| | Change in Control | | | In the event of a “change in control” (as defined in our 2018 Equity Incentive Plan), each non-employee director will fully vest in his or her outstanding company equity awards, including any Initial Award or Annual Award, provided that the non-employee director continues to be a non-employee director through such date. Dropbox, Inc. Proxy Statement and Notice of 2020 Annual Meeting of Stockholders 15
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BOARD OF DIRECTORS AND CORPORATE GOVERNANCE (continued)
Cash Compensation
Under our director compensation policy, each non-employee director is paid an annual cash retainer of $50,000, which is paid quarterly in arrears on a prorated basis. There are no per-meeting attendance fees for attending board meetings.
Under the policy in fiscal 2019, each non-employee director was entitled to receive the following cash compensation for their additional services:
$35,000 per year for service as a lead independent director;
$30,000 per year for service as chair of the audit committee;
�� | $12,500 per year for service as a member of the audit committee; |
$20,000 per year for service as chair of the compensation committee;
$10,000 per year for service as a member of the compensation committee;
$15,000 per year for service as chair of the nominating and corporate governance committee; and
$5,000 per year for service as a member of the nominating and corporate governance committee.
Directors who serve as the chair of a committee will receive only the annual fee as the chair of the committee and not any additional fees for serving as a member of that committee.
2019 Compensation
The following table provides information regarding compensation of our non-employee directors for service as directors, for the year ended December 31, 2019. Directors who are also our employees receive no additional compensation for their service as directors. During 2019, Messrs. Houston and Ferdowsi were employees and executive officers of the Company and therefore, did not receive compensation as directors. See “Executive Compensation” for additional information regarding Mr. Houston’s compensation. Mr. Ferdowsi was not a named executive officer in 2019.
| | Lisa Campbell(3) | | | 22,249 | | | 225,001 | | | — | | | 247,250 | | | | Donald W. Blair | | | 62,500 | | | 300,003 | | | — | | | 362,503 | | | | Paul E. Jacobs | | | 55,000 | | | 300,003 | | | — | | | 355,003 | | | | Robert J. Mylod, Jr. | | | 90,000 | | | 300,003 | | | — | | | 390,003 | | | | Karen Peacock(3) | | | 21,359 | | | 225,001 | | | — | | | 246,360 | | | | Condoleezza Rice | | | 105,000 | | | 300,003 | | | — | | | 405,003 | | | | R. Bryan Schreier | | | 66,522 | | | 300,003 | | | — | | | 366,525 | | | | Margaret C. Whitman | | | 66,563 | | | 300,003 | | | — | | | 366,566 | |
(1)
| Amounts shown do not reflect compensation actually received by the director, and there can be no assurance that these amounts will ever be realized by the non-employee directors. Instead, the amount shown is the grant date fair value of the RSU awards granted in fiscal 2019 computed in accordance with ASC Topic 718 — Compensation — Stock Compensation (“ASC Topic 718”), disregarding forfeiture assumptions.
|
(2)
| 100% of the shares of our Class A common stock underlying the RSUs vest on May 23, 2020 or the day before the next annual meeting of our stockholders, if earlier, subject to the director’s continued service with us. See “Director Compensation—Equity Compensation” above.
|
(3)
| Mss. Campbell and Peacock joined our board of directors in August 2019, and therefore their respective fees and equity awards set forth in the table above were prorated for the portion of 2019 in which they served as directors. |
16 Dropbox, Inc. Proxy Statement and Notice of 2020 Annual Meeting of Stockholders
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BOARD OF DIRECTORS AND CORPORATE GOVERNANCE (continued)
The following table lists all outstanding equity awards held by non-employee directors as of December 31, 2019:
| Lisa Campbell
| | | 8/23/2019(2)
| | | 12,669
| | | Donald W. Blair
| | | 5/23/2019
| | | 13,298
| | | Paul E. Jacobs
| | | 5/23/2019
| | | 13,298
| | | Robert J. Mylod, Jr.
| | | 5/23/2019
| | | 13,298
| | | Karen Peacock
| | | 8/23/2019(2)
| | | 12,669
| | | Condoleezza Rice
| | | 5/23/2019
| | | 13,298
| | | R. Bryan Schreier
| | | 5/23/2019
| | | 13,298
| | | Margaret C. Whitman
| | | 5/23/2019
| | | 13,298
| |
(1)
| 100% of the shares of our Class A common stock underlying the RSUs vest on May 23, 2020 or the day before the next annual meeting of our stockholders, if earlier, subject to the director’s continued2021 Compensation The following table provides information regarding compensation of our non-employee directors for their service as directors, for the fiscal year ended December 31, 2021. Directors who are also our employees receive no additional compensation for their service with us. See “Director Compensation—Equity Compensation” above. |
(2)
| Mss. Campbell and Peacock joined our board of directors in August 2019, and therefore their respective equity awards set forth in the table above were prorated for the portion of 2019 in which they served as directors. During 2021, Mr. Houston was an employee and executive officer of the company and therefore, did not receive compensation as a director. See “Executive Compensation” for additional information regarding Mr. Houston’s compensation.| | Donald W. Blair | | | 115,000 | | | 246,257 | | | — | | | 361,257 | | | | Lisa Campbell | | | 67,500 | | | 246,257 | | | — | | | 313,757 | | | | Paul E. Jacobs | | | 65,000 | | | 246,257 | | | — | | | 311,257 | | | | Sara Mathew(3) | | | 12,863 | | | 202,927 | | | — | | | 215,790 | | | | Robert Mylod(4) | | | 59,637 | | | 246,257 | | | 305,894 | | | | | | | Karen Peacock | | | 63,629 | | | 246,257 | | | — | | | 309,886 | | | | Condoleezza Rice(5) | | | 44,597 | | | — | | | — | | | 44,597 | | | | Michael Seibel | | | 48,607 | | | 246,257 | | | — | | | 294,864 | |
(1)
| Amounts shown do not reflect compensation actually received by the director, and there can be no assurance that these amounts will ever be realized by the non-employee directors. Instead, the amount shown is the grant date fair value of the RSU awards granted in fiscal 2021 computed in accordance with ASC Topic 718 — Compensation — Stock Compensation (“ASC Topic 718”), disregarding forfeiture assumptions. |
(2)
| Dropbox, Inc. Proxy Statement and Notice100% of 2020 Annual Meetingthe shares of Stockholders our Class A common stock underlying the RSUs vest on May 20, 2022 or the day before the next annual meeting of our stockholders, if earlier, subject to the director’s continued service with us. See “17Director Compensation” above.
|
(3)
| Ms. Mathew joined our board of directors consistedin July 2021, and therefore her fees and equity awards were prorated for the portion of ten directors. On August 23, 2019, the board of directors increased the size of the board from eight directors to ten directors and appointed Lisa Campbell and Karen Peacock to fill the vacancies created by the increase2021 in which she served as a director, as reflected in the size ofamount set forth in the board. As previously noted, Ms. Whitman has notified the board of directors that she will not stand for reelection at the Annual Meeting and will no longer serve on our board of directors following the Annual Meeting,table above. |
Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders 21
TABLE OF CONTENTS BOARD OF DIRECTORS AND CORPORATE GOVERNANCE
(continued)
(4)
| Mr. Ferdowsi hasMylod resigned as a member of the board of directors, effective July 28, 2021 and as an officersuch, his fees were prorated for the portion of 2021 in which he served as a director, as reflected in the company, effective March 19, 2020. Accordingly, followingamount set forth in the Annual Meeting, our board of directors will consist of eight directors. Until the outstanding shares of our Class B common stock represent less thantable above. |
(5)
| Dr. Rice did not stand for re-election as a majority of the combined voting power of our common stock, we will have a single class of directors with each director elected for a one-year term and until their successor is duly elected and qualified, or until their earlier resignation or removal.Our nominating and corporate governance committee has recommended, and our board of directors has approved, Andrew W. Houston, Lisa Campbell, Donald W. Blair, Paul E. Jacobs, Robert J. Mylod, Jr., Karen Peacock, Condoleezza Rice and R. Bryan Schreier as nominees for election as directors at the Annual Meeting. If elected, each of Drs. Rice and Jacobs, Messrs. Houston, Blair, Mylod, and Schreier, and Mss. Campbell and Peacock will serve as directors until the 2021 annual meeting of stockholders and until their successors are duly electedas such, her term as director ended effective as of May 20, 2021 and qualified. Eachher fees were prorated for the portion of the nominees is currently a director of our company. For information concerning the nominees, please see “Board of Directors and Corporate Governance.” We expect that each of Drs. Rice and Jacobs, Messrs. Houston, Blair, Mylod, and Schreier, and Mss. Campbell and Peacock will accept such nomination; however,2021 in the event that a director nominee is unable or declines to servewhich she served as a director, atas reflected in the timeamount set forth in the table above.
|
The following table lists all outstanding equity awards held by non-employee directors as of December 31, 2021: | | Donald W. Blair | | | 5/20/2021 | | | 9,335 | | | | Lisa Campbell | | | 5/20/2021 | | | 9,335 | | | | Paul E. Jacobs | | | 5/20/2021 | | | 9,335 | | | | Sara Mathew(2) | | | 7/28/2021 | | | 6,580 | | | | Karen Peacock | | | 5/20/2021 | | | 9,335 | | | | Michael Seibel | | | 5/20/2021 | | | 9,335 | |
(1)
| 100% of the Annual Meeting,shares of our Class A common stock underlying the proxies will be voted for any nominee designated byRSUs vest on May 20, 2022 or the day before the next annual meeting of our stockholders, if earlier, subject to the director’s continued service with us. See “Director Compensation” above. |
(2)
| Ms. Mathew joined our board of directors to fill such vacancy.If you are a stockholder of recordin July 2021, and you sign your proxy card or vote by telephone or overtherefore the Internet but do not give instructions with respect to the voting of directors, your shares will be voted “FOR” the election of Drs. Rice and Jacobs, Messrs. Houston, Blair, Mylod, and Schreier, and Mss. Campbell and Peacock. If you are a street name stockholder and you do not give voting instructions to your broker or nominee, your broker will leave your shares unvoted on this matter.
Each director is elected by a plurality of the votes of the shares present virtually or represented by proxy at the meeting and entitled to vote on the election of directors at the Annual Meeting. “Plurality” means that the eight nominees who receive the largest number of votes cast “For” such nominees are elected as directors. As a result, any shares not voted “For” a particular nominee (whethercovered by her equity award was prorated for the portion of 2021 in which she served as a result of a withhold vote or a broker non-vote) will not be counteddirector, as reflected in such nominee’s favor and will have no effect on the outcome offigure set forth in the election.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE NOMINEES NAMED ABOVE.
18 Dropbox, Inc. Proxy Statement and Notice of 2020table above.
|
22 Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders TABLE OF CONTENTS As of March 25, 2022, our board of directors consisted of eight directors. Until the outstanding shares of our Class B common stock represent less than a majority of the combined voting power of our common stock, we will have a single class of directors with each director elected for a one-year term and until their successor is duly elected and qualified, or until their earlier resignation or removal. Our nominating and corporate governance committee has recommended, and our board of directors has approved, Andrew W. Houston, Donald W. Blair, Lisa Campbell, Paul E. Jacobs, Sara Mathew, Abhay Parasnis, Karen Peacock and Michael Seibel as nominees for election as directors at the Annual Meeting. If elected, each of the nominees will serve as directors until the 2023 annual meeting of stockholders and until their successors are duly elected and qualified. Each of the nominees is currently a director of our company, although Ms. Mathew and Mr. Parasnis are standing for election by our stockholders for the first time. For information concerning the nominees, please see “Board of Directors and Corporate Governance.” We expect that each of Dr. Jacobs, Messrs. Houston, Blair, Parasnis and Seibel, and Mss. Campbell, Mathew and Peacock will accept such nomination; however, in the event that a director nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee designated by our board of directors to fill such vacancy. If you are a stockholder of record and you sign your proxy card or vote by telephone or over the Internet but do not give instructions with respect to the voting of directors, your shares will be voted “FOR” the election of Dr. Jacobs, Messrs. Houston, Blair, Parasnis and Seibel, and Mss. Campbell, Mathew and Peacock. If you are a street name stockholder and you do not give voting instructions to your broker or nominee, your broker will leave your shares unvoted on this matter. Each director is elected by a plurality of the votes of the shares present virtually or represented by proxy at the meeting and entitled to vote on the election of directors at the Annual Meeting. “Plurality” means that the eight nominees who receive the largest number of votes cast “For” such nominees are elected as directors. As a result, any shares not voted “For” a particular nominee (whether as a result of a withhold vote or a broker non-vote) will not be counted in such nominee’s favor and will have no effect on the outcome of the election. THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE NOMINEES NAMED ABOVE. Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders 23
TABLE OF CONTENTS Our audit committee has appointed Ernst & Young LLP, an independent registered public accounting firm, to audit our consolidated financial statements for our fiscal year ending December 31, 2022. Ernst & Young LLP has served as our independent registered public accounting firm since 2013.At the Annual Meeting, our stockholders are being asked to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2022. Our audit committee is submitting the appointment of Ernst & Young LLP to our stockholders because we value our stockholders’ views on our independent registered public accounting firm and as a matter of good corporate governance. Notwithstanding the appointment of Ernst & Young LLP, and even if our stockholders ratify the appointment, our audit committee, in its discretion, may appoint another independent registered public accounting firm at any time during our fiscal year if our audit committee believes that such a change would be in the best interests of our company and our stockholders. If our stockholders do not ratify the appointment of Ernst & Young LLP, our board of directors may reconsider the appointment. Representatives of Ernst & Young LLP will be present at the Annual Meeting, and they will have an opportunity to make a statement and will be available to respond to appropriate questions from our stockholders. Fees Paid to the Independent Registered Public Accounting Firm The following table presents fees for professional audit services and other services rendered to our company by Ernst & Young LLP for our fiscal years ended December 31, 2021 and 2020. | | Audit Fees(1) | | | $ 3,375,000 | | | $ 3,082,000 | | | | Audit-Related Fees(2) | | | $534,000 | | | $711,000 | | | | Tax Fees(3) | | | $110,000 | | | $126,000 | | | | All Other Fees(4) | | | $6,000 | | | $6,000 | | | | Total Fees | | | $4,025,000 | | | $3,925,000 | |
(1)
| Consists of fees billed for professional services rendered in connection with the audit of our consolidated financial statements, audit of our internal controls over financial reporting, reviews of our quarterly consolidated financial statements, related accounting consultations, and statutory audits of our international subsidiaries. For fiscal 2021, this category also includes fees for services incurred in connection with our convertible notes offering. |
(2)
| Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements, audit of our internal controls over financial reporting, and not reported under “Audit Fees”. This includes fees for professional services with respect to the Statement on Standards for Attestation Engagements (SSAE) No. 18 and other service organization control related examinations, certifications, and assessments. |
(3)
| Tax Fees consist of fees for professional services for domestic and international tax advisory services. |
(4)
| Consists of aggregate fees billed for products and services provided by the independent registered public accounting firm to audit our consolidated financial statements for our fiscal year ending December 31, 2020. Ernst & Young LLP has served as our independent registered public accounting firm since 2013.At the Annual Meeting, our stockholders are being asked to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2020. Our audit committee is submitting the appointment of Ernst & Young LLP to our stockholders because we value our stockholders’ views on our independent registered public accounting firm and as a matter of good corporate governance. Notwithstanding the appointment of Ernst & Young LLP, and even if our stockholders ratify the appointment, our audit committee, in its discretion, may appoint another independent registered public accounting firm at any time during our fiscal year if our audit committee believes that such a change would be in the best interests of our company and our stockholders. If our stockholders do not ratify the appointment of Ernst & Young LLP, our board of directors may reconsider the appointment. Representatives of Ernst & Young LLP will be present at the Annual Meeting, and they will have an opportunity to make a statement and will be available to respond to appropriate questions from our stockholders.
Fees Paid to the Independent Registered Public Accounting FirmThe following table presents fees for professional audit services and other services rendered to our company by Ernst & Young LLP for our fiscal years ended December 31, 2019 and 2018.
| | Audit Fees(1) | | | $ | | | 3,203,000 | | | $ | | | 2,749,000 | | | | Audit-Related Fees(2) | | | $ | | | 571,000 | | | $ | | | 856,000 | | | | Tax Fees(3) | | | $ | | | 321,000 | | | $ | | | 81,000 | | | | All Other Fees(4) | | | $ | | | 6,000 | | | $ | | | 2,950 | | | | Total Fees | | | $ | | | 4,101,000 | | | $ | | | 3,688,950 | |
(1)
| Consists of fees billed for professional services rendered in connection with the audit of our consolidated financial statements, audit of our internal controls over financial reporting, reviews of our quarterly consolidated financial statements, related accounting consultations, and statutory audits of our international subsidiaries. This category also includes fees for services incurred in connection with our initial public offering. |
(2)
| Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements, audit of our internal controls over financial reporting, and not reported under “Audit Fees”. For fiscal 2018 and fiscal 2019, this includes fees for professional services with respect to the Statement on Standards for Attestation Engagements (SSAE) No. 16 and other service organization control related examinations, certifications, and assessments, as well as due diligence services related to mergers and acquisitions. Fiscal 2018 also includes fees for services in connection with preparation for compliance with Section 404 of the Sarbanes-Oxley Act of 2002.
|
(3)
| Tax Fees consist of fees for professional services for domestic and international tax advisory services. |
(4)
| Consists of aggregate fees billed for products and services provided by the independent registered public accounting firm other than those disclosed above, which relate to subscription fees paid for access to online accounting research software applications. |
Dropbox, Inc. Proxy Statement and Notice of 2020 Annual Meeting of Stockholders 19
TABLE OF CONTENTS
PROPOSAL NO. 2—RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued)
In our fiscal year ended December 31, 2019, there were no other professional services provided by Ernst & Young LLP, other than those listeddisclosed above, that would have required our audit committeewhich relate to consider their compatibility with maintaining the independence of Ernst & Young LLP.
Audit Committee Policy on Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting FirmOur audit committee has established a policy governing our use of the services of our independent registered publicsubscription fees paid for access to online accounting firm. Under this policy, our audit committee is required to pre-approve all services performed by our independent registered public accounting firm in order to ensure that the provision of such services does not impair the public accountants’ independence. All services provided by Ernst & Young LLP for our fiscal years ended December 31, 2018 and 2019 were pre-approved by our audit committee.
The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2020 requires the affirmative vote of a majority of the voting power of the shares of our common stock present virtually or by proxy at the Annual Meeting and entitled to vote thereon. Abstentions will have the effect of a vote against this proposal, and broker non-votes will have no effect.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
20 Dropbox, Inc. Proxy Statement and Notice of 2020 Annual Meeting of Stockholders
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The audit committee is a committee of the board of directors comprised solely of independent directors as required by Nasdaq listing standards and SEC rules and regulations. The composition of the audit committee, the attributes of its members and the responsibilities of the audit committee, as reflected in its charter, are intended to be in accordance with applicable requirements for corporate audit committees. With respect to Dropbox’s financial reporting process, Dropbox’s management is responsible for (1) establishing and maintaining internal controls and (2) preparing Dropbox’s consolidated financial statements. Dropbox’s independent registered public accounting firm, Ernst & Young LLP (“Ernst & Young”), is responsible for performing an independent audit of Dropbox’s consolidated financial statements and the effectiveness of the Company’s internal control over financial reporting. It is the responsibility of the audit committee to oversee these activities. It is not the responsibility of the audit committee to prepare Dropbox’s financial statements. These are the fundamental responsibilities of management. In the performance of its oversight function, the audit committee has:reviewed and discussed the audited consolidated financial statements with management and Ernst & Young;
discussed with Ernst & Young the matters required to be discussed by Auditing Standards No. 1301, “Communications with Audit Committees” issued by the Public Company Accounting Oversight Board (“PCAOB”); and
received the written disclosures and the letter from Ernst & Young required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the audit committee concerning independence, and has discussed with Ernst & Young its independence.
Based on the audit committee’s review and discussions with management and Ernst & Young, the audit committee recommended to the board of directors that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for filing with the SEC.
Respectfully submitted by the members of the audit committee of the board of directors:
Donald W. Blair (Chair)
Robert J. Mylod, Jr.
Lisa Campbell
This report of the audit committee is required by the SEC and, in accordance with the SEC’s rules, will not be deemed to be part of or incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended (“Securities Act”), or under the Exchange Act, except to the extent that we specifically incorporate this information by reference, and will not otherwise be deemed “soliciting material” or “filed” under either the Securities Act or the Exchange Act.
Dropbox, Inc. Proxy Statement and Notice of 2020 Annual Meeting of Stockholders 21
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In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and SEC rules, we are providing our stockholders with the opportunity to vote to approve, on an advisory or non-binding basis, the compensation of our named executive officers as disclosed pursuant to Section 14A of the Exchange Act. This proposal, commonly known as a “Say-on-Pay” proposal, gives our stockholders the opportunity to express their views on our named executive officers’ compensation as a whole. This vote is not intended to address any specific item of compensation or any specific named executive officer, but rather the overall compensation of all of our named executive officers and the philosophy, policies and practices described in this proxy statement.The Say-on-Pay vote is advisory, and therefore is not binding on us, our compensation committee, or our board of directors. The Say-on-Pay vote will, however, provide information to us regarding investor sentiment about our executive compensation philosophy, policies and practices, which our compensation committee will be able to consider when determining executive compensation for the remainder of the current fiscal year and beyond. Our board of directors and our compensation committee value the opinions of our stockholders. To the extent there is any significant vote against the compensation of our named executive officers as disclosed in this proxy statement, we will endeavor to communicate with stockholders to better understand the concerns that influenced the vote and consider our stockholders’ concerns, and our compensation committee will evaluate whether any actions are necessary to address those concerns.
We believe that the information provided in the section titled “Executive Compensation,” and in particular the information discussed in the section titled “Executive Compensation—Compensation Philosophy,” demonstrates that our executive compensation program was designed appropriately and is working to ensure management’s interests are aligned with our stockholders’ interests to support long-term value creation. Accordingly, we ask our stockholders to vote “FOR” the following resolution at the Annual Meeting:
“RESOLVED, that the stockholders approve, on an advisory basis, the compensation paid to our named executive officers, as disclosed in the proxy statement for the Annual Meeting pursuant to the compensation disclosure rules of the SEC, including the compensation discussion and analysis, compensation tables and narrative discussion and other related disclosure.”
The approval, on an advisory basis, of the compensation of our named executive officers, requires the affirmative vote of a majority of the voting power of the shares of our common stock present virtually or by proxy at the Annual Meeting and entitled to vote thereon to be approved. Abstentions will have the effect of a vote against this proposal, and broker non-votes will have no effect.
As an advisory vote, the result of this proposal is non-binding. Although the vote is non-binding, our board of directors and our compensation committee value the opinions of our stockholders and will consider the outcome of the vote when making future compensation decisions for our named executive officers.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS.
22 Dropbox, Inc. Proxy Statement and Notice of 2020 Annual Meeting of Stockholders
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The following table identifies certain information about our executive officers as of March 13, 2020.research software applications. |
24 Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders TABLE OF CONTENTS PROPOSAL NO. 2—RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued)
In our fiscal year ended December 31, 2021, there were no other professional services provided by Ernst & Young LLP, other than those listed above, that would have required our audit committee to consider their compatibility with maintaining the independence of Ernst & Young LLP. Audit Committee Policy on Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm Our audit committee has established a policy governing our use of the services of our independent registered public accounting firm. Under this policy, our audit committee is required to pre-approve all services performed by our independent registered public accounting firm in order to ensure that the provision of such services does not impair the public accountants’ independence. All services provided by Ernst & Young LLP for our fiscal years ended December 31, 2020 and 2021 were pre-approved by our audit committee. The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2022 requires the affirmative vote of a majority of the voting power of the shares of our common stock present virtually or by proxy at the Annual Meeting and entitled to vote thereon. Abstentions will have the effect of a vote against this proposal, and broker non-votes will have no effect. THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders 25
TABLE OF CONTENTS The audit committee is a committee of the board of directors comprised solely of independent directors as required by Nasdaq listing standards and SEC rules and regulations. The composition of the audit committee, the attributes of its members and the responsibilities of the audit committee, as reflected in its charter, are intended to be in accordance with applicable requirements for corporate audit committees. With respect to Dropbox’s financial reporting process, Dropbox’s management is responsible for (1) establishing and maintaining internal controls and (2) preparing Dropbox’s consolidated financial statements. Dropbox’s independent registered public accounting firm, Ernst & Young LLP (“Ernst & Young”), is responsible for performing an independent audit of Dropbox’s consolidated financial statements and the effectiveness of the company’s internal control over financial reporting. It is the responsibility of the audit committee to oversee these activities. It is not the responsibility of the audit committee to prepare Dropbox’s financial statements. These are the fundamental responsibilities of management. In the performance of its oversight function, the audit committee has: reviewed and discussed the audited consolidated financial statements with management, internal audit and Ernst & Young; discussed with Ernst & Young the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”); and received the written disclosures and the letter from Ernst & Young required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the audit committee concerning independence, and has discussed with Ernst & Young its independence. Based on the audit committee’s review and discussions with management and Ernst & Young, the audit committee recommended to the board of directors that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for filing with the SEC. Respectfully submitted by the members of the audit committee of the board of directors: Donald W. Blair (Chair)
Lisa Campbell
Sara Mathew This report of the audit committee is required by the SEC and, in accordance with the SEC’s rules, will not be deemed to be part of or incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended (“Securities Act”), or under the Exchange Act, except to the extent that we specifically incorporate this information by reference, and will not otherwise be deemed “soliciting material” or “filed” under either the Securities Act or the Exchange Act. 26 Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders TABLE OF CONTENTS In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and SEC rules, we are providing our stockholders with the opportunity to vote to approve, on an advisory or non-binding basis, the compensation of our named executive officers as disclosed pursuant to Section 14A of the Exchange Act. This proposal, commonly known as a “Say-on-Pay” proposal, gives our stockholders the opportunity to express their views on our named executive officers’ compensation as a whole. This vote is not intended to address any specific item of compensation or any specific named executive officer, but rather the overall compensation of all of our named executive officers and the philosophy, policies and practices described in this proxy statement. The Say-on-Pay vote is advisory, and therefore is not binding on us, our compensation committee, or our board of directors. The Say-on-Pay vote will, however, provide information to us regarding investor sentiment about our executive compensation philosophy, policies and practices, which our compensation committee will be able to consider when determining executive compensation for the remainder of the current fiscal year and beyond. Our board of directors and our compensation committee value the opinions of our stockholders. To the extent there is any significant vote against the compensation of our named executive officers as disclosed in this proxy statement, we will endeavor to communicate with stockholders to better understand the concerns that influenced the vote and consider our stockholders’ concerns, and our compensation committee will evaluate whether any actions are necessary to address those concerns. We believe that the information provided in the section titled “Executive Compensation,” and in particular the information discussed in the section titled “Executive Compensation—Compensation Philosophy,” demonstrates that our executive compensation program was designed appropriately and is working to ensure management’s interests are aligned with our stockholders’ interests to support long-term value creation. Accordingly, we ask our stockholders to vote “FOR” the following resolution at the Annual Meeting: “RESOLVED, that the stockholders approve, on an advisory basis, the compensation paid to our named executive officers, as disclosed in the proxy statement for the Annual Meeting pursuant to the compensation disclosure rules of the SEC, including the compensation discussion and analysis, compensation tables and narrative discussion and other related disclosure.” The approval, on an advisory basis, of the compensation of our named executive officers, requires the affirmative vote of a majority of the voting power of the shares of our common stock present virtually or by proxy at the Annual Meeting and entitled to vote thereon to be approved. Abstentions will have the effect of a vote against this proposal, and broker non-votes will have no effect. As an advisory vote, the result of this proposal is non-binding. Although the vote is non-binding, our board of directors and our compensation committee value the opinions of our stockholders and will consider the outcome of the vote when making future compensation decisions for our named executive officers. We currently hold our advisory vote on executive compensation annually. Accordingly, the next advisory vote on executive compensation will be held at our 2023 annual meeting of stockholders. THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS. Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders 27
TABLE OF CONTENTS The following table identifies certain information about our executive officers as of March 25, 2022. Our executive officers are appointed by, and serve at the discretion of, our board of directors. There are no family relationships among any of our directors or executive officers. | Andrew W. Houston
| | | 37
| | | Chief Executive Officer, Co-Founder, and Chairman
| | | Arash Ferdowsi(1)
| | | 34
| | | Co-Founder
| | | Olivia Nottebohm(2)
| | | 42
| | | Age | | | Position | | | | Andrew W. Houston | | | 39 | | | Chief Executive Officer, Co-Founder, and Chairman | | | | Timothy Regan | | | 45 | | | Chief Financial Officer | | | | Bart E. Volkmer | | | 47 | | | Chief Legal Officer | | | | Timothy Young | | | 40 | | | President | |
For Mr. Houston’s biography, see “Nominees for Director.” Timothy Regan. Timothy Regan, CPA, has served as Dropbox’s Chief Financial Officer since September 2020. Previously, he served as Dropbox’s Chief Accounting Officer from December 2016 to September 2020. From January 2011 to December 2016, he served as VP Finance Controller at Pandora Media, Inc., or Pandora. Prior to joining Pandora, he held senior positions at Dolby Laboratories, Inc., and Ernst and Young, LLP. Mr. Regan received his Bachelor of Arts in Accounting from Georgetown University in 1999 and his Master of Business Administration from the University of California, Berkeley Haas School of Business, in 2011. Bart E. Volkmer. Mr. Volkmer has served as our Chief Legal Officer since January 2020. From June 2016 to January 2020, Mr. Volkmer served as our General Counsel and from August 2011 to June 2016, Mr. Volkmer served as our Head of Litigation & Regulatory. Prior to joining Dropbox, Mr. Volkmer practiced law at Wilson Sonsini Goodrich & Rosati, a law firm, from 2003 to 2011, where he counseled early-stage and established technology companies. Mr. Volkmer holds a J.D. from Santa Clara University School of Law and a B.A. in English from Creighton University. Timothy Young. Timothy Young has served as our President since November 2020. From October 2019 to November 2020, Mr. Young served as our Senior Vice President and General Manager, Core Dropbox. Mr. Young has extensive experience managing, growing and investing in technology companies. Prior to joining Dropbox and since January 2015, Mr. Young has served as a Founder of Hidden Hand Capital, which invests in early-stage technology companies. Prior to founding Hidden Hand Capital, from May 2011 to September 2014, he was Vice President of Product and Engineering at VMware, a cloud infrastructure and digital workspace company, where he led product development and strategic product planning for cloud and mobile applications. From June 2005 to May 2011, he was the Founder and CEO of Socialcast, which was acquired by VMware. From December 2009 to December 2010, he was a Co-Founder of about.me, which was acquired by AOL. Mr. Young attended the University of California, Riverside, where he studied Computer Science. 28 Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders TABLE OF CONTENTS Compensation Discussion and Analysis This Compensation Discussion and Analysis describes the material elements of our executive compensation program during 2021. It also provides an overview of our executive compensation philosophy, including our principal compensation policies and practices. Finally, it analyzes how and why our compensation committee arrived at the specific compensation decisions for our executive officers, including our named executive officers in 2021, and discusses the key factors that our compensation committee considered in determining their compensation. Our named executive officers for 2021 were: | | Andrew W. Houston | | | Chief Executive Officer | | | | Timothy Regan | | | Chief Financial Officer | | | | Timothy Young | | | President | | | | Bart E. Volkmer | | | Chief Legal Officer | | | | Olivia Nottebohm(1) | | | Former Chief Operating Officer | | | Bharat Mediratta(3)
| | | 49
| | | Chief Technology Officer and Senior Vice President, Platform
| |
(1)
| Ms. Nottebohm resigned from the company in February 2021. | | Ajay V. Vashee
|
Who We Are Dropbox is the one place to keep life organized and keep work moving. We were founded in 2007 with a simple idea: Life would be a lot better if everyone could access their most important information anytime from any device. Over the past decade, we’ve largely accomplished that mission by building tools to help people work from anywhere—and along the way we recognized that for most of our users, sharing and collaborating on the Dropbox platform was even more valuable than storing files. Our market opportunity has grown as we’ve expanded from keeping files in sync to keeping teams in sync. Today, we are well-positioned to reimagine the way work gets done. We're focusing on reducing the inordinate amount of time and energy the world spends on “work about work”—tedious tasks like searching for content, switching between applications, and managing workflows. We believe the need for our platform will continue to grow as teams become more fluid and global, and content is increasingly fragmented across incompatible tools and devices. The Dropbox platform breaks down silos by centralizing the flow of information between the products and services our users prefer, even if they’re not our own. In a world where using technology at work can be fragmented and distracting, the Dropbox platform makes it easy to focus on the work that matters. The popularity of our platform allows us to scale rapidly and efficiently. We’ve built a thriving global business with 16.79 million paying users as of December 31, 2021. Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders 29
TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
2021 Business Results and Business Strategy 30 Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
Executive Compensation Policies and Practices Our compensation committee evaluates our executive compensation program on a regular basis to ensure that it is consistent with our short-term and long-term goals given the dynamic nature of our business and the competitive market in which we compete for executive talent. The following summarizes our executive compensation program and related policies and practices: | | | 36
| | | Chief Financial Officer
| | | Bart E. Volkmer(4)
| | | 45
| | | Chief Legal Officer
| | | Timothy Young(5)
| | | 38
| | | Senior Vice President and General Manager, Core Dropbox(1)
| | | As previously noted, Mr. Ferdowsi has resigned as a member of the board and as an officer of the company, effective March 19, 2020. Mr. Ferdowsi will remain at Dropbox to help with the transition until April 10, 2020. |
(2)
| Ms. Nottebohm has served as our Chief Operating Officer since February 2020. |
(3)
| Mr. Mediratta has served as our Chief Technology Officer and Senior Vice President, Platform since October 2019. |
(4)
| Mr. Volkmer has served as our Chief Legal Officer since January 2020, and previously served as our General Counsel from June 2016 until January 2020. |
(5)
| Mr. Young has served as our Senior Vice President and General Manager, Core Dropbox since October 2019. |
For Mr. Houston’s biography, see “✔ NomineesMaintain an Independent Compensation Committee.
The compensation committee consists solely of independent directors who establish our compensation practices.
✔ Retain an Independent Compensation Advisor. The compensation committee has engaged its own compensation consultant to provide information, analysis, and other advice on executive compensation independent of management. This consultant performed no other consulting or other services for Director” and for Mr. Ferdowsi’s biography, see “Non-Continuing Directors.”us in 2021.
Bharat Mediratta.✔ Bharat Mediratta has served asAnnual Executive Compensation Review. The compensation committee conducts an annual review of our Chief Technology Officer and Senior Vice President, Platform since October 2019. Mr. Mediratta has served in a number of leadership roles at technology companies. Prior to joining Dropbox, Mr. Mediratta was an angel investor and advisor for a number of growth-oriented technology companies. From March 2015 to May 2019, he was a Co-Founder and the President and Chief Technology Officer of AltSchool, an education company. Prior to co-founding AltSchool, from June 2004 to March 2015, he served as a Distinguished Engineer at Google, a global internet software services company. Prior to his role at Google, he served in a variety of engineering roles at various technology companies. In addition, he founded and served as the Chief Executive Officer of Gallery, an open source photography technology company, from May 2000 to June 2014. Mr. Mediratta holds a B.A. in Computer Science from Colgate University.
Olivia Nottebohm. Olivia Nottebohm has served as our Chief Operating Officer since February 2020. Ms. Nottebohm has over 20 years of experience in sales and operations and has served in a number of senior positions overseeing sales and operations in the online software space. Prior to joining Dropbox, from September 2016 to January 2020, she served as Vice President of SMB Sales and GTM Operations, Google Cloud at Google. Previously, from August 2014 to September 2016, she served as Senior Director, Americas GTM Operations, Google Ads. Prior to joining Google, she worked as a management consultant at McKinsey & Company, where she was a Partner from 2010 to 2014. Ms. Nottebohm received a B.A. in Economics from Harvard University and an M.B.A. from Stanford Graduate School of Business.
Ajay V. Vashee. Mr. Vashee has served as our Chief Financial Officer since September 2016. From February 2015 to September 2016, Mr. Vashee served as our Head of Corporate Development. From April 2012 to February 2015, Mr. Vashee served as our Head of Finance. Mr. Vashee holds a B.A. in Economics and Political Science from Columbia University.
Bart E. Volkmer. Mr. Volkmer has served as our Chief Legal Officer since January 2020. From June 2016 to January 2020, Mr. Volkmer served as our General Counsel and from August 2011 to June 2016, Mr. Volkmer served as our Head of Litigation & Regulatory. Prior to joining Dropbox, Mr. Volkmer practiced law at Wilson Sonsini Goodrich & Rosati, a law firm, from 2003-2011, where he counseled early-stage and established technology companies. Mr. Volkmer holds a J.D. from Santa Clara University School of Lawcompensation strategy and a B.A. in English from Creighton University.review of our compensation-related risk profile to ensure that our compensation programs do not encourage excessive or inappropriate risk-taking.
Timothy Young.✔ Timothy Young has served as our Senior Vice President and General Manager, Core Dropbox since October 2019. Mr. Young has extensive experience managing, growing and investing in technology companies. Prior to joining Dropbox and since January 2015, Mr. Young has served asCompensation At-Risk. Our executive compensation program is designed so that a Founder of Hidden Hand Capital, which invests in early stage technology companies. Prior to founding Hidden Hand Capital, from May 2011 to September 2014, he was Vice President of Product and Engineering at VMware, a cloud infrastructure and digital workspace company, where he led product development and strategic product planning for cloud and mobile applications. From June 2005 to May 2011, he was the Founder and CEO of Socialcast, which was acquired by VMware. From December 2009 to December 2010, he was a Co-Founder of about.me, which was acquired by AOL. Mr. Young attended the University of California, Riverside, where he studied Computer Science.
Dropbox, Inc. Proxy Statement and Notice of 2020 Annual Meeting of Stockholders 23
TABLE OF CONTENTS
Compensation Discussion and AnalysisThis Compensation Discussion and Analysis describes the material elementssignificant portion of our executive officer’s compensation program during 2019. It also provides an overviewis “at risk” based on corporate performance, as well as equity-based, to align the interests of our executive officers and stockholders.✔ Use a Pay-for-Performance Philosophy. The majority of our executive officers’ compensation philosophy, includingis directly linked to corporate performance; we also structure their target total direct compensation opportunities with a significant long-term equity component, thereby making a substantial portion of each executive officer’s target total direct compensation dependent upon our principalstock price and/or total stockholder return.
✔ Succession Planning. We review the risks associated with our key executive officer positions to ensure adequate succession plans are in place. | | | ✗ No Guaranteed Bonuses. We do not provide guaranteed bonuses to our executive officers.
✗ No Executive Retirement Plans. We do not offer defined benefit pension plans or any non-qualified deferred compensation policies and practices. Finally, it analyzes how and why our compensation committee arrived at the specific compensation decisions forplans or arrangements to our executive officers, includingother than the plans and arrangements that are available to all employees.
✗ No Hedging or Pledging. We prohibit our namedemployees (including our executive officers) and the non-employee members of our board of directors from hedging or pledging our securities.
✗ No Tax Payments on Perquisites. We do not provide any tax reimbursement payments (including “gross-ups”) on any perquisites or other personal benefits.
✗ No Excise Tax Payments on Future Post-Employment Compensation Arrangements. We do not provide any excise tax reimbursement payments (including “gross-ups”) on payments or benefits contingent upon a change in control of the company.
✗ No Special Welfare or Health Benefits. We do not provide our executive officers with any welfare or health benefit programs, other than participation in 2019, and discusses the key factors that our compensation committee considered in determining their compensation.broad-based employee programs. All highly compensated employees are Our named executive officers for 2019 were:
| Andrew W. Houston
| | | Chief Executive Officer
| | | Ajay V. Vashee
| | | Chief Financial Officer
| | | Bharat Mediratta
| | | Chief Technology Officer and Senior Vice President, Platform
| | | Timothy Young
| | | Senior Vice President and General Manager, Core Dropbox
| | | Yamini Rangan(1)
| | | Chief Customer Officer
| |
(1)
| Ms. Rangan resigned from the company in January 2020. |
Who We Are
Our modern economy runs on knowledge. Today, knowledge lives in the cloud as digital content, and Dropbox is building the world's first smart workspace where business and individuals can create, access, and share this content globally. We serve more than 600 million registered users across 180 countries.
Since our founding in 2007, our market opportunity has grown as we’ve expanded from keeping files in sync to keeping teams in sync. Our smart workspace is a digital environment that brings all of a team’s content together with the tools they love, helping users cut through the clutter and surfacing what matters most. In a world where using technology at work can be fragmented and distracting, the smart workspace makes it easy to focus on the work that matters.
By solving these universal problems, we’ve become invaluable to our users. The popularity of our platform drives viral growth, which has allowed us to scale rapidly and efficiently. We’ve built a thriving global business with 14.3 million paying users.
2019 Business Results
In 2019, we delivered strong execution, driving healthy top line growth and free cash flow. Combined with our ecosystem of best-in-class partners, we have become an even more central part of our customers’ workflows.
In 2019, we achieved several significant financial and operational results:
Total revenue was $1,661 million, an increase of 19% year over year.
Paying users totaled 14.3 million, as compared to 12.7 million for the same period last year.
Average revenue per paying user was $123.07, as compared to $117.64 in the prior year.
Non-GAAP gross margin was 76.4%, as compared to 75.1% in the prior year.*
Non-GAAP operating margin was 12.3%, as compared to 12.2% in the prior year.*
Free cash flow was $392.4 million, as compared to $362.4 million in the prior year.*
24 Dropbox, Inc. Proxy Statement and Notice of 2020 Annual Meeting of Stockholders
TABLE OF CONTENTS
EXECUTIVE COMPENSATION (continued)
*
| A reconciliation of GAAP to non-GAAP results is provided in Appendix A.
|
Executive Compensation Policies and Practices
Our compensation committee evaluates our executive compensation program on a regular basis to ensure that it is consistent with our short-term and long-term goals given the dynamic nature of our business and the competitive market in which we compete for executive talent. The following summarizes our executive compensation program and related policies and practices:
| ✔ Maintain an Independent Compensation Committee. The
compensation committee consists solely of independent
directors who establish our compensation practices.
✔ Retain an Independent Compensation Advisor. The
compensation committee has engaged its own compensation
consultant to provide information, analysis, and other advice
on executive compensation independent of management. This
consultant performed no other consulting or other services
for us in 2019.
✔ Annual Executive Compensation Review. The
compensation committee conducts an annual review of our
compensation strategy, including a review and determination
of our compensation peer group used for comparative
purposes and a review of our compensation-related risk profile
to ensure that our compensation programs do not encourage
excessive or inappropriate risk-taking.
✔ Compensation At-Risk. Our executive compensation
program is designed so that a significant portion of our
executive officer’s compensation is “at risk” based on
corporate performance, as well as equity-based, to align the
interests of our executive officers and stockholders.
✔ Use a Pay-for-Performance Philosophy. The majority of
our executive officers’ compensation is directly linked to
corporate performance; we also structure their target total
direct compensation opportunities with a significant long-term
equity component, thereby making a substantial portion of
each executive officer’s target total direct compensation
dependent upon our stock price and/or total stockholder
return.
✔ Succession Planning. We review the risks associated with
our key executive officer positions to ensure adequate
succession plans are in place.
| | | ✗ No Guaranteed Bonuses. We do not provide guaranteed
bonuses to our executive officers.
✗ No Executive Retirement Plans. We do not offer defined
benefit pension plans or any non-qualified deferred
compensation plans or arrangements to our executive officers,
other than the plans and arrangements that are available to all
employees. Our executive officers are eligible to participate in
our Section 401(k) retirement savings plan on the same basis
as our other employees.
✗ No Hedging or Pledging. We prohibit our employees
(including our executive officers) and the non-employee
members of our board of directors from hedging or pledging
our securities.
✗ No Tax Payments on Perquisites. We do not provide any
tax reimbursement payments (including “gross-ups”) on any
perquisites or other personal benefits.
✗ No Excise Tax Payments on Future Post-Employment
Compensation Arrangements. We do not provide any
excise tax reimbursement payments (including “gross-ups”) on
payments or benefits contingent upon a change in control of
the company.
✗ No Special Welfare or Health Benefits. We do not provide
our executive officers with any welfare or health benefit
programs, other than participation in our broad-based
employee programs. All highly compensated employees are
eligible for special long-term disability.
| |
Dropbox, Inc. Proxy Statement and Notice of 2020 Annual Meeting of Stockholders 25
TABLE OF CONTENTS
EXECUTIVE COMPENSATION (continued)
Executive Compensation Philosophy and Objectives Our executive compensation program is guided by our overarching philosophy of paying for demonstrable performance. Consistent with this philosophy, we have designed our executive compensation program to achieve the following primary objectives: Provide market-competitive compensation and benefit levels that will attract, retain, motivate, and reward a highly-talented team of executive officers within the context of responsible cost management; Establish a direct link between our financial, operational, and strategic objectives and results, as well as our values, and the compensation of our executive officers; and Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders 31
TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
Align the interests and objectives of our executive officers with those of our stockholders by linking the long-term equity incentive compensation opportunities to stockholder value creation and their cash incentives to our annual performance. Pay-for-Performance We believe our executive compensation program is reasonable, competitive, and appropriately balances the goals of attracting, motivating, rewarding, and retaining our executive officers with the goal of aligning their interests with those of our stockholders. To achieve this alignment and to motivate and reward individual initiative and effort, a substantial portion of our executive officers’ target annual total direct compensation opportunity is both variable in nature and “at-risk.” We emphasize variable compensation that appropriately rewards our executive officers including our named executive officers, through two separate compensation elements: Our annual cash bonus plan provides cash payments if our executive officers produce short-term financial, operational, and strategic results that meet or exceed the objectives set forth in our annual operating plan. plan.Equity-based awards, which represent a majority of our executive officers’ target total direct compensation opportunities, the value of which depends entirely on the value of our common stock, incentivize our executive officers to build sustainable long-term value for the benefit of our stockholders. These variable pay elements are intended to result in a substantial portion of our executive officers’ annual target total direct compensation being contingent (rather than fixed) in nature, with the amounts ultimately payable subject to variability above or below target levels commensurate with our actual performance. We believe that this design provides balanced incentives for our executive officers to drive financial performance and long-term growth. Our compensation committee regularly evaluates the relationship between the reported values of the equity awards granted to our executive officers and the amount of realizable and realized value from such awards in subsequent years. Compensation-Setting Process Role of Compensation Committee and the Stock Committee The compensation committee discharges many of the responsibilities of our board of directors relating to the compensation of our executives and non-employee directors. The compensation committee has overall responsibility for overseeing our compensation and benefits policies generally, and overseeing and evaluating the compensation plans, policies and practices applicable to our chief executive officer and other executive officers. The compensation committee makes all final decisions regarding the compensation of our chief executive officer and our other executive officers. In carrying out its responsibilities, the compensation committee evaluates our compensation policies and practices with a focus on the degree to which these policies and practices reflect our executive compensation philosophy, develops strategies and makes decisions that it believes further our philosophy or align with developments in executive compensation practices, and reviews the performance of our executive officers. The compensation committee’s authority, duties, and responsibilities are further described in its charter, which is reviewed annually and revised and updated as warranted. The charter is available on our investor relations website at investors.dropbox.com. 26 Dropbox, Inc. Proxy Statement and Notice of 2020 Annual Meeting of Stockholders
TABLE OF CONTENTS
EXECUTIVE COMPENSATION (continued)
We also formed a stock committee, which was previouslyis currently composed of Mr. Houston, our chief executive officer, Mr. Ferdowsi,Chief Financial Officer, our co-founder,Chief People Officer, and Mr. Schreier. In March 2020, the compensation committee amended the stock committee charter anda non-employee director appointed Mr. Vashee,by our chief financial officer, and Ms. Nottebohm, our chief operating officer, to replace Messrs. Houston and Ferdowsi.board. The stock committee has authority to grant equity awards to (a) employees who hold a title below vice president and (b) consultants in each case subject to certain limitations established from time to time by the compensation committee. Role of Compensation Consultant The compensation committee engages an external compensation consultant to assist the committee by providing information, analysis, and other advice relating to our executive compensation program and the decisions resulting from its annual executive compensation review. The compensation consultant reports directly to the compensation committee and its chair, and serves at the discretion of the compensation committee, which reviews the engagement annually. 32 Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
For 2019,2021, the compensation committee retained Compensia to serve as its compensation advisor to advise on executive and director compensation matters, including competitive market pay practices for our executive officers, and data analysis and selection of the compensation peer group. During 2019,2021, Compensia attended compensation committee meetings and provided the following services: Consulted with the compensation committee chair and other members between compensation committee meetings; Provided competitive market data based on the compensation peer group for our executive officer positions, and evaluation of how the compensation we pay our executive officers compares both to our performance and to how the companies in our compensation peer group compensate their executives; Provided competitive market data based on the compensation peer group for non-employee directors, and evaluation of how the compensation we pay our non-employee directors compares to companies in our compensation peer group; Reviewed and analyzed base salary levels, annual incentive bonus opportunities, and long-term equity incentive compensation opportunities of our executive officers; Assessed executive compensation trends within our industry, and updates on corporate governance and regulatory issues and developments; Reviewed our executive compensation disclosure; Assessed compensation risk to determine whether our compensation policies and practices are reasonably likely to have a material adverse impact on the company; and Supported on other ad hoc matters throughout the year. Compensia did not provide any services to us other than the consulting services to the compensation committee. The compensation committee regularly reviews the objectivity and independence of the advice provided by its compensation consultant on executive compensation matters. The compensation committee has evaluated Compensia’s engagement, and based on the six factors for assessing independence and identifying potential conflicts of interest that are set forth in Exchange Act Rule 10C-1(b)(4), Rule 5605(d)(3)(D) of the Nasdaq Marketplace Rules, and such other factors as were deemed relevant under the circumstances, has determined that its relationship with Compensia and the work of Compensia on behalf of the compensation committee did not raise any conflict of interest, and that Compensia is independent as defined in Rule 5605(a)(2) of the Nasdaq Marketplace Rules. Role of Management In discharging its responsibilities, the compensation committee also works with members of our management, including our chief executive officer. Our management assists the compensation committee by providing information on corporate and individual performance, competitive market data, and management’s perspective and recommendations on compensation matters. Typically, our chief executive officer makes recommendations to the compensation committee regarding compensation matters, including adjustments to annual cash compensation, long-term equity incentive compensation opportunities, and program structures, for our executive officers, except with respect to his own compensation. At the beginning of each year, our chief executive officer reviews the Dropbox, Inc. Proxy Statement and Notice of 2020 Annual Meeting of Stockholders 27
TABLE OF CONTENTS
EXECUTIVE COMPENSATION (continued)
performance of our other executive officers, including our other named executive officers, based on such individual’s level of success in accomplishing the business objectives established for him or her for the prior year and their overall performance during that year, and then shares these evaluations with, and makes recommendations to, the compensation committee for each element of compensation as described above. The compensation committee reviews and discusses these recommendations and proposals with our chief executive officer and uses them as one factor in determining and approving the compensation for our executive officers. Our chief executive officer also attends meetings of our board of directors and the compensation committee at which executive compensation matters are addressed, except with respect to discussions involving his own compensation. Decisions with respect to our chief executive officer’s compensation are made by our compensation committee, which is comprised entirely of independent members of our board of directors. Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders 33
TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
Competitive Positioning For purposes of assessing our executive compensation against the competitive market, the compensation committee reviews and considers the compensation levels and practices of a select group of peer companies. This compensation peer group consists of technology companies that are similar to us in terms of revenue, market capitalization, geographical location, and industry sector. The companies in the compensation peer group for 20192021 were approved in September 2018October 2020 on the basis of their similarity to us, as determined using the following criteria: revenue – approximately 0.4x to approximately 2.5x our last four fiscal quarter revenue of approximately $1.25$1.7 billion (approximately $500$692 million to $3.1$4.3 billion); market capitalization – approximately 0.25x to approximately 4.0x our market capitalization of approximately $12.0$9.1 billion (approximately $3.0$2.3 billion to $48.0$36 billion); industry sector – internet software and services, software, communication equipment, internet and direct marketing retail, and certain SaaS companies not classified as such; and relevance – software-as-a-service model or product similarity. In selecting the 20192021 compensation peer group, we chose companies that resulted in us being near the median of the group as of October 2020, in terms of both revenue and market capitalization. Our 2019 compensation peer group was:
| | • BoxAutodesk
| | | • ServiceNow
| | | • The Ultimate Software GroupBox
| | | | • DocuSignBox
| | | • SnapAdded:
| | | • VeevaCitrix Systems
| | | | • FortinetDocuSign
| | | • SplunkCitrix Systems
| | | • WorkdayCloudera
| | | | • LogMeInGuidewire Software
| | | • SquareCloudera
| | | • Zillow GroupDocuSign
| | | | • NutanixLogMeIn
| | | • TableauFortinet
| | | Fortinet | | | | Nutanix | | | Pure Storage | | | LogMeIn | | | | Okta | | | Slack Technologies | | | Nutanix | | | | Palo Alto Networks | | | | | | Okta | | | | Proofpoint | | | Removed: | | | Palo Alto Networks | | | | RingCentral | | | Autodesk | | | Proofpoint | | | | ServiceNow | | | Guidewire Software | | | Pure Storage | | | | Splunk | | | ServiceNow | | | RingCentral | | | | Block (formerly Square) | | | Block (formerly Square) | | | Slack Technologies | | | | Twilio | | | Twilio | | | Splunk | | | | Twitter | | | Twitter | | | Zendesk | | | | Veeva Systems | | | Veeva Systems | | | | | | | Workday | | | Workday | | | | | | | Zendesk | | | | | | | |
The compensation practices of the compensation peer group were the primary guide used by the compensation committee in 20192021 to compare the competitiveness of each compensation element and target total direct compensation (base salary, target annual cash bonus opportunities, and long-term equity incentive compensation). To analyze the compensation practices of our compensation peer group, Compensia gathered data from public filings (primarily proxy statements) of the peer group companies, as well as from the Radford Global Technology Survey. This market data was then used as a reference point for the compensation committee to assess our current compensation levels in the course of its deliberations on compensation forms and amounts. The compensation committee does not engage in formal benchmarking against other companies’ compensation programs or practices to establish our compensation levels or make specific compensation recommendations with respect to our executive officers, including our named executive officers. The compensation committee reviews our compensation peer group each year and adjusts its composition if warranted, taking into account changes in both our business and the businesses of the companies in the peer group. 2834 Dropbox, Inc. Proxy Statement and Notice of 20202022 Annual Meeting of Stockholders
TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
Compensation Setting We review the base salary levels, annual cash bonus opportunities, and long-term equity incentive compensation opportunities of our executive officers including our named executive officers, and all related performance criteria at the beginning of each year, or more frequently as warranted. Adjustments are generally effective on February 1st of the fiscal year. We do not establish a specific target for formulating the target total direct compensation opportunities of our executive officers, including our named executive officers. In making decisions about the compensation of our executive officers, the compensation committee relies primarily on its general experience and subjective considerations of various factors, including the following: | | • Our executive compensation program objectives;
• Our performance against the financial, operational, and
strategic objectives established by the compensation
committee and our board of directors;
• Each individual executive officer’s knowledge, skills,
experience, qualifications, and tenure relative to other similarly-
situatedsimilarly-situated executives at the companies in our compensation
peer group;
• The scope of each executive officer’s role and responsibilities
compared to other similarly-situated executives at the
companies in our compensation peer group;
• The prior performance of each individual executive officer,
based on a subjective assessment of their contributions to our
overall performance, ability to lead their business unit or
function, and work as part of a team, all of which reflect our
core values; | | | • The potential of each individual executive officer to contribute
to our long-term financial, operational, and strategic
objectives;
• Our chief executive officer’s compensation relative to that of
our executive officers, and compensation parity among our
executive officers;
• Our financial performance and profile relative to companies in our
compensation peer group;peers;
• The compensation practices of our compensation peer group
and the positioning of each executive officer’s compensation in
a ranking of peer company compensation levels based on an
analysis of competitive market data; and
• The recommendations of our chief executive officer with
respect to the compensation of our other executive officers. | |
These factors provide the framework for compensation decision-making for each executive officer. No single factor is determinative in setting compensation levels, nor is the impact of any individual factor on the determination of pay levels quantifiable. We do not weight these factors in any predetermined manner, nor do we apply any formulas in developing our compensation recommendations. The members of the compensation committee consider all of this information in light of their individual experience, knowledge of management, knowledge of the competitive market, knowledge of each executive officer, and business judgment in making their recommendations. In addition, the compensation committee considered feedback from our stockholders and the result of our first Say on Pay vote. Our fiscal 20182021 Say on Pay vote reflected 99.8%96.2% support from our stockholders, based on the percentage of shares voted. The compensation committee believes this indicates that our stockholders support the philosophy, strategy, objectives, and administration of our executive compensation programs. We also consider the potential risks in our business when designing and administering our executive compensation program, and we believe our balanced approach to performance measurement and pay delivery serves to avoid misaligned incentives for individuals to undertake excessive or inappropriate risk. Dropbox, Inc. Proxy Statement and Notice of 20202022 Annual Meeting of Stockholders 2935
TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
In 2019,2021, the principal elements of our executive compensation program, and the purposes for each element, were as follows: | | Base Salary
| | | Fixed
| | | Cash
| | | Attract and retain highly talented executives by providing fixed compensation amounts that are competitive in the market and reward performance.
| | | Annual Cash Bonus
| | | Variable
| | | Cash
| | | Motivate our executives to achieve annual business objectives set forth in our annual operating plan and provide financial incentives when we meet or exceed these annual objectives.
| | | Long-Term Equity Incentive Compensation
| | | Variable
| | | Equity
| | | Align the interests of our executives and our stockholders by motivating them to create sustainable long-term stockholder value.
| |
Mix of Pay
As illustrated in the charts below, our primary focus in compensating executives is on the longer-term and performance-based elements of target total direct compensation. Under our executive compensation program, approximately 90% of target total direct compensation to our Named Executive Officers (excluding our CEO) was variable in the form of annual cash bonus and long-term equity incentive compensation. Our CEO’s mix of pay is weighted equally between base salary and annual bonus. Mr. Houston does not receive annual equity awards due to his significant holdings as a co-founder. Mr. Houston received a co-founder award in December 2017 prior to our IPO. Details of Mr. Houston’s co-founder award is further described in “Co-Founder Grants” below.
Base Salary | | | We use base salary to provide each executive officer with a specified level of cashFixed
| | | Cash | | | Attract and retain highly talented executives by providing fixed compensation during the year with the expectationamounts that they will perform their responsibilities to the best of their ability and in our best interests. Generally, we establish the initial base salaries of our executive officers through arm’s-length negotiation at the time we hire the individual executive officer, taking into account their position, qualifications, experience, prior salary level, and the base salaries of our other executive officers. Thereafter, the compensation committee reviews the base salaries of our executive officers each year as part of its
30 Dropbox, Inc. Proxy Statement and Notice of 2020 Annual Meeting of Stockholders
TABLE OF CONTENTS
EXECUTIVE COMPENSATION (continued)
annual compensation review, with input from our chief executive officer (except with respect to his own base salary) and makes adjustments as it determines to be reasonable and necessary to reflect the scope of an executive officer’s performance, individual contributions and responsibilities, positionare competitive in the case of a promotion,market and market conditions.reward performance.
| | | | In February 2019, the compensation committee reviewed the base salaries ofAnnual Cash Bonus
| | | Variable | | | Cash | | | Motivate our executive officers, including our named executive officers, taking into consideration a competitive market analysis and the recommendations of our chief executive officer, as well as the other factors described in “Compensation-Setting Process—Setting Target Total Direct Compensation,” above. Following this review, in March 2019, the compensation committee approved base salary increases for Mr. Vashee and Ms. Rangan, effective February 1, 2019. The base salaries of our named executive officers for 2019 were:
| | Andrew W. Houston | | | $700,000 | | | $700,000 | | | 0% | | | | Ajay V. Vashee | | | $500,000 | | | $550,000 | | | 10% | | | | Bharat Mediratta | | | $N/A(1) | | | $500,000 | | | N/A | | | | Timothy Young | | | $N/A(1) | | | $500,000 | | | N/A | | | | Yamini Rangan | | | $500,000 | | | $550,000 | | | 10% | |
(1)
| Messrs. Mediratta and Young joined Dropbox in October 2019 |
The base salaries paidexecutives to our named executive officers during 2019 areachieve annual business objectives set forth in the “Summary Compensation Table for Fiscal 2019” below.
Annual Cash Bonuses
In March 2019, the compensation committee, with input from management, adopted our 2019 annual cash bonusoperating plan (the “2019 Cash Bonus Plan”), which was designed toand provide financial incentives for us towhen we meet or exceed these annual objectives.
| | | | Long-Term Equity Incentive Compensation | | | Variable | | | Equity | | | Align the pre-established target level for net revenue established underinterests of our 2019 annual operating plan. The 2019 Cash Bonus Plan funded based onexecutives and our actual achievement against the pre-established target level for the corporate performance measure.stockholders by motivating them to create sustainable long-term stockholder value. Target Annual Cash Bonus Opportunities
Under the 2019 Cash Bonus Plan, cash bonus payments were based upon an eligible percentage of each participant’s base salary. In February 2019,
| |
Mix of Pay Our primary focus in compensating executive officers is on the longer-term and performance-based elements of target total direct compensation. Under our 2021 executive compensation program, approximately 90% of target total direct compensation to our named executive officers (excluding our CEO) was variable in the form of annual cash bonus and long-term equity incentive compensation. Our CEO’s mix of pay is weighted equally between base salary and annual bonus. Mr. Houston does not receive annual equity awards due to his significant holdings as a co-founder and the “Co-Founder Grant” (in the form of a restricted stock award) he received in December 2017 prior to our IPO. Details of Mr. Houston’s Co-Founder Grant are further described in “Co-Founder Grant” below. In addition, Mr. Young did not receive an equity award in 2021 due to an equity award he received in December 2020, which grant delivers value only if we achieved certain stock price goals during the term of the award. Mr. Young’s award in connection with his promotion to President is further described in “Performance Achievement of Mr. Young’s Performance RSA” below.  Base Salary We use base salary to provide our executive officers with a specified level of cash compensation during the year with the expectation that they will perform their responsibilities to the best of their ability and in our best interests. Generally, we establish the initial base salaries of our executive officers through arm’s-length negotiations at the time we hire them, taking into account their position, qualifications, experience, prior salary level, and the base salaries of our other executive officers. Thereafter, the compensation committee reviews the base salaries of our executive officers each year as part of its annual compensation review, with input from our chief executive officer (except with respect to his own base salary) and makes adjustments as it determines to be reasonable and necessary to reflect the scope of an executive officer’s performance, individual contributions and responsibilities, position in the case of a promotion, and market conditions. 36 Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
In March 2021, the compensation committee reviewed the base salaries of our executive officers, taking into consideration a competitive market analysis and the recommendations of our chief executive officer, as well as the other factors described in “Compensation-Setting Process—Compensation Setting,” above. In connection with this review, Mr. Houston’s salary was increased to $625,000 and Mr. Regan’s salary was increased to $475,000 to align with targeted market positioning, each effective February 1, 2021. The base salaries of our named executive officers for 2021 were: | | Andrew W. Houston | | | 550,000 | | | 625,000 | | | 14% | | | | Timothy Regan | | | 450,000 | | | 475,000 | | | 6% | | | | Timothy Young | | | 600,000 | | | 600,000 | | | 0% | | | | Bart E. Volkmer | | | 475,000 | | | 475,000 | | | 0% | | | | Olivia Nottebohm(1) | | | 500,000 | | | — | | | N/A | |
(1)
| Ms. Nottebohm joined the company in February 2020 and resigned from the company in February 2021. |
The base salaries paid to our named executive officers during 2021 are set forth in the “Summary Compensation Table for Fiscal Year 2021” below. Annual Cash Bonuses In March 2021, the compensation committee, with input from management, adopted our 2021 annual cash bonus plan (the “2021 Cash Bonus Plan”), which was designed to provide financial incentives for us to meet or exceed the pre-established target levels for revenue and operating margin established under our 2021 annual operating plan. The 2021 Cash Bonus Plan funded based on our actual achievement against the pre-established target levels for the corporate performance measure. Target Annual Cash Bonus Opportunities Under the 2021 Cash Bonus Plan, cash bonus payments were based upon an eligible percentage of each participant’s base salary. In March 2021, the compensation committee reviewed and approved the target annual cash bonus opportunities of our executive officers, taking into consideration the recommendations of our chief executive officer (except with respect to his own target annual cash bonus opportunity) as well as the other factors described in “Compensation-Setting Process— Compensation Setting” above. Based on this review, the compensation committee decided to make no adjustment to the target annual cash bonus opportunity (as a percentage of base salary) of each of our named executive officers. Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders 37
TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
The 2021 target annual cash bonus opportunities for our named executive officers were: | | Andrew W. Houston | | | 100% | | | 606,506 | | | | Timothy Regan | | | 65% | | | 307,369 | | | | Timothy Young | | | 100% | | | 600,000 | | | | Bart E. Volkmer | | | 65% | | | 308,750 | |
(1)
| Ms. Nottebohm resigned from the company in February 2021 and therefore did not have a target annual cash bonus opportunities of our executive officers, taking into consideration the recommendations of our chief executive officer (except with respect to his own target annual cash bonus opportunity) as well as the other factors described in “Compensation-Setting Process—Setting Target Total Direct Compensation” above. Following this review, in March 2019, the compensation committee approved increases to the target annual cash bonus opportunities (as a percentage of base salary) of Mr. Houston and Ms. Rangan, effective February 1, 2019.opportunity. |
Potential annual cash bonus payments for our executive officers under the 2021 Cash Bonus Plan ranged from zero to 225% of their target annual cash bonus opportunity. Corporate Performance Measure The compensation committee approved annual revenue (weighted 67%) and non-GAAP operating margin (weighted 33%) as components of the corporate performance measure under the 2021 Cash Bonus Plan because we believe incorporating both annual revenue and non-GAAP operating margin aligns with our emphasis on driving profitable growth. For purposes of the 2021 Cash Bonus Plan, “annual revenue” was calculated by excluding the impact of foreign exchange from our annual revenue reflected in our audited financial statements for the 2021 fiscal year and “non-GAAP operating margin” was calculated to exclude the impact of stock-based compensation expense, acquisition-related and other expenses, amortization of acquired intangible assets, impairment charges related to real estate assets, and expenses related to a reduction in workforce. In March 2021, the compensation committee set the target performance levels under the 2021 Cash Bonus Plan at (i) $2,110 million for annual revenue and (ii) 27.5% for non-GAAP operating margin. In addition, the compensation committee approved the performance matrix for funding the 2021 Cash Bonus Plan (as described below), with a 10% reduction to actual payouts to our named executive officers if the company’s stock-based compensation expense exceeded $305 million for the 2021 fiscal year. With respect to the annual revenue component, the bonus funding was 0% if we did not achieve annual revenue at the threshold revenue performance level, 97% of the target performance level. At 98% of the target revenue performance level, the annual revenue bonus funding percentage was 50%. For annual revenue above the 98% of target performance level and below 99.5% the target performance level, the annual revenue bonus funding percentage increased linearly up to an annual revenue bonus funding percentage of 95%. For revenue performance ± 0.5% of the target revenue number, the annual revenue bonus funding percentage increased linearly from 95% to 105%. For revenue performance from 100.5% of the target revenue performance level to 102% of the target revenue performance level, the annual revenue bonus funding percentage increased linearly up to 150%. The maximum annual revenue bonus funding percentage is 150%. With respect to the non-GAAP operating margin component, the bonus funding was 0% if we did not achieve non-GAAP operating margin at the threshold performance level of 24.8%. At the threshold non-GAAP operating margin performance level, the non-GAAP operating margin bonus funding percentage was 50%. For non-GAAP operating margin above the threshold performance level, the non-GAAP operating margin bonus funding percentage increased linearly up to the maximum non-GAAP operating margin bonus funding percentage of 150%. 38 Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
| | Revenue ($M) | | | 67% | | | $2,047 | | | $2,110 | | | $2,153 | | | | Non-GAAP Operating Margin | | | 33% | | | 24.8% | | | 27.5% | | | 30.3% | |
| | The target annual cash bonus opportunities of Messrs. Mediratta and Young were established through arm’s-length negotiation at the time of hire, taking into account their position, qualifications, experience, the amount of their prior target annual cash bonus opportunities, and the target annual cash bonus opportunities of our other executive officers. Their 2019 opportunities were pro-rated to reflect their employment with us for less than the entire year.
The 2019 target annual cash bonus opportunities for our named executive officers were:
| | Andrew W. Houston | | | 100% | | | $679,192 | | | | Ajay V. Vashee | | | 65% | | | $354,740 | | | | Bharat Mediratta(1) | | | 100% | | | $104,110 | | | | Timothy Young(1) | | | 100% | | | $116,438 | | | | Yamini Rangan | | | 100% | | | $530,890 | |
(1)
| Messrs. Mediratta and Young joined Dropbox in October 2019 and their bonus opportunities were pro-rated to their start date. |
Dropbox, Inc. Proxy Statement and Notice of 2020 Annual Meeting of Stockholders 31
TABLE OF CONTENTS
EXECUTIVE COMPENSATION (continued) Potential annual cash bonus payments for our executive officers under the 2019 Cash Bonus Plan ranged from zero to 187.5% of their target annual cash bonus opportunity.
| | | Corporate Performance Measure
The compensation committee approved annual revenue as the corporate performance measure under the 2019 Cash Bonus Plan because we believed annual revenue continued to be the best indicator of our successful execution of our annual operating plan. For purposes of the 2019 Cash Bonus Plan, “revenue” was to be calculated as reflected in our audited financial statements for 2019.
In March 2019, the compensation committee set the target performance level for annual revenue at $1,670 million under the 2019 Cash Bonus Plan and approved the performance matrix for funding the 2019 Cash Bonus Plan, as described below.
The bonus funding is 0% if we do not achieve annual revenue at the threshold performance level of 98% of the target performance level. At the threshold performance level, the bonus funding percentage was 50%. For annual revenue above the threshold performance level and below the target performance level, the bonus funding percentage increased linearly up to a bonus funding percentage of 100% of target. Upon achievement of target level ± 0.5%, the bonus funding percentage is 100%. If annual revenue was above the target performance level, the bonus funding percentage increased linearly for annual revenue starting at +0.5% achievement above target performance level up to a bonus funding percentage of 125% of target. The maximum bonus funding percentage is 125%.
Individual Performance Factor
In determining the amount of annual cash bonus payments under the 2019 Cash Bonus Plan, the compensation committee considered an evaluation of each executive officer’s individual performance for the year. Generally, this evaluation involved, in the case of our chief executive officer, an evaluation of his performance by the compensation committee and, in the case of our other executive officers, an evaluation by our chief executive officer. These evaluations were based on a review of the various individual performance goals established for our executive officers as part of our annual performance evaluation process. For our executive officers other than our chief executive officer, these goals were established, after consultation with each executive officer. These performance goals were not intended to be formulaic, but rather to serve as the framework upon which our chief executive officer could evaluate the executive officer’s overall performance. Such performance goals were established with reference to each individual executive officer’s position or function within the company and included operational metrics that could reflect corporate or departmental goals or could include specific operational goals with respect to their area of responsibility.
2019 Annual Cash Bonus Decisions
In February 2020, the compensation committee, based on its evaluation, as well as the recommendation of our chief executive officer, determined the size of the bonus pool based on our performance during 2019 and determined the cash bonus payments for our executive officers, including our named executive officers, pursuant to the 2019 Cash Bonus Plan. The compensation committee reviewed our actual net revenue performance for 2019 and determined that we had achieved net revenue of $1,661 million, which was 99.5% of our net revenue target for the year. This resulted in the bonus pool being funded at 100%
| |
Individual Performance Factor In determining the amount of annual cash bonus payments under the 2021 Cash Bonus Plan, the compensation committee considered an evaluation of each executive officer’s individual performance for the year. Generally, this evaluation involved, in the case of our chief executive officer, an evaluation of his performance by the compensation committee and, in the case of our other executive officers, an evaluation by our chief executive officer. These evaluations were based on a review of the various individual performance goals established for our executive officers as part of our annual performance evaluation process. For our executive officers other than our chief executive officer, these goals were established, after consultation with each executive officer. These performance goals were not intended to be formulaic, but rather to serve as the framework upon which our chief executive officer could evaluate the executive officer’s overall performance. Such performance goals were established with reference to each individual executive officer’s position or function within the company and included operational metrics that could reflect corporate or departmental goals or could include specific operational goals with respect to their area of responsibility. 2021 Annual Cash Bonus Decisions In March 2022, the compensation committee, based on its evaluation, determined the size of the bonus pool based on our performance during 2021 and determined the cash bonus payments for our executive officers, including our named executive officers, pursuant to the 2021 Cash Bonus Plan. The compensation committee reviewed our actual annual revenue performance for 2021 and determined that we had achieved annual revenue of $2,149 million, which was 101.8% of our annual revenue target for the year. In addition, the compensation committee determined that we had achieved non-GAAP operating margin of 30.0% compared to our target of 27.5% for the year. The compensation committee approved a bonus funding percentage of 145.7% with respect to the corporate performance measure. Our chief executive officer evaluated the achievement of each other executive officer against his or her individual performance objectives and formulated a recommendation for each such executive officer’s annual cash bonus payment for consideration by the compensation committee. These recommendations were based on our chief executive officer’s subjective assessment of each individual’s contributions against the personal performance objectives during the year. In the case of our chief executive officer, the compensation committee evaluated our financial and operational performance for 2021 and formulated a recommended annual cash bonus payment for him based on the subjective assessment of his performance. Based on these evaluations, the compensation committee approved the annual cash bonus payments for our named executive officers for 2021 in the table below. Since stock-based compensation expense did not exceed $305 million for the 2021 fiscal year, there was no reduction to the annual cash bonus payments. Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders 39
TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
| | Andrew W. Houston | | | 606,506 | | | 883,679 | | | 146% | | | | Timothy Regan | | | 307,369 | | | 515,012 | | | 168% | | | | Timothy Young | | | 600,000 | | | 874,200 | | | 146% | | | | Bart E. Volkmer | | | 308,750 | | | 517,326 | | | 168% | |
(1)
| Ms. Nottebohm resigned from the company in February 2021 and therefore was ineligible to receive an annual cash bonus payment for consideration by the compensation committee. These recommendations were based on our chief executive officer’s subjective assessment of each individual’s contributions against the personal performance objectives during the year. In the case of our chief executive officer, the compensation committee evaluated our financial and operational performance for 2019 and formulated a recommended annual cash bonus payment for him.32 Dropbox, Inc. Proxy Statement and Notice of 2020 Annual Meeting of Stockholders
TABLE OF CONTENTS
EXECUTIVE COMPENSATION (continued)
Based on these evaluations, the compensation committee approved the following annual cash bonus payments for our named executive officers for 2019:
| | Andrew W. Houston | | | $679,192 | | | $679,192 | | | 100% | | | | Ajay V. Vashee | | | $354,740 | | | $443,425 | | | 125% | | | | Bharat Mediratta | | | $104,110 | | | $104,110 | | | 100% | | | | Timothy Young | | | $116,438 | | | $116,438 | | | 100% | | | | Yamini Rangan | | | $530,890 | | | —(1) | | | 0% | |
(1)
| Ms. Rangan resigned from the company in January 2020. |
The annual cash bonus payments made to our named executive officers for 2019 are set forth in the “Summary Compensation Table for Fiscal 20192021.
|
The annual cash bonus payments made to our named executive officers for 2021 are set forth in the “Summary Compensation Table for Fiscal Year 2021” below. Long-Term Equity Incentive Compensation We view long-term equity incentive compensation in the form of equity awards as a critical element of our executive compensation program. The realized value of these equity awards bears a direct relationship to our stock price, and, therefore, these awards are an incentive for our executive officers, including our named executive officers to create value for our stockholders. Equity awards also help us retain qualified executive officers in a competitive market. The amount and forms of the equity awards granted to our executive officers are determined after considering the factors described in “Compensation-Setting Process” above. The size of the equity awards is also intended to be competitive and result in target total direct compensation opportunities that we believe are reasonable and appropriate taking into consideration the factors described in the preceding sentence. In March 2021, the compensation committee approved equity grants in the form of restricted stock awards (“RSAs”) to Messrs. Regan and Volkmer, each of which were effective April 1, 2021. Differentiation was made among our executive officers based on the compensation committee’s review of the competitive market data for their respective positions, internal equity, past performance, and expected future contributions. Mr. Houston does not receive equity-based compensation in light of his significant ownership position in the company and the Co-Founder Grant he received in 2017. Mr. Young was not granted an equity award in 2021 because he was granted a meaningful performance-based equity award in late 2020 in connection with his promotion to President. The equity awards granted to our named executive officers in 2021 were as follows: | | Andrew W. Houston | | | — | | | — | | | | Timothy Regan | | | 175,207 | | | 4,671,019 | | | | Timothy Young | | | — | | | — | | | | Bart E. Volkmer | | | 116,804 | | | 3,113,995 | |
(1)
| Ms. Nottebohm resigned from the company in February 2021 and therefore did not receive an equity award in 2021. |
(2)
| The time-based RSA awards granted to our executive officers, including our named executive officers, are determined after considering the factors described in “Compensation-Setting Process” above. The size of the equity awards is also intended to be competitiveMessrs. Regan and result in target total direct compensation opportunities that we believe are reasonable and appropriate taking into consideration the factors described in the preceding sentence.In March 2019, the compensation committee approved RSU awards settled for shares of our Class A common stock to certain of our executive officers, including Mr. Vashee and Ms. Rangan (which were effective April 1, 2019). In September 2019, the compensation committee approved new hire equity grants in the form of restricted stock awards, or RSAs, to Messrs. Mediratta and Young, effective November 1, 2019. The RSAs granted to Messrs. Mediratta and Young have certain stockholder rights, such as the right to vote the shares immediately upon grant and prior to their vesting.
Differentiation was made among our executive officers based on the compensation committee’s review of the competitive market data for their respective positions, internal equity, past performance, and expected future contributions. Mr. Houston does not receive equity-based compensation in light of his significant ownership position in the company.
The equity awards granted to our named executive officers in 2019 were as follows:
| Andrew W. Houston
| | | —
| | | —
| | | Ajay V. Vashee
| | | 182,837(1)
| | | $3,985,847
| | | Bharat Mediratta
| | | 1,053,108(2)
| | | $19,945,866(3)
| | | Timothy Young
| | | 1,053,108(2)
| | | $20,293,391(3)
| | | Yamini Rangan
| | | 133,783(1)
| | | $2,916,469
| |
(3)
| The Grant Date Fair Value for awards granted to Messrs. Mediratta and Young is based on the closing price of our Class A common stock on their respective first day of employment with us. |
The time-based RSU awards granted to Mr. Vashee and Ms. RanganVolkmer vest over a four-year period in equal quarterly installments. The time-based RSAs granted to Messrs. Mediratta and Young vest over a four-year period, with one quarter of the shares vesting on
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EXECUTIVE COMPENSATION (continued)
November 15, 2020 and the remaining shares vesting in equal quarterly installments over the next three years, contingent upon the named executive officer remaining continuously employed in service with us through each applicable vesting date.
The equity awards granted to our named executive officers during 2019 are set forth in the “Summary Compensation Table for Fiscal 2019” and under “Grants of Plan-Based Awards in 2019
|
The equity awards granted to our named executive officers during 2021 are set forth in the “Summary Compensation Table for Fiscal Year 2021” and under “Grants of Plan-Based Awards in 2021” below. 40 Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
Performance Achievement of Mr. Houston’s Co-Founder Grant In December 2017, our board approved a grant to Mr. Houston (our co-founder, chief executive officer and chairman of the board of directors) of an RSA with respect to 10.3 million shares of Class A common stock in the aggregate (the “Co-Founder Grant”). The Co-Founder Grant has service-based, market-based, and performance-based vesting conditions. The Co-Founder Grant is comprised of nine tranches that are eligible to vest based on the achievement of stock price goals (each, a “Stock Price Target”), measured over a consecutive thirty-day trading period during the Performance Period (defined below), as follows: | | $30.00 | | | 2,066,667 | | | | $37.50 | | | 1,033,334 | | | | $45.00 | | | 1,033,334 | | | | $52.50 | | | 1,033,333 | | | | $60.00 | | | 1,033,333 | | | | $67.50 | | | 1,033,333 | | | | $75.00 | | | 1,033,333 | | | | $82.50 | | | 1,033,333 | | | | $90.00 | | | 1,033,333 | |
During 2021, the $30.00 price target was achieved. As a result, on November 15, 2021, Mr. Houston vested into 2,066,667 shares. The remaining tranches covering 8,266,666 shares remain outstanding and eligible to vest based on the achievement of the applicable stock price goals and fulfilling the service-based condition. See “Co-Founder Grant” description below for additional details. Performance Achievement of Mr. Young’s Performance RSA In December 2020, Mr. Young was granted a performance-based RSA in connection with his promotion to President. The performance-based RSA granted to Mr. Young is subject to service-based and market-based vesting conditions and may become eligible to vest over an approximately three-year performance period beginning January 1, 2021. The target number of shares subject to the performance-based RSA are divided into three equal tranches, and the shares subject to a tranche may become eligible to vest based on the achievement of stock price targets measured over a consecutive thirty-day trading period during a twelve-month measurement period that begins one month following the one-year anniversary of the grant date of the performance-based RSA (or in the case of the first measurement period, one month following the grant date) and ends one month following the next anniversary of the grant date, as indicated in the tables below. The measurement period for the first tranche was completed on December 31, 2021, and 200% of the target number of shares covered by the first tranche became eligible to vest based on the achievement of the $30.00 stock price target. As a result, Mr. Young vested into 353,046 shares on February 15, 2022. The remaining shares subject to the RSA (which are the shares covered by the second and third tranches) remain outstanding and eligible to vest subject to achieving certain price targets and remaining a service provider through the applicable vesting dates. | | Less than $10.00 | | | 0% | | | Less than $10.00 | | | 0% | | | Less than $10.00 | | | 0% | | | | $10.00 | | | 25% | | | $10.00 | | | 25% | | | $10.00 | | | 25% | | | | $15.00 | | | 50% | | | $15.00 | | | 50% | | | $15.00 | | | 50% | | | | $20.00 | | | 100% | | | $21.50 | | | 100% | | | $23.50 | | | 100% | | | | $25.00 | | | 150% | | | $25.00 | | | 150% | | | $25.00 | | | 150% | | | | $30.00 | | | 200% | | | $30.00 | | | 200% | | | $30.00 | | | 200% | | | | $35.00 | | | 250% | | | $35.00 | | | 250% | | | $35.00 | | | 250% | | | | $40.00 | | | 300% | | | $40.00 | | | 300% | | | $40.00 | | | 300% | |
Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders 41
TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
Mr. Young will generally forfeit any shares subject to a tranche that do not become eligible to vest as of immediately following the end of the measurement period for that tranche. Any shares subject to the performance-based RSA that become eligible to vest will vest on February 15 following the end of the applicable measurement period, subject to Mr. Young’s continued service with us through that date. In addition, the shares subject to the performance-based RSA may vest in connection with certain terminations of Mr. Young’s employment and/or a “change in control” (as defined in our 2018 Equity Incentive Plan), as described further below in the section titled “Potential Payments on Termination or Change in Control.” Welfare and Health Benefits We have established a tax-qualified Section 401(k) retirement savings plan for our executive officers, including our named executive officers, and other employees who satisfy certain eligibility requirements. Currently, we match contributions made by participants in the plan as follows: dollar for dollar up to $1,500 each quarter up to a maximum of $6,000. $6,000 per calendar year. We intend for the plan to qualify under Section 401(a) of the Internal Revenue Code (the “Code”), so that contributions by participants to the plan, and income earned on plan contributions, are not taxable to participants until withdrawn from the plan. Additional benefits received by our executive officers including our named executive officers, include medical, dental, and vision insurance, fertility benefits, an employee assistance program, commuter and wellness reimbursement programs, health and dependent care flexible spending accounts, a commuter benefit program, health savings accounts, basic and voluntary life and accidental death and dismemberment insurance and disability insurance. Employees who earn over $260,000 per year are provided with voluntary supplemental long-term disability insurance. All of these benefits are provided to our executive officers on the same basis as to all of our employees. We design our employee benefits programs to be affordable and competitive in relation to the market, as well as compliant with applicable laws and practices. We adjust our employee benefits programs as needed, based upon regular monitoring of applicable laws and practices, changes to the working arrangements of our employees and the competitive market. For example, in connection with our shift to a Virtual First work model, we replaced a number of our reimbursement and allowance programs with a single allowance program that gives our employees more flexibility to be reimbursed for a wide range of wellness, dependent care, productivity and learning and development expenses. Perquisites and Other Personal Benefits Currently, we do not view perquisites or other personal benefits as a significant component of our executive compensation program. Accordingly, we do not provide significant perquisites or other personal benefits to our executive officers, including our named executive officers except as generally made available to our employees, or in situations where we believe it is appropriate to assist an individual in the performance of their duties, to make him or her more efficient and effective, and for recruitment and retention purposes. During 2019, none In 2021, the compensation committee approved the provision of our named executive officers received perquisites or othersecurity measures to Messrs. Houston and Young. We consider the security measures provided to Messrs. Houston and Young to be reasonable and necessary expenses for the benefit of the company and not a personal benefits that were,benefit. However, in accordance with SEC disclosure rules, the aggregate incremental cost of these services is reported in the aggregate, $10,000 or more“Summary Compensation Table.” Mr. Houston participates in a security program with an annual limit of $250,000 per year. The compensation committee periodically reviews the nature and cost of this program in relation to Mr. Houston’s security profile. The cost of the security services for each individual.Mr. Houston in 2021 was $19,340.62. Mr. Young received one-time security services in 2021 with a cost of $17,500. In the future, we may provide perquisites or other personal benefits in limited circumstances, such as those described in the preceding paragraph.paragraphs. All future practices with respect to perquisites or other personal benefits will be approved and subject to periodic review by the compensation committee. We have entered into written employment letters with our chief executive officer and each of our other executive officers, including our other named executive officers. Each of these arrangements was approved on our behalf by the compensation committee or our board of directors. In filling each of our executive positions, our board of directors or the compensation committee, as applicable, recognized that we would need to develop competitive compensation packages to attract qualified candidates in a dynamic labor market. At the same time, our board of directors and the compensation committee were sensitive to the need to integrate new executive officers into the executive compensation structure, balancing both competitive and internal equity considerations. 42 Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
Each of our employment arrangements provides for “at will” employment (meaning that either we or the executive officer may terminate the employment relationship at any time with or without cause) and sets forth the initial compensation arrangements for the executive officer, including an initial base salary, participation in our employee benefit programs, an equity award recommendation, and, in some cases, sign-on bonuses and reimbursement or payment of relocation expenses. These employment arrangements also prohibit the executive officer from engaging directly or indirectly in competition with us during their employment, diverting our customers to a competitor, or disclosing our confidential information or business practices, and recruiting or soliciting any of our employees for a period after their employment. 34 Dropbox, Inc. Proxy Statement and Notice of 2020 Annual Meeting of Stockholders
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EXECUTIVE COMPENSATION (continued)
Our named executive officers are also eligible to enter into change in control and severance agreements with the company. These post-employment compensation terms are discussed in “Post-Employment Compensation” below. Post-Employment Compensation We have entered into change in control and severance agreements with each of our executive officers, including each of our named executive officers. These agreements provide these individuals with certain protection in the event of their termination of employment under specified circumstances, including following a change in control of the company. We believe that these protections were necessary to induce these individuals to accept a demanding position with the company and help retain them. These arrangements provide reasonable compensation to an executive officer if they leave our employ under certain circumstances to facilitate transition to new employment. Further, in some instances, we seek to mitigate any potential employer liability and avoid future disputes or litigation by requiring a departing executive officer to sign a separation and release agreement as a condition to receiving post-employment compensation payments or benefits. We also believe that these arrangements help maintain our executive officers’ continued focus and dedication to their assigned duties to maximize stockholder value if there is a potential transaction that could involve a change in control of the company. The terms and conditions were approved by our board of directors after an analysis of competitive market data. All payments and benefits in the event of a change in control of the company are payable only if there is a subsequent loss of employment by an executive officer (a so-called “double-trigger” arrangement). In the case of the acceleration of vesting of outstanding equity awards, we use this double-trigger arrangement to protect against the loss of retention value following a change in control of the company, and to avoid windfalls, both of which could occur if vesting of either equity or cash-based awards accelerated automatically as a result of the transaction. Mr. Houston’s Co-Founder Grant (as described below) vests in connection with our acquisition, and as noted above, the performance-based RSA granted to Mr. Young in November 2020 may vest in connection with certain terminations of Mr. Young’s employment and/or a “change in control” (as defined in our 2018 Equity Incentive Plan). See the section titled “Potential Payments on Termination or Change in Control” below for additional details. Hedging and Pledging Prohibitions As part of our Insider Trading Policy, our employees (including our executive officers and the non-employee members of our board of directors) are prohibited from trading in publicly-traded options, such as puts and calls, and other derivative securities with respect to our securities. This includes any hedging or similar transaction designed to decrease the risks associated with holding shares of our common stock. In addition, our employees (including our executive officers and the non-employee members of our board of directors) are prohibited from holding our common stock in a margin account or pledging our securities as collateral for a loan. Tax and Accounting Considerations We take the applicable tax and accounting requirements into consideration in designing and operating our executive compensation program. Deductibility of Executive Compensation Generally, Section 162(m) of the Code disallows public companies a tax deduction for federal income tax purposes of remuneration in excess of $1 million paid to their chief executive officer and certain other current and former executive officers that are “covered employees” within the meaning of Section 162(m) of the Code, subject to certain exceptions. The regulations promulgated under Section 162(m) of the Code currently contain a transition rule that applies to companies, such as ours, that become subject to Section 162(m) of the Code by Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders 43
TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
reason of becoming publicly held. Under this rule, certain compensation granted during a transition period (and, with respect to RSU awards, that is paid out before the end of the transition period) currently is not counted toward the deduction limitations of Section 162(m) of the Code if the compensation is paid under a compensation arrangement that was in existence before the effective date of the initial public offering, and certain other requirements are met. While certain of our equity awards may be eligible to be excluded from our deductibility limitation of Section 162(m) of the Code pursuant to this transition rule, the compensation committee has not adopted a policy that all equity or other compensation must be deductible. The transition period will terminate on our Annual Meeting. In approving the amount and form of compensation for our executive officers, the compensation committee considers all elements of our cost of providing such compensation, including the potential impact of Section 162(m) of the Code. The compensation committee may, in its judgment, approve compensation that may not be deductible for federal income tax purposes when it believes that such compensation is in our best interests or the best interests of our stockholders. While the transition rule for newly-public companies may help minimize the effect of the Section 162(m) deduction limit in the short-term, it is possible, going forward, that some portion of our executive officer compensation might not be fully deductible by us for federal income tax purposes. Dropbox, Inc. Proxy Statement and Notice of 2020 Annual Meeting of Stockholders 35
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EXECUTIVE COMPENSATION (continued)
Taxation of Parachute Payments and Deferred Compensation We do not provide, and have no obligation to provide, any of our named executive officers with a “gross-up” payment for any tax liability he or she might owe because of the application of Sections 280G, 4999 or 409A of the Code. If any of the payments or benefits provided for under the change in control and severance agreements or otherwise payable to a named executive officer would constitute “parachute payments” within the meaning of Section 280G of the Code and could be subject to the related excise tax, he or she would receive either full payment of such payments and benefits or such lesser amount that would cause no portion of the payments and benefits being subject to the excise tax, whichever results in the greater after-tax benefits to our named executive officer. Accounting for Stock-Based Compensation Our compensation committee considers accounting effects in designing compensation plans and arrangements for our executive officers and other employees. Chief among these is ASC Topic 718, the standard which governs the accounting treatment of stock-based compensation awards. ASC Topic 718 requires companies to measure the compensation expense for all share-based payment awards made to employees and directors, including stock options, restricted stock units and restricted stock awards, based on the grant date “fair value” of these awards. This calculation is performed for accounting purposes and reported in the compensation tables below, even though our executive officers may realize no value from their awards. ASC Topic 718 also requires companies to recognize the compensation cost of their share-based payment awards in their income statements over the period that an executive officer is required to render service in exchange for the option or other award. In December 2017, the board of directors approved a grant to our co-founders of RSAs with respect to 14.7 million shares of Class A common stock in the aggregate, or collectively, the Co-Founder Grants, of which 10.3 million RSAs were granted to Mr. Houston, our co-founder, chief executive officer and chairman of the board of directors, and 4.4 million RSAs were granted to Mr. Ferdowsi, our co-founder and director. These Co-Founder Grants have service-based, market-based, and performance-based vesting conditions. The Co-Founder Grants are eligible to vest over the ten-year period following the date Dropbox’s shares of Class A common stock began trading on Nasdaq in connection with our IPO, which occurred on March 23, 2018. The Co-Founder Grants comprise nine tranches that are eligible to vest based on the achievement of stock price goals (each, a “Stock Price Target”), measured over a consecutive thirty-day trading period during the Performance Period, which began on January 1, 2019.
We estimated the grant date fair value of theMr. Houston’s Co-Founder GrantsGrant using a model based on multiple stock price paths developed through the use of a Monte Carlo simulation that incorporates into the valuation the possibility that the Stock Price Targets may not be satisfied. The average grant date fair value of eachthe Co-Founder Grant was estimated to be $10.60 per share. Weshare, and we will recognize the total stock-based compensation expense of $109.6 million over the requisite service period of each tranche, which ranged from 2.9 to 6.9 years, using the accelerated attribution method. If the Stock Price Targets are met sooner than the derived service period, we will adjust our stock-based compensation to reflect the cumulative expense associated with the vested awards. We will recognize stock-based compensation expense if the requisite service period is provided, regardless of whether the market conditions are achieved. In March 2020, Mr. Ferdowsi resigned as a memberThe fair value of the board and as an officer of the company. As a result, he ceased to satisfy the service-based vesting condition of his Co-Founder Grant, as of March 19, 2020 (the “Expiration Date”). None ofwhereby vesting is contingent on meeting certain market conditions was estimated using the 4.4 million RSAs subject to Mr. Ferdowsi’s Co-Founder Grant had vested prior to the Expiration Date. Accordingly, all were forfeited by Mr. Ferdowsi and reacquired by the Company as of that date. This forfeiture also resulted in a full reversal of the historical stock-based compensation expense related to Mr. Ferdowsi’s award that had been recognized by the company prior to the Expiration Date. Any future stock-based compensation expense that would have been taken related to Mr. Ferdowsi’s award will be cancelled. See “Co-Founder Grants” below.following assumptions:
| | Grant date | | | 12/12/2017 | | | | Expected IPO date | | | 3/31/2018 | | | | Lock-up period | | | 1/1/2019 | | | | Expiration date | | | 3/31/2028 | | | | Grant price | | | $17.15 | | | | Expected volatility | | | 40.0% | | | | Risk-free interest rate (continuous) | | | 2.38% | | | | Expected dividends | | | 0% | |
3644 Dropbox, Inc. Proxy Statement and Notice of 20202022 Annual Meeting of Stockholders
TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
Expected grant date, expected IPO date, lock-up period, and expiration date. The Grant Date, expected IPO date, and the expiration of the lock-up period were estimates at the time of the valuation and correspond to the terms defined in the Restricted Stock Award Agreement. Grant price. The grant priced is based on the valuation of Common Shares as of December 12, 2017. Expected volatility. Expected volatility is based on the average of the implied volatility of the longer at-the-money call option and the annualized daily return volatility over the greater of the trading history or the term for each one of the guideline companies. The concluded volatility is then based on the medium of the comparable companies. Risk-free interest rate. The risk-free interest rate is interpolated based on the U.S. Treasury rates sourced from S&P Capital IQ with a term commensurate with the remaining performance period. Expected dividend. The Company has not paid and does not expect to pay dividends. Consequently, the Company uses an expected dividend yield of zero. We estimated the grant date fair value of the performance-based RSA granted to Mr. Young in December 2020 using a model based on multiple stock price paths developed through the use of a Monte Carlo simulation that incorporates into the valuation the potential stock price goals that could be achieved during each measurement period. We will recognize approximately $19.1 million in stock-based compensation expense associated with this award using the accelerated attribution method through February 15, 2024. We will recognize stock-based compensation expense if the requisite service period is provided, regardless of whether the market conditions are achieved. If Mr. Young’s employment with us is terminated, stock-based compensation expense associated with unvested tranches will be reversed and any future stock-based compensation expense that would have been taken will be cancelled from the grant date through February 15, 2024. The fair value of the Mr. Young's RSA awards, whereby vesting is contingent on meeting certain market conditions was estimated using the following assumptions: | | Grant Date | | | 12/1/2020 | | | | Stock Price | | | $20.17 | | | | Risk-free interest rate | | | 0.07% - 1.66% | | | | Expected volatility | | | 48.38% | | | | Expected dividends | | | 0% | |
Stock Price. The stock price used in a Monte Carlo simulation is based on the Company’s close price as of the valuation date, December 1, 2020. Risk-free interest rate. The risk-free rate used in a Monte Carlo simulation is interpolated based on the U.S. Treasury rates sourced from Department of the Treasury as of December 1, 2020 with a term commensurate with the remaining performance period. Expected volatility. The expected volatility used in a Monte Carlo simulation is based on the Company's historical volatility. Expected volatility is based on the equally weighted historical volatility of 45.50% and implied volatility of 51.26%. Historical volatility was estimated based on the Company’s share close price for the period September 26, 2018 to December 1, 2020. The implied volatility was retrieved from Bloomberg for the Company’s at-the-money options with maturity on December 29, 2023. Expected dividend. The Company has not paid and does not expect to pay dividends. Consequently, the Company uses an expected dividend yield of zero. Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders 45
TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
Report of the Compensation Committee The compensation committee has reviewed and discussed with management the Compensation Discussion and Analysis provided above. Based on its review and discussions, the compensation committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement and Dropbox’s Annual Report on Form 10-K for our fiscal year ended December 31, 2019.2021.Respectfully submitted by the members of the compensation committee of the board of directors: Condoleezza RiceKaren Peacock (Chair)
Robert J. Mylod, Jr.
Sara Mathew
Karen Peacock Abhay Parasnis
R. Bryan Schreier Michael Seibel 46 Dropbox, Inc. Proxy Statement and Notice of 20202022 Annual Meeting of Stockholders37
TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
Compensation Risk Assessment Our management regularly assesses and discusses with the compensation committee our compensation programs, policies, and practices for our employees as they relate to our risk management. In this regard, we undertake a risk review of our employee compensation programs, policies, and practices (including our executive compensation program) each year to determine whether these programs, policies, and practices contain features that might create undue risks or encourage unnecessary and excessive risk-taking that could threaten our value. Based upon this review, we believe that any risks arising from such programs, policies, and practices are not reasonably likely to have a material adverse effect on us. Our employees’ base salaries are fixed in amount and thus we do not believe that they encourage excessive risk-taking. While performance-based cash bonuses and sales commissions focus on achievement of short-term or annual goals, which may encourage the taking of short-term risks at the expense of long-term results, we believe that our compensation policies and the risk mitigation features of our cash bonus plans help mitigate this risk and our performance-based cash bonuses and sales commissions are limited, representing a small portion of the total compensation opportunities available to most non-executive employees. We also believe that our performance-based cash bonuses and sales commissions appropriately balance risk and the desire to focus our employees on specific short-term goals important to our success, and do not encourage unnecessary or excessive risk-taking. A significant proportion of the compensation provided to most of our employees involves long-term incentive compensation in the form of equity awards that we believe are important to help further align our employees’ interests with those of our stockholders. These equity awards directly tie their expectations of compensation to their contributions to the long-term value of our company. We do not believe that these equity awards encourage unnecessary or excessive risk-taking given their multi-year vesting schedules and since their ultimate value is tied to our stock price. 38 Dropbox, Inc. Proxy Statement and Notice of 20202022 Annual Meeting of Stockholders47
TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
Summary Compensation Table for Fiscal Year 20192021| | Name and principal position | | | Year | | | Salary
($) | | | Bonus
($) | | | Stock
awards
($)(1) | | | Non-equity
incentive plan
compensation
($)(2) | | | All other
compensation
($)(3) | | | Total
($) | | Name and Principal Position | | | Year | | | Salary
($) | | | Bonus
($) | | | Stock
Awards
($)(1) | | | Non-equity
Incentive Plan
Compensation
($)(2) | | | All Other
Compensation
($)(3) | | | Total
($) | | | | Andrew W. Houston
Chief Executive Officer and Co-Founder | | Andrew W. Houston
Chief Executive Officer
and Co-Founder | | | 2021 | | | 606,250 | | | — | | | — | | | 883,679 | | | 25,340(4) | | | 1,515,269 | | | | | | | 2019 | | | 700,000 | | | — | | | — | | | 679,192 | | | 6,000 | | | 1,385,192 | | | 2020 | | | 587,500 | | | — | | | — | | | 675,389 | | | 6,000 | | | 1,268,889 | | | | | | | 2018 | | | 675,000 | | | — | | | — | | | 548,049 | | | 6,000 | | | 1,229,049 | | | 2019 | | | 700,000 | | | — | | | — | | | 679,192 | | | 6,000 | | | 1,385,192 | | | | | | | 2017 | | | 400,000 | | | — | | | 109,569,500(4) | | | 260,000 | | | 3,000 | | | 110,232,500 | | Timothy Regan
Chief Financial Officer | | | 2021 | | | 470,833 | | | — | | | 4,671,019(1) | | | 515,012 | | | 6,000 | | | 5,662,864 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2020 | | | 393,415 | | | — | | | 4,895,566 | | | 373,595 | | | 6,000 | | | 5,668,576 | | | | Ajay V. Vashee(5)
Chief Financial Officer | | Timothy Young
President | | | 2021 | | | 600,000 | | | — | | | — | | | 874,200 | | | 23,500(4) | | | 1,497,700 | | | | | | | 2019 | | | 545,833 | | | — | | | 3,985,847 | | | 443,425 | | | 6,000 | | | 4,981,105 | | | 2020 | | | 516,667 | | | — | | | 19,143,883(5) | | | 890,778 | | | 6,000 | | | 20,557,328 | | | | | | | 2018 | | | 491,667 | | | — | | | 5,201,503 | | | 599,025 | | | 6,000 | | | 6,298,195 | | | 2019(6) | | | 115,705 | | | — | | | 20,293,391(7) | | | 116,438 | | | 1,500 | | | 20,527,034 | | | | | | | 2017 | | | 400,000 | | | — | | | 1,217,544 | | | 260,000 | | | 3,000 | | | 1,880,544 | | Bart E. Volkmer
Chief Legal Officer | | | 2021 | | | 475,000 | | | — | | | 3,113,995(1) | | | 517,326 | | | 4,500 | | | 4,110,821 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2020 | | | 475,000 | | | — | | | 2,422,649 | | | 408,322 | | | 4,500 | | | 3,310,471 | | | | Bharat Mediratta(6)(7)
Chief Technology Officer and Senior Vice President, Platform | | | 2019 | | | 472,917 | | | — | | | 2,333,167 | | | 384,213 | | | 4,500 | | | 3,194,797 | | | | | | | 2019 | | | 104,167 | | | — | | | 19,945,866 | | | 104,110 | | | 1,500 | | | 20,155,643 | | Olivia Nottebohm
Former Chief Operating Officer | | | 2021 | | | 55,128(8) | | | — | | | — | | | —(9) | | | 1,500 | | | 56,628 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2020 | | | 450,961(10) | | | — | | | 16,523,486(11) | | | —(12) | | | 5,750 | | | 16,980,197 | | | | Timothy Young(6)(7)
Senior Vice President and General Manager, Core Dropbox | | | | | | | | 2019 | | | 115,705 | | | — | | | 20,293,391 | | | 116,438 | | | 1,500 | | | 20,527,034 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Yamini Rangan(8)
Chief Customer Officer | | | | | | | | 2019 | | | 545,834 | | | — | | | 2,916,469(9) | | | — | | | 506,000(10) | | | 3,968,303 | | | | | | | | 2018 | | | 428,054 | | | — | | | 3,391,546(11) | | | 383,745 | | | 6,000 | | | 4,209,345 | | |
(1)
| Unless otherwise described in the footnotes below, the amounts reported represent the aggregate grant-date fair value of RSUsthe RSAs based on the closing price for a share of our Class A common stock as reported by Nasdaq on the day immediately preceding the grant date, calculated in accordance with ASC Topic 718. |
(2)
| The amounts reported represent the amounts payable under our cash bonus plans for 2017, 2018,2019, 2020, and 2019,2021, respectively. See “Compensation Elements—Annual Cash Bonuses” above. |
(3)
| Unless otherwise noted, the amount reported reflects matching 401(k) contributions of $3,000 in 20172019, 2020 and $6,000 in 2018 and 2019.2021. |
(4)
| Includes expenses related to security programs and related costs. |
(5)
| The amount reported represents the aggregate grant-date fair value of RSAs calculated in accordance with ASC Topic 718. RSAs are eligible to vest over aan approximately three-year performance period of up to ten years based on the achievement of certain stock price goals measured over a consecutive thirty-day trading period during a performance period.twelve-month measurement periods. We calculated the grant date fair value based on multiple stock price paths developed through the use of a Monte Carlo simulation. The assumptions used in calculating the grant-date fair value of the RSAs reported in this column are set forth inSee “Accounting for Stock-Based Compensation” above. If the RSAs were instead valued based on the achievement of the maximum stock price goals in each measurement period (and thus the maximum number of shares that may be issued under the performance-based RSA are issued), the aggregate market value of the RSAs on the date of grant would be $32,044,160. |
(5)(6)
| In February 2019, the compensation committee reviewed the base salaries of our executive officers, including our named executive officers, taking into consideration a competitive market analysis and the recommendations of our chief executive officer, as well as the other factors described in “Compensation-Setting Process—Setting Target Total Direct Compensation,” above. Following this review, in March 2019, the compensation committee approved a base salary increase to $550,000 for Mr. Vashee, effective February 1, 2019. Mr. Vashee also received a time-based RSU award, effective April 1, 2019, with a grant date fair value of $3,985,847, with such shares vesting in equal quarterly installments over four years from the award grant date, contingent upon his remaining continuously employed by us through each applicable vesting date.
|
(6)
| Messrs. Mediratta and Young joined us in October 2019, and therefore their respective salarieshis salary and non-equity incentive plan compensation set forth in the table above werewas prorated for the portion of 2019 in which they werehe was employed with us. |
(7)
| The Grant Date Fair Value for Messrs. Mediratta and Young aregrant-date fair value is based on the closing price of our Class A common stock on their respectiveMr. Young’s first day of employment with us. |
Dropbox, Inc. Proxy Statement and Notice of 2020 Annual Meeting of Stockholders 39
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EXECUTIVE COMPENSATION (continued)
(8)
| In February 2019, the compensation committee reviewed the base salaries and target annual cash bonus opportunities of our executive officers, including our named executive officers, taking into consideration a competitive market analysis and the recommendations of our chief executive officer, as well as the other factors described in “Compensation-Setting Process—Setting Target Total Direct Compensation,” above. Following this review, in March 2019, the compensation committee approved a base salary increase to $550,000 and an increase the target annual cash bonus opportunity (as a percentage of base salary) for Ms. Rangan, effective February 1, 2019. Ms. Rangan also received a time-based RSU award, effective April 1, 2019, with a grant date fair value of $2,916,469, with such shares vesting in equal quarterly installments over four yearsNottebohm resigned from the award grant date, contingent upon her remaining continuouslycompany in February 2021. Amount reported represents Ms. Nottebohm’s salary prorated for the portion of 2021 in which she was employed by us through each applicable vesting date.
with us. |
(9)
| 108,699Ms. Nottebohm resigned from the company in February 2021 and therefore was ineligible to receive her 2021 annual cash bonus. |
(10)
| Ms. Nottebohm joined the company in February 2020. Amount reported represents Ms. Nottebohm’s salary prorated for the portion of 2020 in which she was employed with us. |
(11)
| 633,569 unvested RSUs,RSAs, representing a grant date fair value of $2,369,638,$12,392,610, were forfeited upon Ms. Rangan’sNottebohm’s resignation in January 2020.February 2021. In connection with Ms. Nottebohm’s separation agreement, the unvested RSAs that would have vested if she had remained employed through February 15, 2021 were accelerated to vest on February 5, 2021. See “Potential Payments on Termination or Change in Control—Ms. Nottebohm’s Separation” below. |
(10)(12)
| Amount reported represents a matching 401(k) contribution of $6,000Ms. Nottebohm resigned from the company in February 2021 and a transition incentive payment of $500,000. |
(11)
| 91,122 unvested RSUs, representing a grant date fair value of $2,256,630, were forfeited upon Ms. Rangan’s resignation in January 2020.therefore was ineligible to receive her 2020 annual cash bonus. |
4048 Dropbox, Inc. Proxy Statement and Notice of 20202022 Annual Meeting of Stockholders
TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
Grants of Plan-Based Awards in 20192021The following table shows all plan-based awards granted to our named executive officers during fiscal 2019.2021. | | | | | | | | Estimated Future Payouts Under Non-
Equity Incentive Plan Award($)(1) | | | Equity Grants | | | | | | | | | | | Estimated Future Payouts Under
Non-Equity Incentive
Plan Awards ($)(1)(2) | | | All Other
Stock
Awards:
Number of
Shares (#) | | | Grant Date
Fair Value ($)(3) | | | | Name | | | Grant Date | | | Threshold | | | Target | | | Maximum | | | Number of Units | | | Grant Date Fair
Value($)(2) | | Name | | | Grant Date | | | Approval Date | | | Threshold | | | Target | | | Maximum | | | | Andrew W. Houston | | | 3/6/2019 | | | 339,596 | | | 679,192 | | | 1,273,485 | | | — | | | — | | Andrew W. Houston | | | 3/3/2021 | | | 3/3/2021 | | | 151,626 | | | 606,506 | | | 1,364,638 | | | — | | | — | | | | Ajay V. Vashee | | | 3/6/2019 | | | 177,370 | | | 354,740 | | | 665,137 | | | — | | | — | | Timothy Regan | | | 3/3/2021 | | | 3/3/2021 | | | 76,842 | | | 307,369 | | | 691,580 | | | — | | | — | | | | | | | 4/1/2019 | | | | | | | | | | | | 182,837 | | | 3,985,847 | | | | | 4/1/2021 | | | 3/3/2021 | | | — | | | — | | | — | | | 175,207 | | | 4,671,019 | | | | Bharat Mediratta(3) | | | 3/6/2019 | | | 52,055 | | | 104,110 | | | 195,206 | | | — | | | — | | Timothy Young | | | 3/3/2021 | | | 3/3/2021 | | | 150,000 | | | 600,000 | | | 1,350,000 | | | — | | | — | | | | | | | 11/1/2019 | | | | | | | | | | | | 1,053,108 | | | 19,945,866 | | Bart E. Volkmer | | | 3/3/2021 | | | 3/3/2021 | | | 77,187 | | | 308,750 | | | — | | | — | | | — | | | | Timothy Young(3) | | | 3/6/2019 | | | 58,219 | | | 116,438 | | | 218,321 | | | — | | | — | | | | | 4/1/2021 | | | 3/3/2021 | | | — | | | — | | | — | | | 116,804 | | | 3,113,995 | | | | | | | 11/1/2019 | | | | | | | | | | | | 1,053,108 | | | 20,293,391 | | | | | Yamini Rangan | | | 3/6/2019 | | | 265,445 | | | 530,890 | | | 995,418 | | | — | | | — | | | | | | | | 4/1/2019 | | | | | | | | | | | | 133,783(4) | | | 2,916,469 | | |
(1)
| Each of these grants was made pursuant to our 20192021 Cash Bonus Plan, as described in greater detail under “Compensation Elements—Annual Cash Bonuses” above. Ms. Nottebohm resigned from the company in February 2021 and therefore did not receive any plan-based awards in 2021. |
(2)
| Each of these grants was made pursuant to our 2021 Cash Bonus Plan, as described in greater detail under “Compensation Elements—Annual Cash Bonuses” above. |
(2)(3)
| Amounts reported represent the aggregate grant-date fair value of RSUsthe RSAs based on the closing price for a share of our Class A common stock as reported by Nasdaq on the day immediately preceding the grant date, calculated in accordance with ASC Topic 718. |
(3)
| The Grant Date Fair Value for Messrs. Mediratta and Young are based on the closing price of our Class A common stock on their respective first day of employment with us. |
(4)
| 108,699 unvested RSUs, representing a grant date fair value of $2,369,638, were forfeited upon Ms. Rangan’s resignation in January 2020. |
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TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
Outstanding Equity Awards at 20192021 Year-End The following table sets forth information regarding outstanding equity awards held by our named executive officers as of December 31, 2019.2021. | | Name | | | Grant date | | | Option awards | | | | | | | | | Stock Awards | | Name(1) | | | Grant date | | | Option awards | | | | | | | | | Stock Awards | | | | Number of
Securities
Underlying
Unexercised
Options
Exercisable | | | Number of
Securities
Underlying
Unexercised
Options
Unexercisable | | | Option
Exercise
Price
($) | | | Option
Expiration
Date | | | Number of
shares or
units of stock
that have not
vested | | | Market value
of shares or
units of stock
that have not
vested ($)(1) | | | Number of
Securities
Underlying
Unexercised
Options
Exercisable | | | Number of
Securities
Underlying
Unexercised
Options
Unexercisable | | | Option
Exercise
Price ($) | | | Option
Expiration
Date | | | Number of
shares or
units of stock
that have not
vested | | | Market value
of shares or
units of stock
that have not
vested ($)(2) | | | | Andrew W. Houston | | | 12/12/17(2) | | | — | | | — | | | — | | | — | | | 10,333,333 | | | 185,069,994 | | Andrew W. Houston | | | 12/12/17(3) | | | — | | | — | | | — | | | — | | | 8,266,666 | | | 202,863,984 | | | | Ajay V. Vashee | | | 5/4/2017(3) | | | — | | | — | | | — | | | — | | | 26,664 | | | 477,552 | | Timothy Regan | | | 2/22/2018(4) | | | — | | | — | | | — | | | — | | | 3,148 | | | 77,252 | | | | | | | 2/22/2018(4) | | | — | | | — | | | — | | | — | | | 151,379 | | | 2,711,198 | | | | | 4/1/2019(4) | | | — | | | — | | | — | | | — | | | 15,329 | | | 376,174 | | | | | | | 4/1/2019(5) | | | — | | | — | | | — | | | — | | | 148,555 | | | 2,660,620 | | | | | 4/1/2020(4) | | | — | | | — | | | — | | | — | | | 31,371 | | | 769,844 | | | | Bharat Mediratta | | | 11/1/2019(6) | | | — | | | — | | | — | | | — | | | 1,053,108 | | | 18,861,164 | | | | | 10/1/2020(4) | | | — | | | — | | | — | | | — | | | 138,718 | | | 3,404,140 | | | | Timothy Young | | | 11/1/2019(6) | | | — | | | — | | | — | | | — | | | 1,053,108 | | | 18,861,164 | | | | | 4/1/2021(4) | | | — | | | — | | | — | | | — | | | 142,356 | | | 3,493,416 | | | | Yamini Rangan | | | 3/8/2017(5) | | | — | | | — | | | — | | | — | | | 8,332 | | | 149,226 | | Timothy Young | | | 11/1/2019(5) | | | — | | | — | | | — | | | — | | | 526,554 | | | 12,921,635 | | | | | | | 9/8/2017(5) | | | — | | | — | | | — | | | — | | | 8,168 | | | 146,289 | | | 12/1/2020(6) | | | — | | | — | | | — | | | — | | | 88,261(7) | | | 2,165,931 | | | | | | | 2/22/2018(5) | | | — | | | — | | | — | | | — | | | 19,648 | | | 351,896 | | Bart E. Volkmer | | | 4/1/2019(4) | | | — | | | — | | | — | | | — | | | 33,446 | | | 820,765 | | | | | | | 9/1/2018(5) | | | — | | | — | | | — | | | — | | | 71,474 | | | 1,280,099 | | | | | 4/1/2020(4) | | | — | | | — | | | — | | | — | | | 75,289 | | | 1,847,592 | | | | | | | 4/1/2019(5) | | | — | | | — | | | — | | | — | | | 108,699 | | | 1,946,799 | | | | | 4/1/2021(4) | | | — | | | — | | | — | | | — | | | 94,903 | | | 2,328,920 | |
(1)
| All unvested equity awards held by Ms. Nottebohm were forfeited upon her resignation from the company in February 2021. |
(2)
| The closing price of our Class A common stock on December 31, 20192021 was $17.91.$24.54. |
(2)(3)
| This award represents RSAs granted to Mr. Houston pursuant to a stand-alone restricted stock award agreement. The shares underlying the RSAs are Class A common stock. RSAs vest over a period of up to ten years upon achievement of service-based, market-based, and liquidity event-related performance vesting conditions. See “Co-Founder GrantsGrant” below. |
(3)
| 1/12th of the total number of shares of our Class B common stock underlying the RSUs vests in equal quarterly installments on the Quarterly Vesting Dates, subject to continued service through each such vesting date. |
(4)
| 1/8th of the total number of shares of our Class A common stock underlying the RSUs vests on February 15, 2020, and an additional 1/16th of the total number of shares of our Class A common stock underlying the RSUs vests in equal quarterly installments on the Quarterly Vesting Dates thereafter, subject to continued service through each such vesting date. |
(5)
| 1/16th of the total number of shares of our Class A common stock underlying the RSUs vests in equal quarterly installments on the Quarterly Vesting Dates, subject to continued service through each such vesting date. |
(6)(5)
| 1/4th of the shares of our Class A common stock underlying the RSAs vests on November 15th, 2020, and an additional 1/16th of the total number of shares of our Class A common stock underlying the RSAs vests in equal quarterly installments on the Quarterly Vesting Dates, subject to continued service through each such vesting date. |
(6)
| This award represents Mr. Young’s performance-based RSA. RSAs are eligible to vest over an approximately three-year performance period based on the achievement of certain stock price goals measured over a consecutive thirty-day trading period during twelve-month measurement periods. See “Compensation Elements—Long-Term Equity Incentive Compensation” above for additional information regarding Mr. Young’s performance-based RSA. |
(7)
| The amount reported reflect the shares that would vest if minimum stock price goals in each measurement period are met and is 25% of the amount of shares that would vest at the target level of performance. |
4250 Dropbox, Inc. Proxy Statement and Notice of 20202022 Annual Meeting of Stockholders
TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
In December 2017, our board of directors approved a grant to our co-founders of RSAs with respect to 14.7 million shares of Class A common stock in the aggregate (the “Co-Founder Grants”) of which 10.3 million RSAs were granted to Mr. Houston, our co-founder, chief executive officer and chairman of the board of directors, and 4.4 million RSAs were granted to Mr. Ferdowsi, our co-founder and director. TheseGrant. The Co-Founder Grants haveGrant has service-based, market-based, and performance-based vesting conditions. TheseThe Co-Founder Grants haveGrant has certain stockholder rights, such as the right to vote the shares immediately upon grant and prior to their vesting. The Co-Founder Grants areGrant is eligible to vest over the ten-year period following the closing of our initial public offering. The Co-Founder Grants compriseGrant comprises nine tranches that are eligible to vest based on the achievement of stock price goals (each, a “the respective Stock Price Target”),Targets, measured over a consecutive thirty-day trading period during the Performance Period, as follows: | | $30.00 | | | 2,066,667 | | | | $37.50 | | | 1,033,334 | | | | $45.00 | | | 1,033,334 | | | | $52.50 | | | 1,033,333 | | | | $60.00 | | | 1,033,333 | | | | $67.50 | | | 1,033,333 | | | | $75.00 | | | 1,033,333 | | | | $82.50 | | | 1,033,333 | | | | $90.00 | | | 1,033,333 | |
The Performance Period began on August 27, 2018,January 2, 2019, and ends on the earliest to occur of: (i) the date on which all shares subject to the Co-Founder Grants vest,Grant vests, (ii) the date the applicable co-founderMr. Houston ceases to satisfy the service-based vesting condition, and (iii) March 23, 2028 (“Performance Period”). During 2021, the tenth anniversary of the closing of our initial public offering.$30.00 Stock Price Target was achieved. As a result, on November 15, 2021, Mr. Houston vested into 2,066,667 shares. During the first four years of the Performance Period, no more than 20% of the shares subject to eachthe Co-Founder Grant are eligible to vest in any calendar year. After the first four years, all shares are eligible to vest based on the achievement of the Stock Price Targets. In March 2020, Mr. Ferdowsi resigned as a member of the board and as an officer of the company. As a result, he ceased to satisfy the service-based vesting condition of his Co-Founder Grant as of March 19, 2020 (the “Expiration Date”). None of the 4.4 million RSAs subject to Mr. Ferdowsi’s Co-Founder Grant had vested prior to the Expiration Date. Accordingly, all were forfeited by Mr. Ferdowsi and reacquired by the Company as of that date.
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TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
Option Exercises and Stock Vested in 20192021The following table shows all stock awards vested, and value realized upon vesting, by our named executive officers during fiscal 2019. No named executive officer exercised stock options during fiscal 2019.2021. | | Name | | | Number of Shares
Acquired on
Vesting | | | Value Realized
on Vesting ($)(1) | | | | | Option Awards | | | Stock Awards | | | | Andrew W. Houston | | | — | | | — | | Name | | | Option Awards –
Shares Acquired on
Exercise | | | Option Awards –
Value Realized on
Vesting ($)(1) | | | Number of Shares
Acquired on
Vesting | | | Value Realized
on Vesting ($)(2) | | | | Ajay V. Vashee | | | 218,002 | | | 4,597,755 | | Andrew W. Houston | | | — | | | — | | | 2,066,667 | | | 54,994,009 | | | | Bharat Mediratta | | | — | | | — | | Timothy Regan | | | — | | | — | | | 122,089 | | | 3,344,631 | | | | Timothy Young | | | — | | | — | | Timothy Young | | | — | | | — | | | 119,527 | | | 3,265,384 | | | | Yamini Rangan | | | 114,472 | | | 2,391,140 | | Bart E. Volkmer | | | 90,133 | | | 2,286,918 | | | — | | | — | | | | | Olivia Nottebohm | | | — | | | — | | | 211,190 | | | 5,003,091 | |
(1)
| The value realized upon exercise of stock option awards is calculated by multiplying the shares exercised by Dropbox’s share price at the time of exercise, less the exercise price of the options. |
(2)
| The value realized upon vesting of RSAs or RSUs, as applicable, is calculated by multiplying the number of shares vested by the closing price of Dropbox’s Class A common stock on the vest date (or, in the event the vest date occurs on a holiday or weekend, the closing price of Dropbox’s Class A common stock on the immediately preceding trading day). |
Potential Payments on Termination or Change in Control Change in Control and Severance Agreements In order to recruit and maintain a stable and effective management team, the compensation committee believes it is appropriate and necessary to provide assurance of certain severance and change in control benefits approved by the compensation committee, in consultation with Compensia. We entered into change in control and severance agreements with each of our named executive officers that provide for the severance and change in control benefits described below. In April 2019, we entered into an amended and restated change in control and severance agreement with certain of our named executive officers that provides for the material amendments described below (the “April 2019 Amendment”). Basic Severance If a named executive officer’s employment is terminated by us other than for “cause,” death, or “disability” or they resign for “good reason” (as such terms are defined in their change in control and severance agreement), in either case, outside the Change in Control Period (as defined below), they will be eligible to receive the following payments and benefits: a lump-sum payment equal to 50% of annual base salary as of immediately before their termination (or, if the termination is due to a resignation for good reason based on a material reduction in base salary, then as of immediately before such reduction); if they elect to continue health insurance coverage for themselves and their eligible dependents under COBRA, our payment of the monthly premium for such COBRA continuation coverage for up to 6 months (or monthly taxable payments to him or her in lieu of our payment of such premiums); in the case of Mr. Vashee,Volkmer, 25% accelerated vesting of all outstanding equity awards and, with respect to equity awards with performance-based vesting, unless otherwise specified in the award agreements governing such equity awards, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels; and in the case of Messrs. MedirattaMr. Regan and Mr. Young, 3 months’ accelerated vesting of the unvested portion of outstanding time-based equity awards; and in the case of Ms. Rangan, 6 months’ accelerated vesting of the unvested portion of outstanding time-based equity awards. This accelerated vesting provision was added by the April 2019 Amendment. Prior to the April 2019 Amendment, Ms. Rangan was not entitled to vesting acceleration benefits under a qualified termination outside the Change in Control Period.
The receipt of the payments and benefits above is conditioned on the named executive officer timely signing and not revoking a release of claims, returning all documents and property belonging to us, and resigning from all officer and director positions with us. The following table describes the potential payments that would have been provided to each of our named executive officers in the event that they were involuntarily terminated by Dropbox without cause or resigned for good reason outside of a change of control context, assuming such termination occurred on December 31, 2019.
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TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
| | Andrew W. Houston | | | 350,000 | | | — | | | — | | | 4,127 | | | 354,127 | | | | Ajay V. Vashee | | | 275,000 | | | — | | | 1,462,343 | | | 7,618 | | | 1,744,961 | | | | Bharat Mediratta | | | 250,000 | | | — | | | — | | | 12,864 | | | 262,864 | | | | Timothy Young | | | 250,000 | | | — | | | — | | | 7,618 | | | 257,618 | | | | Yamini Rangan | | | 275,000 | | | — | | | 726,859 | | | 12,864 | | | 1,014,723 | |
(1)
| Value based on a per share price of $17.91, which was the closing price as reported on December 31, 2019. |
Change ofin Control Severance If, within the three-month period beforeprior to a change in control or afterduring the 12-month period following a change in control (such period, the “Change in Control Period”), a named executive officer’s employment is terminated by us other than for cause, death, or disability or they resign for “good reason” (as defined in their change in control and severance agreement), they will be entitled to the following benefits: a lump-sum payment equal to 100% of their annual base salary as of immediately before their termination (or if the termination is due to a resignation for good reason based on a material reduction in base salary, then as of immediately before such reduction) or, if such amount is greater, as of immediately before the change in control; a lump-sum payment equal to 100% of their target annual bonus (for the year of their termination); if they elect to continue health insurance coverage for themselves and their eligible dependents under COBRA, our payment of the monthly premium for such COBRA continuation coverage for up to 12 months (or monthly taxable payments to him or her in lieu of our payment of such premiums); and 100% accelerated vesting of all outstanding equity awards, and, with respect to equity awards with performance-based vesting, unless otherwise specified in the award agreements governing such equity awards, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels. The receipt of the payments and benefits above is conditioned on the named executive officer timely signing and not revoking a release of claims, returning all documents and property belonging to us, and resigning from all officer and director positions with us. In addition, if any of the payments or benefits provided for under a change in control and severance agreement or otherwise payable to a named executive officer would constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code and could be subject to the related excise tax, the named executive officer would be entitled to receive either full payment of such payments and benefits or such lesser amount that would result in no portion of the payments and benefits being subject to the excise tax, whichever results in the greater amount of after-tax benefits to the named executive officer. The change in control and severance agreements do not require us to provide any tax gross-up payments to our named executive officers. Certain Equity Awards Andrew Houston Co-Founder Grant In the event of an acquisition of the company before the end of the Performance Period, Mr. Houston’s Co-Founder Grant may be eligible to vest in additional tranche(s) of shares if the per share deal price in the acquisition causes a Stock Price Target that has not previously been achieved to be satisfied, in which case the tranche(s) of shares corresponding to that Stock Price Target will vest. Additionally, if the acquisition price falls between a Stock Price Target that has been achieved and one that has not, then a portion of that tranche of shares will vest based on a linear interpolation between each of these Stock Price Targets. See “Co-Founder Grant” above. Timothy Young 2020 Performance-Based Restricted Stock Award The vesting acceleration provisions under Mr. Young’s control and severance agreement described above will not apply to the performance-based RSA granted to Mr. Young in December 2020, and instead, the shares subject to the performance-based RSA may vest in connection with certain terminations of Mr. Young’s employment and/or a “change in control” (as defined in our 2018 Equity Incentive Plan), as described below. In the event of a change in control prior to the completion of the performance period of the performance-based RSA, Mr. Young will be eligible to vest in additional shares subject to the tranche for any uncompleted measurement period(s) if the per share deal price in the change in control (which will be treated as the stock price) causes a stock price goal that has not previously been achieved to be satisfied, in which case the shares that become eligible to vest due to the achievement of that stock price goal will vest immediately prior to the change in control, subject to Mr. Young’s continued service through the date of the change in control. Additionally, if the per share deal price in the change in control is greater than the stock price goal corresponding to a 150% multiplier and falls between a stock price goal that has been achieved and one that has not, then a portion of the shares that would have vested upon achievement of the higher stock price goal for any uncompleted measurement period(s) will vest based on a linear interpolation between each of these stock price goals. In addition, if a change in control occurs after the completion of a measurement period but before the vesting date of the shares subject to the tranche for that measurement period, the shares subject to that tranche that became eligible to vest will vest immediately prior to the change in control, subject to Mr. Young’s continued service through the date of the change in control. If Mr. Young experiences a termination of his employment with us that qualifies him to receive the severance and change in control benefits described above in “Change in Control Severance” and such termination occurs before the vesting date of a tranche, then the number of Dropbox, Inc. Proxy Statement and Notice of 20202022 Annual Meeting of Stockholders 4553
TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
shares allocated to such tranche that will vest as of immediately before the change in control will be determined as described in the previous paragraph as if Mr. Young had remained employed by us through the date of the change in control, subject to Mr. Young satisfying the conditions to receive such severance and change in control benefits under his change in control and severance agreement. If Mr. Young experiences a termination of his employment with us that qualifies him to receive the severance and change in control benefits described above in the “Basic Severance” described above and such termination occurs after the commencement of a measurement period but before the vesting date of the tranche relating to such measurement period, then 25% of the number of shares allocated to that tranche that became eligible to vest (or otherwise would have become eligible to vest had Mr. Young remained employed through the end of the measurement period or the date of a change in control, as applicable) based on the actual achievement of the stock price goals for such measurement period will vest on the earlier of the vesting date for the measurement period or a change in control, subject to Mr. Young satisfying the conditions to receive such severance and change in control benefits under his control and severance agreement. Ms. Nottebohm’s Separation In connection with Ms. Nottebohm’s resignation as our chief operating officer, we entered into a separation and release agreement (the “Separation Agreement”) with her in January 2021. For additional information about the Separation Agreement and consideration received thereunder, see the section titled “Ms. Nottebohm’s Separation” in our proxy statement for the 2021 annual meeting of stockholders filed with the SEC on April 6, 2021. Amount of Payments Upon Termination at 2021 Year-End The following table describes the potentialpayments that would have been provided to each of our named executive officers in the event that they were involuntarily terminated by Dropbox without cause or resigned for good reason outside of a change in control context, assuming such termination occurred on December 31, 2021. | | Andrew W. Houston | | | 312,500 | | | — | | | — | | | 4,797 | | | 317,297 | | | | Timothy Regan | | | 237,500 | | | — | | | 816,249 | | | 14,767 | | | 1,068,516 | | | | Timothy Young | | | 300,000 | | | — | | | 1,615,198 | | | 8,758 | | | 1,923,956 | | | | Bart E. Volkmer | | | 237,500 | | | — | | | 1,249,319 | | | 14,767 | | | 1,501,586 | |
(1)
| Value based on a per share price of $24.54, which was the closing price as reported on December 31, 2021. |
The following table describes the payments that would have been provided for each of our named executive officers upon termination of employment in connection with a change ofin control of Dropbox as described above, assuming such termination had occurred on December 31, 2019.2021. | | Andrew W. Houston | | | 700,000 | | | 679,192 | | | 0(3) | | | — | | | 8,255 | | | 1,376,447 | | | | Ajay V. Vashee | | | 550,000 | | | 354,740 | | | 5,894,370 | | | — | | | 15,235 | | | 6,814,345 | | | | Bharat Mediratta | | | 500,000 | | | 104,110 | | | 18,861,164 | | | — | | | 25,727 | | | 19,491,001 | | | | Timothy Young | | | 500,000 | | | 116,438 | | | 18,861,164 | | | — | | | 15,235 | | | 19,492,837 | | | | Yamini Rangan | | | 550,000 | | | 530,890 | | | 3,874,309 | | | — | | | 25,727 | | | 4,980,926 | |
| | Andrew W. Houston | | | 625,000 | | | 606,506 | | | 0(3) | | | — | | | 9,595 | | | 1,241,101 | | | | Timothy Regan | | | 475,000 | | | 307,369 | | | 8,120,826 | | | — | | | 29,533 | | | 8,932,728 | | | | Timothy Young | | | 600,000 | | | 600,000 | | | 30,249,108(4) | | | — | | | 17,515 | | | 31,466,623 | | | | Bart E. Volkmer | | | 475,000 | | | 308,750 | | | 4,997,277 | | | — | | | 29,533 | | | 5,810,560 | |
(1)
| All of our named executive officers are subject to a better-after-tax provision whereby Dropbox would either pay such person (i) the full amount of their severance benefits or, alternatively (ii) an amount of certain severance benefits otherwise payable to them such that the severance benefits will not be subject to the tax imposed by Section 4999 of the Code, whichever produces the better after-tax result for such named executive officer. |
(2)
| ValueUnless otherwise noted, the value is based on a per share price of $17.91,$24.54, which was the closing price of a share of our Class A common stock as reported on December 31, 2019.2021. |
(3)
| Excludes 10,333,3338,266,666 shares of Class A common stock underlying RSAs subject to Mr. Houston’s Co-Founder Grant. In the event of an acquisition of Dropbox before the end of the performance period of the Co-Founder Grant, the grant is only eligible to vest into additional of shares if the per share deal price in the acquisition causes a stock price target that has not previously been achieved to be satisfied, in which case the tranche(s) of shares corresponding to such stock price target will vest. Additionally, if the acquisition price falls between a stock price target that has been achieved and one that has not, then a portion of that tranche of shares will vest based on a linear interpolation between each of these stock price targets. See “Co-Founder GrantsPotential Payments on Termination or Change in Control—Certain Equity Awards” above for more information.additional information regarding the terms of Mr. Houston’s Co-Founder Grant in connection with a change in control. |
(4)
| The amount reported represents the value of (i) the shares of Class A common stock subject to Mr. Young’s time-based RSA that are accelerated, plus (ii) the shares of Class A common stock subject to Mr. Young’s performance-based RSA that would have vested if a change in control occurred on December 31, 2021 with a per share consideration of $24.54 which was the closing price of a share of our Class A common stock as reported on December 31, 2021. |
54 Dropbox, Inc. Proxy Statement and Notice of 2022 Annual Meeting of Stockholders TABLE OF CONTENTS EXECUTIVE COMPENSATION (continued)
In accordance with Item 402 of Regulation S-K under the Securities Act (“Item 402”), below is the ratio of the total compensation of the median employee of the company to the annual total compensation of the CEO (the “Pay Ratio Disclosure”). In order to identify our median employee, we examined the total compensation in 20192021 of all employees globally, including those employed on a full-time, part-time, seasonal or temporary basis by the company as of December 31, 2019,2021, and then such compensation is converted into U.S. dollars. We did not annualize compensation for employees who were not employed for the entire 20192021 fiscal year. We chose total compensation to use as our consistently applied compensation measure. Total compensation includes each employee’s base salary, bonuses, sales commissions paid and the grant date fair market value of equity awards granted during the 12-month period from January 1, 20192021 through December 31, 2019.2021. Our CEO had annual total compensation for 2019,2021, calculated using the requirements of Item 402 for purposes of the Pay Ratio Disclosure, of $1,385,192.$1,514,896. The annual total compensation of the median employee of the company for 2019,2021, calculated using the same requirements under Item 402 for purposes of the Pay Ratio Disclosure, which included base pay, incentive compensation, the grant date fair value of equity grants and the company’s matching contribution to that employee’s 401(k) plan, was $244,570.$257,164. Accordingly, the ratio of the annual total compensation of the CEO to the annual total compensation of the median employee of the company was 6 to 1. The Pay Ratio Disclosure presented above is a reasonable estimate calculated in a manner consistent with Item 402. Because the SEC’s final regulations for identifying the median employee, calculating annual total compensation and determining the pay ratio allow companies to use different methodologies, exemptions, estimates and assumptions, the company’s Pay Ratio Disclosure may not be comparable to that reported by other companies. 46 Dropbox, Inc. Proxy Statement and Notice of 20202022 Annual Meeting of Stockholders55
TABLE OF CONTENTS The following table summarizes our equity compensation plan information as of December 31, 2019.2021. Information is included for equity compensation plans approved by our stockholders. We do not have any equity compensation plans not approved by our stockholders. The table does not include information with respect to shares subject to outstanding awards assumed by Dropbox in connection with acquisitions of the companies that originally granted those awards. As of December 31, 2019, 783,7992021, 458,494 shares of Class A common stock were issuable upon exercise of outstanding options and release of restricted stock units assumed in connection with acquisitions. The weighted average exercise price of such outstanding options was $6.12$4.55 per share. No additional equity awards may be granted under any assumed arrangement. | | Equity compensation plans approved by security holders(1) | | | 32,531,90427,797,433(2)
| | | $12.2812.09(3)
| | | 45,819,69966,468,111(4)
| |
(1)
| Includes our 2008 Equity Incentive Plan (“2008 Plan”), 2017 Equity Incentive Plan (“2017 Plan”) and 2018 Equity Incentive Plan (“2018 Plan”). Our 2008 Plan was terminated effective March 7, 2017 and our 2017 Plan was terminated effective March 20, 2018. |
(2)
| Includes 32,531,90427,797,433 shares subject to options and RSUs outstanding as of December 31, 20192021 that were issued under the 2008 Plan, 2017 Plan, and 2018 Plan. |
(3)
| RSUs, which do not have an exercise price, are excluded in the calculation of weighted-average exercise price. |
(4)
| As of December 31, 2019,2021, an aggregate of 78,351,60394,265,544 shares of Class A common stock were available for issuance under our 2018 Plan. |
56 Dropbox, Inc. Proxy Statement and Notice of 20202022 Annual Meeting of Stockholders47
TABLE OF CONTENTS The following table sets forth certain information with respect to the beneficial ownership of our common stock as of March 13, 202025, 2022 for: each of our directors; each of our named executive officers; all of our current directors, named executive officers and executive officers as a group; and each person or group known by us to be the beneficial owner of more than 5% of our Class A or Class B common stock. We have determined beneficial ownership in accordance with the rules of the SEC, and thus it represents sole or shared voting or investment power with respect to our securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares that they beneficially owned, subject to community property laws where applicable. We have based our calculation of the percentage of beneficial ownership on 282,482,844295,342,482 shares of our Class A common stock, 151,462,02082,609,421 shares of our Class B common stock, and no shares of our Class C common stock outstanding as of March 13, 2020.25, 2022. We have deemed shares of our common stock subject to stock options that are currently exercisable or exercisable within 60 days of March 13, 202025, 2022 or issuable pursuant to RSUs which are subject to vesting and settlement conditions expected to occur within 60 days of March 13, 2020,25, 2022, to be outstanding and to be beneficially owned by the person holding the stock option or RSU for the purpose of computing the percentage ownership of that person. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Dropbox, Inc., 1800 Owens Street San Francisco, California 94158. The information provided in the table is based on our records, information filed with the SEC and information provided to us, except where otherwise noted. | | | | | Amount and nature of beneficial ownership | | | % of total
voting power# | | | | | Amount and nature of beneficial ownership | | | % of total
voting power# | | | | Name of beneficial owner | | | Class A
Common shares | | | % | | | Class B
Common shares† | | | % | | Name of beneficial owner | | | Class A
Common shares | | | % | | | Class B
Common shares† | | | % | | | | Named executive officers and directors:
| | | | | | | | | | | | | | | | | Named executive officers and directors:
| | | | | | | | | | | | | | | | | | | Andrew W. Houston(1) | | | 11,550,061 | | | 4.1% | | | 82,497,337 | | | 54.5% | | | 46.6% | | Andrew W. Houston(1) | | | 10,560,245 | | | 3.58 | | | 81,132,337 | | | 98.21 | | | 73.29 | | | | Arash Ferdowsi(2) | | | 4,423,900 | | | 1.6% | | | 31,487,385 | | | 20.8% | | | 17.8% | | Timothy Regan | | | 322,676 | | | * | | | — | | | — | | | * | | | | Bharat Mediratta | | | 1,053,108 | | | * | | | — | | | — | | | * | | Timothy Young | | | 1,904,377 | | | * | | | — | | | — | | | * | | | | Timothy Young | | | 1,053,108 | | | * | | | — | | | — | | | * | | Bart E. Volkmer | | | 229,360 | | | * | | | 97,717 | | | * | | | * | | | | Yamini Rangan | | | 62,687 | | | * | | | — | | | — | | | * | | Donald W. Blair | | | 67,928 | | | * | | | — | | | — | | | * | | | | Ajay V. Vashee | | | 97,499 | | | * | | | 298,115 | | | * | | | * | | Lisa Campbell | | | 5,648 | | | * | | | — | | | — | | | * | | | | Donald W. Blair | | | 53,333 | | | * | | | — | | | — | | | * | | Paul E. Jacobs(2) | | | 270,272 | | | * | | | — | | | — | | | * | | | | Lisa Campbell | | | — | | | * | | | — | | | — | | | * | | Abhay Parasnis | | | — | | | — | | | — | | | — | | | — | | | | Paul E. Jacobs(3) | | | 245,650 | | | * | | | — | | | — | | | * | | Karen Peacock | | | 5,648 | | | * | | | — | | | — | | | * | | | | Robert J. Mylod, Jr.(4) | | | 177,011 | | | * | | | — | | | — | | | * | | Michael Seibel | | | — | | | — | | | — | | | — | | | — | | | | Karen Peacock | | | — | | | * | | | — | | | — | | | * | | Sara Mathew | | | — | | | — | | | — | | | — | | | — | | | | Condoleezza Rice | | | 43,109 | | | * | | | — | | | — | | | * | | Olivia Nottebohm | | | — | | | — | | | — | | | — | | | — | | | | R. Bryan Schreier(5) | | | 551,895 | | | * | | | — | | | — | | | * | | All current directors, named executive officers and executive officers as a group (12 persons) | | | 13,438,182 | | | 4.55 | | | 81,230,054 | | | 98.33 | | | 73.63 | | | | Margaret C. Whitman(6) | | | 53,333 | | | * | | | 34,901 | | | * | | | * | | | | | All current executive officers and directors as a group (14 persons) | | | 19,364,694(7) | | | 6.9% | | | 114,317,738(8) | | | 75.5% | | | 64.7% | | |
48 Dropbox, Inc. Proxy Statement and Notice of 20202022 Annual Meeting of Stockholders57
TABLE OF CONTENTS SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (continued)
| | | | | Amount and nature of beneficial ownership | | | % of total
voting power# | | | | | Amount and nature of beneficial ownership | | | % of total
voting power# | | | | Name of beneficial owner | | | Class A
Common shares | | | % | | | Class B
Common shares† | | | % | | Name of beneficial owner | | | Class A
Common shares | | | % | | | Class B
Common shares† | | | % | | | | Greater than 5% stockholders | | | | | | | | | | | | | | | | | Greater than 5% stockholders | | | | | | | | | | | | | | | | | | | Entities affiliated with The Vanguard Group | | | 20,557,933 | | | 7.3% | | | — | | | — | | | 1.1% | | Entities affiliated with The Vanguard Group(3) | | | 31,220,139 | | | 10.57 | | | — | | | — | | | 2.78 | | | | Entities affiliated with Renaissance Technologies LLC | | | 17,326,092 | | | 6.1% | | | — | | | — | | | 1.0% | | Entities affiliated with BlackRock, Inc.(4) | | | 20,133,494 | | | 6.82 | | | — | | | — | | | 1.80 | | | | Entities affiliated with Sequoia Capital(9) | | | — | | | — | | | 34,868,576 | | | 23.0% | | | 19.4% | | |
†
| The Class B common stock is convertible at any time by the holder into shares of Class A common stock on a share-for-share basis, such that each holder of Class B common stock beneficially owns an equivalent number of Class A common stock. |
#
| Percentage total voting power represents voting power with respect to all shares of our Class A common stock and Class B common stock, as a single class. Each holder of Class B common stock shall be entitled to ten votes per share of Class B common stock and each holder of Class A common stock shall be entitled to one vote per share of Class A common stock on all matters submitted to our stockholders for a vote. The Class A common stock and Class B common stock vote together as a single class on all matters submitted to a vote of our stockholders, except as may otherwise be required by law. |
*
| Represents beneficial ownership of less than one percent (1%) of the outstanding shares of our common stock. |
(1)
| Consists of (i) 716,7281,030,451 shares of Class A common stock and 7,893,764 shares of Class B common stock held by theAndrew W. Houston, Remainder Trust dated 12/30/2010, for which Mr. Houston serves as trustee, (ii) 500,000 shares of Class A common stock and 73,103,07372,738,073 shares of Class B common stock held by the Andrew W. Houston Revocable Trust dated 9/7/2011, for which Mr. Houston serves as trustee, (iii) 716,728 shares of Class A Common Stock and 7,893,764 shares of Class B Common Stock held by the Houston Remainder Trust u/a/ 12/30/2010, for which Mr. Houston serves as trustee, (iv) 500,500 shares of Class B common stock held by the Houston 2012 Irrevocable Children’s Trust dated 4/12/2012, for which Mr. Houston serves as trustee, (iv) 10,333,333(v) 8,266,666 shares of Class A common stock underlying RSAs subject to Mr. Houston’s Co-Founder Grant, and (v) 1,000,000(vi) 46,400 shares of Class BA common stock subject to certain proxy agreements, in which Mr. Houston has voting power over the shares. |
(2)
| Consists of (i) 2,900,802 shares of Class B common stock held by the Arash Ferdowsi Remainder Trust dated 3/21/2011, for which Mr. Ferdowsi serves as trustee, (ii) 23,900 shares of Class A common stock and 28,586,583 shares of Class B common stock held by the Arash Ferdowsi Revocable Trust dated 4/20/2012, for which Mr. Ferdowsi serves as trustee, and (iii) 4,400,000 shares of Class A common stock underlying RSAs subject to Mr. Ferdowsi’s Co-Founder Grant. Effective March 19, 2020 (the “Expiration Date”), Mr. Ferdowsi resigned as a member of the board and as an officer of the company. As a result, he ceased to satisfy the service-based vesting condition of his Co-Founder Grant as of that date. None of the 4,400,000 shares of Class A common stock underlying the RSAs subject to Mr. Ferdowsi’s Co-Founder Grant had vested prior to the Expiration Date. Accordingly, all were forfeited by Mr. Ferdowsi and reacquired by the Company as of that date. See “Co-Founder Grants” above.
|
(3)
| Consists of (i) 178,031178,058 shares of Class A common stock held by the Paul E. Jacobs Trust dated November 7, 2014, for which Mr. Jacobs serves as trustee, (ii) and 67,61992,214 shares of Class A common stock held by Mr. Jacobs. |
(4)(3)
| Consists of (i) 122,698 shares of Class A common stock held by Annox Capital, LLC, or Annox, and (ii) 54,313 shares of Class A common stock held by Mr. Mylod. Mr. Mylod, one of our directors, is the managing member of Annox and has sole voting and investment control over the shares held by Annox. |
(5)
| Consists of (i) 537,609 shares of Class A common stock held by family trust, (ii) and 14,286 shares of Class A common stock held by Mr. Schreier. Excludes shares listed in footnote 9 below, which are held by entities affiliated with Sequoia Capital. Mr. Schreier, one of our directors, is a non-managing member of SC XII LLC. |
(6)
| Consists of (i) 34,901 shares of Class B common stock held by held by Sweetwater Trust UAD 10/15/1999, for which Ms. Whitman and her spouse serve as trustees, and (ii) 53,333 shares of Class A common stock held by Ms. Whitman. |
(7)
| Consists of 19,364,694 shares of Class A common stock beneficially owned as of December 31, 2021 according to a Schedule 13G/A filed with the SEC by our executive officersThe Vanguard Group, Inc. (“Vanguard”) on February 9, 2022. Vanguard has beneficial ownership of 31,220,139 shares of Class A common stock. The Schedule 13G/A reports that Vanguard has shared voting power with respect to 278,100 shares of Class A common stock, sole dispositive power with respect to 30,738,888 shares of Class A common stock and directors.shared dispositive power over 481,251 shares of Class A common stock. The address for Vanguard is 100 Vanguard Blvd., Malvern, PA 19355. |
(8)(4)
| Consists of 114,317,738 shares of Class BA common stock beneficially owned as of December 31, 2021 according to a Schedule 13G filed with the SEC by our executive officers and directors. |
(9)
| ConsistsBlackRock, Inc. (“BlackRock”) on February 8, 2022. BlackRock has beneficial ownership of (i) 30,471,65820,133,494 shares of Class BA common stock held by Sequoia Capital XII, L.P., or SC XII, (ii) 3,256,722 shares of Class B common stock held by Sequoia Capital XII Principals Fund, LLC, or SC XII PF, (iii) and 1,140,196 shares of Class B common stock held by Sequoia Technology Partners XII, L.P., or STP XII. SC XII Management, LLC, or SC XII LLC, is the general partner of each of SC XII and STP XII, and the managing member of SC XII PF. As a result, and by virtue of the relationships described in this footnote, SC XII LLC may be deemed to share beneficial ownership of the shares held by SC XII, SC XII PF, and STP XII.stock. The address for these entitiesBlackRock is 2800 Sand Hill Road #101, Menlo Park, California 94025.55 East 52nd Street, New York, New York 10055. |
58 Dropbox, Inc. Proxy Statement and Notice of 20202022 Annual Meeting of Stockholders49
TABLE OF CONTENTS Since the beginning of our last fiscal year we have not engaged in any transactions that would require disclosure under Item 404(a) of Regulation S-K, and are not aware of any such transactions currently proposed. Policies and Procedures for Related Person Transactions Our audit committee has the primary responsibility for reviewing and approving or disapproving “related party transactions,” which are transactions between us and related persons in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and in which a related person has or will have a direct or indirect material interest. Our policy regarding transactions between us and related persons provides that a related person is defined as a director, executive officer, nominee for director, or greater than 5% beneficial owner of our common stock, in each case since the beginning of the most recently completed year, and any of their immediate family members. Our audit committee charter provides that our audit committee shall review and approve or disapprove any related party transactions. Under this policy, all related person transactions may be consummated or continued only if approved or ratified by our audit committee. In determining whether to approve or ratify any such proposal, our audit committee will take into account, among other factors it deems appropriate, (i) whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party and (ii) the extent of the related person’s interest in the transaction. The policy grants standing pre-approval of certain transactions, including (i) executive compensation governed by our standard compensation and benefits policies, (ii) director compensation arrangements governed by our standard director compensation policies, (iii) transactions with another company at which a related person’s only relationship is as an employee other(other than an executive officer orofficer), director, or beneficial owner of less than 10% equity interest of that company, if the aggregate amount involved does not exceed the greater of $200,000 or 2% of the recipient’s consolidated gross revenues, (iv) charitable contributions, grants or endowments by us to a charitable organization, foundation or university where the related person’s only relationship is as an employee other(other than an executive officerofficer), or director, if the aggregate amount involved does not exceed the lesser of $1,000,000 or 2% of the charitable organization’s total annual receipts, (v) any transaction available to all U.S. employees generally, and (vi) transactions where a related person’s interest arises solely from the ownership of our common stock and all holders of our common stock received the same benefit on a pro rata basis. 50 Dropbox, Inc.Proxy Statement and Notice of 20202022 Annual Meeting of Stockholders59
TABLE OF CONTENTS Delinquent Section 16(a) Beneficial Ownership Reporting ComplianceReports Section 16(a) of the Exchange Act requires that our executive officers and directors, and persons who own more than 10% of our common stock, file reports of ownership and changes of ownership with the SEC. Such directors, executive officers and 10% stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. SEC regulations require us to identify in this proxy statement anyone who filed a required report late during the most recent fiscal year. Based solely on our review of copies of such forms that we have received, or written representations from reporting persons, we believe that during the fiscal year ended December 31, 2019,2021, all executive officers, directors and greater than 10% stockholders complied with all applicable SEC filing requirements, with the exceptions noted below: Due to an administrative error, a late Form 4 report was filed for Quentin ClarkTimothy Regan on February 28, 2019May 20, 2021 to report a sale of 16,66616,405 shares of our Class A common stock on February 25, 2019. Due to an administrative error, a late Form 4 report was filed for Ajay Vashee on February 28, 2019 to report a sale of 13,731 shares of our Class A common stock on February 25, 2019.May 17, 2021.
Fiscal Year 20192021 Annual Report and SEC Filings Our financial statements for our fiscal year ended December 31, 20192021 are included in our Annual Report on Form 10-K, which we will make available to stockholders at the same time as this proxy statement. This proxy statement and our annual report are posted on our website at investors.dropbox.com and are available from the SEC on its website at www.sec.gov. You may also obtain a copy of our annual report without charge by sending a written request to Dropbox, Inc., Attention: Corporate Secretary, 1800 Owens Street, San Francisco, California 94158. * * * The board of directors does not know of any other matters to be presented at the Annual Meeting. If any additional matters are properly presented at the Annual Meeting, the persons named in the enclosed proxy card will have discretion to vote the shares of our common stock they represent in accordance with their own judgment on such matters. It is important that your shares of our common stock be represented at the Annual Meeting, regardless of the number of shares that you hold. You are, therefore, urged to vote by telephone or by using the Internet as instructed on the enclosed proxy card or execute and return, at your earliest convenience, the enclosed proxy card in the envelope that has also been provided. THE BOARD OF DIRECTORS
San Francisco, California
April 7, 20205, 2022 60 Dropbox, Inc.Proxy Statement and Notice of 20202022 Annual Meeting of Stockholders51
TABLE OF CONTENTS Reconciliation of GAAP financial measures to non-GAAP financial measures This proxy statement contains information regarding threetwo non-GAAP financial measures: non-GAAP gross margin, non-GAAP operating margin and free cash flow, each of which are not calculated in accordance with GAAP. Non-GAAP gross margin is calculated as our non-GAAP gross profit divided by revenue and non-GAAP operating margin is calculated as our non-GAAP income (loss) from operations divided by revenue. Non-GAAP gross profit and non-GAAP income (loss) from operations each differdiffers from GAAP in that they excludeit excludes stock-based compensation expense, amortization of acquired intangible assets, other acquisition-related expenses, which include third-party diligence costs and compensation expense forexpenses related to key acquired personnel,employee holdback agreements, impairment charges related to real estate assets and employer payroll tax expense relatingcosts related to the release of two-tier RSUs in connection with our initial public offering during the six months ended June 30, 2018.workforce reduction. Free cash flow differs from GAAP net cash provided by operating activities in that it treats capital expenditures as a reduction to net cash provided by operating activities. We believe that these non-GAAP financial measures are appropriate to enhance an overall understanding of our fiscal 20192021 performance in relation to the principal elements of Dropbox’s annual executive compensation program considered by the compensation committee, as described in the “Compensation Discussion and Analysis” section of this proxy statement. The use of non-GAAP gross margin, non-GAAP operating margin and free cash flow has certain limitations as they do not reflect all items of income, expense, and cash expenditures, as applicable, that affect Dropbox’s operations. Dropbox compensates for these limitations by reconciling the non-GAAP financial measures to the most comparable GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, measures prepared in accordance with GAAP. Further, these non-GAAP measures may differ from the non-GAAP information used by other companies, including peer companies, and therefore comparability may be limited. Management encourages stockholders and others to review Dropbox’s financial information in its entirety and not rely on a single financial measure. Stockholders should review the reconciliation of non-GAAP gross margin, non-GAAP operating margin and free cash flow to their most directly comparable GAAP financial measures, as provided in the following tables (in millions, except for percentages, which may not foot due to rounding): Non-GAAP grossoperating margin | | | | | Twelve Months Ended December 31, | | | | | Twelve Months Ended December 31, | | | | | | | 2019 | | | 2018 | | | | | 2021 | | | 2020 | | | | GAAP gross profit | | | $1,250.3 | | | $997.0 | | GAAP income (loss) from operations | | | $274.4 | | | $(277.0) | | | | GAAP gross margin | | | 75.3% | | | 71.6% | | GAAP operating margin | | | 12.7% | | | (14.5%) | | | | Less:
| | | | | | | | Plus:
| | | | | | | | | | Stock-based compensation | | | (15.8) | | | (47.0) | | Stock-based compensation | | | 287.1 | | | 261.5 | | | | Acquisition-related and other expenses | | | — | | | — | | Acquisition-related and other expenses | | | 26.8 | | | 16.9 | | | | Intangibles amortization | | | (3.4) | | | — | | Amortization of acquired intangible assets | | | 13.1 | | | 9.5 | | | | Employer payroll related to the release of two-tier RSUs | | | — | | | (1.1) | | Impairment related to real estate assets | | | 31.3 | | | 398.2 | | | | Non-GAAP gross profit | | | 1,269.5 | | | 1,045.1 | | Workforce reduction expenses | | | 14.3 | | | 0 | | | | Non-GAAP gross margin | | | 76.4% | | | 75.1% | | Non-GAAP income (loss) from operations | | | 647.0 | | | 409.1 | | | | | Non-GAAP operating margin | | | 30.0% | | | 21.4% | |
TABLE OF CONTENTS APPENDIX A (continued)
Non-GAAP operating margin
| | GAAP income (loss) from operations | | | $(80.5) | | | $(494.0) | | | | GAAP operating margin | | | (4.8)% | | | (35.5)% | | | | Less:
| | | | | | | | | | Stock-based compensation | | | (261.2) | | | (650.1) | | | | Acquisition-related and other expenses | | | (15.9) | | | — | | | | Intangibles amortization | | | (8.4) | | | — | | | | Employer payroll related to the release of two-tier RSUs | | | — | | | (13.9) | | | | Non-GAAP income (loss) from operations | | | 205.0 | | | (170.0) | | | | Non-GAAP operating margin | | | 12.3% | | | 12.2% | |
Free cash flow | | | | | Twelve Months Ended December 31, | | | | | Twelve Months Ended December 31, | | | | | | | 2019 | | | 2018 | | | | | 2021 | | | 2020 | | | | Net cash provided by operating activities | | | $528.5 | | | $425.4 | | Net cash provided by operating activities | | | $729.8 | | | $570.8 | | | | Less:
| | | | | | | | Less:
| | | | | | | | | | Capital expenditures | | | 136.1 | | | 63.0 | | Capital expenditures | | | (22.1) | | | (80.1) | | | | Free cash flow | | | 392.4 | | | 362.4 | | Free cash flow | | | 707.7 | | | 490.7 | |
|
