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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

(Amendment No.     )

Filed by the Registrant x                            Filed by a Party other than the Registrant ¨

Check the appropriate box:

KLA-Tencor Corporation

(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):

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

November 3, 2011

To the Stockholders:

YOUR VOTE IS IMPORTANT

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of KLA-Tencor Corporation (“we” or the “Company”), a Delaware corporation, will be held on Thursday, November 3, 2011 at 12:00 p.m., local time, in Building Three of our Milpitas facility, located at Three Technology Drive, Milpitas, California 95035, for the following purposes:

The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice.

Only stockholders of record at the close of business on September 13, 2011 are entitled to notice of, and to vote at, the Annual Meeting and any adjournment or postponement thereof.

Sincerely,

Richard P. Wallace

President and Chief Executive Officer

Milpitas, California

This Notice of Annual Meeting of Stockholders, Proxy Statement and form of proxy are being distributed and made available on or about September 22, 2011.

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KLA-TENCOR CORPORATION

2011 ANNUAL MEETING OF STOCKHOLDERS – PROXY STATEMENT

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ANNUAL MEETING OF STOCKHOLDERS

OF

KLA-TENCOR CORPORATION

To be held on November 3, 2011

PROXY STATEMENT

QUESTIONS AND ANSWERS REGARDING PROXY MATERIALS

The Board of Directors (the “Board”) of KLA-Tencor Corporation (“KLA-Tencor,” the “Company” or “we”) is providing these proxy materials to you in connection with KLA-Tencor’s Annual Meeting of Stockholders to be held on Thursday, November 3, 2011 at 12:00 p.m., local time (the “Annual Meeting”). As a stockholder of record, you are invited to attend the Annual Meeting, which will be held in Building Three of our Milpitas facility, located at Three Technology Drive, Milpitas, California 95035. The purposes of the Annual Meeting are set forth in the accompanying Notice of Annual Meeting of Stockholders and this Proxy Statement.

These proxy solicitation materials, together with our Annual Report for fiscal year 2011, were first made available on or about September 22, 2011 to all stockholders entitled to vote at the Annual Meeting. KLA-Tencor’s principal executive offices are located at One Technology Drive, Milpitas, California 95035, and our telephone number is (408) 875-3000.

A copy of our Annual Report on Form 10-K for fiscal year 2011 is available free of charge on the Internet from the website of the Securities and Exchange Commission (the “SEC”) at http://www.sec.gov, as well as on our website at http://ir.kla-tencor.com.

This year, relying on the SEC rule that allows companies to furnish their proxy materials over the Internet, we are again mailing to our stockholders a notice regarding the Internet availability of the proxy materials instead of a paper copy of the proxy materials. All stockholders will have the ability to access the proxy materials over the Internet and request to receive a paper copy of the proxy materials by mail. Instructions on how to access the proxy materials over the Internet or to request a paper copy may be found in the notice. In addition, the notice contains instructions on how you may request to access proxy materials in printed form by mail or electronically on an ongoing basis.

Your notice regarding the Internet availability of the proxy materials, proxy card or voting instruction card will contain instructions on how to:

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Our proxy materials are also available on our website at the following address: http://www.kla-tencor.com/annualmeeting.

Your notice regarding the Internet availability of proxy materials, proxy card or voting instruction card will contain instructions on how you may request to access proxy materials electronically on an ongoing basis. Choosing to access your future proxy materials electronically will help us conserve natural resources and reduce the costs of printing and distributing our proxy materials. If you choose to access future proxy materials electronically, you will receive an e-mail with instructions containing a link to the website where those materials are available and a link to the proxy voting website. Your election to access proxy materials by e-mail will remain in effect until you terminate it.

Stockholders receiving a notice regarding the Internet availability of the proxy materials will find instructions in that notice about how to obtain a paper copy of the proxy materials. Stockholders receiving notice of the availability of the proxy materials by e-mail will find instructions in that e-mail about how to obtain a paper copy of the proxy materials. Stockholders who have previously submitted a standing request to receive paper copies of our proxy materials will receive a paper copy of the proxy materials by mail.

You may request delivery of a single copy of our future proxy statements and annual reports by writing to the address provided in the answer to Question 7 below or calling our Investor Relations department at the telephone number below. Stockholders may also request electronic delivery of future proxy statements by writing to the address below, by calling our Investor Relations department at (408) 875-3600 or via our website at http://ir.kla-tencor.com.

Certain stockholders who share an address are being delivered only one copy of this Proxy Statement. You may receive additional copies of this Proxy Statement without charge by sending a written request to KLA-Tencor Corporation, Attention: Investor Relations, One Technology Drive, Milpitas, California 95035. Requests may also be made by calling our Investor Relations department at (408) 875-3600.

QUESTIONS AND ANSWERS REGARDING THE ANNUAL MEETING

You may vote at the Annual Meeting if our records showed that you owned shares of KLA-Tencor Common Stock as of the close of business on September 13, 2011 (the “Record Date”). At the close of business on that date, we had a total of 166,543,044 shares of Common Stock issued and outstanding, which were held of record by approximately 575 stockholders. As of the Record Date, we had no shares of Preferred Stock outstanding. You are entitled to one vote for each share that you own.

The Annual Meeting will be held if a majority of the outstanding Common Stock entitled to vote is represented at the Annual Meeting. If you have returned valid proxy instructions or attend the Annual Meeting in person, your Common Stock will be counted for the purpose of

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determining whether there is a quorum, even if you wish to abstain from voting on some or all matters at the Annual Meeting.

In addition to such other business as may properly come before the Annual Meeting or any adjournment thereof, the following four proposals will be presented at the Annual Meeting:

QUESTIONS AND ANSWERS REGARDING PROXY SOLICITATION AND VOTING

Most stockholders do not own shares registered directly in their name, but rather are “beneficial holders” of shares held in a stock brokerage account or by a bank or other nominee (that is, shares held “in street name”). Those stockholders should refer to Question 11 below for instructions regarding how to vote their shares.

If, however, your shares are registered directly in your name with our transfer agent, you are considered, with respect to those shares, the stockholder of record, and these proxy materials are being sent directly to you. You may vote in the following ways:

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Whichever of these methods you select to transmit your instructions, the proxy holders will vote your shares in accordance with those instructions.

If you vote by mail, telephone or Internet without giving specific voting instructions, your shares will be voted FOR Proposal One (the election of the three nominees listed herein for the Board), FOR Proposal Two (the ratification of the appointment of our independent registered public accounting firm), FOR Proposal Three (the approval of the compensation of our Named Executive Officers (as that term is defined on page 43)) and, with respect to Proposal Four, for the approval of an ANNUAL advisory vote on executive compensation. When proxies are properly dated, executed and returned (whether by returned proxy card, telephone or Internet), the shares represented by such proxies will be voted at the Annual Meeting in accordance with the instructions of the stockholder. However, if no specific instructions are given, the shares will be voted in accordance with the recommendations of our Board and as the proxy holders may determine in their discretion with respect to any other matters that properly come before the meeting.

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held “in street name,” and your broker or nominee is considered the stockholder of record with respect to those shares. Your broker or nominee should be forwarding these proxy materials to you. As the beneficial owner, you have the right to direct your broker how to vote, and you are also invited to attend the Annual Meeting. However, since you are not the stockholder of record, you may not vote these shares in person at the Annual Meeting. If a broker, bank or other nominee holds your shares, you will receive instructions from them that you must follow in order to have your shares voted.

You may change your vote at any time prior to the vote at the Annual Meeting. To change your proxy instructions if you are a stockholder of record, you must:

If you are the beneficial owner of shares held in street name, you should contact the broker, bank or other nominee that holds your shares for instructions regarding how to change your vote.

KLA-Tencor is making this proxy solicitation, and we will pay the entire cost of this solicitation, including preparing, assembling, printing, mailing and distributing the notices and

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these proxy materials and soliciting votes. We have retained the services of D.F. King & Company to aid in the solicitation of proxies from brokers, bank nominees and other institutional owners. We estimate that we will pay D.F. King fees of approximately $7,500 (plus reimbursement of out-of-pocket expenses) for this solicitation activity, forwarding solicitation material to beneficial and registered stockholders and processing the results. Certain of our Directors, officers and regular employees, without additional compensation, may solicit proxies personally or by telephone.

Yes, but only on a limited range of proposals. If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial” owner of shares held “in street name,” and these proxy materials are being forwarded to you by your broker or nominee (the “record holder”) along with a voting card. As the beneficial owner, you have the right to direct your record holder how to vote your shares, and your record holder is required to vote your shares in accordance with your instructions. Record holders do not have discretion to vote your shares on the election of directors, on the advisory vote on executive compensation or on the advisory vote on the frequency of future advisory votes on executive compensation, in each case in the absence of specific instructions from you (the beneficial owner). Therefore, if you do not give instructions to your record holder, the record holder will only be entitled to vote your shares in its discretion on Proposal Two (the ratification of the appointment of our independent registered public accounting firm).

Shares that are voted “FOR,” “AGAINST,” “WITHHELD” or “ABSTAIN” are treated as being present for purposes of determining the presence of a quorum and are also treated as shares entitled to vote at the Annual Meeting (“Votes Cast”).

For Proposal One (the election of Directors), you are only able to vote your shares as either “FOR” or “WITHHELD.” Shares that are voted without giving specific voting instructions will be voted as described in the answers to Questions 10 and 14. Accordingly, abstentions will not be relevant to or impact the election of Directors.

For Proposal Two (the ratification of the appointment of our independent registered public accounting firm) and Proposal Three (the advisory vote on executive compensation), you are able to vote your shares as “FOR,” “AGAINST” or “ABSTAIN.” Since abstentions will be counted for Proposals Two and Three for purposes of determining both (i) the presence or absence of a quorum for the transaction of business and (ii) the total number of Votes Cast with respect to the proposal, abstentions on Proposal Two or Proposal Three will have the same effect as a vote against that proposal. Proposals Two and Three are non-binding advisory votes, for which our Board and its committees will give careful consideration to the voting results.

For Proposal Four (the advisory vote on the frequency of holding future advisory votes on executive compensation), you are able to vote your shares for “ONE YEAR,” “TWO YEARS,” “THREE YEARS” or “ABSTAIN.” Proposal Four is a non-binding advisory vote, for which our Board and Compensation Committee will give careful consideration to the frequency that receives the highest number of votes from our stockholders. If you abstain from voting on this proposal, the abstention will not impact the outcome of this vote.

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For all proposals, shares that are subject to a broker non-vote are counted for purposes of determining whether a quorum exists but not for purposes of determining whether a proposal has passed.

The Board recommends that stockholders vote as follows:

We are not aware of any matters to be presented other than those described in this Proxy Statement. In the unlikely event that any matters not described in this Proxy Statement are properly presented at the Annual Meeting, the proxy holders will use their own judgment to determine how to vote.

If the Annual Meeting is adjourned or postponed, the proxy holders can vote your shares on the new meeting date as well, unless you have properly revoked your proxy instructions.

We intend to announce preliminary voting results at the Annual Meeting and publish final results in a Current Report on Form 8-K to be filed with the SEC within four business days of the Annual Meeting.

QUESTIONS AND ANSWERS REGARDING STOCKHOLDER PROPOSALS, DIRECTOR NOMINATIONS BY STOCKHOLDERS AND RELATED BYLAW PROVISIONS

A stockholder may only present a matter from the floor of a meeting of stockholders for consideration at that meeting if certain procedures set forth in our bylaws are followed, including delivery of advance notice by such stockholder to us. We have not received any timely notices with respect to the Annual Meeting regarding the presentation by any stockholders of business from the floor of the meeting. Accordingly, we do not expect to acknowledge any business presented from the floor at the Annual Meeting.

You may submit proposals for consideration at future stockholder meetings. For a stockholder proposal to be considered for inclusion in our proxy statement for the annual meeting next year

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(which is expected to be held in November 2012), our Corporate Secretary must receive the written proposal at our principal executive offices no later than May 25, 2012. Such proposals also must comply with SEC regulations under Rule 14a-8 regarding the inclusion of stockholder proposals in company-sponsored proxy materials. Proposals should be addressed to:

Corporate Secretary

KLA-Tencor Corporation

One Technology Drive

Milpitas, California 95035

Fax: (408) 875-4144

For a stockholder proposal that is not intended to be included in our proxy statement under Rule 14a-8, the stockholder must provide the information required by our bylaws and give timely notice to our Corporate Secretary in accordance with our bylaws, which, in general, require that the notice be received by our Corporate Secretary:

If the date of the stockholders’ meeting is moved more than 30 days before or 60 days after November 3, 2012, then notice of a stockholder proposal that is not intended to be included in our proxy statement under Rule 14a-8 must be received no earlier than the close of business 120 days prior to the meeting and no later than the close of business on the later of the following two dates:

You may propose director candidates for consideration by the Board’s Nominating and Governance Committee. Any such recommendations should include the nominee’s name and qualifications for Board membership and should be directed to our Corporate Secretary at the address of our principal executive offices set forth in Question 21 above.

In addition, our bylaws permit stockholders to nominate directors for election at an annual stockholders’ meeting. To nominate a director, the stockholder must deliver the information required by our bylaws and a statement by the nominee acknowledging that he or she will owe a fiduciary obligation to KLA-Tencor and its stockholders. Also, in 2010 the SEC adopted rules aimed at providing certain stockholders with the right to nominate candidates to a company’s Board of Directors in the company’s proxy materials (referred to as “proxy access”). However, earlier this year, the U.S. Court of Appeals for the District of Columbia Circuit vacated the SEC’s “proxy access” rules, so it is unclear whether those rules will ever come into effect (and, if so, when).

A stockholder may send a proposed director candidate’s name and information to the Board at any time. Generally, such proposed candidates are considered at the first or second Board meeting prior to the annual meeting.

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To nominate an individual for election at an annual stockholders’ meeting, the stockholder must give timely notice to our Corporate Secretary in accordance with our bylaws, which, for our annual meeting next year, will generally require that the notice be received by our Corporate Secretary between the close of business on July 6, 2012 and the close of business on August 5, 2012, unless the annual meeting is moved by more than 30 days before or 60 days after November 3, 2012, in which case the deadline will be as described in Question 21 above.

As noted in Question 22 above, it is possible that the “proxy access” rules (which are aimed at providing certain stockholders with the right to nominate candidates to a company’s Board of Directors in the company’s proxy materials) may be in effect for future annual meetings of stockholders. If those rules are in effect for next year’s meeting, then, for a director nominee to be considered for inclusion in our proxy statement for the annual meeting, the nominating stockholder will have to make certain filings with the SEC and deliver certain notices in accordance with the requirements of the SEC’s final rules.

For a free copy of our bylaws, please contact our Investor Relations department at (408) 875-3600. A copy of our bylaws is also available free of charge on the Internet on our website at http://ir.kla-tencor.com and from the SEC’s website at http://www.sec.gov.

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PROPOSAL ONE:

ELECTION OF DIRECTORS

Background

We have a classified Board with three classes. At each annual meeting, a class of Directors is elected for a full term of three years to succeed those Directors whose terms expire at the annual meeting. At this Annual Meeting, the terms of the Class I Directors are expiring.

The three incumbent Class I Directors are Robert M. Calderoni, John T. Dickson and Kevin J. Kennedy. These Directors are up for re-election at the Annual Meeting.

The four incumbent Class II Directors are Robert P. Akins, Robert T. Bond, Kiran M. Patel and David C. Wang. The Class II Directors will serve until the annual meeting of stockholders to be held in 2012 or until their respective successors are duly elected and qualified.

The four incumbent Class III Directors are Edward W. Barnholt, Emiko Higashi, Stephen P. Kaufman and Richard P. Wallace. The Class III Directors will serve until the annual meeting of stockholders to be held in 2013 or until their respective successors are duly elected and qualified.

Nominees

The term of the three current Class I Directors will expire on the date of the Annual Meeting. The three incumbent Class I Directors are nominated for election at the Annual Meeting. The Nominating and Governance Committee, consisting solely of independent Directors as determined under the rules of the NASDAQ Stock Market, recommended the Class I Director nominees as set forth in this Proposal One. Based on that recommendation, the members of the Board resolved to nominate such individuals for election.

The three candidates nominated by the Board for election as Class I Directors by the stockholders are:

If elected, the nominees for Class I Directors will serve as Directors until our annual meeting of stockholders in 2014, each until his successor is duly elected and qualified. If any nominee declines to serve or becomes unavailable for any reason, or a vacancy occurs before the election, the proxies may be voted for such substitute nominees as the Board may designate. As of the date of this Proxy Statement, the Board is not aware of any nominee who is unable or who will decline to serve as a Director.

Vote Required and Recommendation

If a quorum is present and voting, the three nominees for Class I Directors receiving the highest number of affirmative votes will be elected as Class I Directors. Votes withheld from any Director and broker non-votes are counted for purposes of determining the presence or absence of a quorum but have no other legal effect on the selection of nominees for Directors.

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In accordance with our corporate governance policies, anyone who is elected as a Director in any uncontested election by a plurality and not a majority of votes cast will promptly tender his or her resignation to the Board, subject to acceptance by the Board, after certification of the election results. The Nominating and Governance Committee will make a recommendation to the Board whether to accept or reject the resignation or take some other appropriate action, taking into account any stated reasons why stockholders withheld votes and any other factors that the Nominating and Governance Committee determines in its sole discretion are relevant to such decision. The Board will in its sole discretion act on the recommendation of the Nominating and Governance Committee within 90 days after the date of certification of the election results. The Director who tenders his or her resignation will not participate in the decisions of the Nominating and Governance Committee or the Board regarding his or her resignation.

The Board unanimously recommends a vote “FOR” each of the Class I Director nominees, with the Directors who are nominees abstaining.

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INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES

The Board of Directors

Our Board held a total of eight meetings during the fiscal year ended June 30, 2011.

All Directors other than Mr. Wallace meet the definition of independence within the meaning of the NASDAQ Stock Market director independence standards.

The Board has three standing committees: the Audit Committee; the Compensation Committee; and the Nominating and Governance Committee. The Board has determined that each of the members of each of the Committees has no material relationship with the Company (including any relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment as a Director) and is independent within the meaning of the NASDAQ Stock Market director independence standards, including, in the case of the Audit Committee, the heightened “independence” standard required for such Committee members.

Each Committee meets regularly and has a written charter approved by the Board, all of which are available on our website at http://ir.kla-tencor.com. The Board and each Committee regularly review the Committee charters. In addition, at each quarterly Board meeting, a member of each Committee reports on any significant matters addressed by the Committee.

During the fiscal year ended June 30, 2011, each of the incumbent Directors attended at least 80% of the aggregate of (a) the total number of meetings of the Board held during the period for which such person served as a Director and (b) the total number of meetings held by all Committees of the Board on which such Director served (during the periods that such Director served).

Although we do not have a formal policy mandating attendance by members of the Board at our annual meetings of stockholders, we do have a formal policy encouraging their attendance at our annual stockholders’ meetings. Ten of the eleven members of our Board (including Ms. Higashi, who was first elected to our Board at last year’s annual meeting) attended our annual stockholders’ meeting held on November 3, 2010.

For more information regarding the responsibilities of our Board Committees, please refer to the various charters which can be found, along with our Standards of Business Conduct, Corporate Governance Standards and other governance-related information, on our corporate governance website located at http://ir.kla-tencor.com.

Board Leadership Structure

KLA-Tencor currently separates the positions of Chief Executive Officer and Chairman of the Board. Since October 2006, Mr. Barnholt, one of our independent Directors, has served as our Chairman of the Board. The responsibilities of the Chairman of the Board include: setting the agenda for each Board meeting, in consultation with the Chief Executive Officer; presiding at executive sessions; facilitating and conducting, with the Nominating and Governance Committee, the annual self-assessments by the Board and each standing committee of the Board; and conducting, with the Compensation Committee, a formal evaluation of the Chief Executive Officer in the context of the annual compensation review.

Separating the positions of Chief Executive Officer and Chairman of the Board allows our Chief Executive Officer to focus on our day-to-day business, while allowing the Chairman of the Board to lead the Board in its fundamental role of providing advice to and independent

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oversight of management. The Board believes that having an independent Director serve as Chairman of the Board is the appropriate leadership structure for the Company at this time.

However, our Corporate Governance Standards permit the roles of the Chairman of the Board and the Chief Executive Officer to be filled by the same or different individuals. This provides the Board with flexibility to determine whether the two roles should be combined in the future based on KLA-Tencor’s needs and the Board’s assessment of the Company’s leadership from time to time. Our Corporate Governance Standards provide that, in the event that the Chairman of the Board is not an independent Director, the independent members of the Board will designate a “lead independent director.”

Board’s Role in Oversight of Risk

Our Board, as a whole and through its committees, has responsibility for the oversight of risk management. In its oversight role, our Board has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. The involvement of the Board in working with management to establish our business strategy at least annually is a key part of its oversight of risk management, its assessment of management’s appetite for risk and its determination of what constitutes an appropriate level of risk for KLA-Tencor. In addition, the Board conducts a comprehensive review of the Company’s overall risk environment and its risk management efforts at least once per year. The Board and its committees also regularly receive updates from management (including representatives of our legal and internal audit teams) regarding certain risks that we face, including industry, business, macroeconomic, litigation and other operating risks.

While our Board is ultimately responsible for risk oversight at KLA-Tencor, our Board has delegated to the Audit Committee the primary responsibility for the active oversight of our enterprise risk management activities. Our Audit Committee is not only responsible for overseeing risk management of financial matters, the adequacy of our risk-related internal controls, financial reporting and internal investigations, but its charter also provides that the Committee will discuss at least annually KLA-Tencor’s risk assessment, enterprise risk management processes and major financial exposures, as well as the steps our management has taken to monitor and control those exposures. Our Audit Committee reports its findings and activities to the Board at each quarterly Board meeting.

In addition, our other Board committees each oversee certain aspects of risk management. Our Compensation Committee oversees risks related to our compensation policies and practices, and our Nominating and Governance Committee oversees governance related risks, such as Board independence and conflicts of interest, as well as management and director succession planning. The Committees report their findings and activities to the Board.

While the Board is responsible for risk oversight, management is responsible for risk management. KLA-Tencor maintains an effective internal controls environment and has processes to identify and manage risk, including an Executive Risk Council comprised of representatives from our legal, human resources, finance, internal audit, compliance and operational teams. This council reports to our Chief Executive Officer and has oversight of the various risk assessment, monitoring and controls processes across the Company.

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Audit Committee

At the beginning of fiscal year 2011, the Audit Committee consisted of Messrs. Calderoni, Kaufman, Patel and Wang, with Mr. Calderoni serving as the Chairman of the Committee. Effective November 3, 2010 (the date of last year’s annual stockholders’ meeting), in connection with a periodic rotation of committee memberships, Mr. Kaufman ceased to serve as a member of the Audit Committee, and Mr. Bond was appointed as a member of the Audit Committee. In addition, on November 4, 2010, the Board appointed Ms. Higashi as a member of the Audit Committee. From November 4, 2010 through the date of this Proxy Statement, the Audit Committee has consisted of Messrs. Calderoni, Bond, Patel and Wang and Ms. Higashi, with Mr. Calderoni serving as the Chairman of the Committee.

The Board has determined that, of the current members of the Audit Committee, each of Mr. Calderoni, Ms. Higashi and Mr. Patel is an “audit committee financial expert” within the meaning of the rules and regulations promulgated by the SEC.

The Audit Committee is responsible for appointing and overseeing the work of our independent registered public accounting firm, approving the services performed by our independent registered public accounting firm, and reviewing and evaluating our accounting principles and system of internal accounting controls. In addition, our Vice President of Internal Audit, who is supervised by our Chief Financial Officer, formally reports into the Audit Committee and provides updates at each quarterly meeting. The Audit Committee held eight meetings during the fiscal year ended June 30, 2011.

The Board has determined that each of the members of the Audit Committee: (1) meets the definition of independence within the meaning of NASDAQ’s director independence standards, (2) meets the definition of audit committee member independence within the meaning of Rule 10A-3 under the Securities Exchange Act of 1934 and (3) has no material relationship with KLA-Tencor (including any relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment as a Director).

Compensation Committee

At the beginning of fiscal year 2011, the Compensation Committee consisted of Messrs. Akins, Barnholt, Bond, Dickson and Kennedy, with Mr. Kennedy serving as the Chairman of the Committee. Effective November 3, 2010 (the date of last year’s annual stockholders’ meeting), in connection with a periodic rotation of committee memberships, Mr. Bond ceased to serve as a member of the Compensation Committee, and Mr. Kaufman was appointed as a member of the Compensation Committee. From November 3, 2010 through the date of this Proxy Statement, the Compensation Committee has consisted of Messrs. Akins, Barnholt, Dickson, Kaufman and Kennedy, with Mr. Kennedy serving as the Chairman of the Committee.

The Compensation Committee reviews and either approves or recommends to the full Board (depending upon the compensation plan and the executive involved) our executive compensation policy and administers our employee equity award plans. The Compensation Committee also reviews and, except with respect to our Chief Executive Officer and Chairman of the Board, has the authority to approve the cash and equity compensation for our executive officers and for members of the Board. See “Compensation Discussion and Analysis – Compensation Approval Procedures” for more information concerning the procedures and processes the Compensation Committee follows in setting such compensation and implementing the various cash and equity compensation programs in effect for such

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individuals, including the retention of an independent compensation consultant to provide relevant market data and advice. The Compensation Committee held eight meetings during the fiscal year ended June 30, 2011.

Risk Considerations in Our Compensation Programs

Our management conducted an extensive review and analysis of the design and operation of KLA-Tencor’s compensation practices, policies and programs for all employees, including the Named Executive Officers, to assess the risks associated with such practices, policies and programs. Our Compensation Committee has reviewed the results of that analysis, including underlying plan data and a risk assessment of significant elements of our compensation program. Based on this review and assessment, we and our Compensation Committee do not believe our compensation program encourages excessive or inappropriate risk-taking for the following reasons:

Nominating and Governance Committee

From the beginning of fiscal year 2011 through the date of this Proxy Statement, the Nominating and Governance Committee has consisted of Messrs. Barnholt, Bond, Dickson and Kaufman, with Mr. Barnholt serving as the Chairman of the Committee.

The Nominating and Governance Committee is primarily responsible for identifying and evaluating the qualifications of all candidates for election to the Board, as well as reviewing corporate governance policies and procedures. The Nominating and Governance Committee held four meetings during the fiscal year ended June 30, 2011.

The Nominating and Governance Committee assesses the appropriate size and composition of the Board, the effectiveness of its leadership structure, and whether any vacancies on the

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Board are expected. In the event that vacancies are anticipated, or otherwise arise, the Nominating and Governance Committee considers potential candidates that may come to its attention through current members of the Board, professional search firms, management, stockholders or other persons. In evaluating properly submitted stockholder recommendations, the Nominating and Governance Committee uses the evaluation standards discussed in further detail below and seeks to achieve a balance of knowledge, experience and capability on the Board.

It is the Nominating and Governance Committee’s policy to consider candidates for the Board recommended by, among other persons, stockholders who have owned one percent (1%) or more of our outstanding shares for at least one year and who state that they have an intent to continue as a substantial stockholder for the long term. Stockholders wishing to nominate candidates for the Board must notify our General Counsel in writing of their intent to do so and provide us with certain information set forth in Article II, Section 11 of our bylaws and all other information regarding nominees that is required to be provided pursuant to Regulation 14A of the Securities Exchange Act of 1934, or as otherwise requested by the Nominating and Governance Committee. In addition, the SEC has adopted rules (referred to as “proxy access” rules) aimed at enabling stockholders that satisfy applicable ownership requirements to nominate candidates for a company’s Board of Directors for inclusion in the company’s proxy materials. However, earlier this year, the U.S. Court of Appeals for the District of Columbia Circuit vacated the SEC’s “proxy access” rules, so it is unclear whether these rules will be in effect for our 2012 annual stockholders’ meeting.

Several years ago, we instituted a governance policy applicable to uncontested Director elections, which policy currently remains in effect. Under this policy, anyone who is elected as a Director in any uncontested election by a plurality and not a majority of votes cast will promptly tender his or her resignation to the Board, subject to acceptance by the Board, after certification of the election results. The Nominating and Governance Committee will make a recommendation to the Board whether to accept or reject the resignation or take some other appropriate action, taking into account any stated reasons why stockholders withheld votes and any other factors which the Nominating and Governance Committee determines in its sole discretion are relevant to such decision. The Board will in its sole discretion act on the recommendation of the Nominating and Governance Committee within 90 days after the date of certification of the election results. The Director who tenders his or her resignation will not participate in the decisions of the Nominating and Governance Committee or the Board regarding his or her resignation.

Director Qualifications and Diversity

The Board believes that the skill set, backgrounds and qualifications of our Directors, considered as a group, should provide a significant composite mix of diversity in experience, knowledge and abilities that will allow the Board to fulfill its responsibilities. In addition, the Board believes that there are certain attributes that every Director should possess, such as demonstrated business or academic achievements, the highest ethical standards and a strong sense of professionalism. Accordingly, the Board and the Nominating and Governance Committee consider the qualifications of Directors and Director candidates individually and in the broader context of the Board’s overall composition and KLA-Tencor’s current and future needs.

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In considering candidates for Director nomination, including evaluating any recommendations from stockholders as set forth above, the Nominating and Governance Committee only considers candidates who have demonstrated executive experience or significant high level experience in accounting, legal or a technical field or industry applicable to KLA-Tencor. In addition, as set forth in our Corporate Governance Standards, the Nominating and Governance Committee takes into account all factors it considers appropriate when evaluating Director candidates, which may include strength of character, mature judgment, career specialization, diversity and the extent to which the candidate would fill a present need on the Board. With respect to new Board members, it is the standard practice of the Nominating and Governance Committee to engage a third-party recruiting firm to identify a slate of individuals for consideration as Board candidates based on the above-mentioned criteria.

In addition, the Nominating and Governance Committee annually reviews with the Board the appropriate skills and characteristics required of Directors in the context of the current composition of the Board. In seeking a diversity of background, the Nominating and Governance Committee seeks a variety of occupational and personal backgrounds on the Board in order to obtain a range of viewpoints and perspectives. This annual assessment enables the Board to update the skills and experience it seeks in the Board as a whole, and in individual Directors, as KLA-Tencor’s needs evolve and change over time.

In evaluating Director candidates, including incumbent Directors for renomination to the Board, the Nominating and Governance Committee has considered all of the criteria described above. When assessing an incumbent Director, Nominating and Governance Committee also considers the Director’s past performance on and contributions to the Board. Among other things, the Nominating and Governance Committee has determined that it is important to have individuals with the following skills and experiences on the Board:

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INFORMATION ABOUT THE DIRECTORS AND THE NOMINEES

Our Board and its Nominating and Governance Committee believe that all of the Directors and nominees listed below are highly qualified and have the skills and experience required for service on our Board. The following table sets forth certain information with respect to our Directors and nominees as of the date of this Proxy Statement, including biographies that reflect their significant experiences, qualifications and skills:

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PROPOSAL TWO:

RATIFICATION OF APPOINTMENT OF

PRICEWATERHOUSECOOPERS LLP AS OUR

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

FOR THE FISCAL YEAR ENDING JUNE 30, 2012

Audit Committee Recommendation

The Audit Committee has the sole authority to retain or dismiss our independent auditors. The Audit Committee has selected PricewaterhouseCoopers LLP, an independent registered public accounting firm, to audit our consolidated financial statements for our fiscal year ending June 30, 2012. Before making its determination, the Audit Committee carefully considered that firm’s qualifications as independent auditors.

The Board, following the Audit Committee’s determination, unanimously recommends that the stockholders vote for ratification of such appointment.

Although ratification by stockholders is not required by law, the Board has determined that it is desirable to request approval of this selection by the stockholders. If the stockholders do not ratify the appointment of PricewaterhouseCoopers LLP, the Audit Committee may reconsider its selection.

Attendance at the Annual Meeting

Representatives of PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting with the opportunity to make a statement if they desire to do so, and are expected to be available to respond to appropriate questions.

Fees

The aggregate fees billed by PricewaterhouseCoopers LLP, KLA-Tencor’s independent registered public accounting firm, in fiscal years 2011 and 2010 were as follows:

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Pre-Approval Policies and Procedures

The Audit Committee has adopted a policy regarding non-audit services provided by PricewaterhouseCoopers LLP, our independent registered public accounting firm. First, the policy ensures the independence of our auditors by expressly naming all services that the auditors may not perform and reinforcing the principle of independence regardless of the type of service. Second, certain non-audit services such as tax-related services and acquisition advisory services are permitted but limited in proportion to the audit fees paid. Third, the Chair of the Audit Committee pre-approves non-audit services not specifically permitted under this policy, and the Audit Committee reviews the annual plan and any subsequent engagements. All non-audit fees were approved by the Audit Committee pursuant to its pre-approval policies and procedures.

On a quarterly basis, management provides written updates to the Audit Committee with regard to audit and non-audit services, the amount of audit and non-audit service fees incurred to date, and the estimated cost to complete such services.

Independence Assessment by Audit Committee

Our Audit Committee considered and determined that the provision of the services provided by PricewaterhouseCoopers LLP as set forth herein is compatible with maintaining PricewaterhouseCoopers LLP’s independence and approved all non-audit related fees and services.

Vote Required and Recommendation

If a quorum is present and voting, the affirmative vote of the majority of Votes Cast is needed to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm, to audit our consolidated financial statements for our fiscal year ending June 30, 2012.

The Board unanimously recommends a vote “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2012.

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PROPOSAL THREE:

ADVISORY VOTE ON EXECUTIVE COMPENSATION

Background

Beginning this year, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, enables KLA-Tencor’s stockholders to vote to approve, on a non-binding advisory basis, the compensation of our Named Executive Officers (as that term is defined on page 43 of this Proxy Statement) as disclosed in the “Compensation Discussion and Analysis” section, the Summary Compensation Table and the other related tables and disclosure in this Proxy Statement.

As described in greater detail under the heading “Compensation Discussion and Analysis,” we seek to closely align the interests of our Named Executive Officers with the interests of our stockholders by focusing on a philosophy of “pay-for-performance.” Our compensation programs are designed to support our business goals and to promote both short-term and long-term financial and strategic achievement.

We urge stockholders to read the “Compensation Discussion and Analysis” section of this Proxy Statement, which describes in more detail how our executive compensation policies and procedures operate and are designed to achieve our compensation objectives, as well as the Summary Compensation Table and other related compensation tables and disclosure in this Proxy Statement, which provide detailed information on the compensation of our Named Executive Officers. The Compensation Committee and the Board believe that the policies and procedures articulated in the “Compensation Discussion and Analysis” are effective in achieving our goals and that the compensation of our Named Executive Officers as reported in this Proxy Statement has supported and contributed to our recent and long-term success.

Nature of Vote; Recommendation

This vote is advisory and therefore not binding on KLA-Tencor, our Board of Directors or the Compensation Committee. The vote on this resolution is not intended to address any specific element of compensation, but rather relates to the overall compensation of our Named Executive Officers, as described in this Proxy Statement in accordance with the compensation disclosure rules of the SEC.

Accordingly, we ask our stockholders to approve the following resolution at the Annual Meeting:

“RESOLVED, that KLA-Tencor Corporation’s stockholders approve, on an advisory basis, the compensation of the Named Executive Officers, as disclosed in the Company’s Proxy Statement for the 2011 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure.”

While this advisory vote on executive compensation is non-binding, the Board and the Compensation Committee value the opinion of KLA-Tencor’s stockholders and will carefully assess the voting results and consider the impact of such vote on our compensation policies and decisions.

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Vote Required

The affirmative vote of a majority of the shares of KLA-Tencor Common Stock present in person or represented by proxy and entitled to be voted on the proposal at the Annual Meeting is required for advisory approval of this proposal.

The Board unanimously recommends a vote “FOR” the approval, on an advisory basis, of the compensation of our Named Executive Officers, as disclosed in this Proxy Statement.

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PROPOSAL FOUR:

ADVISORY VOTE ON THE FREQUENCY OF HOLDING FUTURE

ADVISORY VOTES ON EXECUTIVE COMPENSATION

Background

The Dodd-Frank Act also enables KLA-Tencor’s stockholders to vote to approve, on a non-binding advisory basis, the frequency of votes on the compensation of our Named Executive Officers. Pursuant to this new law, we are asking stockholders to vote on whether future votes on the compensation of our Named Executive Officers, such as the advisory vote in Proposal Three above, should occur every year, every two years, or every three years.

Our Board is recommending that you vote for an annual advisory vote on executive compensation. Our Board and Compensation Committee have a long-term view of executive compensation, which is particularly appropriate in a cyclical industry such as the semiconductor industry, where business cycles typically cover multiple years. However, for this initial vote on the frequency of future advisory votes on executive compensation, we are recommending that an advisory vote on the compensation of our Named Executive Officers be held every year.

Nature of Vote; Recommendation

This vote is advisory and therefore not binding on KLA-Tencor, our Board of Directors or the Compensation Committee. When voting, stockholders are able to specify one of four choices for this proposal on the proxy card: One year, Two years, Three years, or Abstain. Unless otherwise instructed, the proxy holders will vote the proxies they receive for the option of once every ONE year as the preferred frequency for advisory votes on executive compensation.

Accordingly, we ask our stockholders to vote on the preferred voting frequency by selecting the option of one year, two years or three years, or by abstaining from the vote, when voting in response to the following resolution at the Annual Meeting:

“RESOLVED, that KLA-Tencor Corporation’s stockholders determine, on an advisory basis, whether the preferred frequency of an advisory vote on the executive compensation of the Company’s Named Executive Officers, as disclosed in the Company’s Proxy Statement, pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure, should be every one year, every two years, or every three years.”

Vote Required

The affirmative vote of a plurality of the shares of KLA-Tencor Common Stock present in person or represented by proxy and entitled to be voted on the proposal at the Annual Meeting is required for advisory approval of this proposal. While this advisory vote on the frequency of holding future votes on executive compensation is non-binding, the Board and the Compensation Committee will carefully consider the voting results in making its final decision regarding the frequency with which such votes will be held in the future. However, because this vote is advisory and not binding, the Board may decide that it is in the best interests of KLA-Tencor and its stockholders to hold an advisory vote more or less frequently than the

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alternative that has been selected by our stockholders. The option of every one year, every two years, or every three years that receives the highest number of votes cast by stockholders will be the frequency for the advisory vote on executive compensation that has been selected by stockholders.

The Board unanimously recommends a vote for the option of ONCE EVERY YEAR as the preferred frequency for advisory votes on executive compensation.

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OUR CORPORATE GOVERNANCE PRACTICES

At KLA-Tencor, we believe that strong and effective corporate governance procedures and practices are an extremely important part of our corporate culture. In that spirit, we have summarized several of our corporate governance practices below.

Adopting and Maintaining Governance Standards

The Board has adopted, and regularly reviews and updates as necessary, a set of Corporate Governance Standards to establish a framework within which it will conduct its business and to guide management in its running of the Company. The governance standards, portions of which are summarized below, can be found on our website at http://ir.kla-tencor.com.

Changes to Our Corporate Governance Practices During Fiscal Year 2011

As part of their regular review of our corporate governance practices, the Board periodically approves changes to our governance documentation, including our Standards of Business Conduct, Corporate Governance Standards, Board Committee charters and bylaws, designed to clarify their terms and promote consistency with prevailing best governance practices. During fiscal year 2011, the Board approved several such changes, the most notable of which was an amendment to our Corporate Governance Standards in February 2011 to increase the mandatory retirement age of our Board members from 70 to 72 years old, in an effort to align our practice to recent governance trends. Directors are now expected to tender their resignation from the Board at the August Board meeting following their 72^nd birthday.

Monitoring Board Effectiveness

It is important that our Board and its Committees are performing effectively and in the best interests of KLA-Tencor and our stockholders. The Board is responsible for annually assessing its effectiveness and the effectiveness of each of its Committees in fulfilling their respective obligations, and each Committee is responsible for reviewing the Board’s assessment of that Committee’s effectiveness. In addition, our Nominating and Governance Committee is charged with overseeing an annual review of the Board and its membership.

Conducting Formal Independent Director Sessions

At the conclusion of each regularly scheduled Board meeting, the independent Directors meet in executive session without KLA-Tencor management or any non-independent Directors.

Hiring Outside Advisors

The Board and each of its Committees may retain outside advisors and consultants of their choosing at our expense, without management’s consent.

Avoiding Conflicts of Interest

We expect our Directors, executives and employees to conduct themselves with the highest degree of integrity, ethics and honesty. Our credibility and reputation depend upon the good judgment, ethical standards and personal integrity of each Director, executive and employee.

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In order to provide assurances internally and to our stockholders, we have implemented Standards of Business Conduct which provide clear conflict of interest guidelines to our employees, as well as an explanation of reporting and investigatory procedures.

Providing Transparency

We believe it is important that stockholders understand our governance practices. In order to help ensure transparency of our practices, we have posted information regarding our corporate governance procedures on our website at http://ir.kla-tencor.com.

Communications with the Board

Although we do not have a formal policy regarding communications with the Board, stockholders may communicate with the Board by writing to us at KLA-Tencor Corporation, Attention: Investor Relations, One Technology Drive, Milpitas, California 95035. Stockholders who would like their submission directed to a member of the Board may so specify, and the communication will be forwarded, as appropriate.

Standards of Business Conduct; Whistleblower Hotline and Website

The Board has adopted Standards of Business Conduct for all of our employees and Directors, including our principal executive and senior financial officers, and we have prepared and made available versions of our Standards of Business Conduct translated into French, German, Hebrew, Japanese, Korean and Chinese (Simplified and Traditional) in an effort to maximize the accessibility and understandability of these important guidelines to our employees. You can obtain a copy of our Standards of Business Conduct via our website at http://ir.kla-tencor.com, or by making a written request to us at KLA-Tencor Corporation, Attention: Investor Relations, One Technology Drive, Milpitas, California 95035. We will disclose any amendments to the Standards of Business Conduct, or waiver of a provision therefrom, on our website at the same address.

In addition, we have established a hotline and website for use by employees, as well as third parties such as vendors and customers, to report actual or suspected wrongdoing and to answer questions about business conduct. The hotline and website are both operated by an independent third party, which provides tools to enable individuals to submit reports in a number of different languages and, where permitted by law, on an anonymous basis.

Ensuring Auditor Independence

KLA-Tencor has taken a number of steps to ensure the continued independence of our outside auditors. Our independent auditors report directly to the Audit Committee, which also has the ability to pre-approve or reject any non-audit services proposed to be conducted by our outside auditors.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee currently consists of Messrs. Kennedy (Chair), Akins, Barnholt, Dickson and Kaufman. Mr. Bond also served as a member of the Compensation Committee during a portion of fiscal year 2011 (from the beginning of the fiscal year through November 3, 2010). None of these individuals was an officer or employee of KLA-Tencor at

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any time during fiscal year 2011 or at any other time. During fiscal year 2011, there was no instance where an executive officer of KLA-Tencor served as a member of the Board or compensation committee of any entity and an executive officer of that entity served on our Board or Compensation Committee.

Stockholder Nominations to the Board

Please see “INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES – Nominating and Governance Committee.”

Majority Voting Policy

Please see “PROPOSAL ONE: ELECTION OF DIRECTORS – Vote Required and Recommendation.”

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DIRECTOR COMPENSATION

Employee Directors

Members of the Board who are employees of the Company do not receive any additional compensation for their services as Directors.

Outside Directors

Non-employee members of the Board (“Outside Directors”) receive a combination of equity and cash compensation as approved by the Compensation Committee (or, in the case of the compensation of the Chairman of the Board, as recommended by the Compensation Committee and approved by the Board). Equity compensation to Outside Directors is provided under our 2004 Equity Incentive Plan and, to the extent consisting of stock options, may also be provided under our 1998 Outside Director Option Plan, both of which were approved by our stockholders.

Outside Director Restricted Stock Unit Awards

In accordance with our then-current practice, each Outside Director was awarded restricted stock units at the November 3, 2010 annual stockholders’ meeting covering shares of our Common Stock with an aggregate fair market value of $100,000 based on the market closing price of our Common Stock on the date of the award ($36.08 per share). Accordingly, each Outside Director at that time received a restricted stock unit award covering 2,772 shares of Common Stock (other than the Chairman of the Board, who received 1.5 times that number as described below). The restricted stock units awarded to the Outside Directors at the November 3, 2010 annual stockholders’ meeting were made with respect to their Board service for fiscal year 2011. The restricted stock units will vest upon completion of one year of Board service measured from the date of grant, and the underlying shares will be issued immediately at that time.

In August 2011, based on a review of market data regarding director compensation, the Compensation Committee approved an increase of $20,000 to the fair market value of the Directors’ annual restricted stock unit award (and the Board approved the change with respect to its impact on the Chairman of the Board’s compensation). This updated policy will be in effect for the Annual Meeting. Accordingly, each Outside Director as of the date of the November 2011 Annual Meeting will be awarded restricted stock units at the Annual Meeting covering shares of our Common Stock with an aggregate fair market value of $120,000 based on the market closing price of our Common Stock on that date (other than the Chairman of the Board, who will receive shares with a fair market value of 1.5 times that amount as described below). The restricted stock units will vest upon completion of one year of Board service measured from the date of grant, and the underlying shares will be issued immediately at that time.

If a new Outside Director joins the Board after the date of an annual stockholders’ meeting, his or her first restricted stock unit award will be granted promptly after he or she joins the Board and will be prorated to take into account the period of time from the last annual stockholders’ meeting to the date the new Outside Director joined the Board.

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Cash Compensation

For fiscal year 2011, each Outside Director received an annual retainer fee of $75,000 (other than the Chairman of the Board, who received two times that amount as described below), paid quarterly, and meeting fees of $2,500 for each Board meeting attended in person, $1,250 for each Board meeting attended by telephone conference call, $1,500 for each Committee meeting attended in person, and $750 for each Committee meeting attended by telephone conference call. Each Committee Chair also received an additional annual retainer. For fiscal year 2011, the additional annual retainer paid to the Chairman of the Audit Committee was $30,000, the additional annual retainer paid to the Chairman of the Compensation Committee was $20,000, and the additional annual retainer paid to the Chairman of the Nominating and Governance Committee was $10,000. Outside Directors also are reimbursed for their reasonable expenses incurred in attending Board and Committee meetings.

The cash compensation component of the Outside Director compensation program will continue to remain in effect unchanged for fiscal year 2012.

Outside Director Stock Options

Effective November 15, 2007, Outside Directors no longer receive stock options as a component of their compensation. Accordingly, we did not issue any stock options to the Outside Directors during fiscal year 2011.

Non-Executive Chairman

For fiscal year 2011, our policy was that, if the Chairman of the Board was not an executive of the Company (as was the case, with Mr. Barnholt serving as Chairman), the Chairman’s annual retainer fee would be two times the regular level for Outside Directors, and the Chairman’s equity awards would be 1.5 times the regular level for Outside Directors. This policy will continue to remain in effect for fiscal year 2012.

Deferred Compensation

Each Outside Director is entitled to defer all or a portion of his or her director fees, pursuant to our Executive Deferred Savings Plan, a nonqualified deferred compensation plan. Amounts credited to the plan may be allocated by the participant among 23 investment funds. Of the current Outside Directors, only Messrs. Barnholt, Bond, Patel and Wang participated in this plan during fiscal year 2011 (with only Mr. Wang making new contributions during the fiscal year).

Stock Ownership Guidelines

We have adopted a policy, approved by the Board, pursuant to which each Outside Director is expected to own a specified minimum number of shares of our Common Stock. By the later of (a) November 13, 2012 or (b) the fourth anniversary of the date on which an individual becomes an Outside Director, each Outside Director is expected to own at least a number of shares of our Common Stock with a market value of at least three (3) times the standard annual cash retainer paid to the Outside Directors, as that retainer may be changed from time to time. Shares of Common Stock underlying unvested restricted stock units held by the Directors will count toward this ownership requirement. As of the Record Date, each of our current Outside

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Directors was in compliance with this stock ownership requirement, other than Ms. Higashi, who joined the Board in November 2010 and is therefore not required to comply with our stock ownership guidelines until November 2014.

Director Compensation Table

The following table sets forth certain information regarding the compensation earned by or awarded to each Outside Director during fiscal year 2011 who served on our Board during the year.

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INFORMATION ABOUT EXECUTIVE OFFICERS

Set forth below are the names, ages and positions of the executive officers of KLA-Tencor as of the date of this Proxy Statement.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Principal Stockholders

As of September 13, 2011, based on our review of filings made with the SEC, we are aware of the following entities being beneficial owners of more than 5% of our Common Stock:

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Management

The following table sets forth the beneficial ownership of our Common Stock as of September 13, 2011 by all current Directors, each of the Named Executive Officers set forth in the Summary Compensation Table, and all current Directors and executive officers as a group. Except for shares held in brokerage accounts which may from time to time, together with other securities held in those accounts, serve as collateral for margin loans made from those accounts, none of the shares reported as beneficially owned are currently pledged as security for any outstanding loan or indebtedness. Shares that, as of September 13, 2011, have not yet been issued under outstanding restricted stock units (and that are not scheduled to vest within 60 days after September 13, 2011) due to applicable performance or service-vesting requirements that have not yet been satisfied are not included in the table below but are indicated in footnote 13 to such table:

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers, Board members, and persons who own more than ten percent of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC, and such persons are also required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of the copies of such forms received by us, we believe that during fiscal year 2011 all of our executive officers, Board members and greater than ten percent stockholders complied with all applicable filing requirements, except that

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Board member Robert M. Calderoni failed to report approximately 41 shares of our Common Stock on a Form 5 for fiscal year 2010, which shares had been acquired by Mr. Calderoni on June 1, 2010 pursuant to an automatic dividend reinvestment election in Mr. Calderoni’s personal brokerage account. An amended Form 4 reporting these shares as part of Mr. Calderoni’s holdings of our Common Stock as of November 3, 2010 (as well as approximately 72 additional shares purchased pursuant to such reinvestment election on September 1, 2010) was filed with the SEC on March 29, 2011.

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EXECUTIVE COMPENSATION AND OTHER MATTERS

COMPENSATION DISCUSSION AND ANALYSIS

Compensation Philosophy and Design Principles

The philosophy of the Compensation Committee on executive compensation is that it should be designed to:

The Compensation Committee’s philosophy is reflected in the following executive compensation design principles:

Named Executive Officers

This Compensation Discussion and Analysis section provides a comprehensive review of our executive compensation philosophy and program, including our program design for fiscal year 2011. The discussion in this section focuses on the compensation of our “Named Executive Officers” for fiscal year 2011, who were:

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Overview: Our Commitment to Pay-for-Performance

The Compensation Committee and the Independent Board Members¹ have structured our executive compensation program to pay for performance and, over the long term, to provide compensation for our executive officers that is market competitive and supports our retention efforts.

When the fiscal year 2011 executive compensation program was being designed in July and August 2010, signs indicated that the strong demand for semiconductor capital equipment in the prior year was continuing into fiscal year 2011. Our executive compensation structure for fiscal year 2011 featured significant performance-based components tied to objectives that were considered challenging in light of anticipated market conditions.

Fiscal Year 2011 Highlights

Fiscal year 2011 was an extremely strong year for our industry and a record year for KLA-Tencor.

Demand for our products was extremely robust. While our positive operating results were partly driven by an up-cycle in our industry, the Company also performed very well by relative measures, including growth rate and operating effectiveness. Our strong relative performance is largely attributable to factors specific to the Company, such as our ability to anticipate customer demands, our market leadership driven by significant investment in technology development and our focus on maintaining strict cost discipline.

Our fiscal year 2011 performance is highlighted by the following achievements:

¹ The “Independent Board Members” refers to all of the members of our Board other than our Chief Executive Officer and is the group that makes all determinations regarding our Chief Executive Officer’s compensation. For purposes of this Compensation Discussion and Analysis section, references to the Compensation Committee include the Independent Board Members when discussing determinations of Chief Executive Officer compensation.

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Pay-for-Performance

We structure our executive compensation program so that a meaningful percentage of compensation is tied to the achievement of challenging levels of Company performance. The payouts under our fiscal year 2011 compensation program reflect the Company’s strong financial and strategic performance. We use Operating Margin Percentage as a key performance metric in our compensation program, as we believe that it reflects a number of important competitive and business elements such as product acceptance, market share and cost discipline and is therefore an excellent barometer of our overall performance. Our fiscal year 2011 Operating Margin Percentage was 37.8%, considerably higher than the target of 30.0% we had set for the year, which itself would have been a Company record.

Our fiscal year 2011 annual short-term incentive bonus plan was structured to pay out 100% of the executives’ target bonus amounts if the Company were to successfully achieve its target level of performance. Based on the Company’s fiscal year 2011 Operating Margin Percentage and its overall performance as measured by our balanced scorecard of key corporate goals (as further described under “Elements of Executive Compensation – Short-Term Incentive Bonus Plan” below), our fiscal year 2011 short-term incentive bonus plan paid bonuses equal to 245% of each executive’s target bonus amount. The Named Executive Officers’ performance share awards granted during fiscal year 2011 are tied to the Company’s two-year weighted-average target Operating Margin Percentage over fiscal years 2011 and 2012, so a determination will not be made as to the extent to which they are earned until after the end of fiscal year 2012.

To illustrate our pay-for-performance philosophy, the following charts reflect the portion of our executive officers’ actual compensation for fiscal year 2011 represented by each of the major elements of our compensation program – base salary paid, fiscal year 2011 short-term incentive bonus (at actual amount earned), performance share awards with both performance-

² For purposes of our fiscal year 2011 short-term incentive bonus and equity incentive plans, “operating margin percentage” is calculated for the applicable fiscal year as (a) the Company’s total revenues less total costs and operating expenses, including stock-based compensation charges but excluding expenses related to acquisitions (such as deal-related amortization), restatement and restructuring related items and certain discrete tax items, divided by (b) the Company’s total revenues.

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based and service-based vesting criteria³, and restricted stock units with only service-based vesting criteria (valued at their grant date fair value):

CEO Pay Mix – Fiscal Year 2011 (Actual)		All Other NEOs Pay Mix – Fiscal Year 2011 (Actual)

In each case, a significant majority of the executives’ overall compensation is derived from the performance-based components of our program.

Our Chief Executive Officer’s compensation over the past five fiscal years further reflects the effectiveness of our pay-for-performance structure. The Company’s strong operating results in four of the past five years have resulted in corresponding levels of CEO compensation. Conversely, in fiscal year 2009, when the global economic downturn significantly impaired our financial results, Mr. Wallace received only his base salary for that year, as no bonuses or performance shares were deemed to have been earned based on the Company’s results, notwithstanding management’s effectiveness during that challenging period in controlling expenses and keeping project development on track so that we were well-positioned to take advantage of the subsequent industry recovery. The following table demonstrates our pay-for-performance model by tracking Mr. Wallace’s actual compensation⁴ in each of the last five fiscal years against Company revenues and net income:

CEO Pay-for-Performance (Fiscal Years 2007-2011)

³ For purposes of the charts below, the fiscal year 2011 performance share awards are included at their target grant date fair value (i.e., their maximum earnable amount), assuming that such awards will be fully earned.

⁴This includes base salary paid, short-term incentive bonuses earned, the grant date fair value of any service-based restricted stock units granted and, for performance share awards, the grant date fair value of the number of shares actually earned (if any). As above, for this chart, the fiscal year 2011 performance share awards are again included at their target grant date fair value based on an assumption that they will be fully earned following the completion of fiscal year 2012.

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Compensation Committee Decision Making – Process Overview and Market Data

Overview

The Compensation Committee utilizes a broad-based approach to the determination of executive compensation packages. The Compensation Committee has full authority for determining the compensation of our executive officers, other than the Chief Executive Officer, for whom the Committee makes compensation recommendations to the Independent Board Members for approval.

Over the course of several meetings (in closed sessions as well as with our Chief Executive Officer and Senior Vice President of Human Resources) and with the assistance of Semler Brossy Consulting Group, LLC, the Compensation Committee’s independent compensation consultant (the “Independent Consultant”), the Compensation Committee engaged in extensive deliberation in developing the fiscal year 2011 executive compensation program. The Committee sought to establish compensation packages and target performance levels aimed at rewarding strong financial performance and long-term success of the Company.

The Compensation Committee took into account many factors, including a broad range of market data (as more fully described in the following paragraphs) and the cyclical nature of the industries in which we operate. In addition, the Compensation Committee conducted an individual analysis for each executive officer that incorporated a review of each officer’s performance and individualized total compensation report.

Market Data

Our ability to continue to attract and retain outstanding contributors, including our core executive team, is essential to our continuing success. Therefore, the Compensation Committee reviewed a number of different data sources (including peer group and broader market data) to ensure we were offering compensation packages that were competitive with those offered by other employers seeking to attract the same talented individuals. The Compensation Committee used, in addition to the data described below in this section, a single list of peer group companies, representing a spectrum of companies within our industry. Our fiscal year 2011 peer group was comprised of Applied Materials, Inc., ASML Holdings, Lam Research Corporation, Novellus Systems, Inc., Teradyne, Inc. and Varian Semiconductor Equipment, Inc.

The Compensation Committee reviewed the compensation programs and practices of our peer group to obtain comparative data and identify compensation trends and practices. Data regarding our peer group was primarily obtained through searches of publicly available information, such as the proxy filings of the relevant companies. In addition, the Compensation Committee reviewed data from the Radford Global Technology Survey, with a focus on high technology companies with revenue between $1 billion to $3 billion (and, to a lesser extent, $3 billion and above, as our revenue in fiscal year 2011 exceeded $3 billion for the first time in Company history).

The Compensation Committee reviewed the market data to understand the spectrum of compensation packages offered by our peer group, as well as companies included in the Radford surveys referenced above. Though the Compensation Committee referred to percentile data in its analysis, as well as allocations between annual and long-term compensation, the Compensation Committee did not employ specific equations for determining compensation

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amounts based on such data. Rather, the Compensation Committee’s emphasis was on establishing compensation packages for the executive officers that would be competitive with those offered by other employers, appropriately reflect each officer’s skill set and experience, and encourage retention of top performers.

Elements of Executive Compensation

The primary elements of our compensation packages are base salary, an annual short-term incentive bonus plan and long-term incentives.

Base Salary:

The Compensation Committee annually reviews the base salaries of the executive officers as part of the overall review and determination of our executive compensation program for the relevant fiscal year. With respect to base salary, the Compensation Committee’s objective is to offer a level of fixed cash compensation, determined with reference to applicable market data and consideration of other factors described under “Compensation Committee Decision Making – Process Overview and Market Data” above, that will enable us to attract and retain top talent.

For fiscal year 2011, the Compensation Committee determined that, with one exception, the existing base salaries of the Named Executive Officers were market-competitive for equivalent positions at other companies. Accordingly, except in one case involving the expansion of a Named Executive Officer’s responsibilities, the Compensation Committee did not approve fiscal year 2011 salary increases for any of the Named Executive Officers. The following table presents the changes (if any) in the base salaries of our Named Executive Officers approved during fiscal year 2011:

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Short-Term Incentive Bonus Plan:

Fiscal Year 2011 Executive Incentive Plan:

Our Executive Incentive Plan (the “Bonus Plan”) is administered in conformity with Section 162(m) of the Internal Revenue Code and provides the Named Executive Officers with an opportunity to earn annual performance-based cash compensation based on the Company’s achievement of key financial and strategic Company goals as well as individual performance.

In August 2010, the Compensation Committee established each executive officer’s target bonus payout (stated as a percentage of the officer’s base salary), as well as the Company performance targets and bonus potentials (including threshold, target and maximum payout levels) in effect for fiscal year 2011 under the Bonus Plan. In establishing the executive officers’ target awards for fiscal year 2011, the Compensation Committee considered a wide range of market data (described under “Compensation Committee Decision Making–Process Overview and Market Data” above). The officers’ target bonus percentages were established at levels that generated total target cash compensation opportunities that were determined to be competitive with the market for comparable positions at other companies and internally appropriate relative to each executive officer’s role.

Under the fiscal year 2011 Bonus Plan, the Company was required to achieve a threshold level of Operating Margin Percentage in order for the plan to be funded.⁵ Upon achievement of that threshold level of Operating Margin Percentage, a participant’s actual bonus amount would then be determined based upon the Company’s Operating Margin Percentage and the assessment by the Compensation Committee of the Company’s performance as measured against a defined “balanced scorecard.”

The balanced scorecard takes into account our strategic objectives of operational excellence, customer focus, growth and talent (each of which is addressed in more detail below), and applies scores for the Company’s performance against a variety of specific goals within each of those variables. The use of the balanced scorecard is designed to ensure that the quality of the Company’s operating results is high and that those results support the sustainability of the Company’s business model. The scorecard is tracked throughout the year and is reviewed every quarter, then formally presented to the Compensation Committee following the conclusion of the fiscal year for assessment as to the Company’s success in achieving the pre-established annual goals.

For fiscal year 2011, the pre-established quantitative goals and objectives were set at levels that, based on a number of factors including the Company’s prior year performance and the then-prevailing macro-economic conditions, the Compensation Committee believed would be very challenging to achieve. While many of the metrics are quantitative in nature, some are qualitative and therefore introduce a degree of discretion and subjective judgment into the bonus determination process. We believe that the use of the expanded measures of financial and strategic success, as represented by the balanced scorecard framework, serves to closely align the interests of our executive officers with those of our stockholders.

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⁵ The satisfaction of this pre-determined threshold level of Operating Margin Percentage would trigger full funding of the Bonus Plan, and of each participant’s maximum potential bonus opportunity, for purposes of Section 162(m) of the Internal Revenue Code.

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Specifically, the fiscal year 2011 Bonus Plan terms were structured as follows:

In addition, the Compensation Committee had the discretion to adjust the actual bonus amount otherwise payable to an executive based on their assessment of the executive’s performance for fiscal year 2011.

Following the completion of fiscal year 2011, the Compensation Committee reviewed the Company’s performance against the primary strategic objectives set forth in the fiscal year 2011 balanced scorecard, which were assessed as follows:

Operational Excellence

A primary measure of the Company’s operational effectiveness, particularly during a period of increasing revenues, is incremental operating margin percentage, which is equal to the period-to-period change in non-GAAP operating margin divided by the

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change in revenues over the same period. In such a business environment, this metric is an indicator of the efficiency with which the Company generates additional revenue. The Company strives to achieve an incremental operating margin percentage of 50-60% during business upturns. In fiscal year 2011, the Company exceeded that target range, generating a year-over-year incremental operating margin percentage of 60.5%. In addition, the Company delivered results consistent with its operating plan, including successfully transitioning manufacturing of various products to its facilities in Singapore and Israel, as well as introducing ten new products and five upgrades to existing platforms during the year, all of which achieved market acceptance prior to launch.

Customer Focus

The Company’s primary measure of success in customer focus is market share. The Company maintained its market leadership positions in the areas of foundry and logic and improved its market share in memory, as evidenced by strong bookings across all markets (the best indication that the Company is successfully differentiating its products versus competitors and that customers are satisfied with the Company’s offerings). Another measure of success for the Company in this area is how effectively we collaborate with our customers. The Company achieved its collaboration objectives through product and advanced technology development efforts with several key customers and industry organizations on key issues such as customer product roadmaps and anticipated future transitions to 450 millimeter (mm) wafers, sub-30 nanometer (nm) manufacturing processes and extreme ultra-violet (EUV) lithography.

Growth

The Company aimed to achieve a year-over-year growth rate at least five (5) percentage points higher than its peer group (as identified under “Compensation Committee Decision Making – Process Overview and Market Data” above). The Company exceeded its goal by achieving year-over-year revenue growth in excess of 74%, which was more than 16 percentage points higher than the average growth rate of the companies in the peer group for the equivalent period. In addition, the Company’s fiscal year-over-year revenue from the sale of systems increased by more than 97%, considerably outpacing the overall industry’s systems revenue growth rate of 77.3%⁶. The Company also achieved its goal of growth outside of its core semiconductor markets, as evidenced by a year-over-year increase of nearly 46% in revenues derived from the Company’s Growth and Emerging Markets (GEM) division. The Company’s GEM division, which houses most of the products targeted outside of the Company’s core semiconductor capital equipment market, represented 7% of the Company’s worldwide revenue in fiscal year 2011. This represents steady growth from only 1% in fiscal year 2007, with that growth largely attributable to products that the Company has acquired through acquisitions.

⁶ Growth in semiconductor capital equipment revenue in the twelve months ended June 30, 2011 compared to the prior year, as determined by Gartner.

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Talent

The Company achieved its employee retention goals for fiscal year 2011, as the overall level of voluntary employee turnover (4.9%) was better than the forecasted rate of 6.0%, and turnover among top talent was even lower at 3.5%. Early career hiring objectives were also met, with early career hires (including new college graduates) representing 65% of the Company’s global new hires during the year, surpassing the 50% target.

The Company’s fiscal year 2011 Operating Margin Percentage equaled 37.8%, and the Compensation Committee awarded the Company a balanced scorecard score of 4, based on their assessment of the factors discussed above. As a result, the payouts under the fiscal year 2011 Bonus Plan were equal to 245% of the participants’ target bonus amounts.

As noted above, the Bonus Plan gives the Compensation Committee the discretion to increase or decrease each executive officer’s bonus amount based on the officer’s individual performance. Following discussion regarding the use of this discretion and whether its application would be appropriate for fiscal year 2011, the Compensation Committee established the individual multiplier for each of the Named Executive Officers at 1.0 (that is, there was no reduction or increase of the bonus amount payable to any Named Executive Officer based on individual performance).

The following table sets forth each Named Executive Officer’s target bonus (as a percentage of base salary and in dollars, based on actual salary paid during the year) and the actual bonus amount paid to the officer:

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Long-Term Incentives:

The purpose of the long-term incentive component of our executive compensation program is to align long-term management and stockholder interests and strengthen retention through service-based and performance-based awards with four-year vesting provisions. The long-term incentives offered by the Company have historically been in the form of equity awards.

Since the beginning of fiscal year 2007, the long-term incentive awards to our executive officers have been comprised entirely of performance shares and restricted stock units. The Compensation Committee believes that equity awards in the form of performance shares and restricted stock units are aligned with stockholder interests, provide a major incentive for employees to build stockholder value and significantly strengthen our retention efforts.

Annual Equity Grants for Fiscal Year 2011:

The size of each executive officer’s annual equity award represents the target equity value that the Compensation Committee aims to deliver to each executive officer as part of his annual compensation. That target value is established with reference to market data from the Radford Global Technology Survey and our peer group provided by the Independent Consultant regarding the dollar value of annual grants made to similarly situated executives, as well as the officer’s role and responsibilities within the Company, contributions to the Company over time and criticality to the Company’s ongoing success.

Each executive officer’s fiscal year 2011 annual award was divided into two equally sized grants: one of which was a performance share award, and the other of which was a restricted stock unit award with vesting tied solely to continued service with us. Over the past several years, the structure of the Company’s performance share awards has transitioned from a one-year performance period with the ability to fully earn the shares after the first year to a multi-year performance period with no ability to earn any shares until the end of the performance period. The Compensation Committee is continuously evaluating different ways to structure long-term incentives in a manner that will properly account for the cyclical nature of our primary industries.

The shares covered by the fiscal year 2011 performance share awards are subject to a two-year performance period based on the Company’s two-year weighted average Operating Margin Percentage over fiscal years 2011 and 2012 and therefore can only be earned following the completion of fiscal year 2012. The target two-year weighted average Operating Margin Percentage that the Compensation Committee set for the fiscal year 2011 performance share awards was set at a level that would require very strong operational performance and was considered difficult to achieve at the time, given anticipated market conditions.

All of the executive officers’ fiscal year 2011 annual equity awards (the restricted stock unit awards and any performance share awards that may be earned) are subject to a four-year service-based vesting period. Fifty percent (50%) of the shares subject to these awards will vest two years from the date of the award (or, for performance shares, the first fifty percent (50%) of the shares will vest on the date that such shares are determined to have been earned, if that date is later than the two-year anniversary of the award date), and the remaining fifty percent (50%) will vest four years from the date of the award, in each case subject to the individual’s continued employment with us on the applicable vesting date.

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The following table sets forth the minimum and target/maximum shares achievable by each Named Executive Officer, as well as the actual number of shares awarded to the officer (to the extent known at this time), with respect to the performance share and restricted stock unit awards comprising such officer’s annual equity award for fiscal year 2011:

Compensation Approval Procedures

Pursuant to the charter of the Compensation Committee, the Compensation Committee has the authority to approve the compensation packages for our executive officers, other than our Chief Executive Officer, whose compensation package must be approved by the Independent Board Members.

In structuring the fiscal year 2011 compensation packages for the Named Executive Officers, the Compensation Committee received comprehensive industry compensation data and analysis from the Independent Consultant (as described under the section entitled “Compensation Committee Decision Making – Process Overview and Market Data” above), as well as performance reviews and initial package recommendations for each of the executive officers from our Chief Executive Officer and Senior Vice President of Human Resources. With regard to our Bonus Plan and performance shares, the proposed financial metrics and payout percentages were developed by Company management, with the assistance of the Independent Consultant. The Compensation Committee reviewed the data provided by the Independent Consultant and the Company’s recommendations and engaged in detailed discussions over the course of multiple meetings, with and without Company management present, to determine the final executive compensation packages, which were approved in August 2010.

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In the case of our Chief Executive Officer’s compensation, the Compensation Committee developed a proposed compensation package for fiscal year 2011 using the process described above (except that Mr. Wallace was not involved in the process) and recommended it to the Independent Board Members. The Independent Board Members then discussed and, in August 2010, approved the Compensation Committee’s recommendation with respect to the fiscal year 2011 compensation for our Chief Executive Officer, who was not present and did not participate in the discussion.

In each case, when establishing each element of compensation and the overall packages for the officers, the Compensation Committee and the Independent Board Members exercised their discretion and judgment based upon the data provided, and no specific formula was applied to determine the weight of each data point.

Perquisites and Other Compensation

We make only nominal use of perquisites in compensating our executive officers. All of our executive officers are entitled to be reimbursed for the cost of professional financial services. These services include tax planning, preparation and filing, as well as financial and estate planning services, up to a maximum of $20,000 per calendar year.

In addition, our executive officers are eligible to participate in our 401(k) plan (including a Company match on employee 401(k) plan contributions) and the other employee benefit plans sponsored by us on the same terms and conditions that apply to all other employees.

Severance Benefits and Change of Control Agreements

We currently have two plans that provide certain compensation and benefits in the event that a participant’s employment with the Company terminates under certain defined circumstances: our Executive Severance Plan, adopted in 2006 (the “Original Severance Plan”), and our 2010 Executive Severance Plan (the “2010 Severance Plan”). Each of the Named Executive Officers is a participant under one of these two plans: Messrs. Wallace, Dentinger and Martin are participants under the Original Severance Plan, and Messrs. Bell and Kirloskar are participants under the 2010 Severance Plan.

A key difference between the two plans is that the 2010 Severance Plan, unlike the Original Severance Plan, does not contain tax gross-up provisions related to excise taxes that may be imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), in connection with a participant’s receipt of a change-of-control “parachute payment” within the meaning of Code Section 280G. For further information, please see the section of this Proxy Statement entitled “Potential Payments Upon Termination or Change of Control.”

We believe that the Original Severance Plan and the 2010 Severance Plan are important for the long-term retention of our senior executives and enhance their commitment to the attainment of our strategic objectives. The benefits provided under our severance plans will allow the participating executives to continue to focus their attention on our business operations and strategic plans without undue concern over their own financial situation during periods when substantial disruptions and distractions might otherwise prevail. We believe that the severance benefits provided under our severance plans are fair and reasonable in light of the level of dedication and commitment the participating executive officers have rendered the Company, the contribution they have made to our growth and financial success and the value that we

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expect to receive from retaining their services, including during challenging transition periods following a change of control.

Deferred Compensation

We maintain an Executive Deferred Savings Plan, a nonqualified deferred compensation plan, which enables eligible employees to defer all or a portion of certain components of their compensation, with no Company match. For further information, please see the section of this Proxy Statement entitled “Nonqualified Deferred Compensation.” We do not provide any defined benefit pension benefits or any other retirement benefits to Named Executive Officers, other than the 401(k) Savings Plan available to all of our employees.

Executive Retiree Medical Plan

KLA-Tencor has established a retiree medical program to offer continued health benefits to certain current senior executive officers, although none are eligible to participate at this time. To be eligible, an executive must be at least 55 years old with ten years of service with the Company, and must be in good standing with us at the time of retirement. Eligible executives are entitled to participate until age 65 and must pay the full cost of the premium. In February 2011, our Board of Directors amended this program to limit the participants to the Company’s then-current Section 16 executive officers; that is, no future participants are allowed into the plan.

Stock Ownership Guidelines; Policy Regarding Hedging

In November 2008, our Board of Directors adopted revised stock ownership guidelines applicable to our executive officers. Under that policy, our executives are expected to own Company common stock having a minimum value, denominated as a multiple of their annual base salaries, as follows: