Synopsys (SNPS) DEF 14ADefinitive proxy

We are providing these proxy materials to you in connection with Synopsys’ 2021 Annual Meeting of Stockholders to be held virtually via live webcast on Thursday, April 8, 2021 at 8:00 a.m. Pacific Time (the Annual Meeting). You will be able to access, participate in, and vote at the Annual Meeting at www.virtualshareholdermeeting.com/SNPS2021 by using the 16-digit control number included on the proxy card and voting instruction form. Non-stockholders may also access and listen to the virtual meeting via the link above. If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, please call the technical support number that will be posted on the login page for the Annual Meeting. The solicitation by this Proxy Statement is made by Synopsys, Inc.

This Proxy Statement contains important information for you to consider when deciding how to vote on the matters brought before the Annual Meeting. Please read it carefully. You do not need to virtually attend the Annual Meeting in order to vote.

If your shares are held through a broker, bank, or other agent and not in your name and you do not provide voting instructions, your broker is not permitted to vote on your behalf on proposals where broker discretionary votes are not allowed, as indicated below. Therefore, for most items being put to a vote, if you do not provide voting instructions in person (virtually), via the Internet, by telephone, or by returning the proxy card or voting instruction card, your shares will not be voted.

We strongly encourage all stockholders to vote, and to do so as promptly as possible. The deadline for voting by Internet or phone is 11:59 p.m. Eastern Time on Wednesday, April 7, 2021.

This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider, and you should read the entire Proxy Statement carefully before voting. Page references are supplied to help you find further information in this proxy statement.

Please see the “About the Annual Meeting” section beginning on page 83 for answers to common questions about the Annual Meeting, voting, attendance, submitting a proposal for next year’s annual meeting of stockholders, and other procedures.

The primary goal of the amendment of our 2006 Employee Equity Incentive Plan (the 2006 Employee Plan) is to provide us with a sufficient reserve of common stock to offer appropriate incentives to our employees. Like other technology companies, we actively compete for highly qualified employees, especially technical employees. Our equity program is a key component of our strategy to attract and retain key individuals, and the share requirements of our equity program have grown along with our company.

We also note that our 2006 Employee Plan includes additional provisions that are designed to protect our stockholders’ interests and to reflect corporate governance best practices, including:

We have designed our executive compensation program to attract, motivate and retain a team of highly qualified executives who will drive technological and business success. In order to motivate and reward our named executive officers (NEOs) for work that improves our long-term business performance and increases stockholder value, we have set out the following objectives:

The following table presents fees for professional audit services rendered by KPMG LLP for the audit of our annual financial statements and fees billed for all other services rendered by KPMG LLP during the following fiscal years.

We received a stockholder proposal that asks our Board of Directors to take the steps necessary to amend our governing documents to give the owners of a combined 10% of our outstanding common stock the power to call a special shareholder meeting. For the reasons set forth following the proponent’s proposal, our Board of Directors opposes adoption of the proposal and recommends that you vote AGAINST the proposal.

We are asking our stockholders to vote “For” the election of nine directors at the Annual Meeting. We do not have a classified or staggered Board of Directors. Each of our directors stands for election on an annual basis, and of the ten current directors whose term expires in 2021, nine directors are standing for re-election. As previously announced, Steven Walske has decided not to stand for re-election at the end of his term at the Annual Meeting.

The Corporate Governance and Nominating Committee of our Board of Directors (the Governance Committee), consisting solely of independent directors as determined by the Board of Directors under applicable Nasdaq listing standards, recommended each of our nine current directors (other than Mr. Walske) for nomination by our full Board of Directors. Based on that recommendation, our Board of Directors has nominated those nine current directors for election at the Annual Meeting.

Provided that there is a quorum at the Annual Meeting, a director nominee will be elected if the votes “For” the nominee exceed 50% of the number of votes cast on the issue of that nominee’s election (including votes “For” and votes “Against” with respect to that nominee’s election, but excluding any abstentions or broker non-votes).

You may either vote “For”, “Against,” or “Abstain” for any nominee you specify. Unless marked otherwise, proxies returned to us will be voted for each of the nominees named below. Broker non-votes and abstentions will have no effect on the vote for this Proposal 1. Therefore, if you hold your shares through a bank, a broker or other holder of record, you must instruct your bank, broker or other holder of record to vote such that your vote can be counted for this Proposal 1.

This Proposal 1 is an uncontested election. In addition to the voting requirements described above and further outlined in our Amended and Restated Bylaws, our Corporate Governance Guidelines provide that our Board of Directors will only nominate for election or reelection candidates who tender, prior to such nomination, an irrevocable resignation that will be effective upon both (i) the failure to receive the required majority vote at a meeting at which they stand for election and (ii) our Board of Directors’ acceptance of such resignation in the Board of Directors’ exclusive discretion. Synopsys will publicly disclose the decision reached by our Board of Directors and the reasons for such decision.

Each director candidate nominated for election at the Annual Meeting is an existing director seeking re-election to our Board of Directors and, except for Ms. Sargent who was appointed to our Board of Directors in September 2020, was previously elected by our stockholders.

Information regarding our nominees, including information they have furnished as to their principal occupations, certain other directorships they hold, or have held, and their ages as of the Record Date, February 9, 2021, is set forth below. The section titled “Identifying New Directors/Stockholder Nominations” on page 16 of this Proxy Statement provides additional information on the director nomination process. The nominee descriptions below contain information about the experience, qualifications and skills that led the Governance Committee to determine that these nominees should serve as our directors.

Other than Dr. de Geus and Dr. Chan, all nominees are independent as determined by the Board of Directors under applicable federal securities law and the listing standards of the Nasdaq Global Select Market. There are no family relationships among any of the director nominees, directors and/or any of Synopsys’ executive officers. In addition, no nominee has an arrangement or understanding with another person under which he or she was or is to be selected as a director or nominee.

The Governance Committee is responsible for identifying and recommending to the Board of Directors candidates for Board of Directors membership. The Governance Committee is committed to continuing board refreshment and actively evaluates the current mix of director skills on a periodic basis to assess if there are any skill sets that are not represented on the current Board of Directors. The Governance Committee considers the Board of Directors’ composition, skills, experience, qualifications, and attributes to determine whether they are aligned with our long-term business strategy as well as our goals for boardroom diversity. In addition, the Governance Committee considers the Board of Directors’ skills and other attributes as a component of succession planning for leadership of the Board of Directors and its committees.

A top priority for the Governance Committee is to ensure that the Board of Directors is comprised of directors that bring diverse viewpoints and perspectives and exhibit a variety of skills, professional experiences and backgrounds, in order to effectively represent the long-term interests of stockholders. To achieve this, the Governance Committee works with our Board of Directors to determine the appropriate skills, experience, qualifications and attributes that we seek in Board of Directors members in light of our business environment and existing Board of Directors composition. When evaluating a particular candidate for Board of Directors membership, the Governance Committee and our Board of Directors consider many factors, including an understanding of the EDA, semiconductor, electronics, software or technology industries; sufficient experience in business operations, finance, marketing, strategic planning and other relevant disciplines; professional background such as executive leadership experience and other public company board service; and operational expertise in our industry. They also consider diversity in their assessment of potential candidates, including diversity of personal background and professional experience, qualifications and skills as well as gender and ethnic diversity. In addition, in evaluating a particular candidate for Board of Directors membership, the Governance Committee and our Board of Directors consider personality characteristics to ensure that the candidate will be a collaborative and constructive member of our cohesive Board of Directors. The Governance Committee actively focuses on board refreshment through an ongoing year-round process, which includes the annual Board of Directors evaluation, discussed below.

All candidates for election or re-election are expected to fully participate in Board of Directors activities, including preparation for, attendance at and active participation in meetings of our Board of Directors, refrain from holding positions that would conflict with their responsibilities to us, have a high degree of personal integrity and interpersonal skills, and represent the best interests of all of our stockholders and not just certain constituencies.

The Governance Committee and Board of Directors believe that a significant majority of the members of our Board of Directors should qualify as independent directors in accordance with our corporate governance guidelines and the listing standards of the Nasdaq Global Select Market. They also deem it appropriate for certain of our executive officers to serve on the Board of Directors to provide a first-hand perspective on the operations, management and culture of our business. The Governance Committee and Board of Directors believe that it is beneficial for at least one member, and preferably multiple members, of our Board of Directors to meet the criteria for an “audit committee financial expert” as defined by the applicable rules of the Securities and Exchange Commission.

While the Governance Committee and our Board of Directors prioritize maintaining a board that comprises directors with a diverse set of skills, experiences, and perspectives, they also recognize the importance of balancing these qualifications with the overall tenure of directors in their long-term approach to board refreshment. The fresh viewpoints and philosophies newer directors bring, coupled with the valuable experience and institutional knowledge the longer-tenured directors possess, improve the independent oversight of management and ensure a focus on Synopsys’ business strategy.

In the past several years, the Board of Directors has appointed new diverse and highly-qualified directors. To supplement these directors, our longer-tenured directors have extensive knowledge of our operations and have the perspective of overseeing our business activities through economic cycles and across differing competitive environments. While continuing to monitor this aspect, particularly in light of new and evolving regulations concerning director diversity, we believe the current mix of our Board of Directors members is the appropriate blend of experience and diverse perspectives that play a critical role in supporting us as we continue to compete in existing semiconductor, electronic design and software security industries as well as new and emerging market segments such as mobile, automotive, digital home, Internet of Things (IoT), and cloud computing.

The role of our Board of Directors is to oversee our business and operations for the benefit of our stockholders and other stakeholders and the communities in which we operate. Our Board of Directors strives to propel the success and growth of our business and operations through the selection of qualified management, oversight of our strategic goals, and ongoing monitoring designed to assure that our operations are conducted in a responsible manner.

Our Board of Directors is responsible for the oversight of our company-wide risk management efforts and delegates the assessment and implementation of our day-to-day risk management policies to our management. Our Board of Directors is directly involved in risk management issues related to significant matters such as our overall business strategy, major strategic transactions, and executive officer succession through its regular communications with management.

Additionally, each of our standing Board of Directors committees has individual oversight responsibilities:

Synopsys intends to satisfy the public disclosure requirements regarding (1) any amendments to the Code of Ethics and Business Conduct, or (2) any waivers under the Code of Ethics and Business Conduct given to Synopsys’ Principal Executive Officers, Principal Financial Officer and Principal Accounting Officer by posting such information on our website.

Our Smart Future commitment also means applying our problem-solving approach, people, technology, and other resources to influence those around us—including our customers, partners and suppliers—to join us in driving positive change in the world. Synopsys technology is in action in countless ways: from bringing safety and security to the driverless car revolution to enabling the technologies that are an increasingly vital component of protecting human health and well-being. As the role of computing in our society and our day-to-day lives increases exponentially, IoT, 5G and machine learning applications risk driving similarly exponential energy consumption and carbon emissions. This makes our work to enable low-power computing at the device level and in the cloud especially critical to the industry’s energy sustainability. At the same time, we are advancing global supply chain sustainability as a member of the Responsible Business Alliance. Furthermore, our Synopsys for Good program combines volunteer time, our technological expertise, and financial donations to bring STEM education and other support to the communities in which we work.

The Governance Committee oversees our CSR policies and practices and our sustainability performance. The Compensation Committee oversees key human capital management issues such as diversity and inclusion and pay equity. Our CSR Leadership Committee, which comprises senior leaders across our business, drives ESG performance, goals, strategy, and reporting, including regularly reporting to our Governance Committee and the full Board of Directors. CSR engagement is a key contributing component to our Smart Future commitment through volunteerism, community and environmental initiatives, focused management and employee development, and other campaigns to engage and inform our employees as part of our broader communities.

We are at the forefront of innovation, and much of what the tech sector commits to – in AI, cloud, mobile, automotive and beyond - depends on our ability to act as exponential catalysts. We can only fulfill our critical role of innovation for the technology sector if we attract, engage and retain the brightest and best talent. Investing in our team members is a critical success factor and key component of our CSR strategy.

Our talent attraction and retention strategy and programs are designed to support employees throughout their tenure at Synopsys, from recruitment and onboarding through to their retirement. We strive to engage and optimize our employees’ experiences throughout their careers with us as we pursue a culture characterized by capable, connected and resilient team members. Among other initiatives, we use employee feedback to drive and improve processes that support our customers and ensure a deep understanding of our culture and vision among our employees, including a biannual employee survey and a focus on compensation equity.

In 2020, the COVID-19 global pandemic provided unique challenges for our employees, underscoring the importance of our employee wellness initiatives. Our priority during the COVID-19 pandemic was to first and foremost safeguard the health of our employees and their families. We refined and refocused our wellness program to support employees working from home during the pandemic, including resources to encourage physical and mental health and well-being, financial health planning, and homeschooling support.

Additionally, the heightened awareness of social inequalities and the unrest that marked 2020 highlighted the importance of our Inclusion & Diversity (I&D) commitment. We aim to be a company where different perspectives and backgrounds are leveraged and celebrated. We believe that our focus and investment on I&D positions Synopsys for just, inclusive, and long-term growth.

A few of our CSR highlights in 2020 are noted below.

The Chairman of our Board of Directors is appointed periodically by the Board of Directors based on the recommendation of the Governance Committee. Our Board of Directors believes it is important to have flexibility in selecting our Chairman and board leadership structure. Therefore, our Corporate Governance Guidelines provide that the position of Chairman of the Board of Directors and Chief Executive Officer (or Co-Chief Executive Officer, as the case may be) may be held by the same person. In the event that such positions are held by the same person, the Board of Directors will appoint a Lead Independent Director based on the recommendation of the Governance Committee.

The Board of Directors believes that it is currently in the best interest of Synopsys and its stockholders for Dr. de Geus to serve as both Chairman and Co-Chief Executive Officer. Dr. de Geus co-founded Synopsys and has extensive knowledge of Synopsys, its industry and its culture. He has successfully guided Synopsys through both strong and challenging periods, and his ability to speak as both Chairman and co-Chief Executive Officer provides strong, consistent leadership for Synopsys.

Our Corporate Governance Guidelines require that a majority of our Board of Directors qualifies as independent directors in accordance with applicable federal securities laws and the listing standards of the Nasdaq Global Select Market. Currently, each member of our Board of Directors, other than our co-Chief Executive Officer and Chairman of the Board of Directors, Aart de Geus, and co-Chief Executive Officer and President, Chi-Foon Chan, is an independent director. All standing committees of the Board of Directors are composed entirely of independent directors, in each case under Nasdaq's independence definition. The Nasdaq definition includes a series of objective tests to determine independence, including that the director not be an employee of the company and not have engaged in certain types of business dealings with the company. In addition, the Board of Directors has made a subjective determination as to each independent director that no relationship exists which, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, the Board of Directors reviewed and discussed information provided by the directors and Synopsys with regard to each director’s business and other outside activities as they may relate to Synopsys and our management. This information included commercial transactions that we entered into, or proposed entering into, in fiscal 2020 with Maxim Integrated Products, Inc.; Oracle Corporation; PTC Inc.; Teradata Corporation; Teradyne, Inc.; and Visier, Inc. Certain of our non-employee directors or their immediate family members have relationships with these companies. We consider each of these transactions to be at arms’ length and in the ordinary course of business. We do not consider any of these transactions to be related party transactions requiring disclosure under the applicable rules of the Securities and Exchange Commission.

Based on this review and consistent with our independence criteria, the Board of Directors has affirmatively determined that all of the directors who are standing for election to our Board of Directors except for Dr. de Geus and Dr. Chan are independent.

The independent directors meet in executive sessions without management present. These sessions take place prior to or following regularly scheduled Board of Directors meetings. The non-employee directors met four times in such sessions during fiscal 2020.

The principal responsibilities of each Board of Directors committee are summarized below. For a more extensive description of committee functions, please refer to the committee charters.

Synopsys has a history of strong corporate governance practices, and our Board of Directors is committed to such practices that promote the best interests of our stockholders, employees, customers and the communities in which we operate. In furtherance of such practices, we amended our bylaws to adopt a majority voting standard as well as the right for stockholders to call a special meeting in December 2020. We continue to evaluate our governance practices and to tailor them to be flexible and to evolve in response to ever-changing business, legal and social environments.

Our Board of Directors held six meetings during fiscal 2020. Each director attended greater than 75% of all Board of Directors and applicable committee meetings that were held during his or her period of service as a director in fiscal 2020.

Synopsys encourages director attendance at our annual stockholder meetings, but does not require attendance or have a formal policy requiring attendance. Attendance by phone is permitted. All then-current directors attended the 2020 Annual Meeting of Stockholders.

Our Board of Directors believes that, as an aspect of its commitment to sound corporate governance, it is important to regularly assess its functioning and to identify opportunities for improvement. In accordance with our Corporate Governance Guidelines and under the direction of our Governance Committee Chairperson, on an annual basis, each of our directors evaluates the overall Board of Directors and the functioning of the Board of Directors committees.

In addition, on an annual basis, our Board of Directors assesses the contributions of each individual member of our Board of Directors. A director’s qualifications are evaluated each time the director is considered for Board of Directors membership. For directors seeking re-election, the Governance Committee also evaluates the director’s overall service, including the director’s past attendance at Board of Directors and committee meetings, as well as participation in and contributions to the Board of Directors.

In addition to our annual director evaluation, in 2020, we conducted an independently-facilitated review of our overall Board of Directors and each of our committees. Our Board of Directors utilized the information gathered in this independently-facilitated review to improve the manner in which our Board of Directors and committees operate, including with respect to the efficacy of our Board of Directors and committee meetings, the quality of information distributed to our Board of Directors and committees, our Board of Directors’ engagement on strategy and other key business functions, the composition of our Board of Directors, and management succession planning.

Our Code of Ethics and Business Conduct requires that every employee avoid situations where loyalties may be divided between our interests and the employee’s own interests. Employees and directors must avoid conflicts of interest that interfere with the performance of their duties or are not in our best interests.

From the beginning of fiscal 2020 until the present, there have been no (and there are no currently proposed) transactions involving an amount in excess of $120,000 in which Synopsys was (or is to be) a participant and any executive officer, director, five percent beneficial owner of our common stock or member of the immediate family of any of the foregoing persons had (or will have) a direct or indirect material interest, except the compensation arrangements described in this Proxy Statement for our named executive officers and directors.

Our non-employee directors are compensated for serving on our Board of Directors. We do not pay our employees who serve on our Board of Directors any additional compensation for Board of Directors membership.

Our Compensation Committee reviews our non-employee director compensation with the assistance of a compensation consultant, Radford (an Aon company), that it has determined to be objective and independent. The Compensation Committee reviews such compensation biennially, at a minimum, and recommends adjustments as appropriate.

Our Compensation Committee believes, based in part on market data provided by Radford (including a survey of market practices and trends among our peer group and the software and semiconductor industries generally) and reviewed with our Compensation Committee, that a combination of cash and equity-based awards is the most effective and appropriate way to compensate our non-employee directors. As part of its review process, both the cash and equity-based award elements are benchmarked by the Compensation Committee against our peer group and the aforementioned industries to ensure that the mix and levels are appropriate and competitive with comparable companies and align our directors’ interests with those of our stockholders.

Other than the compensation disclosed below, no director received compensation or other payment in connection with his or her candidacy or service on our Board of Directors.

As noted above, our non-employee director compensation consists of cash and equity awards. We also reimburse directors for out-of-pocket expenses for travel to Board of Directors meetings in accordance with our Corporate Travel Policy.

For fiscal 2020, we paid non-employee directors an annual retainer of $125,000 for serving on our Board. We also paid an additional retainer of $30,000 to our Lead Independent Director, $35,000 to the chair of the Audit Committee, $20,000 for each of the chair of the Compensation Committee and the chair of the Governance Committee, and $15,000 to the other members of the Audit Committee. The retainers were paid in advance in four equal payments prior to our regularly scheduled quarterly Board meetings.

For fiscal 2020, non-employee directors were eligible to receive equity awards under the 2017 Non-Employee Directors Equity Incentive Plan (the 2017 Directors Plan). The plan provides for automatic grants of equity awards to non-employee members of our Board of Directors upon their initial appointment or election, and upon their re-election each year. The 2017 Directors Plan contains limits on the equity awards that may be awarded to non-employee directors in any fiscal year.

The following table sets forth a summary of the compensation paid to our non-employee directors for services in fiscal 2020.

No changes were made to director compensation for fiscal 2021.

In order to better align the interests of our directors and management with the interests of our stockholders and to promote accountability and mitigate excessive risk taking in long-term decision making, our Board of Directors first adopted stock ownership guidelines in fiscal 2003. Our Compensation Committee reviews those guidelines periodically in accordance with best practices and has amended such guidelines from time to time, with the most recent amendment occurring in December 2020. Under the current guidelines, non-employee directors are expected to achieve a stock ownership level with a value equal to the lesser of three times the amount of each non-employee director’s annual cash retainer (excluding compensation for committee service) or 15,000 shares, within three years of their initial election as a director, and maintain such ownership level, as measured each year on the date of the annual meeting of stockholders, so long as they serve in the position of director.

The guidelines do not require any covered person to exercise stock options or to purchase shares of our common stock on the open market solely to meet these guidelines. However, when stock options are exercised, when restricted stock or restricted stock units vest, or when shares are purchased under our Employee Stock Purchase Plan, the guidelines recommend that the covered person retain a number of shares of common stock equal to the lesser of 25% of the net value of shares of common stock acquired or vested (after deducting the exercise price, if any, and taxes at an assumed tax rate), or a number of shares necessary to reach such person’s applicable stock ownership guideline amount.

As of February 9, 2021, each non-employee director and named executive officer held the requisite number of shares and was accordingly compliant with our stock ownership guidelines. Please see the subsection titled “Stock Ownership Guidelines” in the “Compensation Discussion and Analysis” section beginning on page 60 below for more information regarding our stock ownership guidelines as they apply to our named executive officers.

Our Board of Directors approved the 2006 Employee Plan, as amended, in January 2021, subject to stockholder approval. If approved by our stockholders, the amended 2006 Employee Plan will become effective as of the Annual Meeting date.

Approval of the 2006 Employee Plan, as amended, requires that the holders of a majority of the shares having voting power present in person or represented by proxy and voting on such matter at the Annual Meeting vote “For” this Proposal 2. Abstentions and broker non-votes will not be counted as either votes cast “For” or “Against” Proposal 2 and have no effect on the vote for this Proposal 2.

The primary goal of the amendment of our 2006 Employee Plan is to provide us with a sufficient reserve of common stock to offer appropriate incentives to our employees. Like other technology companies, we actively compete for highly qualified employees, especially technical employees. Our equity program is a key component of our strategy to attract and retain key individuals, and the share requirements of our equity program have grown with our company.

Each year, the Compensation Committee and our management review our overall compensation strategy and determine the allocations of cash and equity compensation in light of our pay for performance philosophy. We continue to believe that equity compensation is critical in motivating key employees and that it effectively aligns employee compensation with stockholder interests. The 2006 Employee Plan is the sole available plan for granting discretionary equity compensation to our employees. If the amended 2006 Employee Plan is not approved and we are unable to grant equity compensation in the future, we may need to consider other compensation alternatives, such as increasing cash compensation.

We are committed to effectively managing our share reserves for equity compensation while minimizing stockholder dilution. For this reason, we carefully manage both our gross burn rate and net burn rate. Gross burn rate reflects equity awards granted during the fiscal year divided by the number of shares outstanding. Net burn rate reflects equity awards granted during the fiscal year less equity awards cancelled and returned to the plan (net equity grants), divided by the number of shares outstanding.

We endeavor to achieve a gross burn rate that approximates the average rate for our peer group companies as well as for the software and services industry more generally, and to achieve burn rates within the limits published by independent shareholder advisory groups, such as Institutional Shareholder Services (ISS). While there are several methodologies to arrive at burn rates, using current ISS methodology, our gross burn rates for the last three years are within the guidelines published by ISS. Detailed information about equity awards issued in fiscal 2020 as well as other relevant information is set forth below.

We note that the cornerstone of our compensation philosophy is pay for performance, as discussed in the "Compensation Discussion and Analysis" section beginning on page 41. In that regard, approximately half of the value of the target regular annual equity grants to our named executive officers each year is in performance-based RSUs. The balance is in stock option grants, the values of which are directly linked to the appreciation of our stock price.

We also note that our 2006 Employee Plan includes additional provisions that are designed to protect our stockholders’ interests and to reflect corporate governance best practices, including:

No awards have been granted or promised with respect to the additional 4,700,000 shares requested and the 2006 Employee Plan does not provide for set benefits or amounts of awards and we have not approved any awards that are conditioned on stockholder approval of the 2006 Employee Plan. Awards under our 2006 Employee Plan are made at the discretion of our Board of Directors or the Compensation Committee and are therefore not determinable at this time. The following tables set forth detailed information about our historical equity compensation practices.

The following table shows, for each of the named executive officers and the various groups indicated, the total number of shares of Synopsys common stock subject to stock awards that have been granted (even if not currently outstanding) under the 2006 Employee Plan since it became effective through January 31, 2021:

The following table provides certain additional information regarding Synopsys' equity compensation plans, excluding the Employee Stock Purchase Plan:

For more information regarding Synopsys’ equity compensation plans, including the Employee Stock Purchase Plan, please see “Equity Compensation Plan Information.”

The 2006 Employee Plan provides that our Board of Directors has the authority to construe and interpret the 2006 Employee Plan and to determine the persons to whom and the dates on which equity awards will be granted, the number of shares of common stock to be subject to each equity award, the time or times during the term of each equity award within which all or a portion of the award may be exercised, the exercise, purchase, or strike price of each equity award, the type of consideration permitted to exercise or purchase each equity award, and other terms of the equity awards.

Our Board of Directors has the authority to delegate some or all of the administration of the 2006 Employee Plan to a committee or committees composed of members of our Board. In the discretion of our Board of Directors, a committee may consist solely of two or more “outside directors” (as defined in the plan) to the extent that the Board of Directors determines it to be desirable to qualify awards that were granted under the plan prior to April 8, 2019 as “performance-based compensation” within the meaning of Section 162(m) of the Code, and/or solely of two or more “non-employee directors” (as defined in the plan). The 2006 Employee Plan also permits delegation of administration of the plan to one or more executive officers with respect to grants to employees of Synopsys and its subsidiaries. Our Board of Directors has delegated to the Compensation Committee administration of the 2006 Employee Plan. Our Board of Directors has also delegated to each of our co-Chief Executive Officers, as both officers and members of our Board of Directors, administration of the 2006 Employee Plan with respect to equity awards to employees other than executive officers, subject to specified limitations and restrictions.

No incentive stock option may be granted under the 2006 Employee Plan to any person who, at the time of the grant, owns (or is deemed to own) stock possessing more than 10% of the total combined voting power of Synopsys or its affiliates, unless the exercise price of such stock option is at least 110% of the fair market value of the stock subject to the stock option on the date of grant and the term of the stock option does not exceed five years from the date of grant. In addition, the aggregate fair market value, determined on the date of grant, of the shares of common stock with respect to which incentive stock options are exercisable for the first time by a participant during any calendar year (under the 2006 Employee Plan and any other equity plans of Synopsys and its affiliates) may not exceed $100,000 (any excess of such amount shall be treated as non-statutory stock options).

As of January 31, 2021, 9,922,411 shares of common stock were available for future grants under the 2006 Employee Plan. If this Proposal 2 is approved by our stockholders, an additional 4,700,000 shares will be available for future grants under the 2006 Employee Plan. Assuming the stockholders approve this Proposal 2, 102,997,248 shares of our common stock will have been reserved for issuance under the 2006 Employee Plan.

The number of shares of common stock available for issuance under the 2006 Employee Plan is currently reduced by one share for each share of common stock issued pursuant to a stock option or a stock appreciation right and by 1.70 shares for each share of common stock issued on or after March 29, 2016 pursuant to restricted stock awards, restricted stock unit awards or other awards (excluding options and stock appreciation rights).

If a stock option or stock appreciation right award expires or otherwise terminates without being fully exercised, if shares subject to a restricted stock award or restricted stock unit award are forfeited to or repurchased by us, or if an equity award is settled in cash, the shares not issued under those awards, or the shares forfeited to or repurchased by us, become available for subsequent issuance under the 2006 Employee Plan. Such returning shares increase the number of shares available for issuance under the 2006 Employee Plan by one share if they were issued pursuant to a stock option or stock appreciation right and, by 1.70 shares if they were issued pursuant to restricted stock awards, restricted stock unit awards or other awards (excluding options and stock appreciation rights).

If shares subject to an award granted under the 2006 Employee Plan are not delivered to a participant because:

We may grant stock options under the 2006 Employee Plan pursuant to stock option agreements adopted by our Board of Directors or a duly authorized committee. The following is a description of the permissible terms of stock options under the 2006 Employee Plan. Individual stock option agreements may be more restrictive as to any or all of the permissible terms described below.

The stock option term may be extended in the event that exercise of the stock option following termination of service is prohibited by applicable securities laws. In no event, however, may a stock option be exercised beyond the expiration of its term.

We may grant restricted stock awards under the 2006 Employee Plan pursuant to restricted stock award agreements adopted by our Board of Directors or a duly authorized committee. Restricted stock awards are shares of our common stock that may be subject to restrictions, such as vesting requirements.

We may grant restricted stock unit awards under the 2006 Employee Plan pursuant to restricted stock unit award agreements adopted by our Board of Directors or a duly authorized committee. Restricted stock units represent the value of a fixed number of shares of Synopsys common stock on the date of grant.

We may grant stock appreciation rights under the 2006 Employee Plan pursuant to stock appreciation rights agreements adopted by our Board of Directors or a duly authorized committee. A stock appreciation right is a right to receive the excess value over the strike price of a fixed number of shares. Individual stock appreciation right agreements may be more restrictive as to any or all of the permissible terms described below. Each stock appreciation right is denominated in shares of common stock equivalents but may be settled in cash.

The term of a stock appreciation right may be extended in the event that exercise following termination of service is prohibited by applicable securities laws. In no event may a stock appreciation right be exercised beyond the expiration of its term.

Our Board of Directors may grant other equity awards based in whole or in part by reference to the value of our common stock. Subject to the provisions of the 2006 Employee Plan, our Board of Directors has the authority to determine the persons to whom and the dates on which such other equity awards will be granted, the number of shares of common stock (or cash equivalents) to be subject to each award, and other terms and conditions of such awards. Such awards may be granted either alone or in addition to other equity awards granted under the 2006 Employee Plan. These awards may not have a term in excess of seven years from the date of grant.

Performance goals may be set on a company-wide basis, with respect to one or more business units, divisions, affiliates, or business segments, and in either absolute terms or relative to internally generated business plans, the performance of one or more comparable companies or the performance of one or more relevant indices. Adjustments may be made in the method of calculating the attainment of performance goals as follows: (i) to exclude restructuring and/or other nonrecurring charges (including but not limited to the effect of tax or legal settlements); (ii) to exclude exchange rate effects, as applicable, for non-U.S. dollar denominated net sales and operating earnings; (iii) to exclude the effects of changes to generally accepted accounting standards required by the Financial Accounting Standards Board; (iv) to exclude the effects of any statutory adjustments to corporate tax rates; (v) to exclude stock-based compensation expense determined under generally accepted accounting principles; (vi) to exclude any other unusual or infrequently occurring item (including but not limited to various income tax impacts prompted by tax reform legislation adopted in late 2017 (commonly referred to as the Tax Cuts and Jobs Act of 2017), including the income tax related to transition tax, the tax rate change, and tax restructuring; and the tax impact of repatriation); (vii) to respond to, or in anticipation of, any unusual or extraordinary corporate item, transaction, event or development; (viii) to respond to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions; (ix) to exclude the dilutive effects of acquisitions or joint ventures; (x) to assume that any business divested by Synopsys achieved performance objectives at targeted levels during the balance of a performance period following such divestiture; (xi) to exclude the effect of any change in the outstanding shares of our common stock by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common shareholders other than regular cash dividends; (xii) to reflect a corporate transaction, such as a merger, consolidation, separation (including a spinoff or other distribution of stock or property by a corporation), or reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Code); (xiii) to reflect any partial or complete corporate liquidation; (xiv) to exclude the effect of in-process research and development expenses; (xv) to exclude the income tax effect of non-GAAP pre-tax adjustments from the provision for income taxes; and (xvi) pursuant to such other objective and non-discretionary adjustments adopted by the Compensation Committee at the time the award is approved.

In the event any change is made to the outstanding shares of our common stock without receipt of consideration (whether through a stock split, reverse stock split or other changes in the capital structure), appropriate adjustments will be made to the class of securities issuable under the 2006 Employee Plan, the maximum number of securities issuable under the 2006 Employee Plan, the incentive stock option limitation, the maximum award that one person may be granted in a calendar year under the 2006 Employee Plan, and the number, class and price per share under outstanding equity awards under the 2006 Employee Plan.

Unless otherwise provided in a written agreement between Synopsys or an affiliate and a participant, or unless otherwise expressly provided by our Board of Directors or Compensation Committee at the time of grant of an equity award, in the event of significant corporate transactions, outstanding equity awards under the 2006 Employee Plan may be assumed, continued or substituted by any surviving or acquiring entity (or its parent company). If the surviving or acquiring entity (or its parent company) elects not to assume, continue or substitute such equity awards, then:

A significant corporate transaction will be deemed to occur in the event of:

The 2006 Employee Plan provides, at the discretion of our Board of Directors, that the holder of an outstanding equity award that would otherwise terminate if not exercised prior to the corporate transaction may surrender such equity award in exchange for a payment equal to the excess of the value of the property that the holder would have received upon exercise of the equity award immediately prior to the corporate transaction, over the exercise price otherwise payable in connection with the equity award, which excess amount may be fully vested at the time of the corporate transaction or may be required to vest after the time of the corporate transaction substantially in accordance with the schedule in effect immediately prior to the corporate transaction.

An equity award may be subject to additional acceleration of vesting and exercisability upon or after a change in control as may be provided in the award agreement for such equity award, or as may be provided in any other written agreement between Synopsys or any affiliate and the participant. An equity award may vest as to all or any portion of the shares subject to the equity award (a) immediately upon the occurrence of a change in control, whether or not such equity award is assumed, continued, or substituted by a surviving or acquiring entity in the change in control, or (b) in the event a participant’s service is terminated, actually or constructively, within a designated period prior to, at, or following the occurrence of a change in control. In the absence of a determination by the plan administrator, no such acceleration will occur.

The acceleration of an equity award in the event of an acquisition or similar corporate event may be viewed as an anti-takeover provision, which may have the effect of discouraging a proposal to acquire or otherwise obtain control of Synopsys.

As determined by our Board of Directors, dividends and dividend equivalent rights may accrue with respect to awards granted under the 2006 Employee Plan other than stock options or stock appreciation rights, but no dividends or dividend equivalents will be paid out or settled unless and until, and then only to the extent that, the applicable underlying award vests. Neither stock options nor stock appreciation rights granted under the 2006 Employee Plan may provide for any dividends or dividend equivalents thereon.

Our Board of Directors may suspend or terminate the 2006 Employee Plan without stockholder approval or ratification at any time. The 2006 Employee Plan will expire on April 1, 2026, unless terminated sooner by our Board of Directors. Our Board of Directors may amend or modify the 2006 Employee Plan at any time, subject to any required stockholder approval. To the extent required by applicable law or regulation, stockholder approval will be required for any amendment that:

Our Board of Directors also may submit to stockholders any other amendment to the 2006 Employee Plan.

The following is a summary of the principal United States federal income taxation consequences to participants and Synopsys with respect to participation in the 2006 Employee Plan. This summary is not intended to be exhaustive, and does not discuss the income tax laws of any city, state or foreign jurisdiction in which a participant may reside.

The excess, if any, of the fair market value of the incentive stock option shares on the date of exercise over the exercise price is an adjustment to income for purposes of the alternative minimum tax. Alternative minimum taxable income is determined by adjusting regular taxable income for certain items, increasing that income by certain tax preference items and reducing this amount by the applicable exemption amount.

If a participant holds stock acquired through exercise of an incentive stock option for more than two years from the date on which the stock option was granted and more than one year after the date the stock option was exercised for those shares, any gain or loss on a disposition of those shares (a qualifying disposition) will be a long-term capital gain or loss.

Generally, if the participant disposes of the stock before the expiration of either of those holding periods (a disqualifying disposition), then at the time of disposition the participant will realize taxable ordinary income equal to the lesser of (a) the excess of the stock’s fair market value on the date of exercise over the exercise price, or (b) the participant’s actual gain, if any, on the purchase and sale. The participant’s additional gain or any loss upon the disqualifying disposition will be a capital gain or loss, which will be long-term or short-term depending on whether the stock was held for more than one year after exercise.

Upon disposition of the common stock, the participant will recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for such common stock plus any amount recognized as ordinary income upon acquisition of the stock. Such gain or loss will be long-term or short-term depending on whether the common stock was held for more than one year.

Stock appreciation rights are generally taxed in a manner similar to non-statutory stock options.

As required pursuant to Section 14A of the Securities Exchange Act, we are requesting our stockholders to provide advisory approval of the compensation of our named executive officers (NEOs) as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the narrative discussion on pages 41 to 75 of this Proxy Statement. This non-binding advisory vote is commonly referred to as a “say-on-pay” vote and is held annually. It is expected that the next say-on-pay vote will occur at the 2022 Annual Meeting of Stockholders.

This Compensation Discussion and Analysis discusses the compensation of our NEOs for fiscal 2020.

Fiscal 2020 was another outstanding year for Synopsys. Despite unprecedented macro challenges, including a global pandemic, we significantly exceeded our beginning-of-year financial plan and built considerable financial, technology and customer momentum heading into fiscal 2021.

Synopsys saw increasing momentum from the innovative products it has delivered over the past several years, in addition to launching several new solutions that position us well for the next wave of semiconductor and systems innovations. We also made operational adjustments to build on the successes we’ve had and to enable us to further scale the business.

We performed well against our fiscal 2020 goals, as further described below:

We have designed our executive compensation program to attract, motivate and retain a team of highly qualified executives who will drive technological and business success. In order to motivate and reward our NEOs for work that improves our long-term business performance and increases stockholder value, we have set out the following objectives:

We use annual cash incentive compensation to align NEO performance with near-term financial objectives and future revenue goals, which reward contributions that have a multi-year impact. These cash incentive payments can be earned by our NEOs only if we achieve a significant level of our financial performance goals, which advance our long-term strategic plans and, ultimately, stockholder value, over time. Our Compensation Committee grants cash incentive compensation opportunities under our Executive Incentive Plan (EIP).

Our Corporate Financial Goals and the rationale for these goals are summarized in the table below.

Our Compensation Committee believes the consistent application of this blend of performance measures permits our NEOs to focus on sustained performance rather than short-term accomplishments and has contributed to our consistent revenue growth and profitability achievement.

The Compensation Committee generally sets the numeric goals for each EIP performance metric based on the operating plan approved by our Board of Directors.

We achieved strong financial results in fiscal 2020, with an average achievement of our three Corporate Financial Goals of 101.8%. We also performed well against our Revenue Predictability Goal, achieving 102.8% of our target, which resulted in the application of a multiplier to potential NEO cash incentive funding, as described below.

The EIP is structured in this way to provide a limited payment opportunity when performance goals are narrowly missed. We believe this limits our exposure to excessive risk-taking that can arise with “all or nothing” performance conditions. We believe this minimum 90% average achievement level holds our NEOs to a higher level of performance when compared to standard industry practice. Our EIP also has a higher performance threshold than our broad-based employee incentive compensation plans to reinforce accountability at the leadership level.

The Revenue Predictability Factor acts as a “multiplier” for the Corporate Financial Payout Factor and, regardless of the level of achievement of the Revenue Predictability Goal, no payment would be made under the EIP for fiscal 2020 if the minimum 90% average achievement level was not met under the Corporate Financial Goals.

The EIP Payment Formula above will not be applicable, and our NEOs will not earn any cash incentive payments under the EIP, if the funding goal is not achieved for the fiscal year.

Our Compensation Committee convened in late 2020 to discuss the fiscal 2020 performance of each of our NEOs, review potential cash incentive funding, consider other compensation actions taken in fiscal 2020, and determine the actual incentive payments. Based on our achievement of EIP performance goals, the calculation of cash incentive funding using the EIP Payment Formula yielded potential awards of 134.4% of our NEOs’ targets, which is based on:

After considering a number of factors, including internal cost considerations, the Compensation Committee approved fiscal 2020 actual cash incentive payments under the EIP at 133.2% of target for all NEOs other than Mr. Ghazi, which was below the potential payout. The Compensation Committee approved a fiscal 2020 actual cash incentive payment of 160.1% for Mr. Ghazi to reflect his additional contributions in the fourth quarter of fiscal 2020 and the fact that his cash incentive target was not increased to reflect his new position in fiscal 2020.

We believe that equity awards align the interests of our NEOs with the long-term interests of our stockholders by rewarding long-term value creation measured by our stock price and by providing retention incentives through multi-year vesting periods.

The Compensation Committee believes this approximately 50/50 ratio is appropriate for our annual equity awards because it encourages our NEOs to focus both on near-term results, by requiring the achievement of a near-term performance condition for the PRSUs to vest, and on long-term value creation, since stock options and PRSUs once earned, reward sustained increases in our stock price, though only to the extent the employee vests in the award by remaining in service for an additional three years.

The target dollar value was converted into a number of shares based on estimated conditions on the grant date, as described in “Equity Element Allocation” below. The grant date fair value, which is disclosed in the table above and in the subsection titled Summary Compensation Table within the Executive Compensation Tables section below reflects the accounting value on the grant date. The table sets forth the initial target value of each NEO’s equity grants compared to the last year and the primary reasons for the change.

If we achieve between 95% and 100% of our performance goal, then between 50% and 100% of the Annual PRSU award is eligible to vest. The exact number of shares eligible to vest is calculated according to the following matrix approved by the Compensation Committee.

The Compensation Committee rewards performance levels between 95% and 100% to provide our NEOs with a partial award for substantially achieving our non-GAAP net income goal. The Compensation Committee believes this design limits excessive risk-taking that can be encouraged by a single “all or nothing” performance condition.

In October 2019, the Compensation Committee approved special, long-term PRSU grants to our NEOs (Fiscal 2019 Special PRSU Grants) that were designed to (1) provide the NEOs with an additional incentive to achieve our substantial operating margin goals over the next three years, (2) recognize focused effort to achieve market expansion and increased profit from fiscal 2020 through fiscal 2022, and (3) align actions across our executive team to help ensure enterprise-wide success. These awards may be earned, if at all, based on Synopsys non-GAAP operating margin (as defined above under “Cash Incentive”) achievement during each of fiscal 2020, 2021 and 2022.

At the time of the grant of the Fiscal 2019 Special PRSU Grants, the Compensation Committee established a non-GAAP operating margin goal for each of fiscal 2020, 2021 and 2022. Following the end of each such fiscal year, a portion of the Fiscal 2019 Special PRSU Grants may be earned, generally subject to a specified non-GAAP operating margin target for each fiscal year, as determined by the Compensation Committee, and the NEO’s continuous employment with Synopsys through the date of such determination (the Certification Date), as follows:

The Fiscal 2019 Special PRSU Grant vesting schedule is illustrated in the table below:

PRSUs that are not earned and vested as of the final Certification Date will be forfeited.

In September 2020, the Compensation Committee granted promotional equity awards to Mr. Ghazi, which consisted of a stock option grant, a service based restricted stock unit award, and a PRSU award, with an aggregate target value of approximately $2,315,500, to acknowledge and recognize the importance of his promotion to Chief Operating Officer and the expansion of his scope of responsibilities. The Compensation Committee considers Mr. Ghazi’s stock option grant and PRSU award, which comprise more than 2/3 of the aggregate target value of his promotional grants, to be performance-based compensation.

The table below sets forth the number of shares subject to each of Mr. Ghazi’s awards and the aggregate grant date fair value of such awards.

No other NEOs received new-hire, promotional or special recognition equity awards in fiscal 2020.

Our potential payment obligations under the Change of Control Plan are described in the subsection titled “Potential Payments upon Termination of Employment or Change of Control” in the “Executive Compensation Tables” section below.