UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o Preliminary Proxy Statement

o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ Definitive Proxy Statement

o Definitive Additional Materials

o Soliciting Material Pursuant to §240.14a-12

 

First Solar, Inc.

(Name of Registrant as Specified in its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

þ No fee required.

 

o Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

 

 

 

 

 

 

 

 

 

 

o Fee paid previously with preliminary materials.

 

o Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

 

 

 

 

 

 

 

Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

 

First Solar, Inc.
350 West Washington Street
Suite 600
Tempe, Arizona 85281

 

April 13, 2011

 

Dear Stockholder:

 

You are cordially invited to attend our 2011 annual meeting of stockholders of First Solar, Inc. to be held on Wednesday, May 25, 2011 at 9:00 a.m., local time, at the Desert Willow Conference Center, 4340 East Cotton Center Boulevard, Phoenix, Arizona 85040.

 

Details regarding admission to the meeting and the business to be conducted are described in the Notice of Internet Availability of Proxy Materials (the “Notice”) you received in the mail and in this proxy statement. We have also made available a copy of our 2010 Annual Report to Stockholders (the “2010 Annual Report”) with this proxy statement. We encourage you to read our 2010 Annual Report. It includes our audited financial statements and information about our operations, markets and products.

 

We have elected to provide access to our proxy materials on the internet under the Securities and Exchange Commission’s “notice and access” rules. We are pleased to take advantage of these rules and believe that they enable us to provide you with the information you need, while making delivery more efficient and more environmentally friendly. In accordance with these rules, we have sent the Notice to each of our stockholders providing instructions on how to access our proxy materials and our 2010 Annual Report on the internet.

 

Your vote is important. Whether or not you plan to attend the annual meeting, we hope you will vote as soon as possible. You may vote on the internet, as well as by telephone or, if you requested to receive printed proxy materials, by mailing a proxy or voting instruction card. Please review the instructions on each of your voting options described in this proxy statement as well as in the Notice you received in the mail.

 

I look forward to greeting those of you who are able to attend the annual meeting in Phoenix.

 

Sincerely,

 

 

Robert J. Gillette

Chief Executive Officer

 

FIRST SOLAR, INC.
350 West Washington Street
Suite 600
Tempe, Arizona 85281

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

The 2011 annual meeting of stockholders of First Solar, Inc. will be held on Wednesday, May 25, 2011, at 9:00 a.m., local time. The annual meeting will take place at the Desert Willow Conference Center, 4340 East Cotton Center Boulevard, Phoenix, Arizona 85040.

 

The purposes of the annual meeting are as follows:

 

1. to elect nine members of the board of directors to hold office until the next annual meeting of stockholders or until their respective successors have been elected and qualified;

 

2. to hold an advisory vote on executive compensation;

 

3. to hold an advisory vote on the frequency of the advisory vote on executive compensation;

 

4. to ratify the appointment of PricewaterhouseCoopers LLP as First Solar, Inc.’s independent registered public accounting firm for the fiscal year ending December 31, 2011;

 

5. to vote on a stockholder proposal, if properly presented at the annual meeting, as described on page 49 of this proxy statement; and

 

6. to transact such other business as may properly come before the annual meeting.

 

Any action may be taken on the foregoing proposals at the annual meeting on the date specified above or on any date or dates to which the annual meeting may be adjourned or postponed.

 

The close of business on April 7, 2011 is the record date for determining stockholders entitled to vote at the annual meeting. Only holders of common stock of First Solar, Inc. as of the record date are entitled to vote on some or all of the matters listed in this notice of annual meeting. A complete list of stockholders entitled to vote at the annual meeting will be available for inspection by stockholders during normal business hours at our corporate headquarters located at 350 West Washington Street, Suite 600, Tempe, Arizona 85281, during the ten days prior to the annual meeting as well as at the annual meeting.

 

BY ORDER OF THE BOARD OF DIRECTORS,

 

 

Mary Beth Gustafsson
Executive Vice President,
General Counsel and Secretary

 

April 13, 2011

 

 

 

 

TABLE OF CONTENTS

 

FIRST SOLAR, INC.
350 West Washington Street
Suite 600
Tempe, Arizona 85281

 

PROXY STATEMENT

 

This proxy statement is being furnished in connection with the solicitation of proxies by the board of directors of First Solar, Inc., a Delaware corporation (“First Solar” or the “Company”), for use at the annual meeting of the Company’s stockholders to be held on Wednesday, May 25, 2011, at the Desert Willow Conference Center, 4340 East Cotton Center Boulevard, Phoenix, Arizona 85040, commencing at 9:00 a.m., local time, and at any adjournment or postponement. The Notice of Internet Availability of Proxy Materials (the “Notice”) relating to the annual meeting is first being mailed to stockholders, and this proxy statement is first being made available to stockholders, on or about April 13, 2011.

 

What is the purpose of the annual meeting?

 

At the annual meeting, stockholders are being asked to consider and vote upon the following matters:

 

 

The stockholders will also transact any other business that may properly come before the annual meeting.

 

Why did I receive a notice in the mail regarding the internet availability of proxy materials instead of a full set of proxy materials?

 

In accordance with rules adopted by the Securities and Exchange Commission (the “Commission”), we may furnish proxy materials, including this proxy statement and our 2010 Annual Report to Stockholders (the “2010 Annual Report”), to our stockholders by providing access to such documents on the internet instead of mailing printed copies. You will not receive a printed copy of the proxy materials unless you specifically request one. Instead, the Notice instructs you as to how you may access and review all of the proxy materials on the internet. The Notice also instructs you as to how you may submit your proxy on the internet. If you would like to receive a paper or email copy of our proxy materials, you should follow the instructions for requesting such materials in the Notice.

 

How do I get electronic access to the proxy materials?

 

The Notice provides you with instructions regarding how to:

 

 

Choosing to receive your future proxy materials by email will save us the cost of printing and mailing documents to you and will reduce the environmental impact of printing and mailing these materials. If you choose to receive future proxy materials by email, you will receive an email next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by email will remain in effect until you terminate it.

How does the board of directors recommend that I vote?

 

Our board of directors recommends that you vote your shares (1) “FOR” each of the nominees to the board of directors, (2) “FOR” the approval (in a non-binding advisory vote) of the compensation of the Company’s named executive officers as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, compensation tables and narrative discussion in this proxy statement, (3) “FOR” (in a non-binding advisory vote) the frequency of an advisory vote on the compensation of our named executive officers to be once every three years, (4) “FOR” the ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the 2011 fiscal year and (5) “AGAINST” the stockholder proposal described on page 49 of this proxy statement.

 

Who is entitled to vote?

 

The record date for the annual meeting is April 7, 2011. Only stockholders of record at the close of business on that date are entitled to notice of and to vote at the annual meeting. Attendance at the meeting will be limited to such stockholders of record, their proxies, beneficial owners having evidence of ownership on that date and invited guests of the Company.

 

The Company’s sole outstanding capital stock is its common stock, par value $0.001 per share. Each holder of the Company’s common stock is entitled to one vote per share on each matter submitted at the annual meeting. At the close of business on the record date there were 86,081,302 shares of the Company’s common stock outstanding and eligible to vote at the annual meeting.

 

What is the difference between holding shares as a stockholder of record and as a beneficial owner?

 

Most First Solar stockholders hold their shares through a broker or other nominee rather than directly in their own name. As summarized below, there are some distinctions between shares held of record and those owned beneficially.

 

Stockholder of Record

 

If your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are considered, with respect to those shares, the stockholder of record, and the Notice was sent directly to you by First Solar. As the stockholder of record, you have the right to grant your voting proxy directly to First Solar or to vote in person at the annual meeting. If you requested to receive printed proxy materials, First Solar has enclosed or sent a proxy card for your use. You may also vote on the internet or by telephone, as described in the Notice and below under the heading “How can I vote my shares without attending the annual meeting?”

 

Beneficial Owner

 

If your shares are held in an account at a brokerage firm, bank, broker-dealer, trust or other similar organization, like the vast majority of our stockholders, you are considered the beneficial owner of shares held in street name, and the Notice was forwarded to you by that organization. As the beneficial owner, you have the right to direct your broker, bank, trustee or nominee how to vote your shares, and you are also invited to attend the annual meeting.

 

Since a beneficial owner is not the stockholder of record, you may not vote your shares in person at the annual meeting unless you obtain a “legal proxy” from the broker, bank, trustee or nominee that holds your shares giving you the right to vote the shares at the meeting. If you do not wish to vote in person or you will not be attending the annual meeting, you may vote by proxy. You may vote by proxy over the internet or by telephone, as described in the Notice and below under the heading “How can I vote my shares without attending the annual meeting?”

 

How can I vote my shares in person at the annual meeting?

 

Shares held in your name as the stockholder of record may be voted by you in person at the annual meeting. Shares held beneficially in street name may be voted by you in person at the annual meeting only if you obtain a legal proxy from the broker, bank, trustee or nominee that holds your shares giving you the right to vote the shares. Even if you plan to attend the annual meeting, we recommend that you also submit your proxy or voting instructions as described below so that your vote will be counted if you later decide not to attend the meeting.

How can I vote my shares without attending the annual meeting?

 

Whether you hold shares directly as the stockholder of record or beneficially in street name, you may direct how your shares are voted without attending the annual meeting. If you are a stockholder of record, you may vote by proxy. You can vote by proxy over the internet by following the instructions provided in the Notice, or, if you requested to receive printed proxy materials, you can also vote by mail or telephone pursuant to instructions provided on the proxy card. If you hold shares beneficially in street name, you may also vote by proxy over the internet by following the instructions provided in the Notice, or, if you requested to receive printed proxy materials, you can also vote by telephone or mail by following the voting instruction card provided to you by your broker, bank, trustee or nominee.

 

Can I change my vote after I submit my proxy?

 

Yes, you may change your vote at any time prior to the vote at the annual meeting. If you are the stockholder of record, you may change your vote by granting a new proxy bearing a later date (which automatically revokes the earlier proxy), by providing a written notice of revocation to First Solar’s Corporate Secretary at 350 West Washington Street, Suite 600, Tempe, Arizona 85281 prior to your shares being voted, or by attending the annual meeting and voting in person. Attendance at the annual meeting will not cause your previously granted proxy to be revoked unless you specifically so request. For shares you hold beneficially in street name, you may change your vote by submitting new voting instructions to your broker, trustee or nominee following the instruction they provided, or, if you have obtained a legal proxy from your broker or nominee giving you the right to vote your shares, by attending the annual meeting and voting in person.

 

How many shares must be present to hold the annual meeting?

 

A quorum must be present at the annual meeting for any business to be conducted. The presence at the annual meeting, in person or by proxy, of the holders of a majority of the shares of voting stock outstanding on the record date, determined by voting power, will constitute a quorum. Both abstentions and broker non-votes (described below) are counted for the purpose of determining the presence of a quorum. If a quorum is not present, the chairman of the annual meeting may adjourn the annual meeting until a quorum is present.

 

What is the voting requirement to approve each of the proposals?

 

In the election of directors, the affirmative vote of a plurality of the votes cast is required to elect the nine nominees as directors. This means that the nine nominees will be elected if they receive more affirmative votes than any other person. You may not accumulate your votes for the election of directors. Please note that brokers may not use discretionary authority to vote shares on the election of directors if they have not received specific instructions from their clients. For your vote to be counted in the election of directors, you will need to communicate your voting decisions to your bank, broker or other holder of record before the date of the annual meeting.

 

The frequency of the advisory vote on executive compensation (Proposal No. 3) receiving the greatest number of votes (every one, two or three years) will be considered the frequency recommended by the stockholders. Because your vote is advisory on Proposals No. 2 and 3, it will not be binding on the board of directors or the Company. However, the board will review the voting results and take them into consideration when making future decisions regarding executive compensation and the frequency of the advisory vote on executive compensation.

 

The proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011 and the stockholder proposal described on page 49 of this proxy statement each requires the affirmative vote of a majority of the shares of the Company’s common stock present at the annual meeting in person or by proxy and entitled to vote as of the record date.

 

If you hold shares beneficially in street name and do not provide your broker with voting instructions, your shares may constitute “broker non-votes.” Generally, broker non-votes occur on a matter when a broker is not permitted to vote on that matter without instructions from the beneficial owner and instructions are not given. In tabulating the voting result for any particular proposal, shares that constitute broker non-votes are not considered entitled to vote or votes cast on that proposal. Thus, broker non-votes will not affect the outcome of any matter being voted on at the meeting, assuming that a quorum is obtained. Abstentions, on the other hand, have the same effect as votes against the matter.

What happens if a nominee is unable to stand for election?

 

If a nominee is unable to stand for election, the board of directors may either reduce the number of directors to be elected or cause a substitute nominee to be selected. If a substitute nominee is selected, the proxy holders will vote your shares for the substitute nominee, unless you have withheld authority.

 

Who pays for the costs of soliciting proxies?

 

The Company will pay the cost of soliciting proxies. The Company will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to the beneficial owners of voting stock. In addition to solicitation by mail, directors, officers and associates (which is our term for employees and is used throughout this proxy statement to mean employees) of the Company may solicit proxies personally, by telephone or by electronic communication, without additional compensation.

 

How do I obtain more information about the Company?

 

A copy of our 2010 Annual Report is available on the website http://www.envisionreports.com/fslr. Our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 is available on our investor relations website at http://investor.firstsolar.com under “SEC Filings. You may also obtain, free of charge, a copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 by writing to Investor Relations, First Solar, Inc., 350 West Washington Street, Suite 600, Tempe, Arizona 85281; Email: investor@firstsolar.com.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE ANNUAL MEETING OF THE STOCKHOLDERS TO BE HELD ON MAY 25, 2011

 

This Proxy Statement and our 2010 Annual Report are available at http://www.envisionreports.com/fslr.

 

 

 

We adopted corporate governance guidelines that address the governance activities of the board of directors and include criteria for determining the independence of the members of our board. These guidelines are in addition to the requirements of the Commission and The NASDAQ Stock Market (“NASDAQ”). The guidelines also include requirements for the standing committees of the board, responsibilities for board members and the annual evaluation of the board’s and its committees’ effectiveness. The corporate governance guidelines are available on our website at www.firstsolar.com under “Investors — Corporate Governance.” At any time that these guidelines are not available on our website, we will provide a copy upon written request made to Investor Relations, First Solar, Inc., 350 West Washington Street, Suite 600, Tempe, Arizona 85281.

 

Independence

 

The board of directors has determined that the following directors are “independent” as required by applicable laws and regulations, by the listing standards of NASDAQ and by our corporate governance guidelines: Craig Kennedy, James F. Nolan, William J. Post, J. Thomas Presby, Paul H. Stebbins, Michael Sweeney and

José H. Villarreal. The board of directors has also concluded that the members of each of the audit, compensation, nominating and governance and project development risk committees are “independent” in accordance with these same standards.

 

Code of Business Conduct and Ethics

 

We have a code of business conduct and ethics that applies to all directors and associates, including our chairman, chief executive officer, chief financial officer and all of our associates in the finance organization. These standards are designed to deter wrongdoing and to promote the honest and ethical conduct of all associates. The code of business conduct and ethics is posted on our website at www.firstsolar.com under “Investors — Corporate Governance.” Any substantive amendment to, or waiver from, any provision of the code of business conduct and ethics with respect to any director or executive officer will be posted on our website.

 

Board of Directors Composition

 

Our board of directors is currently composed of nine directors: seven independent directors and two non-independent directors, consisting of our chairman of the board of directors (who resigned as executive chairman effective January 1, 2011) and our chief executive officer.

 

Board of Directors Leadership Structure

 

The board’s current leadership structure separates the position of chairman and chief executive officer. Michael J. Ahearn served as the Company’s chief executive officer and chairman of the board during 2009 until being succeeded as chief executive officer by Robert J. Gillette on October 1, 2009. Since such date, Mr. Ahearn has served as the chairman of the board of directors, and he served as executive chairman (an executive officer position) through December 31, 2010. Effective January 1, 2011, Mr. Ahearn resigned from the executive chairman position and now serves solely as our chairman of the board.

 

The board and the nominating and governance committee determined that the structure was appropriate in that it enabled Mr. Gillette, then relatively new to the solar industry, to focus on the complexities associated with the role of chief executive officer in our rapidly growing company, while enabling Mr. Ahearn, a founder and industry veteran, to continue to provide leadership on public policy and at the board level. Although the roles of chief executive officer and chairman of the board are currently separated, the board has not adopted a formal policy requiring such separation. In general, the board believes that the right structure should be informed by the needs and circumstances of the Company, its board and its stockholders at a given point in time, and that the board should remain adaptable to shaping the leadership structure as those needs change. Given the identity of the incumbents and the growth and challenges facing our Company, the board determined that the current structure, with the roles of chief executive officer and chairman of the board separated, was appropriate under the current circumstances.

 

The Board’s Role in Risk Oversight

 

The Company has a comprehensive risk management process in which management is responsible for identifying and managing the Company’s risks and the board and its committees provide oversight in connection with these efforts. Risks are identified, assessed and managed on an ongoing basis and communicated to management during standing management meetings or otherwise as appropriate. Existing and potential material risks are addressed during periodic senior management meetings, resulting in both board and committee discussions and public disclosure, as appropriate. Further, risk assessment is embedded in the Company’s business decision making, business planning and strategic planning.

 

The board is responsible for overseeing management in the execution of its risk management responsibilities and for assessing the Company’s approach to risk management. The board administers this risk oversight function either through the full board or through one of its four standing committees, each of which examines various components of the Company’s enterprise risks as part of its responsibilities. The full board reviews enterprise-wide strategic risks and certain other risk areas on a regular basis. An overall review of risk is inherent in the board’s consideration of the Company’s long-term strategies and in the transactions and other matters presented to the board, including capital expenditures, manufacturing capacity expansions, acquisitions and significant financial

matters. The audit committee oversees financial risks (including risks associated with accounting, financial reporting, enterprise resource planning system implementation, foreign currencies and the collectability of accounts receivable), legal and compliance risks and other risk management functions. The compensation committee considers risks related to the attraction and retention of talent (including management succession planning) and risks relating to the design of compensation programs and arrangements, including a periodic review of such compensation programs to ensure that they do not encourage excessive risk-taking. The nominating and governance committee considers risks related to corporate governance practices. The project development risk committee considers risks related to our project development and related project finance activities.

 

Management regularly reports on risk-related matters to the board or the relevant committee thereof. Management presentations containing information regarding risks and risk management initiatives are given throughout the year in connection with board and committee quarterly and special meetings as well as other communications as needed or as requested by the board or committee. In addition, the Company’s director of risk management reports to the audit committee at least once per year, and has open access to the chair of the audit committee.

 

Policy Regarding Hedging of Company Securities

 

The First Solar, Inc. Insider Trading Policy prohibits its directors and all associates, including all named executive officers, from engaging in any short sales with respect to Company securities, buying or selling puts, calls or derivatives on Company securities and purchases of Company securities on margin.

 

Security Ownership Requirements

 

In February 2010, First Solar adopted share ownership guidelines pursuant to which the Company’s executive officers and non-associate directors were afforded three years to achieve share holdings equal to three times their annual base salary or annual retainer, as applicable, and five times annual base salary for the chief executive officer.

 

Committee Composition

 

We have four standing committees of the board: the audit committee, the compensation committee, the nominating and governance committee and the newly formed project development risk committee. The committee membership and meetings during 2010 and the function of each of the committees are described below.

 

During 2010, the board of directors held 10 meetings. Each director attended at least 75% of the aggregate of all board of directors meetings and committee meetings for the committees on which he serves.

 

The following is a list of all directors and the committees on which the directors serve as of December 31, 2010. These committee assignments have been in effect since July 26, 2010.

 

 

Audit Committee

 

The audit committee oversees our financial reporting process on behalf of the board of directors and reports to the board of directors the results of these activities, including reviewing the systems of internal controls established

by management, our audit and compliance process and financial reporting. The audit committee, among other duties, engages the independent registered public accounting firm, pre-approves all audit and non-audit services provided by the independent registered public accounting firm, reviews with the independent registered public accounting firm the plans and results of the audit engagement, considers whether any non-audit services provided by the independent registered public accounting firm conflict with the independence of such independent registered public accounting firm and reviews the independence of the independent registered public accounting firm. During 2010, the audit committee held five meetings.

 

J. Thomas Presby (Chair), Craig Kennedy and Paul H. Stebbins serve on our audit committee. Each member of the audit committee meets the standards for financial knowledge for companies listed on NASDAQ. In addition, the board of directors has determined that Mr. Presby is qualified as an audit committee financial expert within the meaning of Commission regulations.

 

The audit committee operates pursuant to a written charter and is of the view that it has complied with its charter. A current copy of the audit committee’s charter is available on our website at www.firstsolar.com under “Investors — Corporate Governance.”

 

Compensation Committee

 

The compensation committee reviews and recommends compensation and benefit plans for the Company’s officers and directors, including non-associate directors, reviews the base salary and incentive compensation for each executive officer, reviews and approves corporate goals and objectives relevant to our chief executive officer’s compensation, administers our incentive compensation program for key executive and management associates and reviews at least annually the benefits strategy related to benefits for all associates. During 2010, the compensation committee held seven meetings.

 

Michael Sweeney (Chair), Paul H. Stebbins, José H. Villarreal and William J. Post serve on our compensation committee.

 

The compensation committee operates pursuant to a written charter and is of the view that it has complied with its charter. A current copy of the compensation committee’s charter is available on our website at www.firstsolar.com under “Investors — Corporate Governance.”

 

Compensation Committee Interlocks and Insider Participation

 

None of the members of our compensation committee has been an executive officer or associate of the Company during our last completed fiscal year. During our last completed fiscal year, none of our executive officers served as a member of the compensation committee of any entity that has one or more executive officers serving on our compensation committee.

 

Nominating and Governance Committee

 

The nominating and governance committee reviews the composition and performance of the board and its committees and leads the process to assess their performance, assesses candidates for appointment to the board and recommends to the board whether such candidates should stand for election at the next meeting of stockholders. The nominating and governance committee is also responsible for reviewing and assessing the Company’s corporate governance policies and guidelines. During 2010, the nominating and governance committee held five meetings.

 

José H. Villarreal (Chair), J. Thomas Presby, Paul H. Stebbins and Michael Sweeney serve on our nominating and governance committee.

 

The nominating and governance committee operates pursuant to a written charter and is of the view that it has complied with its charter. A current copy of the nominating and governance committee’s charter is available on our website at www.firstsolar.com under “Investors — Corporate Governance.”

Nomination Procedures

 

Director nominees are recommended by the nominating and governance committee for selection by the board of directors. In considering new nominees for the board of directors, the nominating and governance committee considers qualified individuals who, if added to the board of directors, would provide the mix of director characteristics, experience, perspectives and skills appropriate for the Company. In accordance with the corporate governance guidelines adopted by the board and the nominating and governance committee charter, criteria for selection of candidates include, but are not limited to: (i) roles and contributions valuable to the business community; (ii) personal qualities of leadership, character, judgment and whether the candidate possesses and maintains a reputation in the community at large of integrity, trust, respect, competence and adherence to the highest ethical standards; (iii) relevant knowledge and diversity of background and experience in such areas as business, technology, finance and accounting, marketing, government relations and other disciplines relevant to the Company’s business; and (iv) whether the candidate is free of conflicts and has the time required for preparation, participation and attendance at all meetings.

 

As indicated by these criteria, the board and the nominating and governance committee seek a diversity of background and experience among board members. The nominating and governance committee does not follow any ratio or formula to determine the appropriate mix. Rather, it uses its judgment to identify nominees whose backgrounds, attributes and experiences, taken as a whole, will contribute to the high standards of board service at the Company. The effectiveness of this approach is evidenced by the directors’ participation in the insightful and robust deliberation that occurs at board and committee meetings and in shaping the agendas for those meetings.

 

The board of directors does not have a specific policy for consideration of nominees recommended by security holders due to the fact that, as of April 7, 2011, the Estate of John T. Walton and its affiliates control approximately 31% of our outstanding common stock and their vote has a significant influence on whether any director nominee recommended by the board of directors or a security holder is elected to the board of directors. However, security holders can recommend a prospective nominee for the board of directors as described below. There have been no recommended nominees from security holders.

 

Our bylaws require that a stockholder who wishes to nominate an individual for election as a director at our annual meeting must give us advance written notice. The notice must be delivered to or mailed and received by the Corporate Secretary of the Company not later than 90 days or earlier than 120 days prior to the first anniversary of the preceding year’s annual meeting. If the annual meeting for which the recommendation is submitted is more than 30 days before or more than 60 days after the first anniversary of the preceding year’s annual meeting, such recommendation must be received by the Corporate Secretary of the Company not earlier than 120 days prior to the annual meeting and not later than 90 days prior to such annual meeting or the 10th day following the day on which public announcement of the annual meeting date is first made by the Company.

 

Stockholders may contact our Corporate Secretary at First Solar, Inc., 350 West Washington Street, Suite 600, Tempe, Arizona 85281 for a copy of the relevant bylaw provisions regarding the requirements for nominating director candidates and making stockholder proposals.

 

Project Development Risk Committee

 

The board of directors formed a project development risk committee on July 26, 2010 for the purpose of overseeing the Company’s project development and related project finance activities. During 2010, the project development risk committee held one meeting.

 

William J. Post (Chair), J. Thomas Presby, Paul H. Stebbins and Craig Kennedy serve on our project development risk committee.

 

The project development risk committee operates pursuant to a written charter and is of the view that it has complied with its charter. A current copy of the project development risk committee’s charter is available on our website at www.firstsolar.com under “Investors — Corporate Governance.”

Stockholder Communications with Directors

 

A stockholder who wishes to communicate directly with the board, a committee of the board or with an individual director regarding matters related to First Solar should send the communication to:

 

First Solar, Inc.
Attn: Corporate Secretary
350 West Washington Street
Suite 600
Tempe, Arizona 85281

 

We will forward all stockholder correspondence about First Solar to the board, committee or individual director, as appropriate. Please note that we will not forward communications that are spam, junk mail and mass mailings, resumes and other forms of job inquiries, surveys, and business solicitations or advertisements.

 

Attendance at Stockholder Meetings

 

The Company does not have a policy on directors attending the annual stockholders’ meetings. Last year’s annual stockholders’ meeting was held on June 1, 2010 in Phoenix, Arizona and was attended by one director.

 

DIRECTORS

 

Members of the board of directors of the Company are elected at each annual meeting of stockholders and serve until the next annual meeting or until their respective successors have been elected and qualified. The following information provided with respect to the principal occupation, affiliations and business experience during the last five years for each of the members of the board of directors has been furnished to us by such members.

 

The name and certain information regarding each director of the Company are set forth below as of April 7, 2011. There are no family relationships among directors or executive officers of the Company. Each of the following persons has been nominated by the board of directors for election at the annual meeting. In concluding that each of the following individuals should continue to serve as director, the board considered such person’s qualifications as described below and determined that each such person would continue to provide the contributions to the board as specified below.

 

 

Michael J. Ahearn serves as chairman of the board of directors of First Solar and served as chief executive officer from August 2000 to September 2009 and executive chairman from October 2009 to December 2010. Prior to First Solar, he was partner and president of an equity investment firm, JWMA (formerly True North Partners, L.L.C.). Prior to joining JWMA, Mr. Ahearn practiced law as a partner in the firm of Gallagher & Kennedy. Mr. Ahearn has served on the boards of Arizona Technology Enterprises, Arizona State University Research Park, Homeward Bound, the Arizona Science Museum and currently serves on the board of the German Marshall Fund of the United States. Mr. Ahearn holds a B.A. in Finance and a J.D. from Arizona State University. During his nine-year tenure as chief executive officer of First Solar, Mr. Ahearn led the development and expansion of First Solar from a small privately-held company to a successful multinational industry-leading public company; his experience and insights are critical assets to the board of directors.

Robert J. Gillette joined First Solar in October 2009 as chief executive officer. Prior to joining First Solar, Mr. Gillette served as president and chief executive officer of Honeywell Aerospace since January 2005. Honeywell Aerospace, headquartered in Phoenix, Arizona, is Honeywell International’s largest business group. In this role, Mr. Gillette led Honeywell Aerospace’s three main businesses — Air Transport & Regional, Business & General Aviation, and Defense & Space — with more than 40,000 employees at nearly 100 worldwide manufacturing and service sites. Prior to this assignment, Mr. Gillette had served as president and chief executive officer of Honeywell Transportation Systems since July 2001. Mr. Gillette holds a bachelor’s of science degree in Finance from Indiana University. Through his career, Mr. Gillette has developed a deep understanding of the successful management of a large global business. As chief executive officer of First Solar, Mr. Gillette plays an essential role at the board level in providing CEO-level visibility into the management and operations of First Solar.

 

Craig Kennedy, Audit Committee; Project Development Risk Committee, was elected a director of First Solar in September 2007. Since 1995, Mr. Kennedy has been president of the German Marshall Fund, an independent American organization created in 1972 as a permanent memorial to the Marshall Plan. The German Marshall Fund sponsors a wide range of programs related to foreign, economic, immigration and environmental policy, and it operates a number of political exchanges between the United States and Europe with a special emphasis on Germany. Mr. Kennedy began his career in 1980 as a program officer at the Joyce Foundation in Chicago. Mr. Kennedy was president of the Joyce Foundation between 1986 and 1992, where he built the Foundation’s environmental program and launched a new program on U.S. immigration policy. Mr. Kennedy left the Joyce Foundation to work for Richard J. Dennis, a Chicago investor and philanthropist. During this same period, Mr. Kennedy created a consulting firm working with nonprofit and public sector clients. Mr. Kennedy serves on the board of the nonprofit Thomas B. Fordham Foundation, the Rocky Mountain Institute and the European Foundation Center. Mr. Kennedy is audit committee chair of the Invesco Van Kampen Closed-End-Funds. Mr. Kennedy holds a B.A., an M.A. and an MBA from the University of Chicago. Mr. Kennedy’s deep public policy experience and global perspective are valuable resources to the Company, as our business is impacted by public policy issues on a global scale.

 

James F. Nolan was elected a director of First Solar in February 2003. Mr. Nolan served as the vice president of operations with Solar Cells, Inc., the predecessor to First Solar, and was responsible for research, development and manufacturing operations. He designed and built early prototype equipment for First Solar’s pilot manufacturing line and led the team that developed the process for producing large area thin film cadmium telluride solar modules. Mr. Nolan worked as a part-time consultant for First Solar from November 2000 until March 2007. Mr. Nolan has over 35 years of experience in physics, engineering, research and development, manufacturing and process design with companies such as Westinghouse, Owens Illinois, Glasstech and Photonics Systems. Mr. Nolan holds more than 10 patents in areas of flat panel electronic displays and photovoltaic devices and processes. Mr. Nolan earned his B.S. in Physics from the University of Scranton (Pennsylvania) and a PhD in Physics from the University of Pittsburgh. Mr. Nolan provides the board with extensive experience in engineering, research and development and manufacturing and process design, obtained through his work at the predecessor to First Solar and other companies throughout his career.

 

William J Post, Chair, Project Development Risk Committee; Compensation Committee, retired as chairman and chief executive officer of Pinnacle West Capital Corporation in April 2009, and he retired from the board of directors of Pinnacle West in May 2010. He joined Arizona Public Service (the largest subsidiary of Pinnacle West and the largest electric utility in Arizona) in 1973 and held various officer positions at APS beginning in 1982 including: vice president and controller, vice president of finance and regulation, chief operating officer, president and chief executive officer. He became president of Pinnacle West in 1997, chief executive officer in 1999 and chairman of the board in 2001. Mr. Post joined the board of Arizona Public Service in 1995 and the board of Pinnacle West in 1997. Mr. Post is chairman of the board of Swift Transportation Corporation, chairman of Blue Cross Blue Shield of Arizona and chairman of the Board of Trustees of Arizona State University, where he received a Bachelor of Science Degree in 1973. He also currently serves on the boards of Translational Genomics Research Institute and the Thunderbird School of International Management, and has served in the past as chairman of Suncor Development Company, Stagg Information Systems, Nuclear Assurance Corporation, Nuclear Electric Insurance Limited, the Institute of Nuclear Power, and El Dorado Investment Company. He also served as a Director of Phelps Dodge Corporation from 2001 to 2007. Mr. Post brings to the board executive-level utility-sector experience,

including a deep understanding of such sector within the southwestern United States, a core target market for the Company’s expanding systems business.

 

J. Thomas Presby, Chair, Audit Committee; Nominating & Governance Committee; Project Development Risk Committee, was elected a director of First Solar in August 2006. Mr. Presby retired in 2002 from a 30-year career with Deloitte Touche Tohmatsu. At Deloitte, Mr. Presby held numerous positions in the United States and abroad, including the posts of deputy chairman and chief operating officer. Mr. Presby serves as a director, the audit committee chair and a member of the governance committee of World Fuel Services, Inc. Mr. Presby also serves as a director and the audit committee chair of INVESCO Ltd. and Tiffany & Co., and as a director, audit committee chair and member of the acquisition committee and the corporate governance and nominating committee of Examworks Group, Inc. Mr. Presby has previously served as a director of American Eagle Outfitters, Inc., TurboChef Technologies, Inc., PracticeWorks and GreenPoint Financial Corp. Mr. Presby is a Certified Public Accountant and holds an NACD Certificate of Director Education. Mr. Presby holds a BSEE from Rutgers University and an MBA from Carnegie Mellon University. Mr. Presby’s experience as an audit committee chair for multiple public companies, together with his 30-year career with Deloitte Touche Tohmatsu, provide a strong background for his role as chair of the audit committee and the audit committee financial expert.

 

Paul H. Stebbins, Audit Committee; Compensation Committee; Nominating & Governance Committee; Project Development Risk Committee, was elected a director of First Solar in December 2006. Mr. Stebbins has served as the chairman and chief executive officer of World Fuel Services Corporation since July 2002 and has served as a director of World Fuel since June 1995. Between July 2000 and 2002, Mr. Stebbins also served as president and chief operating officer of World Fuel. In 1985, Mr. Stebbins co-founded Trans-Tec Services, a global marine fuel service company acquired by World Fuel in 1995. Mr. Stebbins is a member of the Business Roundtable, an influential association of chief executive officers of leading U.S. companies. Mr. Stebbins brings to the board significant CEO-level experience in managing a large global energy-related publicly-traded company.

 

Michael Sweeney, Chair, Compensation Committee; Nominating & Governance Committee, was elected a director of First Solar in July 2003. Mr. Sweeney has served as chairman of the board of Star Tribune Media Holdings, the holding company for the Minneapolis Star Tribune, since September 2009. He also remains a partner in Goldner Hawn Johnson & Morrison, Inc. (GHJM), a private equity firm. Mr. Sweeney joined GHJM in 2000 and served as that firm’s managing partner from 2001 through 2008. He had previously served as president of Starbucks Coffee Company (UK) Ltd. in London and held various operating management and corporate finance roles. After starting his career with Merrill Lynch in New York and Phoenix, he built and sold an investment banking boutique. Mr. Sweeney’s background in investment banking and private equity, as well as his operating company business acumen, are valuable resources to the board and the Company, particularly with respect to the board’s consideration of compensation and financial matters and strategic investments.

 

José H. Villarreal, Compensation Committee; Chair, Nominating & Governance Committee, was elected a director of First Solar in September 2007. Mr. Villarreal currently serves as a public policy consultant to the law firm of Akin Gump Strauss Hauer & Feld LLP and from July 1994 to January 2009 served as a partner in the firm. Prior to joining Akin Gump, Mr. Villarreal served as an assistant attorney general in the Public Finance Division of the Texas Attorney General’s office. Mr. Villarreal has long been active in civic affairs and has served on the boards of numerous organizations, both public and private. He currently serves on the boards of Union Pacific Corporation and PMI Group Inc., and from 1998 to 2006 he served on the board of directors of Wal-Mart Stores, Inc., where he chaired the compensation, nominating and governance committee and served as lead independent director. Mr. Villarreal recently served as United States Commissioner General to the Shanghai 2010 World Expo. He is on the board of the U.S.-Mexico Foundation, which collaborates bi-nationally to expand opportunity for the people of Mexico, and the Center for American Progress, a Washington D.C. based think-tank. Mr. Villarreal’s background as an attorney and his experience as chair of the nominating and governance committee of a major global public company are particularly helpful in the board’s deliberation of corporate governance matters, and his public policy insights contribute to the board’s consideration of important public policy matters.

 

We use a combination of cash and stock-based compensation to attract and retain qualified candidates to serve on our board of directors. At the compensation committee’s initial meeting of 2010, the committee adjusted non-associate director compensation to (i) add a $10,000 retainer for committee chairs other than the audit committee chair, and (ii) adjust annual non-associate board compensation by increasing the stock portion of such compensation by $25,000 (to $100,000). The table below summarizes the 2010 Non-Associate Director Compensation.

 

 

When reviewing non-associate director compensation we are guided by three goals, as provided in our Corporate Governance Guidelines: (i) compensation should fairly pay directors for work required for a company of our size and scope; (ii) compensation should align directors’ interests with the long-term interests of our stockholders; and (iii) the structure of the compensation should be clearly disclosed to our stockholders. The 2010 changes are consistent with this approach in that market data prepared by Compensation Strategies, the board’s independent compensation consultant, indicated the changes were consistent with market practice for companies of our size and scope.

 

Cash Compensation

 

The annual cash compensation for our non-associate directors is $75,000 (payable quarterly in four equal installments) plus an additional $35,000 annual cash retainer (payable quarterly in four equal installments) for the chairman of our audit committee and an additional $10,000 annual cash retainer (payable quarterly in four equal installments) for the other three committee chairs.

 

Equity Compensation

 

The annual equity compensation for our non-associate directors is a $100,000 stock grant, payable quarterly in four equal installments. With respect to such quarterly stock grants, our practice is to issue the stock to our independent directors at the end of the quarter. Our practice is not to time the date of these awards, and we do not take into account any internal “black outs,” during which associates and directors are prohibited by our Insider Trading Policy from trading in our securities, or whether they are or are not in possession of undisclosed material facts or whether any undisclosed material facts could be perceived as potentially positive or negative.

 

Other

 

We reimburse all non-associate directors for reasonable and necessary expenses they incur in performing their duties as non-associate directors of the Company. The 2010 board compensation and committee chair retainer paid to Mr. Post was pro-rated to reflect his service commencement date (June 7, 2010) and the mid-year formation of the project development risk committee (on July 26, 2010).

 

Chairman of the Board

 

In December 2010, Michael Ahearn advised the board that effective January 1, 2011 he would transition from executive chairman to non-associate chairman. In connection therewith, effective January 1, 2011, the compensation committee determined that Mr. Ahearn’s compensation as a non-associate director will be supplemented by an additional $175,000 in recognition of the additional time and effort required as chairman, with such amounts to be paid $75,000 in cash and $100,000 in equity. Therefore, the total annual compensation payable to Mr. Ahearn is $150,000 in cash and $200,000 in equity, which amounts are paid in equal quarterly installments of $37,500 in cash and $50,000 in equity in accordance with the Company’s pay practices for all non-associate directors. In addition, it was agreed that Mr. Ahearn may continue to rent office space from the Company at 350 West Washington Street,

Tempe, AZ, at cost, and that the Company will provide an administrative assistant to him at the Company’s expense. During 2010, Mr. Ahearn was not separately compensated for his services as a director.

 

Non-Associate Director Compensation Table

 

The following table sets forth information with respect to compensation earned by our non-associate directors for the fiscal year ended December 31, 2010:

 

 

 

 

The number of outstanding stock option awards for our non-associate directors as of December 31, 2010 was as follows:

 

 

The following table sets forth information regarding the beneficial ownership of our common stock, as of April 7, 2011, by:

 

 

Beneficial ownership is determined in accordance with the rules of the Commission and generally includes any shares over which a person exercises sole or shared voting or investment power. Shares of common stock subject to options or warrants that are currently exercisable or exercisable within 60 days of the date of this proxy statement are considered outstanding and beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

 

Unless otherwise indicated, each of the stockholders listed below has sole voting and investment power (or shares such powers) with respect to the shares beneficially owned. Except as indicated below, the address for each stockholder, director or named executive officer is c/o First Solar, Inc., 350 West Washington Street, Suite 600, Tempe, Arizona 85281.

This table assumes 86,081,302 shares of common stock outstanding as of April 7, 2011, assuming no exercise of outstanding options.

 

 

 

 

 

Since December 26, 2009 (the end of our 2009 fiscal year), we have not been a party to any transaction or series of similar transactions in which the amount involved exceeded or will exceed $120,000 and in which any current director, executive officer, holder of more than five percent of our capital stock, or any member of the immediate family of any of the foregoing, had or will have a material interest, other than in connection with the transactions described below.

 

Related Party Debt

 

We had no related party debt outstanding at December 31, 2010 and we did not pay any interest to related parties during the year ended December 31, 2010.

 

Registration Rights

 

We entered into a registration rights agreement with the Estate of John T. Walton, JCL Holdings, LLC and Michael J. Ahearn. The registration rights agreement provides for piggyback registration rights if we register equity securities under the Securities Act of 1933, as amended (the “Securities Act”), subject to certain lock-up provisions and exceptions. In addition, subject to certain lock-up provisions and exceptions, Michael J. Ahearn has three demand rights, JCL Holdings, LLC has five demand rights and the Estate of John T. Walton has unlimited demand rights, provided that the Estate of John T. Walton may only exercise one such demand right within any 365-day period. Following the termination of the Estate of John T. Walton, the registration rights held by the Estate will be held collectively by trusts for the benefit of John T. Walton’s wife and his descendants.

 

Review and Approval of Related Party Transactions

 

The Company’s audit committee charter requires the review and approval by the audit committee of related party transactions, to ensure that they are on such terms, which, in the judgment of the audit committee, are no less favorable to the Company than could be obtained from unaffiliated parties. If a member of the audit committee has an interest in the proposed transaction, our corporate governance guidelines require the formation of a committee consisting entirely of independent directors without an interest in the proposed transaction to review and, if appropriate, approve such transaction.

 

The following table sets forth the aggregate fees billed to us for the audit and other services provided by PricewaterhouseCoopers LLP during the years ended December 31, 2010 and December 26, 2009:

 

 

 

 

Audit Committee’s Pre-Approval Policies and Procedures

 

The audit committee has policies and procedures that require the pre-approval by the audit committee of all fees paid to, and all services performed by, the Company’s independent auditor, subject to de minimis exceptions for non-audit services set forth in the applicable rules of the Commission. Each year, the audit committee approves the proposed services, including the nature, type and scope of services to be performed by the independent auditor during the fiscal year and the related fees. Audit committee pre-approval is also required for those engagements that may arise during the course of the year that are outside the scope of the initial services and fees pre-approved by the audit committee.

 

The services related to Audit-Related Fees, Tax Fees and All Other Fees presented in the above table were approved by the audit committee pursuant to pre-approval provisions set forth in the applicable rules of the Commission without resort to a waiver of such pre-approval provisions.

 

Overview

 

In this Compensation Discussion and Analysis, the individuals in the Summary Compensation Table set forth after this Compensation Discussion and Analysis are referred to as the “named executive officers.” Our named executive officers for fiscal year 2010 were:

 

 

2010 Compensation Decisions — Key Factors

 

Following is a summary overview of the key factors affecting our 2010 compensation decisions.

 

First Solar Pay is Simple

 

There are three primary components of First Solar executive compensation: (1) base salary, (2) cash incentive compensation (short-term incentive) and (3) equity compensation (long-term incentive). There are no supplemental executive retirement programs or other deferred compensation arrangements and generally no perquisites only for executives.

 

Market Data on Compensation Informs Our Pay Values

 

We develop compensation data by reference to our peer group, which includes direct competitors in the solar industry as well as technology companies of similar size in the renewable energy, hi-tech and high precision manufacturing, and electronic components manufacturing sectors. Market data informs our pay decisions but does not exclusively determine the actual amounts to be paid. Once collected, the data is analyzed along with other relevant factors such as job responsibility, individual performance, and internal pay equity.

 

More Responsibility Means More Pay At Risk; We Pay for Performance and Align Executive Compensation with the Long-Term Interests of Stockholders

 

The most senior associates in our organization have a larger proportion of their pay “at risk,” meaning that a portion of compensation is not payable to such associates unless certain performance targets are achieved. These performance targets are established by the compensation committee typically in the first quarter of each fiscal year and are aligned with the Company’s annual operating plan and long-term strategic objectives. This compensation practice ensures that we pay for performance.

 

In addition, a substantial portion of our incentive compensation is settled in restricted stock units with the most senior executives in our Company receiving the largest portion of their incentive compensation, if earned, as equity compensation. The grant value of this equity award varies from year to year, and is determined based on prior year’s performance and market data. The equity awards generally vest (subject to certain conditions) over the next four years. Thus, unlike cash compensation, the actual value realized by the executive is significantly affected by the long-term performance of the Company, specifically, the market price of the stock on the vesting date(s) and the value on also the date the stock is subsequently sold. This compensation practice ensures not only that we pay for performance but that our most senior executives’ interests are aligned with the long-term interests of our stockholders.

 

2010 Financial Metrics and Downward Discretion Provided a Check

 

Our 2010 incentive plan financial metrics and the compensation committee’s exercise of downward discretion were intended to ensure that operational metrics were not achieved at the expense of financial performance and to increase the focus of our associates on fiscal discipline and profitability. In addition, we recognize that even where financial performance is sufficient and all operational goals are achieved, the compensation committee has reserved the right to exercise downward discretion on incentive program payouts so that it can adjust payments when it determines that because of circumstances that could not have been envisioned when the annual operating plan and incentive programs were established, the calculation of the amounts under the applicable formula do not fairly represent Company or individual performance. For 2010, the compensation committee exercised downward discretion and reduced the payout factor from 1.475 to 1.4 in light of the financial impact of the manufacturing excursion described in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 28, 2011, under “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Fiscal Years Ended December 31, 2010 and December 26, 2009.”

2010 Annual Bonus Program Design Reflected Our Strategic Plan

 

In 2010, we continued the development of our systems business, and our associates were increasingly involved in non-manufacturing activities of the Company. Accordingly, our 2010 metrics were expanded to include metrics relevant to aspects of our business other than module manufacturing, such as “balance of systems cost per watt” (relevant to our engineering, procurement and construction business) and the achievement of identified project development milestones.

 

Executive Compensation Policies

 

The compensation committee of our board of directors has responsibility for establishing and overseeing our compensation program as it applies to our executive officers. The compensation committee bases its executive compensation programs on the policies set forth below, which have remained constant from prior years:

 

 

We generally do not adhere to rigid formulas or necessarily react to short-term changes in business performance in determining the amount and mix of compensation elements for our named executive officers. Generally, the types of compensation and benefits provided to the named executive officers are similar to those provided to other members of our senior leadership and other associates.

 

Evaluating the Market:  When setting compensation, we review competitive compensation paid by other companies in the same or similar industries of comparable size and where our compensation falls within the peer group. Depending on the role, the experience an individual brings to the role, and individual performance, we broadly aim to set our base salary and target bonus potential at least at the 50th percentile of our peer group executives (although depending on the role, the experience an individual brings to the role, and individual performance, we may set base salaries and target bonus potential closer to the 75th percentile) and to have our aggregate bonus and long-term incentives pay out, subject to individual and Company performance, at around the 75th percentile. The objective is to pay at least market base compensation (50th percentile), and, to the extent necessary to attract or retain experienced individuals in key roles, to pay at a higher level (closer to the 75th percentile) while providing an opportunity to increase compensation further through our incentive compensation programs.

 

We do not exclusively rely on market data to determine executive compensation. Instead, we incorporate flexibility into our compensation program and in our assessment process to respond to and adjust for the dynamic business environment in which we operate.

Components of 2010 Executive Compensation

 

For 2010, the compensation of named executive officers consisted primarily of three principal components: base salary, short-term cash incentive compensation (e.g., an annual bonus) and long-term equity-based compensation. As noted above in “2010 Compensation Decisions — Key Factors,” First Solar pay is simple. Our senior executives participate in broad-based associate benefit programs and do not generally participate in executive only benefit programs. Each of these elements of our executive compensation is described in a chart below, including a description of the particular element and how it fits into our overall executive compensation package (i.e., the particular objectives and the specific elements our compensation programs are designed to address).

 

 

Our senior executives, including each of our named executive officers, are party to employment agreements and change in control agreements that protect them in the event of certain employment terminations, as well as confidentiality and non-competition agreements. The employment and change in control agreements provide severance, in exchange for a release of claims, and equity vesting acceleration as described in more detail in

“Executive Compensation-Employment Agreements” and “Executive Compensation-Change in Control Severance Agreements.” During 2010, Ms. Wessels received certain benefits under an international assignment policy and was eligible for relocation benefits in connection with her move to the United States, all of which is described in more detail in “Executive Compensation — Employment Agreements — Maja Wessels” and is detailed in the “All Other Compensation” column of the Summary Compensation Table.

 

Below is a chart demonstrating, on an aggregate basis, the relative weighting of 2010 compensation to our named executive officers excluding (i) non-recurring and one-time payments (i.e., sign-on grants and Ms. Wessels’ international assignment and relocation benefits) and (ii) the value of severance and change in control benefits.

 

 

Compensation Committee Practices

 

Total Compensation Review

 

When establishing total compensation, we broadly aim to set our base salary and target bonus potential at least at the 50th percentile of our peer group (although, as noted above in “Executive Compensation Policies,” depending on the role, the experience an individual brings to the role, and individual performance, we may set base salaries closer to the 75th percentile) and to have our aggregate bonus and long-term incentives pay out, subject to individual and Company performance, at around the 75th percentile.

 

Benchmarking

 

On an annual basis, the compensation committee evaluates the total compensation of the executives and each of the principal components against benchmarking data. In addition to these principal compensation elements, the compensation committee reviews each executive’s perquisites and other compensation, as well as any payments that would be required under various severance and change-in-control scenarios. When conducting this review, the compensation committee obtains factual data from management as well as proposals regarding, among other things, the range of values (merit increase percentages, equity awards), metrics and other terms.

 

In 2010, the compensation committee retained Compensation Strategies as a consultant to evaluate our peer group companies and to benchmark the compensation of each of the components of the compensation of our executive officers against the compensation paid to similarly-situated positions at peer group companies. The consultant’s benchmarking services were limited to comparing each element of compensation for a particular position against similar elements in the peer group, except that the consultant recommended that the Company adjust non-associate director compensation to more closely align with the benchmarked data. When benchmarking long-term incentive compensation data, the survey extended deeper into the organization (i.e., beyond the executives), and such information was used to develop a matrix that serves as the basis for developing the values of our annual long-term incentive awards. The aggregate fees paid to Compensation Strategies for 2010 services

were $235,010. The fees were primarily incurred for executive compensation services except to the extent non-executive data was developed for the annual long-term incentive award matrix.

 

Our peer group for benchmarking is the same peer group we identified last year. These are companies in the solar, renewable energy, hi-tech and high precision manufacturing, and electronic components manufacturing sectors, which had annual revenues ranging from $362 million to $21 billion and market capitalization ranging from $1 billion to $35 billion.

 

 

In each case, when performing benchmarking for executive compensation, the consultant “size adjusted” the raw market data (using a revenue basis of $1.5 billion for 2010; and $3 billion for 2011, including for purposes of determining appropriate grant size for the 2010 long-term incentive equity grants made in 2011) by using statistical regression techniques to remove the significant swings that can occur between individual raw data points and constructed market pay levels reflective of the Company’s adjusted size. In each case, the consultant then ran regressions using sales to develop a range of market-based pay. For the Company’s senior executives, this analysis was performed on total compensation as a whole and on base salary, annual bonus and equity-based compensation separately. The consultant’s report supported the determination that the compensation paid to the Company’s executives, including its named executive officers, was consistent with the Company’s stated compensation objectives regarding our target pay as compared to our peer group, and was thus, reasonable as compared to the peer group in the aggregate.

 

Individual Compensation Review

 

Individual performance has a strong impact on the compensation of all associates, including the executive officers. With respect to our chief executive officer, Mr. Gillette’s compensation package contained certain guaranteed compensation elements that were offered as an incentive for Mr. Gillette to join the Company and are intended to compensate him for monies he forfeited at his former employer (including, for 2010, the second installment of his cash sign on bonus ($2,500,000 paid on the first anniversary of his employment) and two grants of restricted stock units each valued at $5,000,000 (total value of $10 million), one for 2009 and one for 2010. These grants are discussed below at “2010 Compensation Decisions (By Component) — Equity-Based Compensation — Mr. Gillette’s Contractual Equity Grants.”

 

It is the practice of the chair of the compensation committee to meet with the chief executive officer annually at the beginning of the year to agree upon his performance objectives (both individual and Company objectives) for the year. In the first quarter of the year, the independent directors meet in an executive session under the direction of the chair of the compensation committee to conduct a performance review for the prior year during which the chief executive officer was evaluated based on his achievement against the agreed-upon objectives, contributions to the Company’s performance and other leadership accomplishments.

 

For the executive officers other than Mr. Gillette, the compensation committee receives a performance assessment and compensation recommendation from the chief executive officer. The compensation committee also exercises its judgment based on the board’s interactions with the executive officer. The performance evaluation of these executives is based on achievement of preset objectives by the executive and his or her organization, his or her contribution to the Company’s performance and other leadership accomplishments. Based on these considerations, the compensation committee determines whether to award variable compensation for the previous year, and it sets base salary, target bonus percentages and the basis for their participation in the long-term incentive program for the following year, and the parameters for the corporate goals for the Company in general.

2010 Compensation Decisions (By Component)

 

The following is a discussion of the compensation committee’s considerations in establishing each of the components for executive officer compensation in 2010.

 

Base Salary

 

Base salary is the guaranteed element of an associate’s annual cash compensation. The value of base salary for each named executive officer reflects the requirements of such executive’s employment agreement, his or her individual performance and his or her skill set, including the market value of that skill set. As noted in the table under “Components of 2010 Executive Compensation,” the Company seeks to establish or maintain base salaries and total cash compensation (base salary plus target bonus) for our executives between the 50th and 75th percentile. Based on our assessment of the individual performance and individual skill sets, the aggregate base salary and target bonus percentage for most of our named executive officers is at or closer to the 75th percentile.

 

The compensation committee evaluates market data and individual performance of executives during our regular annual salary review process, which we refer to as our “annual merit cycle.” At the beginning of 2010, the base salaries of our named executive officers were as follows: Robert J. Gillette, $850,000; Jens Meyerhoff, $410,810; Bruce Sohn, $555,000; Maja Wessels €274,953; and Mary Beth Gustafsson, $331,792. With the exception of Ms. Gustafsson’s base salary, the base salaries of our named executive officers were not adjusted during the 2010 merit cycle because they had been adjusted several months earlier in connection with organizational changes that occurred at the beginning of Mr. Gillette’s tenure. Ms. Gustafsson’s base salary, which had not then been adjusted, was increased during the annual merit cycle to $345,064.

 

Mid-Year Changes and Related Salary Adjustments.  On July 1, 2010, the compensation committee approved a salary increase for Mr. Meyerhoff (from $410,810 to $500,000) in connection with his assumption of the additional role of president, utility systems business group. On October 1, 2010, Ms. Wessels transferred from our Belgium office to our Tempe headquarters, and in connection therewith, entered into a new employment contract that established her base salary at $384,962.

 

2011 Merit Cycle.  During the 2011 annual merit cycle, the compensation committee determined that the 2011 base salaries of our named executive officers would be as follows: Mr. Gillette ($850,000); Mr. Meyerhoff ($518,000); Mr. Sohn ($575,000); Ms. Wessels ($399,000); and Ms. Gustafsson ($400,000). These salary increases were effective March 20, 2011.

 

Cash Incentive Compensation

 

Our cash incentive compensation consists primarily of our annual bonus program designed under our 2010 Omnibus Incentive Compensation Plan and cash sign-on bonuses which we use to incentivize individuals to join our Company.

 

Annual Bonus Program

 

We use our annual bonus program to reward achievement of specified strategic operational objectives designed to help us achieve those tasks we believe will help us achieve our mission of enabling a world powered by clean, affordable solar electricity. With very limited exceptions, all of our associates participate in the annual bonus program. In this way, the program encourages teamwork and a focus on our mutual success by tying rewards to our collective performance.

 

Targets, Objective and Calculation

 

The 2010 annual bonus program was designed around eight performance metrics: (i) total module watts produced, (ii) module conversion efficiency, (iii) module manufacturing cost per watt at the end of the fourth quarter, (iv) balance of systems cost per watt, (v) achievement of identified project development milestones (with points assigned to each milestone and a score assigned based on the number of milestones achieved), (vi) the timely “go live” of our enterprise resources planning system, (vii) the timely start-up of our fifth and sixth manufacturing plants in Kulim, Malaysia (referred to as KLM 5 and 6) and (viii) operating income.

 

Operational Metrics and Targets.  Our operational metrics, metrics (i) through (vii), were selected based on operating goals set forth in our confidential annual operating plan. These metrics, by design, focus on strategic goals we believe will help us achieve sustainability (i.e., the production of an environmentally responsible, competitively-

priced product that presents a compelling alternative to traditional sources of energy) and scalability (developing sufficient production capacity to meet demand for our products and the systems to manage our growth), both of which are key to achieving our mission of enabling a world powered by clean, affordable solar electricity. Continuing a trend from last year, the bonus plan metrics are connected to a large portion of the Company (i.e., not just manufacturing) in recognition that an increasing number of our associates are involved in other aspects of our business. Each metric is assigned a percentage weighting based on the importance of the factor to the overall performance of the Company under the annual operating plan.

 

To calculate total bonus payouts, each performance metric is assigned a different relative weighting and one or more levels of potential payout. For the eight performance metrics, the levels of payout are expressed as a multiplier, ranging from a threshold of 0.5 in cases of weaker performance to, in certain cases, a maximum of 3.0 in cases of stronger performance. A 0.5 multiplier was assigned to performance at a level that, while not certain at the time targets were set, we considered it highly likely that such performance would be achieved by the end of the year. A 1.0 multiplier was assigned to performance at a level that, while not certain at the time targets were set aligned with the goals in our annual operating plan, and thus we expected we could achieve by the end of the year. A 2.0 multiplier was assigned to a performance level that was substantially more uncertain (i.e., that we expected we would have approximately a 50% chance of achieving by year end). A 3.0 multiplier was assigned to performance levels that we assigned a probability of less than 50% of achieving by year end. If the minimum threshold level of performance was not achieved, the multiplier for the metric was zero. The multiplier for metric (vi) was binary, 1.0 for a timely enterprise resource planning system “go live” or zero. The multiplier for metric (vii) was 1.0 for a timely start-up and 2.0 for accelerating the start-up of KLM 5 and 6 by at least one month. No single performance metric or multiplier was material to determining the actual amount of total bonus payments.

 

Financial Metric and Target.  The operating income metric is designed to ensure that operational metrics are not achieved at the expense of financial performance and to ensure the focus of our associates on fiscal discipline and profitability. The operating income metric is employed in two ways under the 2010 annual bonus program: (i) as a threshold (i.e., no incentive compensation was payable under this program unless the Company achieved $317 million in annual operating income, the same threshold under our long-term incentive program), and (ii) as one of the eight weighted metrics under the program used for calculating the bonus amount. With a 25% weighting, the operating income metric was the heaviest weighted metric in the program. The payout factors assigned to the operating income metric were as follows:

 

 

Operating income was calculated at $908 million under the program (which provides for calculation before the impact of stock-based compensation and with foreign exchange rates normalized to the rate used in preparing our annual operating plan) and was therefore scored at 2.0.

 

Bonus Calculation and Exercise of Downward Discretion.  The calculated payout factor under the 2010 annual bonus program after evaluating all eight metrics was 1.475. However, the compensation committee exercised downward discretion and reduced the payout factor from 1.475 to 1.4 in light of the financial impact of the manufacturing excursion described in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 28, 2011, under “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Fiscal Years Ended December 31, 2010 and December 26, 2009.” The chart below illustrates how the annual bonus was calculated for 2010 for all of our associates including our named executive officers, using a hypothetical base salary and target bonus percentage.

 

Target Bonus Percentage

 

Target bonus percentages were established based on job responsibilities, internal relativity and peer group data. Our objective is to set bonus targets such that total annual cash compensation (salary and annual bonus) are between the 50th and 75th percentile. Based on our assessment of the individual performance and individual skill sets, the aggregate base salary and target bonus percentage of our named executive officers is at or closer to the 75th percentile. Our practice puts us within the broad middle range of peer group companies. Consistent with our executive compensation policy, individuals with greater job responsibilities had a greater proportion of their total cash compensation tied to Company performance through the bonus program.

 

The target bonus percentage is evaluated during our annual merit cycle on the same basis as annual base salary (as discussed above in “2010 Compensation Decisions (By Component)-Base Salary”). At the beginning of 2010, the target bonus percentages of our named executive officers were as follows: Robert Gillette, 100%; Jens Meyerhoff, 80%; Bruce Sohn, 90%; Maja Wessels 60%; and Mary Beth Gustafsson, 60%. None of these target bonus percentages were adjusted during the 2010 merit cycle because they had been adjusted several months earlier in connection with organizational changes that occurred at the beginning of Mr. Gillette’s tenure in 2009.

 

Mid-Year Changes and Related Salary Adjustments.  In connection with Mr. Meyerhoff’s assumption of the additional role of president, utility systems business, the compensation committee increased Mr. Meyerhoff’s 2010 target bonus percentage to 90%.

 

2011 Merit Cycle.  During the 2011 merit cycle, the compensation committee increased Ms. Gustafsson’s target bonus percentage to 70%. In addition, because the compensation committee now must affirmatively establish Mr. Gillette’s target bonus percentage each year, the compensation committee determined that Mr. Gillette’s target bonus percentage would remain at 100%.

 

Other Cash Incentives

 

For certain roles, we have granted individual incentives or sign-on bonuses to attract associates to the Company. Often the sign-on bonus is necessary to compensate an associate for the potential compensation from a prior employer he or she must forfeit to join First Solar. This was the case for Mr. Gillette, our chief executive officer. When we hired him, we agreed to pay him a one-time cash sign-on bonus of $5 million cash, the second and last installment of which was paid on October 1, 2010.

 

In connection with Ms. Wessels’ move from our Belgium office to our Tempe, Arizona world headquarters, we agreed to pay Ms. Wessels a one-time assignment completion bonus of $368,438.

 

Equity-Based Compensation

 

We are a firm proponent of equity-based compensation because we believe that (i) it aligns the interests of our associates more closely with those of our stockholders, and (ii) for some positions (particularly executive level positions), offering equity-based compensation is key to attracting and retaining associates of the highest caliber.

 

Equity-based compensation, typically restricted stock units but occasionally stock options, is granted under our 2010 Omnibus Incentive Compensation Plan, following its adoption at the June 1, 2010 annual meeting of stockholders. Except with respect to Mr. Gillette’s and Mr. Meyerhoff’s 2010 equity awards (discussed below, “2010 Compensation Decisions (By Component) — Equity-Based Compensation — Mr. Gillette’s Contractual Equity Grants and Mr. Meyerhoff’s 2010 Equity Awards”) and the limited circumstance where relevant tax laws favored another vesting schedule, the restricted stock units granted in 2010 vest over four years, at the rate of 20%, 20%, 20% and 40%, respectively, on the anniversary of the grant date, subject to an associate’s continued employment with us.

 

Any options granted are issued with exercise prices no less than fair market value as of the date of grant. Our most recent stock option grant was a sign-on equity grant to Mr. Gillette, our chief executive officer. Some associates, including some of our named executive officers, still hold outstanding option grants granted under the First Solar Holdings, LLC 2003 Unit Option Plan.

Following the adoption of the 2010 Omnibus Plan, we have not granted, nor do we anticipate granting any awards outside of the 2010 Omnibus Plan, and we incorporated into our granting policies a change to our standard vesting schedule for restricted stock grants commencing with grants made in 2011. The revised schedule provides for four year straight-line vesting (25% per year commencing on the first anniversary of the grant date) and provides an additional 12 months’ service credit for purposes of vesting in the event of the associate’s in-service death.

 

Our practice is not to time the date of our equity awards, and we do not take into account any internal “black outs,” during which associates and directors are prohibited by our Insider Trading Policy from trading in our securities, or whether they are or are not in possession of undisclosed material facts or whether any undisclosed material facts could be perceived as potentially positive or negative. Equity grants to our named executive officers are described in greater detail in the “Grants of Plan Based Awards” table and the “Outstanding Equity Awards at Fiscal Year-End” table.

 

New Hire Grants

 

With very limited exceptions, every associate of the Company is granted equity compensation when hired, with the amount dependent on (i) the associate’s job responsibilities (recognizing that higher level roles may have a greater influence on the ability of the Company to meet its objectives and succeed), and (ii) the region where the associate is located (so that the amount is reflective of local compensation practices and consistent with the compensation market in a particular region). In 2010, we granted 140,448 restricted stock units under new hire grants to 1,568 newly hired associates.

 

Long-Term Incentive Programs

 

We have a discretionary practice of granting exempt associates in the United States (i.e., those exempt from the overtime rules under the U.S. Fair Labor Standards Act) and associates in equivalent job categories outside of the United States annual equity compensation grants in the form of restricted stock units. In 2010, we adopted a performance equity program for our senior executives including each named executive officer other than Mr. Gillette (who received guaranteed grants of equity-based awards under the employment agreement that was negotiated in connection with his hiring), under which the availability of the discretionary annual equity compensation grants are contingent on the Company’s attainment of a performance goal.

 

On March 24, 2010 we granted 853,902 restricted stock units under the 2006 Omnibus Incentive Compensation Plan (which represents approximately 0.99% of our issued and outstanding common stock as of December 31, 2010) to 1,451 associates representing approximately 30% of our associates at the time of the grant, including 90,922 restricted stock units to our executive officers (which group includes the named executive officers who participated in the program).

 

Awards under the long-term incentive programs (i) represent the largest component of executives’ compensation, (see “Compensation Discussion and Analysis — Components of 2010 Executive Compensation”), (ii) serve as a retention tool, and (iii) ensure that our executives’ compensation is linked to the long-term interests of our stockholders and our Company performance, consistent with our compensation philosophy.

 

2010 Performance Equity Program.  The 2010 performance equity program is a performance share program for senior executives in which our senior executives (including each named executive officer other than Mr. Gillette) earns the right to receive a long-term incentive program award up to a specified maximum value subject to the Company’s achievement of a performance threshold. In 2010, the performance threshold was the achievement by the Company of operating income of at least $317 million (calculated before the impact of stock-based compensation and with foreign exchange rates normalized to the rate used in preparing our annual operating plan). As explained in “2010 Compensation Decisions (by Component) — Cash Incentive Compensation — Targets, Objectives Calculation,” this financial metric was chosen to focus associates on the importance on the Company’s fiscal discipline and profitability. If the metric was not achieved, no incentive compensation would have been payable under this program (or under the annual bonus program).

 

The maximum grant value for our named executive officers was: Mr. Meyerhoff ($2 million); Mr. Sohn ($3.2 million); Ms. Wessels ($1.3 million) and Ms. Gustafsson ($1.8 million). Each senior executive grantee was

advised that the actual award value would be subject to downward discretion to align it with the market and performance.

 

Grant Size.  When determining 2010 grant size, Compensation Strategies, the compensation committee’s compensation consultant, developed a matrix using criteria approved by the compensation committee that established a “base” long-term incentive award value for each salary grade at each level of individual performance. For senior executives (generally our Section 16 officers), thirty percent of that base value could be further adjusted to reflect individual performance. For participants in the performance equity program, the matrixed award could not exceed the maximum grant value.

 

Settlement of Performance Equity Program Awards and the Exercise of Downward Discretion.  Upon certification that the Company had achieved the operating income performance threshold, the compensation committee exercised its downward discretion to grant the following long-term incentive awards to the named executive officers under the performance equity program: Mr. Meyerhoff (7,583 restricted stock units totaling $1.1 million); Mr. Sohn (7,583 restricted stock units totaling $1.1 million); Ms. Wessels (6,135 restricted stock units totaling $890,000); and Ms. Gustafsson (8,616 restricted stock units totaling $1.25 million). The grants were made on March 22, 2011 with the dollar value of the long-term incentive awards converted to restricted stock units by dividing the value by the average share price for the three full months preceding the date of grant (December 1, 2010 — February 28, 2011) and rounding up to the next whole restricted stock unit.

 

Mr. Meyerhoff’s 2010 Equity Awards

 

Effective July 1, 2010, Mr. Meyerhoff assumed the additional role of president of our new utility systems business group. In connection with the assumption of this role, we made an incremental grant of 22,000 restricted stock units to Mr. Meyerhoff. Vesting of the first 3,000 restricted stock units (achieved in 2010) was contingent on Mr. Meyerhoff’s establishment of the utility systems business organization. Vesting of the next tranche, an additional 3,000 restricted stock units was contingent on the establishment by Mr. Meyerhoff of specific templates, tools and processes for the business.

 

The other tranches, each of which can partially vest in scheduled sub-tranches, relate to:

 

 

In establishing the performance criteria, the compensation committee believed Mr. Meyerhoff would satisfy the performance criteria on the first two qualitative tranches (now both since vested) at or near the end of 2010, and that the remainder of the restricted stock units could be earned within the remaining two year period.

 

Mr. Gillette’s Contractual Equity Grants

 

By the terms of his employment agreement, Mr. Gillette was guaranteed a minimum $5 million long-term incentive award in respect of each of 2009 and 2010. These equity awards were granted in March 2010 under the 2006 Omnibus Plan. While the compensation committee had originally intended the 2010 award to be made in 2011, this award was shifted to 2010 to allow for the grant to be made under the 2006 Omnibus Plan in a tax effective manner. Mr. Gillette’s 2009 long-term incentive award vests over four years 20%, 20%, 20% and 40%, respectively, on the anniversary of the grant date, subject to his continued employment with us. Mr. Gillette’s 2010 long-term incentive award vests ratably at an annual rate of 25% per year (the same rate of vesting of restricted stock units

awarded to other members of our senior leadership team under the 2010 performance equity program, which provides for restricted stock units to be awarded under our 2010 Omnibus Plan). Consistent with the original intent of the grant, the first tranche does not vest until the second anniversary of the date of grant, such that it would vest no sooner than if the grant had been made in 2011. Therefore, subject to Mr. Gillette’s continued employment, the 2010 long-term incentive award will be fully vested on the fifth anniversary of the date of grant. Mr. Gillette’s 2010 long-term incentive award expressly prohibits accelerated vesting for any reason (including change in control) prior to the first anniversary of the date of grant.

 

Broad-based Benefits Programs and Other Compensation

 

401(k).  Our named executive officers are entitled to participate in the various benefits programs we offer to all of our associates, including a 401(k) plan, medical plan, dental plan, life insurance plan and long-term and short-term disability plans. Under our 401(k) plan, we make a matching contribution equal to 100% of our associates’ contributions to the plan up to a maximum of 4% of an associate’s plan compensation. In 2010, each named executive officer other than Ms. Wessels received the maximum matching contribution of $9,800. Ms. Wessels, who commenced participating in the 401(k) plan in connection with her move to the United States, received a $3,613 matching contribution.

 

Other Benefits.  Our named executive officers each have vacation entitlements of four weeks per year. During 2010, Ms. Wessels received certain benefits under an international assignment policy and was eligible for relocation benefits in connection with her move to the United States, all of which is described in more detail in “Executive Compensation-Employment Agreements-Maja Wessels” and are detailed in the “All Other Compensation” column of the Summary Compensation Table.

 

Employment Agreements and Related Arrangements

 

We have entered into employment agreements with certain of our executives, including each of our named executive officers. We have also entered into separate non-competition and non-solicitation agreements and confidentiality agreements with our senior executives, including each of our named executive officers. The compensation committee believes these contracts are fair, reasonable, appropriate and necessary to attract and retain the executives who are party to these agreements.

 

The named executive officer employment agreements generally provide that if an executives’ employment is terminated without “cause” (as defined therein) the executive shall be eligible for (i) salary continuation for a severance period subject to the execution of a release of claims in favor of the Company, (ii) health benefit coverage for the severance period, in some cases subject to certain contingencies, (iii) an additional 12 months’ service credit for purposes of determining vesting of equity-based compensation awards with any options to remain exercisable for one year plus 90 days after such employment termination; and (iv) to the extent not fully vested, full vesting of the new hire equity grants of those senior executives (including Mr. Sohn, Mr. Meyerhoff, Ms. Wessels and Ms. Gustafsson). As of April 13, 2011, only the new hire equity awards of Ms. Wessels, Ms. Gustafsson and Mr. Sohn would benefit from the additional vesting described above under (iv). The named executive officer employment agreements also provide for an additional 12 months service credit and option exercise period for purposes of determining vesting of equity-based compensation in the event employment terminates due to the executives’ death or disability (as defined therein).

 

The non-competition and non-solicitation agreements establish a “protected period” that matches the severance period. During the protected period, the senior executives are subject to restrictive covenants as described in the agreement. The confidentiality agreements describe the Company’s expectations of the executives regarding the Company’s proprietary and confidential information.

 

For more details on these employment agreements and the compensation and benefits payable or to be provided in the event of a termination of employment, see “Executive Compensation - Employment Agreements and Arrangements” and “Executive Compensation — Potential Payments Upon Termination or Change in Control — Potential Payments Upon Termination of Employment (Other Than in the Context of a Change in Control).”

Change in Control Severance Agreements

 

We have entered into change in control severance agreements (“CIC Agreements”) with each of our named executive officers and certain other key officers and associates. The purpose of these agreements, which are substantially identical, is to align the interest of the executives with our stockholders in any potential change in control situation by mitigating the uncertainty and questions a potential change in control may raise among such executives and associates and allowing them to focus their continued attention and dedication to their assigned duties.

 

Equity Vesting.  The CIC Agreements provide for full vesting of unvested equity-based compensation upon a change in control of the Company thereby ensuring that such executives and associates are fairly compensated for the lost opportunity to realize the value of awards that is typically precipitated by a change in control. While our equity plans also contemplate vesting of this equity if it is not assumed by a successor entity (see Executive Compensation — Potential Payments Upon Termination or Change in Control — Potential Payments Upon a Change in Control — 2010 Omnibus Incentive Compensation Plan), the CIC Agreements ensure this vesting will occur whether or not the equity-based awards are assumed for executives with these arrangements. Given that a substantial portion of their income is comprised of equity-based compensation that vests over time (see Compensation Discussion and Analysis — Components of 2010 Executive Compensation), the compensation committee believes that this promise is fair, reasonable, appropriate and meaningful to our executives.

 

Severance Benefits.  The CIC Agreements provide a standard severance package for all executives in the event their employment is terminated without “cause” or they resign for “good reason” within two years following a change in control. We believe this standard benefit reinforces the notion that in a change in control situation, all of the executives are similarly situated and must remain focused. The standard benefit is two times their base salary, two times a bonus amount (which is defined as the greater of (i) the executive’s target annual bonus for the year of termination, and (ii) the average of the annual cash bonuses payable to the executive in respect of the three full calendar years immediately preceding the calendar year that includes the termination date, a pro-rated target bonus, 18 months welfare benefit continuation, and outplacement benefits (maximum of $20,000). Severance benefits are subject to the executive’s execution of a release in favor of the Company.

 

Parachute Tax Gross-Up.  The CIC Agreements provide a parachute tax gross-up (unless the total payments are within 110% of the 280G parachute tax threshold in which case the parachute payments are reduced to just below the threshold). While we are aware that certain stockholder groups disfavor these gross-ups we believe they are fair, reasonable and appropriate for First Solar because they (i) neutralize the potential internal equity issues related to the different tax jurisdictions of our executive group (i.e., Arizona, Ohio, and New York); and (ii) support our compensation structure by not penalizing our executives for weighting our total compensation structure towards long-term, equity-based compensation (which can result in parachute taxes), rather than short-term current compensation (which can avoid parachute tax payments but is inconsistent with our executive compensation policies).

 

Evaluation by the Compensation Committee:  When the Company originally entered into the CIC Agreements, the compensation committee reviewed the terms of the CIC Agreements in consultation with an independent consultant, assessed the impact of possible payouts under the CIC Agreements in the event of a change in control and concluded that the CIC Agreements were fair and reasonable. The CIC payment estimates are presented to, and reviewed by, the compensation committee each time compensation is evaluated. The compensation committee continues to believe the payments are fair and reasonable. For a further description of compensation provided in the event of a change in control, see “Executive Compensation — Potential Payments Upon Termination or Change in Control - Potential Payments Upon a Change in Control.”

 

Tax and Accounting Implications

 

Section 162(m) of the Code.  With certain material exceptions, Section 162(m) of the Code limits the deductibility of compensation paid by a public company in any year to $1 million to each of the chief executive officer and the next three most highly paid executive officers other than the chief financial officer. A transition rule generally applies to compensation paid under plans and arrangements in existence on the date of an initial public offering, pursuant to which such compensation will not be subject to the $1 million limit. Prior to the June 1, 2010

annual meeting of stockholders, the Company generally sought to avail itself of this transition rule, and expects that transition rule to continue to apply to amounts paid or awards granted prior to the date of the Company’s annual meeting held on June 1, 2010.

 

The Company’s 2010 Omnibus Incentive Compensation Plan is designed to enable most executive compensation to be deductible by the Company under Section 162(m) of the Code; however, the compensation committee has not adopted a policy that all compensation must be deductible, particularly where additional compensation may be needed to attract or retain executives for key leadership positions in the Company.

 

Section 280G of the Code.  Section 280G of the Code denies a tax deduction on certain compensation payments to any “disqualified individual” (which term includes our named executive officers) that are contingent upon a “change in ownership or control” of the Company. A tax deduction for compensation in excess of the disqualified individual’s average taxable compensation is denied, but only if the total change in control payments equal or exceed three times the individual’s average taxable compensation (i.e., the 280G parachute tax threshold). In addition, if the threshold is exceeded, a 20% excise tax is imposed on the “disqualified individual” under Section 4999 of the Code. The Company has entered into CIC Agreements with certain executive officers, including each of the named executive officers that provides for the Company to gross-up such executive officer for the 20% excise tax if the applicable compensation exceeds 110% of the 280G limit (payments will be cut back to less than the 280G limit if the 110% threshold is not exceeded). The Company has estimated the parachute payments that would have been payable had a change in control occurred and each named executive officer’s employment been terminated on December 31, 2010. See “Executive Compensation — Potential Payments Upon Termination or Change in Control — Potential Payments Upon a Change in Control.” As of that date, we estimated that Ms. Gustafsson and Ms. Wessels were the only named executive officers who would have had payments subject to the tax gross up and deduction disallowance.

 

Accounting for Equity-Based Compensation.  The Company uses FASB ASC Topic 718 Compensation — Stock Compensation for purposes of determining the fair value of its equity-based compensation. The assumptions used in the calculation of these amounts are included in Note 17, “Share-Based Compensation” to the Company’s audited financial statements for the fiscal year ended December 31, 2010 included in the Company’s Annual Report on Form 10-K filed with the Commission on February 28, 2011. The fair value of awards made to each named executive officer in 2010 are set forth under “Executive Compensation — Summary Compensation Table.”

 

The following report of the compensation committee is not “soliciting material,” is not deemed “filed” with the Commission and is not to be incorporated by reference into any other of the Company’s filings under the Securities Act or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), except to the extent we specifically incorporate this report by reference therein.

 

Since the formation of the compensation committee in October 2006, Michael Sweeney has served on the compensation committee. Paul H. Stebbins has served on the compensation committee since his appointment to the board of directors on December 19, 2006. Mr. José H. Villarreal has served on the compensation committee since his appointment to the board of directors on September 24, 2007. Mr. William J. Post has served on the compensation committee since July 26, 2010.

 

The compensation committee is and has been comprised solely of non-associate directors who were each: (i) independent as defined under the NASDAQ listing standards, (ii) a non-associate director for purposes of Rule 16b-3 of the Exchange Act, and (iii) an outside director for purposes of Section 162(m) of the Code.

 

With a keen sense of awareness of its fiduciary obligations, the compensation committee actively engages management and reviews data on (i) the relationship between the Company’s incentive compensation programs and the Company’s long-term strategic goals, (ii) the impact of any individual compensation changes on total compensation (including reviewing executive tally sheets), and (iii) the possibility that any particular program or arrangement could incentivize inappropriate risk-taking behaviors. The compensation committee believes that the Company’s compensation philosophy is appropriate and that the Company’s incentive compensation programs are an important tool that allows all associates, including management, to successfully focus on matters critical to the Company’s long-term success.

 

The compensation committee has reviewed and discussed the “Compensation Discussion and Analysis” required by Item 402(b) of Regulation S-K with management. Based on such review and discussions, the compensation committee recommended to the board of directors that the “Compensation Discussion and Analysis” be included in this Proxy Statement on Schedule 14A and incorporated by reference in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

 

Submitted by the Members of the Compensation Committee

 

Michael Sweeney (Chair)
William J. Post
Paul H. Stebbins
José H. Villarreal

 

Summary Compensation Table

 

The following table sets forth information with respect to compensation earned by our chief executive officer, our chief financial officer, and our three other most highly compensated executive officers (collectively, our “named executive officers”), for the fiscal years ended December 31, 2010, December 26, 2009 and December 27, 2008, respectively.

 

 

 

 

 

 

 

Grants of Plan-Based Awards

 

The following table sets forth summary information regarding all grants of plan-based awards made to our named executive officers during the year ended December 31, 2010. Unless otherwise noted in the table below, the restricted stock units granted in 2010 vest over four years 20%, 20%, 20% and 40%, respectively, commencing on the first anniversary of the grant date.

 

 

 

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth information with respect to outstanding option and stock awards held by our named executive officers at December 31, 2010.

 

 

 

 

Option Exercises and Stock Vested

 

The following table provides information, on an aggregate basis, about stock options that were exercised and stock awards that vested during the fiscal year ended December 31, 2010 for each of the named executive officers.