A board of 11 directors is to be elected at the 2014 annual meeting. In general, the 11 nominees who receive the highest number of “for” votes will be elected. However, any nominee who fails to receive affirmative approval from holders of a majority of the votes cast in such nominee’s election at the annual meeting, either by proxy or in person, will not be elected to the board, even if he or she is among the top 11 nominees in total “for” votes. This requirement reflects the majority vote provisions implemented by the Company in November 2009. The term of office of each person elected as a director will be for the ensuing year, and until his or her successor is elected and qualified or until his or her earlier resignation or removal.

Unless otherwise instructed, the Proxy Holders will vote the proxies received by them for the 11 nominees named below, each of whom is currently a director of the Company. The proxies cannot be voted for more than 11 nominees, whether or not there are additional nominees. If any nominee of the Company should decline or be unable to serve as a director as of the time of the annual meeting, and unless otherwise instructed, the proxies will be voted for any substitute nominee designated by the present board of directors to fill the vacancy. The Company is not aware of any nominee who will be unable, or will decline, to serve as a director.

The below nominees for reelection have been nominated for election to the board of directors in accordance with the criteria and procedures discussed below in “Corporate Governance.”

In addition to the below biographical information concerning each board nominee’s specific experience, attributes, positions and qualifications and age as of September 1, 2014, we believe that each of our nominees, while serving as a director and/or officer of the Company, has devoted adequate time to the board of directors and performed his or her duties with critical attributes such as honesty, integrity, wisdom, and an adherence to high ethical standards. Each nominee has demonstrated strong business acumen, an ability to make independent analytical inquiries, to understand the Company’s business environment and to exercise sound judgment, as well as a commitment to the Company and its core values. We believe the nominees have an appropriate diversity and interplay of viewpoints, skills and experiences that will encourage a robust decision-making process for the board.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE DIRECTOR NOMINEES SET FORTH BELOW.

The table below sets forth the beneficial ownership of shares of Lam common stock by: (i) each person or entity who we believe based on our review of filings made with the United States Securities and Exchange Commission, or the “SEC” beneficially owned as of September 8, 2014, more than 5% of Lam’s common stock on the date set forth below; (ii) each current director of the Company; (iii) each named executive officer identified below in the “Compensation Discussion and Analysis” section; and (iv) all current directors and current executive officers as a group. With the exception of 5% owners, and unless

otherwise noted, the information below reflects holdings as of September 8, 2014, which is the Record Date for the 2014 annual meeting and the most recent practicable date for determining ownership. For 5% owners, holdings are as of the dates of their most recent ownership reports filed with the SEC, which are the most practicable dates for determining their holdings. The percentage of the class owned is calculated using 162,441,177 as the number of shares of Lam common stock outstanding on September 8, 2014.

Our board of directors and members of management are committed to responsible corporate governance to manage the Company for the long-term benefit of its stockholders. To that end, the board and management periodically review and update, as appropriate, the

Company’s corporate governance policies and practices. As part of that process, the board and management consider the requirements of federal and state law, including rules and regulations of the SEC; the listing standards for the NASDAQ Global Select Market, or

“NASDAQ;” published guidelines and recommendations of proxy advisory firms; and published guidelines of other selected public companies. A list of key corporate governance practices is provided in the “Proxy Statement Summary” above.

Corporate Governance Policies

We have instituted a variety of policies and procedures to foster and maintain responsible corporate governance, including the following:

Board committee charters. Each of the board’s audit, compensation and nominating and governance committees has a written charter adopted by the board that establishes practices and procedures for the committee in accordance with applicable corporate governance rules and regulations. Each committee reviews its charter annually and recommends changes to the board, as appropriate. Each committee charter is available on the investors’ page of our web site at http://investor.lamresearch.com/corporate-governance.cfm. Please also refer to “Board Committees” below, for a description of responsibilities of these board committees.

Corporate governance guidelines. We adhere to written corporate governance guidelines, adopted by the board and reviewed annually by the nominating and governance committee and the board. Selected provisions of the guidelines are discussed below, including in the “Board Nomination Policies and Procedures,” “Director Independence Policies” and “Other Governance Practices” sections below. The corporate governance guidelines are available on the investors’ page of our web site at http://investor.lamresearch.com/corporate-governance.cfm.

Corporate code of ethics. We maintain a code of ethics that applies to all employees, officers, and members of the board. The code of ethics establishes standards reasonably necessary to promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, and full, fair, accurate, timely, and understandable disclosure in the periodic reports we file with the SEC and in other public communications. We will promptly disclose to the public any amendments to, or waivers from, any provision of the code of ethics to the extent required by applicable laws. We intend to make this public disclosure by posting the relevant material on our web site, to the extent permitted by applicable laws. A copy of the code of ethics is available on the investors’ page of our web site at http://investor.lamresearch.com/corporate-governance.cfm.

Global standards of business conduct policy. We maintain written standards of appropriate conduct in a variety of business situations that apply to employees worldwide. Among other things, these global standards of business conduct address conflicts of interest, safeguarding of Company assets, protection of confidential information and anti-corruption.

Insider trading policy. Our insider trading policy restricts the trading of Company stock by our directors, officers, and employees, and includes provisions addressing insider blackout periods and prohibiting hedges and pledges of Company stock.

Board Nomination Policies and Procedures

Board membership criteria. Under our corporate governance guidelines, the nominating and governance committee is responsible for assessing the appropriate balance of experience, skills and characteristics required for the board and for recommending director nominees to the independent directors.

The guidelines direct the committee to consider all factors it considers appropriate. The committee need not consider all of the same factors for every candidate. Factors to be considered may include, but are not limited to: experience; business acumen; wisdom; integrity; judgment; the ability to make independent analytical inquiries; the ability to understand the Company’s business environment; the candidate’s willingness and ability to devote adequate time to board duties; specific skills, background or experience considered necessary or desirable for board or committee service; specific experiences with other businesses or organizations that may be relevant to the Company or its industry; diversity with respect to any attribute(s) the board considers desirable; and the interplay of a candidate’s experiences and skills with those of other board members.

Prior to recommending that an incumbent non-employee director be nominated for reelection to the board, the committee reviews the experiences, skills and qualifications of the directors to assess the continuing relevance of the directors’ experiences, skills and qualifications to those considered necessary or desirable for the board at that time. Board members may not serve on more than four boards of public companies (including service on the Company’s board). To be nominated, the candidate must agree to tender, promptly following the annual meeting at which they are elected or re-elected as directors, an irrevocable conditional resignation that will be effective upon (i) the director’s failure to receive

the required majority vote at the next annual meeting at which the nominee faces re-election and (ii) the board’s acceptance of such resignation. In addition, no director, after having attained the age of 75 years, may be nominated for re-election or reappointment to the board.

Nomination procedure. The nominating and governance committee identifies, screens, evaluates and recommends qualified candidates for appointment or election to the board. The committee considers recommendations from a variety of sources, including search firms, board members, executive officers and stockholders. Nominations for election by the stockholders are made by the independent members of the board.

Certain provisions of our bylaws apply to the nomination or recommendation of candidates by a stockholder. Information regarding the nomination procedure is provided in the “Voting and Meeting Information – Other Meeting Information – Stockholder-Initiated Proposals and Nominations for 2015 Annual Meeting” section below.

Director Independence Policies

Board independence requirements. Our corporate governance guidelines require that at least a majority of the board members be independent. No director will qualify as “independent” unless the board affirmatively determines that the director qualifies as independent under the NASDAQ rules and has no relationship that would interfere with the exercise of independent judgment as a director. In addition, no non-employee director may serve as a consultant or service provider to the Company without the approval of a majority of the independent directors (and any such director’s independence must be reassessed by the full board following such approval).

Board member independence. The board has determined that all current directors, other than Messrs. Anstice and Newberry, are independent in accordance with NASDAQ criteria for director independence.

Board committee independence. All members of the board’s audit, compensation, and nominating and governance committees must be non-employee or outside directors and independent in accordance with applicable NASDAQ criteria as well as, in the case of the compensation committee, applicable rules under section 162(m) of the Internal Revenue Code of 1986, as amended, the “Code,” and Rule 16b-3 of the Securities Exchange Act of 1934, as amended, or the “Exchange Act.” See “Board Committees” below for a description of the responsibilities of these board committees.

Lead independent director. Our corporate governance guidelines authorize the board to designate a lead independent director from among the independent board

members. The lead independent director is responsible for coordinating the activities of the independent directors, consulting with the chairman regarding matters such as schedules of and agendas for board meetings and the retention of consultants who report directly to the board, and developing the agenda for and moderating executive sessions of the board’s independent directors. Mr. Inman has served as the lead independent director since his reelection at the 2012 annual meeting.

Executive sessions of independent directors. The board and its audit, compensation, and nominating and governance committees hold meetings of the independent directors and committee members, without management present, as part of each regularly scheduled meeting and at any other time at the discretion of the board or committee, as applicable.

Board access to independent advisors. The board as a whole, and each of the board standing committees separately, has the complete authority to retain, at the Company’s expense, and terminate, in their discretion, any independent consultants, counselors, or advisors as they deem necessary or appropriate to fulfill their responsibilities.

Leadership Structure of the Board

The current leadership structure of the board consists of a chairman and a lead independent director. The chairman, Mr. Newberry, served as chief executive officer of the Company from June 2005 to January 2012. The board believes that this is the appropriate board leadership structure at this time. Lam and its stockholders benefit from having Mr. Newberry as its chairman, as he brings to bear his experience as CEO as well as his other qualifications in carrying out his responsibilities as chairman. The Company and its stockholders also benefit from having a lead independent director to provide independent board leadership.

Other Governance Practices

In addition to the principal policies and procedures described above, we have established a variety of other practices to enhance our corporate governance, including the following:

Board and committee assessments. At least bi-annually, the board conducts a self-evaluation, overseen by the nominating and governance committee. In recent years the board has conducted this assessment annually. To the extent the board requests, the committee also oversees evaluations of the board’s standing committees.

Director resignation or notification of change in executive officer status. Under our corporate governance guidelines, any director who is also an executive officer of the Company must offer to submit his or her resignation as a director to the board if the director ceases to be an executive officer of the Company. The board may accept or decline the offer, in its discretion. The corporate governance guidelines also require a non-employee director to notify the nominating and governance committee if the director changes or retires from his or her executive position at another company. The nominating and governance committee reviews the appropriateness of the director’s continuing board membership under the circumstances, and the director is expected to act in accordance with the nominating and governance committee’s recommendations.

Director and executive stock ownership. Under the corporate governance guidelines, each director is expected to own at least the lesser of five times the value of the annual cash retainer (not including any committee chair or other supplemental retainers for directors) or 5,000 shares of Lam common stock, by the fifth anniversary of his or her initial election to the board. Guidelines for stock ownership by designated members of the executive management team are described below under “Compensation Discussion and Analysis.” All of our directors and designated members of our executive management team were in compliance with the Company’s applicable stock ownership guidelines at the end of fiscal year 2014 or have a period of time remaining under the program to do so.

Communications with board members. Any stockholder who wishes to communicate directly with the board of directors, with any board committee or with any individual director regarding the Company may write to the board, the committee or the director c/o Secretary, Lam Research Corporation, 4650 Cushing Parkway, Fremont, California 94538. The secretary will forward all such communications to the appropriate director(s).

Any stockholder, employee, or other person may communicate any complaint regarding any accounting, internal accounting control, or audit matter to the attention of the board’s audit committee by sending written correspondence by mail (to Lam Research Corporation, Attention: Board Audit Committee, P.O. Box 5010, Fremont, California 94537-5010) or by phone (855-208-8578) or internet (through the Company’s third party provider web site at www.lamhelpline.ethicspoint.com). The audit committee has established procedures to ensure that employee complaints or concerns regarding audit or accounting matters will be received and treated anonymously (if the complaint or concern is submitted anonymously).

Meeting Attendance

All of the directors attended at least 75% of the aggregate number of board meetings and meetings of board committees on which they served during their board tenure in fiscal year 2014. Our board of directors held a total of eight meetings during fiscal year 2014.

We expect our directors to attend the annual meeting of stockholders each year. All individuals who were directors as of the 2013 annual meeting of stockholders attended the 2013 annual meeting of stockholders.

Board Committees

The board of directors has three standing committees: an audit committee, a compensation committee, and a nominating and governance committee. The purpose, membership and charter of each are described below.

Audit committee. The purpose of the audit committee is to oversee the Company’s accounting and financial reporting processes and the audits of our financial statements, including the system of internal controls.

The board concluded that all audit committee members are non-employee directors who are independent in accordance with the NASDAQ listing standards and SEC rules for audit committee member independence and that each audit committee member is able to read and understand fundamental financial statements as required by the NASDAQ listing standards. The board also determined that Mr. Brandt and Ms. Lego, both members of the committee, are “financial experts” as defined in SEC rules.

The audit committee’s responsibilities include (but are not limited to) the following:

• Appoint and provide for the compensation for the Company’s independent registered public accounting firm, the “Accounting Firm;” approve, in accordance with and in a manner consistent with the laws, rules and regulations applicable to the Company, all professional services to be provided to Lam Research by the Accounting Firm; and provide management with guidelines for the fees payable to the Accounting Firm and approve any fees in excess of the guidelines
• Oversee the work and independence, and evaluate the performance, of the Accounting Firm, and if so determined by the committee, replace the Accounting Firm
• Meet with management and the Accounting Firm to discuss the annual financial statements and the Accounting Firm’s report on the financial statements prior to the filing of the Company’s annual report on Form 10-K with the SEC, and to discuss the adequacy of internal control over financial reporting; following such discussions, if so determined by the committee, recommend to the board that the annual financial statements be included in the Company’s annual report
• Meet quarterly with management and the Accounting Firm to discuss the quarterly financial statements prior to the filing of the Company’s quarterly report on Form 10-Q with the SEC
• At least annually, review and reassess the internal audit charter and, if appropriate, recommend proposed changes; review the scope, results and analysis of internal audits (if any); evaluate the performance of the internal auditors (if any) and review internal audit performance with the chief financial officer
• Review and oversee, on an ongoing basis, for potential conflict of interest situations, all transactions required to be disclosed pursuant to item 404 of Regulation S-K and any other transaction involving an executive or board member
• Establish a procedure for receipt, retention and treatment of any complaints received by the Company about its accounting, internal accounting controls or auditing matters, and for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters
• Review and monitor the Company’s investment policy and its investment portfolio performance and associated risks, including but not limited to annual review and recommendation to the full board of management’s treasury strategy committee charter; appoint and remove members of the management committee for treasury strategy matters

Compensation committee. The purpose of the compensation committee is to discharge certain responsibilities of the board relating to executive compensation, to oversee incentive, equity-based plans and other compensatory plans in which the Company’s executive officers and/or directors participate and to produce an annual report on executive compensation for inclusion as required in the Company’s annual proxy statement.

The compensation committee is authorized to delegate such of its authority and responsibilities as the committee deems proper and consistent with legal requirements to members of the committee or to any other committee of the board. The committee may also authorize one or more officers of the Company to designate employees to be recipients of rights or options created by the Company and to determine the number of such rights or options to be received by such employees in accordance with the provisions of the Delaware General Corporation Law; provided, however, that the Committee must approve grants of any such options or rights made to executive officers.

The board concluded that all members of the compensation committee are non-employee directors who are independent in accordance with Rule 16b-3 of the Exchange Act and the NASDAQ criteria for director and compensation committee member independence and who are outside directors for purposes of section 162(m) of the Code.

The compensation committee’s responsibilities include (but are not limited to) the following:

• Review and approve the Company’s executive officer compensation philosophy, objectives and strategies and the appropriate peer group companies for purposes of evaluating the Company’s compensation competitiveness
• Cause the board to conduct a periodic performance evaluation of the chief executive officer; recommend to the independent members of the board (as determined under both the NASDAQ listing standards and Section 162(m) of the Code) corporate goals and objectives under the Company’s compensation plans, compensation packages and compensation payouts for the CEO
• Review and recommend for appropriate board action all cash, equity-based and other compensation packages and compensation payouts applicable to the chairman, vice-chairman and other members of the board
• Annually review with the CEO the performance of the Company’s other executive officers in light of the Company’s executive compensation goals and

objectives and approve the compensation packages and compensation payouts for other executive officers
• Establish stock ownership guidelines applicable to executive officers, and recommend for approval by the independent members of the board guidelines for the chairman, the vice-chairman and all other directors
• Review and approve, subject to stockholder or board approval as required, the creation or amendment of any equity-based compensatory plans and other compensatory plans as the board designates, and administer such plans
• Oversee management’s determination as to whether the Company’s compensation policies and practices create risks that are reasonably likely to have a material adverse effect on the Company
• Recommend to the board the frequency of “say on pay” votes, review the results of “say on pay” votes, and consider whether any adjustments to the Company’s executive compensation program are appropriate as a result of such votes
• Appoint and oversee reasonable compensation of and the work of any compensation consultants, independent counsel and advisors retained by the committee
• Prepare the committee report required by the SEC rules for inclusion in the Company’s annual proxy statement; meet with management and any independent compensation consulting advisers to discuss the compensation discussion and analysis to be included in the Company’s annual proxy statement and then recommend to the Board whether the compensation and discussion and analysis should be included in the Company’s proxy statement

Nominating and governance committee. The purposes of the nominating and governance committee are to identify individuals qualified to serve as members of the board of the Company, to recommend nominees for election as directors of the Company, to oversee self-evaluations of the board’s performance, to develop and recommend corporate governance guidelines to the board, and to provide oversight with respect to corporate governance.

The board concluded that all nominating and governance committee members are non-employee directors who are independent in accordance with the NASDAQ criteria for director independence.

The nominating and governance committee’s responsibilities include (but are not limited to) the following:

• Identify, screen, evaluate, and recommend to the independent members of the board nominees for election as directors of the Company at the next

annual or special meeting of stockholders at which directors are to be elected; and identify, screen, evaluate and recommend to the board individuals to fill any vacancies or newly created directorships that may occur between stockholder meetings
• Make recommendations to the board annually after consultation with the chairman of the board and the lead independent director, if any, with respect to assignment of board members to committees and as committee chairs
• Cause to be prepared and recommend to the board the adoption of corporate governance guidelines, and from time to time review and assess the guidelines and recommend changes for approval by the board
• Review and assess, from time to time, the governing documents of the Company and, if appropriate, propose changes to the board
• Oversee on a bi-annual basis a self-evaluation of the board and, to the extent that the board requests, the board committees in accordance with the Company’s corporate governance guidelines and the committee charters and conduct from time to time a self-evaluation of its performance, which may be part of the board’s self-evaluation
• Ensure that the board reviews CEO succession planning and that the CEO reports to the board regarding organization status on an appropriate basis

The nominating and governance committee will consider for nomination persons properly nominated by stockholders in accordance with the Company’s bylaws and other procedures described in the “Voting and Meeting Information – Other Meeting Information – Stockholder - Initiated Proposals and Nominations for 2015 Annual Meeting” section below. Subject to then-applicable law, stockholder nominations for director will be evaluated by the Company’s nominating and governance committee in accordance with the same criteria as is applied to candidates identified by the nominating and governance committee or other sources.

Board’s Role in Risk Oversight

The board is actively engaged in risk oversight. Management regularly reports to the board on its risk assessments and risk mitigation strategies for the major risks of our business. Generally the board exercises its oversight responsibility directly; however, in specific cases, responsibility has been delegated to board committees. Committees that have been charged with risk oversight regularly report to the board on those risk matters within their areas of responsibility. Risk oversight responsibility has been delegated to board committees as follows:

• Our audit committee oversees risks related to the Company’s accounting and financial reporting,

internal controls, and the auditing of our annual financial statements. The audit committee also oversees risks related to our independent registered public accounting firm and our internal audit function.
• Our compensation committee oversees risks related to the Company’s equity, and executive compensation programs and plans.
• Our nominating and governance committee oversees risks related to director independence, board and board committee composition and CEO succession planning.

Assessment of Compensation Risk

Management conducted a compensation risk assessment in 2014 and concluded that the Company’s current employee compensation programs are not reasonably likely to have a material adverse effect on the Company’s business.

Our director compensation is designed to attract and retain high caliber directors and to align director interests with those of stockholders. Director compensation is reviewed and determined annually by the board (in the case of Messrs. Newberry and Anstice, by the independent members of the board), upon recommendation from the compensation committee. Non-employee director compensation and Mr. Newberry’s compensation are described below. Mr. Anstice, whose compensation as CEO is described below under “Executive Compensation and Other Information – Compensation Discussion and Analysis,” does not receive additional compensation for his service on the board.

Non-employee director compensation. Non-employee directors receive annual cash retainers and equity awards. Committee chairs, the lead independent director and committee members receive additional cash retainers. Non-employee directors who join the board or a committee midyear receive prorated cash retainers. Our non-employee director compensation plans are based on service during the calendar-year; however, SEC rules require us to report compensation in this proxy statement on a fiscal-year basis. Cash compensation paid to non-employee directors for the fiscal year ended June 29, 2014 is shown in the table below, together with the annual cash compensation program components in effect for calendars years 2013 and 2014.

Each non-employee director also receives an annual equity grant on the first Friday following the annual election (or, if the designated date falls within a blackout window under applicable Company policies, on the first business day such grant is permissible under those policies) with a targeted grant value equal to $190,000 (the number of RSUs subject to the award is determined by dividing $190,000 by the closing price of a share of Company common stock as of the date of grant, rounded down to the nearest 10 shares). These grants generally vest on October 31 in the year following the grant and are subject to the terms and conditions of the Company’s 2007 Stock Incentive Plan, as amended, or “2007 Plan,” and the applicable award agreements.

These grants immediately vest in full: (i) if a non-employee director dies or becomes subject to a “disability” (as determined pursuant to the 2007 Plan), (ii) upon the occurrence of a “Change in Control” (as defined in the 2007 Plan), or (iii) on the date of the annual meeting if the annual meeting during the year in which the award was expected to vest occurs prior to the vest date and the non-employee director is not re-elected or retires or resigns effective immediately prior to the annual meeting. Non-employee directors who commence service after the annual award has been granted receive a pro-rated grant based on the number of regular board meetings remaining in the year as of the date of the director’s election.

On November 8, 2013, each director other than Mr. Anstice received a grant of 3,590 RSUs for services during calendar year 2014. Unless there is an acceleration event, these RSUs will vest in full on October 31, 2014, subject to the director’s continued service on the board.

Chairman compensation. Mr. Newberry, who served as vice-chairman from December 7, 2010 until November 1, 2012 and since such date has served as chairman, has a different compensation arrangement than the other directors. Mr. Newberry entered into an employment agreement with the Company commencing on January 1, 2012 and expiring on December 31, 2014, subject to the right of earlier termination in certain circumstances. The agreement provides for annual compensation of $500,000, subject to adjustment at the discretion of the independent members of the board. For calendar year 2014 his annual compensation was adjusted to $530,000. His annual compensation for calendar year 2013 was paid partly in equity and partly in cash as follows: he received an RSU grant (equal to one-half of the grant value of the annual non-employee director award) and a cash retainer on the same terms as non-employee directors’ annual equity grants and cash retainers, and he received the remainder of his annual

compensation in cash. His annual compensation for calendar year 2014 is paid partly in equity and partly in cash as follows: he receives an RSU grant (equal to the grant value of the annual non-employee director award) and a cash retainer on the same terms as non-employee directors’ annual equity grants and cash retainers, and he receives the remainder of his annual compensation in cash. Mr. Newberry is eligible to participate in the Company’s Elective Deferred Compensation Plan that is generally applicable to executives of the Company, subject to the general terms and conditions of such plan.

Under his contract, if there is an involuntary termination (including an involuntary termination in connection with a change in control), a death or disability (as each term is defined in Mr. Newberry’s agreement), Mr. Newberry will be entitled to (i) a lump-sum cash payment equal to 12 months of Mr. Newberry’s base compensation (less, in the case of death, of certain insurance payments); (ii) certain medical benefits; and (iii) vesting of certain stock option and restricted stock unit awards. If Mr. Newberry voluntarily resigns, he will be entitled to no additional benefits (except as he may be eligible for under the Retiree Health Plans). Unvested RSUs will be cancelled on the date of termination.

Other benefits. In addition, any members of the board enrolled in the Retiree Health Plans as of or prior to December 31, 2012 can continue to participate even after retirement from the board in the Company’s Retiree Health Plans. The board eliminated this benefit for any person who became a director after December 31, 2012. The most recent valuation of the Company’s accumulated post-retirement benefit obligation under

Accounting Standards Codification 715, Compensation-Retirement Benefits (“ASC 715”), as of June 29, 2014, for eligible former directors and the current directors who may become eligible is shown below. Factors affecting the amount of post-retirement benefit obligation include age at enrollment, age at retirement, coverage tier (e.g., single, plus spouse, plus family), interest rate, and length of service.

Section 16(a) of the Exchange Act requires our executive officers, directors, and people who own more than 10% of a registered class of our equity securities to file an initial report of ownership (on a Form 3) and reports on subsequent changes in ownership (on Forms 4 or 5) with the SEC by specified due dates. Our executive officers, directors, and greater-than-10% stockholders are also required by SEC rules to furnish us with copies of all Section 16(a) forms they file. We are required to disclose in this proxy statement any failure to file

any of these reports on a timely basis. Based solely on our review of the copies of the forms that we received from the filers, and on written representations from certain reporting persons, we believe that all of these requirements were satisfied during fiscal year 2014, with the exception of one late Form 4 for Martin B. Anstice filed on February 20, 2014 to report the withholding of 18,251 shares of Lam Research common stock to cover the taxes due on vesting of a restricted stock unit award on February 7, 2014.

To align with stockholders’ interests, our executive compensation program is designed to foster a pay-for-performance culture and achieve the executive compensation objectives set forth in “Executive Compensation Philosophy and Program Design –

Executive Compensation Philosophy” below. We have structured our compensation program and payouts to reflect these goals. Our CEO’s compensation in relation to our revenue and net income is shown in Figure 3 below.

Lam Research has been an innovative supplier of wafer fabrication equipment and services to the semiconductor industry for more than 30 years. Our customers include semiconductor manufacturers that make memory, microprocessors, and other logic integrated circuits for a wide range of consumer and industrial electronics; including cell phones, computers, memory storage devices, and networking equipment.

Our market-leading products are designed to help our customers build the smaller, faster and more power-efficient devices that are necessary to power the capabilities required by end users. The process of integrated circuits fabrication consists of a complex series of process and preparation steps and Lam’s product offerings in deposition, etch and clean address a number of the most critical steps in the fabrication process. We

leverage our expertise in semiconductor processing to develop technology and productivity solutions that typically benefit our customers through lower defect rates, enhanced yields, faster processing time, and reduced cost as well as by facilitating their ability to meet more stringent performance and design standards.

The semiconductor capital equipment industry has been highly competitive and subject to business cycles that historically have been characterized by rapid changes in demand that necessitate adjusting spending and managing capital allocation prudently across business cycles. Figure 4 below shows year-over-year changes in revenue growth for each of the electronics industry, the semiconductor industry, and the wafer fabrication equipment segment of the semiconductor equipment industry from 2001 to the present. The semiconductor industry has historically been a highly cyclical industry,

with fluctuations responding to changes in the demand for semiconductor devices. The wafer fabrication equipment segment in which we participate has historically exhibited more extreme volatility during these demand cycles as illustrated by the graph below. More recently with consolidation in the customer base, the cyclical behavior in the industry appears to have diminished somewhat. With a reduced number of customers, the volatility in the industry has lessened but our results are more dependent on the spending of any individual customer over certain periods. As a result of such changes, our executive compensation program has been adjusted as described in “I. Recent Changes to Our Executive Compensation Program” above and in further detail in the below sections. However, previous programs in place with payouts in the current and next fiscal year were designed to respond to such significant volatility in our results.

Although we have a June fiscal year end, our executive compensation program is designed and oriented on a calendar-year basis to correspond with our calendar-year-based business planning. This CD&A reflects a

calendar-year orientation, as shown in Figure 5 below. The Executive Compensation Tables at the end of this CD&A are based on our fiscal year, as required by SEC regulations.

In calendar year 2013, demand for semiconductor equipment improved slightly relative to calendar year 2012, as device manufacturers invested in leading edge production capacity to support healthy demand for mobile electronics. Against this backdrop, Lam delivered record financial performance and successfully completed the integration of Novellus Systems, Inc., or “Novellus,” executing all target integration commitments on or ahead of schedule.

Highlights for calendar year 2013:

• Achieved record revenues of approximately $4 billion for the calendar year, representing a 25% increase over calendar year 2012;
• Generated operating cash flow of $458 million, which represents approximately 12% of revenues;
• Repurchased approximately 7.2 million shares of common stock under the board of directors-approved $1.6 billion and $250 million authorizations, returning approximately $317 million to stockholders; and

• Fully executed on-schedule targeted cost and revenue synergies resulting from the 2012 acquisition of Novellus, including delivering $100 million in annualized cost savings and approximately $130 million in revenue synergies from the merger by the end of calendar year 2013.

Investments for wafer fabrication equipment spending have remained healthy in the first half of calendar year 2014 as customers transition to next generation devices, which are increasingly complex and more costly to produce.

Lam has continued to generate solid operating income and cash generation with revenues of $2.5 billion and cash flows from operations of $536 million earned from the March and June 2014 quarters combined. In April 2014, we announced a $1 billion capital return program, including the initiation of the Company’s first ever quarterly dividend (with future dividend payments subject to board review and approval), reflecting the Board’s confidence in future cash generation and Lam’s commitment to enhancing stockholder value.

The philosophy of our compensation committee that guided this year’s awards and payout decisions is that our executive compensation program should:

• provide competitive compensation to attract and retain top talent
• provide compensation that is fair to employees and rewards corporate, organizational and individual performance
• align pay with business objectives while driving exceptional performance throughout fluctuating business cycles

• optimize value to employees while maintaining cost-effectiveness to the Company
• create stockholder value over the long term
• align annual plan to short-term performance and long-term plan to longer-term performance
• recognize that a long-term, high-quality management team is a competitive differentiator for Lam, enhancing customer trust/market share and, therefore, stockholder value

Our compensation committee’s executive compensation objectives are to motivate:

• performance that creates long-term stockholder value
• outstanding performance at the corporate, organization and individual levels
• retention of a long-term, high-quality management team

To achieve these objectives, our compensation committee authorized the following strategies:

• reference appropriate market data
• respond to fluctuating business cycle changes
• use a mix of equity award types (restricted stock units, stock options and market-based performance restricted stock units)
• provide an appropriate mix of short-term and long- term rewards
• balance these strategies to reach an optimal result under existing circumstances

Our program design uses a mix of short- and long-term components, and a mix of cash and equity components. Our executive compensation program includes base salary, an annual incentive program or “AIP,” and a long-term incentive program or “LTIP,” as well as stock ownership guidelines and a compensation recovery, or “clawback,” policy. Historically, our LTIP had a cash and equity component. In February 2014, our compensation committee approved a new LTIP

design in which the cash component was replaced with equity. Details of the program are explained under “Long-Term Incentive Program – Design” in section III below. As illustrated in Figure 6 below, our program design is weighted towards performance and stockholder value. The performance-based program components include AIP cash payouts and market-based equity and stock option awards under the LTIP.

Our stock ownership guidelines for our NEOs are shown in Figure 7 below. The requirements are specified in the alternative of shares or dollars to allow for stock price volatility. Ownership levels as shown below must be achieved within five years of appointment to one of the below positions. Increased requirements due

to promotions must be achieved within three years of promotion. At the end of fiscal year 2014, all of the then-employed NEOs were in compliance with our stock ownership guidelines or have a period of time remaining under the guidelines to do so.

Our executive officers covered by Section 16 of the Exchange Act, or “Section 16 officers,” are subject to the Company’s compensation recovery, or “clawback,” policy. The clawback policy was adopted in August 2014 and will enable us to recover the excess amount of cash incentive-based compensation issued starting in calendar year 2015 to covered individuals when a material restatement

of financial results are required within 36 months of the issuance of the original financial statements. A covered individual’s fraud must have materially contributed to the need to issue restated financial statements in order for the clawback policy to apply to that individual. The recovery of compensation is not the exclusive remedy available in the event that the clawback policy is triggered.

Our board of directors has delegated certain responsibilities to the compensation committee, or the “committee,” through a formal charter. The committee¹ oversees the compensation programs in which our chief executive officer and his direct reports (including all other NEOs) participate. The independent members of our board of directors approve the compensation packages and payouts for our CEO. The CEO is not present for any decisions regarding his compensation packages and payouts. A copy of the committee’s charter can be viewed at http://investor.lamresearch.com.

Committee responsibilities include, but are not limited to: reviewing and approving the Company’s executive compensation philosophy, objectives and strategies; reviewing and approving the appropriate peer group companies for purposes of evaluating the Company’s compensation competitiveness; causing the board of directors to perform a periodic performance evaluation of the CEO; recommending to the independent members of the board of directors (as determined under both NASDAQ’s listing standards and Section 162(m) of the Internal Revenue Code of 1986, as amended) corporate

goals and objectives under the Company’s compensation plans, compensation packages (e.g., annual base salary level, annual cash incentive award, long-term incentive award and any employment agreement, severance arrangement, change-in-control arrangement, equity grant, or special or supplemental benefits, and any material amendment to any of the foregoing) as applicable to the CEO and compensation payouts for the CEO; annually reviewing with the CEO the performance of the Company’s other executive officers in light of the Company’s executive compensation goals and objectives and approving the compensation packages and compensation payouts for such individuals; and reviewing, and approving where appropriate, equity-based compensation plans. For additional information on the committee’s responsibilities, see “Corporate Governance: Board Committees” above.

In order to carry out these responsibilities, the committee receives and reviews information, analysis and proposals prepared by our management and by the committee’s compensation consultant (see “Role of Committee Advisors” below).

The committee is authorized to engage its own independent advisors to assist in carrying out its responsibilities. The committee has engaged the services of Compensia, Inc., a national compensation consulting firm, or “Compensia,” as the committee’s compensation consultant. Compensia provides the committee with independent and objective guidance regarding the amount and types of compensation for our chairman and executive officers and how these amounts and types of compensation compare to other companies’ compensation practices, as well as guidance on market trends, evolving regulatory requirements, compensation of our independent directors, peer group composition and other matters as requested by the committee.

Representatives of Compensia regularly attend committee meetings (including executive sessions without management present), communicate with the committee chair outside of meetings, and assist the committee with the preparation of metrics and goals. Compensia reports to the committee, not to management. At the

committee’s request, Compensia meets with members of management to gather and discuss information that is relevant to advising the committee. The committee may replace Compensia or hire additional advisors at any time. Compensia has not provided any other services to the committee or to our management and has received no compensation from us other than with respect to the services described above. The committee assessed the independence of Compensia pursuant to SEC rules and NASDAQ listing standards, including the following factors: (1) the absence of other services provided by it to the Company; (2) the fees paid to it by the Company as a percentage of its total revenue; (3) its policies and procedures to prevent conflicts of interest; (4) the absence of any business or personal relationships with committee members; (5) the fact that it does not own any Lam common stock; and (6) the absence of any business or personal relationships with our executive officers. The committee assessed this information and concluded that the work of Compensia has not raised any conflict of interest.

Our CEO, with support from our human resources and finance organizations, develops recommendations for the compensation of our other executive officers. Typically, these recommendations cover base salaries, annual incentive program target award opportunities, long-term incentive program target award opportunities and the criteria upon which these award opportunities may be earned, as well as actual payout amounts under annual and long-term incentive programs.

The committee considers the CEO’s recommendations within the context of competitive compensation data, the

Company’s compensation philosophy and objectives, current business conditions, the advice of Compensia, and any other factors it considers relevant. At the request of the committee, our chairman also provides input to the committee.

Our CEO frequently attends committee meetings at the request of the committee, but leaves the meeting for any deliberations related to and decisions regarding his own compensation, when the committee meets in executive session, and at any other time requested by the committee.

In establishing the total compensation levels of our executive officers as well as the mix and weighting of individual compensation elements, the committee monitors compensation data from a group of comparably sized companies in the technology industry, or the “Peer Group,” which may differ from peer groups used by stockholder advisory firms. The committee selects the companies constituting our Peer Group based on their comparability to our lines of business and industry,

annual revenue, and market capitalization, and our belief that we are likely to compete with them for executive talent. Our Peer Group is focused on U.S. based, public semiconductor, semiconductor equipment and materials companies, and similarly sized high-technology equipment and hardware companies. Figure 9 below summarizes how the Peer Group companies compare to the Company:

Based on these criteria, the Peer Group and targets may be modified from time to time. Our Peer Group was reviewed in August 2013 and retained without

change for calendar year 2014 compensation decisions. Our Peer Group consisted of the companies listed in Figure 10 below.

We derive revenue, market capitalization and NEO compensation data for the Peer Group companies from their public filings with the SEC, other publicly available sources and Radford Technology Survey data. The committee reviews compensation practices and

selected data on base salary, bonus targets, total cash compensation, equity awards, and total compensation drawn from the Peer Group companies primarily as a reference to ensure compensation packages are consistent with market norms.

Base pay levels for each executive officers are generally set with reference to the middle of the market range (40th-60th percentile), and variable pay target award opportunities for each executive officer are generally designed to deliver at or above market median (50th-75th percentile) compensation for target performance. For those executive officers new to their roles, their variable pay target award opportunities may generally be designed

to deliver below market compensation. However, the committee does not “target” pay at any specific percentile. Rather, individual pay positioning depends on a variety of factors, such as prior job performance, job scope and responsibilities, skill set, prior experience, time in position, internal comparisons of pay levels for similar skill levels or positions, our goals to attract and retain executive talent, Company performance and general market conditions.

We evaluate our executive compensation program annually. Among other things, we consider the outcome of our most recent Say on Pay vote and any feedback we receive from our stockholders. In 2013, our stockholders voted to approve our 2013 advisory vote on executive compensation, with 82.44% of the votes cast in favor of the advisory proposal. Based on its evaluation, the

committee decided to make changes to our executive compensation program described in section I above to further strengthen our pay for performance alignment and to bring certain aspects of our long-term incentive program more in line with evolving market practices. Additionally, we have continued efforts to further enhance our disclosure regarding our compensation program and practices.

This section describes the components of our executive compensation program. It also describes, for each component, the payouts to our NEOs for calendar year

2013 and the forward-looking actions taken with respect to our NEOs in calendar year 2014.

We believe the purpose of base salary is to provide competitive compensation to attract and retain top talent and to provide compensation to employees, including our NEOs, with a fixed and fair amount of compensation for the jobs they perform. Accordingly, we seek to ensure that our base salary levels are competitive in reference to Peer Group practice and market survey data. Adjustments to base salary are generally considered by the committee each year in February.

For calendar years 2014 and 2013, base salaries for then-employed NEOs other than our CEO in 2013 were determined by the committee in February of each year

and became effective on March 31 of that year, based on the factors described above. The base salary for Mr. Anstice for calendar year 2014 was increased effective March 31, 2014 to a more competitive level relative to our Peer Group. The base salary of Dr. Gottscho for calendar year 2014 was also increased effective March 31, 2014 based on his performance, internal pay comparisons, and the importance of his position to our ongoing business success. Other NEO changes were due to individual performance. The base salaries of the NEOs for calendar years 2014 and 2013 are as follows:

Our annual incentive program is designed to provide short-term, performance-based compensation that: (i) is based on the achievement of pre-set annual financial, strategic and operational objectives aligned with outstanding performance throughout fluctuating business cycles, and (ii) will allow us to attract and retain top talent, while maintaining cost-effectiveness to the Company. The committee establishes individual target award opportunities for each NEO as a percentage of base salary. Specific target award opportunities are determined based on job scope and responsibilities, as well as an assessment of Peer Group data. Awards have a maximum payment amount defined as a multiple of the target award opportunity. The maximum award for 2014 was set at 2.25 times target, consistent with prior years.

Annual incentive program components

Annual incentive program components, each of which plays a role in determining actual payments made, include:

• a Funding Factor,
• a Corporate Performance Factor, and
• various Organization/Individual Performance Factors.

The Funding Factor is set by the committee to create a maximum payout amount from which annual incentive program payouts may be made. The committee may exercise negative (but not positive) discretion against the Funding Factor result, and generally the entire funded amount is not paid out. Achievement of a minimum level of performance against the Funding Factor goals is required to fund any program payments. In February 2013, for calendar year 2013, the committee set non-GAAP operating income² as a percentage of revenue as the metric for the Funding Factor, with the following goals:

• a minimum achievement of 7.5% non-GAAP operating income as a percentage of revenue was required to fund any program payments, and
• performance greater than or equal to 20% would result in the maximum payout potential of 225% of target,
• with actual funding levels interpolated between those points.

The committee selected non-GAAP operating income because it believes that operating income is the performance metric that best reflects core operating results. Non-GAAP operating income is considered useful to investors for analyzing business trends and comparing performance to prior periods. By excluding certain costs and expenses that are not indicative of core results, non-GAAP results are more useful for analyzing business trends over multiple periods.

As a guide for using negative discretion against the Funding Factor results and for making payout decisions, the committee primarily tracks the results of the following two components that are weighted equally in making payout decisions, and against which discretion may be applied in a positive or negative direction, provided the Funding Factor result is not exceeded:

• the Corporate Performance Factor is based on corporate-wide metrics and stretch goals that apply to all NEOs, and
• the Organization/Individual Performance Factors, which are based on organization-specific metrics and stretch goals and individual performance, apply to each individual NEO.

The specific metrics and goals, and their relative weightings, for the Corporate Performance Factor are determined by the committee based upon the recommendation of our CEO, and the Organization/Individual Performance Factors are determined by our CEO, or in the case of the CEO, by the committee.

The metrics and goals for the Corporate and Organization/Individual Performance Factors are set annually or semi-annually: annually for Corporate and Organization/Individual Performance Factor for 2014, annually for Organization/Individual Performance Factor for 2013 and semi-annually for Corporate Performance Factor for 2013. Goals are set depending on the business environment, to ensure that they are stretch goals regardless of changes in the business environment. Accordingly, as business conditions improve, goals are set to require better performance, and as business conditions deteriorate, goals are set to require stretch performance under more difficult conditions. Although the Corporate

Performance Factor metrics and goals were set on a semi-annual basis in 2013, they remained the same throughout the entire calendar 2013 performance period. Beginning in calendar year 2014, metrics and goals are set on an annual basis.

We believe that, over time, outstanding business results create stockholder value. Consistent with this belief, multiple performance-based metrics (non-GAAP operating income, product market share, and strategic operational

and organizational metrics) are established for our NEOs as part of the Corporate and Organization/Individual Performance Factors.

We use organization-specific metrics because we believe these motivate our NEOs and the organizations they lead. We believe the metrics and goals set under this program, together with the exercise of discretion by the committee as described above, have been effective to achieve pay-for-performance results.

In February 2013, the committee set the calendar year 2013 target award opportunity, the metrics and goals for the Funding Factor, the metrics and semi-annual goals (revisited in August 2013) for the Corporate Performance, and the metrics and goals for the Organization/Individual Performance Factors for each then-employed NEO were established. In February 2014, the committee considered the actual results under these factors and made payout decisions for the calendar year 2013 program, all as described below.

2013 Annual Incentive Program Target Award Opportunities. The annual incentive program target award opportunities for calendar year 2013 for each NEO were as set forth in Figure 13 below in accordance with the principles set forth above under “Peer Group Practices and Survey Data.”

2013 Annual Incentive Program Corporate Performance Factor. In February 2013, the committee set non-GAAP operating income as a percentage of revenue as the metric for the first half of calendar year 2013 Corporate Performance Factor, and set:

• a goal of 18% of revenue for the first half of the year, which was designed to be a stretch goal, and which would result in a Corporate Performance Factor of 1.00,

• a minimum Corporate Performance Factor of 0.20, and
• a maximum Corporate Performance Factor of 1.50.

In August 2013, the committee revisited and retained the same metric and goal for the Corporate Performance Factor for the second half of the year. These goals were designed to be stretch goals. Actual non-GAAP operating income percentage was 11.8% of revenue for the first half of calendar year 2013 (resulting in a factor of 0.69 for the first half) and 17.5% of revenue for the second half (resulting in a factor of 0.975 for the second half). This performance resulted in a total Corporate Performance Factor for calendar year 2013 of 0.833.

2013 Annual Incentive Program Organization/Individual Performance Factor. For 2013, the organization-specific performance metrics and goals for each NEO’s Organization/Individual Performance Factor were set on an annual basis, and were designed to be stretch goals. The Organization/Individual Performance Factor for Mr. Anstice for calendar year 2013 was based on the average of the Organization/Individual Performance Factors of all of the organizations reporting to him. For all other NEOs, their respective Organization/Individual Performance Factors were based on market share and/or strategic, operational and organizational performance goals specific to the organizations they managed, as described in more detail below.

The committee considered the accomplishment of actual organizational performance against the established goals described below during 2013.

• Mr. Archer’s Organization/Individual Performance Factor for calendar year 2013 was based on the accomplishment of market share, strategic, operational and organizational development goals for the global sales organization, the customer support business group and global operations.
• Mr. Bettinger’s Organization/Individual Performance Factor for calendar year 2013 was based on the accomplishment of strategic, operational and organizational development goals for finance, global information systems and investor relations.
• Dr. Gottscho’s Organization/Individual Performance Factor for calendar year 2013 was based on the accomplishment of market share, strategic, operational and organizational development goals for the product groups for which he had responsibility, deposition, etch, and clean.
• Ms. O’Dowd’s Organization/Individual Performance Factor for calendar year 2013 was based on the accomplishment of strategic, operational and organizational development goals for legal.

The committee’s consideration of the above accomplishments resulted in the following Organization/Individual Performance Factors for our NEOs: Mr. Anstice, 0.997; Mr. Archer, 1.050; Mr. Bettinger, 1.000; Dr. Gottscho, 1.000 and Ms. O’Dowd, 0.980.

2013 Annual Incentive Program Payout Decisions. In addition to considering the Corporate Performance Factor and Organization/Individual Performance Factors, the committee considered the strong performance of the Company and exercised discretion to increase payouts for those NEOs who were employed with the Company at the commencement of calendar year 2013 and still employed as of the payment date as follows: $132,000 to Mr. Anstice, $54,000 to Mr. Archer, $133,000 to Dr. Gottscho and $28,000 to Ms. O’Dowd. In February 2014, in light of the Funding Factor results and based on the above results and decisions, the committee made the following payouts for calendar year 2013 for each NEO, which, including the above discretion, were substantially less than the maximum payout available under the Funding Factor:

In February 2014, the committee set the target award opportunity for each NEO as a percentage of base salary, and consistent with prior years set a cap

on payments equal to 2.25 times the target award opportunity. The target award opportunity for each NEO is shown in Figure 14 below.

The committee also approved the annual metric for the Funding Factor and for the Corporate Performance Factor as non-GAAP operating income as a percentage of revenue, and set the annual goals for the Funding Factor and also the Corporate Performance Factor. Consistent with program design, the Corporate Performance Factor goal is more difficult to achieve than the Funding Factor goal. Organization/Individual Performance Factor

metrics and goals were also established for each NEO. These include strategic and operational performance goals specific to individual business organizations and individuals. As a result, each NEO has multiple performance metrics and goals under this program. All goals were designed to be stretch goals.

Our long-term incentive program, or “LTIP,” is designed to attract and retain top talent, provide competitive levels of compensation, align pay with achievement of business objectives and stock performance over a multi-year period, reward our NEOs for outstanding Company performance and create stockholder value over the long term. Our LTIP was redesigned in February 2014 to further those objectives by: (i) replacing the cash component with a program entirely composed of equity, (ii) introducing a new LTIP vehicle, a Market-Based PRSU, designed to reward eligible participants based on our stock price performance relative to the Philadelphia Semiconductor Sector Index (SOX); (iii) differentiating the metric in our LTIP from the absolute operational performance metrics used for the Annual Incentive Program, and (iv) extending the performance period for the program from two to three years.

As a result, the LTIP now operates on overlapping three-year cycles, whereas prior to calendar year 2014, it operated on overlapping two-year cycles. This change would have left participants with a gap in long term

incentive vesting opportunity in 2016. To ensure that participants receive a long-term award that vests in calendar year 2016, the committee also awarded a one-time gap year award with a two-year performance period, or the “Gap Year Award”. The target amount awarded under the Gap Year Award is equal to 50% of the target award opportunity under the regular three-year LTIP award. While the impact on the employee from the extended performance period and the Gap Year Award, assuming performance and target opportunities are the same year after year, was to normalize the received compensation in any year, the accounting impact on the Company from such normalization (visible in the “Summary Compensation Table” and the “Grants of Plan-Based Awards for Fiscal Year 2014” table below), was a higher grant-based compensation expense in fiscal year 2014. This is in addition to the continuing impact upon the total compensation figures in the Company’s “Summary Compensation Table” in fiscal years 2014 and 2015 from the long-term cash awards under the previously designed programs for our performance during the relevant periods.

As shown in the chart below, because each performance period during fiscal year 2014 covers performance in two or three calendar years, three performance cycles affect

compensation during each fiscal year (including the Gap Year Award).

Under the current long-term incentive program, at the beginning of each multi-year performance period, target award opportunities (expressed as a U.S. dollar value) and performance metrics are established for the program. Of the total target award opportunity, 50% is awarded in Market-Based Performance Restricted Stock Units, or “Market-Based PRSUs,” and the remaining 50% is awarded in a combination of service-based RSUs and stock options with at least 10% of the award in each of these two vehicles. The specific percentage of service-based RSUs and stock options are reviewed annually to determine whether service-based RSUs or stock options

are the more appropriate form for the major part of the award based on criteria such as the current business environment and the potential value to motivate and retain the executives. We consider performance-based RSUs and stock options as performance-based, but do not classify service-based RSUs as performance-based. This means that if options constitute 10% of the total target award opportunity, the long-term incentive program will be 60% performance-based. If options constitute 40% of the total target award opportunity, the long-term incentive program will be 90% performance-based.

Calendar year 2014 decisions for the calendar year 2014/2016 long-term incentive program. On February 18, 2014, the committee made a grant under the calendar year 2014/2016 long-term incentive program, as well as a Gap Year Award, of Market-Based PRSUs, stock options and RSUs on the terms set forth in

Figure 16 above with a combined value equal to the NEO’s total target award amount, as shown in Figures 19 and 20 below.

The calendar year 2012/2013 LTIP payouts were awarded, and the calendar year 2013/2014 grants were

made, pursuant to the previous design of the long-term incentive program.

The long-term incentive programs prior to calendar year 2014 were comprised of two components:

• Cash Incentive Component
• Equity Incentive Component

50% of such prior long-term incentive programs were expressed in performance-based cash awards and the other 50% were awarded in equity. Such programs were designed to be 75% performance-based and 25% service-based (i.e., 50% of the equity component was performance-based and 50% was service-based). The cash incentive component of the programs was entirely performance-based, and the equity incentive component had typically been half performance-based and half service-based. A modified long-term program design was utilized in 2012 as a result of the acquisition of Novellus.

The transaction had been announced, but had not been concluded, when compensation decisions were made in February 2012 and, as a result, management had not set long-term goals for the combined organization by that time. As a result, and also to aid retention during the integration period, for the calendar year 2012/2013 long-term incentive program, the pay components were 50% performance-based and 50% service-based. Since this was a deviation from the historical program design in effect for all other periods prior to calendar year 2014, we refer to our historic 75% performance-based mix in describing the program design. As referenced above, we consider goal-based RSUs and stock options as performance-based, but do not classify service-based RSUs as performance-based.

The cash component of the prior programs was 100% performance-based and was designed to:

• motivate outstanding performance at the corporate levels and to create long-term stockholder value,
• attract and retain top talent, and
• optimize value to employees while maintaining cost-effectiveness to the Company.

The committee set performance metrics under each two-year performance period on an annual basis. Goals against the metrics were set every six months to allow the committee to react to changes in the external business environment. When business conditions improved, goals were set to require stronger performance, and when business conditions deteriorated, goals were set to ensure stretch performance under more difficult conditions. We believed this flexibility motivated exceptional performance and delivered stockholder value throughout the applicable fluctuating business cycles we experienced.

Results determined based on performance against the pre-set goals are adjusted to reflect stock price appreciation occurring during the performance period,

aligning results under the program with results realized by our stockholders. The adjustment is made quarterly referencing a ratio of (x) the market price of our common stock over a 50-trading-day period to (y) the market price of our common stock over a 200-trading-day period, if the ratio was greater than one. Thus the final payout amount is determined by achievement against the performance goals adjusted by this stock price appreciation metric, and subject to the cap the committee set and any negative discretion the committee chose to exercise.

For each two-year performance period, the awards were subject to cliff vesting and payouts have been made following the end of the second year to those participants who remain employed on the award determination date. The cliff vesting, rather than annual vesting, has assisted with both retention and aligning NEOs with longer-term stockholder interests.

We believed this program has been effective in achieving pay-for-performance results, as shown in Figure 21 below.

Payout decisions under the calendar year 2012/2013 long-term cash program. In February 2014, the committee determined payouts for the calendar year 2012/2013 performance cycle. The starting price for determination of the stock price appreciation metric for calendar year 2012 was $43.45, which was based on a 200-day moving average as of December 23, 2011 and for calendar year 2013 was $36.93, which was based on a 200-day moving average as of December 21, 2012. The performance metric for both years of the program was non-GAAP operating income, with it being reflected as a dollar value in calendar year 2012 and as a percentage of revenue for calendar year 2013, and goals were

set semi-annually and measured on a quarterly basis. During the performance period, these goals ranged from $115.2 million per quarter to $140 million per quarter during calendar year 2012 and were 15.0% per quarter during calendar year 2013, reflecting stretch goals during calendar year 2012 and retentive goals during calendar year 2013 under then-prevailing business conditions. Actual quarterly performance of non-GAAP operating income during all eight quarters ranged from 29% to 137% of goal. Without regard to stock price appreciation, the resulting payout would have been 85% of target for the entire period. However, the stock price appreciation metric served to increase the payouts to 109% of target.

Calendar year 2013 and 2014 decisions under the calendar year 2013/2014 long-term cash program. Target award amounts were set in February 2013 for the calendar year 2013/2014 program, and are shown in Figure 23 below. At that time, the committee also set non-GAAP operating income as the performance metric for the 2013 calendar year portion of the two year program and set the starting price for measuring stock price appreciation for the 2013 calendar year at $36.93, the 200-day moving average as of December 21, 2012. In February 2014, the committee retained non-GAAP operating income as a percentage of revenue as the performance metric and retained $36.93, the 200-day

moving average as of December 21, 2012, as the starting price for measuring stock price appreciation for the calendar year 2014 portion of the program. Specific goals against the non-GAAP operating income metric were set in February 2013 for the first half of calendar year 2013, in August 2013 for the second half of calendar year 2013, and in February 2014 on an annual basis for calendar year 2014, and in each case were designed to be retentive goals. Payouts for the calendar year 2013/2014 program will be determined and made in February 2015 to eligible NEOs, subject to continued employment.

Similar to the current program, the long-term equity incentive component was historically designed to attract and retain top talent, provide competitive levels of compensation and to reward our NEOs for outstanding Company performance and long-term stock price appreciation. Historically, half of the equity award (25% of the total long-term incentive award opportunity) had been performance-based (including stock options), delivered in either performance-vested RSUs or stock options. The remaining half of the equity award (25% of the total long-term incentive award opportunity) had been delivered through service-vested RSUs. The performance-based equity component of the long-term program was reviewed annually to determine whether performance-based RSUs or stock options were the most appropriate

form for the award based on criteria such as the current business environment and the perceived potential value to motivate and retain the NEOs. Awards cliff vest two years after the grant date, depending on continued employment and, in the case of performance-based RSUs, on performance against specified metrics and goals. The cliff vesting, rather than annual vesting, provides for both retention and for aligning NEOs with longer-term stockholder interests.

Vesting and performance results under the calendar year 2012/2013 long-term equity program. Under the calendar year 2012/2013 long-term equity program, the committee made a grant to each NEO other than Messrs. Archer and Bettinger, who were not then

employees, of service-based RSUs with a grant date of February 7, 2012 and a combined value equal to 50% of the NEO’s total target award amount, as shown in Figure 24. The committee made a comparable grant, as shown in Figure 24, for Mr. Archer on August 3, 2012. To determine the number of service-based RSUs, 50% of the NEO’s long-term equity target dollar amount was

divided by $43.38, the closing price of our common stock on February 7, 2012 for all NEOs other than Mr. Archer, and $34.57, the closing price of our common stock on August 3, 2012 for Mr. Archer. The award determination date was February 7, 2014, subject to continued employment through such date. On that date, the service-based awards vested due to the passage of time.

Awards under the calendar year 2013/2014 long-term equity program. On February 8, 2013, the committee made a grant under the calendar year 2013/2014 long-term equity program to each NEO expected to continue as such (other than Mr. Bettinger, who was not then an employee of the Company), of stock options and service–based RSUs with a combined value equal to 50% of the NEO’s total target award amount, as shown in Figure 25. The committee made a comparable grant for Mr. Bettinger effective as of March 11, 2013, the date he joined the Company. The number of shares of our common stock into which the stock options are exercisable, determined based on a Black Scholes value

analysis, is three times the number of the RSUs granted. The options have a term of seven years and cliff vest on February 8, 2015, subject to continued employment. To determine the number of RSUs, 50% of the NEO’s long-term equity target dollar amount was divided by $42.61, the closing price of our common stock on February 8, 2013 for all NEOs other than Mr. Bettinger, and $42.41, the closing price of our common stock on March 11, 2013, for Mr. Bettinger. The number of shares underlying the stock options issued for the other 50% of the target dollar amount was determined as described above. The RSUs also cliff vest on February 8, 2015, subject to continued employment.

The Company has amended its employment agreements with Messrs. Anstice, Archer and Bettinger and Dr. Gottscho, and change in control agreement with Ms. O’Dowd, during the fiscal year to account for the issuance of a new type of equity award, Market-Based PRSUs and the corresponding severance terms associated therewith. The Company enters into employment/change in control agreements to help attract and retain our

NEOs and believes that these agreements help facilitate a smooth transaction and transition in connection with a change-in-control event. The employment agreements generally provide for designated payments in the event of an involuntary termination of employment, death or disability, as such terms are defined in the applicable agreements. The employment agreements, and also the change in control agreements, generally provide for

designated payments in the case of a change in control when coupled with an involuntary termination (i.e., a double trigger is required before payment is made due to a change in control), as such terms are defined in the applicable agreements.

For additional information about these arrangements and detail about post-termination payments under these arrangements, see the “Potential Payments upon Termination or Change in Control” section below.

Elective Deferred Compensation Plan. The Company maintains an elective deferred compensation plan that allows eligible employees (including all of the NEOs) to voluntarily defer receipt of all or a portion of base salary and certain incentive compensation payments until a date or dates elected by the participating employee. This allows the employee to defer taxes on designated compensation amounts. In addition, the Company provides a limited Company contribution to the plan for all eligible employees.

Supplemental Health & Welfare. We provide certain health and welfare benefits not generally available to other employees, including the payment of premiums for supplemental long-term disability insurance and Company-provided coverage in the amount of $1 million for both life and accidental death and dismemberment

insurance for all NEOs. Until January 1, 2013, the Company also provided an executive medical, dental, and vision reimbursement program that reimbursed NEOs’ cost of medical, dental, and vision expenses in excess of the regular employee plans through the end of 2012.

We also provide post-retirement medical and dental insurance coverage for eligible former executive officers under our Retiree Health Plans, subject to certain eligibility requirements. The program was closed to new executive officers as of January 1, 2013. We have an independent actuarial valuation of this post-retirement benefit conducted annually in accordance with generally accepted accounting principles. The most recent valuation was conducted in June 2014 and reflected the following retirement benefit obligation for the NEOs:

Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code of 1986, as amended, or the “Code,” imposes limitations on the deductibility for federal income tax purposes of compensation in excess of $1 million paid to our chief executive officer, and any of our three other most highly compensated executive officers (other than our chief financial officer) in a single tax year. Generally, compensation in excess of $1 million may only be deducted if it is “performance-based compensation” within the meaning of the Code.

When we design our executive compensation programs, we take into account whether a particular form of compensation will be considered “performance-based” compensation for purposes of section 162(m).

To facilitate the deductibility of compensation payments under section 162(m), in fiscal year 2004, we initially adopted the Executive Incentive Plan, or “EIP,” and obtained stockholder approval for the EIP at that time. We most recently amended this plan and obtained stockholder approval for the amendment in calendar year 2010. Both the Annual Incentive Program and the

Long-term Incentive Program are administered under the EIP. The annual program awards and the long-term cash awards to our NEOs generally qualify for deductibility under section 162(m) to the extent practicable.

Consistent with the EIP and the regulations under section 162(m), compensation income realized upon the exercise of stock options granted under our long-term incentive program generally will be deductible because the awards are granted by a committee whose members are outside directors and the other conditions of the EIP are satisfied. However, compensation associated with RSUs granted under the long-term incentive program may not be deductible unless vesting is based on specific performance goals and the other conditions of the EIP are satisfied. Therefore, compensation income realized upon the vesting of service-based RSUs or upon the vesting of equity awards not meeting the conditions required by the EIP is not deductible to the Company to the extent that the threshold is exceeded.

The committee monitors the application of section 162(m) and the associated Treasury regulations and considers the advisability of qualifying our executive compensation for deductibility of such compensation. The committee’s policy is to qualify our executive compensation for deductibility under applicable tax laws to the extent practicable and where the committee believes it is in the best interests of the Company and its stockholders.

Taxation of “Parachute” Payments

Sections 280G and 4999 of the Code provide that “disqualified individuals” within the meaning of the Code (which generally includes certain officers, directors and employees of the Company) may be subject to additional taxes if they receive payments or benefits in connection with a change in control of the corporation that exceed certain prescribed limits. The corporation or its successor may also forfeit a deduction on the amounts subject to this additional tax.

We did not provide any of our executive officers, any director, or any other service provider with a “gross-up” or other reimbursement payment for any tax liability that the individual might owe as a result of the application of sections 280G or 4999 during fiscal year 2014, and we have not agreed and are not otherwise obligated to provide any individual with such a “gross-up” or other reimbursement as a result of the application of sections 280G and 4999.

Internal Revenue Code Section 409A

Section 409A of the Code imposes significant additional taxes on an executive officer, director, or service provider that receives non-compliant “deferred compensation” that is within the scope of section 409A. Among other things, section 409A potentially applies to the cash awards under the long-term incentive program, the Elective Deferred Compensation Plan, certain equity awards, and severance arrangements.

To assist our employees in avoiding additional taxes under section 409A, we have structured the long-term incentive program, the Elective Deferred Compensation Plan, and our equity awards in a manner intended to qualify them for exclusion from, or compliance with, section 409A.

Accounting for Stock-Based Compensation

We follow Financial Accounting Standards Board Accounting Standards Codification Topic 718, or “ASC 718,” for accounting for our stock options and other stock-based awards. ASC 718 requires companies to calculate the grant date “fair value” of their stock option grants and other equity awards using a variety of assumptions. This calculation is performed for accounting purposes. ASC 718 also requires companies to recognize the compensation cost of stock option grants and other stock-based awards in their income statements over the period that an employee is required to render service in exchange for the option or other equity award.

The compensation committee has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on this review and discussion, the compensation committee has recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement and the Company’s annual report on Form 10-K.

This Compensation Committee Report shall not be deemed “filed” with the SEC for purposes of federal securities law, and it shall not, under any circumstances,

be incorporated by reference into any of the Company’s past or future SEC filings. The report shall not be deemed soliciting material.

MEMBERS OF THE COMPENSATION COMMITTEE

Youssef A. El-Mansy
Christine A. Heckart
Grant M. Inman
Abhijit Y. Talwalkar (Chair)

None of the compensation committee members has ever been an officer or employee of Lam Research. No interlocking relationship exists as of the date of this proxy statement or existed during fiscal year 2014 between

any member of our compensation committee and any member of any other company’s board of directors or compensation committee.