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JUNE 25, 2019
1. | to elect |
2. | to approve, on an advisory basis, named executive officer compensation; |
3. | to approve an amendment to the Amended and Restated 2007 Equity and Incentive Plan; |
4. | to approve an amendment to the Amended and Restated 2007 Employee Stock Purchase Plan; |
5. | to ratify the Audit Committee’s selection of PricewaterhouseCoopers LLP as our independent auditor for the fiscal year ending |
6. | to transact any and all other business that may properly come before the meeting or any adjournments thereof. |
By order of the Board of Directors | |
Amy Fliegelman Olli | |
Senior Vice President, General Counsel and Secretary |
June 1, 2018
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elected for a three-year term to succeed the directors of the same class whose terms are then expiring. The terms of the Class I directors, Class II directors and Class III directors expire upon the election and qualification of successor directors at the Annual Meetings held during the calendar years 2020, 20182021 and 2019, respectively. The following table lists the current members of the Board, the committees, group and class to which they belong and designates which directors the Board determined to be independent under the New York Stock Exchange (“NYSE”) corporate governance standards (“NYSE Rules”):
Director | Audit Committee |
Compensation and Corporate Governance Committee | Mergers and Acquisitions Committee | Related Persons Transactions Committee | Director Group | Director Class | Independent Director | ||||||||
Anthony Bates |
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| Class I | ü | ||||||||||
Michael Brown | ü(C) | ü | ü | Group I |
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Michael | Dell* | Group I | Class I | ||||||||||||
Egon Durban | ü | Group I | Class I | ||||||||||||
Karen Dykstra | ü | ü(C) | Group I | Class II | ü | ||||||||||
Patrick Gelsinger | ü | Group I | Class II | ||||||||||||
| ü | ü(C) | Group I | Class III | |||||||||||
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Michael Brown
Class II, Group I
Term expires: 2018 Annual Meeting
Mr. Brown, age 72, has served as a director of VMware since April 2007. Mr. Brown was a director of EMC from August 2005 until May 2016. From August 1994 until his retirement in July 1997, Mr. Brown served as Vice President and Chief Financial Officer (“CFO”) of Microsoft Corporation. He was Vice President, Finance of Microsoft from April 1993 to August 1994. He joined Microsoft in December 1989. After retiring from Microsoft, Mr. Brown served as Chair of the NASDAQ Stock Market board of directors and as a past governor of the National Association of Securities Dealers. Prior to joining Microsoft, Mr. Brown spent 18 years with Deloitte & Touche LLP in various positions. Mr. Brown was a director of Insperity, Inc. from 1997 to June 2017. He is a director of Stifel Financial Corp, where he chairs the audit committee.
Mr. Brown brings to our Board substantial financial expertise that includes extensive knowledge of the complex financial and operational issues facing large companies, and a deep understanding of accounting principles and financial reporting rules and regulations. He acquired this knowledge in the course of serving as the CFO of a global technology company, working with a major international accounting and consulting firm for 18 years and serving as a member of the audit committees of other public company boards. Mr. Brown’s experience at Microsoft and on the boards of other technology companies also provides insight into the information technology industry. His experience as an independent auditor provides our Board and the Audit Committee with significant insight into the preparation of financial statements and knowledge of audit procedures. Through his many senior management positions, including as Chair of the board of the NASDAQ Stock Market and as a governor of the NASD, Mr. Brown has demonstrated his leadership and business acumen.
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Karen Dykstra
Class II, Group I
Term expires: 2018 Annual Meeting
Ms. Dykstra, age 59, has served as a director of VMware since March 2016. Ms. Dykstra served as CFO and Administrative Officer of AOL, Inc., a global media technology company, from November 2013 until July 2015, and as Executive Vice President and CFO of AOL from September 2012 until November 2013. Ms. Dykstra served on the board of directors of AOL from 2009 until September 2012, including service as Chair of the Audit Committee during her last two years on the AOL board. From January 2007 until December 2010, Ms. Dykstra was a Partner of Plainfield Asset Management LLC (“Plainfield”), and she served as Chief Operating Officer (“COO”) and CFO of Plainfield Direct LLC, Plainfield’s business development company, from May 2006 to 2010, and as a director from 2007 to 2010. She previously spent over 25 years with Automatic Data Processing, Inc., from 1981 through 2006, serving most recently as CFO from January 2003 to May 2006, and previously as Vice President—Finance, Corporate Controller and in other capacities. Ms. Dykstra is currently a director of Gartner, Inc., where she serves on the audit committee, and is a director of Boston Properties, Inc., where she also serves on the audit committee.
Ms. Dykstra brings to our Board substantial financial expertise that includes extensive knowledge of the complex financial and operational issues facing large companies, and a deep understanding of accounting principles and financial reporting rules and regulations. She acquired this knowledge in the course of serving as the CFO of two global companies, working with a major business services firm for 25 years and serving as a member of the audit committee of several other public company boards.
Patrick Gelsinger
Class II, Group I
Term expires: 2018 Annual Meeting
Mr. Gelsinger, age 57, has served as Chief Executive Officer (“CEO”) and a director of VMware since September 2012. Prior to joining VMware, he served as President and COO, EMC Information Infrastructure Products at EMC from September 2009 to August 2012. Mr. Gelsinger joined EMC from Intel Corporation, where he was Senior Vice President andCo-General Manager of Intel Corporation’s Digital Enterprise Group from 2005 to September 2009 and served as Intel’s Senior Vice President, Chief Technology Officer from 2002 to 2005. Prior to that, Mr. Gelsinger led Intel’s Desktop Products Group.
As CEO of VMware, Mr. Gelsinger hasin-depth knowledge of our business and brings to our Board insight and knowledge of our operations and strategic opportunities. In addition, Mr. Gelsinger’s extensive experience as part of executive management teams for global information technology companies provides our Board with significant expertise on a variety of issues important to our business.
Directors Not Standing For Election
Information concerning our continuing directors is presented below:
Anthony Bates
Class I, Group II
Term expires: 2020 Annual Meeting
Mr. Bates, age 51, has served as a director of VMware since February 2016. Mr. Bates has served as the CEO, Growth Equity at Social Capital, an investment firm, since June 2017. From June 2014 until December 2016, Mr. Bates served as President of GoPro, Inc., a maker of video and photo capture devices. From June 2013 until March 2014, Mr. Bates was Executive Vice President, Business Development and Evangelism of Microsoft Corporation, a software company. Mr. Bates was CEO of Skype Inc. from October 2010 until its acquisition by Microsoft in 2011, subsequent to which Mr. Bates served as President of Microsoft’s Skype Division until June 2013. From 1996 to October 2010, Mr. Bates served in various roles at Cisco Systems, Inc., most recently as Senior Vice President and General Manager of Enterprise, Commercial and Small Business. Mr. Bates currently serves on the board of directors of GoPro and eBay Inc.
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Mr. Bates has extensive executive leadership experience in the technology industry, including managing worldwide operations, sales, service and support areas. His leadership experience and service on the board of directors of other companies brings to our Board strong leadership expertise and unique industry insight.
Donald Carty
Michael Dell
Class I, Group I
Term expires: 2020 Annual Meeting
Mr. Dell, age 53, has served as a director and Chairman of the Board (“Chairman”) of VMware since the Dell Acquisition in September 2016. Mr. Dell serves as Chairman and CEO of Dell. Mr. Dell has held the title of Chairman of Dell Inc. since he founded the company in 1984. Mr. Dell also served as CEO of Dell Inc. from 1984 until July 2004 and resumed that role in January 2007. In 1998, Mr. Dell formed MSD Capital, L.P. for the purpose of managing his and his family’s investments, and, in 1999, he and his wife established the Michael & Susan Dell Foundation to provide philanthropic support to a variety of global causes. Mr. Dell serves as a director andnon-executive Chairman of the board of SecureWorks Corp. (“SecureWorks”), a majority owned subsidiary of Dell, and serves on the board of directors of Pivotal Software, Inc., an indirect majority-owned subsidiary of Dell in which VMware has an ownership interest (“Pivotal”).
As the Chairman, CEO and founder of Dell, Mr. Dell oversees one of the world’s largest technology companies and is recognized as one of the leading innovators and influencers in the business world. Mr. Dell has decades of experience leading a complex, international technology enterprise and possesses extensive knowledge of internet-based technologies and the needs and expectations of enterprise customers. Having successfully led Dell Inc. through many transitions in information technology and enterprise computing, Mr. Dell brings extensive and valuable experience to our Board.
On October 13, 2010, a federal district court approved settlements by Dell Inc. and Mr. Dell with the Securities and Exchange Commission (“SEC”) resolving an SEC investigation into Dell’s disclosures and alleged omissions before fiscal year 2008 regarding certain aspects of its commercial relationship with Intel Corporation and into separate accounting and financial reporting matters. Dell Inc. and Mr. Dell entered into the settlements without admitting or denying the allegations in the SEC’s complaint, as is consistent with common SEC practice. The SEC’s allegations with respect to Mr. Dell and his settlement were limited to the alleged failure to provide adequate disclosures with respect to Dell Inc.’s commercial relationship with Intel Corporation prior to fiscal year 2008. Mr. Dell’s settlement did not involve any of the separate accounting fraud charges settled by Dell Inc. and others. Moreover, Mr. Dell’s settlement was limited to claims in which only negligence, and not fraudulent intent, is required to establish liability, as well as secondary liability claims for othernon-fraud charges. Under his settlement, Mr. Dell consented to a permanent injunction against future violations of these negligence-
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based provisions and othernon-fraud based provisions related to periodic reporting. Specifically, Mr. Dell consented to be enjoined from violating Sections 17(a)(2) and (3) of the Securities Act of 1933 (“Securities Act”) and Rule13a-14 under the Securities Exchange Act of 1934 (“Exchange Act”) and Rules12b-20,13a-1 and13a-13 under the Exchange Act. In addition, Mr. Dell agreed to pay a civil monetary penalty of $4 million, which has been paid in full. The settlement did not include any restrictions on Mr. Dell’s continued service as an officer or director of Dell, Inc.
Egon Durban
Class I, Group I
Term expires: 2020 Annual Meeting
Mr. Durban, age 44, has served as a director of VMware since the Dell Acquisition in September 2016. Mr. Durban has been a member of the boards of directors of Dell and Dell Inc. since the closing of Dell Inc.’s going-private transaction in October 2013. Mr. Durban is a Managing Partner and Managing Director of Silver Lake, a global private equity firm. Mr. Durban joined Silver Lake in 1999 as a founding principal. Mr. Durban also serves on the board of directors of Motorola Solutions, Inc., Pivotal and SecureWorks.
As the Managing Partner, Managing Director and a founding principal of one of the leading global technology investment funds, Mr. Durban possesses considerable financial acumen, deep knowledge of global trends in information technology and expertise in conducting complex business transactions. Mr. Durban also brings valuable experience from his service on other public company boards to his service on our Board.
Akamai and Moderna, Inc.
Selection
Our entire Board is responsible for nominating members for election to the BoardGoPro, Inc., a maker of video and for filling vacancies on the Board that may occur between Annual Meetings.
The Compensationphoto capture devices. From June 2013 until March 2014, Mr. Bates was Executive Vice President, Business Development and Corporate Governance Committee (“CCG Committee”) identifies, evaluates and recommends director candidates to the entire Board. The CCG Committee reviews and assesses the skills and characteristics it believes are or may be required on the Board based on the needsEvangelism of our business. The CCG Committee identifies director candidates through numerous sources, including recommendationsMicrosoft Corporation, a software company. Mr. Bates was CEO of Skype Inc., from directors, executive officers and stockholders of VMware. The CCG Committee identifies those individuals most qualified to serve as members of the Board and considers many factors with regard to
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each candidate, including judgment, integrity, diversity, prior experience, the interplay of the candidate’s experience with the experience of other members of the Board, the extentOctober 2010 until its acquisition by Microsoft in 2011, subsequent to which a director candidate would be desirableMr. Bates served as a memberPresident of any committeesMicrosoft’s Skype Division until June 2013. From 1996 to October 2010, Mr. Bates served in various roles at Cisco Systems, Inc., most recently as Senior Vice President and General Manager of the Board,Enterprise, Commercial and a candidate’s willingness to devote substantial time and effort to the Board. As such, the Board believes that diversity of viewpoints and experiences is an important consideration in determining the composition of the Board. The effectiveness of the Board’s efforts to recruit members with appropriate skill sets and experiences and to promote the exchange of differing viewpoints is reviewed as part of the Board’s periodic self-assessment process. The Board believes that a board having no fewer than six and no more than twelve directors enables needed expertise, diversity of experiences, and independence, without hindering effective discussion or diminishing individual accountability. In considering director candidates, the Board considers the entirety of each candidate’s credentials in the context of these standards. With respect to the nomination of continuing directors forre-election, the individual’s contributions to the Board are also considered.
Our stockholders may recommend individuals to the Board for consideration as potential director candidates by submitting the suggested candidate’s name and appropriate background and biographical information to the VMware CCG Committee, 3401 Hillview Avenue, Palo Alto, California, 94304. Assuming that the appropriate information has been timely provided, the CCG Committee will consider these candidates substantially in the same manner as it considers other candidates it identifies.
Our stockholders also may nominate director candidates by following the procedures set forth in the advance notice provisions of VMware’s bylaws. For additional information, see “Information About the Annual Meeting—What is the deadline to propose actions for consideration at the 2019 Annual Meeting or to nominate individuals to serve as directors?”
For purposes of the NYSE Rules, VMware is a “controlled company” because more than 50% of the voting power of VMware is held by Dell. Accordingly, pursuant to section 303A.00 of the NYSE Rules, we are exempt from certain NYSE corporate governance requirements and do avail ourselves of these exemptions. In particular, as a controlled company under the NYSE Rules, we are exempt from the requirements to have a:
In light of our position as a controlled company, we have opted to establish a combined CCG Committee, instead of a separate compensation committee and a nominating and corporate governance committee. However, our CCG Committee is voluntarily comprised entirely of independent directors.
Our Board is committed to maintaining strong corporate governance practices. Our Board has adopted Corporate Governance Guidelines to provide a framework for the effective governance of VMware. Additionally, our Board has adopted written charters for its standing committees (Audit, Compensation and Corporate Governance, Mergers and Acquisitions and Related Persons Transactions), as well as Business Conduct Guidelines applicable to all directors, officers and employees. Our Board reviews the Corporate Governance Guidelines, the committee charters and the Business Conduct Guidelines periodically and implements changes as appropriate. Information about our corporate governance practices and copies of the Corporate Governance Guidelines, committee charters and Business Conduct Guidelines are available in the Governance subsection of the Investor Relations page of our website athttp://ir.vmware.com.VMware will provide stockholders with a copy of its Corporate Governance Guidelines, committee charters and Business Conduct Guidelines, without charge, upon written request to our Investor Relations at VMware, Inc., 3401 Hillview Avenue, California, 94304.
Our Board has adopted corporate governance practices that the Board believes are in the best interests of VMware and our stockholders, as well as compliant with the rules and regulations of the SEC and the NYSE Rules. Highlights include:
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Our Leadership Structure
Our current leadership structure separates the roles of CEO and Chairman. The CEO is responsible for setting the strategic direction for the Company and theday-to-day leadership and performance of the Company, while the Chairman provides guidance to the CEO, sets the agenda for Board meetings and presides over meetings of the full Board. Our leadership structure also includes a Lead Director role to facilitate effective performance of the Board and its oversight of our business. We believe that having a separate Chairman and Lead Director structure allows the Board to effectively address governance issues by providing another channel for the Board to express its views to management and provide feedback to the CEO on company performance. The leadership structure of the Board has not impacted the Board’s ability to provide effective oversight of risk management.
Lead Director
Mr. Sagan has been our Lead Director since February 2015. The responsibilities of our Lead Director include:
Oversight of Risk Management
The Board’s role in the Company’s risk oversight process includes receiving regular reports from members of senior management on areas of material risk to the Company, including operational, financial, legal and regulatory, and strategic and reputational risks.
Our M&A Committee assesses risks to the Company in connection with proposed acquisitions, divestitures and investments. The M&A Committee reviews management’s assessment of potential risks raised during due diligence and management’s related risk mitigation plans before granting approval to enter into definitive transaction agreements.
Our Audit Committee oversees management of financial risk exposures, including the integrity of our accounting and financial reporting processes and controls. As part of this responsibility, the Audit Committee meets periodically with the independent auditor, our internal auditors and our financial and accounting personnel to discuss significant financial risk exposures and the steps management has taken and will take to monitor, control and report such exposures. Additionally, the Audit Committee reviews significant findings prepared by the independent auditor and our internal auditors, together with management’s related responses. Our Audit Committee also oversees management’s compliance with applicable legal and regulatory requirements and the risks related to potentialnon-compliance. The Audit Committee reviews periodic reports from our Chief Ethics and Compliance Officer, our Chief Information Security Officer (“CISO”), our internal auditors and our independent auditor. Finally, the Audit Committee has primary oversight responsibility for matters relating to enterprise risk. As such, the charter for our Audit Committee provides for periodic reviews and discussion of our practices and policies with respect to risk assessment and risk management with an enterprise risk management committee comprised of senior members of the Company’s management team.
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The enterprise risk management committee reviews the adequacy and effectiveness of the Company’s risk management and controls framework and processes, provides that risk management activities are integrated, consistent and managed at a level consistent with the risk, makes recommendations for, and tracks and reports on progress of, changes in the risk management framework, and assists the CEO in assuring that significant risks to the Company are identified and risk benefit trade-offs are managed appropriately to protect the Company’s assets and shareholder value. The CFO serves as the enterprise risk management committee chairman and the members include the CEO and senior leaders of the Company’s legal, audit, compliance, information security, product security, human resources, information, customer and products organizations. The enterprise risk management Committee meets and regularly reports to the Audit Committee.
Our management also reviews the compensation plans and programs that could have a material impact on VMware for each of our functional groups with the CCG Committee. Our management review considers whether any of these plans or programs may encourage inappropriate risk-taking or give rise to risks that are reasonably likely to have a material adverse effect on us, and whether it would recommend any changes to the plans or programs. Long-term, equity-based compensation, which we believe discourages excessive short-term risk taking and strongly aligns employee interests with the creation of long-term increased stockholder value, is an important feature in the compensation packages we offer our executive officers and employees. Management also reviews with the CCG Committee risk-mitigating controls, such as our compensation recovery policy for executive officer bonus and equity compensation, the degree of committee and senior management oversight of each program, and the level and design of internal controls over such programs. Based on these reviews, we have concluded that our compensation plans and programs are not reasonably likely to have a material adverse effect on our company.
BOARD OF DIRECTORS, INDEPENDENCE AND COMMITTEES
Board Independence
As a controlled company, under the NYSE Rules, we are exempt from the requirement to have a majority of independent directors on the Board. The Board has affirmatively determined that five of our eight directors are independent of VMware under the NYSE Rules. Specifically, each of Directors Bates, Brown, Carty, Dykstra and Sagan are independent. The Board considered all facts and circumstances it deemed relevant in making such determinations of independence, including business relationships between VMware and companies on which our independent directors serve as board members. The Board affirmatively concluded that none of these relationships are of a material nature or are of a nature that would preclude such directors from being deemed independent under NYSE Rules.
Ownership interests of our directors or officers in the common stock of Dell, or service as both a director of Dell and VMware, or as a director of VMware and an officer or employee of Dell could create, or appear to create, potential conflicts of interest when directors and officers are faced with decisions that could have different implications for us and Dell. Since VMware’s initial public offering (“IPO”), in order to address potential conflicts of interest between us and EMC with respect to corporate opportunities, our certificate of incorporation has contained provisions regulating and defining the conduct of our affairs as they may involve EMC and its officers and directors, and our powers, rights, duties and liabilities and those of our officers, directors and stockholders in connection with our relationship with EMC. Our certificate of incorporation also contains provisions limiting the liability any of our directors and officers who are also directors or officers of EMC in the event they learn of a transaction that may be a corporate opportunity for both VMware and EMC, provided they comply with the policies set forth in our certificate of incorporation. These provisions are applicable to Mr. Dell, who serves as CEO of EMC. Transactions with Dell are also subject to review by our RPT Committee pursuant to our Related Persons Transactions Policy. Additionally, pursuant to resolutions adopted by our RPT Committee, we have renounced any expectancy or interest in being offered an opportunity to participate in corporate opportunities of which Mr. Dell becomes aware through his personal capacity, his capacity as Chairman and CEO of Dell, his capacity as the founder and controlling owner of MSD Capital or through any other entity in which MSD Capital or its affiliates has an interest, and of which Mr. Durban becomes aware through his personal capacity, his capacity as a member of the board of directors of Dell, his capacity as Managing Partner and Managing Director of Silver Lake or through any other entity in which Silver Lake or its affiliates has an interest. Pursuant to resolutions adopted by the Board, we have renounced any expectancy or interest in being offered an opportunity to participate in corporate opportunities of which Mr. Sagan becomes aware through his personal capacity and or his capacity as Managing Director at General Catalyst Partners or through any other entity in which General Catalyst Partners or its affiliates has an interest. For more information, see “Review and Approval of Transactions with Related Persons.”
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Attendance at Board, Committee and Annual Stockholder Meetings
The Board expects that each director will prepare for, attend and participate in all Board and applicable committee meetings and that each director will ensure that other commitments do not materially interfere with his or her service on the Board. During the fiscal year ended February 2, 2018 (“FY18”), the Board held seven meetings. Each incumbent director serving during FY18 attended at least 75% of the Board and applicable committee meetings held during the period in which he or she served. VMware’s Corporate Governance Guidelines provide that each director is expected to attend the Annual Meeting. All members of the then-current Board, with the exception of Mr. Durban, attended our 2017 Annual Meeting.
Committees of the Board
The Board has established four standing committees: the Audit Committee, the CCG Committee, the M&A Committee and the RPT Committee. Each committee operates pursuant to a written charter that is available on the Governance subsection of the Investor Relations page of our website athttp://ir.vmware.com. The current membership of each committee is listed below.
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Audit Committee
The Board has determined that our Audit Committee is comprised solely of independent directors within the meaning of the applicable SEC rules and regulations and the NYSE Rules. The Board has determined that all current Audit Committee members meet the additional, heightened independence criteria of Rule10A-3 of the Exchange Act applicable to audit committee members. The Board has also determined that each of Directors Brown, Carty, Dykstra and Sagan is an “audit committee financial expert” as defined by the SEC and that all Audit Committee members are financially literate under the current listing standards of the NYSE.
The Audit Committee held eight meetings in FY18. This committee reviews with management and our auditors our financial statements, the accounting principles applied in their preparation, the scope of the audit, any comments made by our independent auditor on our financial statements and our accounting controls and procedures, the independence of our auditors, our internal controls, other matters as set forth in the Audit Committee charter, as adopted by the Board, and such other matters as the committee deems appropriate.
In accordance with its charter, the Audit Committee is responsible for the appointment, compensation, retention and oversight of the work of our independent auditor for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for us andpre-approves such audit, review or attest engagements. The Audit Committee alsopre-approvesnon-audit services to be performed by our independent auditor in accordance with the Audit Committee’spre-approval policy. Pursuant to its charter, our Audit Committee recommends, establishes and monitors procedures designed to facilitate the receipt, retention and treatment of complaints relating to accounting, internal accounting controls or auditing matters and the receipt of confidential, anonymous submissions by employees of concerns regarding questionable accounting or auditing matters. The Audit Committee also oversees management of financial risk exposures, including the integrity of our accounting and financial reporting processes and controls. In addition, the Audit Committee appoints the head of the internal audit department and oversees the Company’s internal audit function, reviews the appointments of our Chief Ethics and Compliance Officer and our CISO, receives periodic reports on ethics and compliance and information security matters, and is notified of any significant ethics and compliance and cybersecurity matters.
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During FY18, senior members of our financial and legal management participated in each of the Audit Committee’s regularly scheduled meetings. During the course of the year, the Audit Committee had separate executive sessions with our CFO and members of his staff, our Chief Legal Officer or General Counsel, our Chief Ethics and Compliance Officer, our CISO, the head of our internal audit department and our independent auditor at which candid discussions regarding legal matters, cybersecurity matters, financial reporting, compliance, internal controls and accounting systems and processes took place. The Audit Committee discussed with VMware’s independent auditor the overall scope and plans for its audit.
The Audit Committee reviewed and discussed our FY18 financial statements with our management and our independent auditor. The meeting included a discussion of the quality and not just the acceptability of the accounting principles applied, the reasonableness of the significant accounting judgments and estimates and the clarity of disclosures in the financial statements.
Additionally, the Audit Committee has primary oversight responsibility for matters relating to enterprise risk. As such, the charter for our Audit Committee provides for the committee to periodically review and discuss our practices and policies with respect to risk assessment and risk management with the enterprise risk management committee.
In performing all of these functions, the Audit Committee acts in an oversight capacity. The Audit Committee reviews our quarterly and annual reports on Form10-Q and Form10-K prior to filing with the SEC. In its oversight role, the Audit Committee relies on the work and assurances of our management, which has the primary responsibility for establishing and maintaining adequate internal control over financial reporting and for preparing the financial statements. The Audit Committee also relies on the work and assurances of our independent auditor who is engaged to audit and report on our consolidated financial statements and the effectiveness of our internal control over financial reporting.
Compensation and Corporate Governance Committee
The Board has determined that our CCG Committee is comprised solely of independent directors within the meaning of the applicable SEC rules and regulations and the NYSE Rules, although we are not required to maintain the independent composition of this committee in light of our position as a controlled company. The CCG Committee held 12 meetings in FY18. In accordance with its charter, the CCG Committee evaluates and sets compensation for our executive officers and monitors our general compensation programs. Subject to the terms of our compensation plans and the consent of the holder of our Class B Stock to the aggregate size of the annual equity award pool pursuant to the terms of our certificate of incorporation, the CCG Committee has discretion to determine the amount, form, structure and implementation of compensation payablecompanies brings to our executive officers, including, when appropriate, discretion to increase or decrease awards or to award compensation absent the attainment of performance goalsBoard strong leadership expertise and to award discretionary cash compensation outside of the parameters of our compensation plans. In exercising such discretion, the CCG Committee consults with our management. The CCG Committee approves transactions under our equity plans and has the authority to administer and interpret the provisions of our equity and other compensation plans. The CCG Committee is also responsible for overseeing and reporting to the Board on succession planning for the CEO and other senior management positions. Additionally, the CCG Committee reviews compensation of ournon-employee directors and recommends changes for approval by the Board, and also oversees ournon-employee director stock ownership guidelines and our executive stock ownership guidelines.
Our CCG Committee is also responsible for overseeing and advising the Board with respect to corporate governance matters, assisting the Board in identifying and recommending qualified director candidates, making recommendations to the Board with respect to Board committee assignments, and, if no Lead Director has been appointed, overseeing the Board evaluations.
The CCG Committee has engaged an independent consultant, Frederic W. Cook & Co. (“FW Cook”), to advise the Committee on anas-needed basis with respect to executive andnon-employee director compensation matters. FW Cook reports directly to the CCG Committee and does not provide services to VMware management. For more information on the processes and procedures followed by the CCG Committee for the consideration and determination of executive compensation, see “Compensation Discussion and Analysis.”
Mergers and Acquisitions Committee
The M&A Committee, pursuant to its charter, reviews and assesses, with our management, potential acquisitions, divestitures and investments and, where appropriate, will make recommendations to the Board regarding potential target
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candidates. In connection with such review and assessment, our M&A Committee may approve acquisitions, divestitures and investments up to a specified applicable dollar limit and in accordance with any other relevant parameters as established by the Board. The M&A Committee also assesses risk to the Company in connection with proposed acquisitions, divestitures and investments.
Related Persons Transactions Committee
The RPT Committee, pursuant to its charter, is responsible for reviewing transactions by the Company involving related persons in accordance with the Company’s Related Persons Transactions Policy. For more information on related persons transactions, see “Transactions with Related Persons.”
Compensation Committee Interlocks and Insider Participation
During FY18, the CCG Committee was comprised of Directors Bates, Brown and Sagan. No executive officer of VMware during FY18 served, or currently serves, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on the Board or the CCG Committee.
ELECTION OF DIRECTORS
We are asking our stockholders to elect three Class II, Group I directors, each to serve for an additional three-year term. The current term of office for Class II, Group I directors expires at the Annual Meeting. The Board has nominated the following three persons, each an incumbent Class II, Group I director, for election at the Annual Meeting:
– | each director annually evaluates the Board as a whole; |
– | each member of the Audit Committee, CCG Committee, Mergers and Acquisitions Committee (“M&A Committee”) and Related Persons Transactions Committee (“RPT Committee”) annually evaluates the committees on which he or she serves; |
– | each director annually prepares an individual self-evaluation; and |
– | the Lead Director reports on, and makes recommendations to the Board with respect to, the evaluations. |
Audit Committee | Compensation and Corporate Governance Committee | Mergers and Acquisitions Committee | Related Persons Transactions Committee |
Michael Brown (C)* | Anthony Bates* | Anthony Bates (C)* | Michael Brown* |
Donald Carty* | Michael Brown* | Egon Durban | Karen Dykstra (C)* |
Karen Dykstra* | Paul Sagan (C)* | Patrick Gelsinger | |
Paul Sagan* |
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Total shares of Class A Stock underlying outstanding stock options | 1,887,052 |
Weighted-average exercise price of outstanding stock options | $36.96 |
Weighted-average remaining contractual life of outstanding stock options | 5.43 years |
Total shares of Class A Stock underlying outstanding unvested restricted stock, RSUs and PSUs | 19,195,942 |
Total shares of Class A Stock currently available for grant | 12,093,046 |
Fiscal Year | Granted Time-Based RSUs(1) | Earned Performance-Based Restricted Stock Units (PSUs)(1) | Total Granted Options and RSUs; and Earned PSUs(2) | Weighted- Average Basic CSO | Burn Rate |
2019 | 5,812,190 | 311,624 | 6,123,814 | 407,766,000 | 1.50% |
2018 | 6,859,133 | 130,486 | 6,989,619 | 406,738,000 | 1.72% |
2016 | 12,361,813 | 214,278 | 12,576,091 | 420,520,000 | 2.99% |
January 31, 2020.
January 31, 2020.
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In accordance with the Audit Committee’spre-approval policy, the Audit Committeepre-approves permissiblenon-audit services and audit, review or attest engagements. The Audit Committee has delegated to its Chair the authority topre-approve any specificnon-audit service that was not previouslypre-approved by the Audit Committee. Any decisions of the Chair topre-approvenon-audit pre-approve non-audit services are then presented to the Audit Committee at its next scheduled meeting. During FY18,FY19, the Audit Committeepre-approved allnon-audit services in accordance with this policy.
Fiscal Year | Audit Fees(1) ($) | Audit Related Fees(2) ($) | Tax Fees(3) ($) | All Other Fees(4) ($) | ||||||||||||
2018(5) | 9,572,910 | 1,311,453 | 2,429,477 | 62,132 | ||||||||||||
2016 | 5,992,183 | 1,438,687 | 2,261,189 | 64,226 |
Fiscal Year | Audit Fees(1) ($) | Audit Related Fees(2) ($) | Tax Fees(3) ($) | All Other Fees(4) ($) |
2019(5) | 8,029,615 | 1,509,846 | 2,358,917 | 63,728 |
2018(6) | 9,572,910 | 1,311,453 | 2,429,477 | 62,132 |
Plan Category | Number Of (a) | Weighted-Average Exercise Price Per (b) | Number Of (Excluding Securities Reflected (c) | |||||||||
Equity compensation plans approved by security holders | 20,354,370 | (1)(2) | $ | 54.63(3) | 24,540,487(4) | |||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
Total: | 20,354,370 | $ | 54.63 | 24,540,487 |
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Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) | Weighted-Average Exercise Price Per Share of Outstanding Options, Warrants and Rights (b) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) | |||||||
Equity compensation plans approved by security holders | 21,700,927 | (1)(2) | $36.50 | (3) | 18,627,325 | (4) | ||||
Equity compensation plans not approved by security holders | — | — | — | |||||||
Total: | 21,700,927 | $36.50 | 18,627,325 |
Name of Beneficial Owner | Class A Shares Beneficially Owned(1) (#) | Outstanding Class A Shares (%) | Class B Shares Beneficially Owned (#) | Outstanding Class B Shares (%) | Total Vote(2) (%) | |||||||||||||||
Principal Stockholders: | ||||||||||||||||||||
Dell Technologies Inc.(3) | 30,678,605 | 28.8 | 300,000,000 | 100 | 97.6 | |||||||||||||||
Michael Dell(4) | 30,678,605 | 28.8 | 300,000,000 | 100 | 97.6 | |||||||||||||||
SLP investment funds(5) | 30,678,605 | 28.8 | 300,000,000 | 100 | 97.6 | |||||||||||||||
Other 5% Beneficial Owners: | ||||||||||||||||||||
T. Rowe Price Associates, Inc.(6) | 7,422,517 | 7.0 | — | * | * | * | * | |||||||||||||
Other Directors and Executive Officers: | ||||||||||||||||||||
Anthony Bates(7) | 9,087 | * | * | — | * | * | * | * | ||||||||||||
Michael Brown*(7) | 50,099 | * | * | — | * | * | * | * | ||||||||||||
Maurizio Carli(8) | 46,804 | * | * | — | * | * | * | * | ||||||||||||
Donald Carty(7) | 9,502 | * | * | — | * | * | * | * | ||||||||||||
Egon Durban | — | * | * | — | * | * | * | * | ||||||||||||
Karen Dykstra* | 6,742 | * | * | — | * | * | * | * | ||||||||||||
Patrick Gelsinger*(9) | 435,151 | * | * | — | * | * | * | * | ||||||||||||
Sanjay Poonen(10) | 242,972 | * | * | — | * | * | * | * | ||||||||||||
Rangarajan (Raghu) Raghuram(11) | 209,757 | * | * | — | * | * | * | * | ||||||||||||
Zane Rowe | 19,107 | * | * | — | * | * | * | * | ||||||||||||
Paul Sagan(7) | 12,972 | * | * | — | * | * | * | * | ||||||||||||
All directors and executive officers as a group (14 persons)(12) | 31,820,811 | 29.9 | 300,000,000 | 100 | 97.6 |
15
16
Name of Beneficial Owner Principal Stockholders: 30,678,605 27.8 300,000,000 100 97.4 30,678,605 27.8 300,000,000 100 97.4 Other 5% Beneficial Owners: 13,296,580 12.1 — ** ** Other Directors and Executive Officers: 11,200 ** — ** ** 17,202 ** — ** ** 20,598 ** — ** ** 11,605 ** — ** ** Egon Durban — ** — ** ** 8,360 ** — ** ** 497,919 ** — ** ** 239,567 ** — ** ** 171,391 ** — ** ** 108,743 ** — ** ** Zane Rowe 67,975 ** — ** ** 15,075 ** — ** ** 31,849,702 28.8 300,000,000 100 97.5
The CD&A is organized as follows:
Executive Compensation Highlights
Fiscal Year(1) | Dates Covered in Fiscal Year |
Fiscal Year 2016 (“FY16”) | January 1, 2016 through December 31, 2016 |
Fiscal Year 2018 (“FY18”) | February 4, 2017 through February 2, 2018 |
Fiscal Year 2019 (“FY19”) | February 3, 2018 through February 1, 2019 |
Closing Stock Price at end of FY18 (Feb. 2, 2018) | $122.72 |
Closing Stock Price at end of FY19 (Feb. 1, 2019) | $150.51 |
Value of Special Cash Dividend Paid Dec. 28, 2018 | $26.81 |
One-Year TSR | 44% = (($150.51 + $26.81) / $122.72) - 1 |
Financial Performance Metric in FY19 | FY16, FY18 and FY19 Operating PSU Plans | FY18 HC PSU Plan | ||
Revenue Growth | ü (metric in FY19 tranche) | |||
Non-GAAP Operating Margin | ü (metric in FY19 tranche) | |||
Non-GAAP Operating Income | ü (3-year goal) | |||
Hybrid Cloud and SaaS Revenue Growth | ü (metric in FY19 tranche) | |||
Total Stockholder Return | ü (3-year goal covering FY18-FY20, relative TSR compared to companies in S&P 500 IT Index) |
Financials | FY19 | FY18 | Year-Over-Year Change |
Revenue ($M) | $8,974 | $7,862 | 14% |
Non-GAAP operating margin(1) | 33.9% | 33.8% | 0.1% |
Non-GAAP operating income(1) ($M) | $3,041 | $2,657 | 14% |
License revenue ($M) | $3,788 | $3,200 | 18% |
Unearned revenue balance(2) ($M) | $6,978 | $5,839 | 20% |
Plan | Achievement | Impact on Payout Funding |
Executive Annual Incentive Bonus Plan | • 102.5% of target revenue• Exceeded non-GAAP operating margin target by 0.8%• 106% of target license and hybrid cloud and SaaS revenue | • NEO payout from financial component of bonus plan was 130.0% of target, resulting from over-achievement in each component• NEO payouts from the Individual performance objectives (“MBO”) component of bonus plan ranged from 115% to 150% of target based on achievements in expanding the Company’s portfolio of products, solutions and services and enhancing strategic partnerships |
FY16, FY18 and FY19 Operating PSU Plans | • FY19 tranche applicable to FY16, FY18 and FY19 Operating PSU Plans achieved 102.0% of target adjusted revenue and 0.8% improvement in non-GAAP operating margin• Multi-year non-GAAP operating income growth modifier applicable to FY16 PSU Plan: 10.7% average annual growth compared to 5.0% target | • FY19 tranche: 142.8% of target due to overachievement in adjusted revenue and non-GAAP operating margin• Multi-year revenue growth modifier applicable to FY16 PSU Plan: 1.25x multiplier (maximum) on PSUs otherwise subject to vest based on performance in FY16, FY18 and FY19 tranches (157.2%, 187.1% and 142.8% of target, respectively); shares paid out represented 200% of target PSUs (maximum) issued at beginning of performance period, reflecting above-target performance in all three tranches and in multi-year goal |
FY18 HC PSU Plan | • FY19 tranche applicable to FY19 HC PSU Plan: Achieved 37.0% growth compared to 26.0% target in year-over-year growth in hybrid cloud and SaaS revenue | • FY19 tranche: 100% of target; payout capped at target, no increase for above-target performance |
Patrick Gelsinger | CEO |
Zane Rowe | CFO and Executive Vice President |
Maurizio Carli | Executive Vice President, Worldwide Sales and Services |
Sanjay Poonen | COO, Customer Operations |
Rangarajan (Raghu) Raghuram | COO, Products and Cloud Services |
What We Do | What We Do Not Do | |||||||
ü | 94% of CEO’s target compensation is in the form of incentive-based compensation, with | ü | No guaranteed bonuses | |||||
ü | At least half of NEO target cash compensation opportunity is in the form of cash incentive bonuses that are funded on the basis of quantitative financial results | ü | No excessive perquisites or taxgross-ups | |||||
ü | ||||||||
Performance stock units (“PSUs”) constitute at least 50% of total target value of long-term incentive compensation equity mix for the CEO and CFO. In | ü | No employment agreements with executives other than customary | ||||||
ü | ||||||||
ü | No single-triggerchange-in-control provisions | |||||||
ü | Below-target performance in incentive plans results in disproportionately lower payouts | ü | No hedging transactions allowed | |||||
ü | Stock ownership guidelines for ourC-level NEOs in order to further promote the alignment of executive officer interests with those of our stockholders | |||||||
ü | Independent compensation consultant is engaged by our CCG Committee to advise on executive compensation | |||||||
ü | Severance plan establishes consistent framework for benefits in case of separation from service of NEOs | |||||||
| ü | Clawback provisions enable recovery of performance bonuses and gains on equity awards |
17
FY18 Summary
We revised our fiscal calendar effective January 1, 2017. Our first fiscal year under our revised fiscal calendar began on February 4, 2017 and ended February 2, 2018 (“FY18”). The period from January 1, 2017 through February 3, 2017 was recorded as a transition period (“Transition Period”) in place of a full fiscal year. Accordingly, this CD&A reports on FY18, whereas our previously filed proxy statement reported on the period that began January 1, 2016 and ended December 31, 2016 (“FY16”).
Advisory Vote on NEO Compensation
We have determined that our stockholders should vote on aSay-on-Pay proposal each year. Accordingly, our board of directors recommends that you vote FOR Proposal 2 at the Annual Meeting. For more information, see “Proposal 2—Advisory Vote to Approve Named Executive Officer Compensation” in this proxy statement.
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NEOs
Our NEOs for FY18 set forth in this proxy statement are:
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Corporate Performance During FY18
Our executive compensation programs are designed to reward strong corporate performance and align the executive compensation opportunity with stockholder interests. Accordingly, our compensation decisions reflect both our performance and our outlook.
During FY18, the Company achieved financial and operational results that contributed to our stock price increasing from $78.73 on December 30, 2016, the last trading day of FY16, our last completed12-month fiscal year prior to the transition in our fiscal calendar, to $122.72 on February 2, 2018, the last day of FY18. Highlights from FY18 include:
Financials | FY18 | FY16 | ||||
Revenue ($M) | $7,922 | $7,093 | +12% | |||
Non-GAAP operating margin(1) | 33.2% | 32.3% | +0.9% | |||
Non-GAAP operating income ($M)(1) | $2,631 | $2,294 | +15% | |||
License revenue ($M) | $3,195 | $2,794 | +14% | |||
Unearned revenue balance ($M)(2) | $6,250 | $5,624 | +11% |
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Alignment of Corporate Performance and Incentive Compensation During FY18
During FY18, our NEOs were eligible to participate in an annual incentive plan and in PSU plans. In the case of the PSU plans, FY18 was an annual performance period in four overlapping multi-year PSU plans:
Each of the above PSU plans includes performance tranches for individual fiscal years and a multi-year performance goal measured over the duration of the plan. As a result of our fiscal calendar transition, we adjusted our FY15 and FY16 PSU plans to track performance during FY18. For more information, see “—Long-Term Incentives.”
In consideration of our financial, strategic, operational and stock price performance, we believe we demonstrated alignment inpay-for-performance during FY18 as described below.
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In addition to the above-referenced PSU plans, during FY18 we designed a special PSU plan for Mr. Carli (“FY18 Sales PSU Plan”) based on sales performance overtwo-and-a-half years, commencing with the second half of FY18 and running through the end of FY20. The FY18 Sales PSU Plan does not have any annual performance tranches and is described further in “Performance Stock Units—FY18 Sales PSU Plan” below.
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CEOPay-for-Performance Alignment—“Granted” vs. “Realizable” Pay
Value of Granted Pay(2) vs. Value of Realizable Pay(3) | Value of CEO Realizable Pay from FY15 through FY18 increased 89% from value when granted due to stock price increase in FY16 and FY18 and above-target performance on the FY16 and FY18 performance periods in the PSU plans.
At the same time, the Company’s stock price has increased 49% from the end of FY14 through FY18. | |||||||||
Granted Pay ($000) | $ | 41,782 | ||||||||
Realizable Pay ($000) | $ | 79,001 | ||||||||
Delta in Pay—Realizable vs. Granted | +89% | |||||||||
Three-Year Stock Price (ThroughFY18-end) |
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December 31, 2014 Closing Price of VMware Class A Stock | $ | 82.52 | ||||||||
February 2, 2018 Closing Price of VMware Class A Stock | $ | 122.72 | ||||||||
Delta in Stock Price | +49% |
Value of Granted Pay | Value of CEO Realizable Pay from FY16 through FY19 increased 148% from value when granted due to stock price increase in FY16 through FY19 and above-target performance on the At the |
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Granted Pay ($000) | $48,645 |
Realizable Pay | $120,653 |
Delta in Pay - Realizable vs. Granted | 148% |
Three-Year Stock Price (Through FY19-end) | |
December 31, 2015 Closing Price of | $56.57 |
February 1, 2019 Closing Price of | $150.51 |
Amount of Special Cash Dividend in December 2018 | $26.81 |
Delta in Stock Price | 213% |
21
PSU Plan | FY16 Tranche | FY18 Tranche | FY19 Tranche | 3-Year Performance Modifier |
FY16 Operating PSU Plan | 157.2% of | 187.1% of | 142.8% of | 1.25x |
FY18 Operating PSU Plan | - | 187.1% | 142.8% of | Modeled at 1.00x (Not determined until after FY20) |
FY18 HC PSU Plan | - | 100% | 100% of | Modeled at 1.00x (Not determined until after FY20) |
FY19 Operating PSU | - | - | 142.8% of target | Modeled at 1.00x (Not determined until |
CEO
As detailed below, our annual Executivepayout under the Cash Bonus Program balances a component based on formulaic achievement of corporatewith the Company’s overall financial objectives and a component based on qualitative achievement of individual MBOs. During FY18, the MBO component was funded at 1.25 times the amount calculated by corporate financial achievement, thereby enabling the CCG Committee to use its negative discretion to determine payout for the MBO component based on its evaluation of NEO achievement of MBOs.results. As demonstratedillustrated in the table below, detailing bonus payouts for our CEO, the CCG Committee has utilized its negative discretion over the individual performance component of the bonus to calibrate MBO payouts within a narrow rangeto its assessment of the funding yielded by achievement of corporate financial objectives.
FY18CEO performance.
Calculated Funding Result Per Corporate Financial Metrics | Calculated Funding Result For MBO Component @ 1.25x | Actual MBO Payout Reflecting Negative | ||||||||||
FY18 | 130.1 | % | 162.6 | % | 130.0 | % |
Overview
Calculated Funding Result Per Corporate Financial Metrics | Calculated Funding Result For MBO Component @ 1.25x | Actual MBO Payout Reflecting Negative Discretion from Calculated Funding Result | ||||
FY19 | 130.0% | 162.5% | 150.0% | |||
FY18 | 130.1% | 162.6% | 130.0% | |||
FY16 | 110.5% in H1; 120% in H2 | 138.1% in H1; 154.6% in H2 | 120% in H1; 125% in H2 |
Base salary | Primary element of fixed compensation |
Annual cash bonus | Based on annual financial, strategic and operational performance measured against specific pre-established goals |
Long-term performance-based equity incentive compensation | PSUs that are tied to stock price appreciation and long-term performance objectives important to our company |
Long-term equity incentive compensation | RSUs that are tied to stock price appreciation and enhance retention and long-term focus |
Annual Salary Rate in Effect at Start of FY19 | Annual Salary Rate in Effect at End of FY19 | % Change | |
Patrick Gelsinger | $1,000,000 | $1,000,000 | - |
Zane Rowe | $750,000 | $750,000 | - |
Maurizio Carli | £560,000 | $800,000 | n/a(1) |
Sanjay Poonen | $700,000 | $700,000 | - |
Rangarajan (Raghu) Raghuram | $700,000 | $700,000 | - |
Plan funding | • Entirely funded on the basis of quantitative, algorithmic measurement of financial performance which yields a plan funding percentage (“plan funding level”)• The payout algorithm provides for proportionately greater funding as performance achievement exceeds target goals, as well as disproportionate reductions in funding as performance achievement drops below target goals, with zero funding below threshold performance levels |
Plan funding metrics | • 60% of the plan funding level is determined based upon achievement of GAAP revenue and non-GAAP operating margin. The CCG Committee placed primary focus on achievement of widely-recognized metrics that are tracked by our shareholders and analysts and that we believe are indicators of the performance and health of our company from growth and profitability perspectives• 40% of the plan funding level is determined based upon achievement of license and hybrid cloud and SaaS revenue. License revenue is considered an indicator of customer willingness to adopt and expand their use of our products, while hybrid cloud and SaaS revenue is considered a measure of progress in our plans to provide more cloud and SaaS-based offerings |
Thresholds must be achieved for any funding | • For any bonus amount to be paid out, a threshold level of achievement of each of the pre-established corporate financial objectives was required• No funding unless 90% of revenue and adjusted license revenue targets and ~95% of non-GAAP operating margin targets were achieved• At threshold performance, the plan funding level would equal only 26% of target |
Cap on funding | • Irrespective of actual performance, funding is capped at 240% of target, reflecting the maximum funding applicable to each component of our incentive plan |
CCG Committee can exercise negative discretion on funding and payouts | • The CCG Committee has the authority to exercise negative discretion on actual plan funding, irrespective of funding calculated on the basis of our formulaic approach |
Payouts | • 50% of the bonus opportunity is payable to the executive formulaically at the plan funding level in order to reinforce the connection between objective financial results and bonus payouts• 50% of the bonus opportunity is funded at 1.25 times the plan funding level and actual payouts to executives are subject to negative discretion based on assessment of individual performance relative to strategic and operational goals |
Compensation actionsPlan:
Annual Salary Rate During FY19 | Target Bonus (as percentage of base salary) | Bonus Target During FY19 | |
Patrick Gelsinger(1) | $1,000,000 | 175% | $1,690,247 |
Zane Rowe | $750,000 | 100% | $750,000 |
Maurizio Carli(2) | $795,316 | 100% | $795,316 |
Sanjay Poonen | $700,000 | 100% | $700,000 |
Rangarajan (Raghu) Raghuram | $700,000 | 100% | $700,000 |
FY19 Bonus Plan (Revenue in $M) | ||||
Metric | Threshold | Target | Max | Actual(1) |
Revenue (0%-200% funding) | $7,852.5 | $8,725.0 | $9,597.5 | $8,938.9 |
Non-GAAP Operating Margin (0%-200% funding) | 31.7% | 33.3% | 38.9% | 34.1% |
License and Hybrid Cloud and SaaS Revenue (0%-240% funding) | $3,351.0 | $3,723.3 | $4,281.8 | $3,950.6 |
FY19 Executive Annual Incentive Bonus Payout of Financial Component | |||
Financial Component Target Amount (50% of Total) | Bonus Calculated Per Formula @ 130.0% | Approved Bonus @ 130.0% | |
Patrick Gelsinger | $845,124 | $1,098,661 | $1,098,661 |
Zane Rowe | $375,000 | $487,500 | $487,500 |
Maurizio Carli | $397,658 | $516,955 | $516,955 |
Sanjay Poonen | $350,000 | $455,000 | $455,000 |
Rangarajan (Raghu) Raghuram | $350,000 | $455,000 | $455,000 |
Patrick Gelsinger | Achievement of objectives related to: - FY19 operating plan including plans for products and cloud services - Product and customer satisfaction - The Company’s networking business, including NSX and SD-WAN - Expanding the Company’s cloud and as-a-service technologies - The Company’s private cloud products and solutions - Growing the Company’s end-user computing business into a leading digital workspace platform - Establishing new bets as future growth accelerators - Driving product and go-to-market objectives with Dell Technologies - Executing on capital allocation objectives - Executing on go-to-market objectives and people- and workforce-related objectives |
Zane Rowe | Achievement of objectives related to: - FY19 operating plan, guidance and forecasts - As-a-service financial and business model - Capital allocation objectives - People- and workforce-related objectives |
Maurizio Carli | Achievement of objectives related to: - FY19 operating plan including plans for products and cloud services - Product and customer satisfaction - Accelerating cloud and as-a-service go-to-market - Driving go-to-market objectives with Dell Technologies - Executing on go-to-market objectives and people-related objectives |
Sanjay Poonen | Achievement of objectives related to: - FY19 operating plan including plans for products and cloud services - Product and customer satisfaction - The Company’s networking business, including deployments - Expanding the Company’s cloud and as-a-service technologies - Establishing new bets as future growth accelerators - Driving go-to-market objectives with Dell Technologies - Executing on go-to-market objectives and people-related objectives |
Rangarajan (Raghu) Raghuram | Achievement of objectives related to: - FY19 operating plan including plans for products and cloud services - Product and customer satisfaction - The Company’s networking business, including NSX and SD-WAN - Expanding the Company’s cloud and as-a-service technologies - The Company’s private cloud products and solutions - Growing the Company’s end-user computing business into a leading digital workspace platform - Establishing new bets as future growth accelerators - Driving product objectives with Dell Technologies - Executing on people-related objectives |
FY19 Executive Annual Incentive Bonus Payout of Individual Component | ||||
Target Amount (50% of Total Target) | Bonus Calculated Per Formula @ 162.5% | Approved Bonus % of MBO Target | Approved Bonus Value | |
Patrick Gelsinger | $845,124 | $1,373,326 | 150% | $1,267,685 |
Zane Rowe | $375,000 | $609,375 | 125% | $468,750 |
Maurizio Carli | $397,658 | $646,194 | 130% | $516,955 |
Sanjay Poonen | $350,000 | $568,750 | 120% | $420,000 |
Rangarajan (Raghu) Raghuram | $350,000 | $568,750 | 115% | $402,500 |
FY19 Executive Annual Incentive Bonus Total Payout | |||
Total Target (Financial + Individual) | Total Actual (Financial + Individual) | Total Actual as a % of Target | |
Patrick Gelsinger | $1,690,247 | $2,366,346 | 140.0% |
Zane Rowe | $750,000 | $956,250 | 127.5% |
Maurizio Carli | $795,316 | $1,033,911 | 130.0% |
Sanjay Poonen | $700,000 | $875,000 | 125.0% |
Rangarajan (Raghu) Raghuram | $700,000 | $857,500 | 122.5% |
FY19 Operating PSUs (50% of annual target value) | FY19 RSUs (50% of annual target value) | |
– Three-year performance period– Vest in the first quarter of FY22 subject to continued employment and achievement of objective, quantitative performance criteria related to core business results | – Vest over four-year period subject to continued employment– Value subject to fluctuation in alignment with VMware’s stock price |
FY19 Operating PSU Plan Selected Value | FY19 RSU Selected Value | Total Selected Value | |
Patrick Gelsinger | $7,500,000 (73,125 Target PSUs) | $7,500,000 (73,125 RSUs) | $15,000,000 (146,250 shares) |
Zane Rowe | $3,500,000 (34,125 Target PSUs) | $3,500,000 (34,125 RSUs) | $7,000,000 (68,250 shares) |
Maurizio Carli | $2,750,000 (26,813 Target PSUs) | $2,750,000 (26,813 RSUs) | $5,500,000 (53,626 shares) |
Sanjay Poonen | $2,500,000 (24,375 Target PSUs) | $2,500,000 (24,375 RSUs) | $5,000,000 (48,750 shares) |
Rangarajan (Raghu) Raghuram | $3,500,000 (34,125 Target PSUs) | $3,500,000 (34,125 RSUs) | $7,000,000 (68,250 shares) |
PSU Award | Year Approved | Grant Date Fair Value in 2017 Proxy | Grant Date Fair Value in 2018 Proxy | Grant Date Fair Value in 2019 Proxy | Grant Date Fair Value in 2020 Proxy | Grant Date Fair Value in 2021 Proxy |
FY16 Operating PSU | FY16 | FY16 Tranche | FY18 Tranche | FY19 Tranche | - | - |
FY16 RSU | FY16 | Full Award | - | - | - | - |
FY18 Operating PSU | FY18 | - | FY18 Tranche | FY19 Tranche | FY20 Tranche | - |
FY18 HC PSU | FY18 | - | FY18 Tranche | FY19 Tranche | FY20 Tranche | - |
FY18 RSU | FY18 | - | Full Award | - | - | - |
FY19 Operating PSU | FY19 | - | - | FY19 Tranche | FY20 Tranche | FY21 Tranche |
FY19 RSU | FY19 | - | - | Full Award | - | - |
Focus on long-term performance | • Three successive annual performance tranches covering FY19, FY20 and FY21 to drive achievement of sustained results. Annual tranches enable more precise and meaningful goal-setting during a highly dynamic period• If an annual tranche is completed at below-target performance, a catch-up is not available in subsequent tranches• Multi-year goal to hold NEOs accountable for long-term performance |
Focus on value creation | • Focus on revenue adjusted for the change in deferred hybrid cloud and SaaS revenue, as an indicator of future top-line growth prospects and non-GAAP operating margin, as an indicator of NEOs’ stewardship of Company profitability in each tranche• Focus on non-GAAP operating income as metric of profit available for investment in Company growth or return of earnings and capital to stockholders through stock repurchases, as well as the one-time special cash dividend of $11 billion in FY19• Substantially penalizes NEOs for under-performing relative to three-year non-GAAP operating income goal• Three-year non-GAAP operating income goal adds diversity to portfolio of performance metrics while maintaining cohesion with annual incentive plan and PSU tranches |
Plan | FY16 | FY18 | FY19 | FY20 | FY21 | FY22 |
FY16 Operating PSU Plan | 33% of target PSU award: | 33% of target PSU award: | 33% of target PSU award: | Vests March 31, 2019 subject to continued employment. Actual number of shares subject to vest equals PSUs achieved from each tranche multiplied by 3-year non-GAAP operating income growth multiplier (0.75x-1.25x); maximum number of shares capped at 200% of target shares | ||
FY16 Adj. Rev (70% weight) | FY18 Adj. Rev (70% weight) | FY19 Adj. Rev (70% weight) | ||||
+ | + | + | ||||
FY16 non-GAAP operating margin (30% weight) | FY18 non-GAAP operating margin (30% weight) | FY19 non-GAAP operating margin (30% weight) | ||||
= | = | = | ||||
FY16 tranche opportunity (0%-200% of target) | FY18 tranche opportunity (0%-200% of target) | FY19 tranche opportunity (0%-200% of target) | ||||
Ú | ||||||
3-year non-GAAP operating income average growth multiplier on FY16, FY18 and FY19 tranches | ||||||
Plan | FY16 | FY18 | FY19 | FY20 | FY21 | FY22 |
FY18 Operating PSU Plan | 33% of target PSU award: | 33% of target PSU award: | 33% of target PSU award: | Vests April 1, 2020 subject to continued employment. Actual number of shares subject to vest equals PSUs achieved from each tranche multiplied by 3-year non-GAAP operating income growth multiplier (0.75x-1.25x); maximum number of shares capped at 200% of target shares | ||
FY18 Adj. Rev (70% weight) | FY19 Adj. Rev (70% weight) | FY20 metric to be determined [(“TBD”) (70% weight) | ||||
+ | + | + | ||||
FY18 non-GAAP operating margin (30% weight) | FY19 non-GAAP operating margin (30% weight) | FY20 metric TBD (30% weight)] | ||||
= | = | = | ||||
FY18 tranche opportunity (0%-200% of target) | FY19 tranche opportunity (0%-200% of target) | FY20 tranche opportunity (0%-200% of target) | ||||
Ú | ||||||
3-year non-GAAP operating income average growth multiplier on FY18, FY19 and FY20 tranches | ||||||
Plan | FY16 | FY18 | FY19 | FY20 | FY21 | FY22 |
FY19 Operating PSU Plan | 33% of target PSU award: | 33% of target PSU award: | 33% of target PSU award: | Vests April 1, 2021 subject to continued employment. Actual number of shares subject to vest equals PSUs achieved from each tranche multiplied by 3-year non-GAAP operating income growth multiplier (0.75x-1.25x); maximum number of shares capped at 200% of target shares | ||
FY19 Adj. Rev (70% weight) | [FY20 metric TBD (70% weight) | [FY21 metric TBD (70% weight) | ||||
+ | + | + | ||||
FY19 non-GAAP operating margin (30% weight) | FY20 metric TBD (30% weight)] | FY21 metric TBD (30% weight)] | ||||
= | = | = | ||||
FY19 tranche opportunity (0%-200% of target) | FY20 tranche opportunity (0%-200% of target) | FY21 tranche opportunity (0%-200% of target) | ||||
Ú | ||||||
3-year non-GAAP operating income average growth multiplier on FY19, FY20 and FY21 tranches |
FY19 Performance Tranche Achievement | |||||||
Threshold (50%) | Target (100%) | Max (200%) | Actual Result | Result | Funding Weight | Funding | |
Adjusted Revenue | $8,606 | $9,011 | >=$9,416 | $9,190 | 144.1% | 70% | 100.9% |
Non-GAAP Operating Margin | 31.7% | 33.3% | >=35.3% | 34.1% | 139.6% | 30% | 41.9% |
Total FY19 Performance Tranche Funding | 142.8% |
FY16 PSU Plan Multi-Year Modifier | |||||
Min 0.75x | Target 1.0x | Max 1.25x | Actual Result | Result | |
Non-GAAP Operating Income Average Growth Over Three Fiscal Years | <=4.0% | 5.0% | >=6.0% | 10.7% | 1.25x (maximum) |
FY19 Performance Tranche Achievement(1) | |||||||
FY19 Tranche of PSU Plan: Target PSUs | FY19 | PSU Achievement in FY19 Tranche(2) | |||||
Name | FY16 Operating PSU Plan | FY18 Operating PSU Plan | FY19 Operating PSU Plan | Tranche Modifier | FY16 Operating PSU Plan | FY18 Operating PSU Plan | FY19 Operating PSU Plan |
Patrick Gelsinger | 52,146 | 19,756 | 24,375 | 142.8% | 74,464 | 28,211 | 34,807 |
Zane Rowe | 30,085 | 13,171 | 11,375 | 142.8% | 42,961 | 18,808 | 16,243 |
Maurizio Carli | 8,023 | 10,976 | 8,937 | 142.8% | 11,456 | 15,673 | 12,762 |
Sanjay Poonen | 16,046 | 13,171 | 8,125 | 142.8% | 22,913 | 18,808 | 11,602 |
Rangarajan (Raghu) Raghuram | 14,039 | 13,171 | 11,375 | 142.8% | 20,047 | 18,808 | 16,243 |
Total Shares in FY16 Operating PSU Plan(1) | FY16 Operating PSU Plan Awards Banked Per Annual Tranche Modifiers | FY16 Operating PSU Plan Awards Banked Per Annual Tranche Modifiers | 3-Year Perfor-mance Modifier | Total Shares Earned in FY16 Operating PSU Plan(2) | ||||||
Name | FY16 Tranche Target | FY18 Tranche Target | FY19 Tranche Target | FY16 Tranche Target | FY18 Tranche Target | FY19 Tranche Target | # of Shares | % of Total Target Issued | ||
Patrick Gelsinger | 156,436 | 52,145 | 52,145 | 52,146 | 157.2% | 187.1% | 142.8% | 1.25x | 312,872 | 200% |
Zane Rowe | 90,251 | 30,083 | 30,083 | 30,085 | 157.2% | 187.1% | 142.8% | 1.25x | 180,502 | 200% |
Maurizio Carli | 24,067 | 8,022 | 8,022 | 8,023 | 157.2% | 187.1% | 142.8% | 1.25x | 48,134 | 200% |
Sanjay Poonen | 48,134 | 16,044 | 16,044 | 16,046 | 157.2% | 187.1% | 142.8% | 1.25x | 96,268 | 200% |
Rangarajan (Raghu) Raghuram | 42,117 | 14,039 | 14,039 | 14,039 | 157.2% | 187.1% | 142.8% | 1.25x | 84,234 | 200% |
Plan | FY18 | FY19 | FY20 | FY21 |
FY18 HC PSU Plan | 33% of target PSU award: | 33% of target PSU award: | 33% of target PSU award: | Vests April 1, 2020 subject to continued employment. Actual number of shares subject to vest equals PSUs achieved from each tranche multiplied by 3-year relative TSR multiplier (0.5x-1.0x) ; maximum number of shares capped at 100% of target shares |
FY18 hybrid cloud and SaaS revenue growth | FY19 hybrid cloud and SaaS revenue growth | [FY20 hybrid cloud and SaaS metric TBD] | ||
= | = | = | ||
FY18 tranche opportunity (0%-100% of target) | FY19 tranche opportunity (0%-100% of target) | FY20 tranche opportunity (0%-100% of target) | ||
Ú | ||||
3-year relative TSR multiplier on FY18, FY19 and FY20 tranches |
FY18 HC PSU Plan Performance in FY19 Tranche | |||||
Threshold 50% | Target 100% | Max 100% | Actual Result | Result | |
Hybrid Cloud and SaaS Revenue Growth | 19.7% | 26.0% | >26.0% | 37% | 100% |
Name | FY19 Tranche of HC PSU Plan: Target PSUs(1) | FY19 Tranche Modifier | HC PSU Achievement in FY19 Tranche(2) |
Patrick Gelsinger | 19,756 | 100% | 19,756 |
Zane Rowe | 8,780 | 100% | 8,780 |
Maurizio Carli | 8,780 | 100% | 8,780 |
Sanjay Poonen | 13,171 | 100% | 13,171 |
Rangarajan (Raghu) Raghuram | 13,171 | 100% | 13,171 |
Stock Price Appreciation Threshold | Stock Price Appreciation from Grant | PSU Conversion Ratio | Shares issuable |
$306.20 | +50% | 0.4x of target PSUs | 54,340 |
$357.23 | +75% | 1.0x of target PSUs | 135,851 |
$408.26 | +100% | 2.0x of target PSUs | 271,702 |
VMware %ile Rank vs. Companies in S&P Software & Services Select Industry Index | % of Funded Shares that will be Released Based on Relative TSR Performance |
<25%ile | 0% |
25%ile | 25% |
50%ile | 62.5% |
>=75%ile | 100% |
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VMware’s peer group for FY18FY19 consisted of the following companies:
VMware peer companies | Adobe Systems, Amazon.com, Autodesk, CA, Cisco Systems, Citrix Systems, Cognizant Technology Solutions, eBay, Electronic Arts, Intuit, Microsoft, NetApp, Oracle, Red Hat, Salesforce.com, ServiceNow |
in June 2017.
The compensation packages of our NEOs include a mix of cash and equity-based compensation. The major compensation components are as follows:
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Pay Mix
When designing the executive compensation program, the CCG Committee gives significant weight to cash bonuses and equity incentives, which reflects the CCG Committee’s belief that a large portion of executive compensation should be performance-based. This compensation is performance-based because payment and vesting are tied to achievement of individual or corporate performance metrics. In addition, with respect to the equity awards, the value ultimately realized by the
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recipient fluctuates with the price of our Class A Stock, thereby explicitly linking executive compensation opportunity with shareholder value. The CCG Committee believes that equity incentives are particularly significant because they drive the achievement of VMware’s long-term operational and strategic goals and align the executives’ interests with those of our stockholders, while the cash bonuses drive achievement of shorter-term performance goals.
The CCG Committee reviews NEO compensation packages on an annual cycle, taking into account peer group data, Company and individual performance, unvested equity holdings and internal pay equity. In its review, the CCG Committee may adjust the pay mix and typically considers apportioning annual equity awards (“Annual Equity Awards”) between PSUs and RSUs.
Note: Percentages in charts above may not sum to 100% due to rounding.
The charts above reflect the pay mix applicable to our CEO and to the other NEOs on average. For purposes of determining the percentages shown above for the annual compensation opportunities of the NEOs, annual base salary rate reflects thepro-rated amount, where applicable, during FY18 and cash bonus target opportunity reflects amounts indicated in the “—Cash Compensation” section of this CD&A. The equity component reflects the “Selected Equity Value” indicated in the “—Long-Term Incentives” section of this CD&A. With respect to the other NEOs, the equity value includes a retention incentive award. Accordingly, the equity target for other NEOs skewed higher during FY18 due to a retention incentive award granted to Mr. Carli.
Cash Compensation
During FY18, there were two primary components to cash compensation paid to our NEOs—base salary and annual performance-based bonuses paid under our annual Executive Bonus Program.
Base Salary
Base salary serves as the primary form of fixed compensation for our NEOs. Base salary can also impact other compensation and benefit opportunities, including annual bonuses, as such opportunities are expressed as a percentage of base salary.
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Pay Mix: CEO’s Pay Mix: Average of Other NEOs’ FY18 Total Target Compensation FY18 Total Target Compensation 6% 9% 84% 6% 6% 87% Annual Salary Rate Annual Bonus Target Total Equity Target Annual Salary Rate Annual Bonus Target Total Equity Target
In the first quarter of FY18, the CCG Committee conducted its annual review of executive compensation. During the annual review, the CCG Committee determined to make no adjustments to the base salaries of Messrs. Gelsinger, Rowe, Poonen and Raghuram and increased Mr. Carli’s base salary. During FY18, Mr. Carli was based in the Company’s headquarters in Palo Alto, California on an expatriate assignment from his home location in the United Kingdom that had commenced in 2016. The CCG Committee increased his base salary due to fluctuations in the exchange rate between British and U.S. currencies and in consideration of Mr. Carli’s performance.
Annual Salary Rate In Effect at Start of FY18(1) | Annual Salary Rate In Effect at End of FY18 | % Change | ||||||||||
Patrick Gelsinger | $ | 1,000,000 | $ | 1,000,000 | — | |||||||
Zane Rowe | $ | 750,000 | $ | 750,000 | — | |||||||
Maurizio Carli(2) | £ | 500,000 | £ | 560,000 | +12 | % | ||||||
Sanjay Poonen | $ | 700,000 | $ | 700,000 | — | |||||||
Rangarajan (Raghu) Raghuram | $ | 700,000 | $ | 700,000 | — |
Annual Performance-Based Bonus
Each of our NEOs is eligible to earn cash bonuses tied to our financial results and individual performance under our annual Executive Bonus Program. We believe it is important to provide rewards for specific results and behaviors that support our overall long-term business strategy.
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Incentive Plan Design
In FY18, the CCG Committee revised the Executive Bonus Program to replace the two semi-annual performance periods used for prior year plans with a single annual period to better reflect the Company’s current planning process and to better align with peer company and executive compensation best practices. As illustrated below, the design of the annual plan involved the following parameters:
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The following is an illustration of the FY18 Cash Bonus Incentive Compensation Plan:
Target Opportunity
In FY18, the CCG Committee determined that bonuses would be paid based on achievement against corporate financial performance metrics and individual goals for the for a performance period that spanned the full fiscal year. The CCG Committee retained negative discretion to reduce actual payouts below the amounts calculated under the plan formulas.
Additionally, the service period for the FY18 Executive Bonus Program was extended to include both the Transition Period and FY18, with payouts based on performance during FY18. For each executive, the target bonus amount reflects the annual salary rate from January 1, 2017 through February 2, 2018 multiplied by (a) 398/365 to account for the actual number of days in the target period including both the Transition Period as well as FY18 and (b) the target bonus percentage approved for each executive.
FY18 Bonus Target | ||||||||||||||||
Annual Salary | Pro-Ration for Transition Period | Target Bonus (as percentage of base salary) | FY 2018 Bonus Target | |||||||||||||
Patrick Gelsinger | $ | 1,000,000 | 398/365 | 150 | % | $ | 1,635,616 | |||||||||
Zane Rowe | $ | 750,000 | 398/365 | 100 | % | $ | 817,808 | |||||||||
Maurizio Carli(1) | £ | 541,910 | 398/365 | 100 | % | £ | 590,904 | |||||||||
Sanjay Poonen | $ | 700,000 | 398/365 | 100 | % | $ | 763,288 | |||||||||
Rangarajan (Raghu) Raghuram | $ | 700,000 | 398/365 | 100 | % | $ | 763,288 |
Corporate Financial Metrics
The following table shows the revenue,non-GAAP operating margin and license and hybrid cloud and SaaS revenue targets for FY18.Non-GAAP operating margin for the Executive Bonus Program utilized thenon-GAAP operating margin metric that we report in our quarterly earnings releases. That measure is calculated by excluding stock-based compensation, employer payroll taxes on employee stock transactions, amortization of intangible assets, acquisition-related items, restructuring charges, certain litigation and other contingencies and unusualnon-recurring charges, including charges related
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Funding 100% Based on Financial Results Revenue and Non-GAAP Operating Margin (weighted 60%) License and Hybrid Cloud and SaaS Revenues (weighted 40%) 50% Of Target Opportunity Based on Financial Results 50% of Target Opportunity Based on Achievement of Individual Strategic and Operational Objectives
to the impact of the 2017 Tax Cuts and Jobs Act, from our operating margin calculated in accordance with GAAP. Results were also adjusted to eliminate impacts on revenue andnon-GAAP operating margin of acquisitions and foreign exchange rate fluctuations not provided for in VMware’s operating plan. Accordingly, the actual performance metrics calculated for purposes of the Executive Bonus Program listed in the table below differ from VMware’s reported financial results for the periods shown.
FY18 Bonus Plan (Revenue in $M) | ||||||||||||||||
Metric | Threshold | Target | Max | Actual | ||||||||||||
Revenue
| $ | 6,808.5 | $ | 7,565.0 | $ | 8,321.5 | $ | 7,826.6 | ||||||||
Non-GAAP Operating Margin
| 30.7% | 32.3% | 37.9% | 33.8% | ||||||||||||
License and Hybrid Cloud and SaaS Revenue | $ | 2,816.6 | $ | 3,129.5 | $ | 3,598.9 | $ | 3,279.2 |
The performance targets and thresholds for the Executive Bonus Program were established based upon the Company’s operating plan and the prioritization we placed upon investing in our strategic initiatives in order to achieve revenue, license and hybrid cloud and SaaS revenue growth. Additionally, the CCG Committee determined that, regardless ofnon-GAAP operating margin performance, payouts in excess of 100% of the target bonus amounts would be paid only if revenue exceeded 98% of the performance target, and payouts for license and hybrid cloud and SaaS revenue achievement could exceed 100% only if the targetnon-GAAP operating margin goal was achieved.
Performance in the corporate financial metrics for FY18 yielded funding equal to 130.1% of target.
FY18 Executive Annual Incentive Bonus Payout of Financial Component | ||||||||||||
Named Executive Officer | Financial Component Target Amount (50% of Total) | Bonus Calculated Per Formula @ 130.1% | Approved Bonus @ 130.1% | |||||||||
Patrick Gelsinger | $ | 817,808 | $ | 1,063,968 | $ | 1,063,968 | ||||||
Zane Rowe | $ | 408,904 | $ | 531,984 | $ | 531,984 | ||||||
Maurizio Carli(1) | £ | 295,452 | £ | 384,383 | £ | 384,383 | ||||||
Sanjay Poonen | $ | 381,644 | $ | 496,519 | $ | 496,519 | ||||||
Rangarajan (Raghu) Raghuram | $ | 381,644 | $ | 496,519 | $ | 496,519 |
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Individual Performance Assessments
Individual performance goals for the NEOs were set for FY18.
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As discussed above, our Executive Bonus Program provided that payouts for individual performance would be funded, subject to the CCG Committee’s potential use of negative discretion, at 1.25 times the same ratio as payouts based on the corporate financial metrics if threshold achievement of corporate financial goals sufficient to trigger a minimum payout was reached. There were no formulas or weightings assigned to individual performance objectives and achievement was assessed overall on a holistic basis that also took into account overall individual and company performance. As discussed above, during FY18, corporate financial goals above the threshold levels were achieved. With respect to payouts for individual goals, the CCG Committee exercised its negative discretion, in consultation with management, in determining payouts for FY18.
FY18 Executive Annual Incentive Bonus Payout of Individual Component | ||||||||||||||||
Named Executive Officer | Target Amount (50% of Total | Bonus Calculated @ 162.6% | Approved Bonus % of MBO Target | Approved Bonus $ Value | ||||||||||||
Patrick Gelsinger | $ | 817,808 | $ | 1,329,961 | 130 | % | $ | 1,063,151 | ||||||||
Zane Rowe | $ | 408,904 | $ | 664,980 | 125 | % | $ | 511,130 | ||||||||
Maurizio Carli(1) | £ | 295,452 | £ | 480,479 | 130 | % | £ | 384,088 | ||||||||
Sanjay Poonen | $ | 381,644 | $ | 620,648 | 115 | % | $ | 438,890 | ||||||||
Rangarajan (Raghu) Raghuram | $ | 381,644 | $ | 620,648 | 115 | % | $ | 438,890 |
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Total Bonus Payouts (Financial Component + Individual Component) for FY18: Target vs. Actual
The table below details the total bonus payouts including both Financial and Individual components to each of our NEOs for FY18.
FY18 Executive Annual Incentive Bonus Total Payout | ||||||||||||
Named Executive Officer | Total Target (Financial + Individual) | Total Actual + Individual) | Total Actual as % of Target | |||||||||
Patrick Gelsinger | $ | 1,635,616 | $ | 2,127,119 | 130.05 | % | ||||||
Zane Rowe | $ | 817,808 | $ | 1,043,114 | 127.55 | % | ||||||
Maurizio Carli(1) | £ | 590,904 | £ | 768,471 | 130.05 | % | ||||||
Sanjay Poonen | $ | 763,288 | $ | 935,409 | 122.55 | % | ||||||
Rangarajan (Raghu) Raghuram | $ | 763,288 | $ | 935,409 | 122.55 | % |
Long-Term Incentives
We strongly believe that equity awards further align the interests of our NEOs with those of our stockholders. Equity awards are also an important part of the compensation packages that we use to recruit new executive hires. Additionally, we annually review the composition, value and vesting timeline of long-term equity-based incentive awards held by our NEOs, and our CCG Committee periodically approves refresh grants designed to promote long-term retention of our executive team and meet the objectives of our executive compensation program.
Target Vehicle Mix
During FY18, our CCG Committee continued to make performance-based equity awards a substantial portion of the overall value of equity awards granted to our NEOs. Accordingly, the CCG Committee continued the foundational equity vehicle mix (“Annual Equity Awards”) of FY16 with 50% of annual target value tied to FY18 Operating PSUs utilizing revenue, operating margin and profitability metrics similar to the FY15 and FY16 PSU plans and 50% of annual target value tied to RSUs. In addition, the CCG Committee granted each NEO an additional PSU award, the FY18 HC PSUs, intended as aone-time performance-based equity award designed to incentivize continuing progress in the Company’s plans to a broaden our portfolio of cloud and SaaS-based offerings over a multi-year period while maintaining alignment with stockholder returns.
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We believe that the mix of PSUs and RSUs for our NEOs met the primary objectives of our annual NEO equity award grant program by aligning executive compensation with total stockholder return, focusing executive performance on overall financial metrics that are key to our success while promoting long-term retention. Additionally, we believe that theone-time award of FY18 HC PSUs incentivizes NEOs to focus on increasing the level of hybrid cloud and SaaS-based offerings in our product mix, objectives that are critical to our long-term success in the mobile cloud era while continuing to align executive payouts with stockholder returns.
Equity Awards in FY18
The table below details equity awards approved by the CCG Committee for our NEOs during FY18. As noted above, awards for the NEOs’ annual target values were weighted 50% to FY18 Operating PSUs and 50% to RSUs. The award of FY18 HC PSUs was calibrated according to the CCG Committee’s evaluation of each NEO’s unvested equity values, the timeline for vesting in their outstanding equity awards as well as talent retention imperatives in a highly competitive market for senior executives. In granting equity awards to our NEOs, the CCG Committee selects a nominal dollar value for each award (“Selected Equity Value”). The Selected Equity Value utilized for FY18 equity awards is set forth in the table below.
In addition to his Annual Equity Awards and his FY18 HC PSU award, Mr. Carli also received a retention PSU award. In addition to the above factors, the value of the retention PSU award issued to Mr. Carli was determined in light of a competitive compensation package available to Mr. Carli at the time of his retention award.
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The FY18 RSU grants to NEOs vest over a four-year period, subject to continued employment, with 25% of the shares vesting on theone-year anniversary of the vest base date and the remaining shares vesting ratably thereafter on a semi-annual basis. In the case of PSU awards, shares vest subject to continued employment and achievement of performance goals after the completion of a multi-year performance period detailed further below. For more information on the vesting schedules of equity awards granted to NEOs, see “Compensation of NEOs—Outstanding Equity Awards at Fiscal-Year End.”
The CCG Committee approved the annual equity awards in May 2017 in order to time the grant of PSUs with a performance tranche applicable to FY18. The performance metrics forone-third of the FY18 Operating and FY18 HC PSU awards are applicable to annual performance periods that commenced in FY18. The performance metrics for the FY18 tranches were established in May 2017. Performance metrics for the second and third tranches of the FY18 Operating and FY18 HC PSU awards will be applicable to performance periods commencing in FY19 and FY20, respectively and will be established early each fiscal year.
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Approved Award Value vs. Accounting Grant Date Fair Value for PSU Awards
Grant date fair values for PSUs are not determined until performance metrics are established. Accordingly, the grant date fair values for the second and third tranches of the FY18 Operating and FY18 HC PSU grants discussed below are not reflected in the “SummaryCompensation Table” and the other tables in the “Compensation of Executive Officers” section of this proxy statement. Instead,one-third of the FY18 Operating PSU and HC PSU grant date fair values is reflected in this proxy statement,one-third of the FY18 Operating PSU and FY18 HC PSU grant date fair values will be reflected in our 2019 proxy statement andone-third of the FY18 Operating PSU and FY18 HC PSU grant date fair values will be reflected in our 2020 proxy statement.
During FY18, the CCG Committee also established performance metrics for the second tranche of FY16 PSUs that it had awarded to our NEOs in FY16 under the FY16 PSU Plan and for the third tranche of FY15 PSUs that it had awarded to our NEOs in FY15 under the FY15 PSU Plan. Accordingly, the grant date fair values for the second tranche of the FY16 PSUs and the third tranche of the FY15 PSUs are reflected in the “Summary Compensation Table” and the other tables in the “Compensation of Executive Officers” section of this proxy statement.
The FY19 performance metrics applicable to the second tranche of the three tranches of the FY18 Operating PSU and FY18 HC PSU Plans and the third tranche of three tranches in the FY16 PSU Plan will be established in early FY19. Accordingly, grant date fair values for the second tranche of FY18 Operating and FY18 HC PSU Plans and the grant date fair value for the third tranche of the FY16 PSU Plan will be determined in FY19 and will be reflected in the 2019 proxy statement.
The FY20 performance metrics applicable to the third tranche of the three tranches of the FY18 Operating PSU and FY18 HC PSU Plans will be established in early FY20. Accordingly, grant date fair values for the third tranche of FY18 Operating and FY18 HC PSU Plans will be determined in FY20 and will be reflected in the 2020 proxy statement.
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The table below, showing the value of RSU and PSU grants to our CEO from FY15 through FY18, illustrates how the practice under GAAP of assigning grant date fair value on the date that individual annual performance metrics are established rather than on the date that multi-year PSUs are awarded can make the value of each annual tranche of a single PSU award appear to fluctuate significantly when the number of units subject to each annual tranche of each award actually remains constant. Accordingly, we believe that it is important to factor in the target values of the equity grants to our CEO in order to fully understand how we implement VMware’spay-for-performance compensation strategy to provide 50% or more of our CEO’s equity grants in the form of PSUs.
# of Shares Underlying Equity Awards(1)
| Value of Shares Underlying Equity Awards ($M)(1)
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Award and % of Approved Issuance | Approved Issuance(2) | Shares Assigned an Accounting Value(3) | Target Value at Issuance(2) | Accounting Value(3) | ||||||||||||||||||||||||||||||||||||||||||||||
FY15 | FY16 | FY18 | FY15 | FY16 | FY18 | FY15 | FY16 | FY18 | FY15 | FY16 | FY18 | |||||||||||||||||||||||||||||||||||||||
FY15 PSU | 83,018 | 27,672 | 27,672 | 27,674 | $ | 6.75 | $ | 2.30 | $ | 1.43 | $ | 2.54 | ||||||||||||||||||||||||||||||||||||||
FY15 RSU | 83,018 | 83,018 | $ | 6.75 | $ | 6.91 | ||||||||||||||||||||||||||||||||||||||||||||
FY16 PSU | 129,951 | 43,317 | 43,317 | $ | 6.50 | $ | 2.23 | $ | 3.97 | |||||||||||||||||||||||||||||||||||||||||
FY16 RSU | 129,951 | 129,951 | $ | 6.50 | $ | 6.70 | ||||||||||||||||||||||||||||||||||||||||||||
FY18 Operating PSU | 49,235 | 16,411 | $ | 4.50 | $ | 1.99 | ||||||||||||||||||||||||||||||||||||||||||||
FY18 HC PSU | 49,235 | 16,411 | $ | 4.50 | $ | 1.55 | ||||||||||||||||||||||||||||||||||||||||||||
FY18 RSU | 49,235 | 49,235 | $ | 4.50 | $ | 4.66 | ||||||||||||||||||||||||||||||||||||||||||||
Total by Year | 166,036 | 259,902 | 147,705 | 110,690 | 200,940 | 153,048 | $ | 13.50 | $ | 13.00 | $ | 13.50 | $ | 9.22 | $ | 10.35 | $ | 14.71 |
As illustrated in the tables above, the CCG Committee has approved equity awards to our CEO with 50% or more of total approved award value tied to PSUs in each of FY15, FY16 and FY18. However, as a result of our PSU design, which features both successive annual performance tranches as well as a multi-year performance goal, the grant date accounting fair value of the PSU awards reflects the number of PSU awards issued to each applicable fiscal year tranche multiplied by the closing trading price of our stock on the date that each annual performance metric is determined. Accordingly, the “Approved Issuance” columns of the table above demonstrate that at least 50% of the total equity grants approved by the CCG Committee are in the form of PSUs, even though the CCG Committee’s compensation philosophy is not necessarily reflected in the grant date fair value of the awards.
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Performance Stock Units—FY15 and FY16 PSU Plans and FY18 Operating PSU Plan
The design of the FY18 Operating PSU Plan is substantially consistent with the FY15 and FY16 PSU Plans, with the following design features.
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We designed the metrics for our FY18 Operating PSU awards to NEOs to focus on indicators that will measure the degree to which we successfully deliver on the core business opportunities we have identified for VMware in the software-defined data center deliveredon-premises or in the cloud, as well asend-user and mobile computing. We selected the achievement of revenue targets, as adjusted for the change in unearned hybrid cloud and SaaS revenue, andnon-GAAP operating margin as they have proven to be primary drivers of current and future stockholder returns. We selectednon-GAAP operating income as the three-year performance modifier in order to hold NEOs accountable for total dollar value of profit generated by bothtop-line growth and bottom-line management over a long-term performance period. The CCG Committee continues to evaluate alternative structures with the goal of best aligning our PSU Plan with the long-term performance of the Company. The three-year performance modifier is critical to the plan design because it modifies the shares otherwise subject to vest based on performance in each annual tranche. Performance achievement is adjusted for the impact of significant merger-, acquisition- and divestiture-related transactions and fluctuations in currency exchange ratios during the period. Taken together, the CCG Committee believes the balanced focus on sustained performance over individual annual tranches enables goals to be adjusted each year to reflect changing business conditions while a multi-year performance goal focused on total profitability incentivizes our NEOs to deliver results that drive shareholder value.
Performance in FY18 applied to the three PSU plans as follows: (1) the first annual tranche of the FY18 Operating PSU Plan, (2) the second of three tranches of the FY16 PSU Plan and (3) the third of three tranches of the FY15 PSU Plan. Under each Plan, metrics for the FY18 performance tranche were total revenue plus change in unearned hybrid cloud and SaaS revenue (weighted 70%) andnon-GAAP operating margin (weighted 30%).
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An illustration of the staggered design of our operational PSU plans that were ongoing during FY18 is below.
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Plan FY15 FY16 FY18 FY19 FY20 FY21 FY15 PSU Plan 33% of target PSU award: FY15 Adj. Rev (70% weight) + FY15non-GAAP operating margin (30% weight) = FY15 tranche opportunity(0%-200% of target) 33% of target PSU award: FY16 Adj. Rev (70% weight) + FY16non-GAAP operating margin (30% weight) = FY16 tranche opportunity(0%-200% of target) 33% of target PSU award: FY18 Adj. Rev (70% weight) + FY18non-GAAP operating margin (30% weight) = FY18 tranche opportunity(0%-200% of target) Vests February 28, 2018 subject to continued employment. Actual number of shares subject to vest equals PSUs achieved from each tranche multiplied by three-year revenue growth multiplier(0.5x-1.0x) X Three-year compound annual growth rate (CAGR) of total revenue from FY15 through FY18 FY16 PSU Plan 33% of target PSU award: FY16 Adj. Rev (70% weight) + FY16non-GAAP operating margin (30% weight) = FY16 tranche opportunity(0%-200% of target) 33% of target PSU award: FY18 Adj. Rev (70% weight) + FY18non-GAAP operating margin (30% weight) = FY18 tranche opportunity(0%-200% of target) 33% of target PSU award: FY19 metric To Be Determined (“TBD”) + FY19 metric TBD = FY19 tranche opportunity(0%-200% of target) Vests March 31, 2019 subject to continued employment. Actual number of shares subject to vest equals PSUs achieved from each tranche multiplied by three-yearnon-GAAP operating income growth multiplier(0.75x-1.25x) X Three-yearnon-GAAP operating income average growth multiplier on FY16, FY18 and FY19 tranches FY18 Operating PSU Plan 33% of target PSU award: FY18 Adj. Rev (70% weight) + FY18non-GAAP operating margin (30% weight) = FY18 tranche opportunity(0%-200% of target) 33% of target PSU award: FY19 metric TBD + FY19 metric TBD = FY19 tranche opportunity(0%-200% of target) 33% of target PSU award: FY20 metric TBD + FY20 metric TBD = FY20 tranche opportunity(0%-200% of target) Vests April 1, 2020 subject to continued employment. Actual number of shares subject to vest equals PSUs achieved from each tranche multiplied by three-yearnon-GAAP operating income growth multiplier(0.75x-1.25x) X Three-yearnon-GAAP operating income average growth multiplier on FY16, FY18 and FY19 tranches
Performance levels were adjusted to exclude the impact of merger-, acquisition- and divestiture-related transactions and fluctuations in currency exchange rates during the period. Achievement is measured following the end of each tranche in FY15, FY16 and FY18, as applicable, and achievement relative to the multi-year performance goal was measured following the end of FY18 in the case of the FY15 PSU Plan, following the end of FY19 in the case of the FY16 PSU Plan and following the end of FY20 in the case of the FY18 Operating PSU Plan. Depending upon the level of achievement, the PSUs can convert into shares of common stock at ratios ranging from 0.25 shares (under the FY15 PSU Plan) and 0.375 shares (under the FY16 PSU and FY18 Operating PSU Plans) to two shares for each PSU (PSUs are capped at 2x target irrespective of actual performance). If the minimum performance threshold is not met, then no shares will be issued. We believe that coupling performance metrics over a three-year period in the case of the FY15, FY16 and FY18 Operating PSU Plans allows us to align our performance metrics to our strategic plan while also promoting longer-term executive retention.
In February 2018, the CCG Committee reviewed Company performance against metrics contained in the FY15, FY16 and FY18 Operating PSU plans in connection with the FY18 performance tranche. Performance goals, actual results and earned shares under the FY15 and FY16 PSU and FY18 Operating PSU Plans are described below.
Performance Achievement vs. Goal
FY18 Performance Tranche Achievement |
| |||||||||||||||||||||||||||
Threshold 50% | Target 100% | Maximum 200% | Actual | Result | Funding Weight | Funding | ||||||||||||||||||||||
70% Weighting on Adjusted Revenue | $7,314 | $7,659 | $8,004 | $7,982 | 193.5% | 70% | 135.5% | |||||||||||||||||||||
+ | ||||||||||||||||||||||||||||
Threshold 50% | Target 100% | Maximum 200% | Actual | Result | Funding Weight | Funding | ||||||||||||||||||||||
30% Weighting onNon-GAAP Operating Margin | 30.7% | 32.3% | 34.3% | 33.7% | 172.1% | 30% | 51.6% | |||||||||||||||||||||
= | ||||||||||||||||||||||||||||
Total FY18 Performance Tranche Funding |
| 187.1 | % |
|
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PSU Conversion Based on Performance
FY18 Tranche of PSU Plan: Target PSUs
| FY18
| PSU Achievement in
| ||||||||||||||||||||||||||
Name | FY15 PSU Plan | FY16 PSU Plan | FY18 Op. PSU Plan | Tranche Modifier | FY15 PSU Plan | FY16 PSU Plan | FY18 Plan | |||||||||||||||||||||
Patrick Gelsinger | 27,674 | 43,317 | 16,411 | 187.1 | % | 51,778 | 81,046 | 30,704 | ||||||||||||||||||||
Zane Rowe(2) | �� | — | 24,990 | 10,941 | 187.1 | % | — | 46,756 | 20,470 | |||||||||||||||||||
Maurizio Carli | 2,965 | 6,664 | 9,117 | 187.1 | % | 5,547 | 12,468 | 17,057 | ||||||||||||||||||||
Sanjay Poonen | 7,175 | 13,328 | 10,941 | 187.1 | % | 13,424 | 24,936 | 20,470 | ||||||||||||||||||||
Rangarajan (Raghu) Raghuram | 16,399 | 11,662 | 10,941 | 187.1 | % | 30,682 | 21,819 | 20,470 |
FY15 PSU Plan Calculation of Shares Subject to Vest Based on Performance
Total
| FY15 PSU Plan Awards Banked Per Annual Tranche
| 3 Year
| Total Shares
| |||||||||||||||||||||||||||||||||||||
Name | FY15 Plan | FY15 Tranche Target | FY16 Tranche Target | FY18 Tranche Target | FY15 Tranche Ratio | FY16 Tranche Ratio | FY18 Tranche Ratio | Per Multi- Year Revenue Growth (1.0x) | # of Shares | % of Total Target Issued | ||||||||||||||||||||||||||||||
Patrick Gelsinger | 83,018 | 27,672 | 27,672 | 27,674 | 84.6 | % | 157.2 | % | 187.1 | % | 1.0x | 118,688 | 143.0% | |||||||||||||||||||||||||||
Zane Rowe(1) | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Maurizio Carli | 8,895 | 2,965 | 2,965 | 2,965 | 84.6 | % | 157.2 | % | 187.1 | % | 1.0x | 12,715 | 143.0% | |||||||||||||||||||||||||||
Sanjay Poonen | 21,523 | 7,174 | 7,174 | 7,175 | 84.6 | % | 157.2 | % | 187.1 | % | 1.0x | 30,770 | 143.0% | |||||||||||||||||||||||||||
Rangarajan (Raghu) Raghuram | 49,195 | 16,398 | 16,398 | 16,399 | 84.6 | % | 157.2 | % | 187.1 | % | 1.0x | 70,331 | 143.0% |
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Performance Stock Units—FY18 HC PSU Plan
The design of the FY18 HC PSU Plan consists of the following features.
| ||
|
We designed the metrics for our FY18 HC PSU awards to NEOs to focus on indicators that will measure the degree to which we broaden our portfolio of hybrid cloud andas-a-service business offerings. The strategy underpinning this focus was communicated to stockholders in FY16 and we realigned the operational structure of the Company as well as our COOs’ responsibilities in FY16 to develop and implement cloud- and SaaS-based business solutions. The PSU plan also is designed to hold NEOs accountable for achieving these objectives in a manner that is aligned with stockholder returns during the three-year performance period. The hybrid cloud and SaaS financial metric selected for the FY18 performance tranche was hybrid cloud and SaaS revenue growth over FY16, consistent with the purpose of the PSU plan. The stockholder alignment metric selected as the modifier on the three-year Company performance component was the Company’s percentile rank in three-year TSR relative to constituent companies in the S&P 500 IT Index at the time the CCG Committee approved the FY18 HC PSU Plan in April 2017. For each of the annual performance tranches in FY18 HC PSU Plan, as well as the three-year goal, there are thresholds below which no shares may be earned and there is no upside opportunity to earn shares above target levels of performance. Performance achievement in the FY18 tranche was adjusted for the impact of significant merger-, acquisition- and divestiture-related transactions during the period.
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An illustration of the staggered design of the FY18 HC PSU Plan is below.
Achievement is measured following the end of each tranche in FY18, FY19 and FY20, as applicable and achievement relative to the multi-year performance goal will be measured following the end of FY20. Depending upon the level of achievement, the PSUs can convert into shares of common stock at ratios ranging from 0.25 shares to one share for each PSU. If the minimum performance threshold is not met, then no shares will be issued.
In February 2018, the CCG Committee reviewed Company performance against the FY18 metric in connection with the FY18 performance tranche. Performance goals, actual results and achieved PSUs under the FY18 HC PSU Plan are described below. Results were adjusted to eliminate impact on fluctuations in currency ratios and acquisitions and divestitures.
Performance Achievement vs. Goal
Threshold 50% | Target 100% | Maximum 100% | Actual | Funding | ||||||
100% Weighting on Hybrid Cloud and SaaS Revenue Growth | 13.3% | 19.2% | >19.2% | 30.9% | 100% |
PSU Conversion Based on Performance
Name | FY18 Tranche Target PSUs | FY18 Tranche | PSU Achievement in FY18 Tranche(1) | |||||||||
Patrick Gelsinger | 16,411 | 100.0 | % | 16,411 | ||||||||
Zane Rowe | 7,294 | 100.0 | % | 7,294 | ||||||||
Maurizio Carli | 7,294 | 100.0 | % | 7,294 | ||||||||
Sanjay Poonen | 10,941 | 100.0 | % | 10,941 | ||||||||
Rangarajan (Raghu) Raghuram | 10,941 | 100.0 | % | 10,941 |
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Plan FY18 FY19 FY20 FY21 FY18 HC PSU Plan 33% of target PSU award: FY18 hybrid cloud and SaaS revenue growth = FY18 tranche opportunity(0%-100% of target) 33% of target PSU award: FY19 hybrid cloud and SaaS metric TBD = FY19 tranche opportunity(0%-100% of target) 33% of target PSU award: FY20 hybrid cloud and SaaS metric TBD = FY20 tranche opportunity(0%-100% of target) Vests April 1, 2020 subject to continued employment. Actual number of shares subject to vest equals PSUs achieved from each tranche multiplied by three-year relative TSR multiplier(0.5x-1.0x) X Three-year relative TSR multiplier on FY18, FY19 and FY20 tranches
Performance Stock Units—FY18 Sales PSU Plan
The FY18 Sales PSU Plan was designed to promote the retention of Mr. Carli in response to a competitive compensation package available to him in FY18 while also driving pay for performance over a multi-year period. The CCG Committee designed the FY18 Sales PSU Plan to include the following features.
| ||
|
We designed the metrics for the FY18 Sales PSU award to Mr. Carli to focus on results related to Mr. Carli’s role accountability as our Executive Vice President, Sales and Services, in alignment with Company business objectives to achieve growth. In excluding professional services sales from the total revenue goal, the CCG Committee sought to drive Mr. Carli to deliver overall revenue results across new sales and renewals without risking our relationship with our partners who specialize in professional services. In selecting license plus hybrid cloud and SaaS revenue, the CCG Committee sought to drive Mr. Carli to deliver revenue growth in the products, solutions and services that demonstrate customer adoption and utilization of the Company’s offerings. For each of thetwo-and-a-half-year goals in the FY18 Sales PSU Plan, there are thresholds below which no shares may be earned and there is no upside opportunity to earn shares above target levels of performance. Performance achievement in the FY18 Sales PSU Plan will be adjusted for the impact of significant merger-, acquisition- and divestiture-related transactions during the period as well as fluctuations in the currency ratios. In establishing the FY18 Sales PSU Plan, the CCG Committee believes the focus on sustained achievement of two revenue metrics for Mr. Carli provides a long-term retention and performance incentive in a highly competitive market for senior executive talent.
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Plan FY18 H2 FY19 FY20 FY21 FY18 Sales PSU Plan 50% of target PSU award: Average annual growth rate in total revenues excluding professional services revenues from H2 FY18 through FY20(0%-100% of target) + 50% of target PSU award: Average annual growth rate in license plus hybrid cloud / SaaS revenues from H2 FY18 through FY20(0%-100% of target) Vests May 1, 2020 subject to continued employment. Actual number of shares subject to vest equals PSUs achieved under each metric(0.5x-1.0x)
Achievement will be measured following FY20.
Benefits and Perquisites
Our senior executives are obligated to undertake travel from time to time that is most efficient through use of a private jet. We did not incur any incremental expense during FY18 in connection withnon-business jet usage by our NEOs and their family members.
less than $500.
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(2) full accelerated vesting of outstanding equity awards. VMware’s CEO, Mr. Gelsinger, is eligible to receive two times his annual base salary and target bonus and the value of 24 months of the health insurance premium amount.premiums. Other NEOs are eligible to receive 1.5 times their annual base salary and target bonus and the value of 18 months of the health insurance premium amount.
premiums.
Expiration of
The Dell Acquisition wastermination; and (3) accelerated vesting of outstanding PSU awards, to the extent that performance periods have been completed, as further detailed in September 2016 and the Severance Plan expired at the end of its term on December 31, 2017.
Plan.
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was not subject to the $1 million deduction limit if certain requirements were met. Among other changes to Section 162(m), the Tax Act eliminated the exemption for performance-based compensation. The amendment to Section 162(m) is effective with respect to VMware for compensation paid in FY19 and in future years. The Tax Act includes a transition rule that allows the performance-based compensation exemption to continue for executive officers with a right to participate in a plan that is part of a written binding contract in effect on November 2, 2017 that is not modified in any material respect before the compensation is paid (“Transition Rule”). However, the IRS has not issued complete guidance with respect
During FY18, prior to the effectiveness of the amendment to Section 162(m), the CCG Committee considered the impact of Section 162(m) when designing our cash and equity bonus program, but might have elected to provide compensation that was not fully deductible as a result of Section 162(m) if it determined it was in our best interests. Accordingly, during FY18, the CCG Committee structured our FY18 Executive Bonus Program for our NEOs and the PSUs granted in FY18 in order to allow each to qualify as performance-based compensation under Section 162(m). The RSUs granted in FY18 did not qualify as performance-based compensation. To the extent that our NEOs participate in performance-based compensation plans that are likely to qualify for treatment as performance-based compensation under the Transition Rule, the CCG Committee may consider avoidingavoided actions that would be considered a material modification to such plan or agreement if it determines it is in our best interests.
order to preserve their deductibility.
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Name and Principal Position | Fiscal Year | Salary ($) | Bonus ($) | Stock Awards(1) ($) | Non-Equity Incentive Plan Compensation(2) ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||
Patrick Gelsinger | 2018 | 1,000,000 | — | 14,709,988 | 1,945,861 | 19,260(3) | 17,675,109 | |||||||||||||||||||
CEO | Transition | 83,333 | — | — | 181,258 | 1,500(4) | 266,092 | |||||||||||||||||||
2016 | 1,000,000 | — | 12,052,249 | 1,783,125 | 6,000 | 14,841,374 | ||||||||||||||||||||
2015 | 1,000,000 | 650 | 11,904,314 | 1,443,750 | 10,479 | 14,359,193 | ||||||||||||||||||||
Zane Rowe | 2018 | 750,000 | — | 7,413,847 | 954,227 | 6,000(3) | 9,124,074 | |||||||||||||||||||
CFO and Executive Vice President | Transition | 62,500 | — | — | 88,887 | 1,500(4) | 152,887 | |||||||||||||||||||
2016 | 630,770 | — | 5,150,990 | 761,466 | 7,642 | 6,550,868 | ||||||||||||||||||||
Maurizio Carli | 2018 | 714,798 | (5)(6) | — | 16,621,735 | 991,902 | (5) | 553,782(3)(5) | 18,882,218 | |||||||||||||||||
Executive Vice President, | Transition | 57,540 | — | — | 92,396 | — | 149,936 | |||||||||||||||||||
Sanjay Poonen | 2018 | 700,000 | — | 7,347,712 | 855,700 | 1,500(3) | 8,904,912 | |||||||||||||||||||
COO, Customer Operations | Transition | 58,333 | — | — | 79,709 | — | 138,042 | |||||||||||||||||||
2016 | 621,250 | — | 10,840,103 | 637,826 | 3,142 | 12,102,321 | ||||||||||||||||||||
2015 | 605,000 | 650 | 3,034,494 | 668,750 | — | 4,308,894 | ||||||||||||||||||||
Rangarajan (Raghu) Raghuram | 2018 | 700,000 | — | 8,040,554 | 855,700 | — | 9,596,254 | |||||||||||||||||||
COO, Products and Cloud Services | Transition | 58,333 | — | — | 79,709 | — | 138,042 | |||||||||||||||||||
2016 | 621,250 | — | 10,592,707 | 731,294 | — | 11,945,251 | ||||||||||||||||||||
2015 | 605,000 | 650 | 6,321,816 | 585,250 | — | 7,512,716 |
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Name | Grant | Date of Grant | Maximum Conversion Ratio | Assuming Highest Level of Performance Conditions Achieved ($) | ||||||||||||||||
Patrick Gelsinger | FY15 PSU | 04/03/2017 | 2.00 | 5,073,751 | ||||||||||||||||
FY16 PSU | 04/03/2017 | 2.00 | 7,941,739 | |||||||||||||||||
FY18 HC PSU | 05/15/2017 | 1.00 | 1,553,301 | |||||||||||||||||
FY18 Operating PSU | 11/15/2017 | 2.00 | 3,977,698 | |||||||||||||||||
Zane Rowe | FY16 PSU | 04/03/2017 | 2.00 | 4,581,667 | ||||||||||||||||
FY18 HC PSU | 05/15/2017 | 1.00 | 690,377 | |||||||||||||||||
FY18 Operating PSU | 11/15/2017 | 2.00 | 2,651,880 | |||||||||||||||||
Maurizio Carli | FY15 PSU | 04/03/2017 | 2.00 | 543,603 | ||||||||||||||||
FY16 PSU | 04/03/2017 | 2.00 | 1,221,778 | |||||||||||||||||
FY18 HC PSU | 05/15/2017 | 1.00 | 690,377 | |||||||||||||||||
FY18 Sales PSU | 09/07/2017 | 1.00 | 11,354,817 | |||||||||||||||||
FY18 Operating PSU | 11/15/2017 | 2.00 | 2,209,778 | |||||||||||||||||
Sanjay Poonen | FY15 PSU | 04/03/2017 | 2.00 | 1,315,465 | ||||||||||||||||
FY16 PSU | 04/03/2017 | 2.00 | 2,443,556 | |||||||||||||||||
FY18 HC PSU | 05/15/2017 | 1.00 | 1,035,566 | |||||||||||||||||
FY18 Operating PSU | 11/15/2017 | 2.00 | 2,651,880 | |||||||||||||||||
Rangarajan (Raghu) Raghuram | FY15 PSU | 04/03/2017 | 2.00 | 3,006,593 | ||||||||||||||||
FY16 PSU | 04/03/2017 | 2.00 | 2,138,111 | |||||||||||||||||
FY18 HC PSU | 05/15/2017 | 1.00 | 1,035,566 | |||||||||||||||||
FY18 Operating PSU | 11/15/2017 | 2.00 | 2,651,880 |
____________________ (1) Amounts shown represent the grant date fair values of stock awards granted in the fiscal year indicated, which were computed in accordance with the Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Options (“ASC Topic 718”), without taking into account estimated forfeitures. The amounts disclosed may never be realized. Assumptions used in calculating these amounts are included in the note titled “Stockholders’ Equity” to our audited financial statements included in our Annual Report on Form 10-K for the applicable year. Amounts include the value of the FY19 performance tranches of the FY16 PSUs, FY18 Operating PSUs and FY18 HC PSUs, for which performance goals were set on the grant dates in the table below, and the FY19 Operating PSUs, which were deemed awarded on the grant date set forth below. For more details on the FY16 PSUs, FY18 Operating PSUs, FY18 HC PSUs and FY19 Operating PSUs see “Compensation Discussion and Analysis—Section 6: Long-Term Incentives” and “—Grants of Plan-Based Awards.” With respect to each of the FY16 PSUs, FY18 Operating PSUs, FY18 HC PSUs and FY19 Operating PSUs, vesting is subject to the Company’s financial performance. Accordingly, the “Stock Awards” column above includes the grant date fair value based on the probable outcome of the performance-based conditions as of the grant date in accordance with ASC Topic 718. Assuming the maximum level of performance is achieved, the aggregate grant date fair value of the portion of the FY16 PSUs, FY18 Operating PSUs, FY18 HC PSUs and FY19 Operating PSUs awards deemed granted in FY19 set forth in the table above would be as set forth in the table below.
____________________ (2) Amounts shown represent cash incentive compensation earned for services rendered in the respective fiscal years under our annual cash incentive bonus plan. For more details on the annual cash incentive bonus plan, see “Compensation Discussion and Analysis—Section 5: Annual Performance-Based Bonus” and “— |
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Name | Type | Grant Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | All Other Stock Awards: Number of Shares of Stock or Units (#) | Grant Date Fair Value of Stock Awards(3) ($) | ||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||
Patrick Gelsinger | Bonus(4) | 04/16/18 | 431,013 | 1,690,247 | 4,056,593 | — | — | — | — | — | ||||||||
RSU Grant | 04/27/18 | — | — | — | — | — | — | 73,125 | 8,082,122 | |||||||||
FY16 PSU(5) | 04/16/18 | — | — | — | 19,555 | 52,146 | 104,292 | — | 5,534,180 | |||||||||
FY18 Op. PSU(6) | 04/16/18 | — | — | — | 7,409 | 19,756 | 39,512 | — | 2,096,669 | |||||||||
FY18 HC PSU(7) | 04/16/18 | — | — | — | 4,939 | 19,756 | 19,756 | — | 1,789,127 | |||||||||
FY19 Op. PSU(8) | 04/27/18 | — | — | — | 9,141 | 24,375 | 48,750 | — | 2,693,996 | |||||||||
Zane Rowe | Bonus(4) | 04/16/18 | 191,250 | 750,000 | 1,800,000 | — | — | — | — | — | ||||||||
RSU Grant | 04/27/18 | — | — | — | — | — | — | 34,125 | 3,771,568 | |||||||||
FY16 PSU(5) | 04/16/18 | — | — | — | 11,282 | 30,085 | 60,170 | — | 3,192,850 | |||||||||
FY18 Op. PSU(6) | 04/16/18 | — | — | — | 4,939 | 13,171 | 26,342 | — | 1,397,822 | |||||||||
FY18 HC PSU(7) | 04/16/18 | — | — | — | 2,195 | 8,780 | 8,780 | — | 795,192 | |||||||||
FY19 Op. PSU(8) | 04/27/18 | — | — | — | 4,266 | 11,375 | 22,750 | — | 1,257,189 | |||||||||
Maurizio Carli | Bonus(4)(9) | 04/16/18 | 202,806 | 795,316 | 1,908,758 | — | — | — | — | — | ||||||||
RSU Grant | 04/27/18 | — | — | — | — | — | — | 26,813 | 2,963,423 | |||||||||
FY16 PSU(5) | 04/16/18 | — | — | — | 3,009 | 8,023 | 16,046 | — | 851,393 | |||||||||
FY18 Op. PSU(6) | 04/16/18 | — | — | — | 4,116 | 10,976 | 21,952 | — | 1,164,788 | |||||||||
FY18 HC PSU(7) | 04/16/18 | — | — | — | 2,195 | 8,780 | 8,780 | — | 795,192 | |||||||||
FY19 Op. PSU(8) | 04/27/18 | — | — | — | 3,351 | 8,937 | 17,874 | — | 987,763 | |||||||||
Sanjay Poonen | Bonus(4) | 04/16/18 | 178,500 | 700,000 | 1,680,000 | — | — | — | — | — | ||||||||
RSU Grant | 04/27/18 | — | — | — | — | — | — | 24,375 | 2,693,996 | |||||||||
FY16 PSU(5) | 04/16/18 | — | — | — | 6,017 | 16,046 | 32,092 | — | 1,702,913 | |||||||||
FY18 Op. PSU(6) | 04/16/18 | — | — | — | 4,939 | 13,171 | 26,342 | — | 1,397,822 | |||||||||
FY18 HC PSU(7) | 04/16/18 | — | — | — | 3,293 | 13,171 | 13,171 | — | 1,192,788 | |||||||||
FY19 Op. PSU(8) | 04/27/18 | — | — | — | 3,047 | 8,125 | 16,250 | — | 897,954 | |||||||||
Rangarajan (Raghu) Raghuram | Bonus(4) | 04/16/18 | 178,500 | 700,000 | 1,680,000 | — | — | — | — | — | ||||||||
RSU Grant | 04/27/18 | — | — | — | — | — | — | 34,125 | 3,771,568 | |||||||||
FY16 PSU(5) | 04/16/18 | — | — | — | 5,265 | 14,039 | 28,078 | — | 1,489,937 | |||||||||
FY18 Op. PSU(6) | 04/16/18 | — | — | — | 4,939 | 13,171 | 26,342 | — | 1,397,822 | |||||||||
FY18 HC PSU(7) | 04/16/18 | — | — | — | 3,293 | 13,171 | 13,171 | — | 1,192,788 | |||||||||
FY19 Op. PSU(8) | 04/27/18 | — | — | — | 4,266 | 11,375 | 22,750 | — | 1,257,189 |
Name | Type | Grant Date | Estimated Possible Payouts UnderNon-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#) | Grant Date Fair Value of Stock Awards(2) | ||||||||||||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||||||||||||
Patrick Gelsinger | Bonus(3) | 02/10/17 | 417,082 | 1,635,616 | 3,925,478 | — | — | — | — | — | ||||||||||||||||||||||||||
RSU Grant | 05/15/17 | — | — | — | — | — | — | 49,235 | 4,660,093 | |||||||||||||||||||||||||||
FY15 PSU(4) | 04/03/17 | — | — | — | 6,919 | 27,674 | 55,348 | — | 2,536,876 | |||||||||||||||||||||||||||
FY16 PSU(5) | 04/03/17 | — | — | — | 16,244 | 43,317 | 86,634 | — | 3,970,869 | |||||||||||||||||||||||||||
FY18 HC PSU(6) | 05/15/17 | — | — | — | 4,103 | 16,411 | 16,411 | — | 1,553,301 | |||||||||||||||||||||||||||
FY18 Op. PSU(7) | 11/15/17 | — | — | — | 6,154 | 16,411 | 32,822 | — | 1,988,849 | |||||||||||||||||||||||||||
Zane Rowe | Bonus(3) | 02/10/17 | 208,541 | 817,808 | 1,962,739 | — | — | — | — | — | ||||||||||||||||||||||||||
RSU Grant | 05/15/17 | — | — | — | — | — | — | 32,823 | 3,106,697 | |||||||||||||||||||||||||||
FY16 PSU(5) | 04/03/17 | — | — | — | 9,371 | 24,990 | 49,980 | — | 2,290,833 | |||||||||||||||||||||||||||
FY18 HC PSU(6) | 05/15/17 | — | — | — | 1,824 | 7,294 | 7,294 | — | 690,377 | |||||||||||||||||||||||||||
FY18 Op. PSU(7) | 11/15/17 | — | — | — | 4,103 | 10,941 | 21,882 | — | 1,325,940 | |||||||||||||||||||||||||||
Maurizio Carli | Bonus(3)(8) | 02/10/17 | 212,608 | 833,755 | 2,001,012 | — | — | — | — | — | ||||||||||||||||||||||||||
RSU Grant | 05/15/17 | — | — | — | — | — | — | 27,353 | 2,588,961 | |||||||||||||||||||||||||||
FY15 PSU(4) | 04/03/17 | — | — | — | 741 | 2,965 | 5,930 | — | 271,802 | |||||||||||||||||||||||||||
FY16 PSU(5) | 04/03/17 | — | — | — | 2,499 | 6,664 | 13,328 | — | 610,889 | |||||||||||||||||||||||||||
FY18 HC PSU(6) | 05/15/17 | — | — | — | 1,824 | 7,294 | 7,294 | — | 690,377 | |||||||||||||||||||||||||||
FY18 Sales PSU(9) | 09/07/17 | — | — | — | 53,309 | 106,618 | 106,618 | — | 11,354,817 | |||||||||||||||||||||||||||
FY18 Op. PSU(7) | 11/15/17 | — | — | — | 3,419 | 9,117 | 18,234 | — | 1,104,889 | |||||||||||||||||||||||||||
Sanjay Poonen | Bonus(3) | 02/10/17 | 194,638 | 763,288 | 1,831,891 | — | — | — | — | — | ||||||||||||||||||||||||||
RSU Grant | 05/15/17 | — | — | — | — | — | — | 32,823 | 3,106,697 | |||||||||||||||||||||||||||
FY15 PSU(4) | 04/03/17 | — | — | — | 1,794 | 7,175 | 14,350 | — | 657,732 | |||||||||||||||||||||||||||
FY16 PSU(5) | 04/03/17 | — | — | — | 4,998 | 13,328 | 26,656 | — | 1,221,778 | |||||||||||||||||||||||||||
FY18 HC PSU(6) | 05/15/17 | — | — | — | 2,735 | 10,941 | 10,941 | — | 1,035,566 | |||||||||||||||||||||||||||
FY18 Op. PSU(7) | 11/15/17 | — | — | — | 4,103 | 10,941 | 21,882 | — | 1,325,940 | |||||||||||||||||||||||||||
Rangarajan (Raghu) Raghuram | Bonus(3) | 02/10/17 | 194,638 | 763,288 | 1,831,891 | — | — | — | — | — | ||||||||||||||||||||||||||
RSU Grant | 05/15/17 | — | — | — | — | — | — | 32,823 | 3,106,697 | |||||||||||||||||||||||||||
FY15 PSU(4) | 04/03/17 | — | — | — | 4,100 | 16,399 | 32,798 | — | 1,503,296 | |||||||||||||||||||||||||||
FY16 PSU(5) | 04/03/17 | — | — | — | 4,373 | 11,662 | 23,324 | — | 1,069,056 | |||||||||||||||||||||||||||
FY18 HC PSU(6) | 05/15/17 | — | — | — | 2,735 | 10,941 | 10,941 | — | 1,035,566 | |||||||||||||||||||||||||||
FY18 Op. PSU(7) | 11/15/17 | — | — | — | 4,103 | 10,941 | 21,882 | — | 1,325,940 |
46
47
Outstanding Option Awards | Outstanding Stock Awards | |||||||||||||||||||||||||||||||||||||||||||
Time-Based Vesting Awards | Performance-Based Vesting Awards(1) | |||||||||||||||||||||||||||||||||||||||||||
Name | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Type | Grant Date | Number of Shares or Units of Stock Held That Have Not Vested (#) | Market Held That ($) | Equity (#) | Equity ($) | |||||||||||||||||||||||||||||||||
Patrick Gelsinger | 07/25/13(2) | 92,516 | — | 84.04 | 07/25/20 | RSU | 07/24/14(3) | 4,943 | 606,605 | — | — | |||||||||||||||||||||||||||||||||
07/24/14(4) | 82,368 | 5,492 | 96.61 | 07/24/21 | PSU | 03/23/15(5) | — | — | 27,672 | 3,395,908 | ||||||||||||||||||||||||||||||||||
RSU | 03/23/15(6) | 31,132 | 3,820,519 | — | — | |||||||||||||||||||||||||||||||||||||||
PSU | 03/17/16(7) | — | — | 55,344 | 6,791,816 | |||||||||||||||||||||||||||||||||||||||
RSU | 03/17/16(8) | 81,220 | 9,967,318 | — | — | |||||||||||||||||||||||||||||||||||||||
PSU | 03/17/16(9) | — | — | 86,634 | 10,631,724 | |||||||||||||||||||||||||||||||||||||||
PSU | 04/03/17(10) | — | — | 55,348 | 6,792,307 | |||||||||||||||||||||||||||||||||||||||
PSU | 04/03/17(11) | — | — | 86,634 | 10,631,724 | |||||||||||||||||||||||||||||||||||||||
RSU | 05/15/17(12) | 49,235 | 6,042,119 | — | — | |||||||||||||||||||||||||||||||||||||||
PSU | 05/15/17(13) | — | — | 16,411 | 2,013,958 | |||||||||||||||||||||||||||||||||||||||
PSU | 11/15/17(14) | — | — | 32,822 | 4,027,916 | |||||||||||||||||||||||||||||||||||||||
Zane Rowe | — | — | — | — | — | RSU | 03/17/16(8) | 46,858 | 5,750,414 | — | — | |||||||||||||||||||||||||||||||||
PSU | 03/17/16(9) | — | — | 49,980 | 6,133,546 | |||||||||||||||||||||||||||||||||||||||
PSU | 04/03/17(11) | — | — | 49,980 | 6,133,546 | |||||||||||||||||||||||||||||||||||||||
RSU | 05/15/17(12) | 32,823 | 4,028,039 | — | — | |||||||||||||||||||||||||||||||||||||||
PSU | 05/15/17(13) | — | — | 7,294 | 895,120 | |||||||||||||||||||||||||||||||||||||||
PSU | 11/15/17(14) | — | — | 21,882 | 2,685,359 | |||||||||||||||||||||||||||||||||||||||
Maurizio Carli | 06/13/14(15) | 12,680 | 846 | 95.05 | 06/13/21 | RSU | 06/13/14(16) | 2,029 | 248,999 | — | — | |||||||||||||||||||||||||||||||||
RSU | 12/22/14(17) | 2,859 | 350,856 | — | — | |||||||||||||||||||||||||||||||||||||||
RSU | 05/13/15(18) | 8,896 | 1,091,717 | — | — | |||||||||||||||||||||||||||||||||||||||
RSU | 05/13/15(19) | 11,120 | 1,364,646 | — | — | |||||||||||||||||||||||||||||||||||||||
PSU | 05/13/15(5) | — | — | 2,965 | 363,865 | |||||||||||||||||||||||||||||||||||||||
RSU | 12/04/15(20) | 5,141 | 630,904 | — | — | |||||||||||||||||||||||||||||||||||||||
RSU | 03/17/16(8) | 37,486 | 4,600,282 | — | — | |||||||||||||||||||||||||||||||||||||||
PSU | 03/17/16(7) | — | — | 5,930 | 727,730 | |||||||||||||||||||||||||||||||||||||||
PSU | 03/17/16(9) | — | — | 13,328 | 1,635,612 | |||||||||||||||||||||||||||||||||||||||
PSU | 04/03/17(10) | — | — | 5,930 | 727,730 | |||||||||||||||||||||||||||||||||||||||
PSU | 04/03/17(11) | — | — | 13,328 | 1,635,612 | |||||||||||||||||||||||||||||||||||||||
RSU | 05/15/17(12) | 27,353 | 3,356,760 | — | — | |||||||||||||||||||||||||||||||||||||||
PSU | 05/15/17(13) | — | — | 7,294 | 895,120 | |||||||||||||||||||||||||||||||||||||||
PSU | 09/07/17(21) | — | — | 106,618 | 13,084,161 | |||||||||||||||||||||||||||||||||||||||
PSU | 11/15/17(14) | — | — | 18,234 | 2,237,676 | |||||||||||||||||||||||||||||||||||||||
Sanjay Poonen | 9/13/13(22) | 160,325 | — | 87.63 | 09/13/20 | RSU | 07/24/14(3) | 1,186 | 145,546 | — | — | |||||||||||||||||||||||||||||||||
7/24/14(4) | 19,768 | 1,318 | 96.61 | 07/24/21 | PSU | 03/23/15(5) | — | — | 7,174 | 880,393 | ||||||||||||||||||||||||||||||||||
RSU | 03/23/15(6) | 8,072 | 990,596 | — | — | |||||||||||||||||||||||||||||||||||||||
PSU | 03/17/16(7) | — | — | 14,348 | 1,760,787 | |||||||||||||||||||||||||||||||||||||||
RSU | 03/17/16(8) | 74,973 | 9,200,687 | — | ||||||||||||||||||||||||||||||||||||||||
PSU | 03/17/16(9) | — | — | 26,656 | 3,271,224 | |||||||||||||||||||||||||||||||||||||||
RSU | 11/16/16(23) | 40,715 | 4,996,545 | — | — | |||||||||||||||||||||||||||||||||||||||
PSU | 04/03/17(10) | — | — | 14,350 | 1,761,032 | |||||||||||||||||||||||||||||||||||||||
PSU | 04/03/17(11) | — | — | 26,656 | 3,271,224 | |||||||||||||||||||||||||||||||||||||||
RSU | 05/15/17(12) | 32,823 | 4,028,039 | — | — | |||||||||||||||||||||||||||||||||||||||
PSU | 05/15/17(13) | — | — | 10,941 | 1,342,680 | |||||||||||||||||||||||||||||||||||||||
PSU | 11/15/17(14) | — | — | 21,882 | 2,685,359 | |||||||||||||||||||||||||||||||||||||||
Rangarajan (Raghu) Raghuram | 07/25/13(2) | 27,754 | — | 84.04 | 07/25/20 | RSU | 07/24/14(3) | 1,582 | 194,143 | — | — | |||||||||||||||||||||||||||||||||
07/24/14(4) | 26,357 | 1,758 | 96.61 | 07/24/21 | PSU | 03/23/15(5) | — | — | 16,398 | 2,012,363 | ||||||||||||||||||||||||||||||||||
RSU | 03/23/15(6) | 18,449 | 2,264,061 | — | — | |||||||||||||||||||||||||||||||||||||||
PSU | 03/17/16(7) | — | — | 32,796 | 4,024,725 | |||||||||||||||||||||||||||||||||||||||
RSU | 03/17/16(8) | 65,600 | 8,050,432 | — | — | |||||||||||||||||||||||||||||||||||||||
PSU | 03/17/16(9) | — | — | 23,324 | 2,862,321 | |||||||||||||||||||||||||||||||||||||||
RSU | 11/16/16(23) | 40,715 | 4,996,545 | — | — | |||||||||||||||||||||||||||||||||||||||
PSU | 04/03/17(10) | — | 32,798 | 4,024,971 | ||||||||||||||||||||||||||||||||||||||||
PSU | 04/03/17(11) | — | — | 23,324 | 2,862,321 | |||||||||||||||||||||||||||||||||||||||
RSU | 05/15/17(12) | 32,823 | 4,028,039 | — | — | |||||||||||||||||||||||||||||||||||||||
PSU | 05/15/17(13) | — | — | 10,941 | 1,342,680 | |||||||||||||||||||||||||||||||||||||||
PSU | 11/15/17(14) | — | — | 21,882 | 2,685,359 |
48
49
Name Type Grant Date Number of
Securities
Underlying
Unexercised
Options
Exercisable (#)Type Grant Date Patrick Gelsinger 07/25/13 21,086 — 69.81 07/25/20 03/23/15 12,494 1,880,472 — — 07/24/14 105,766 — 80.25 07/24/21 03/17/16 — — 104,290 15,696,688 03/17/16 58,664 8,829,519 — — 04/03/17 — — 104,290 15,696,688 05/15/17 — — 19,756 2,973,476 05/15/17 37,045 5,575,643 — — 11/15/17 — — 39,512 5,946,951 04/16/18 — — 104,292 15,696,989 04/16/18 — — 19,756 2,973,476 04/16/18 — — 39,512 5,946,951 04/27/18 — — 48,750 7,337,363 04/27/18 73,125 11,006,044 — — Zane Rowe — — — — — 03/17/16 — — 60,166 9,055,585 03/17/16 33,845 5,094,011 — — 04/03/17 — — 60,166 9,055,585 05/15/17 — — 8,780 1,321,478 05/15/17 24,696 3,716,995 — — 11/15/17 — — 26,342 3,964,734 04/16/18 — — 60,170 9,056,187 04/16/18 — — 8,780 1,321,478 04/16/18 — — 26,342 3,964,734 04/27/18 — — 22,750 3,424,103 04/27/18 34,125 5,136,154 — — Maurizio Carli 06/13/14 16,283 — 78.96 06/13/21 05/13/15 4,463 671,726 — — 03/17/16 — — 16,044 2,414,782 03/17/16 27,076 4,075,209 — —
PSU(9) | 04/03/17 | — | — | 16,044 | 2,414,782 | |||||||||||||||
PSU(10) | 05/15/17 | — | — | 8,780 | 1,321,478 | |||||||||||||||
RSU(11) | 05/15/17 | 20,581 | 3,097,646 | — | — | |||||||||||||||
PSU(20) | 09/07/17 | — | — | 128,347 | 19,317,507 | |||||||||||||||
PSU(12) | 11/15/17 | — | — | 21,952 | 3,303,996 | |||||||||||||||
PSU(13) | 04/16/18 | — | — | 16,046 | 2,415,083 | |||||||||||||||
PSU(14) | 04/16/18 | — | — | 8,780 | 1,321,478 | |||||||||||||||
PSU(15) | 04/16/18 | — | — | 21,952 | 3,303,996 | |||||||||||||||
PSU(16) | 04/27/18 | — | — | 17,874 | 2,690,216 | |||||||||||||||
RSU(17) | 04/27/18 | 26,813 | 4,035,625 | — | — | |||||||||||||||
Sanjay Poonen | Option(21) | 09/13/13 | 186,981 | — | 72.79 | 09/13/20 | RSU(5) | 03/23/15 | 3,240 | 487,652 | — | — | ||||||||
Option(6) | 07/24/14 | 25,384 | — | 80.25 | 07/24/21 | PSU(7) | 03/17/16 | — | — | 32,088 | 4,829,565 | |||||||||
RSU(8) | 03/17/16 | 54,152 | 8,150,418 | — | — | |||||||||||||||
RSU(22) | 11/16/16 | 49,013 | 7,376,947 | — | — | |||||||||||||||
PSU(9) | 04/03/17 | — | — | 32,088 | 4,829,565 | |||||||||||||||
PSU(10) | 05/15/17 | — | — | 13,171 | 1,982,367 | |||||||||||||||
RSU(11) | 05/15/17 | 24,696 | 3,716,995 | — | — | |||||||||||||||
PSU(12) | 11/15/17 | — | — | 26,342 | 3,964,734 | |||||||||||||||
PSU(13) | 04/16/18 | — | — | 32,092 | 4,830,167 | |||||||||||||||
PSU(14) | 04/16/18 | — | — | 13,171 | 1,982,367 | |||||||||||||||
PSU(15) | 04/16/18 | — | — | 26,342 | 3,964,734 | |||||||||||||||
PSU(16) | 04/27/18 | — | — | 16,250 | 2,445,788 | |||||||||||||||
RSU(17) | 04/27/18 | 24,375 | 3,668,681 | — | — | |||||||||||||||
Rangarajan (Raghu) Raghuram | Option(4) | 07/25/13 | 33,411 | — | 69.81 | 07/25/20 | RSU(5) | 03/23/15 | 7,404 | 1,114,376 | — | — | ||||||||
Option(6) | 07/24/14 | 33,845 | — | 80.25 | 07/24/21 | PSU(7) | 03/17/16 | — | — | 28,078 | 4,226,020 | |||||||||
RSU(8) | 03/17/16 | 47,382 | 7,131,465 | — | — | |||||||||||||||
RSU(22) | 11/16/16 | 49,013 | 7,376,947 | — | — | |||||||||||||||
PSU(9) | 04/03/17 | — | — | 28,078 | 4,226,020 | |||||||||||||||
PSU(10) | 05/15/17 | — | — | 13,171 | 1,982,367 | |||||||||||||||
RSU(11) | 05/15/17 | 24,696 | 3,716,995 | — | — | |||||||||||||||
PSU(12) | 11/15/17 | — | — | 26,342 | 3,964,734 | |||||||||||||||
PSU(13) | 04/16/18 | — | — | 28,078 | 4,226,020 | |||||||||||||||
PSU(14) | 04/16/18 | — | — | 13,171 | 1,982,367 | |||||||||||||||
PSU(15) | 04/16/18 | — | — | 26,342 | 3,964,734 | |||||||||||||||
PSU(16) | 04/27/18 | — | — | 22,750 | 3,424,103 | |||||||||||||||
RSU(17) | 04/27/18 | 34,125 | 5,136,154 | — | — |
Option Awards | Stock Awards | |||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized On Exercise(1) ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting(2) ($) | ||||
Patrick Gelsinger | 80,095 | 5,667,659 | 195,335 | 26,197,324 | ||||
Zane Rowe | — | — | 31,051 | 4,281,669 | ||||
Maurizio Carli | — | — | 64,304 | 8,895,177 | ||||
Sanjay Poonen | 5,000 | 362,600 | 79,634 | 10,795,775 | ||||
Rangarajan (Raghu) Raghuram | — | — | 122,760 | 16,499,486 |
Option Awards | Stock Awards | |||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized On Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting(1) ($) | ||||||||||||
Patrick Gelsinger | — | — | 140,340 | 13,327,450 | ||||||||||||
Zane Rowe | — | — | 28,113 | 2,708,219 | ||||||||||||
Maurizio Carli | 3,065 | 56,130 | 53,035 | 5,334,131 | ||||||||||||
Sanjay Poonen | 10,000 | 420,751 | 77,295 | 7,430,942 | ||||||||||||
Rangarajan (Raghu) Raghuram | — | — | 74,229 | 7,104,958 |
and do not indicate that shares were actually sold.
50
Name | Executive Contributions in Last Fiscal Year(1) ($) | Aggregate Earnings (Losses) in Last Fiscal Year(2) ($) | Aggregate Balance at Last Fiscal Year-End(3) ($) | |||||||||
Patrick Gelsinger | 554,591 | 343,128 | 2,613,660 | |||||||||
Zane Rowe | — | — | — | |||||||||
Maurizio Carli | — | — | — | |||||||||
Sanjay Poonen | — | — | — | |||||||||
Rangarajan (Raghu) Raghuram | 11,667 | 135,211 | 573,659 |
1, 2019.
Name | Executive Contributions in Last Fiscal Year(1) ($) | Aggregate Earnings (Losses) in Last Fiscal Year(2) ($) | Aggregate Balance at Last Fiscal Year-End(3) ($) | |||
Patrick Gelsinger | 984,904 | (37,100 | ) | 3,561,463 | ||
Zane Rowe | — | — | — | |||
Maurizio Carli | — | — | — | |||
Sanjay Poonen | 5,833 | 129 | 5,963 | |||
Rangarajan (Raghu) Raghuram | 471,333 | (3,661 | ) | 1,041,331 |
Termination Due to Death or Disability($) | Without Resignation | Change in Control: Qualifying Termination ($) | ||||||||||||||||||||||||||||||
Acceleration of Stock | Acceleration of RSUs & PSUs(2) | Total | Cash Severance Payment | Acceleration of Stock Options(1) | Acceleration of RSUs & | Cash Severance Payment(3)(4) | Total | |||||||||||||||||||||||||
Patrick Gelsinger | 143,396 | 45,730,996 | 45,874,392 | — | 143,396 | 45,730,996 | 5,018,324 | 50,892,716 | ||||||||||||||||||||||||
Zane Rowe | — | 31,286,974 | 31,286,974 | 4,575,000 | (5) | — | 28,887,707 | 0 | 29,302,775 | |||||||||||||||||||||||
Maurizio Carli | 23,409 | 36,938,598 | 36,962,007 | — | 23,409 | 36,938,598 | 2,373,565 | 39,335,572 | ||||||||||||||||||||||||
Sanjay Poonen | 34,313 | 41,272,088 | 41,306,501 | — | 34,413 | 41,272,088 | 2,120,088 | 43,426,589 | ||||||||||||||||||||||||
Rangarajan (Raghu) Raghuram | 45,901 | 45,938,026 | 45,983,927 | — | 45,901 | 42,834,587 | 0 | 43,357,389 |
|
51
Termination Due to Death or Disability ($) | Without Cause/Resignation for Good Reason ($) | Change in Control: Qualifying Termination(1) ($) | |||||||||||
Acceleration of RSUs & PSUs(2) | Acceleration of RSUs & PSUs(3) | Cash Severance Payment(4) | Total | Acceleration of RSUs & PSUs(5) | Cash Severance Payment(6) | Total | |||||||
Patrick Gelsinger | 79,684,359 | 19,687,310 | 2,761,984 | 22,449,294 | 93,599,159 | 5,535,952 | 99,135,111 | ||||||
Zane Rowe | 42,578,828 | 10,517,337 | 1,516,977 | 12,034,315 | 50,838,815 | 2,288,199 | 53,127,014 | ||||||
Maurizio Carli | 47,776,389 | 9,231,380 | 1,616,977 | 10,848,358 | 50,957,420 | 2,438,199 | 53,395,619 | ||||||
Sanjay Poonen | 46,208,226 | 19,869,427 | 1,417,499 | 21,286,926 | 51,419,182 | 2,139,372 | 53,558,554 | ||||||
Rangarajan (Raghu) Raghuram | 47,845,323 | 20,367,013 | 1,416,977 | 21,783,991 | 45,065,652 | — | 45,065,652 |
Ratio.
rates for FY19.Employee.Employee20172018 as the date on which to determine our median employee. As permitted by SEC rules, in order to identify our median employee, we elected to use total target direct compensation, which we calculated as salary and target bonus as of December 31, 20172018 and the target value of equity awards issued during the previous twelve months. For purposes of this disclosure, we converted employee compensation from local currency to U.S. dollars using a trailing twelve-month average of dailymonthly foreign exchange rates.Consequently,Accordingly, in years such as FY18FY19 during which we exceeded target objectives for our performance-based compensation programs and experienced an increased stock price, the ratio of our CEO’s pay to our median employee is likely to be higher than in other periods.52
officers that will generally provide for mandatory indemnification to the fullest extent permitted by law. In addition, our executive officers and directors are insured under a liability insurance policy for our officers and directors.
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We do not provide compensation to Messrs. Dell and Durban for their service on the Board because Mr. Dell is an officer of Dell and Mr. Durban can be deemed to have an ownership interest in Dell and its subsidiaries. Additionally, we did not provide compensation to Mr. Maritz for his service as a member of the Board prior to his resignation effective December 31, 2017 because he was simultaneously an officer of Pivotal, a subsidiary of Dell in which VMware has an ownership interest.Dell. Accordingly, Messrs. Dell and Durban are not, and Mr. Maritz was not subject to the stock ownership guidelines established for our outside directors.
In May 2016, the Board approved a program that enables outside
Name | Fees Earned(1) ($) | Restricted Stock Unit Awards(2)(3) ($) | All Other Compensation ($) | Total ($) | ||||
Anthony Bates | 135,440 | 277,248 | — | 412,688 | ||||
Michael Brown | 123,159 | 277,248 | — | 400,407 | ||||
Donald Carty | 80,440 | 277,248 | — | 357,688 | ||||
Michael Dell | — | — | — | — | ||||
Egon Durban | — | — | — | — | ||||
Karen Dykstra(4) | 328,020 | 277,248 | 36,671 | 641,939 | ||||
Paul Sagan | 371,663 | 277,248 | — | 648,911 |
Name | Fees Earned(1) ($) | Restricted Stock Unit Awards(2)(3) ($) | Total ($) | |||||||||
Anthony Bates | 121,507 | (4) | 252,621 | 374,128 | ||||||||
Michael Brown | 96,603 | (4) | 252,621 | 349,224 | ||||||||
Donald Carty | 71,603 | (4) | 252,621 | 324,224 | ||||||||
Michael Dell | — | — | — | |||||||||
Egon Durban | — | — | — | |||||||||
Karen Dykstra | 92,679 | (4) | 252,621 | 345,299 | ||||||||
Paul Maritz(5) | — | — | — | |||||||||
Paul Sagan | 198,746 | (4) | 252,621 | 451,366 |
to this table. On December 28, 2018, in connection with the special cash dividend paid by VMware, the unvested equity awards held by VMware’s outside directors were equitably adjusted to equal 1.2038 times the number of units initially awarded.
Name | Unvested Restricted Stock Unit Awards | (1) | ||
Anthony Bates | 1,098 | |||
Michael Brown | 1,098 | |||
Donald Carty | 1,098 | |||
| — | |||
Egon Durban(2) | — | |||
| 1,098 | |||
| ||||
| ||||
Paul Sagan | 1,098 |
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From time to time, the Board may also appoint a special committee of independent directors who are disinterested with respect to Dell and its affiliates to review significant potential transactions with Dell.
55
directors.
Unless otherwise indicated, all references to Dell in this “
—Transactions with Related Persons” section are to Dell and its consolidated subsidiaries (including EMC and Pivotal)Effective with the Dell Acquisition, our.
Pursuant to ongoing original equipment manufacturer and reseller arrangements with Dell, Dell integrates or bundles our products and services with Dell’s products and sells them to end users. Dell also acts as a distributor, purchasing our standalone products and services for resale
to end-user customers through VMware-authorized resellers. In addition, we provide professional services to end users based upon contractual agreements with Dell. During FY19, we recognized $2,180 million in revenue and had an unearned revenue balance of $2,375 million as of February 1, 2019 from transactions through these reseller arrangements.56
|
consolidated tax return with Dell.
From time to time, we may purchase or sell goods and services in the ordinary course of business on a regular, arms-length basis, on the same or similar terms as would be negotiated with unrelated third parties with entities in which SLP investment funds have a beneficial ownership interest of 10% or more. The SLP investment funds consist of Silver Lake Partners III, L.P., Silver Lake Technology Investors III, L.P., Silver Lake Partners IV, L.P., Silver Lake Technology Investors IV, L.P. and SLP DenaliCo-Invest, L.P. The SLP investment funds have the right, under an agreement with Dell and other Dell stockholders, to approve the sale by Dell or specified subsidiaries of Dell of any shares of our common stock held by them. As a result, the Silver Lake investment funds may be deemed to share beneficial ownership of all of the shares of our common stock beneficially owned by Dell.
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The Audit Committee has reviewed and discussed with VMware’s management and PwC the audited consolidated financial statements of VMware contained in VMware’s Annual Report on Form10-K for fiscal year 2018.2019. The Audit Committee has also discussed with PwC the matters required to be discussed by AS No. 1301,Communications with Audit Committees, as adopted byapplicable requirements of the Public Company Accounting Oversight Board (“PCAOB”).
and the SEC.
Section 16(a) of the Exchange Act requires VMware’s executive officers and directors, and persons who own more than 10% of the common stock, to file reports of ownership and changes in ownership with the SEC and the NYSE. Executive officers, directors and greater than 10% stockholders are required by SEC regulations to furnish us with all copies of Section 16(a) forms they file.
Based solely on our review of these forms and written representations from the officers and directors received by us, we believe that during the fiscal year ended February 2, 2018, all filing requirements were complied with in a timely fashion.
May 13, 2019.
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If you requested printed versions of these materials by mail, these materials also include the proxy card for the Annual Meeting.
(303) 562-9288.
May 13, 2019.
59
How can I access the proxy materials over the Internet?
Our proxy materials are also available on the Investor Relations page of our website athttp://ir.vmware.com and atwww.proxyvote.com where you will also need to enter your16-digit control number (included on your Proxy Notice, on your proxy card or on the instructions that accompanied your proxy materials).
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A complete list of stockholders entitled to vote at the Annual Meeting will be available for inspection by any stockholder for any purpose germane to the Annual Meeting for ten days prior to the Annual Meeting during ordinary business hours at our headquarters located at 3401 Hillview Avenue, Palo Alto, California, 94304.
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the Annual Meeting except pursuant to our notice of meeting, by or at the direction of the Board, or by a stockholder who was a stockholder of record as of the Record Date and who complies with the applicable notice provisions set forth in our bylaws. The deadline under VMware’s bylaws for Class A common stockholders to notify VMware of any director nominations or proposals to be presented at the Annual Meeting passed on April 20, 2018.2019. However, Dell is entitled to propose business to be considered at any meeting of stockholders without compliance with the notice requirements and procedures of our bylaws. If any other business should properly come before the Annual Meeting, the persons appointed by the enclosed form of proxy shall have discretionary authority to vote all such proxies as they shall decide.
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What happens if I do not give specific voting instructions?
Proposal | Nature of proposal | Votes required to pass(1) | Effect of abstention on vote | Possibility of broker non-votes on the proposal | Effect of broker non- votes on proposal outcome | ||||||||||
1 | Election of Class | Non-routine | Majority of Class B votes cast are cast “FOR” each nominee | No effect | No(2) | ||||||||||
2 | Advisory vote to approve NEO Compensation | Non-routine | Majority of Class A and Class B votes cast are cast “FOR” | No effect | Yes | No effect | |||||||||
3 | Approval of the Amended and Restated 2007 Equity Incentive Plan | Non-routine | Majority of Class A and Class B votes cast “FOR” | As a vote “AGAINST”(3) | Yes | No effect | |||||||||
4 | Approval of the Amended and Restated 2007 Employee Purchase Plan | Non-routine | Majority of Class A and Class B votes cast “FOR” | As a vote “AGAINST”(3) | Yes | No effect | |||||||||
5 | Ratification of selection of Independent Auditor | Routine | Majority of Class A and Class B votes cast are cast “FOR” | No effect | No | Not Applicable |
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____________________
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Where are VMware’s principal executive offices located, and what is VMware’s main telephone number?
March 27, 2020.
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These requirements are separate and apart from the requirements that a stockholder must meet in order to have a stockholder proposal included in VMware’s proxy statement underRule 14a-8 of the Exchange Act as described above. A copy of the full text of the bylaw provisions discussed above may be obtained from the Governance subsection of the Investor Relations page of our website athttp://ir.vmware.com. Our bylaws are also on file with the SEC and are available through its website at http://www.sec.gov.
A copy of VMware’s Annual Report on Form10-K, including the financial statements and schedules thereto, required to be filed with the SEC for VMware’s most recently completed fiscal year, may be found on the Investor Relations page of our website athttp://ir.vmware.com. In addition, VMware will provide each beneficial owner of its securities with a copy of the Annual Report on Form10-K without charge, upon the written request of any such person. Such requests should be sent to Investor Relations, VMware, Inc., 3401 Hillview Avenue, Palo Alto, California, 94304.
By order of the Board of Directors | |
AMY FLIEGELMAN OLLI | |
Senior Vice President, General Counsel and Secretary |
June 1, 2018
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1, 2019
GAAP* | Stock-Based Compensation | Employer Payroll Taxes on Employee Stock | Intangible Amortization | Acquisition, and Other Related Items | Loss on Share Repurchase | Tax Adjustment(1) | Non-GAAP, as adjusted(2) | |||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Cost of license revenue | $ | 157 | (2 | ) | — | (107 | ) | — | — | — | $ | 48 | ||||||||||||||||||||
Cost of services revenue | $ | 984 | (50 | ) | (1 | ) | (2 | ) | — | — | — | $ | 930 | |||||||||||||||||||
Research and development | $ | 1,755 | (355 | ) | (1 | ) | — | (5 | ) | — | — | $ | 1,395 | |||||||||||||||||||
Sales and marketing | $ | 2,593 | (197 | ) | (3 | ) | (23 | ) | (2 | ) | — | — | $ | 2,367 | ||||||||||||||||||
General and administrative | $ | 654 | (79 | ) | (1 | ) | — | (23 | ) | — | — | $ | 551 | |||||||||||||||||||
Realignment and loss on disposition | $ | 90 | — | — | — | (90 | ) | — | — | $ | — | |||||||||||||||||||||
Operating income | $ | 1,689 | 683 | 6 | 132 | 120 | — | — | $ | 2,631 | ||||||||||||||||||||||
Operating margin(2) | 21.3 | % | 8.6 | % | 0.1 | % | 1.7 | % | 1.5 | % | — | — | 33.2 | % | ||||||||||||||||||
Other income (expense), net | $ | 66 | — | — | — | (46 | ) | 2 | — | $ | 21 | |||||||||||||||||||||
Income before income tax | $ | 1,801 | 683 | 6 | 132 | 74 | 2 | — | $ | 2,698 | ||||||||||||||||||||||
Income tax provision | $ | 1,231 | (678 | ) | $ | 553 | ||||||||||||||||||||||||||
Tax rate(2) | 68.4 | % | 20.5 | % | ||||||||||||||||||||||||||||
Net income | $ | 570 | 683 | 6 | 132 | 74 | 2 | 678 | $ | 2,145 | ||||||||||||||||||||||
Net income per weighted-average share, diluted for Class A and B(2)(3) | $ | 1.38 | $ | 1.65 | $ | 0.02 | $ | 0.32 | $ | 0.18 | $ | — | $ | 1.64 | $ | 5.19 |
A-1
VMware, Inc.
GAAP | Stock-Based Compensation | Employer Payroll Taxes on Employee Stock Transactions | Intangible Amortization | Acquisition, Disposition and Other Items | Non-GAAP, as adjusted(1) | |||||||||
Operating expenses: | ||||||||||||||
Cost of license revenue | $ | 191 | (1 | ) | — | (120 | ) | — | $ | 70 | ||||
Cost of services revenue | $ | 1,067 | (51 | ) | (1 | ) | (3 | ) | (2 | ) | $ | 1,011 | ||
Research and development | $ | 1,975 | (371 | ) | (1 | ) | — | (3 | ) | $ | 1,600 | |||
Sales and marketing | $ | 2,918 | (203 | ) | (4 | ) | (33 | ) | (1 | ) | $ | 2,675 | ||
General and administrative | $ | 764 | (105 | ) | (1 | ) | — | (82 | ) | $ | 577 | |||
Realignment and loss on disposition | $ | 9 | — | — | — | (9 | ) | $ | — | |||||
Operating income | $ | 2,050 | 731 | 7 | 156 | 97 | $ | 3,041 | ||||||
Operating margin(1) | 22.8 | % | 8.1 | % | 0.1 | % | 1.7 | % | 1.1 | % | 33.9 | % |
February 2, 2018
GAAP* | Stock-Based Compensation | Employer Payroll Taxes on Employee Stock | Intangible Amortization | Realignment Charges | Acquisition and Other Related Items | Gain on Share Repurchase(4) | Tax Adjustment(1) | Non-GAAP, as adjusted(2) | ||||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||
Cost of license revenue | $ | 159 | (2 | ) | — | (100 | ) | — | — | — | — | $ | 57 | |||||||||||||||||||||||
Cost of services revenue | $ | 894 | (52 | ) | (1 | ) | (2 | ) | — | — | — | — | $ | 839 | ||||||||||||||||||||||
Research and development | $ | 1,503 | (305 | ) | (1 | ) | — | — | — | — | — | $ | 1,197 | |||||||||||||||||||||||
Sales and marketing | $ | 2,357 | (195 | ) | (5 | ) | (22 | ) | — | — | — | — | $ | 2,134 | ||||||||||||||||||||||
General and administrative | $ | 689 | (82 | ) | (1 | ) | (1 | ) | — | (34 | ) | — | — | $ | 572 | |||||||||||||||||||||
Realignment | $ | 52 | — | — | — | (52 | ) | — | — | — | $ | — | ||||||||||||||||||||||||
Operating income | $ | 1,439 | 636 | 8 | 125 | 52 | 34 | — | — | $ | 2,294 | |||||||||||||||||||||||||
Operating margin(2) | 20.3 | % | 9.0 | % | 0.1 | % | 1.8 | % | 0.7 | % | 0.5 | % | — | — | 32.3 | % | ||||||||||||||||||||
Other income (expense), net | $ | (17 | ) | — | — | — | — | 20 | (8 | ) | — | $ | (5 | ) | ||||||||||||||||||||||
Income before income tax | $ | 1,473 | 636 | 8 | 125 | 52 | 54 | (8 | ) | — | $ | 2,340 | ||||||||||||||||||||||||
Income tax provision | $ | 287 | 191 | $ | 478 | |||||||||||||||||||||||||||||||
Tax rate(2) | 19.5 | % | 20.4 | % | ||||||||||||||||||||||||||||||||
Net income | $ | 1,186 | 636 | 8 | 125 | 52 | 54 | (8 | ) | (191 | ) | $ | 1,862 | |||||||||||||||||||||||
Net income per weighted-average share, diluted for Class A and B(2)(3) | $ | 2.78 | $ | 1.50 | $ | 0.02 | $ | 0.30 | $ | 0.12 | $ | 0.13 | $ | — | $ | (0.45 | ) | $ | 4.39 |
____________________ (1) Adjusted to reflect the adoption of ASC 606. (2) Totals may not sum, due to rounding. Operating margin is calculated based upon the respective underlying, non-rounded data. About Non-GAAP |
A-2
AboutNon-GAAP Financial Measures
Stock-based compensation. Stock-based compensation is generally fixed at the time the stock-based instrument is granted and amortized over a period of several years. Although stock-based compensation is an important aspect of the compensation of VMware’s employees and executives, the expense for the fair value of the stock-based instruments VMware utilizes may bear little resemblance to the actual value realized upon the vesting or future exercise of the related stock-based awards. Management believes it is useful to exclude stock-based compensation in order to better understand the long-term performance of VMware’s core business. Employer payroll tax on employee stock transactions. The amount of employer payroll taxes on stock-based compensation is dependent on VMware’s stock price and other factors that are beyond VMware’s control and do not correlate to the operation of the business. Amortization of acquired intangible assets. A portion of the purchase price of VMware’s acquisitions is generally allocated to intangible assets, |
A-3
A-4
3401 HILLVIEW AVE. PALO ALTO, CA 94304 VOTE BY INTERNET Before Meeting—Gopurpose of the VMware, Inc. Amended and Restated 2007 Equity and Incentive Plan is to www.proxyvote.com Useattract, motivate and retain employees and independent contractors of the InternetCompany and any Subsidiary and Affiliate and non-employee directors of the Company, any Subsidiary or any Affiliate. The Plan is also designed to transmit your voting instructions and for electronic deliveryencourage stock ownership by such persons, thereby aligning their interest with those of information up until 11:59 P.M. Eastern time the day before the Meeting date. Have your proxy card in hand when you access the website and follow the instructions to obtain your recordsCompany’s shareholders and to create an electronic voting instruction form. During The Meeting—Gopermit the payment of compensation that qualifies as performance-based compensation under Section 162(m) of the Code. Pursuant to www.virtualshareholdermeeting.com/VMW2018 Youthe provisions hereof, there may attendbe granted Options (including “incentive stock options” and “non-qualified stock options”), and Other Stock-Based Awards, including but not limited to Restricted Stock, Restricted Stock Units, Stock Appreciation Rights (payable in shares) and Other Cash-Based Awards.Meeting viaPlan, the Internet and vote duringfollowing terms are defined as set forth below:Meeting. Have the information that is printed in the box markeddate approved by the arrow available and followBoard as the instructions. VOTE BYadoption date of the Plan, including the extension of its term as set forth in Section 7(f) below.PHONE—1-800-690-6903(b) Use“Affiliate” means an affiliate of the Company, as defined in Rule 12b-2 promulgated under Section 12 of the Exchange Act.touch-tone telephonewritten agreement, contract, notice or other instrument or document evidencing an Award.transmit your voting instructions up until 11:59 P.M. Eastern timesuch term in Rule 13d-3 of the day beforeExchange Act. Meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: E48164-P03749 KEEP THIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY VMWARE, INC. The Board of Directors recommends you vote FOR Proposals 2 and 3. 2. An advisory vote to approve named executive officer compensation, as described in VMware’s Proxy Statement. 3. To ratify the selection by the Audit Committee of VMware’s Board of Directors of PricewaterhouseCoopers LLPthe Company.VMware’s independent auditorreasonably directed by his or her employer;fiscal year ending February 1, 2019. NOTE: The proposalsGrantee’s commission of an act involving personal dishonesty that results in financial, reputational, or other harm to be voted on may also includethe Company, any Affiliate or any Subsidiary, including, but not limited to, an act constituting misappropriation or embezzlement of property.business as may properly come beforeBoard committee delegated authority by the meetingBoard to administer and oversee this Plan. Unless other determined by the Board, the Committee will be comprised solely of directors who are (a) “non-employee directors” under Rule 16b-3 of the Exchange Act, (b) “outside directors” under Section 162(m) of the Code and (c) who otherwise meet the definition of “independent directors” pursuant to the applicable requirements of any national stock exchange upon which the Stock is listed. Any director appointed to the Committee who does not meet the foregoing requirements should recuse himself or any adjournment thereof. For Against Abstain Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date Important Notice Regardingherself from all determinations pertaining to Rule 16b-3 of the AvailabilityExchange Act and Section 162(m) of Proxy Materials for the Annual Meeting: The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com. E48165-P03749 ANNUAL MEETING OF STOCKHOLDERS, JULY 19, 2018 THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS The undersigned hereby appoints Zane Rowe, VMware’s Chief Financial Officer and Executive Vice President, and Amy Fliegelman Olli, VMware’s Senior Vice President, General Counsel and Secretary, and each of them, as proxies, each with full power of substitution, to represent and to vote at the Annual Meeting of Stockholders ofCode.corporation,or any successor corporation.heldcalculated pursuant to the terms of an Award, provided that if there is no such sale on July 19, 2018, at 8:30 a.m.the relevant date, then on the last previous day on which a sale was reported; if the Stock is not listed for trading on a national securities exchange, the fair market value of Stock will be determined in good faith by the Committee.Pacific time, viato purchase shares of Stock. An Option may be either an ISO or an NQSO.internet at www.virtualshareholdermeeting.com/VMW2018attainment of Performance Goals or otherwise as permitted under the Plan.atconditions as permitted under the Plan.adjournmentsobjectively verifiable adjustment(s) thereto permitted and pre-established by the Committee: (i) (A) earnings including operating income, (B) earnings before or after (1) taxes, (2) interest, (3) depreciation, (4) amortization, or (5) special items or book value per share (which may exclude nonrecurring items), or (C) growth in earnings before interest, tax, depreciation or amortization; (ii) pre-tax income or after-tax income; (iii) earnings per common share (basic or diluted); (iv) operating profit; (v) revenue, revenue growth or rate of revenue growth; (vi) return on assets (gross or net), return on investment, return on capital, return on invested capital or return on equity; (vii) returns on sales or revenues; (viii) operating expenses; (ix) stock price appreciation; (x) cash flow, free cash flow, cash flow from operations, cash flow return on investment (discounted or otherwise), net cash provided by operations, or cash flow in excess of cost of capital; (xi) implementation or completion of critical projects or processes; (xii) economic value created; (xiii) cumulative earnings per share growth; (xiv) operating margin or profit margin; (xv) common stock price or total stockholder return; (xvi) cost targets, reductions, savings, productivity or efficiencies; (xvii) strategic business criteria, consisting of one or more objectives based on meeting specified market penetration, geographic business expansion, customer satisfaction, employee satisfaction, human resources management, supervision of litigation, information technology, goals relating to acquisitions, divestitures, joint ventures or similar transactions, research or development collaborations or budget comparisons; (xviii) personal professional objectives, including any of the foregoing performance goals, the implementation of policies and plans, the negotiation of transactions and the development of long term business goals; and (xix) any combination of, subset or component of, or a specified increase in, any of the foregoing. Where applicable, the Performance Goals may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and may be applied to one or more of the Company, a Subsidiary or Affiliate, or a division or strategic business unit of the Company, or may be applied to the performance of the Company relative to a market index, a group of other companies or a combination thereof, all as determined by the Committee. The Performance Goals may include a$.01$0.01 per share, of VMwarethe Company.undersigned wouldamount of tax withholding to be satisfied by withholding shares of Stock and other property will be limited to the extent necessary to avoid adverse accounting consequences, including but not limited to the Award being classified as a liability award.voteany remuneration or benefits not set forth in the Plan or the applicable Award Terms or to interfere with or limit in any way the right of the Company or any such Subsidiary or Affiliate to terminate such Grantee’s employment or service.present.it determines appropriate in its sole discretion and to the extent permitted by governing law, (a) cancel such Award, in whole or in part, whether or not vested, earned or payable or (b) require the Grantee to repay to the Company an amount equal to all or any portion of the value of any gains from the grant, vesting or payment of the Award that would not have been realized had the restatement not occurred.undersigned instructsCompany, any Subsidiary and any Affiliate is authorized to withhold from any Award granted, any payment relating to an Award under the Plan, including from a distribution of Stock, or any other payment to a Grantee, amounts of withholding and other taxes due in connection with any transaction involving an Award, and to take such proxiesother action as the Committee may deem advisable to enable the Company and Grantees to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any Award. This authority includes authority to withhold or their substitutesreceive Stock or other property and to actmake cash payments in respect thereof in satisfaction of a Grantee’s tax obligations; provided, however, that the amount of tax withholding to be satisfied by withholding Stock or other property will be limited to the extent necessary to avoid adverse accounting consequences, including but not limited to the Award being classified as a liability award.mattersthe date of such Grantee’s “separation from service” (as defined in Section 409A of the Code without regard to alternative definitions thereunder) except that in case of the Grantee’s death, such distribution or payment will be made as soon as practicable following the Grantee’s death or as otherwise set forth in an agreement with the Grantee.undersigned,Board.voteoptions then outstanding or to be granted hereunder, the maximum number of shares or securities which may be delivered under the Plan, the option price and other relevant provisions shall be appropriately adjusted by the Board of Directors, whose determination shall be binding on all persons. In the event of a consolidation or merger in which VMware is not the surviving corporation or in the event of the sale or transfer of substantially all VMware’s assets (other than by the grant of a mortgage or security interest), all outstanding options shall thereupon terminate, provided that prior to the effective date of any such mannermerger, consolidation or sale of assets, the Board of Directors shall either (a) return the balance in all contribution accounts and cancel all outstanding options, or (b) accelerate the exercise date provided for in Section 8, or (c) if there is a surviving or acquiring corporation, arrange to have that corporation or an affiliate of that corporation grant to the participants replacement options having equivalent terms and conditions as such proxiesdetermined by the Board of Directors.their substitutesterminate participant’s participation to a separate offering or non-423 component offering, if advisable or necessary, considering applicable local law and Code Section 423 requirements.determine onarise in connection therewith. Except with respect to officers of VMware who are subject to the reporting requirements of Section 16 of the Securities Act of 1934, management of VMware is also authorized to resolve participant disputes under the Plan, consistent with the terms of the Plan and any agreements thereunder and any interpretations or guidance issued under the Plan by the Board of Directors or the Committee.matterscommittee at VMware (the “Committee”), in which event all references to the Board of Directors hereunder, including without limitation the references in Section 17, shall be deemed to refer to the Committee. A majority of the members of any such Committee shall constitute a quorum, and all determinations of the Committee shall be made by a majority of its members. Any determination of the Committee under the Plan may be made without notice or meeting of the Committee by a writing signed by all of the Committee members.properly come beforearise out of or relate to the meeting. THE PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED. IF NO CHOICE IS SPECIFIED, THEN THIS PROXY WILL BE VOTED “FOR” THE ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION, AS DESCRIBED IN VMWARE’S PROXY STATEMENT (PROPOSAL 2) AND “FOR” RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS VMWARE’S INDEPENDENT AUDITOR FOR THE FISCAL YEAR ENDING FEBRUARY 1, 2019 (PROPOSAL 3). IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENTS THEREOF. PLEASE MARK, DATE AND SIGN ON REVERSE SIDE AND RETURN PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. Continued on reverse side Plan or the same subject matter. The Plan shall be governed by the laws of Delaware, excluding its conflicts or choice of law rules or principles that might otherwise refer construction or interpretation of this Plan to the substantive law of another jurisdiction.