Stephen D. Kelley

About Stephen D. Kelley

Stephen D. Kelley, 62, is President & Chief Executive Officer of Advanced Energy Industries and has served as a director since March 2021. He holds an SB in Chemical Engineering from MIT and a JD from Santa Clara University, and brings 30+ years of global semiconductor and electronics leadership across strategy, technology, manufacturing, and operations . Under his leadership in 2024, AEIS navigated a cyclical downturn: revenue was $1.48B (-10% YoY) with sequential quarterly improvement, gross margin expanded by roughly two points YoY exiting Q4, and Q4 EPS annualized to over $5, supported by cost actions and product mix; the company launched 35 new products and advanced qualifications in semiconductor and AI data center markets . Kelley and the Board outlined a 2030 model to double revenue and expand gross margin and EPS, with confidence underpinned by strong customer qualifications, manufacturing optimization, and a broad precision power portfolio .

Past Roles

External Roles

Fixed Compensation

Multi-year Summary (CEO):

Performance Compensation

Short-Term Incentive (STI) – 2024 Design and Outcome

• Metrics and weights: Revenue (40%), Non-GAAP Operating Income from Continuing Operations (40%), Adjusted Cash Flow (20%), with two performance periods: H1 (40% weight) and H2 (60% weight) to reflect intra-year volatility .
• Corporate achievement: 92.6% of target; no individual modifiers applied to executives .
• CEO target and payout: Target bonus 125% of base salary ($1,187,500); actual paid $1,099,625 (92.6% of target) .

CEO STI Payout:

Long-Term Incentive (LTI) – Structure, Grants, and Performance

• Vehicles: 50% time-based RSUs (3-year ratable vest), 50% PSUs (3-year performance) .
• CEO 2024 target LTI value: $6,400,000; granted 31,348 RSUs and 31,348 PSUs (at target) on 3/1/2024 .
• 2024 PSU metrics: 70% Relative TSR vs S&P 1000 (threshold/target/stretch: -50pp/at index/+50pp), 30% non-GAAP gross margin percentage (37%/40%/42%) over any 4 consecutive quarters in the 3-year period; PSUs “bank” annually on rTSR but vest only at the end of 36 months .
• 2024 performance progress: 29.0% of target PSUs earned/banked on 2024 rTSR; no PSU credit yet on 4Q non-GAAP gross margin goal in 2024 .
• 2023 PSU program: 58% of target PSUs earned/banked for 2023–2024 rTSR to date; vest at end of 3-year period .
• 2022 PSU outcome: 98.1% of target overall (rTSR 140.3%, non-GAAP gross margin 0%); CEO PSUs vested 26,088 in 2024 under the 2022 plan .
• Options: Not part of core compensation; no new option grants in 2024 .

Key LTI Tables

1. CEO 2024 LTI Grants | Grant Date | RSUs (#) | PSUs at Target (#) | Plan/Notes | |---|---:|---:|---| | 3/1/2024 | 31,348 | 31,348 | 50/50 RSU/PSU mix; PSUs: 70% rTSR vs S&P 1000; 30% non-GAAP GM% (37/40/42% thresholds) over 3 years . |

2. PSU Performance Architecture (CEO) | Component | Weight | Threshold | Target | Stretch | |---|---:|---|---|---| | Relative TSR vs S&P 1000 | 70% | -50pp to Index | At Index | +50pp to Index | | Non-GAAP Gross Margin % | 30% | 37% | 40% | 42% |

3. Completed/Interim Outcomes

• 2024 rTSR banked: 29.0% of target PSUs; vesting only at end of 36 months .
• 2023 program banked through 2024: 58% of target PSUs; vesting at end of period .
• 2022 program vested in 2024 at 98.1% of target; CEO vested PSUs: 26,088 .

4. 2025 Design Update (CEO)

• AE will reintroduce a non-GAAP EPS performance metric to CEO PSUs alongside rTSR and non-GAAP gross margin percentage for 2025 awards, further tightening pay-for-performance linkage to earnings .

Equity Ownership & Alignment

• Beneficial ownership (as of Feb 1, 2025): Stephen D. Kelley beneficially owns 118,826 shares (<1%) . Breakdown within 60 days: stock options 11,154; time-based RSUs 30,254; PSUs 26,088 .
• Unvested/Outstanding at 12/31/2024: Unvested RSUs 62,101 (market value $7,180,739); unearned equity (primarily PSUs at target/stretch accounting basis) 117,325 (market value $13,566,290) .
• Options outstanding at 12/31/2024: 7,436 exercisable and 3,718 unexercisable at $85.97 strike, expiring 3/16/2032 .
• Ownership guidelines: CEO required to hold stock equal to 5x base salary; executives are conforming or on track within the five-year phase-in .
• Hedging and pledging: Prohibited for all employees, officers, and directors (anti-hedging/anti-pledging policy) .
• Clawback: Nasdaq/SEC-compliant clawback policy adopted Nov 2, 2023; applies to Section 16 officers for accounting restatements; no recoupments to date .

Vesting Schedule – Near-Term RSU Vests (CEO)

PSU Vesting Cadence

• 2024–2026 PSUs vest only at the end of the 36-month period (Dec 31, 2026), despite annual rTSR “banking” .
• 2023–2025 PSUs also vest at end of period; 58% banked through 2024 on rTSR .

Employment Terms

• Updated change-in-control (CIC) and general severance agreements adopted in 2024, with double-trigger CIC coverage (termination without cause or for good reason within 18 months after or within 90 days prior to a CIC) and separate general severance for non-CIC terminations without cause/for good reason .
• Definitions: “Cause” and “Good Reason” are specified; Good Reason includes material role reduction, >10% reductions in base/target bonus (subject to carve-outs), material relocation (>35 miles), or material breach, with notice and cure rights .

General Severance (non-CIC) – CEO

• Cash: 1.5x base salary; pro-rata target bonus for year of termination .
• Benefits: up to 12 months medical continuation; retirement plan contribution equivalents for 12 months; outplacement up to $15,000 .
• Estimated if terminated on 12/31/2024: Salary severance $1,425,000; pro-rata target bonus $1,187,500; benefits continuation $35,253; outplacement $15,000 .

Change-in-Control Severance – CEO (Double Trigger)

• Cash: 2.0x base salary and 2.0x target bonus .
• Equity: Full vesting of RSUs and PSUs at assumed maximum; stock options fully vested and exercisable .
• Benefits: up to 18 months medical; retirement plan contribution equivalents for 18 months; outplacement up to $25,000 .
• Estimated if CIC-triggered termination on 12/31/2024: Accelerated equity $28,280,403; salary severance $1,900,000; target bonus $2,375,000; benefits $52,879; outplacement $25,000 .

Other

• Death: 12 months of equity vesting acceleration; estimated $1,208,334 equity value as of 12/31/2024 .
• Deferred compensation: CEO did not elect to participate in 2024 .

Board Governance

• Board structure: Chairman and CEO roles are separate per Board Governance Guidelines to enhance oversight; the Chairman is independent (current Chairman: Grant H. Beard) .
• Independence: Kelley is not independent; all other nominees are independent; majority-independent Board .
• Committees: CEO does not serve on Board committees; Audit & Finance, Compensation, and Nominating/Governance & Sustainability committees are fully independent .
• Attendance: Board held 8 meetings in 2024; independent directors held 4 executive sessions; all directors attended >75% of meetings .
• Director pay: As an employee director, Kelley received no director compensation in 2024 .
• Anti-hedging/pledging: Prohibited; robust stock ownership guidelines (5x salary for CEO) .

Additional Context

• Say-on-Pay: 2024 approval exceeded 99% of votes cast, reinforcing shareholder support for pay design .
• Compensation peer group (2024): Includes 15 relevant tech/semicap and electronics companies (e.g., Entegris, MKS Instruments, Silicon Labs, Coherent, Monolithic Power, Power Integrations) and is reviewed annually with Compensia .
• Governance practices: No excise tax gross-ups, no guaranteed incentives, no significant perquisites or separate pension programs; no poison pill; related-party transactions overseen by Audit & Finance Committee .

Investment Implications

• Pay-for-performance alignment: CEO compensation is heavily at-risk, with 50% PSU weighting and explicit multi-year rTSR and margin goals; 2025 adds a non-GAAP EPS metric, improving earnings alignment and potential investor signaling on profitability discipline .
• Retention risk and potential supply: Elevated unvested equity value ($20.7M+ combined unvested/uneaned at YE24) and sizable near-term RSU vest tranches (multiple 8–11K-share vests in 2025–2027) suggest meaningful but staggered vesting over three years; PSUs cliff-vest at end of performance periods, which may concentrate supply near cycle endpoints .
• Takeover/CIC dynamics: Double-trigger CIC with 2x salary+bonus and full equity acceleration at max could increase deal completion certainty but also represents material potential dilution/cost in a transaction scenario; serves as meaningful retention through uncertainty .
• Governance and alignment: Separate Chair/CEO roles, strict anti-hedging/pledging, and 5x salary ownership guideline (with CEO conforming or on track) reduce agency risks; strong 2024 Say-on-Pay (99%) indicates investor support for current design .
• Execution track record: 2024 showed improving margins and sequential growth despite a -10% YoY revenue decline, alongside 35 product launches and AI data center momentum—supportive of the long-term 2030 targets presented by Kelley .

Overall: Compensation design emphasizes multi-year value creation with rTSR, margin, and (new) EPS performance tie-ins; vesting cadence should be monitored for potential selling pressure around vest dates and cycle endpoints, while CIC provisions create both retention and transaction-structure considerations .