced by CommScope in accordance with the terms and conditions of the applicable stock plan or award agreement evidencing such ARRIS RSUs, which will include any service-based vesting conditions and other relevant payment terms and conditions, but each Assumed RSU will be denominated and settled in shares of CommScope common stock, and the number of shares of CommScope common stock subject to an Assumed RSU will equal the product of  (i) the number of ordinary shares subject to the Assumed RSU immediately prior to the Effective Time, multiplied by (ii) the quotient obtained by dividing (x) $31.75 by (y) the volume weighted average price per share of CommScope common stock over the twenty trading days on the NASDAQ exchange immediately preceding the Effective Time.

Notwithstanding the foregoing description, all ARRIS RSUs outstanding immediately prior to the Effective Time and granted to Mr. Potts that are not Non-Employee Director RSUs, Performance-Based RSUs or C-COR RSUs (the “Executive Service Based RSUs”) will, at the Effective Time, be treated as Assumed RSUs, though CommScope may, in its sole discretion, elect to treat all Executive Service Based RSUs as Accelerated RSUs.

As noted above, CommScope may, in its sole discretion, elect to treat more than one-half of the Service-Based RSUs that were not granted to Mr. Potts as Accelerated RSUs, in which case they would be fully vested and payable and settled in cash as described above under the heading “Accelerated RSUs.”

Role of the Compensation Committee

The Compensation Committee concluded that it would be inequitable to convert Performance-Based RSUs into performance-based restricted stock units of CommScope because of the significant differences between ARRIS and CommScope and how the performance criteria might, or might not, be satisfied, following the Effective Time. The Compensation Committee also considered a range of percentages of target vesting for the Performance-Based RSUs. Ultimately, the Compensation Committee approved (which approval was subsequently confirmed by the Board with respect to Mr. McClelland) the percentages of target vesting described above and approved the conversion of all Performance-Based RSUs into service-based restricted stock units of CommScope.

In order to assure that the decisions by the Compensation Committee did not impact the Per Share Consideration, the Compensation Committee did not make any decisions with respect to ARRIS RSUs until after the Per Share Consideration had been fully negotiated between ARRIS and CommScope.

Following the Compensation Committee’s approvals as described above, CommScope requested that a greater portion of the ARRIS RSUs be paid at the Effective Time. This resulted in the decision to accelerate all of the Performance-Based RSUs and other Accelerated RSUs described above and one-half of the Service-Based RSUs as set forth in the Acquisition Agreement. In addition, the Compensation Committee (and the full Board, as applicable) approved the additional accelerations of ARRIS RSUs and bonus payments of certain executive officers described above

COMPENSATION TABLES

The summary compensation table below presents the “total compensation” earned by our NEOs during the years indicated. This amount is not the actual compensation received by our NEOs. In addition to cash and other forms of compensation actually received, total compensation includes the amount of the annual change in actuarial present value of accumulated pension benefits that will not be paid, or begin to be paid, until retirement, and the calculated dollar amounts set forth in the “Stock Awards” column. The compensation expense included in the “Stock Awards” column likely will vary from the actual amounts ultimately realized by any NEO based on a number of factors, including the number of shares that ultimately vest, the timing of any sale of shares, and the market price of our shares. The actual value realized by our NEOs from share awards during 2018 is presented in the Option Exercises and Stock Vested table below. Details about the equity awards granted to our NEOs during 2018 can be found in the Grants of Plan-Based Awards table below.

For more information on the non-equity incentive awards and equity awards granted by the Company in 2018, please see Compensation Discussion and Analysis above.

We previously maintained qualified and non-qualified defined benefit pension plans. The qualified defined benefit plan for the NEOs was frozen on December 31, 1999, and the non-qualified defined benefit plan was frozen on June 30, 2013. No further accrual of benefits under the plans has occurred since the plans were frozen. No current NEO participated in the qualified plan. The non-qualified plan is a mirror image of the qualified plan, but covers only earnings levels and payment levels that are or would be excluded under the qualified plan under applicable Internal Revenue Service regulations. Benefits under the plans are calculated based on the NEO’s base salary and annual bonus amounts. The benefit formula is the number of years of continuous service (up to a maximum of 30 years) times the sum of (1) 0.65% of the individual’s “final annual compensation” up to the NEO’s social security covered compensation level, plus (2) 1.3% of the “final average salary” in excess of the NEO’s social security covered-compensation level. The social security covered-compensation level is the 35-year average of the taxable wage bases (for social security purposes) in effect prior to the participant’s social security normal retirement date. Final average salary is the average of the five highest consecutive years of compensation in the ten years preceding retirement. In calculating benefits under the non-qualified plan, it is assumed that the qualified plan remains in effect; that is, the amount of compensation that would have been covered under the qualified plan had it remained in effect is excluded from the non-qualified plan. The benefit is paid monthly on a single life annuity basis or, subject to discount, on a 50% joint and survivor annuity basis. Normal retirement under the plans is age 65, and benefits are discounted for early retirement, which is available at age 55. Mr. Potts is 61 years of age and thus could elect to retire and receive benefits immediately. The discount is calculated to be the actuarial equivalent of an age 65 retirement using an 8% discount factor. An actuarial adjustment under the plan also is made for deferred retirement. There is no lump-sum payment option available. Effective June 30, 2013, we froze benefit accruals under the non-qualified defined benefit plan as well as the addition of any new participants. Participants’ benefits will continue to be distributed in accordance with the provisions of the plan.

We established a Rabbi Trust to hold funds set aside to meet the obligations under the non-qualified defined benefit plans. We intend to fully fund the Rabbi Trust such that the amount of the actuarial accrued liability under the non-qualified defined benefit plan as set forth in our financial statements will be set aside in a Rabbi Trust as the actuarial liability has been established. Amounts contributed to the Rabbi Trust remain our funds but can be used only to discharge obligations under the non-qualified plan; provided, however, the funds in the trust remain subject to the claims of creditors in the event of a bankruptcy.

We maintain a 401(k) defined contribution plan to which employees may contribute a portion of their salary and bonus compensation. We match 100% of the first 3% of employee contributions of pay and matches 50% of the next 2% of employee contributions of pay, subject to the Internal Revenue Service maximum contribution (which was $18,500 during 2018). The NEOs participate in this plan and received the company-match, which could not exceed $11,000 for 2018.

In addition, in 2008, we established a non-qualified defined contribution retirement plan (the “401(k) Wrap”) that mirrors the 401(k) plan. The plan allows certain senior executives, including the NEOs, to contribute amounts in excess of the amounts allowed under applicable tax laws under the 401(k) plan. Tax law disallows contributions on income above $275,000 or contributions of more than $18,500. We will match employee contributions under the 401(k) Wrap in a manner analogous to the 401(k). Provided the employee contributes the maximum amount allowed under the 401(k), we will contribute to the 401(k) and 401(k) Wrap in the aggregate 100% on the first 3% of pay and 50% of the next 2% of pay, less the amount of employer matches made to the 401(k). The amounts of employee and employer contributions to the 401(k) Wrap are held in a Rabbi Trust. Funds held under the 401(k) and the 401(k) Wrap are invested in authorized and independently managed mutual funds and other vehicles that the employee elects from a menu of vehicles offered under the plans. The employee account receives the benefit or loss of the increases or decreases based only on such fund’s performance. We do not enhance or guarantee performance.

We previously maintained a non-qualified deferred compensation plan that enabled certain executives, including some of the NEOs, to defer amounts above the IRS maximum. This plan, and employee contributions and matches we made under it, were frozen in September 2004. No employee contributions or company-matching contributions have been made since that time under such plan. The accounts under this plan remain in existence, but we have never enhanced the earnings of the accounts, which earnings are determined by the actual earnings of investment vehicles selected by the employee.

The table below reflects the change in value of the NEO’s account under our Non-Qualified Deferred Compensation arrangements (both current and frozen) during calendar year 2018. The amounts shown reflect dividends and interest and appreciation (or depreciation) in investments whether or not realized. The change in value reflects the performance of any of several mutual funds which may be selected by the executive.

COMPENSATION OF DIRECTORS

Cash Fees . For 2018, the non-employee directors received an annual cash retainer of $80,000, paid in equal quarterly installments. The Lead Independent Director was paid an additional annual cash retainer of  $20,000. The respective Chairpersons and members of our Board committees were paid the following additional annual cash retainers:

Chairperson — $25,000

Members — $15,000

Chairperson — $15,000

Members — $7,500

Chairperson — $10,000

Members — $5,000

Share Awards and Minimum Holding Requirement . For 2018, each non-employee director also received restricted share units. The restricted share units vest in full one year from the date of grant. The number of shares subject to the restricted share units was determined by dividing the dollar amount of the award, $160,000, by the closing price of the Company’s ordinary shares on the trading day preceding the date of grant rounded to the nearest one hundred units.

The Company’s Share Ownership Guidelines require directors to own three times their annual cash retainer in our stock. Prior to 2015, directors were permitted to defer delivery of shares upon vesting. For purposes of determining compliance with our Share Ownership Guidelines, restricted share units that have vested but for which delivery has been deferred are treated as owned; however, one-half of the shares subject to the vested share units are required to be held until the director retires from the Board. Directors are given five years to obtain this ownership level initially or if they become non-compliant, for example because of a change in share value. The Compensation Committee reviews compliance with the guidelines annually. As of March 1, 2019, all of the current Board members had already met this guideline or were on track to obtain compliance within the five-year time period.

Reimbursements . Directors are reimbursed for reasonable expenses (including costs of travel, food and lodging) incurred in attending Board, committee, shareholder and other Company meetings. Directors also are reimbursed for reasonable expenses associated with other business activities related to their Board of Directors service, including participation in director education programs, attendance of industry functions and memberships in director organizations. In addition, beginning in 2016, U.S.-based directors were also provided tax preparation assistance with respect to the income tax returns they are required to file in England as a result of their service on our Board.

Liability Insurance . The Company maintains customary directors’ and officers’ liability insurance. The Company is permitted under its Articles of Association to indemnify its directors under certain circumstances and has entered into a Deed of Indemnity in favor of the directors.

Director Compensation Table . The following table sets forth information about the compensation paid to the non-employee members of the Board of Directors for the last fiscal year.

PAY RATIO

Our pay ratio is a reasonable estimate and has been calculated in a manner consistent with SEC rules based on the methodology described below. The SEC rules for identifying median employees allow companies to use a variety of methodologies. As a result, the pay ratio reported by others may not be comparable to our reported pay ratio. For the year ended December 31, 2018:

The methodology that we used and the material assumptions, adjustments and estimates that we used to identify the median and determine annual total compensation were as follows:

Employee population . As of December 31, 2018, the date we selected to identify our median employee, our employee population consisted of approximately 8,915 individuals, with 5,197 employees representing 58% of our total employee population located outside the United States and 3,718 employees representing 42% of our total employee population located in the United States. Our employee population for purposes of determining the pay ratio described above was 8,778, after taking into consideration the de minimis adjustment permitted by the SEC rules. We excluded approximately 137 individuals who are located in Brazil under the de minimis exception. These non-U.S. employees account for 5% or less of our total employees.

Identification of Median . To identify the median of the annual total compensation of all of our employees, we reviewed the total cash earnings for the twelve (12) month period ending on September 30, 2018 (the “reported compensation”). In making this calculation, we annualized the reported compensation of all of our full-time, permanent employees who were hired during the period. While we did not make any cost of living adjustments to the reported compensation in identifying the median employee, we did convert the reported compensation of our non-United States employees to United States dollars using the applicable conversion rate as of October 2, 2018. Using this methodology, we determined that our median employee was a full-time, salaried employee located in the U.S.

Identification of Annual Total Compensation for our Chief Executive Officer . With respect to the annual total compensation of Mr. McClelland, we used the amount reported in the “Total” column of our 2018 Summary Compensation Table included above.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis section of this Annual Report with management and, based on such review and discussion, the Compensation Committee recommends to the Board of Directors that it be included in this Annual Report.

Debora J. Wilson, Chairperson

Andrew M. Barron

Andrew T. Heller

Dr. Jeong Kim

Notwithstanding anything to the contrary which is or may be set forth in any of the Company’s filings under the Securities Act of 1933, as amended, or the Exchange Act that might incorporate Company filings, including this Annual Report, in whole or in part, the preceding Compensation Committee Report shall not be incorporated by reference into any such filings.

Compensation Committee Interlocks and Insider Participation

For the year ended December 31, 2018, the Compensation Committee consisted of Ms. Wilson and Messrs. Barron, Heller and Kim. No member of the Compensation Committee is currently or has served as an officer or employee of the Company and none of the members of the Compensation Committee had any “interlocks” within the meaning of Item 407(e)(4) of the SEC Regulation S-K during the year ended December 31, 2018.