UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTIONProxy Statement Pursuant to Section 14(a) OF THE
SECURITIES EXCHANGE ACT OFof the
Securities Exchange Act of 1934
(Amendment (Amendment No. )
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☐ | Preliminary Proxy Statement | |
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Confidential, for Use of the Commission Only (as permitted byRule 14a-6(e)(2)) | ||
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Definitive Proxy Statement | ||
☐ | Definitive Additional Materials | |
☐ | Soliciting Material |
PALO ALTO NETWORKS, INC.
Palo Alto Networks Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
PAYMENT OF FILING FEE (CHECK ALL BOXES THAT APPLY): | ||||||
No fee | ||||||
required | ||||||
☐ | Fee paid previously with preliminary materials | |||||
☐ | Fee computed on table |
WHAT WE DO | ||||
Whether deploying our products to enable the Zero Trust Enterprise, responding to a security incident, or partnering to deliver better security outcomes through a world-class partner ecosystem, we're committed to helping ensure each day is safer than the one before.
| Our vision is a world where each day is safer and more secure than the one before |
At Palo Alto Networks, we are rebuilding cybersecurity based on the principles of Zero Trust, fueled by rigorous analytics and automation. We are here to secure the way forward by making cyber security stronger yet simpler so that each day is safer than the one before. We’ve Got Next and so will you. |
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Dear Fellow Stockholders:
Fiscal 2022 was another year of achievement at Palo Alto Networks. Our billings exceeded $7.4 billion, reflecting a growth rate of 37% year over year, and our revenues exceeded $5.5 billion – 29% year-over-year growth. In July, we celebrated our 10th anniversary as a public company. At the close of trading on the day of our initial public offering, our market capitalization was $3.5 billion, reflecting the value of a company that pioneered a new era of security through its groundbreaking firewall technology. Today, as our market capitalization exceeds $51 billion (at the close of trading on October 28, 2022), we are confident in the strong foundation we have built and eager to tackle the challenges of the next ten years.
As always, innovation drives our success. During the past year, we deployed 49 major product releases as compared to 29 in fiscal 2021, including advancements in next generation cloud access security broker (CASB), cloud code security, cloud next generation firewall and, in an industry first, agent and agentless cloud security posture management (CSPM) – just to name a few. We deliver to our customers best-of-breed capabilities across a platform of network security, cloud security and security operations. Simply put, we remain the cybersecurity leader, serving tens of thousands of customers worldwide, many of whom are still in the early stages of their cybersecurity transformations.
Of course, none of these accomplishments would have been possible without the dedication and engagement of our employees. We continue to prioritize their health, safety and professional fulfillment through FLEXWORK, an employee-centric strategy that offers over 12,500 employees an expanded set of choices. These choices include where individual work is completed, time spent in the office, personalized learning paths, and flexibility of benefits. We are proud of the workplace recognitions that the company received in fiscal 2022, including Most Loved Workplaces (Newsweek), Top 100 of America’s Most JUST Companies (Just Capital), Next Gen honoree (Ripplematch), and Best Company in Bay Area (Comparably).
Finally, we recognize the contributions and character of Mark McLaughlin and Asheem Chandna, neither of whom will stand for reelection to the Board of Directors when their terms expire at the conclusion of our 2022 Annual Meeting of Stockholders. Mark’s leadership as the company’s chief executive officer from August 2011 until June 2018, and his continued service on our Board of Directors since then, have been instrumental in driving the company’s growth and nurturing our unique culture. Likewise, without Asheem’s technical expertise, financial acumen and, most notably, keen discernment of emerging technology trends, our transformation into the company we are today would have been less complete and consequential. On behalf of our employees and the entire Board of Directors, we express our deep appreciation to Mark and Asheem for their profound impacts on Palo Alto Networks.
* * * * *
As in the past, this year’s Proxy Statement is constructed to maximize clarity and understanding about the company’s strategies, successes and challenges. Several of our key initiatives are worth prefacing here.
Stockholder Engagement. We remain guided by, and appreciative of, the perspectives of our stockholders as expressed through their engagement with us. Throughout fiscal 2022, we once again executed an extensive stockholder outreach program. In total, we engaged in discussions with stockholders holding approximately 60% of our outstanding shares as of June 30, 2022. John, as our Lead Independent Director, remained at the forefront of our engagement efforts and participated in 30 meetings with stockholders holding approximately 39% of our outstanding shares as of June 30, 2022. In addition to our financial outlook, our stockholders conversed with us about our executive compensation, sustainability, corporate governance practices, inclusion and diversity, as well as other topics of import to them. We will continue this valuable dialogue with our investors in the coming year, and are committed to maintaining outreach that is truly a dialogue with our stockholders.
2022 Proxy Statement | 3 |
PALO ALTO NETWORKS, INC.Table of Contents
Letter from the Chair and the Lead Independent Director
Executive Compensation. We implemented the commitments that we made to our stockholders in our 2021 proxy statement. We maintained an executive compensation program closely tied to our financial performance, 100% of our named executive officers’ equity compensation awards (aside from new hire awards) were performance-based, with different performance targets than the cash incentive plan awards, added an ESG modifier to our cash incentive plan, increased the stock ownership guidelines for our executive officers, and established a one-year equity post vesting holding period for all named executive officers. The compensation discussion and analysis (CD&A) section of this Proxy Statement describes our performance against these commitments. We encourage you to read the letter from our Compensation and People Committee accompanying the CD&A for their views on our executive compensation program, particularly as it relates to our pay-for-performance philosophy and how we performed against that backdrop.
3000 TANNERY WAYOur Commitment to ESG. We continue to take seriously our commitment to environmental sustainability, social responsibility and corporate governance (ESG). In fiscal 2022, in direct response to the feedback we received from our stockholders, your Board of Directors adopted majority voting for uncontested elections of directors and a resignation policy in the event a director does not receive a majority of the vote. Elsewhere in Proxy Statement, we discuss our ESG successes in fiscal 2022 and provide an overview of our ESG programs and commitments, and how your Board and executive leadership team oversee our ESG efforts.
SANTA CLARA, CALIFORNIA 95054
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held at 10:00 a.m. Pacific Standard Time on Monday, December 9, 2019
DearYou are cordially invited to attend the 2022 Annual Meeting of Stockholders of Palo Alto Networks, Inc.: to be held on Tuesday, December 13, 2022 at 12:15 P.M., Pacific Time.
The 2019This year’s annual meeting will be a virtual meeting conducted via a live webcast. You will be able to listen to the annual meeting, submit your questions, and vote during the live webcast of stockholdersthe meeting by visiting www.virtualshareholdermeeting.com/PANW2022 and any postponements, adjournmentsentering the 16-digit control number included on your proxy card or continuations thereof (the “Annual Meeting”)in the instructions that accompanied your proxy materials. If you did not receive a 16-digit control number, please reach out to your broker for further instructions.
On behalf of our Board, we thank you for your investment in Palo Alto Networks Inc., a Delaware corporation, will be heldand for your continued trust. We look forward to the annual meeting onMonday, December 9, 2019 at 10:00 a.m. Pacific Standard Time, at our headquarters, located at 3000 Tannery Way, Santa Clara, California 95054, for the following purposes, as more fully described in the accompanying proxy statement: 13, 2022.
Thank you,
Nikesh Arora | John M. Donovan | |
Chair and | Lead Independent | |
Chief Executive Officer | Director |
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Palo Alto Networks, Inc. | |
DATE AND TIME | VIRTUAL MEETING SITE | WHO CAN VOTE | ||
Tuesday, December 13, 2022 12:15 PM Pacific Time | www.virtualshareholdermeeting.com/ | Stockholders of record as of October 14, 2022 are entitled to vote |
Voting Items
Proposals | Board Vote Recommendation | For Further Details | ||
1. | To elect | “FOR” each director nominee | Page 40 |
2. | To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year ending July 31, | “FOR” | Page 57 |
3. | To approve, on an advisory basis, the compensation of our named executive | “FOR” | Page 60 | ||
4. | To approve an amendment to the 2021 Palo Alto Networks, Inc. Equity Incentive Plan to increase the number of plan shares reserved for issuance. | “FOR” | Page 98 |
Stockholders will also act on such other business that may properly come before |
Our board of directors has fixed the close of business on October 15, 2019 as the record date for the Annual Meeting. Only stockholders of record on October 15, 2019 are entitled to notice of and to vote at the Annual Meeting. Further information regarding voting rights and the matters to be voted upon is presented in the accompanying proxy statement.Meeting or any adjournments or postponements thereof.
On or about October 22, 2019, we expect to mail to our stockholders a Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access our proxy statement and our annual report. The Notice provides instructions on how to vote via the Internet or by telephone and includes instructions on how to receive a paper copy of our proxy materials by mail. The accompanying proxy statement and our annual report can be accessed directly at the following Internet address: http://www.proxyvote.com. All you have to do is enter the control number located on your proxy card.
YOUR VOTE IS IMPORTANT. Whether or notPlease act as soon as possible to vote your shares, even if you plan to attend the Annual Meeting, we urge youannual meeting online. For instructions to submit your vote via the Internet, telephone or mail as soon as possible to ensure your shares are represented.and more information, see “About the Annual Meeting” on page 112.
We appreciate your continued support of Palo Alto Networks Inc. and look forward to either greeting you personally at the Annual Meeting or receiving your proxy.
By orderOrder of the Board of Directors,
Bruce Byrd
Executive Vice President, General Counsel and Corporate Secretary
November 3, 2022
HOW TO VOTE
ONLINE | BY PHONE | BY MAIL |
Visit www.proxyvote.com. prior to the Annual Meeting, 24 hours a day, seven days a week. | Call the phone number located on the accompanying proxy card or voting instruction form. | Complete, sign, date and return the accompanying proxy card or voting instruction form in the envelope provided. |
Nikesh Arora
Chairman and Chief Executive Officer
Santa Clara, California
October 22, 2019
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING TO BE HELD ON DECEMBER 9, 2019:
13, 2022: THE NOTICE OF 20192022 ANNUAL STOCKHOLDERS’ MEETING AND PROXY STATEMENT AND THE 20192022 ANNUAL REPORT ONFORM 10-K ARE AVAILABLE AT WWW.PROXYVOTE.COM. WWW.PROXYVOTE.COM.
2022 Proxy Statement | 5 |
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Table of ContentsTABLE OF CONTENTS
Our Company Palo Alto Networks is a global cybersecurity provider with a vision of a world where each day is safer and more secure than the one before. We were incorporated in Delaware in 2005 and are headquartered in Santa Clara, California. Our principal executive offices are located at 3000 Tannery Way, Santa Clara, CA 95054. We empower enterprises, organizations, service providers, and government entities to protect themselves against today’s most sophisticated cyber threats. Our cybersecurity platforms and services help secure enterprise users, networks, clouds, and endpoints by delivering comprehensive cybersecurity backed by industry leading artificial intelligence and automation. We are a leading provider of zero trust solutions, starting with next-generation zero trust network access to secure today’s remote hybrid workforces and extending to securing all users, applications and infrastructure with zero trust principles. Our security solutions are designed to reduce customers’ total cost of ownership by improving operational efficiency and eliminating the need for siloed point products. Our Company focuses on delivering value in five fundamental areas: Network Security, Secure Access Service Edge, Cloud Security, Security Operations, and Threat Intelligence and Security Consulting. |
Our corporate decisions are guided by our corporate values, which were co-created by our employees. Foremost among these is integrity, which is the foundation of everything we do and every decision we make. We believe that collaboration enhances our ability to disrupt entrenched beliefs, which we think ultimately leads to innovation. Our ability to execute on our innovations and deliver products and services that address the cybersecurity needs of our customers is critical to our long-term success. Finally, we are intentional about including diverse points of view, perspectives, experiences, backgrounds and ideas in our decision-making process. True inclusion and diversity exists when we have representation of all ethnicities, orientations and identities, and cultures in our workforce. We believe that our core values make us a better company. | |||||||
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“...Palo Alto is #10 in our list of the 50 best companies to work for women; list created from millions of anonymous employer ratings and reviews by working women” | “...for the third consecutive year, received a perfect score on the Human Rights Campaign Foundation’s 2021 Corporate Equality Index (CEI) and achieved designation as a Best Place to Work for LGBTQ Equality” | “...Palo Alto Networks in the top 10% of companies on Comparably in its diversity score, [which] provides insights into how diverse employees feel and rate their work experience across various culture dimensions” | “...the companies that made this list are delivering the respect, care, and appreciation that it takes to create a positive workplace that nurtures talent [.]” Newsweek recognized PANW in the top 100 most loved workplaces of the Year | |
Sept. 2021 (InHerSight) | Jan. 2022 (Human Rights Campaign Foundation) | Sept. 2021 (Comparably) | Oct. 2021 (Newsweek) |
2022 Proxy Statement | 7 |
About Us
We delivered another year of outstanding results for our stockholders in fiscal 2022, with a strong year of financial performance and execution. Highlights include: | |
•Total revenue increased to $5.5 billion, or by approximately 29% compared to fiscal 2021. •Total billings increased to $7.5 billion, or by approximately 37% compared to fiscal 2021.1 •Next-Gen Security ARR increased to $1.89 billion, or by approximately 60% compared to fiscal 2021.2 • In the fourth quarter of fiscal 2022, we achieved GAAP profitability. • Continued to return capital to our stockholders through our stock repurchase program, totaling $0.9 billion for fiscal 2022, for a total of $3.6 billion during fiscal 2019 through fiscal 2022. •Accelerated our product innovation efforts, with 49 major product releases.3 |
Building a Stronger
Palo Alto Networks
TOTAL REVENUE ($ in millions) | TOTAL BILLINGS ($ in millions) | |
NEXT-GEN
| PRODUCT INNOVATION Major Product Releases | |
Security Operations | ||
Cloud Security | ||
Network Security |
RETURN OF CAPITAL | |
Fiscal 2022 | Fiscal 2019-2022 |
$0.9 Billion | $3.6 Billion |
1. | Total billings is a key financial metric calculated as total revenue plus change in total deferred revenue, net of total acquired deferred revenue. Appendix A includes a calculation of total billings. |
2. | Next-Gen Security ARR is annualized allocated revenue of all active contracts as of the final day of the reporting period for Prisma and Cortex offerings inclusive of the VM-Series and related services, and certain cloud-delivered security services. |
3. | Major product release is defined as full or dot release with significant new capability, new or add-on modules, or subscription services, new software or hardware appliance models, significant PAN-OS, acquired capabilities and significant new platform support. |
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About Us
Stockholder Engagement
We are proud of our investor engagement program, and committed to maintaining outreach that is truly a dialogue with our stockholders. Our relationship with our stockholders is an important part of our Company’s success. In fiscal 2022, we once again engaged in robust stockholder engagement, with a focus on executive compensation, environmental sustainability, social responsibility, and corporate governance (ESG), and other matters of particular import to our stockholders. Our Lead Independent Director played a central role in developing and implementing our program, and once again actively participated in our stockholder engagement efforts in fiscal 2022.
Our Lead Independent Director and management team regularly update our Board and Board committees on our engagement efforts, providing summaries and analyses of our stockholders’ feedback. The feedback that we received from our stockholders resulted in significant improvement in our compensation and corporate governance practices, as described in detail in this proxy statement, including our adoption of majority voting for uncontested elections of our directors in May 2022.
We believe that our approach to engaging directly and openly with our investors drives increased corporate accountability, improves decision making, and ultimately creates long-term value.
| We engaged in discussions with investors representing 60% of our outstanding shares (which is all stockholders that indicated a willingness to engage with us). | Our Lead Independent Director participated in discussions (30 meetings) with investors representing 39% of our outstanding shares. |
* Stockholder ownership, to our knowledge, as of June 30, 2022. | ||
Below are the key elements of our stockholder engagement cycle:
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About Us
Executive Compensation
Our Compensation Best Practices
In fiscal 2022, we implemented our redesigned executive compensation programs, meeting the commitments we made to our stockholders in our 2021 proxy statement. Our compensation programs reflect recognized best practices and principles that align the compensation of our named executive officers with the long-term interests of our stockholders, and are supported by market benchmarks.
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100% of equity compensation (aside from new hire awards) is performance-based, with different performance targets than the cash incentive plan Addition of ESG modifier to cash incentive plan, which modifies the annual incentive cash compensation (plus or minus 10%), based on our performance relative to an ESG scorecard with climate, inclusion and human capital metrics | Increase to stock ownership guidelines One-year post-vesting holding period for all NEOs, including our Chief Executive Officer |
100% independent Compensation and Independent compensation consultants | Annual review of compensation strategy Consideration of annual say-on-pay vote |
Majority of compensation is performance-based and 100% of fiscal 2022 equity compensation for NEOs performance-based and at risk (excluding new hire grants) 100% of short-term incentive cash compensation is performance-based and at-risk No single trigger vesting of equity awards on occurrence of a change in control No dividends paid on unvested equity Robust stock ownership guidelines | No hedging or pledging, except limited pledging permitted with the prior approval of the ESG and Nominating Committee Meaningful clawback policy Limited perquisites and personal benefits No defined benefit plans or SERPs Implementing the advice of independent compensation consultants |
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About Us
Significant At-Risk Compensation
Our executive compensation program is tied to our financial and operational performance. The graphs below illustrate the predominance of at-risk and performance-based components of our fiscal 2022 compensation program for our Chief Executive Officer and other named executive officers.
CEO | AVERAGE OF OTHER NEOs(2) |
(1) | Graph reflects Mr. Arora’s target base salary of $1 million, a significant portion of which he elected to forgo. |
(2) | Excludes Mr. Jenkins’ new hire RSUs which were granted to compensate him for a portion of our estimated value of the unvested equity that he forfeited upon joining us. |
2022 Proxy Statement | 11 |
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PROXY STATEMENT
FOR 2019 ANNUAL MEETING OF STOCKHOLDERS
To Be Held at 10:00 a.m. Pacific Standard Time on Monday, December 9, 2019
This proxy statementdocument includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical or current facts, including statements regarding our social, environmental and your proxy cardsustainability plans and goals, and executive compensation plans, made in this document are furnishedforward-looking. We use words such as anticipates, plan, believes, expects, future, intends, and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Actual results could differ materially for a variety of reasons. Risks and uncertainties that could cause our actual results to differ significantly from management’s expectations are described in connection with the solicitation of proxies by our board of directors for use2022 Annual Report on Form 10-K. Unless otherwise provided herein, all statements in connection with the 2019 annual meeting of stockholders of Palo Alto Networks, Inc. (“Palo Alto Networks” or our “company”), a Delaware corporation, and any postponements, adjournments or continuations thereof (the “Annual Meeting”). The Annual Meeting will be held on Monday, December 9, 2019 at 10:00 a.m. Pacific Standard Time, at our headquarters, located at 3000 Tannery Way, Santa Clara, California 95054. A Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access this proxy statement are as of November 3, 2022.
References to our website in this proxy statement are not intended to function as a hyperlink and our annual report is first being mailed on or about October 22, 2019 to all stockholders entitled to vote at the Annual Meeting. Informationinformation contained on or that can be accessed through, our website is not intended to be part of this proxy statement.
In this proxy statement, the terms “the Company”, “we,” and “our” refer to Palo Alto Network, Inc. and the term “Board” refers to the Board of Directors of Palo Alto Networks, Inc.
To the extent that this proxy statement has been or will be specifically incorporated by reference into this proxy statement and references to our website address in this proxy statement are inactive textual references only.
The information provided in the “question and answer” format below is for your convenience only and is merely a summaryany other filing of the information contained in this proxy statement. You should read this entire proxy statement carefully.
What matters am I voting on?
You will be voting on:
the election of three Class II directors to serve until our 2022 annual meeting of stockholders and until their successors are duly elected and qualified;
a proposal to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year ending July 31, 2020;
a proposal to approve, on an advisory basis, the compensation of our named executive officers; and
any other business as may properly come before the Annual Meeting.
How does the board of directors recommend I vote on these proposals?
Our board of directors recommends a vote:
“FOR” the election of Asheem Chandna, James J. Goetz, and Mark D. McLaughlin as Class II directors;
“FOR” the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year ending July 31, 2020; and
“FOR” the approval, on an advisory basis, of the compensation of our named executive officers.
Who is entitled to vote?
Holders of our common stock as of the close of business on October 15, 2019 (the “Record Date”), may vote at the Annual Meeting. As of the Record Date, 96,988,344 shares of our common stock were outstanding and entitled to vote. In deciding all matters at the Annual Meeting, each stockholder will be entitled to one vote for each share of our common stock held by them on the Record Date. Stockholders may not cumulate votes in the election of directors.
Registered Stockholders. If shares of our common stock are registered directly in your name with our transfer agent, you are considered the stockholder of record with respect to those shares, and the Notice was
provided to you directly by us. As the stockholder of record, you have the right to grant your voting proxy directly to the individuals listed on the proxy card or to vote in person at the Annual Meeting. Throughout this proxy statement, we refer to these registered stockholders as “stockholders of record.”
Street Name Stockholders. If shares of our common stock are held on your behalf in a brokerage account or by a bank or other nominee, you are considered to be the beneficial owner of shares that are held in “street name,” and the Notice was forwarded to you by your broker, bank or other nominee, who is considered the stockholder of record with respect to those shares. As the beneficial owner, you have the right to direct your broker, bank or other nominee as to how to vote your shares. Beneficial owners are also invited to attend the Annual Meeting. However, since a beneficial owner is not the stockholder of record, you may not vote your shares in person at the Annual Meeting unless you follow your broker, bank, or other nominee’s procedures for obtaining a legal proxy and present your legal proxy at the Annual Meeting. If you request a printed copy of our proxy materials by mail, your broker, bank or other nominee will provide a voting instruction form for you to use. Throughout this proxy statement, we refer to stockholders who hold their shares through a broker, bank or other nominee as “street name stockholders.”
Can I attend the Annual Meeting?
You may attend the Annual Meeting if you are a stockholder of record or a street name stockholder as of October 15, 2019. All stockholders must bring proof of identification, such as a driver’s license or passport, for admission to the Annual Meeting.
If you are a stockholder of record, your name will be verified against the list of stockholders of record prior to admittance to the Annual Meeting.
If you are a street name stockholder, you will be asked to provide proof of beneficial ownership as of the Record Date, such as a brokerage account statement, a copy of the Notice or voting instruction card provided by the broker, bank or other nominee that is the stockholder of record, or other similar evidence of beneficial ownership, as well as proof of identification, for admission. If you wish to be able to vote in person at the Annual Meeting, you must obtain a legal proxy from your broker, bank or other nominee and present it to the inspector of elections with your ballot at the Annual Meeting.
Registration will begin at 9:30 a.m. Pacific Standard Time on the date of the Annual Meeting. If you do not provide proof of identification and comply with the other procedures outlined above, you may not be admitted to the Annual Meeting.
Cameras, recording devices and other electronic devices will not be permitted at the Annual Meeting.
You may contact us at (408)753-4000 for directions to the Annual Meeting.
How do I vote?
If you are a street name stockholder, there are four ways to vote:
by Internet at http://www.proxyvote.com, 24 hours a day, seven days a week (have your proxy card in hand when you visit the website);
by toll-free telephone at1-800-690-6903 until 11:59 p.m. Eastern Standard Time, on December 8, 2019 (have your proxy card in hand when you call);
by completing and mailing your proxy card so it is received prior to the Annual Meeting (if you received printed proxy materials); or
by written ballot at the Annual Meeting.
Even if you plan to attend the Annual Meeting, we recommend that you also vote by proxy so that your vote will be counted if you later decide not to attend the Annual Meeting.
If you are a street name stockholder, you will receive voting instructions from your broker, bank or other nominee. You must follow the voting instructions provided by your broker, bank or other nominee in order to direct your broker, bank or other nominee on how to vote your shares. Street name stockholders should generally be able to vote by returning a voting instruction form, or by telephone or on the Internet. However, the availability of telephone and Internet voting will depend on the voting process of your broker, bank or other nominee. As discussed above, if you are a street name stockholder, you may not vote your shares live at the Annual Meeting unless you obtain a legal proxy from your broker, bank or other nominee.
Can I change my vote?
Yes. If you are a stockholder of record, you can change your vote or revoke your proxy any time before the Annual Meeting by:
entering a new vote by Internet or by telephone;
returning a later-dated proxy card;
notifying the Corporate Secretary of Palo Alto Networks, in writing, at the address listed on the front page of this proxy statement; or
completing a written ballot at the Annual Meeting (although attendance at the Annual Meeting will not, by itself, revoke a proxy).
If you are a street name stockholder, your broker, bank or other nominee can provide you with instructions on how to change your vote or revoke your proxy.
What is the effect of giving a proxy?
Proxies are solicited by and on behalf of our board of directors. The persons named in the proxy have been designated as proxies by our board of directors. When a proxy card is properly dated, executed and returned, the shares represented by such proxies will be voted at the Annual Meeting in accordance with the instruction of the stockholder. If a proxy card is signed, but no specific instructions are given, the shares represented by such proxy card will be voted in accordance with the recommendations of our board of directors, as described above. If any matters not described in this proxy statement are properly presented at the Annual Meeting, the proxy holders will use their own judgment to determine how to vote the shares subject to proxies. If the Annual Meeting is adjourned, the proxy holders can vote your shares subject to proxies when the Annual Meeting is rescheduled, unless you have properly revoked your proxy instructions, as described above.
Why did I receive the Notice instead of a full set of proxy materials?
In accordance with the rules ofCompany under the Securities and Exchange Commission (“SEC”), we have elected to furnish our proxy materials, including this proxy statement and our annual report, primarily via the Internet. The Notice containing instructions on how to access our proxy materials is first being mailed onAct of 1933, as amended, or about October 22, 2019 to all stockholders entitled to vote at the Annual Meeting. Stockholders may request to receive all future proxy materials in printed form by mail or electronically bye-mail by following the instructions contained in the Notice. We encourage stockholders to take advantage of the availability of our proxy materials on the Internet to help reduce the environmental impact of our annual meetings of stockholders.
What is a quorum?
A quorum is the minimum number of shares required to be present for the Annual Meeting to be properly held under our amended and restated bylaws and Delaware law. The presence, in person or by proxy, of a majority of all issued and outstanding shares of our common stock entitled to vote at the Annual Meeting will constitute a quorum at the Annual Meeting. A proxy submitted by a stockholder may indicate that all or a portion
of the shares represented by the proxy are not being voted (“stockholder withholding”) with respect to a particular matter. Similarly, a broker may not be permitted to vote shares held in street name on a particular matter in the absence of instructions from the beneficial owner of such shares (“broker non-vote”). See the question below titled “How may my broker, bank or other nominee vote my shares if I fail to timely provide voting instructions?” The shares of our common stock subject to a proxy that are not being voted on a particular matter because of either stockholder withholding or a brokernon-vote will count for purposes of determining the presence of a quorum. Abstentions are also counted in the determination of a quorum.
How many votes are needed for approval of each proposal?
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How are proxies solicited for the Annual Meeting?
Our board of directors is soliciting proxies for use at the Annual Meeting. All expenses associated with this solicitation will be borne by us. We will reimburse brokers, banks or other nominees for reasonable expenses that they incur in sending our proxy materials to you if a broker, bank or other nominee holds your shares of our common stock. In addition to using the internet, our directors, officers and employees may solicit proxies in person and by mail, telephone, facsimile, or electronic transmission, for which they will not receive any additional compensation. We have retained Saratoga Proxy Consulting LLC to assist us in soliciting proxies for a fee of approximately $10,000, plus reasonableout-of-pocket expenses incurred in the process of soliciting proxies.
How may my broker, bank or other nominee vote my shares if I fail to timely provide voting instructions?
Brokerage firms, banks or other nominees holding shares of our common stock in street name for beneficial owners are generally required to vote such shares in the manner directed by the beneficial owner. In the absence of timely directions, your broker, bank or other nominee will have discretion to vote your shares on our sole
“routine” matter, the proposal to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year ending July 31, 2020. Your broker will not have discretion to vote on any other proposals, which are“non-routine” matters, absent direction from you.
Is my vote confidential?
Proxy instructions, ballots, and voting tabulations that identify individual stockholders are handled in a manner that protects your voting privacy. Your vote will not be disclosed either within Palo Alto Networks or to third parties, except as necessary to meet applicable legal requirements, to allow for the tabulation of votes and certification of the vote, or to facilitate a successful proxy solicitation. Occasionally, stockholders provide written comments on their proxy cards, which may be forwarded to management and our board of directors.
Where can I find the voting results of the Annual Meeting?
We will announce preliminary voting results at the Annual Meeting. We will also disclose voting results on a Current Report on Form8-K that we will file with the SEC within four business days after the Annual Meeting. If final voting results are not available to us in time to file a Current Report on Form8-K within four business days after the Annual Meeting, we will file a Current Report on Form8-K to publish preliminary voting results and will provide the final voting results in an amendment to the Current Report on Form8-K as soon as they become available.
I share an address with another stockholder, and we received only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials?
We have adopted a procedure called “householding,” which the SEC has approved. Under this procedure, we deliver a single copy of the Notice, and if applicable, our proxy materials, to multiple stockholders who share the same address unless we receive contrary instructions from one or more of the stockholders sharing the same address. This procedure reduces our printing costs, mailing costs, and fees. Stockholders who participate in householding will continue to be able to access and receive separate copies of the Notice, or if applicable, our proxy materials. Upon written or oral request, we will deliver promptly separate copies of the Notice and, if applicable, our proxy materials, to any stockholder at a shared address which we delivered a single copy of any of these materials. To receive a separate copy, or, if a stockholder is receiving multiple copies, to request that we only send a single copy of the Notice or, if applicable, our proxy materials, stockholders may contact us at the following: Palo Alto Networks, Inc., Attention: Investor Relations, 3000 Tannery Way, Santa Clara, California 95054 or Tel: (408)753-4000.
Stockholders who hold shares of our common stock in street name may contact their brokerage firm, bank, broker-dealer or other similar organization to request information about householding.
What is the deadline to propose actions for consideration at next year’s annual meeting of stockholders or to nominate individuals to serve as directors?
Stockholder Proposals
Stockholders may present proper proposals for inclusion in our proxy statement and for consideration at the next annual meeting of stockholders by submitting their proposals in writing to our Corporate Secretary in a timely manner. For a stockholder proposal to be considered for inclusion in our proxy statement for our 2020 annual meeting of stockholders, our Corporate Secretary must receive the written proposal at our principal executive offices not later than June 24, 2020. In addition, stockholder proposals must comply with the requirements ofRule 14a-8 under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”the sections of this proxy statement titled “Report of the Audit Committee” and “Report of the Compensation Committee” shall not be deemed to be so incorporated, unless specifically stated otherwise in such filing.
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Our Board consists of a diverse group of highly qualified leaders in their respective fields who bring unique perspectives to the Board. All directors have either held senior leadership positions at large companies or otherwise gained significant and wide-ranging management experience in their respective fields (including strategic, financial, public company financial reporting, compliance, risk management, and leadership development). Many of our directors also have public company experience (serving as chief executive officer, chief operating officer, or chief financial officer, or on boards of directors and board committees), and as a result have a deep understanding of corporate governance practices, including risk and management oversight.
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Our Board at a Glance
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Our Corporate Governance at a Glance
º | Appointed four new directors since 2019, including three who brought gender, ethnic and/or racial diversity to the Board |
º | culture, employee retention and human capital management (Compensation and People Committee oversight) |
º | sustainability and corporate governance (ESG and Nominating Committee) | |
º | security and cybersecurity (Security Committee) |
º | financial reporting, internal controls over financial reporting, and enterprise risk relating to financial matters (Audit Committee) |
º | M&A and strategic transactions (Corporate Development Committee) |
º | In response to stockholder feedback, adopted majority voting for uncontested elections of directors, including a resignation policy in the event a director does not receive a majority of the vote |
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An Overview of Our ESG Strategies
Our values of execution, disruption, collaboration, inclusion and integrity are the foundation of everything we do—which extend into our approach to environmental, social and corporate governance (“ESG”) practices. From our climate commitments, our people strategy based on FLEXWORK, and our supplier responsibility initiatives, to our social impact programs and our dedication to integrity, ethics, security and privacy, we believe we are executing meaningful outcomes that reinforce our intention to respect our planet, uplift our communities and advance our industry. The content that follows summarizes the actions we have taken, the impact we believe we have had and our ongoing journey to demonstrate leadership in ESG.
ESG at Palo Alto Networks is overseen and governed at the highest levels and includes Board and committee oversight, executive-level leadership, and subject-matter experts who lead our ESG efforts across our business.
Board Oversight. The Board and its applicable committees provide guidance and oversight to management with respect to ESG matters. During fiscal 2022, we reconstituted our Nominating and Corporate Governance Committee as the ESG and Nominating Committee to enhance the Board’s oversight of ESG matters and reinforce the important role that ESG practices play in our business. The ESG and Nominating Committee is responsible for setting our ESG priorities and monitoring our performance. Our Compensation and People Committee, Audit Committee and Security Committee also serve an important role in ESG oversight. Our Lead Independent Director and management team share feedback received from our stockholders with the Board.
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ESG at Palo Alto Networks
Management Leadership.A cross-functional, executive-level ESG leadership team sets our overall ESG strategy, objectives and initiatives, provides guidance on program implementation, and oversees the continuing enhancement of our approach to ESG. This committee which is led by our Chief Executive Officer and includes our General Counsel, Chief People Officer and Chief Financial Officer, receives analysis and presentations regarding current and emerging ESG-related risk topics and the status of our ESG programs.
Our executive-level ESG leadership team also empowers our ESG steering committee to implement our ESG programs and to pursue activities to achieve our objective and goals. The ESG steering committee is a cross functional team of employees, consisting of representatives from our accounting, internal audit, corporate responsibility, legal, investor relations and operations teams, and oversees the work of our subject matter experts in the implementation of our ESG programs.
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ESG at Palo Alto Networks
Climate change is a global crisis and we are committed to doing our part to reduce our environmental impacts. Aligned to the Climate Commitments we declared in early 2021, in fiscal 2022 we evolved our comprehensive Sustainability Strategy focused on three pillars: operational excellence (Sustainable Operations), a Sustainable Value Chain, and a Sustainable Ecosystem. In fiscal 2022, we engaged with external consultancies, conducted a comprehensive analysis of our global environmental footprint, and obtained third party assurance of our analysis and related emissions data, across all three pillars.
SUSTAINABLE OPERATIONS Accelerate carbon and waste free growth across our FLEXWORK footprint through energy efficiency, decarbonization, renewable energy and science-based targets. |
SUSTAINABLE VALUE CHAIN Collaborate and partner with stakeholders throughout our value chain to drive to zero carbon, zero waste, 100% renewable energy and 100% circular cybersecurity products. |
SUSTAINABLE ECOSYSTEM Drive leading public commitments, policy advocacy and partnerships to elevate our thought leadership position in sustainable cybersecurity. |
Raising Our Ambition
We raised the ambition of our Climate Commitments through developing and setting Science-Based Targets (“SBTs”) aligned to a climate scenario of 1.5° celsius. They are:
Palo Alto Networks commits to reduce Scope 1 and 2 GHG emissions by 35% by the end of fiscal 2027, as compared to fiscal 2021.
Palo Alto Networks commits to get 65% of our suppliers (measured by total spend) to set Science-Based Targets by the end of fiscal 2027.
Palo Alto Networks commits to reduce emissions from our customers’ use of our products by 40% by the end of fiscal 2027.
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ESG at Palo Alto Networks
Our SBTs were submitted to the Science-Based Targets Initiative for verification, which we expect to obtain in 2023.
In fiscal 2022, in line with the most reputable non-governmental organizations (“NGOs”), we refined and elevated our Carbon Neutral goal to be defined as “Net Zero” targets:
Through our climate ambition across our operations, value chain and ecosystem, we are confident that we can achieve these goals by the dates above.
Sustainable Operations
Early in fiscal 2022, we elevated our operational goals by committing to purchasing 100% true renewable energy, expanding operational excellence through deep energy efficiency, and driving decarbonization throughout our real estate footprint.
We continued to execute our sustainable approach to real estate and opened new LEED certified offices in multiple cities, including London and Bangalore, and expanded our LEED footprint through certifications in Tel Aviv, Bangalore and San Francisco. We launched multiple sustainability work groups to evaluate and act on implementing green packaging, waste reduction and resource conservation. To address the digital divide, promote reuse and reduce our e-waste, we engaged in an external partnership to efficiently donate obsolete equipment, accessories and furnishings for social benefit.
Sustainable Value Chain | |
Through our carbon footprint assessment, we gained a complete understanding of where our greatest impacts - and best opportunities - are, and we set 1.5° Celsius aligned Science-Based Targets to effectively address them. We set critical Scope 1 and 2 SBTs, but we know that our greatest impact is in our Scope 3 emissions. Because of this, we have set what we believe are ambitious SBTs to drive a Sustainable Value Chain across our purchased goods and services and the use by our customers of the products we sell to them. | Achieved a Supplier Engagement |
Throughout fiscal 2022, we began the journey to engage stakeholders throughout our value chain, from suppliers to customers, to drive to zero carbon, zero waste, 100% renewable energy and 100% circularity in our cybersecurity products.
Sustainable Ecosystem | |
Recognizing that addressing climate change will require collaboration on systemic issues, we increased and expanded our engagements with environmental coalitions. By joining The Climate Pledge, formally committing to emissions reductions through the Science-Based Target initiative, our ongoing participation in the World Economic Forum’s Alliance of CEO Climate Leaders and other partnerships, we continued to demonstrate our eagerness to engage with others on this critical issue. | Achieved an Environmental |
We believe thoughtful and ardent policy advocacy is one of the most effective tools for addressing climate change. In fiscal 2022, we signed on to a letter from Ceres supporting the Securities and Exchange Commission’s proposed rule mandating climate disclosure. We also engaged directly with several policy makers to reinforce the importance of climate action and its intersectionality with cybersecurity.
We remained committed to transparency by submitting our 2022 CDP Climate and Supply Chain disclosures for the third year in a row.
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ESG at Palo Alto Networks
During fiscal 2022, we continued to execute our People strategy and philosophy of FLEXWORK, engaged with our supply chain to reinforce our Code of Conduct expectations and invested in our Communities.
Our People
We believe our ongoing success depends on our employees. Development and investment in our people is, and will always be, central to who we are. Our People Strategy, built upon our philosophy of FLEXWORK, is a comprehensive approach to source, hire, onboard, integrate, develop, engage and reward employees. Caring for our global workforce of over 12,500, and inspiring them to do the best work of their careers is a critical element of our overall Company strategy and a demonstration of our values in action.
FLEXWORK | |
Throughout the COVID-19 pandemic, while prioritizing the health and safety of our employees, we have learned how to collaborate in a distributed hybrid work reality and to create opportunities for employees to maintain a sense of belonging and focus on well-being. Moving into the future, we aim to continue to disrupt the nature of work. Our philosophy is simple: place our employees at the center of their working life by providing them with flexibility, personalization, and choice regarding how they work, the benefits they choose, the way they consume learning and, where possible, when and where they work. We truly believe that the more our employees have choice and demonstrate mutual trust and respect, the more engaged they will be. We believe that FLEXWORK is a significant factor in positioning Palo Alto Networks as the cybersecurity workplace of choice. |
Recognized by Newsweek among |
FLEXWORK adds even more opportunity to scale our efforts to improve inclusion and diversity. It further enables us to recognize each individual as unique, with their own priorities and needs, and gives the employee greater agency to personalize their decisions and utilize our programs and initiatives to meet those interests and desires.
Source & Hire
Sourcing and hiring diverse talent and enabling them to create and execute is central to our comprehensive approach to talent acquisition, which we refer to as “The Way We Hire.” Our talent acquisition team utilizes a number of stockholder proposalsmethods to find subject experts in company-sponsored proxy materials. Stockholder proposals shouldtheir respective fields, including the use of a variety of channels that focus on reaching underrepresented talents. Our university relations team partners with hundreds of academic institutions, including colleges and universities that focus on serving diverse populations, to provide career pathways for early-in-career candidates. Current employees also provide qualified candidates through our Employee Referral Program. During fiscal 2022, we “welcomed home” numerous employees who voluntarily left Palo Alto Networks and found they wanted to return. Through our Internal Mobility program, numerous hires during fiscal 2022 were internal, and many of those internal hires resulted in promotions for those individuals. We equip hiring managers with training so that they are made aware of potential unconscious biases and interview for the values and competencies that we believe enhance our culture. We require diverse interview panels to deliver a quality interview experience to a diverse slate of candidates.
Onboard & Integrate
We believe that a positive onboarding experience results in employees thriving and therefore rapid productivity. During the COVID-19 pandemic, we built and utilized virtual learning platforms and employee communication channels to provide new employees with inspirational, often personalized, onboarding experiences. For every employee, onboarding is a journey of integration that extends through the first year at Palo Alto Networks. In addition, we have built specialist learning tracks for interns and new graduates that have been recognized as best in class externally. As part of our merger and acquisition strategy, we have also established a robust integration program with the goal to enable individuals joining our teams to feel part of our culture at speed.
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ESG at Palo Alto Networks
Develop & Motivate | |
Because we value disruption and innovation, we created FLEXLearn—a unique approach to personalized employee development. FLEXLearn is a learning experience platform that provides employees with a path based on their needs, interests, style, and career journey. Through FLEXLearn employees have full agency to direct their growth at their pace and choosing. Development information about core business elements, professional skill sets, working in a distributed hybrid environment, as well as required compliance training, such as Code of Conduct, privacy and security, anti-discrimination, anti-harassment, and anti-bribery training, is also deployed through the FLEXLearn platform for all employees. In addition, FLEXLearn provides employees with events and activities that motivate and spark critical thinking, on topics ranging from inclusion, to well-being and collaboration. On average, employees had completed 16 hours of development through the FLEXLearn platform during fiscal 2022. |
Recognized among the “Top Workplaces for the Next Generation of Talent” as evaluated by Ripplematch (2021) |
Because we know that business leaders have unique learning and development needs and interests, we also created FLEXLead. Focused on providing tools and resources to those who manage teams and drive business functions, FLEXLead aims to increase the awareness of inclusion and diversity, coaching and mentorship, and the capacity for leaders to align employee priorities with our strategic business priorities.
Engage & Reward
We conduct regular executive listening sessions and “pulse surveys” to better understand employee engagement, sentiment, well-being, and the agility to transition to a distributed work model. These sessions and surveys, including employee feedback to external surveys and crowdsourcing platforms, have informed our holistic People Strategy and influenced our FLEXWORK philosophy, inclusion and diversity strategies, and Internal Mobility program. For example, our FLEXCircle program is the result of employee input, requesting new opportunities to meet and interact with employees who share common interests. And our FLEXAssist program was developed based on suggestions from employees looking for tools that help them identify key employee milestones and facilitate increased communication and collaboration.
Employee sentiment has continued to be addressed to:highly positive, and we are proud of the external recognition we have received about our culture. We continue to use insights from an anonymous global employee engagement survey we conducted in fiscal 2021 to execute action plans that reinforce our culture of engagement. The survey indicated that employees have a strong sense of belonging, confidence in leadership, and an understanding of how their work contributes to the Company’s goals. Equally important, our internal pulse surveys and other feedback mechanisms, including insights from external employee sentiment sources and employer brand recognition, indicate that employees continue to view Palo Alto Networks as a great place to work, with strong benefits, a commitment to inclusion and diversity and respected leadership.
Our comprehensive compensation program includes competitive base pay. In addition, all employees participate in one of two variable pay programs our sales incentive plans or our variable incentive program. All employees are also eligible to participate in our stock-based offerings through a generous Employee Stock Purchase Plan and a competitive Equity Incentive Plan, both of which are available to all of our employees where regulations permit. We conduct annual external audits of our pay practices. Our fairness and equity analysis includes gender for all global employees and race and ethnicity for employees in the U.S. As a result of these measures and corrections, we believe that our employees are paid fairly and equitably regardless of race/ethnicity (in the U.S.) or gender (globally). |
Recognized by Comparably in 7 “Best of ” categories including “Best Compensation” (#9)(2022) |
As a global employer with a diverse employee population, we understand everyone’s benefit needs are different. Our benefit plans include a variety of health, time-off, wellness and voluntary options. And, our FLEXBenefits program provides all employees with a funding allowance from which they can choose to obtain additional benefits. |
Recognized by Comparably in 7 “Best of ” categories including “Perks & Benefits” (#75)(2022) |
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ESG at Palo Alto Networks
We believe in an always-on feedback and rewards philosophy. From recurring 1:1 sessions and multiple feedback channels to use of our Cheers for Peers peer recognition program, employees get regular input about the value they bring to the organization. And while always-on practices are useful in providing real-time feedback, we also execute a Company-wide semi-annual performance review process so that leaders and employees have recurring constructive conversations aimed at elevating performance, increasing capability and executing with excellence.
Inclusion & Diversity
We are intentional about including diverse points of view, perspectives, experiences, backgrounds and ideas in our decision-making processes. We deeply believe that true diversity exists when we have representation of all ethnicities, genders, orientations and identities, and cultures in our workforce. Our inclusion and diversity (“I&D”) programs continue to advance those visions.
The diversity of our Board, with women representing 33% of the Board is an example of that vision in action. We have nine employee network groups (“ENGs”) which are employee-led groups that play a vital role in building understanding and awareness. Our ENGs are provided with a budget to fund activities for their communities and to make charitable grants to organizations advancing their causes. We involve our ENGs in listening sessions with executive teams and we work in partnership to develop our annual I&D plans, because we believe employee involvement is critical.
As referenced above, our I&D philosophy is fully embedded in our talent acquisition, learning and development and rewards and recognition programs. We believe that outcomes such as increases in gender and ethnic diversity, no differential in attrition based on gender or ethnicity, equity in performance evaluation and internal mobility are indicators that our efforts are making the desired progress. Further, the awards and recognition the Company has received during fiscal 2022, most of which are the direct result of employee input, reinforce our growth in this crucial topic.
Recognized by Comparably in 7 “Best of ” categories including “Best CEOs for Diversity ” (#15)(2022) | Achieved a perfect score of 100% on the Human Rights Campaign Corporate Equality Index (2022, 2021 & 2020) | Achieved a perfect score of 100% on the Disability Equality Index as evaluated by Disability:IN (2022) | Achieved “Gold” status as a Military Friendly Employer as evaluated by Military Friendly (2022) |
Our Supply Chain
Through the deployment of our Global Supplier Code of Conduct, we continued to reach across our supply chain to communicate our expectations regarding labor standards, business practices and workplace health and safety conditions. During fiscal 2022, we maintained our affiliate membership in the Responsible Business Alliance and maintained our commitment to Supplier Diversity.
Our codes of conduct are useful in documenting our expectations that materials suppliers honor our commitment to human rights. That said, beyond communicating our expectations, we follow industry best practices when assessing risks for incidents of human rights violations within our supply chain. We take a risk-based and business impact approach and leverage the risk assessment resources of the Responsible Business Alliance to help identify suppliers who may be at high risk for child, forced or compulsory labor issues. If we believe additional research into a suppliers’ ethical practices is necessary, we take action to do so.
We focus our risk assessments on suppliers where we have large annual spend, where Palo Alto Networks is a significant portion of their annual revenue, where the supplier’s technology impacts our business, and where we have an overall strategic partnership with a supplier. Understanding risks related to human rights, among others, that these suppliers may pose is critical, from both a socially conscious and business impact perspective.
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ESG at Palo Alto Networks
In addition, suppliers who may provide commodities or be within industries historically known to have high risks for labor incidents are subject to additional vetting processes. Lastly, suppliers who may be located in countries or regions where labor conditions have historically not been prioritized within those countries or regions are also considered high risk and managed appropriately.
We believe our strength as a company comes from building an inclusive environment and collaborating with individuals who bring diverse experiences. This extends to our global supply chain and our commitment to increase our awareness of and engagement with women- and minority-owned businesses. A cross-functional working group continues to explore best practices and is working with partners such as Western Regional Minority Supplier Development Council, to support our work to enhance our procurement policies and establish metrics to measure our progress in growing the diversity of our supply chain.
Our Communities | |
We value our role as a good corporate citizen and in fiscal 2022 continued to execute our social impact programs. In addition to ongoing efforts to help colleagues and communities impacted by the COVID-19 pandemic, we invested in cybersecurity awareness, education programs, scholarships, diversity and basic needs. Our employees continue to actively support the communities in which we live and work. |
Recognized by Just Capital among Top 100 Companies Supporting Families and Communities (2022 & 2021) |
Investing in Education and Key Cause Areas
We expanded our work to provide cybersecurity activities and curriculum to schools, universities and nonprofit organizations to help youth protect their digital way of life and to prepare diverse adults for careers in cybersecurity. Through our ongoing partnership with Girl Scouts of the USA hundreds of thousands of cybersecurity badges have been earned, including troops in Singapore through USA Girl Scouts Overseas. Moreover, our Cyber A.C.E.S. program continues to grow—not only reaching youth in the U.S. and Canada but now being used in Australia, Japan, Scotland, Singapore, and elsewhere. Our Cybersecurity Academy is now providing curriculum to thousands of high schools, colleges and universities in hundreds of countries around the world. In addition, by partnering with the IIT (BHU) Foundation and the Thurgood Marshall College Fund, we are funding scholarships to help make higher education more accessible to those in need.
Because inclusion and diversity is important to Palo Alto Networks, we allocate charitable funding to our ENGs to enable them to support non-profit organizations committed to reaching the needs of underrepresented communities. In fiscal 2022, we supported dozens of organizations to help them achieve their respective missions.
In addition to making charitable grants to support causes like mental health and wellness, hunger and basic needs, we invested in expanding the talent pipeline to underrepresented communities. We also supported environmental and social justice causes. Lastly, to address the digital divide, promote reuse, and reduce our e-waste we engaged in an external partnership to efficiently donate obsolete equipment, accessories and furnishings for social benefit.
Engaging Employees to Increase Impact
Employees continued to participate in our giving, matching and volunteer programs to make impacts in their local communities.
Aligned with our FLEXWORK philosophy, we continued to offer virtual volunteer projects so that employees had choice in how they support their communities, while at the same time supporting in-person volunteer activities. Employees volunteered as individuals and often in groups to make a meaningful difference. While employees always have choice in the causes they support, on occasion we also highlight causes through “drives” such as our Annual Hunger Campaign as well as relief for natural disasters and humanitarian efforts. Between our “Dollar-for-Doers” volunteer and matching gift programs, thousands of causes received funding.
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Corporate Behavior
Ethics & Compliance
Palo Alto Networks Inc., Attention:is committed to conducting business with high degrees of honesty and integrity wherever we operate. Integrity is one of our core values and we respect our customers, partners, employees and stockholders.
Our Code of Business Conduct and Ethics summarizes the ethical standards and key policies that guide the business conduct of the directors, officers and employees of the Company, and we have a public Global Supplier Code of Conduct, both available on our corporate website. All employees, contractors and suppliers are informed about our governance expectations through our Codes of Conduct and compliance training programs.
We also have a policy focused on respect in the workplace and a corresponding training through our FLEXLearn platform. All new hires must complete the training and existing global employees are required to complete the training every other year. The training includes anti-discrimination, antiharassment and anti-retaliation lessons and hypotheticals. Our Audit Committee and ESG and Nominating Committee of the Board are responsible for oversight of our Code of Business Conduct and Ethics compliance program. Our Ethics Hotline is also publicly available.
Information Security & Privacy
Palo Alto Networks maintains a written information security program that is managed by our Chief Information Security Officer, who is responsible for overseeing and implementing the program; includes administrative, technical and physical safeguards reasonably designed to protect the confidentiality, integrity, and availability of end user data; and is appropriate to the nature, size and complexity of Palo Alto Networks’ business operations. The Security Committee of our Board of Directors reviews data privacy and cybersecurity strategies and risks and provides oversight over risk mitigation related to cyber threats. Eight of our 12 Board Directors have cybersecurity and IT technology expertise. We provide annual information security and compliance training to all of our employees.
We engage external agencies to conduct background checks for personnel. We also maintain a security process to conduct appropriate due diligence prior to engaging contractors; assess the security capabilities of subcontractors on a periodic basis; and require subcontractors to adhere to our key information security policies and standards. We also restrict access to, control and monitor physical areas where we process end user data. Data centers that we operate are in alignment with industry standards such as ISO 27001 and SSAE 16 or ISAE 3402.
We deploy firewall technology and an intrusion detection system to generate, monitor and respond to alerts which could indicate potential compromise of our network. We also apply security by design principles throughout the software development lifecycle, track vulnerabilities of open-source software, and run internal and external network scans at least quarterly and after any material change in the network configuration. We conduct application security assessments using a qualified third party, such as our annual assessment for internet-facing applications that collect, transmit or display end user data.
Palo Alto Networks also develops, implements and maintains a business continuity management program to address the needs of the business and the products we provide to customers. To that end, we complete a minimum level of business impact analysis, crisis management, business continuity and disaster recovery planning.
Privacy is important to our customers and helps us build trust. Our privacy practices are informed by several key principles including:
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ESG at Palo Alto Networks
Palo Alto Networks has always been a values-based company, and the core principles of ESG have been part of our day-to-day operations. Still, the Company has made a dedicated focus to continuously improve and further integrate ESG into the business. From elevated environmental initiatives, such as setting emissions reduction goals aligned to Science-Based Targets and constantly evolving social strategies like FLEXWORK to increased transparency in our governance and disclosures, including our fiscal 2021 ESG Supplement released in October 2021, we have made strides to advance our ESG journey.
We have made improvements and yet we recognize that we have more work to do, particularly as stakeholders become more and more interested in our efforts and as regulatory matters and ESG frameworks evolve. During fiscal 2022, our overall ESG performance improved across all of the rating institutions we measure against. We monitor these ratings so that we remain diligent in our practices and execute a path to achieve our place as industry leaders in ESG.
Recognized by Sustainalytics as “Industry Top Rated” for our overall ES performance (2022, 2021) | Recognized by Institutional Shareholder Services (ISS) as Prime (2022) | Achieved “Gold” rating by EcoVadis (2021) | Recognized by JUST Capital as a “Top 100 Most JUST Company in America” (2022) |
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Governance Highlights
Our Board is governed by our Corporate Governance Guidelines, which are amended from time to time to incorporate certain current best practices in corporate governance. Our Corporate Governance Guidelines may be found on our website at https://investors.paloaltonetworks.com.
In addition to a strong, independent Board, we are committed to corporate governance structures that promote long-term stockholder value creation through a sound leadership structure and by providing our stockholders with both the opportunity to provide direct feedback, and substantive rights and policies to ensure accountability.
THE BOARD’S CORPORATE GOVERNANCE PRACTICES AND STOCKHOLDER RIGHTS INCLUDE THE FOLLOWING: |
✓Majority voting for uncontested elections of board members, with an associated resignation policy ✓Strong Lead Independent Director ✓Board Composed of 75% Independent Directors ✓100% Independent Audit Committee, ESG and Nominating Committee, Compensation and People Committee and Security Committee ✓Annual Review of Board leadership Structure ✓Board Refreshment ✓Director Changes in Circumstances Actively Evaluated ✓Board and Committee Access to Management ✓Annual Board and Committee Evaluations ✓Independent Compensation and People Committee Consultant ✓Board Authority to Retain Outside Advisors ✓Board and Committee Risk Oversight, including Security ✓Board Continuing Education Program ✓No Poison Pill ✓Single Class of Shares | ✓Formed the Security Committee of our Board to enhance oversight over security issues, including cybersecurity ✓Annual Review of Committee Charters and Governance Policies ✓Fair Director Compensation Practices ✓Active Management Succession Oversight ✓Active Management of Director Conflicts of Interest ✓Annual Say-on-Pay Vote ✓Continuous Stockholder Engagement Program ✓Stock Ownership Guidelines for Directors and Executive Officers ✓Code of Business Conduct and Ethics for Directors, Officers and Employee ✓Anti-Hedging Policy ✓Restrictive Pledging Policy ✓Clawback Policy ✓Regular Meetings of Independent Directors Without Management Present ✓Proxy Access Bylaws |
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Corporate Governance
Board Responsiveness to Investors in FY2022
Our Board is committed to actively engaging with our stockholders, and committed to maintaining outreach that is truly a dialogue with our stockholders. Through year-round engagement and outreach, we regularly provide stockholders with opportunities to deliver feedback on our corporate governance, executive and director compensation, and environmental and sustainability practices. We regularly meet with investors, prospective investors, and investment analysts. These meetings can include participation by our Chair and Chief Executive Officer, Chief Financial Officer, Chief Products Officer, General Counsel and Corporate Secretary 3000 Tannery Way, Santa Clara, California 95054.
Our amended and restated bylaws also establish an advance notice procedure for stockholders who wish to present a proposal before anFollowing our 2021 annual meeting of stockholders, but do not intend for the proposalwe reinvigorated our approach and practices to be includedstockholder engagement and implemented a strategy that focused on extensive engagement on a wide range of topics. Our Lead Independent Director played an active and central role in our proxy statement. Our amendedstockholder engagement efforts in fiscal 2022, and restated bylaws provide that the only business that may be conducted at an annual meeting is business that is (i) specified in our proxy materials with respect to such annual meeting, (ii) otherwise properly brought before the annual meeting by or at the direction of our board of directors, or (iii) properly brought before the annual meeting by amanagement team regularly communicated topics discussed and stockholder of record entitled to vote at the annual meeting who has delivered timely written notice to our Corporate Secretary, which notice must contain the information specified in our amended and restated bylaws. To be timely for our 2020 annual meeting of stockholders, our Corporate Secretary must receive the proper written notice at our principal executive offices:
not earlier than the close of business on August 11, 2020; and
not later than the close of business on September 10, 2020.
In the event that we hold our 2020 annual meeting of stockholders more than 30 days before or more than 60 days after theone-year anniversary of the Annual Meeting, then notice of a stockholder proposal that is not intended to be included in our proxy statement must be received no earlier than the close of business on the 120th day before such annual meeting and no later than the close of business on the later of the following two dates:
the 90th day prior to such annual meeting; or
the 10th day following the day on which public announcement of the date of such annual meeting is first made.
If a stockholder who has notified us of his, her or its intention to present a proposal at an annual meeting does not appear to present his, her or its proposal at such annual meeting, we are not required to present the proposal for a vote at such annual meeting.
Recommendation and Nomination of Director Candidates
You may recommend director candidates for consideration by our nominating and corporate governance committee. Any such recommendations should include, among other requirements, information about the candidate, a statement of support by the recommending stockholder, evidence of the recommending stockholder’s ownership of our common stock and a signed letter from the candidate confirming willingness to serve on our board of directors, and should be directed to our Corporate Secretary at the address set forth above. For additional information regarding stockholder recommendations for director candidates, see the section titled “Board of Directors and Corporate Governance—Stockholder Recommendations for Nominationsfeedback to the Board and our Board committees for consideration in their decision-making.
Who we met with | •Investors holding 60% of shares outstanding engaged with in discussions •Investors holding 39% of shares outstanding engaged by Lead Independent Director | |
Our Primary engagement team | •Lead Independent Director (participated in 30 meetings) •Investor Relations team •General Counsel & Corporate Secretary •People Team (human resources) •Corporate responsibility team | |
What we discussed | •Executive compensation •Board structure •Board composition and governance, including Board refreshment and diversity •Board oversight •Board leadership •Stockholder engagement •ESG initiatives •ESG disclosure and governance |
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Corporate Governance
WHAT WE HEARD | HOW WE RESPONDED |
Board Governance Plurality voting for directors, dual role of CEO and Chairman and annual election of all Board members | •Adopted a majority voting requirement for uncontested elections of directors, including a resignation policy in the event a director does not receive a majority of the vote. •Committed to maintaining our practice of annually reviewing our Board leadership structure, including whether an independent director should be the Chair of our Board. •Committed to maintaining our practice of annually reviewing whether maintaining a classified Board is appropriate for our Company. |
Board Oversight of Risks, Including Cybersecurity and ESG Risks How the Board is addressing oversight of increased, varied and new risks. | •Formed the Security Committee of our Board to enhance oversight over security issues facing our Company, including cybersecurity. •Reconstituted our Nominating and Corporate Governance Committee as the ESG and Nominating Committee to enhance the Board’s oversight of ESG matters. •Reallocated ESG responsibilities among our Board Committees, clearly identifying the responsibilities of each Committee. •Added additional disclosure in this proxy statement relating to Board oversight. |
Board Diversity and Refreshment The duration of Board service by certain long-standing directors, and the makeup of the Board and the rationale therefore. | •The Board appointed Ms. Bawa and Dr. Gayle to our Board during fiscal 2021, increasing the gender, racial and ethnic diversity of the Board. Presently, four of our twelve directors are women. •During the period between April 2019 and May 2021, we appointed four new independent directors: Ms. Bawa, Dr. Gayle, Ms. Twohill and Rt Hon Sir John Key. •Expanded disclosure in this proxy statement of the rationales as to why each of our directors continue to serve on our Board. |
Stockholder Engagement Continued 1:1 investor outreach on compensation, ESG and other matters of interest to our stockholders. | •Conducted extensive stockholder and investor outreach. •Engaged in discussion with stockholders holding 60% of our outstanding shares. •Our Lead Independent Director participated in 30 investor meetings and engaged in discussion with stockholders holding 39% of our outstanding shares. |
2022 Proxy Statement | 29 |
Corporate Governance
WHAT WE HEARD | HOW WE RESPONDED |
ESG Initiatives, Disclosure and Governance Would like to see more information about how we develop and manage environmental, social and governance initiatives. | • Published our first ESG report in fiscal 2022, in which we report on our carbon emissions. • Added more disclosure in our annual report on Form 10-K and this proxy statement describing our ESG initiatives and our ESG governance. • Adopted a set of Climate Commitments that include our strategies to be carbon neutral by 2030, use 100% renewable energy, reduce emissions aligned to Science-Based Targets and advocate for climate action. • Increased our social impact programs, to leverage our core competency in cybersecurity and align those efforts to help develop a diverse talent pipeline while uplifting communities. • Formed the Palo Alto Networks Cybersecurity Education Fund with a mission to fund education programs focused on cybersecurity that inspire youth. • Reconstituted our Nominating and Corporate Governance Committee as the ESG and Nominating Committee to enhance our focus on ESG matters. • Formalized our ESG governance structure by forming an ESG Steering Committee, with employees from accounting, internal audit, operations, legal and corporate responsibility to recommend strategies and lead implementation of ESG programs, which reports regularly to our ESG Executive Leadership Team and the Board. |
Executive Compensation Modifications to the structure of our executive compensation program and enhanced disclosure. | • 100% of our NEOs’ equity compensation (aside from new hire awards) is performance-based, with different performance targets than the cash incentive plan awards. • Increased our stock ownership guidelines for our NEOs, including our Chief Executive Officer. • Added an ESG modifier to our cash incentive plan. • Established a one-year post-vesting holding period for all NEOs, including our Chief Executive Officer. |
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Corporate Governance
Our Corporate Governance Guidelines provide that our Board is free to choose its chairperson (the “Chair”) based on our Board’s view of what is in the best interest of the Company and our stockholders. The Chair and the Chief Executive Officer may, but need not be, the same person.
Annual Evaluation of Leadership Structure and Annual Election of Lead Independent Director
As part of its annual review and evaluation process, the Board reviews its leadership structure and whether combining or separating the roles of Chair and Chief Executive Officer is in the best interests of the Company and our stockholders. The Board also considers:
• | The effectiveness of the policies, practices, and people in place at the Company to help ensure strong, independent Board oversight. |
• | The importance of consistent, unified leadership to execute and oversee the Company’s strategy. |
• | The strength of Mr. Arora’s vision for the Company and the quality of his leadership. |
• | Our performance and the effect the leadership structure could have on our performance. |
• | The Board’s performance and the effect the leadership structure could have on the Board’s performance. |
• | The meaningful and robust responsibilities and the performance of our Lead Independent Director. |
• | The views of our stockholders through our ongoing engagement efforts. |
• | The practices at other companies and trends in governance. |
• | The current state of our Company. |
In addition, our amended and restated bylaws permit stockholders or a group of stockholders that wish to nominate one or more directors for election at an annual meeting of stockholders to submit such request pursuant to our company’s proxy access bylaw provision. To nominate a director, the stockholder must provide the information required by the proxy access provision of our amended and restated bylaws. In addition, the stockholder must give timely notice to our Corporate Secretary in accordance with our amended and restated bylaws, which, in general, requirecircumstance that the notice be received by our Corporate Secretary at our principal executive offices:
not earlier thanBoard determines that it remains in the close of business on May 25, 2020; and
not later than the close of business on June 24, 2020.
Availability of Bylaws
A copy of our amended and restated bylaws may be obtained by accessing our public filings on the SEC’s website at www.sec.gov. You may also contact our Corporate Secretary at our principal executive offices for a copybest interests of the relevant bylaw provisions regarding the requirements for making stockholder proposalsCompany and nominating director candidates.
ELECTION OF DIRECTORS
Our business affairs are managed under the direction of our board of directors, which is currently composed of thirteen members. Ten of our directors are independent within the meaning of the listing standards of the New York Stock Exchange (“NYSE”) and SEC rules and regulations. Our board of directors is divided into three staggered classes of directors. At each annual meeting ofits stockholders a class of directors will be elected for a three-year term to succeed the same class whose term is then expiring.
Each director’s term continues until the election and qualification of his or her successor, or such director’s earlier death, resignation, or removal. Any increase or decrease in the number of directors will be distributed among the three classes so that as nearly as possible, each class will consist ofone-third of our directors. This classification of our board of directors may have the effect of delaying or preventing changes in control of our company.
On October 16, 2019, Sridhar Ramaswamy, one of our Class II directors, informed us that he is not standing forre-election at the Annual Meeting. Additionally, on October 18, 2019, Frank Calderoni, one of our Class III directors, informed us that he is resigning from our board of directors effective as of the date of our Annual Meeting. We thank each of Messrs. Calderoni and Ramaswamy for their service to our company and board of directors.
The names and certain other information as of October 22, 2019 for each of the nominees for election as a director, and for each of the continuing andnon-continuing members of the board of directors are set forth below.
Class | Age | Position | Director Since | Current Term Expires | Expiration of Term For Which Nominated | |||||||||||||||||
Nominees | ||||||||||||||||||||||
Asheem Chandna (2) (3) | II | 55 | Director | 2005 | 2019 | 2022 | ||||||||||||||||
James J. Goetz (2) (3) | II | 53 | Director | 2005 | 2019 | 2022 | ||||||||||||||||
Mark D. McLaughlin | II | 53 | Vice Chairman | 2011 | 2019 | 2022 | ||||||||||||||||
Continuing Directors | ||||||||||||||||||||||
Nikesh Arora | III | 51 | Chairman and Chief Executive Officer | 2018 | 2020 | — | ||||||||||||||||
Carl Eschenbach (2) (3) | III | 52 | Director | 2013 | 2020 | — | ||||||||||||||||
Daniel J. Warmenhoven (2) (3) (4) | III | 68 | Director | 2012 | 2020 | — | ||||||||||||||||
Lorraine Twohill | III | 48 | Director | 2019 | 2020 | — | ||||||||||||||||
John M. Donovan (1) | I | 59 | Director | 2012 | 2021 | — | ||||||||||||||||
Mary Pat McCarthy (1) | I | 64 | Director | 2016 | 2021 | — | ||||||||||||||||
Rt Hon Sir John Key | I | 58 | Director | 2019 | 2021 | — | ||||||||||||||||
Nir Zuk | I | 48 | Director and Chief Technology Officer | 2005 | 2021 | — | ||||||||||||||||
Non-Continuing Directors | ||||||||||||||||||||||
Frank Calderoni (1) | III | 62 | Director | 2016 | 2020 | — | ||||||||||||||||
Sridhar Ramaswamy (3) | II | 53 | Director | 2017 | 2019 | — |
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Asheem Chandna has served as a member of our board of directors since April 2005. Mr. Chandna has been a Partner at Greylock Partners, a venture capital firm, since September 2003, where he focuses on investments in enterprise IT, including security products. From April 2003 to June 2013, Mr. Chandna was a director of Imperva, Inc., a provider of cyber security solutions. From April 1996 to December 2002, Mr. Chandna was Vice President, Business Development and Product Management at Check Point Software. Mr. Chandna currently serves on the board of directors of a number of privately held companies. Mr. Chandna holds a B.S. in Electrical Engineering and an M.S. in Computer Engineering from Case Western Reserve University. Mr. Chandna was selected to serve on our board of directors because of his specific professional experience with Internet security products, his extensive background with enterprise IT companies, and his public and private company board experience.
James J. Goetz has served as a member of our board of directors since April 2005. Mr. Goetz has been a managing member of Sequoia Capital Operations, LLC, a venture capital firm, since June 2004, where he focuses on cloud, mobile, and enterprise companies. Mr. Goetz currently serves on the board of directors of several privately held companies. Mr. Goetz has previously served on the boards of directors of Barracuda Networks, Inc., a data security and storage company from 2009 to 2017, Nimble Storage, Inc., a data storage company, from 2007 to 2017, Jive Software, Inc., a provider of social business software, from 2007 until 2015, and Ruckus Wireless, Inc., a manufacturer of wireless(Wi-Fi) networking equipment, from 2012 until 2015. Mr. Goetz holds an M.S. in Electrical Engineering with a concentration in Computer Networking from Stanford University and a B.S. in Electrical Engineering with a concentration in Computer Engineering from the University of Cincinnati. Mr. Goetz was selected to serve on our board of directors because of his deep experience with the venture capital industry and providing guidance and counsel to a wide variety of Internet and technology companies.
Mark D. McLaughlin has served as our Vice Chairman since June 2018, and has been a member of our board of our directors since August 2011. During that period, from April 2012 until June 2018 he served as Chairman of our board of directors. Mr. McLaughlin served as our Chief Executive Officer from August 2011 until June 2018 and also servedserve as President from August 2011 through August 2016. From August 2009 through July 2011, Mr. McLaughlin served as President and Chief Executive Officer and as a director at VeriSign, Inc., a provider of Internet infrastructure services, and from January 2009 to August 2009, Mr. McLaughlin served as President and Chief Operating Officer at VeriSign. From February 2000 through November 2007, Mr. McLaughlin served in several roles at VeriSign, including as Executive Vice President, Products and Marketing. Prior to joining VeriSign, Mr. McLaughlin was Vice President, Sales and Business Development at Signio Inc., an Internet payments company acquired by VeriSign in February 2000. In January 2011, President Barack Obama appointed Mr. McLaughlin to serve onour Chair, the President’s National Security Telecommunications Advisory Committee. Mr. McLaughlin currently serves on, and is the Chairmanindependent members of the board of directors of Qualcomm, Inc.,Board then elect a global semiconductor company that designs and markets wireless telecommunications products and services, and previously served on the board of directors of Opower, Inc., a provider of cloud based software to the utility industry. Mr. McLaughlin holds a B.S. from the U.S. Military Academy at West Point and a J.D. from Seattle University School of Law. Mr. McLaughlin was selected to serve on our board of directors because of the perspective and experience he brings as our former Chief Executive Officer and his extensive background in the technology industry.
If you are a stockholder of record and you sign your proxy card or vote by telephone or over the Internet but do not give instructions with respect to the voting of directors, your shares will be voted “FOR” there-election of Messrs. Chandna, Goetz, and McLaughlin. We expect that each of Messrs. Chandna, Goetz, and McLaughlin will accept such nomination; however, in the event that a director nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee who shall be designated by our board of directors to fill such vacancy. If you wish to give specific instructions with respect to the voting of directors, you may do so by indicating your instructions on your proxy card or when you vote by telephone or
over the Internet. If you are a street name stockholder and you do not give voting instructions to your broker or nominee, your shares will not be voted on this matter.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH
OF THE NOMINEES NAMED ABOVE.
BOARD OF DIRECTORS AND CORPORATE GOVERNANCE
Nikesh Arora has served as the Chairman our board of directors and Chief Executive Officer since June 2018. Prior to joining us, from 2016 through 2018 Mr. Arora was an angel investor and from June 2016 through December 2017, Mr. Arora served as an advisor to SoftBank Group Corp., a multinational conglomerate company (“SoftBank”). From July 2015 through June 2016, Mr. Arora served as president and chief operating officer of SoftBank and from July 2014 through June 2015, Mr. Arora served as vice chairman and chief executive officer of SoftBank Internet and Media, a subsidiary of SoftBank. Prior to SoftBank, from December 2004 through July 2014, Mr. Arora held multiple senior leadership operating roles at Google, Inc., including serving as senior vice president and chief business officer, from January 2011 to June 2014. Mr. Arora also serves on the board of Compagnie Financiere Richemont S.A., a public Switzerland-based luxury goods holding company. Mr. Arora previously served on the boards of Sprint Corp., a communications services company, from November 2014 to June 2016, Colgate-Palmolive Company, a worldwide consumer products company focused on the production, distribution and provision of household, health care and personal care products, from March 2012 to September 2014, SoftBank from 2014 to 2016, and Yahoo! Japan, an internet company, from 2015 to 2016. Mr. Arora holds an M.S. in Business Administration from Northeastern University, an M.S. in Finance from Boston College, and a B.Tech in electrical engineering from the Institute of Technology at Banaras Hindu University. Mr. Arora was chosen to serve on our board of directors due to his extensive experience scaling technology businesses and executive leadership at leading edge technology companies.
John M. Donovan has served as a member of our board of directors since September 2012. Mr. Donovan, now retired, worked at AT&T Inc., a provider of telecommunication services, since April 2008, first as Chief Technology Officer and subsequently as Chief Executive Officer—AT&T Communications until his resignation, effective October 1, 2019. From November 2006 to April 2008, Mr. Donovan was Executive Vice President of Product, Sales, Marketing and Operations at Verisign. From November 2000 to November 2006, Mr. Donovan served as Chairman and CEO of inCode Telecom Group Inc., a provider of strategy and consulting services to the telecommunications industry. Prior to joining inCode, Mr. Donovan was a Partner with Deloitte Consulting where he was the Americas industry practice director for telecommunications. Mr. Donovan holds a B.S. in Electrical Engineering from the University of Notre Dame and an M.B.A. from the University of Minnesota. Mr. Donovan was selected to serve on our board of directors because of his extensive experience in the telecommunications industry.
Carl Eschenbach has served as a member of our board of directors since May 2013. Mr. Eschenbach has been a general partner at Sequoia Capital Operations, LLC, a venture capital firm, since April 2016. Prior to joining Sequoia Capital Operations, LLC, Mr. Eschenbach served as Chief Operating Officer and President of VMware, Inc., a provider of cloud and virtualization software and services, a role he held from December 2012 to February 2016. Mr. Eschenbach previously served as VMware’s President and Chief Operating Officer from April 2012 to December 2012, as VMware’sCo-President, Customer Operations from January 2011 to April 2012 and as VMware’s Executive Vice President of Worldwide Field Operations from May 2005 to January 2011. Prior to joining VMware in 2002, he was Vice President of North America Sales at Inktomi from 2000 to 2002. Mr. Eschenbach also held various sales management positions with 3Com Corporation, Lucent Technologies Inc. and EMC. Mr. Eschenbach also serves on the board of directors of Zoom Video Communications, Inc., a video communications company, and Workday, Inc., anon-demand financial management and human capital management software vendor. Mr. Eschenbach received an electronics technician diploma from DeVry University. Mr. Eschenbach was selected to serve on our board of directors because of his extensive experience in the technology industry and his previous public company management experience.
Right Honorable Sir John Key has served as a member of our board of directors since April 2019. Sir John was a Member of Parliament for Helensville in New Zealand until April 2017. Sir John served as Prime Minister
of New Zealand from November 2008 to December 2016 having commenced his political career as a Member of Parliament for Helensville in July 2002. Prior to his political career, he had a nearly twenty-year career in international finance, primarily for Bankers Trust of New Zealand and Merrill Lynch in Singapore, London and Sydney. Sir John serves as the chairman and member of the board of directors of ANZ Bank New Zealand Ltd and is a member of the board of directors of the parent Australia & New Zealand Banking Group Ltd, a public bank that provides various banking and financial products and services. He is also a member of the board of directors of Air New Zealand Ltd, a public domestic and international passenger transport and cargo company. Sir John has a Bachelor of Commerce in Accounting from the University of Canterbury. Sir John was selected to serve on our board of directors due, in part, to his extensive background in foreign affairs and his career in investment banking and finance.
Mary Pat McCarthy has served as a member of our board of directors since October 2016. Ms. McCarthy, now retired, served as Vice Chair of KPMG LLP, the U.S. member firm of the global audit, tax and advisory services firm, until 2011 after attaining such position in 1998. She joined KPMG LLP in 1977 and became a partner in 1987. She held numerous senior leadership positions in the firm, including Executive Director of the KPMG Audit Committee Institute from 2008 to 2011, Leader of the KPMG Client Care Program from 2007 to 2008, U.S. Leader, Industries and Markets from 2005 to 2006, and Global Leader, Information, Communication and Entertainment Practice from 1998 to 2004. Ms. McCarthy also served on KPMG’s Management and Operations Committees. Ms. McCarthy earned a Bachelor of Science degree in Business Administration from Creighton University and completed the University of Pennsylvania Wharton School’s KPMG International Development Program. Ms. McCarthy serves as a director of Micron Technology, Inc., a producer of semiconductor devices and previously served on the board of directors of Mutual of Omaha, an insurance and banking company, and Andeavor Corporation (formerly Tesoro Corporation), a global energy corporation. Ms. McCarthy was selected to serve on our board of directors due, in part, to her background as the former chairperson of the Audit Committee of each of Andeavor Corporation and Mutual of Omaha and her financial and accounting expertise from her prior extensive experience as the Vice Chair of KPMG LLP.
Lorraine Twohill has served as a member of our board of directors since April 2019. Ms. Twohill currently serves as Google LLC’s (formerly Google, Inc.) Chief Marketing Officer, a position she has held since June 2009. From July 2003 until June 2009, Ms. Twohill served as Google’s Head of Marketing Europe, Middle East and Africa. Ms. Twohill previously served on the board of directors of Williams-Sonoma, Inc., a consumer retail company that sells kitchenwares and home furnishings, from January 2012 until May 2017. Ms. Twohill holds joint honors degrees in International Marketing and Languages from Dublin City University. Ms. Twohill was selected to serve on our board of directors due to her extensive marketing knowledge, with over 25 years of experience, and her strong insight into brand management and global issues.
Daniel J. Warmenhoven,now retired, has served as the Lead Independent Director as provided in our Corporate Governance Guidelines.
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Corporate Governance
Why Our Leaders Are Ideally Suited For Their Roles
The Board believes that the independent Board members should have the flexibility to respond to changing circumstances and choose the Board leadership structure that best fits the then-current situation. As it does annually, in August 2022, the Board reviewed our board of directors since March 2012. From October 1994 to August 2009, Mr. Warmenhoven was Chief Executive Officer at NetApp, Inc., a provider of hybrid cloud data services and data management, and on their board of directors as Executive Chairman from August 2009 through September 2014. Mr. Warmenhoven previously served onleadership structure. Following that review, the board of directors of Aruba Networks, a vendor of data networking solutions. Mr. Warmenhoven holds a B.S. degree in Electrical Engineering from Princeton University. Mr. Warmenhoven was selected to serve on our board of directors because of his extensive experience inBoard determined that the technology industry and his public company management and board experience.
Nir Zuk is one of our founders and has served as our Chief Technology Officer and as a member of our board of directors since March 2005. From April 2004 to March 2005, Mr. Zuk was Chief Security Technologist at Juniper Networks, Inc., a supplier of network infrastructure products and services. From September 2002 until its acquisition by Juniper in April 2004, Mr. Zuk was Chief Technology Officer at NetScreen Technologies, Inc., a provider of ASIC-based Internet security systems. In December 1999, Mr. Zukco-founded OneSecure, Inc., a provider of prevention and detection appliances, and was Chief Technical Officer until its acquisition by NetScreen in September 2002. From 1994 to 1999, Mr. Zuk served in several technical roles, including Principal
Engineer at Check Point Software Technologies Ltd., an enterprise software security company. Mr. Zuk attended Tel Aviv University where he studied Mathematics. Mr. Zuk was selected to serve on our board of directors becausecombination of the perspective and experience he brings as one of our founders and as one of our largest stockholders, as well as his extensive experience with network security companies.
Frank Calderoni has served as a member of our board of directors since February 2016. Since January 2017, Mr. Calderoni has served as Chairman and Chief Executive Officer roles, along with the robust authority given to our experienced Lead Independent Director, effectively maintains independent oversight of management. The Board consists of nine independent directors, and exercises a directorstrong, independent oversight function through frequent executive sessions, independent Board committees and by having a strong Lead Independent Director with clearly delineated and comprehensive duties.
The Board strongly believes that its leadership structure strikes the right balance of Anaplan, Inc.,allowing our Chair and Chief Executive Officer to promote a clear, unified vision of the Company’s strategies, while ensuring robust, independent oversight by the Board and our Lead Independent Director. The Board also believes there is value in presenting a single face to our customers through combining the Chair and Chief Executive Officer roles, and that this structure of having the Board and management operate under the unified leadership of a highly experienced Chief Executive Officer best positions the Company to successfully implement its next phase of growth.
Accordingly, in August 2022, the Board determined that it is in the best interests of our stockholders for Mr. Arora to serve as Chair and John Donovan to serve as Lead Independent Director.
| Nikesh Arora Chief Executive Officer | John M. Donovan Lead Independent | |
• Substantial knowledge and deep understanding of our business and the challenges we face • Substantial international business experience and business acumen and valued strategic, financial and operational insights • Day-to-day insight into our prospects, opportunities, strategies and challenges facilitates the timely deliberation by the Board of the most important matters • Brings a unique, stockholder-focused insight to assist the Company to most effectively execute its strategy and business plans to maximize stockholder value • Serves as an important bridge between the Board and management, and provides critical leadership for carrying out our strategic initiatives and confronting our challenges • Provides the Board with more complete and timely information about the Company • Provides a unified structure and consistent leadership direction internally and externally • Proven success in leading Palo Alto Networks since joining the Company | • Independence, confidence and gravitas, enabling strong oversight of executive leadership • Deep understanding of our business • Strong working relationship with our Chair and Chief Executive Officer • Strong working relationship with other management and our independent directors • Substantial experience leading large multinational companies • Strong background in corporate governance • Dedicated to his service as Lead Independent Director, as demonstrated by the fact that he met with stockholders holding 39% of our outstanding shares during fiscal 2022 • Strength and effectiveness of communication with Mr. Arora, resulting in active and visible oversight of the issues, plans and prospects of Palo Alto Networks • Promotes a collaborative and collegial environment for Board decision making |
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Corporate Governance
OVERVIEW OF LEAD INDEPENDENT DIRECTOR RESPONSIBILITIES |
The responsibilities of the Lead Independent Director are well-defined. The Lead Independent Director engages in regular communication between the independent directors and Mr. Arora, keeping Mr. Arora apprised of any concerns, issues, or determinations made during the independent sessions, and consults with Mr. Arora on other matters pertinent to the Company and the Board. As part of the Board’s annual review and evaluation, the Board further defined the role and responsibilities of our Lead Independent Director to include:
• | Presiding at meetings of the Board at which the Chair is not present, including executive sessions of the independent directors. |
• | Serving as liaison between the Chair and the independent directors. |
• | Developing agendas for Board meetings in collaboration with the Chair, and communicating with independent Board members to ensure that matters of interest are being included on agendas for Board meetings. |
• | Communicating with independent Board members and with management to affirm that appropriate briefing materials are being provided to Board members sufficiently in advance of Board meetings to allow for proper preparation and participation at meetings. |
• | Having the authority to call meetings of the independent directors. |
• | Preparing agendas for meetings of the independent directors. |
• | Organizing and leading the Board’s evaluation of the Chief Executive Officer. |
• | Leading the Board’s annual self-evaluation. |
• | If requested by major stockholders, ensuring that he is available, as necessary after discussions with the Chair and Chief Executive Officer, for consultation and direct communication. |
In addition to the responsibilities outlined above, our Lead Independent Director also:
• | Has biennial one-on-one discussions with each independent director, as part of the Board’s annual evaluation process. |
• | Has access to all committee materials. |
• | Has the authority to engage independent consultants. |
• | Interviews Board candidates. |
• | Spends time with senior management outside of Board meetings (as necessary) to ensure a deep understanding of the business and strategy of the Company. |
• | Participates in stockholder engagement planning and activities. |
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Corporate Governance
Independent Directors Sessions
A meeting of the independent directors is scheduled at every regular Board meeting and the independent directors meet in an executive session. These independent sessions are organized and chaired by our Lead Independent Director, and our Lead Independent Director provides direct feedback to Mr. Arora after these executive sessions.
Independent Committee Leadership
The Audit, Compensation and People, Security, and ESG and Nominating Committees are each composed solely of, and led by, independent directors, and provide independent oversight of management. In addition:
• | Each committee chair meets with management in advance of meetings to review and refine agendas, add topics of interest, and review and comment on materials to be delivered to the committee. |
• | Every independent director has access to all committee materials. |
• | Each committee chair provides a report summarizing committee meetings to the full Board at each regular meeting of the Board. |
• | Each committee meeting includes adequate time for executive session and the committees meet in executive session on a regular basis with no members of management present (unless otherwise requested by the committee). |
• | Each committee effectively manages its Board-delegated duties and communicates regularly with the Chair, Lead Independent Director, the Board, and members of management. |
Furthermore, the Compensation and People Committee has an effective process for monitoring and evaluating Mr. Arora’s compensation and performance, as well as succession planning.
Board’s Role in Strategy Oversight
Our Board is responsible for overseeing the development of the Company’s strategy (including product development roadmaps), which articulates objectives for the business, helps establish and maintain effective risk management platform. From June 2015and internal controls frameworks, and provides direction to January 2017, Mr. Calderoni servedsenior management to determine which business opportunities to pursue. The Board is also actively engaged in ensuring that Palo Alto Networks culture reflects our commitment to our core values ofdisruption, execution, collaboration, integrity and inclusion.
Annually holds a strategy offsite, receiving detailed presentations from, and engagement with, senior management across the Company | Annually reviews and approves the Palo Alto Networks operating plan | Quarterly engagement with senior management on critical business matters that tie to Palo Alto Network’s overall strategy | Regularly interacts with the next generation of leadership to ensure the talent pipeline remains diverse, inclusive and up to the task | |||
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Corporate Governance
Board’s Role in Risk Oversight
Risk is inherent with every business, including strategic, financial, business and operational, legal and compliance, and reputational. We have designed and implemented processes to manage risk in our operations. Management is responsible for the day-to-day management of risks our Company faces, while our Board, as a whole and assisted by its committees, has responsibility for the oversight of risk management. In its risk oversight role, our Board has the responsibility to satisfy itself that the risk management processes designed and implemented by management are appropriate and functioning as designed.
Our Board believes that open communication between management and our Board is essential for effective risk management and oversight.
While our Board is ultimately responsible for risk oversight, our Board committees assist our Board in fulfilling its oversight responsibilities in certain areas of risk.
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Corporate Governance
Annual Board and Committee Self-Evaluations
Our Board and each of its committees perform an annual self-assessment to evaluate the effectiveness of our Board and its committees in fulfilling their respective obligations. As part of this annual self-assessment, directors are able to provide feedback on the performance of other directors.
Our Lead Independent Director, who is also the Chair of our ESG and Nominating Committee, leads our Board in its review of the results of the annual self-assessment and takes further action as needed. In connection with the annual evaluation, each director receives a survey to complete to evaluate the Board and separate surveys for each committee on which they serve. These surveys include detailed questions regarding: the effectiveness and performance of the Board and committees; Board and committee composition and refreshment; timing, agenda, and content of Board and committee meetings; Board dynamics and function; peer reviews of other members; access to and performance of management; and executive succession planning. At least biennially our Lead Independent Director also conducts one-on-one meetings with each director to receive their feedback and assessment of the Board and its committees. A summary of the results is presented to the Board and each committee on an anonymous basis.
In addition, all members of our Board have the opportunity to attend director education programs to assist them in remaining current with best practices and developments in corporate governance.
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Corporate Governance
Our Board and management team recognize the importance of continually developing our talented employee base. Accordingly, our management team conducts an annual talent review of the current senior leadership positions. In addition, our Chief Executive ViceOfficer annually reviews a succession plan for the Chief Executive Officer position, using formal criteria to evaluate potential internal and external successors and interim candidates in the event of an emergency situation. In conducting its evaluation, our Board considers organizational needs, competitive challenges, leadership and management potential, and development and emergency situations. As a result of succession planning, BJ Jenkins became our President Operationsin August 2021 and Chief Financial Officer of Red Hat, Inc., a software company. From May 2004 to January 2015, Mr. Calderoni served in various positions at Cisco Systems, Inc., a multinational technology company, including asDipak Golechha became Executive Vice President and Chief Financial Officer. Mr. Calderoni currently serves on the boards of Adobe Systems Incorporated, a global software company, and Anaplan, Inc., aweb-based enterprise platform for business planning and previously served on the board of directors of Nimble Storage, Inc., a data storage company. Mr. Calderoni holds a B.S.Officer in Accounting and Finance from Fordham University and an M.B.A. from Pace University. Mr. Calderoni was selected to serve on our board of directors because of his extensive financial and accounting expertise from his current and prior experience as Chief Financial Officer of various public companies, a deep understanding of financial reporting rules and regulations as well as his extensive experience in the technology industry.March 2021.
Sridhar Ramaswamy has served as a member of our board of directors since August 2017. Mr. Ramaswamy has been a Venture Partner at Greylock Partners, a venture capital firm, since October 2018. Prior to joining Greylock Partners, from March 2013 until October 2018, Mr. Ramaswamy served as Senior Vice President Ads & Commerce at Google, Inc., a multinational technology company that specializes in internet-related services and products. From 2003 to March 2013, Mr. Ramaswamy served in various leadership roles in Google’s engineering group, including as Senior Vice President Engineering. Prior to joining Google, Mr. Ramaswamy served in engineering and other technical roles at E.piphany Inc., Bell Laboratories, Inc., and Telcordia Technologies, Inc. Mr. Ramaswamy holds a B.S. in Computer Science from the India Institute of Technology, Madras India and a M.S. and PhD in Computer Science from Brown University. Mr. Ramaswamy was selected to serve on our board of directors due, in part, to the depth of his technical engineering background and his extensive cloud and infrastructure expertise.
Our common stock is listed on the NYSE.The Nasdaq Stock Market (“Nasdaq”). Under theNasdaq listing standards, of the NYSE, independent directors must comprise a majority of a listed company’s board of directors. In addition, the listing standards of the NYSENasdaq require that, subject to specified exceptions, each member of a listed company’s audit compensation, and nominating and corporate governancecompensation committees be independent.independent, and that the nomination of all directors be by either a majority of its independent directors or a committee comprised solely of independent directors. Under the listing standards of the NYSE,Nasdaq regulations, a director will only qualify as an “independent director” if, in the opinion of that listed company’s board of directors, that director does not have a material relationship with the listed company, either directly or indirectly, that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Audit committee members must also satisfy the additional independence criteria set forth inRule 10A-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and theNasdaq listing standards of the NYSE.standards. In order to be considered independent for purposes ofRule 10A-3, a member of a listed company’s audit committee may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries.
Compensation committee members must also satisfy the additional independence criteria set forth inRule 10C-1 under the Exchange Act and theNasdaq listing standards of the NYSE.standards. In order for a member of a listed
company’s compensation committee to be considered independent for purposes of theNasdaq listing standards, of the NYSE, the listed company’s board of directors must consider all factors specifically relevant to determining whether a director has a relationship to the listed company that is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to: (1) the source of compensation of such director, including any consulting, advisory, or other compensatory fee paid by the listed company to such director; and (2) whether such director is affiliated with the listed company, a subsidiary of the listed company, or an affiliate of a subsidiary of the listed company.
Our board of directorsBoard has undertaken a review of the independence of each of our directors. Based on information provided by each director concerning his or her background, employment, and affiliations, our board of directorsBoard has determined that each of Mses.Mmes. Bawa, McCarthy and Twohill, Dr. Gayle and each of Messrs. Calderoni, Chandna, Donovan, Eschenbach, Goetz, Key, Ramaswamy and Warmenhoventhe Rt Hon Sir John Key do not have a material relationship with our company,Company, either directly or indirectly, that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the applicable rules and regulations of the SEC and theNasdaq listing standards of the NYSE.standards. In making these determinations, our board of directorsBoard considered the current and prior relationships that eachnon-employee director has with our companyCompany and all other facts and circumstances our board of directorsBoard deemed relevant in determining their independence, including the beneficial ownership of our common stock by eachnon-employee director and the transactions involving them described in the section titled “Certain Relationships and Related Party“Related Person Transactions.”
Since There are no family relationships among any of the beginning of our last fiscal year through October 15, 2019, we have sold, both directly and through our channel partners, an aggregate of approximately $88.1 million, $1.1 million, $14.3 million and $0.1 million of products and services to AT&T Inc. (“AT&T”), Anaplan, Inc. (“Anaplan”), Google, Inc. and Sequoia Capital Operations, LLC (“Sequoia”), respectively, in arm’s length transactions. In addition, since the beginning of our last fiscal year through October 15, 2019, we have purchased an aggregate of approximately $0.1 million, $0.9 million and $28.2 million of AT&T, Anaplan and Google, Inc. products and services, respectively, in arm’s length transactions.
We entered into these commercial dealings in the ordinary course of our business. In making the determinations as to which members of our board of directors are independent, our board of directors considered the fact that (1) Mr. Donovan was an executive officer of AT&T until October 1, 2019, (2) Mr. Calderoni is an executive officer at Anaplan, (3) Ms. Twohill is an executive at Google, (4) Mr. Ramaswamy was previously an executive at Google until October 2018, and (5) Mr. Eschenbach is a partner and Mr. Goetz is a member at Sequoia. In reviewing these relationships, our board of directors determined these relationships, respectively, do not impede the ability of Messrs. Donovan, Calderoni, Ramaswamy, Eschenbach or Goetz or Ms. Twohill to act independently on our behalf and on behalf of our stockholders.
Additionally, none of Ms. Twohill or Messrs. Donovan, Calderoni, Ramaswamy, Eschenbach or Goetz take part in the discussion of transactions with AT&T, Anaplan, Google, or Sequoia, as applicable, when such transactions are reviewed by our audit committee or board of directors. Additionally, AT&T expects its calendar year 2018 net capital expenditures to be in the $23 billion range. AT&T’s purchases of our products and services, both directly and through our channel partners, which totaled $88.1 million since the beginning of our last fiscal year through October 15, 2019, are not material to either us or AT&T. All transactions with AT&T, Anaplan, Google and Sequoia are subject to our rigorous related party transactions review process and policy.
Our Corporate Governance Guidelines provide that our board of directors is free to choose its chairperson (the “Chairman”) based on the board of directors’ view of what is in the best interest Palo Alto Networks and its stockholders. The Chairman and Chief Executive may, but need not be, the same person. Mr. McLaughlin served as our Chairman of and Chief Executive Officer until June 2018 when he resigned as Chief Executive Officer
and became Vice Chairman of our board of directors. In June 2018, Mr. Arora was hired as our Chief Executive Officer to replace Mr. McLaughlin and was unanimously appointed as our Chairman.
Our board of directors believes that our board leadership structure, coupled with a strong emphasis on board independence, provides effective independent oversight of management while allowing our board of directors and management to benefit from each of Mr. McLaughlin’s and Mr. Arora’s leadership and years of experience as executives in the technology industry. Based on Mr. Arora’s executive experience in the technology industry, as well as his management capabilities and leadership experience, our board of directors believes Mr. Arora is the director most capable of effectively identifying strategic priorities, leading critical discussion and guiding the formulation of our strategy and business plans as Chairman. Independent directors and management sometimes have different perspectives and roles in strategy development. Our independent directors bring experience, oversight and expertise from outside of our company, while Mr. Arora’s combined role enables strong leadership, creates clear accountability, and enhances our ability to communicate our message and strategy clearly and consistently to stockholders.
Our corporate governance guidelines provide that one of our independent directors should serve as a Lead Independent Director at any time when our Chief Executive Officer serves as the Chairman of our board ofCompany’s directors or if our Chairman is not otherwise independent. Because our Chief Executive Officer, Mr. Arora, serves as our Chairman, our boardexecutive officers.
2022 Proxy Statement | 37 |
ContentsBoard Effectiveness; Director Assessment; Board Education
It is important that our board of directors and its committees are performing effectively and in the best interest of Palo Alto Networks and its stockholders. Our board of directors performs an annual self-assessment, overseen by the nominating and corporate governance committee, to evaluate its effectiveness in fulfilling its obligations. Directors are sent questions by our outside legal counsel covering board of directors, committee, self and peer performance. Our outside legal counsel then interviews each director to obtain his or her assessment of the effectiveness of our board of directors and committees, as well as director performance and board of directors’ dynamics, summarizes these individual assessments for discussion with the board of directors and committees, and leads a discussion with the nominating and corporate governance committee and the board of directors. The board of directors then takes such further action as it deems appropriate. In addition, we encourage directors to participate in continuing education programs focused on our business and industry, committee roles and responsibilities, and legal and ethical responsibilities of directors and we reimburse directors for their expenses associated with this participation. We also encourage our directors to attend Palo Alto Networks events such as our annual Ignite conference. Continuing director education is also provided during board meetings and other board discussions as part of the formal meetings and may include internally developed materials and presentations as well as programs presented by third parties.
During our fiscal year ended July 31, 2019, the board of directors held eleven meetings (including regularly scheduled and special meetings), and no director attended fewer than 75% of the total number of meetings of the board of directors and the committees of which he or she was a member, except Ms. Twohill, who attended one of two meetings of the board of directors since her appointment.
Although we do not have a formal policy regarding attendance by members of our board of directors at annual meetings of stockholders, we encourage, but do not require, our directors to attend. Eight of our eleven directors at the time attended our 2018 Annual Meeting of Stockholders, either telephonically or in person.
Our board of directors has an audit committee, a compensation committee, and a nominating and corporate governance committee, each of which has the composition and responsibilities described below. Directors serve on these committees until their resignation or until otherwise determined by our board of directors. All of the directors on the standing committees of our board of directors are independent, and each of these committees is led by a committee chairperson.
Audit Committee
Our audit committee consists of Ms. McCarthy and Messrs. Calderoni and Donovan, with Ms. McCarthy serving as the chair.
The composition of our audit committee meets the requirements for independence for audit committee members under the listing standards of the NYSE and the rules and regulations of the SEC. Each member of our audit committee also meets the financial literacy and sophistication requirements of the listing standards of the NYSE. In addition, our board of directors has determined that each of Ms. McCarthy and Mr. Calderoni is an “audit committee financial expert” within the meaning of the rules and regulations of the SEC. Our audit committee is responsible for, among other things:
selecting and hiring our independent registered public accounting firm, including leading the review and selection of the lead audit engagement partner;
evaluating the performance and independence of our independent registered public accounting firm;
approving the audit andpre-approving anynon-audit services to be performed by our independent registered public accounting firm;
reviewing our financial statements and related disclosures and reviewing our critical accounting policies and practices;
reviewing the adequacy and effectiveness of our internal control policies and procedures and our disclosure controls and procedures;
reviewing and participating in the selection of our chief audit executive and periodically reviewing the activities and reports of the internal audit function and any major issues encountered in the course of the internal audit function’s work;
overseeing procedures for the treatment of complaints on accounting, internal accounting controls, or audit matters;
reviewing and discussing with management and the independent registered public accounting firm the results of our annual audit, our quarterly financial statements, and our publicly filed reports;
reviewing and approving or ratifying any proposed related person transactions; and
preparing the audit committee report that the SEC requires in our annual proxy statement.
Our audit committee operates under a written charter that was adopted by our board of directors and satisfies the applicable rules and regulations of the SEC and the listing standards of the NYSE. A copy of the charter of our audit committee is available on our website at http://investors.paloaltonetworks.com/. During our fiscal year ended July 31, 2019, our audit committee held eight meetings.
Compensation Committee
Our compensation committee consists of Messrs. Chandna, Eschenbach, Goetz and Warmenhoven, with Mr. Chandna serving as the chair. The composition of our compensation committee meets the requirements for independence for compensation committee members under the listing standards of the NYSE and the rules and regulations of the SEC. Each member of our compensation committee is also a “non- employee director,” as
defined pursuant toRule 16b-3 promulgated under the Exchange Act, and an “outside director,” as defined pursuant to Section 162(m) of the Internal Revenue Code. The purpose of our compensation committee is to discharge the responsibilities of our board of directors relating to compensation of our executive officers. Our compensation committee is responsible for, among other things:
reviewing and approving our Chief Executive Officer’s and other executive officers’ annual base salaries, incentive compensation arrangements, including the specific goals and amounts, equity compensation, employment agreements, severance arrangements and change in control agreements, and any other benefits, compensation or arrangements;
administering our equity compensation plans;
overseeing our overall compensation philosophy and compensation plans; and
preparing the compensation committee report that the SEC requires to accompany the Compensation Discussion and Analysis contained in our annual proxy statement.
Our compensation committee operates under a written charter that was adopted by our board of directors and satisfies the applicable rules and regulations of the SEC and the listing standards of the NYSE. A copy of the charter of our compensation committee is available on our website at http://investors.paloaltonetworks.com. During our fiscal year ended July 31, 2019, our compensation committee held six meetings.
Our compensation committee may form subcommittees for any purpose and may delegate to such subcommittees such power and authority as our compensation committee deems appropriate, except such power or authority required by law, regulation or listing standard to be exercised by our compensation committee as a whole.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee consists of Messrs. Chandna, Eschenbach, Goetz, Ramaswamy and Warmenhoven, with Mr. Warmenhoven serving as the chair. The composition of our nominating and corporate governance committee meets the requirements for independence under the listing standards of the NYSE and the rules and regulations of the SEC. Our nominating and corporate governance committee is responsible for, among other things:
evaluating and making recommendations regarding the composition, organization, and governance of our board of directors and its committees;
evaluating and making recommendations regarding the creation of additional committees or the change in mandate or dissolution of committees;
reviewing and making recommendations with regard to our corporate governance guidelines and compliance with laws and regulations;
reviewing and approving conflicts of interest of our directors and corporate officers, other than related person transactions reviewed by our audit committee; and
oversees our annual board of director and committee self-assessment process.
Our nominating and corporate governance committee operates under a written charter that was adopted by our board of directors and satisfies the applicable listing standards of the NYSE. A copy of the charter of our nominating and corporate governance committee is available on our website at http://investors.paloaltonetworks.com/. During our fiscal year ended July 31, 2019, our nominating and corporate governance committee held six meetings.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee is or has been an officer or employee of our company. None of our executive officers currently serves, or in the past year has served, as a member of the board of
directors or compensation committee (or other board committee performing equivalent functions) of any entity that has one or more of its executive officers serving on our board of directors or compensation committee.
Considerations in Evaluating Director Nominees
Our nominating and corporate governance committee uses a variety of methods for identifying and evaluating director nominees. In its evaluation of director candidates, our nominating and corporate governance committee will consider the current size and composition of our board of directors and the needs of our board of directors and the respective committees of our board of directors. Some of the qualifications that our nominating and corporate governance committee considers include, without limitation, issues of character, integrity, judgment, diversity (including gender and race), experience of particular relevance to us and the board of directors, independence, age, area of expertise, length of service, potential conflicts of interest and other commitments. These factors may be weighted differently depending on the individual being considered or the needs of the board of directors at the time.
Nominees must also have the ability to offer advice and guidance to our Chief Executive Officer based on past experience in positions with a high degree of responsibility and be leaders in the companies or institutions with which they are affiliated. Director candidates must have sufficient time available in the judgment of our nominating and corporate governance committee to perform all board of director and committee responsibilities. Members of our board of directors are expected to prepare for, attend, and actively participate in all board of director and applicable committee meetings. Given the significant time commitment that board membership requires, our board of directors generally believes that no director should be a member of more than three public company boards. Other than the foregoing, there are no stated minimum criteria for director nominees, although our nominating and corporate governance committee may also consider such other factors as it may deem, from time to time, are in our and our stockholders’ best interests. Our nominating and corporate governance committee will also seek appropriate input from our Chief Executive Officer from time to time in assessing the needs of our board of directors for relevant background, experience, diversity and skills of its members.
Our board of directors should be a diverse body, with varying perspectives and experiences. Our nominating and corporate governance committee considers diversity (whether based on broader principles such as diversity of perspective, experiences, and expertise, as well as factors commonly associated with diversity such as gender, race or national origin) in connection with its evaluation of director candidates, including the evaluation and determination of whether tore-nominate incumbent directors. Our nominating and corporate governance committee also considers these and other factors as it oversees the annual board of director and committee evaluations. The nominating and corporate governance committee is committed to seeking out qualified and diverse director candidates, including women and individuals from minority groups, to include in the pool from which director candidates are chosen. Any search firm retained by our nominating and corporate governance committee to find director candidates would be instructed to take into account all of the considerations used by our nominating and corporate governance committee including diversity. After completing its review and evaluation of director candidates, our nominating and corporate governance committee recommends to our full board of directors the director nominees for selection.
Stockholder Recommendations for Nominations to the Board of Directors
Our nominating and corporate governance committee will consider candidates for director recommended by stockholders holding at least one percent (1%) of the fully diluted capitalization of our company continuously for at least twelve (12) months prior to the date of the submission of the recommendation, so long as such recommendations comply with our certificate of incorporation and amended and restated bylaws and applicable laws, rules and regulations, including those promulgated by the SEC. The nominating and corporate governance committee will evaluate such recommendations in accordance with its charter, our amended and restated bylaws, our policies and procedures for director candidates, as well as the regular director nominee criteria described above. This process is designed to ensure that our board of directors includes members with diverse backgrounds,
skills and experience, including appropriate financial and other expertise relevant to our business. Eligible stockholders wishing to recommend a candidate for nomination should contact our Corporate Secretary in writing. Such recommendations must include information about the candidate, a statement of support by the recommending stockholder, evidence of the recommending stockholder’s ownership of our common stock and a signed letter from the candidate confirming willingness to serve on our board of directors. Our nominating and corporate governance committee has discretion to decide which individuals to recommend for nomination as directors.
Stockholder Nominations to the Board of Directors
Under our amended and restated bylaws, a stockholder may nominate one or more persons for our board of directors for inclusion in the stockholder’s proxy materials. Any such nomination must comply with the requirements set forth in our amended and restated bylaws and recommendations should be sent in writing to our Corporate Secretary at Palo Alto Networks, Inc., 3000 Tannery Way, Santa Clara, California 95054.
Under our amended and restated bylaws, eligible stockholders may also nominate persons for our board of directors for inclusion in our proxy statement. This is commonly known as “proxy access.” To be eligible, a single stockholder, or group of up to 20 stockholders, must own 3% of our outstanding stock for at least three years consecutively. The individual stockholder, or group of stockholders, may submit that number of director nominations not exceeding the greater of (a) two or (b) 20% of the number of directors in office. Any such nomination must comply with the requirements set forth in our amended and restated bylaws and recommendations should be sent in writing to our Corporate Secretary at Palo Alto Networks, Inc., 3000 Tannery Way, Santa Clara, California 95054.
Communications with the Board of Directors
Interested parties wishing to communicate with our board of directorsBoard or with an individual member or members of our board of directorsBoard may do so by writing to the board of directorsBoard or to the particular member or members of our board of directors,Board, and mailing the correspondence to our General Counsel or our Legal Department, at Palo Alto Networks, Inc., 3000 Tannery Way, Santa Clara, California 95054. Our General Counsel or our Legal Department, in consultation with appropriate members of our board of directors,Board, as necessary, will review all incoming communications and, if appropriate, all such communications will be forwarded to the appropriate member or members of our board of directors,Board, or if none is specified, to the Chairman of our board of directors.Chair.
Corporate Governance Guidelines and Code of Business Conduct and Ethics
Our board of directorsBoard has adopted Corporate Governance Guidelines. These guidelines address items such as the qualifications and responsibilities of our directors and director candidates and corporate governance policies and standards applicable to us in general. In addition, our board of directorsBoard has adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and directors, including our Chief Executive Officer, Chief Financial Officer, and other executive and senior financial officers. The full text of ourOur Corporate Governance Guidelines and our Code of Business Conduct and Ethics isare posted on the Investor Information portion of our website at http://investors.paloaltonetworks.com/.investors.paloaltonetworks.com. We will post amendments to our Code of Business Conduct and Ethics or waivers of our Code of Business Conduct and Ethics for directors and executive officers on the same website.
Risk is inherent with every business, and we face a number of risks, including strategic, financial, business and operational, legal and compliance, and reputational. We have designed and implemented processes to manage risk in our operations. Management is responsible for theday-to-day management of risks our company
faces, while our board of directors, as a whole and assisted by its committees, has responsibility for the oversight of risk management. In its risk oversight role, our board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are appropriate and functioning as designed.
Our board of directors believes that open communication between management and our board of directors is essential for effective risk management and oversight. Our board of directors meets with our Chief Executive Officer and other members of the senior management team at quarterly meetings of our board of directors, where, among other topics, they discuss strategy and risks facing our company, as well as at such other times as they deem appropriate.
While our board of directors is ultimately responsible for risk oversight, our board committees assist our board of directors in fulfilling its oversight responsibilities in certain areas of risk. Our audit committee assists our board of directors in fulfilling its oversight responsibilities with respect to risk management in the areas of liquidity risk, internal control over financial reporting and disclosure controls and procedures, legal and regulatory compliance, and discusses with management and the independent auditor guidelines and policies with respect to risk assessment and risk management. Our audit committee also reviews our major financial risk exposures and the steps management has taken to monitor and control these exposures. Our nominating and corporate governance committee assists our board of directors in fulfilling its oversight responsibilities with respect to the management of risk associated with board organization, membership and structure, and corporate governance. Our compensation committee assesses risks created by the incentives inherent in our compensation programs and policies. Finally, our board of directors reviews strategic and operational risk in the context of reports from the management team, including data privacy and cybersecurity, receives reports on all significant committee activities at each regular meeting, and evaluates the risks inherent in significant transactions.
Our board of directors and management team recognize the importance of continually developing our talented employee base. Accordingly, our management team conducts an annual talent review of the current senior leadership positions. In addition, our CEO annually reviews a succession plan for the CEO position, using formal criteria to evaluate potential internal and external successors and also interim candidates in the event of an emergency situation. In conducting its evaluation, our board of directors considers organizational needs, competitive challenges, leadership/management potential and development, and emergency situations.
As part of our succession planning, in 2018, Mr. Arora became our Chief Executive Officer, succeeding Mr. McLaughlin, who resigned after nearly seven years as Chief Executive Officer. Mr. McLaughlin continues to serve as Vice Chairman of the board of directors. This transition exemplifies the board’s ongoing commitment to recruiting, cultivating and developing executive talent to meet our company’s organizational and strategic needs.
Director Stock Ownership Guidelines
Our board of directorsBoard believes that our directors and executive officers should hold a meaningful financial stake in our companyCompany in order to further align their interests with those of our stockholders and therefore adopted stock ownership guidelines in fiscal 2017. Under the guidelines, eachnon-employee director must own the lesser of (i) companyCompany stock with a value of threefive times the annual cash retainer for board service or (ii) 6,875 shares. Ournon-employee directors are required to achieve ownership of our common stock within five years of such director’s initial appointment or election date. All of our non-employee directors comply with our stock ownership guidelines.
Compensation and People Committee Interlocks and Insider Participation
None of the latermembers of August 26, 2016our Compensation and People Committee is, or has been, an officer or employee of our Company. None of our executive officers currently serves, or in the past year has served, as a member of the board or compensation committee (or other board committee performing equivalent functions) of any entity that has one or more of its executive officers serving on our Board or Compensation and People Committee.
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PROPOSAL 1 Election of Directors |
The Board of Directors recommends a vote “FOR” each of the nominees named below. | ||||
Our Board is comprised of 12 members and is divided into three staggered classes of directors. At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the same class whose term is then expiring. The following Class II directors have been nominated for election to the Board at the 2022 annual meeting of stockholders: | ||||
● Dr. Helene D. Gayle | ● James J. Goetz | |||
See page 40. |
PROPOSAL 2 Ratification of Appointment of Independent Registered Public Accounting Firm |
The Board of Directors recommends a vote “FOR” the ratification of the appointment of Ernst & Young LLP. | |||
Our Audit Committee has appointed Ernst & Young LLP (“EY”), independent registered public accountants, to audit our financial statements for our fiscal year ending July 31, 2023. EY has served as our independent registered public accounting firm since 2009. | |||
See page 57. |
PROPOSAL 3 Advisory Vote on the Compensation of our Named Executive Officers |
The Board of Directors recommends a vote “FOR” the approval, on an advisory basis, of the compensation of our named executive officers. | |||
We are providing our stockholders with the opportunity to vote to approve, on an advisory or non-binding basis, the compensation of our named executive officers as disclosed in the “Executive Compensation” section of this proxy statement. | |||
See page 60. |
PROPOSAL 4 Approve Amendment to Palo Alto Networks, Inc. 2021 Equity Incentive Plan |
The Board of Directors recommends a vote “FOR” the approval of an amendment to our 2021 Equity Incentive Plan to increase plan shares reserved for issuance. | |||
We are asking stockholders to approve an amendment to our equity incentive plan to increase plan shares reserved for issuance. The ability to grant equity awards is crucial to recruiting and retaining the best personnel. If stockholders do not approve the amendment to 2021 Equity Incentive Plan at our Annual Meeting, we may be unable to continue to grant equity awards as needed, which could prevent us from successfully attracting and retaining the highly skilled talent we need. | |||
See page 98. |
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Election of Directors
Our Board is comprised of 12 members and is divided into three staggered classes of directors. At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the same class whose term is then expiring. Each director’s term continues until the election and qualification of his or her successor, or such director’s appointmentearlier death, resignation, or election dateremoval. Any increase or decrease in the number of directors will be distributed among the three classes so that, as applicable.
See the section titled “Discussionnearly as possible, each class will consist of one-third of our Fiscal 2019 Executive Compensation Program—Other Compensation Policies—Stock Ownership Policy”directors. This classification of our Board may have the effect of delaying or preventing changes in control of the Company.
The following Class II directors have been nominated for additional detailselection to the Board at the Annual Meeting:
●Dr. Helene D. Gayle | ●James J. Goetz |
Mark McLaughlin and Asheem Chandna will not stand for reelection to the Board of Directors when their terms expire at the conclusion of our 2022 Annual Meeting of Stockholders. The Board recognizes the contributions and character of Mark’s leadership as the company’s chief executive officer from August 2011 until June 2018, and his continued service on our Board of Directors since then, which have been instrumental in driving the company’s growth and nurturing our unique culture. Likewise, without Asheem’s technical expertise, financial acumen and, most notably, keen discernment of emerging technology trends, our transformation into the company we are today would have been less complete and consequential. On behalf of our employees and the entire Board of Directors, we express our deep appreciation to Mark and Asheem for their profound impacts on Palo Alto Networks.
The sections titled “Board Skills and Experience Matrix” and “Directors” on pages 42 and 43 of this proxy statement contain more information about the leadership skills and other experiences that caused the ESG and Nominating Committee and our Board to determine that these nominees should serve as directors of the Company. Immediately after the Annual Meeting, it is anticipated that the Board will be comprised of ten members.
Following the Annual Meeting, we expect that our Board will reduce the number of members of the Board from twelve to ten, and will move a director, who currently serves as a Class I or Class III director, to serve as a Class II in order to distribute the number of directors among the three classes as evenly as possible.
REQUIRED VOTE
We have implemented a majority voting standard for elections of directors. Each director nominee will be elected by a vote of the majority of the votes cast. A majority of the votes cast means the number of votes cast “For” such nominee’s election exceeds the number of votes cast “Against” that nominee. You may vote “For,” “Against,” or “Abstain” with respect to each director nominee. Broker non-votes and abstentions, if any, will have no effect on the outcome of the election.
Pursuant to our Corporate Governance Guidelines, a director shall promptly tender his or her resignation if he or she fails to receive the required number of votes for re-election. The ESG and Nominating Committee will act on a prompt basis to determine whether to recommend that our Board accept the director’s resignation and will submit such recommendation for prompt consideration by our Board. Our Board may accept the resignation, refuse the resignation, or refuse the resignation subject to such conditions as our Board may impose. The Board will act within 90 days following certification of the stockholder vote, and will promptly publicly disclose its decision in a filing with the SEC. Additional details about this process are specified in our Corporate Governance Guidelines, which are available on our Investor Relations website at https://investors.paloaltonetworks.com.
Majority Voting | In May 2022, adopted majority voting for uncontested elections of directors, including a resignation policy in the event a director does not receive a majority of the vote. | ||
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Proposal No. 1 Election of Directors
If you are a stockholder of record and you sign your proxy card or vote by telephone or over the Internet, but do not give instructions with respect to the voting of directors, your shares will be voted “For” the re-election of Dr. Gayle and Mr. Goetz. We expect that each of Dr. Gayle and Mr. Goetz will accept such nomination; however, in the event that a director nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee who shall be designated by our Board to fill such vacancy. If you wish to give specific instructions with respect to the voting of directors, you may do so by indicating your instructions on the accompanying proxy card or when you vote by telephone or over the Internet. If you are a street name stockholder and you do not give voting instructions to your broker or nominee, your shares will not be voted on this matter.
Recommendation of the Board | |
The Board recommends that you vote “FOR” each of the nominees named above. |
Director Tenure and Refreshment
The Board generally believes that a mix of long- and shorter-tenured directors promotes an appropriate balance of views and insights and allows the Board as a whole to benefit from the historical and institutional knowledge that longer-tenured directors possess and the fresh perspectives contributed by newer directors. With the additions of Aparna Bawa, Dr. Helene Gayle, Lorraine Twohill and Rt Hon Sir John Key in fiscal 2019 through fiscal 2021, we added directors who have brought their experiences and fresh perspectives to our Board’s deliberations.
As of July 31, 2022, our independent directors will have served an average of 7.6 years on the Board. Overall, our Board, including both independent and non-independent directors, will have an average tenure of 8.3 years. We believe that this mix of tenure on the Board represents a collection of individuals with both new perspectives and deep institutional knowledge.
Our Corporate Governance Guidelines embody our Board’s commitment to actively seek out women and minority candidates as well as candidates with diverse backgrounds, experiences and skills. Our Board believes representation of gender, race, ethnic, geographic, cultural or other diverse perspectives expands the Board’s understanding of the needs and viewpoints of our customers, partners, employees and other stakeholders worldwide.
Our directors reflect diverse perspectives, including a complementary mix of skills, experience and backgrounds that we believe are paramount to our ability to represent your interests as stockholders. As part of our ongoing commitment to creating a balanced Board with diverse viewpoints and deep industry expertise, we added four new independent directors in fiscal 2019 through fiscal 2021 to infuse new ideas and fresh perspectives in the boardroom, two of whom were women of color. As of July 31, 2022, 56% of our independent directors as a group and 50% of our full Board can be considered diverse based on self-identified demographic background and 33% of our Board members self-identify as women.
DIRECTOR TENURE 7.6 years (independent directors) 8.3 years (all directors) Since 2019: 4 new independent directors BOARD DIVERSITY 50% of our Board can | |||
2022 Proxy Statement | 41 |
Proposal No. 1 Election of Directors
Board Skills and Experience Matrix
Our Board has taken a thoughtful approach to board composition to ensure that our directors have backgrounds that collectively add significant value to the strategic decisions made by the Company and that enable them to provide oversight of management to ensure accountability to our stockholders. The Board and the ESG and Nominating Committee believe the skills, qualities, attributes, experience and diversity of backgrounds of our directors provide us with a diverse range of perspectives to effectively address our evolving needs and represent the best interests of our stockholders.
Arora | Bawa | Chandna | Donovan | Eschenbach | Gayle | Goetz | Key | McCarthy | McLaughlin | Twohill | Zuk | ||
Industry and IT/Technical Expertise Deep insight in the cybersecurity and IT technology industry to oversee our business and the risks we face. | |||||||||||||
Senior Leadership Experience Experience in senior leadership positions to analyze, advise and oversee management in decision making, operations and policies. | |||||||||||||
Financial Knowledge and Expertise Knowledge of financial markets, financing and accounting and financial reporting processes. | |||||||||||||
Diverse Backgrounds and Experiences Diverse backgrounds and experiences provide unique perspectives and enhance decision-making. | |||||||||||||
Cybersecurity / Information Security / Security Expertise to oversee cybersecurity, privacy, and information security management. | |||||||||||||
Sales, Marketing and Brand Management Experience Sales, marketing, and brand management experience to provide expertise and guidance to grow sales and enhance our brand. | |||||||||||||
Global/International Experience Experience and knowledge of global operations, business conditions and culture to advise and oversee our global business. | |||||||||||||
Risk Management Experience in risk oversight and management. | |||||||||||||
Emerging Technologies and Business Models Experience Experience identifying and developing emerging technologies and business models to advise, analyze and strategize regarding emerging technologies, business models and potential acquisitions. | |||||||||||||
Human Capital Management Experience attracting and retaining top talent to advise and oversee our people and compensation policies in our competitive environment. | |||||||||||||
Public Company Board Experience and Corporate Governance Experience to understand the dynamics and operation of a public company, and corporate governance requirements and compliance. |
42 |
Proposal No. 1 Election of Directors
DIRECTORS
Nominee Directors | ||
Dr. Helene D. Gayle INDEPENDENT | ||
Age: 66 Director Since: 2021 Skills and Experience: | Committee Membership: ESG and Nominating Committee, Security Committee Other Current Public Company Boards: Organon, The Coca-Cola Company | |
BACKGROUND Dr. Helene D. Gayle has served as a member of our Board since May 2021. Dr. Gayle has been President of Spelman College since July 2022. Prior to this position, Dr. Gayle served as President and Chief Executive Officer of The Chicago Community Trust, a community foundation dedicated to improving the Chicago region through strategic grant making, civic engagement and inspiring philanthropy, from 2017 to 2022. Dr. Gayle previously served as Chief Executive Officer of McKinsey Social Initiative, an independent non-profit organization, from 2015 to 2017 and as President and Chief Executive Officer of CARE USA, a leading international humanitarian organization, from 2006 to 2015. From 2001 to 2006, she was an executive in the Global Health program at the Bill & Melinda Gates Foundation. Dr. Gayle began her career in public health at the U.S. Centers for Disease Control in 1984, and held positions of increasing responsibility over her 20-year tenure there, ultimately becoming the director of the National Center for HIV, STD and TB Prevention and achieving the rank of Assistant Surgeon General and Rear Admiral in the United States Public Health Service. Dr. Gayle earned a Bachelor of Arts degree in Psychology from Barnard College of Columbia University, an M.D. from University of Pennsylvania and a Masters in Public Health from Johns Hopkins University. She currently serves as a member of the board of directors of The Coca-Cola Company, a beverage company, and Organon & Co., a pharmaceutical company. Dr. Gayle previously served as a member of the board of directors of Colgate-Palmolive Company, a global consumer products company, from 2010 to 2021. | QUALIFICATIONS AND EXPERIENCE Dr. Gayle was selected to serve on our Board because of her senior leadership and chief executive officer experience and broad international exposure and emerging market experience, as well as her governmental and non-profit expertise, risk management expertise and corporate governance experience as a director of private and public companies. |
James J. Goetz INDEPENDENT | ||
Age: 56 Director Since: 2005 Skills and Experience: | Committee Membership: Audit Committee, Other Current Public | |
BACKGROUND James J. Goetz has served as a member of our Board since April 2005. Mr. Goetz has been a managing member of Sequoia Capital Operations, LLC, a venture capital firm, since June 2004, where he focuses on cloud, mobile, and enterprise companies. Mr. Goetz currently serves on the board of directors of Intel Corporation and several privately held companies. Mr. Goetz has previously served on the boards of directors of Barracuda Networks, Inc., a data security and storage company from 2009 to 2017, Nimble Storage, Inc., a data storage company, from 2007 to 2017, Jive Software, Inc., a provider of social business software, from 2007 until 2015, and Ruckus Wireless, Inc., a manufacturer of wireless (Wi-Fi) networking equipment, from 2012 until 2015. Mr. Goetz holds an M.S. in Electrical Engineering with a concentration in Computer Networking from Stanford University and a B.S. in Electrical Engineering with a concentration in Computer Engineering from the University of Cincinnati. | QUALIFICATIONS AND EXPERIENCE Mr. Goetz was selected to serve on our Board because of his senior leadership, technology, information technology (IT), business development and cybersecurity experience, and knowledge of emerging technologies, arising from his experience as a partner of a venture capital firm, where he focuses on cloud mobile, and enterprise technology investments, as well as providing guidance and counsel to a wide variety of internet and technology companies. He also brings his experience as a senior management leader in network, data security and storage, software, and manufacturing companies, through various senior roles and other board experiences. Mr. Goetz also has extensive public company board experience. |
Industry and IT/Technical | Senior Leadership | Financial | Diverse Backgrounds and Experiences | Cybersecurity | Sales, Marketing and Brand Management |
Global/International | Governance, Risk Oversight and Compliance | Emerging Technologies and Business Models | Human Capital Management | Public Company Board Experience |
2022 Proxy Statement | 43 |
Proposal No. 1 Election of Directors
Continuing Directors | ||
Nikesh Arora | ||
Age: 54 Director Since: 2018 Skills and Experience:
| Committee Membership: None Other Current Public Company Boards: Compagnie Financière Richemont | |
BACKGROUND Nikesh Arora has served as the Chair of our Board and Chief Executive Officer since June 2018. Prior to joining us, from 2016 through 2018 Mr. Arora was an angel investor and from June 2016 through December 2017, Mr. Arora served as an advisor to SoftBank Group Corp., a multinational conglomerate company (“SoftBank”). From July 2015 through June 2016, Mr. Arora served as president and chief operating officer of SoftBank and from July 2014 through June 2015, Mr. Arora served as vice chair and chief executive officer of SoftBank Internet and Media, a subsidiary of SoftBank. Prior to SoftBank, from December 2004 through July 2014, Mr. Arora held multiple senior leadership operating roles at Google, Inc., including serving as senior vice president and chief business officer, from January 2011 to June 2014. Mr. Arora also serves on the board of Compagnie Financiere Richemont S.A., a public Switzerland-based luxury goods holding company and is an advisor to Zoom Video Communications, Inc., a video communications company. Mr. Arora previously served on the boards of Sprint Corp., a communications services company, from November 2014 to June 2016, Colgate-Palmolive Company, a worldwide consumer products company focused on the production, distribution and provision of household, health care and personal care products, from March 2012 to September 2014, SoftBank from 2014 to 2016, and Yahoo! Japan, an internet company, from 2015 to 2016. Mr. Arora holds an M.S. in Business Administration from Northeastern University, an M.S. in Finance from Boston College, and a B.Tech in electrical engineering from the Institute of Technology at Banaras Hindu University. | QUALIFICATIONS AND EXPERIENCE Mr. Arora was chosen to serve on our Board due to his leadership skills and experience as the chief architect of the Company’s strategic vision, as well as his thorough knowledge of all aspects of our business. Through his extensive career in executive leadership, he brings expertise in leading and scaling technology businesses, risk management oversight, and in-depth knowledge of the cybersecurity and technology sectors. |
Aparna Bawa INDEPENDENT | ||
Age: 44 Director Since: 2021 Skills and Experience:
| Committee Membership: Audit Committee, Security Committee, Corporate Development Committee Other Current Public | |
BACKGROUND Aparna Bawa has served as a member of our Board since May 2021. Ms. Bawa has served as the Chief Operating Officer and Interim Chief Legal Officer of Zoom Video Communications, Inc., a video communications company, since May 2020. Ms. Bawa served as Zoom’s Chief Legal Officer from August 2019 to May 2020, its General Counsel from September 2018 to May 2020 and its Secretary from December 2018 to November 2020. Prior to Zoom Video Communications, Ms. Bawa served as Senior Vice President and General Counsel of Magento, Inc., an e-commerce platform company, from June 2017 until its acquisition by Adobe Inc. in June 2018. From November 2012 to May 2017, Ms. Bawa served as Vice President, General Counsel and Secretary of Nimble Storage, Inc., an enterprise flash storage company, which was acquired by Hewlett Packard Enterprise in April 2017. Ms. Bawa holds a B.Sc. in Accounting from Marquette University and a J.D. from Harvard Law School. | QUALIFICATIONS AND EXPERIENCE Ms. Bawa was selected to serve on our Board due to her senior leadership and management experience at public technology companies, risk management oversight expertise, and legal and business operations expertise. She has extensive experience in technology companies. |
Industry and IT/Technical | Senior Leadership | Financial | Diverse Backgrounds and Experiences | Cybersecurity | Sales, Marketing and Brand Management |
Global/International | Governance, Risk Oversight and Compliance | Emerging Technologies and Business Models | Human Capital Management | Public Company Board Experience |
44 |
Proposal No. 1 Election of Directors
John M. Donovan LEAD INDEPENDENT DIRECTOR | ||
Age: 61 Director Since: 2012 Skills and Experience: | Committee Membership: Other Current Public Company Boards: Lockheed Martin | |
BACKGROUND John M. Donovan has served as a member of our Board since September 2012. Since May 2019, Mr. Donovan has served as Chair of The President’s National Security Telecommunications Advisory Committee. Mr. Donovan worked at AT&T Inc., a provider of telecommunication services, since April 2008, first as Chief Technology Officer and subsequently as Chief Executive Officer—AT&T Communications until his resignation, effective October 1, 2019. From November 2006 to April 2008, Mr. Donovan was Executive Vice President of Product, Sales, Marketing and Operations at Verisign. From November 2000 to November 2006, Mr. Donovan served as Chair and CEO of inCode Telecom Group Inc., a provider of strategy and consulting services to the telecommunications industry. Prior to joining inCode, Mr. Donovan was a Partner with Deloitte Consulting where he was the Americas industry practice director for telecommunications. Mr. Donovan serves on the board of directors of Lockheed Martin Corporation, an aerospace, defense and technology company. Mr. Donovan holds a B.S. in Electrical Engineering from the University of Notre Dame and an M.B.A. from the University of Minnesota. | QUALIFICATIONS AND EXPERIENCE Mr. Donovan was selected to serve on our Board because of his technical knowledge and extensive business leadership, management, operations and risk management oversight experience, as a result of serving as the Chief Technology Officer and later the Chief Executive Officer of AT&T Communications. He is skilled in overseeing global information, software development, supply chain, network operations and big data organizations and has expertise in cybersecurity, artificial intelligence and machine learning. |
Carl Eschenbach INDEPENDENT | ||
Age: 55 Director Since: 2013 Skills and Experience:
| Committee Membership: Security Committee Other Current Public Company Boards: Zoom, Workday, Snowflake, UiPath, Aurora Innovation | |
BACKGROUND Carl Eschenbach has served as a member of our Board since May 2013. Mr. Eschenbach has been a general partner at Sequoia Capital Operations, LLC, a venture capital firm, since April 2016. Prior to joining Sequoia Capital Operations, LLC, Mr. Eschenbach served as Chief Operating Officer and President of VMware, Inc., a provider of cloud and virtualization software and services, a role he held from December 2012 to February 2016. Mr. Eschenbach previously served as VMware’s President and Chief Operating Officer from April 2012 to December 2012, as VMware’s Co-President, Customer Operations from January 2011 to April 2012 and as VMware’s Executive Vice President of Worldwide Field Operations from May 2005 to January 2011. Prior to joining VMware in 2002, he was Vice President of North America Sales at Inktomi from 2000 to 2002. Mr. Eschenbach also held various sales management positions with 3Com Corporation, Lucent Technologies Inc. and EMC. Mr. Eschenbach also serves on the board of directors of Zoom Video Communications, Inc., a video communications company, Workday, Inc., an on-demand financial management and human capital management software vendor, UiPath, Inc., a robotic process automation software company, Snowflake Inc., a cloud data platform company, and Aurora Innovation, a self-driving vehicle technology company. Mr. Eschenbach received an electronics technician diploma from DeVry University. | QUALIFICATIONS AND EXPERIENCE Mr. Eschenbach was selected to serve on our Board because of his extensive experience in the technology industry and his previous public company management experience. He brings to our Board over 30 years of operational and sales experience in the technology industry, and has extensive experience in risk management oversight and scaling large organizations, as well as a deep knowledge of high-growth companies. Mr. Eschenbach also has extensive public company board experience. |
Industry and IT/Technical | Senior Leadership | Financial | Diverse Backgrounds and Experiences | Cybersecurity | Sales, Marketing and Brand Management |
Global/International | Governance, Risk Oversight and Compliance | Emerging Technologies and Business Models | Human Capital Management | Public Company Board Experience |
2022 Proxy Statement | 45 |
Proposal No. 1 Election of Directors
Right Honorable Sir John Key INDEPENDENT | ||
Age: 61 | Committee Membership: Other Current Public Company Boards: ANZ Bank New Zealand Ltd, Australia & New Zealand Banking Group Ltd | |
BACKGROUND Right Honorable Sir John Key has served as a member of our Board since April 2019. Sir John was a Member of Parliament for Helensville in New Zealand until April 2017. Sir John served as Prime Minister of New Zealand from November 2008 to December 2016 having commenced his political career as a Member of Parliament for Helensville in July 2002. Prior to his political career, he had a nearly twenty-year career in international finance, primarily for Bankers Trust of New Zealand and Merrill Lynch in Singapore, London and Sydney. Sir John serves as the chair and member of the board of directors of ANZ Bank New Zealand Ltd and is a member of the board of directors of the parent Australia & New Zealand Banking Group Ltd, a public bank that provides various banking and financial products and services and also serves on the board of directors of several privately held companies. He previously served on the board of directors of Air New Zealand Limited, a public airline, from 2017 to 2020. Sir John has a Bachelor of Commerce in Accounting from the University of Canterbury. | QUALIFICATIONS AND EXPERIENCE Sir John was selected to serve on our Board due to his global business leadership and extensive financial, capital markets, and management expertise as former Prime Minister of New Zealand, his extensive background in foreign affairs, and his career in investment banking and finance. He brings extensive experience in policy-making and a global business perspective from his experience and service on other boards, which is especially valuable to us as we grow internationally. |
Mary Pat McCarthy INDEPENDENT | ||
Age: 67 Director Since: 2016 Skills and Experience: | Committee Membership: Other Current Public Company Boards: | |
BACKGROUND Mary Pat McCarthy has served as a member of our Board since October 2016. Ms. McCarthy, now retired, served as Vice Chair of KPMG LLP, the U.S. member firm of the global audit, tax and advisory services firm, until 2011 after attaining such position in 1998. She joined KPMG LLP in 1977 and became a partner in 1987. She held numerous senior leadership positions in the firm, including Executive Director of the KPMG Audit Committee Institute from 2008 to 2011, Leader of the KPMG Client Care program from 2007 to 2008, U.S. Leader, Industries and Markets from 2005 to 2006, and Global Leader, Information, Communication and Entertainment Practice from 1998 to 2004. Ms. McCarthy also served on KPMG’s Management and Operations Committees. Ms. McCarthy earned a Bachelor of Science degree in Business Administration from Creighton University and completed the University of Pennsylvania Wharton School’s KPMG International Development Program. Ms. McCarthy serves as a director of Micron Technology, Inc., a producer of semiconductor devices and previously served on the board of directors of Mutual of Omaha, an insurance company, from 2012 to 2018 and Andeavor Corporation (formerly Tesoro Corporation), a global energy corporation from 2012 to 2018. | QUALIFICATIONS AND EXPERIENCE Ms. McCarthy was selected to serve on our Board because of her deep technical expertise in financial and accounting matters from her experience as the Vice Chair of KPMG LLP, advising numerous companies on financial and accounting matters, as well as her leadership experience as a member of management at KPMG. She is an “audit committee financial expert” with over 40 years of experience in finance, operations and risk management oversight of technology companies, particularly publicly traded companies with knowledge of complex global financial and business matters. In addition, she brings a global business perspective and contributes valuable insights and perspectives to our business and operations from her service on other boards. |
Industry and IT/Technical | Senior Leadership | Financial | Diverse Backgrounds and Experiences | Cybersecurity | Sales, Marketing and Brand Management |
Global/International | Governance, Risk Oversight and Compliance | Emerging Technologies and Business Models | Human Capital Management | Public Company Board Experience |
46 |
Proposal No. 1 Election of Directors
Lorraine Twohill INDEPENDENT | ||
Age: 51 | Committee Membership: Other Current Public Company Boards: None | |
BACKGROUND Lorraine Twohill has served as a member of our Board of directors since April 2019. Ms. Twohill currently serves as Google LLC’s (formerly Google, Inc.) Chief Marketing Officer, a position she has held since June 2009. From July 2003 until June 2009, Ms. Twohill served as Google’s Head of Marketing Europe, Middle East and Africa. Ms. Twohill previously served on the board of directors of Williams-Sonoma, Inc., a consumer retail company that sells kitchenwares and home furnishings, from January 2012 until May 2017. Ms. Twohill holds joint honors degrees in International Marketing and Languages from Dublin City University. | QUALIFICATIONS AND EXPERIENCE Ms. Twohill was selected to serve on our Board due to her leadership skills and extensive marketing knowledge, with over 25 years of experience. She has deep management and business operations experience, as well as risk management oversight experience. She provides the Board with valuable insights into brand management and the global issues facing technology companies today. |
Nir Zuk | ||
Age: 51
| Committee Membership: Other Current Public Company Boards: None |
BACKGROUND Nir Zuk is one of our founders and has served as our Chief Technology Officer and as a member of our Board since March 2005. From April 2004 to March 2005, Mr. Zuk was Chief Security Technologist at Juniper Networks, Inc., a supplier of network infrastructure products and services. From September 2002 until its acquisition by Juniper in April 2004, Mr. Zuk was Chief Technology Officer at NetScreen Technologies, Inc., a provider of ASIC-based Internet security systems. In December 1999, Mr. Zuk co-founded OneSecure, Inc., a provider of prevention and detection appliances, and was Chief Technical Officer until its acquisition by NetScreen in September 2002. From 1994 to 1999, Mr. Zuk served in several technical roles, including Principal Engineer at Check Point Software Technologies Ltd., an enterprise software security company. Mr. Zuk attended Tel Aviv University where he studied Mathematics. | QUALIFICATIONS AND EXPERIENCE Mr. Zuk is a co-founder of Palo Alto Networks, a network security expert and brings a wealth of network security knowledge and industry experience to Palo Alto Networks. He brings business leadership, operational experience, risk management oversight experience, and experience developing technology. He has an in-depth knowledge of the technology and cybersecurity industries. |
Industry and IT/Technical | Senior Leadership | Financial | Diverse Backgrounds and Experiences | Cybersecurity | Sales, Marketing and Brand Management |
Global/International | Governance, Risk Oversight and Compliance | Emerging Technologies and Business Models | Human Capital Management | Public Company Board Experience |
2022 Proxy Statement | 47 |
Proposal No. 1 Election of Directors
Non-Continuing Directors | ||
Asheem Chandna | ||
Age: 58
| Committee Membership: Other Current Public Company Boards: None | |
BACKGROUND Asheem Chandna has served as a member of our Board since April 2005. Mr. Chandna has been a Partner at Greylock Partners, a venture capital firm, since September 2003, where he focuses on investments in enterprise IT, including security products. From April 2003 to June 2013, Mr. Chandna was a director of Imperva, Inc., a provider of cyber security solutions. From April 1996 to December 2002, Mr. Chandna was Vice President, Business Development and Product Management at Check Point Software. Mr. Chandna currently serves on the board of directors of a number of privately held companies. Mr. Chandna holds a B.S. in Electrical Engineering and an M.S. in Computer Engineering from Case Western Reserve University. | QUALIFICATIONS AND EXPERIENCE Mr. Chandna was selected to serve on our Board because of his specific experience with enterprise IT and security products, background with information technology and cybersecurity companies, and knowledge of emerging technologies. He also brings extensive financial and investment expertise as a venture capitalist, where he focuses investments in enterprise IT. He also brings perspective from his service on other public and private company boards. |
Mark D. McLaughlin | ||
Age: 56
| Committee Membership: Other Current Public Company Boards: Qualcomm | |
BACKGROUND Mark D. McLaughlin has served as our Vice Chair since June 2018, and has been a member of our board of directors since August 2011. During that period, from April 2012 until June 2018 he served as Chair of our board of directors. Mr. McLaughlin served as our Chief Executive Officer from August 2011 until June 2018 and also served as President from August 2011 through August 2016. From August 2009 through July 2011, Mr. McLaughlin served as President and Chief Executive Officer and as a director at VeriSign, Inc., a provider of Internet infrastructure services, and from January 2009 to August 2009, Mr. McLaughlin served as President and Chief Operating Officer at VeriSign. From February 2000 through November 2007, Mr. McLaughlin served in several roles at VeriSign, including as Executive Vice President, Products and Marketing. Prior to joining VeriSign, Mr. McLaughlin was Vice President, Sales and Business Development at Signio Inc., an Internet payments company acquired by VeriSign in February 2000. In January 2011, President Barack Obama appointed Mr. McLaughlin to serve on the President’s National Security Telecommunications Advisory Committee. Mr. McLaughlin currently serves on, and is the Chair of, the board of directors of Qualcomm, Inc., a global semiconductor company that designs and markets wireless telecommunications products and services, and previously served on the board of directors of Opower, Inc., a provider of cloud based software to the utility industry, from 2013 to 2016. Mr. McLaughlin holds a B.S. from the U.S. Military Academy at West Point and a J.D. from Seattle University School of Law. | QUALIFICATIONS AND EXPERIENCE Mr. McLaughlin was selected to serve on our Board because of his perspective and experience as our former Chief Executive Officer, and his operational and management experience at several technology companies. He has an extensive background in the technology industry and risk oversight expertise. Mr. McLaughlin also served as Chair of The President’s National Security Telecommunications Advisory Committee and serves as Chair of a large global semiconductor company. |
Industry and IT/Technical | Senior Leadership | Financial | Diverse Backgrounds and Experiences | Cybersecurity | Sales, Marketing and Brand Management |
Global/International | Governance, Risk Oversight and Compliance | Emerging Technologies and Business Models | Human Capital Management | Public Company Board Experience |
48 |
Proposal No. 1 Election of Directors
The demographic information presented below for our directors is based on voluntary self-identification by each director. Each of the categories listed in the below table has the meaning as it is used in Nasdaq Listing Rule 5605(f). Additional biographical information of our directors and executive ownership guidelines.officers as of July 31, 2022 is set forth above.
BOARD DIVERSITY MATRIX (AS OF NOVEMBER 3, 2022)
Total Number of Directors | 12 | |||
Female | Male | Non-Binary | Did Not Disclose Gender | |
Part I: Gender Identity | ||||
Directors | 4 | 8 | 0 | 0 |
Part II: Demographic Background | ||||
African American or Black | 1 | 0 | 0 | 0 |
Alaskan Native or Native American | 0 | 0 | 0 | 0 |
Asian | 1 | 2 | 0 | 0 |
Hispanic or Latinx | 0 | 0 | 0 | 0 |
Native Hawaiian or Pacific Islander | 0 | 0 | 0 | 0 |
White | 2 | 6 | 0 | 0 |
Two or More Races or Ethnicities | 0 | 0 | 0 | 0 |
LGBTQ+ | 0 | |||
Did Not Disclose Demographic Background | 3 |
Board Committees and Responsibilities
Our Board has a standing Audit Committee, Compensation and People Committee, Corporate Development Committee, ESG and Nominating Committee and Security Committee, which have the composition and responsibilities described below. Directors serve on these committees until their resignation or until otherwise determined by our Board.
The membership and meetings during fiscal 2022 and the primary functions of each of the standing committees are described below.
Board of Directors | Audit Committee | Compensation and People Committee | Corporate Development Committee | ESG and Nominating Committee | Security Committee |
Nikesh Arora | |||||
Aparna Bawa* | |||||
Asheem Chandna* | |||||
John M. Donovan* | |||||
Carl Eschenbach* | |||||
Dr. Helene D. Gayle* | |||||
James J. Goetz* | |||||
Rt Hon Sir John Key* | |||||
Mary Pat McCarthy* | |||||
Mark D. McLaughlin | |||||
Lorraine Twohill* | |||||
Nir Zuk |
Member | |
Committee Chair | |
* | Independent Director |
Financial Expert |
2022 Proxy Statement | 49 |
Proposal No. 1 Election of Directors
Audit Committee | Our Audit Committee is responsible for, among other things: | ||||
Chair: Members: Number of meetings in fiscal | •selecting and hiring our independent registered public accounting firm, including leading the review and selection of the lead audit engagement partner; •evaluating the performance and independence of our independent registered public accounting firm; •approving the audit and pre-approving any non-audit services to be performed by our independent registered public accounting firm; •reviewing our financial statements and related disclosures and reviewing our critical accounting policies and practices; •reviewing and participating in the selection of our chief audit executive and periodically reviewing the activities and reports of the internal audit function and any major issues encountered in the course of the internal audit function’s work; | •reviewing the adequacy and effectiveness of our internal control policies and procedures and our disclosure controls and procedures; •overseeing procedures for the treatment of complaints on accounting, internal accounting controls, or audit matters; •reviewing and discussing with management and the independent registered public accounting firm the results of our annual audit, our quarterly financial statements, and our publicly filed periodic reports; •reviewing and approving or ratifying any proposed related person transactions; and •preparing the Audit Committee report that the SEC requires in our annual proxy statement. | |||
The composition of our Audit Committee meets the requirements for independence for audit committee members under the listing standards of Nasdaq and the rules and regulations of the SEC. Each member of our Audit Committee also meets the financial literacy and sophistication requirements of the listing standards of Nasdaq. In addition, our Board has determined that Ms. McCarthy is an “audit committee financial expert” within the meaning of the rules and regulations of the SEC.
50 |
Proposal No. 1 Election of Directors
Compensation | Our Compensation and People Committee is responsible for, among other things: | |||||
and People Committee Chair: Members: Number of meetings in | •reviewing and approving our Chief Executive Officer’s and other executive officers’ annual base salaries, incentive compensation arrangements, including the specific goals and amounts, equity compensation, employment agreements, severance arrangements and change in control agreements, and any other benefits, compensation or arrangements; •establishing and administering our equity compensation plans; •overseeing our overall compensation philosophy and compensation plans; | •preparing the Compensation and People Committee report that the SEC requires to accompany the Compensation Discussion and Analysis contained in this proxy statement; •overseeing our talent management and people management, including the Company’s inclusion and diversity initiatives and results, the Company’s pay equity reviews and results, and the Company’s FLEXLearning, FLEXBenefits and FLEXWORK initiatives; and •reviewing and discussing with management the risks arising from the Company’s compensation philosophy and practices applicable to employees to mitigate such risks. | ||||
The composition of our Compensation and People Committee meets the requirements for independence for Compensation Committee members under the listing standards of Nasdaq and the rules and regulations of the SEC. Each member of our Compensation and People Committee is also a “non-employee director,” as defined pursuant to Rule 16b-3 promulgated under the Exchange Act, and an “outside director,” as defined pursuant to Section 162(m) of the Internal Revenue Code.
Our Compensation and People Committee operates under a written charter that was adopted by our Board and satisfies the applicable rules and regulations of the SEC and the listing standards of Nasdaq. A copy of the charter of our Compensation and People Committee is available on our website at http://investors.paloaltonetworks.com.
Our Compensation and People Committee may form subcommittees for any purpose and may delegate to such subcommittees such power and authority as our Compensation and People Committee deems appropriate, except such power or authority required by law, regulation or listing standard to be exercised by our Compensation and People Committee as a whole.
Corporate Development Committee Chair: Members: | Our Corporate Development Committee is responsible for, among other things: •assisting the Board in fulfilling its responsibilities relating to the review, evaluation, and approval of certain acquisitions and strategic investment transactions; •reviewing proposed acquisition and investment strategies with management; and •reporting to the Board the Committee’s approval or recommendation of acquisitions or investment transactions and of such activity in general. | |||||
Our Corporate Development Committee operates under a written charter that was adopted by our Board.
2022 Proxy Statement | 51 |
Proposal No. 1 Election of Directors
ESG and | Our ESG and Nominating Committee is responsible for, among other things: | |||||
Nominating Committee Chair: Members: Number of meetings in fiscal | •identifying and evaluating individuals who are qualified to become members of the board of directors and selecting and recommending to the Board individuals as director nominees and appointments to the board of directors; •evaluating and making recommendations regarding the composition, organization, and governance of our board of directors and its committees, including issues of integrity, experience, expertise and diversity of membership; •considering board of director leadership structure, including the separation of the chairperson and chief executive officer roles and the appointment of a lead independent director and making recommendations to the board of directors; | •evaluating and making recommendations regarding the creation of additional committees or the change in mandate or dissolution of committees; •reviewing and making recommendations with regard to our corporate governance guidelines and compliance with laws and regulations; •reviewing and approving conflicts of interest of our directors and corporate officers, other than related person transactions reviewed by our Audit Committee; •overseeing our annual board of director and committee self-assessment process; •overseeing our succession planning process for the chief executive officer and members of the management team; and • overseeing our ESG efforts and related policies and programs. | ||||
The composition of our ESG and Nominating Committee meets the requirements for independence under the listing standards of Nasdaq and the rules and regulations of the SEC.
In February 2022, we reconstituted our Nominating and Corporate Governance Committee as the ESG and Nominating Committee to enhance our focus on ESG matters, giving it oversight of our ESG strategies and initiatives, including our short- and long-term goals, and to reinforce the important role that ESG practices play in our business. The ESG and Nominating Committee is responsible for setting our ESG priorities, and monitors our performance. The ESG and Nominating Committee receives regular updates on priority ESG issues, including information on actions and progress toward goals.
Our ESG and Nominating Committee operates under a written charter that was adopted by our Board and satisfies the applicable listing standards of Nasdaq. A copy of the charter of our ESG and Nominating Committee is available on our website at http://investors.paloaltonetworks.com.
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Proposal No. 1 Election of Directors
Security | Our Security Committee is responsible for, among other things: | |||||
Committee Chair: Members: Number of meetings in fiscal | •overseeing (i) our policies, plans, metrics and programs relating to the physical security of our facilities and employees, and enterprise cybersecurity and data protection risks associated with our security-related infrastructure and related operations, and (ii) the effectiveness of our programs and practices for identifying, assessing and mitigating such risks across our business operations; •overseeing our cyber crisis preparedness, security breach and incident response plans, communication plans, and disaster recovery and business continuity capabilities; •overseeing the safeguards used to protect the confidentiality, integrity, availability, safety and resiliency of the Company’s employees, facilities, intellectual property and business operations; •reviewing and discussing with management the cybersecurity risks associated with our outside partners (such as vendors, suppliers, operations partners, etc.); | •overseeing our compliance with applicable information security and data protection laws and industry standards, new or updated legal implications of security, data privacy, or other regulatory or compliance risks to us or our employees, facilities and business operations and the threat landscape facing our business operations; •reviewing and advising on our physical and cybersecurity strategy, crisis or incident management and security-related information technology planning processes and review strategy for investing in our security systems; and •reviewing and discussing with management our public disclosures relating to the Company’s security of its employees, facilities and information technology systems, including privacy, network security and data security. | ||||
In November 2021, our Board formed the Security Committee to facilitate Board oversight of security issues, including product security, data security, cybersecurity, security risk management, risk exposure and related controls and enterprise risk management related to these risks.
Our Security Committee operates under a written charter that was adopted by our Board. A copy of the charter of our Security Committee is available on our website at http://investors.paloaltonetworks.com.
2022 Proxy Statement | 53 |
Proposal No. 1 Election of Directors
Our nominatingESG and corporate governance committeeNominating Committee has approved a policy for the compensation of thenon-employee members of our board of directorsBoard (the “Director Compensation Policy”) to attract, retain and reward these individuals and align their financial interests with those of our stockholders. Onlynon-employee directors who are not affiliated with investment funds that hold shares of our common stock are eligible for compensation under the Director Compensation Policy. There is no cash compensation paid under the Director Compensation Policy.
Initial Award. Award. Under the Director Compensation Policy, when an eligible director initially joins our board of directors,Board, the eligible director receives an initial award of restricted stock units having a value of $1 million (as determined based on the average closing price of our common stock on the NYSENasdaq during the 30 calendar days prior to fifteenth day of the date of grant)month in which the grant is made). This initial award will vest as to one third of the shares covered by the restricted stock unit award on the first anniversary of the date the eligible director joined our board of directors, and the remaining shares will vest quarterly over the following two years, subject to the director’s continued service as of each such date.
Annual Award. Award. Under the Director Compensation Policy, at each annual meeting of stockholders, each eligible director receives an annual restricted stock unit award having a value equal to $300,000 (as determined based on the average closing price of our common stock on the NYSENasdaq during the 30 calendar days prior toending on the date of grant)the annual meeting). In addition, at each annual meeting of stockholders, our Lead Independent Director receives an additional annual restricted stock unit award having a value equal to $50,000 (as determined based on the average closing price of our common stock on the NYSENasdaq during the 30 calendar days prior toending on the date of grant)the annual meeting). All annual awards, including the annual awards to the lead independent director,Lead Independent Director, will vest quarterly over a period of one year, subject to the director’s continued service as of each such date.
Committee Awards. Awards. At each annual meeting of stockholders, the chairpersons and members of the threefive standing committees of our board of directorsBoard will receive additional annual restricted stock unit awards for committee service having the following values (as determined based on the average closing price of our common stock on the NYSENasdaq during the 30 calendar days prior toending on the date of grant)the annual meeting):
Board Committee(1) | Chairperson Retainer | Member Retainer |
Audit Committee | $35,000 | $20,000 |
Compensation and People Committee | $25,000 | $15,000 |
ESG and Nominating Committee | $15,000 | $10,000 |
Security Committee | $50,000 | $50,000 |
Board Committee | Chairperson Retainer ($) | Member Retainer ($) | ||||||
Audit Committee | 35,000 | 20,000 | ||||||
Compensation Committee | 25,000 | 15,000 | ||||||
Nominating and Corporate Governance Committee | 15,000 | 10,000 |
(1) | No additional compensation is paid for serving on the Corporate Development Committee. |
Any eligible director who serves as chairperson of a committee is not entitled to a member retainer for the same committee. The committee awards will vest quarterly over a period of one year, subject to the director’s continued service as of each such date.
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Proposal No. 1 Election of Directors
Fiscal 20192022 Director Compensation Table
The following table presents summary information regarding the compensation paid to ournon-employee directors for our fiscal year ended July 31, 2019.2022.
Director | Stock Awards ($) (1) | Total ($) | ||||||
Frank Calderoni (2) | 321,465 | 321,465 | ||||||
Asheem Chandna (3) | 336,523 | 336,523 | ||||||
John M. Donovan (4) | 321,465 | 321,465 | ||||||
Carl Eschenbach (5) | 326,543 | 326,543 | ||||||
James J. Goetz (6) | — | — | ||||||
Rt Hon Sir John Key (7) | 972,685 | 972,685 | ||||||
Mary Pat McCarthy (8) | 336,523 | 336,523 | ||||||
Sridhar Ramaswamy (9) | 311,485 | 311,485 | ||||||
Lorraine Twohill (10) | 972,685 | 972,685 | ||||||
Daniel J. Warmenhoven (11) | 381,871 | 381,871 |
Director | Stock Awards(1) | Total |
Aparna Bawa(2) | — | — |
Asheem Chandna(3) | $347,988 | $347,988 |
John M. Donovan(3) | $415,638 | $415,638 |
Carl Eschenbach(3) | $338,763 | $338,763 |
Dr. Helene D. Gayle(4) | — | — |
James J. Goetz(5) | — | — |
Rt Hon Sir John Key(3) | $381,813 | $381,813 |
Mary Pat McCarthy(3) | $372,588 | $372,588 |
Mark D. McLaughlin(6) | — | — |
Lorraine Twohill(3) | $362,338 | $362,338 |
(1) | The amounts reported in this column represent the aggregate grant date fair value of these restricted stock units (“RSUs”) as computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation, or ASC Topic 718. The assumptions used in the valuation of these awards are set forth in the notes to our consolidated financial statements, which are included in our Annual Report on Form10-K for our fiscal year ended July 31, |
(2) | Ms. Bawa received an initial equity award upon her appointment to the Board in May 2021, which was reported in our fiscal 2021 proxy statement. Pursuant to our director compensation policy, she will first be eligible to receive equity grants equal to the value of the annual board and committee stock awards, at the upcoming Annual Meeting. As of July 31, |
(3) | As of July 31, |
(4) | Dr. Gayle received an initial equity award upon her appointment to the Board in May 2021, which was reported in our fiscal 2021 proxy statement. Pursuant to our director compensation policy, she will first be eligible to receive equity grants equal to the value of the annual board and committee stock awards at the upcoming Annual Meeting. As of July 31, |
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Mr. Goetz receives no compensation under the Director Compensation Policy. |
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Workforce DiversityIdentification and Evaluation of Director Nominees
WeOur ESG and Nominating Committee uses a variety of methods for identifying and evaluating director nominees. The ESG and Nominating Committee regularly assess the appropriate size, composition and needs of our Board and its respective committees, and the qualification of candidates considering these needs. Some of the qualifications that our ESG and Nominating Committee considers include issues of character, integrity, judgment, diversity (including gender and race), experience of relevance to us and the Board, independence, age, area of expertise, potential conflicts of interest and other commitments. These factors may be weighted differently depending on the individual being considered or the needs of the Board at the time.
Nominees must also be able to offer advice and guidance to our Chief Executive Officer based on past experience in positions with a high degree of responsibility and be leaders in the companies or institutions with which they are committedaffiliated. Director candidates must have sufficient time available in the judgment of our ESG and Nominating Committee to diversityperform all Board and committee responsibilities. Members of our Board are expected to prepare for, attend, and actively participate in all Board and applicable committee meetings.
2022 Proxy Statement | 55 |
Proposal No. 1 Election of Directors
Other than the foregoing, there are no stated minimum criteria for director nominees, although our ESG and Nominating Committee may also consider such other factors as it may deem, from time to time, are in our workforce and recognizeour stockholders’ best interests. Our ESG and Nominating Committee will also seek appropriate input from our Chief Executive Officer, from time to time, in assessing the needs of our Board for relevant background, experience, diversity and skills of its members.
Our ESG and Nominating Committee considers diversity (whether based on broader principles such as a business imperative. An inclusivediversity of perspective, experiences, and expertise, as well as factors commonly associated with diversity such as gender, race or national origin) in connection with its evaluation of director candidates, including the evaluation and determination of whether to re-nominate incumbent directors. The committee also considers these and other factors as it oversees the annual Board and committee evaluations. The committee seeks qualified and diverse culture is vitaldirector candidates, including women and individuals from minority groups, to include in the pool from which director candidates are chosen. Any search firm retained by the committee to find director candidates would be instructed to account for these considerations, including diversity.
Stockholder Recommendations for Nominations to the continued growthBoard of Directors
Our ESG and Nominating Committee will consider candidates for director recommended by stockholders, so long as such recommendations comply with our certificate of incorporation, amended and restated bylaws and applicable laws, rules and regulations, including those promulgated by Nasdaq and the SEC. The ESG and Nominating Committee will evaluate the recommendations in accordance with its charter, our amended and restated bylaws, our policies and procedures for director candidates, as well as the regular director nominee criteria described above. This process is designed to ensure that our Board includes members with diverse backgrounds, skills and experience, including appropriate financial and other expertise relevant to our business. Eligible stockholders wishing to recommend a candidate for nomination should contact our Corporate Secretary in writing. Such recommendations must include information about the candidate, a statement of support by the recommending stockholder, evidence of the recommending stockholder’s ownership of our company. The boardcommon stock and a signed letter from the candidate confirming willingness to serve on our Board. Our ESG and Nominating Committee has discretion to decide which individuals to recommend for nomination as directors.
During our fiscal year ended July 31, 2022, the Board held five meetings (including regularly scheduled and special meetings), and no director attended fewer than 75% of directors continuously oversees our diversity effortsthe total number of meetings of the Board and monitors our progress toward increasing diversity.the committees of which he or she was a member.
In 2017,Although we receiveddo not have a stockholder proposal requesting, among other things, disclosure of various information relating to the diversityformal policy regarding attendance by members of our workforce. At the 2017Board at annual meetings of stockholders, we encourage, but do not require, our directors to attend. Eleven of our twelve directors attended our 2021 Annual Meeting of Stockholders, a substantial numbereither telephonically or by video conference.
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Table of our stockholders supported this proposal.
As part of our stockholder engagement efforts, prior to our 2017 Annual Meeting of Stockholders, members of our management team and our Lead Independent Director reached out to our top institutional and other stockholders representing an aggregate of approximately 25% of our outstanding shares of common stock to better understand their perspectives on workforce diversity and the type of information that these stockholders believed would be most appropriate for us to disclose. In general, stockholders agreed on the importance of a diverse workforce. They expressed varying perspectives on the type and nature of disclosure that they preferred us to provide. In addition, stockholders were supportive of making this disclosure in a measured fashion.Contents
We are committed to expanding our inclusion and diversity initiatives and publicly sharing our workforce diversity data. Beginning in 2018 and continuing in 2019, in response to both the stockholder proposal described above and our conversations with stockholders, we provide a significant amount of information on our website concerning the diversity of our workforce and our inclusion initiatives. For example, we now publicly disclose ourEEO-1 form, which has been updated to provide information as of December 31, 2018. AnEEO-1 form is a report filed with the Equal Employment Opportunity Commission that describes the racial, ethnic and gender composition of our U.S. workforce. This form, along with a chart that shows the information graphically, is available athttps://www.paloaltonetworks.com/about-us/inclusion-diversity.
We are proud of our responsiveness to stockholders on this important issue. We will continue to monitor the diversity of our workforce and ways that we can communicate our efforts in this area to stockholders.
Our conversations with stockholders also highlighted the importance of gender pay equity. We agree that this is an important topic. We are committed to equal pay. Throughout our company, we strive to ensure that our compensation is fair and equitable. We are committed to eliminating unexplainable differences in pay and have made pay equity analyses part of our yearly review process. As a result, we have taken steps to successfully address pay gaps globally. As with workforce diversity, we will continue to monitor this important issue and appropriately communicate our efforts.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMRatification of Appointment of Independent Registered Public Accounting Firm
Our audit committeeAudit Committee has appointed Ernst & Young LLP (“EY”), independent registered public accountants, to audit our financial statements for our fiscal year ending July 31, 2020.2023. EY has served as our independent registered public accounting firm since 2009.
At the Annual Meeting, our stockholders are being asked to ratify the appointment of EY as our independent registered public accounting firm for our fiscal year ending July 31, 2020.2023. Our audit committeeAudit Committee is submitting the selection of EY to our stockholders because we value our stockholders’ views on our independent registered public accounting firm and as a matter of good corporate governance. Representatives of EY will be present at the Annual Meeting, and they will have an opportunity to make statements and will be available to respond to appropriate questions from our stockholders.
Notwithstanding the selection of EY and even if our stockholders ratify the selection, our audit committee,Audit Committee, in its discretion, may appoint another independent registered public accounting firm at any time during our fiscal year if our audit committeeAudit Committee believes that such a change would be in the best interests of Palo Alto Networks and its stockholders. If our stockholders do not ratify the appointment of EY, our board of directorsAudit Committee may reconsider the appointment.
Fees Paid to the Independent Registered Public Accounting Firm
The following table presents fees for professional audit services and other services rendered to our companyCompany by EY for our fiscal years ended July 31, 20182021 and 2019.2022.
2018 | 2019 | |||||||
Audit Fees (1) | $ | 5,469,185 | $ | 5,330,101 | ||||
Audit-Related Fees (2) | — | 164,500 | ||||||
Tax Fees (3) | 748,097 | 1,706,649 | ||||||
All Other Fees (4) | 7,180 | 7,125 | ||||||
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$ | 6,224,462 | $ | 7,208,375 | |||||
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2021 | 2022 | |
Audit Fees(1) | $6,757,000 | $6,139,000 |
Audit-Related Fees(2) | 688,000 | — |
Tax Fees(3) | 1,020,000 | 477,000 |
All Other Fees(4) | 4,000 | 5,000 |
$8,469,000 | $6,621,000 |
(1) | Audit fees consist of professional services rendered in connection with (a) the audit of our annual consolidated financial statements, including audited financial statements presented in our Annual Report on Form10-K, (b) review of our quarterly consolidated financial statements presented in our Quarterly Reports on Form10-Q, (c) professional services provided for new and existing statutory audits of subsidiaries or affiliates of the Company, and (d) other regulatory filings. |
(2) | Audit-Related fees consist of fees for professional services for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees.” These services include acquisition due diligence services, technical accounting guidance and other attestation services. |
(3) | Tax Fees consist of fees for professional services for federal, |
(4) | All Other Fees includes fees for professional services other than these services reported above. These services specifically relate to subscriptions to an accounting regulatory database. |
In our fiscal year ended July 31, 2019,2022, there were no other professional services provided by EY that would have required our audit committeeAudit Committee to consider their compatibility with maintaining the independence of EY.
2022 Proxy Statement | 57 |
Proposal No. 2 Ratification of Appointment of Independent Registered Public Accounting Firm
Audit Committee Policy onPre-Approval of Audit and PermissibleNon-Audit Services of Independent Registered Public Accounting Firm
Consistent with requirements of the SEC and the Public Company Accounting Oversight Board (the “PCAOB”) regarding auditor independence, our audit committeeAudit Committee is responsible for the appointment, compensation and oversight of the work of our independent registered public accounting firm. In recognition of this responsibility, our audit committeeAudit Committee has established a policy for thepre-approval of all audit and permissiblenon-audit services provided by our independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services.
Before engagement of the independent registered public accounting firm for the next year’s audit, the independent registered public accounting firm submits a detailed description of services expected to be rendered during that year for each of the following categories of services to our audit committeeAudit Committee for approval:
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Our audit committeeAudit Committee pre-approves particular services or categories of services on acase-by-case basis. The fees are budgeted, and our audit committeeAudit Committee requires our independent registered public accounting firm and management to report actual fees versus budgeted fees periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the originalpre-approval. In those instances, before our independent registered public accounting firm is engaged,(a) if the additional services do not require specific approval by the Audit Committee, a detailed description of the services mustwill bepre-approved by our audit committee submitted to the Chief Financial Officer or approvedChief Accounting Officer, who will determine whether such services are included within the list of services that have received the general pre-approval of the Audit Committee and the Audit Committee will be informed on a timely basis of any such services rendered by the chair ofindependent auditor, or (b) if the audit committee and later ratifiedadditional services require specific approval by the audit committee. Any proposed services exceeding these levelsAudit Committee, they will be submitted for pre-approval to the Audit Committee by both the independent auditor and the Chief Financial Officer or amounts require specificpre-approval by our audit committee.Chief Accounting Officer, and shall only be submitted if the independent auditor and such officer mutually agree that the request or application is consistent with the SEC’s rules on auditor independence. All fees paid to EY for our fiscal year ended July 31, 2019,2022 werepre-approved by our audit committee.Audit Committee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RATIFICATIONRequired Vote
OF THE APPOINTMENT OF ERNST & YOUNGThe ratification of the appointment of EY as our independent registered public accounting firm requires the affirmative vote of a majority of the shares of our common stock present virtually or by proxy at the Annual Meeting and entitled to vote thereon. Abstentions are treated as shares present virtually or by proxy and entitled to vote at the Annual Meeting and, therefore, will have the same effect as a vote “Against” this proposal. Any broker non-votes will have no effect on the outcome of the vote.
Recommendation of the Board | |
The Board recommends that you vote “FOR” the ratification of the appointment of Ernst & Young LLP. |
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REPORT OF THE AUDIT COMMITTEEReport of the Audit Committee
The audit committeeAudit Committee consists of Ms.Mmes. Bawa and McCarthy, Mr. Goetz and Messrs. Calderoni and Donovan.the Rt Hon Sir John Key. Each member of the committee is an independent director as required by the listing standards of the NYSENasdaq and rules and regulations of the SEC. The audit committeeAudit Committee operates under a written charter approved by the board of directors,Board, which is available on the Investor Information portion of our web sitewebsite at www.paloaltonetworks.com.https://investors.paloaltonetworks.com/. The composition of the audit committee,Audit Committee, the attributes of its members and the responsibilities of the audit committee,Audit Committee, as reflected in its charter, are intended to be in accordance with applicable requirements for corporate audit committees. The audit committeeAudit Committee reviews and assesses the adequacy of its charter and the audit committee’sAudit Committee’s performance on an annual basis.
The audit committeeAudit Committee assists our board of directorsBoard in the board’sBoard’s oversight and monitoring of:
our accounting and financial reporting processes and internal controls as well as the audit and integrity of our financial statements;
the qualifications, independence and performance of our independent registered public accounting firm;
the performance of our internal audit function;
our compliance with applicable law; and
risk assessment and risk management pertaining to financial, accounting and tax matters of the company.
With respect to the company’sCompany’s financial reporting process, the management of the companyCompany is responsible for (1) establishing and maintaining internal controls and (2) preparing the company’sCompany’s consolidated financial statements. Our independent registered public accounting firm, Ernst & Young LLP (“EY”),EY, is responsible for auditing these financial statements. It is the responsibility of the audit committeeAudit Committee to oversee these activities. It is not the responsibility of the audit committeeAudit Committee to prepare or certify our financial statements or guarantee the audits or reports of the independent auditors. These are the fundamental responsibilities of management and our independent registered public accounting firm.
The audit committeeAudit Committee is responsible for the appointment, compensation, retention, and oversight of the work performed by EY. In fulfilling its oversight responsibility, the audit committeeAudit Committee carefully reviews the policies and procedures for the engagement of the independent registered public accounting firm, including the scope of the audit, audit fees, auditor independence matters, performance of the independent auditors, and the extent to which the independent registered public accounting firm may be retained to performnon-audit services.
In the performance of its oversight function, the audit committeeAudit Committee has:
reviewed and discussed the audited financial statements with management and EY;
discussed with EY the applicable requirements of the Public Company Accounting Oversight BoardPCAOB and the SecuritiesSEC; and Exchange Commission;
received the written disclosures and the letter from EY required by applicable requirements of the Public Company Accounting Oversight BoardPCAOB regarding the independent accountant’s communications with the audit committeeAudit Committee concerning independence, and has discussed with EY its independence; and
led the review and selection of the lead audit engagement partner for the period commencing on August 1, 2019.
Based on the audit committee’sAudit Committee’s review and discussions with management and EY, the audit committeeAudit Committee recommended to the board of directorsBoard that the audited financial statements be included in the Annual Report on Form10-K for the fiscal year ended July 31, 2019,2022, for filing with the Securities and Exchange Commission.
Respectfully submitted by the members of the audit committeeAudit Committee of the board of directors:Board:
Mary Pat McCarthy (Chair)
Frank Calderoni
Aparna Bawa
James J. Goetz
Rt Hon Sir John M. DonovanKey
2022 Proxy Statement | 59 |
ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERSAdvisory Vote on the Compensation of our Named Executive Officers
In accordance with the rules and regulations of the SEC, pursuant to Section 14A of the Exchange Act, weWe are providing our stockholders with the opportunity to vote to approve, on an advisory ornon-binding basis, the compensation of our named executive officers as disclosed in accordance with the rules and regulations of the SEC in the “Executive Compensation”“Executive Compensation” section of this proxy statement.Proxy Statement. This proposal, commonly known as a“say-on-pay” “say-on-pay” proposal, gives our stockholders the opportunity to express their views on our named executive officers’ compensation as a whole. This vote is not intended to address any specific item of compensation or any specific named executive officer, but rather the overall compensation of all of our named executive officers and the philosophy, policies and practices described in this proxy statement.Proxy Statement.
Thesay-on-pay vote is advisory, and therefore is not binding on us, our compensation committeeCompensation and People Committee or our board of directors.Board. Thesay-on-pay vote will, however, provide information to us regarding investorstockholder sentiment about our executive compensation philosophy, policies and practices, which our compensation committeeCompensation and People Committee will be able to consider when determining executive compensation for the remainder of the current fiscal year and beyond. Our board of directorsBoard and our compensation committeeCompensation and People Committee value the opinions of our stockholders and to the extent there is any significant vote against the compensation of our named executive officers as disclosed in this proxy statement, we will endeavor to communicate with stockholders to better understand the concerns that influenced the vote and consider our stockholders’ concernsCompensation and our compensation committeePeople Committee will evaluate whether any actions are necessary to address those concerns. We currently conduct advisory votes on our named executive officer compensation on an annual basis, and we expect to conduct our next advisory vote at our 20202023 annual meeting of stockholders.
As a result of the feedback that we received from our stockholders through our extensive engagement efforts, our Compensation and People Committee made extensive changes to our executive compensation program. We believe that the information we have provided in thethis “Executive Compensation” section, titled “Executive Compensation,” and in particular the information discussed in the sectionsections titled “Executive“Executive Compensation—Letter from our Compensation and People Committee” and “Executive Compensation—Compensation Discussion and Analysis,,” which describe these changes in detail, demonstrates that our executive compensation program has been designed appropriately and is working to ensure management’s interests are aligned with our stockholders’ interests to support long-term value creation. Accordingly, we ask our stockholders to vote “FOR” the following resolution at the Annual Meeting:
“RESOLVED, that Palo Alto Networks, Inc.’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in Palo Alto Networks, Inc.’s proxy statement for the 20192022 Annual Meeting of Stockholders pursuant to the compensation disclosure rules and regulations of the SEC, including the compensation discussion and analysis, the compensation tables and narrative discussion, and other related disclosure.”
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL, ON AN
ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS.
EXECUTIVE OFFICERSRequired Vote
The following table identifies certain information aboutapproval, on an advisory basis, of the compensation of our named executive officers requires the affirmative vote of a majority of the shares of our common stock present virtually or by proxy at the virtual Annual Meeting and entitled to vote thereon to be approved. You may vote “for,” “against,” or “abstain” with respect to this proposal. Abstentions are considered votes present and entitled to vote on this proposal, and thus will have the same effect as votes “against” this proposal. Broker non-votes will have no effect on the outcome of this proposal.
Although the advisory vote is non-binding, our Board values our stockholders’ opinions. The Compensation and People Committee will review the results of the vote and, consistent with our record of stockholder responsiveness, consider stockholders’ concerns and take into account the outcome of the vote when considering future decisions concerning our executive officers as of October 22, 2019. Officers are elected by our board of directors to hold office until their successors are elected and qualified.compensation program.
Recommendation of the Board | |
The Board recommends that you vote “FOR” the approval, on an advisory basis, of the compensation of our named executive officers. |
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Nikesh Arora has served as ChairmanExecutive Compensation
Letter from our Compensation and People Committee
November 3, 2022
Dear Fellow Stockholders,
The Compensation and People Committee of the Palo Alto Networks Board of Directors is committed to ensuring that we have the right leadership team in place, and that our compensation programs appropriately compensate our executives, allowing us to retain and attract individuals of outstanding character and ability who are champions of our boardculture and mission. As a committee, we strongly believe in, and are committed to, executing a pay-for-performance compensation philosophy that closely aligns executive compensation to our financial and operational performance.
Fiscal 2022 was once again a year marked by disruption and uncertainty. The COVID-19 pandemic continued to create significant global economic and social uncertainty, as new variants of directorsthe disease disrupted workplaces and contributed to organizational disruption. Russia’s invasion of Ukraine and other geopolitical tensions disrupted the global economy, and contributed to global economic uncertainty. Our management team once again embraced these challenges by mobilizing our Chief Executive Officer since June 2018. Priorpeople and resources to joining us, from 2016 through 2018 Mr.keep our employees healthy, safe and professionally fulfilled, while delivering very strong financial and operational performance.
We believe that Palo Alto Networks is at an inflection point in our mission to be the cybersecurity partner of choice. In speaking for the entire Board, we believe that Nikesh Arora was an angel investor and from June 2016 through December 2017, Mr. Arora served as an advisor to SoftBank Group Corp., a multinational conglomerate company (“SoftBank”). From July 2015 through June 2016, Mr. Arora served as president and chief operating officer of SoftBank and from July 2014 through June 2015, Mr. Arora served as vice chairman and chief executive officer of SoftBank Internet and Media, a subsidiary of SoftBank. Prior to SoftBank, from December 2004 through July 2014, Mr. Arora held multiple senior leadership operating roles at Google, Inc., including serving as senior vice president and chief business officer, from January 2011 to June 2014. Mr. Arora also serves on the board of Compagnie Financiere Richemont S.A., a public Switzerland-based luxury goods holding company. Mr. Arora previously served on the boards of Sprint Corp., a communications services company, from November 2014 to June 2016, Colgate-Palmolive Company, a worldwide consumer products company focused on the production, distribution and provision of household, health care and personal care products, from March 2012 to September 2014, SoftBank from 2014 to 2016, and Yahoo! Japan, an internet company, from 2015 to 2016. Mr. Arora holds an M.S. in Business Administration from Northeastern University, an M.S. in Finance from Boston College, and a B.Tech in electrical engineering from the Institute of Technology at Banaras Hindu University.
Kathy Bonanno has served as our Executive Vice President, Chief Financial Officer since November 2017. Ms. Bonanno previously served as our Senior Vice President Finance, from November 2016 to November 2017. From when she joined us in April 2014 until November 2016, Ms. Bonanno served as our Vice President Finance. In her 30 years of business experience she has held a variety of senior finance positions, including at Symantec Corporation, a cybersecurity company, and American Airlines, a major U.S. airline. Prior to joining us, from 2009 to 2014 Ms. Bonanno held various senior finance roles at Symantec Corporation, most recently serving as Vice President, FP&A from July 2012 to March 2014. Ms. Bonanno holds an M.B.A. from Texas Christian University and a B.S. in Finance from Arizona State University.
Jean Compeauhas served as our Chief Accounting Officer since February 2018, with responsibility for our tax and accounting functions. Ms. Compeau previously served as our Senior Vice President Corporate Controller, from November 2016 to February 2018. From when she joined us in December 2012 to November 2016, Ms. Compeau served as our Vice President Corporate Controller. In her 20 years of business experience she has held a variety of senior accounting or corporate controller positions, including at Intuitive Surgical, a global company that provides robotic assisted surgery technology, Exodus Communications, Inc., an internet hosting and service provider, and Infoseek Corporation, a search engine company. Prior to joining us, from November 2008 to November 2012, Ms. Compeau served as Corporate Controller of Intuitive Surgical. Ms. Compeau holds a B.A. from the University of California, Los Angeles (UCLA) and is a Certified Public Accountant (Inactive) in California.
Lee Klarich has served as our Chief Product Officer since August 2017. Prior to this appointment, Mr. Klarich served as our Executive Vice President of Product Management, a role he held since
November 2015. From November 2012 to November 2015, Mr. Klarich served as our Senior Vice President, Product Management and our Vice President, Product Management from May 2006 to November 2012. Prior to joining us, Mr. Klarich held various positions at NetScreen Technologies, Excite@Home, and PackardBell-NEC. Mr. Klarich holds a B.S. in Engineering from Cornell University.
Amit Singhhas served as our president since November 2018, with responsibility for allgo-to-market functions, including sales, support, consulting, business development, partnerships and enablement. Prior to joining us, from May 2016 until October 2018, Mr. Singh served as vice president, business and operations, virtual reality for Google, Inc., a multinational technology company that specializes in internet-related services and products. From March 2010 to May 2016, Mr. Singh served as president, Google for Work at Google. From 1991 to 2010, Mr. Singh held several roles including GVP application strategy group at Oracle Corporation, a U.S. multinational computer technology corporation. Mr. Singh holds a bachelor’s degree from Delhi College of Engineering and a master’s degree in Industrial and Management Engineering from Rensselaer Polytechnic Institute.
NirZuk is one of only a few leaders who can deliver the level of performance critical to our founders and has served as our Chief Technology Officer and as a membersuccessful accomplishment of the next phase of our boardgrowth. Further, we believe that Nikesh has built a strong management team that we are committed to retaining because we also believe that continuity of directors since March 2005. From April 2004our leadership team is critical to March 2005, Mr. Zuk was Chief Security Technologist at Juniper Networks, Inc.,reaching our goals.
Consistent with our pay-for-performance philosophy, we designed our fiscal 2022 executive compensation program to provide strong rewards for strong performance. In designing the program, we sought the advice of independent compensation consultants, and carefully evaluated and tied program parameters to metrics that we believe significantly impact long-term value and return for our stockholders and other stakeholders.
2022 Proxy Statement | 61 |
Executive Compensation
We are confident that our 2022 executive compensation program delivers on the commitments we made to our stockholders in April 2004, Mr. Zuk was Chief Technology Officer at NetScreen Technologies, Inc.,our 2021 proxy statement.
We are again asking for your support of our executive compensation program. After gathering extensive feedback from stockholders and engaging an independent consulting firm, we believe that our Compensation and People Committee has implemented a providersustainable, best-in-class program that is supported by market benchmarks aligned with best practices and the interests of ASIC-based Internet security systems. In December 1999, Mr. Zukco-founded OneSecure, Inc., a providerour shareholders.
Thank you for your continued support and investment in Palo Alto Networks.
Sincerely,
The Compensation and People Committee
Rt Hon Sir John Key (Chair)
John Donovan
Lorraine Twohill
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EXECUTIVE COMPENSATIONExecutive Compensation
Compensation Discussion and Analysis
Our Named Executive Officers, or NEOs, for fiscal 2019 were:
Nikesh Arora, our Chief Executive OfficerThis Compensation Discussion and Chairman of the Board (our “CEO”Analysis (“CD&A”);
Kathleen Bonanno, our Executive Vice President, Chief Financial Officer;
Amit Singh, our President;
Lee Klarich, our Executive Vice President, Chief Product Officer; and
Nir Zuk, our Founder and Chief Technology Officer.
Management Changes describes in fiscal 2019
Our board of directors appointed Mr. Singh as our President, effective as of November 1, 2018, following the resignation of Mark F. Anderson, our former President, effective October 31, 2018.
Our goal is to align our executive pay with the success of our business, and our compensation program is designed to attract, motivate and retain the key executives who drive our continued success. We do this by providing short-term cash incentive compensation opportunities tied to successful achievement of our annual operating goals and by granting long-term incentive compensation opportunities in the form of equity awards that are intended to deliver increasing value as our stock price increases, including performance-based equity awards tied to our financial and operational performance as well as stock price appreciation.
Our executive compensation program continues to evolve as we mature, gain market share and grow revenue, at scale, faster than the competition and the rate of the market. Beginning in fiscal 2017, our compensation committee made significant changes todetail our executive compensation program by structuringprograms and the program to include performance-based equity awards tied to our financial performance, which was intended to enhance the link between executiveresulting pay and our financial and operational performance, create valuedecisions for our stockholders, increase market alignment and mitigate risk, as well as respond to stockholder feedback on our compensation practices.
In fiscal 2018, our compensation committee continued this evolution by structuring ournamed executive compensation program to include long-term performance-based compensation that is aligned with achievement of our business strategy and creates value for our stockholders. Similarly, in late fiscal 2018, when designing a competitive total compensation package for our new CEO, the goal of our compensation committee was to provide a compensation package that had a significant portion that would deliver value to him only if other stockholders realize significant value as well.
We continued this practice in fiscal 2019, by granting to our NEOs (other than our CEO) performance-based stock optionsofficers (“PSOs”) tied to the achievement of certain stock price targets (the “Stock Price Achievements”NEOs”). The PSOs are designed:
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This executive summary provides an overview of:
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Fiscal 2019 Business Highlights
Our executive compensation program is designed to alignCompensation and People Committee believes that the compensation of our executive officers with our financial and operational performance (both short-term and long-term) and to create significant value for our stockholders. Our executive compensation actions and decisions should be viewed in the context of our financial and operational performance during fiscal 2019, as shown below:
Dollars | Fiscal 2018 | Fiscal 2019 | Change | |||||||||
Total Revenue (in Millions) | $ | 2,273.6 | $ | 2,899.6 | 27.5 | % | ||||||
Net Cash Provided by Operating Activities (in Millions) | $ | 1,038.1 | $ | 1,055.6 | 1.7 | % | ||||||
Total Deferred Revenue (in Millions) | $ | 2,279.3 | $ | 2,888.7 | 26.7 | % | ||||||
Billings (in Millions) | $ | 2,856.2 | $ | 3,489.8 | 22.2 | % | ||||||
Approximate Number of Customers | 54,000 | 65,000 | 20.4 | % | ||||||||
Stock Price at End of Fiscal Year | $ | 198.26 | $ | 226.54 | 14.3 | % |
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Although net cash provided by operating activities, deferred revenue, billings and number of customers are not measures that were used to determine awards under our incentive compensation plans, we believe that these results are important to provide context because these measures are useful indicators of our ability to grow our business consistent with our annual operating plan as it considers the compensation of our executive officers. Billings is a key financial measure and the calculation of billings from revenue is set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section on page 40 and 41 of our Annual Report on Form10-K filed with the SEC on September 9, 2019.
Strong Revenue Growth (in millions)
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Executive Compensation Practices
Our executive compensation program is designed to be heavily weighted towards compensating our executive officers based on our financial and operational performance and the creation of significant value for our stockholders. To that end, we have implemented executive compensation policies and practices that reinforce our “pay for performance” philosophy and align with sound governance principles. During fiscal 2019, the following policies and practices were in place:
What we do:
Short-term cash incentive compensation that is performance-based andat-risk
100% independent directors on our compensation committee
Independent compensation consultant directly engaged by and reporting to our compensation committee
Annual review and approval of our compensation strategy
Significant proportion of NEO compensation that is granted in the form of performance-based equity awards that are entirelyat-risk (see chart below)
Meaningful stock ownership guidelines for our executive officers andnon-employee directors
Ability to seek the recovery under a compensation recovery policy (a “Clawback Policy”) of performance-based incentive compensation (including performance-based equity awards) paid by us
Ongoing stockholder engagement
Annual advisory“Say-on-Pay” vote
What we do not do:
Do not have “single trigger” change in control payments or benefits
Do not have post-employment retirement- or pension-type benefits for our executive officers that are not available to our employees generally
Do not provide taxgross-ups for change in control payments
Do not permit hedging or pledging of shares of our common stock
The chart below illustrates our commitment to performance-based equity awards for our NEOs. Of all the equity grants in fiscal 2019 (valued on the date of grant) to our NEOs, 78% were in the form of performance-based equity awards and 22% were in the form of time-based restricted stock units.
Stockholder Engagement and our 2018Say-on-Pay Vote
Our compensation committee considers a number of factors in making executive compensation decisions, including the growth and scale of our business; recent performance against financial targets; an analysis of the compensation practices of the companies in our compensation peer group and other market data; an analysis of competitive market conditions by its external compensation consultant; the value of each executive’s position; the skills, tenure, and experience of our executives; the alignment between the market based positions and the actual responsibilities of our executives; each executive’s performance; our executives’ expected future contributions; the incentives provided to our executives to stay with us and drive our continued growth; our CEO’s recommendations (except with respect to his own compensation); internal parity considerations; the value of each executive’s unvested equity holdings; the dilutive effect of our long-term incentive compensation program; and the overall impact that our executives’ compensation would have on stockholder value.
Our compensation committee routinely considers the results of each annual stockholder advisory vote on the2022 compensation of our NEOs (the“Say-on-Pay” vote) and stockholder feedback on our executive compensation program gathered throughout the year. As part of our regular, ongoing and transparent communications with our
stockholders, we engage with them on a variety of topics through quarterly earnings calls, financial conferences,non-deal road shows and other communication channels. These discussions are generally attended by a combination of our CEO, Chief Financial Officer, Lead Independent Director (who serves on our compensation committee), General Counsel and/or Investor Relations lead.
At the beginning of fiscal 2019, prior to our 2018 Annual Meeting of Stockholders, our management team reached out to our top institutional and other stockholders (who collectively held shares representing an aggregate of approximately 29% of our outstanding shares of common stock) to discuss their views about our executive compensation program, policies and practices, as well as other matters. The stockholder engagement during fiscal 2019 was both targeted and extensive, similar to our practice in prior years.
In the course of these discussions, we received valuable feedback on our executive compensation program, policies and practices, including favorable comments from our stockholders concerning the introduction of PSOs to our executive compensation program. This feedback was presented to our nominating and corporate governance committee, compensation committee and board of directors.
As has been the compensation committee’s normal cadence for compensation decisions, in the first quarter of fiscal 2019, the compensation committee reviewed and approved the key elements of our fiscal 2019 executive compensation program for our executive officers, excluding our CEO who joined us in June of 2018. While these decisions were made prior to receiving our 2018Say-on-Pay voting results, where we received less than majority support for our2018 Say-on-Pay proposal, the decisions accounted for the feedback gathered from our stockholder engagement from previous periods. Following our annual review of our executive compensation philosophy, our compensation committee decided to retain our general approach to executive compensation of aligning certain elements of our executive compensation program with company performance for fiscal 2019 and, in part due to favorable stockholder feedback, further introduced to the broader executive team PSOs tied to the Stock Price Achievements to ensure that the entire executive team’s interests are alignedis commensurate with our stockholders’ long-term interests. The highlightssize and performance, the significant scope of our fiscal 2019 executive compensation program are describedtheir roles and responsibilities, and their strong leadership in the section entitled “Fiscal 2019 Executive Compensation Program Overview” below. We value the opinions of our stockholders, and it is the current intent of our compensation committee to continue to engage in dialoguea manner consistent with our stockholders to solicit feedback throughout the year regarding our executive compensation program, policiescorporate values of disruption, collaboration, execution, integrity and practices.inclusion.
Fiscal 2019Named Executive Compensation Program Overview
In October 2018, our compensation committee approved the structure of our fiscal 2019 executive compensation program for our NEOs. In making these decisions, our compensation committee considered, among other factors, company performance, internal parity considerations, pay levels of these NEOs relative to the executives in comparable positions at the companies in our updated compensation peer group and the overall competitive market, the experience and responsibilities of each of these NEOs, the individual performance of each of these NEOs, the continued competition for experienced leadership in our industry and the feedback from our stockholders as discussed above.
Our executive compensation program continues to evolve as we mature, gain market share and grow revenue, at scale, faster than the competition and the rate of the market. Our performance-based equity awards, which were first introduced in fiscal 2017, as further discussed below, were designed to enhance the link between executive pay and our financial and operational performance, increase market alignment and mitigate risk, as well as respond to stockholder feedback that our compensation practices should include more performance-based elements. The feedback from our stockholders, the evolution of our fiscal planning process as we mature as a public company, and our compensation committee’s ongoing discussion about the appropriate time in our growth and evolution to implement performance-based equity awards were factors in implementing performance-based equity awards tied to billings performance in fiscal 2017 and PSOs tied to stock price achievements in fiscal 2018.
Prior to fiscal 2017, we had only granted restricted stock awards, or RSAs, or restricted stock unit awards, or RSUs, subject to time-based vesting to our NEOs. In fiscal 2017, we made significant changes to our compensation program with the introduction of performance-based equity awards alongside the time-based equity awards. Performance-based equity awards were granted in the form of performance-based stock awards, or PSAs, to our NEOs in fiscal 2017. In fiscal 2018, performance-based equity awards were granted to our NEOs (other than Mr. Arora) in the form of performance-based stock unit awards, or PSUs, and in the form of PSOs to Mr. Arora.
For fiscal 2019, we granted time-based RSUs to Ms. Bonanno and Mr. Singh, and we granted performance-based equity awards to our NEOs (other than Mr. Arora) in the form of PSOs because the PSOs reflect our compensation committee’s continued commitment to incorporating performance measures into our long-term equity incentive program which only compensate our NEOs when significant value has been delivered to our stockholders.
In addition, in July 2019, our compensation committee (i) decided not to make any cash payments to our NEOs under the fiscal 2019sub-planOfficers to our omnibus Employee Incentive Compensation Plan (the “Fiscal 2019 Incentive Compensation Plan”) for the second half of fiscal 2019, (ii) approved the grant of time-based RSUs (the “July 2019 RSUs”) to our NEOs in recognition of our strong billings performance, and (iii) advanced the timing of the grant of fiscal 2020 equity awards to our NEOs (other than Ms. Bonanno), in the form of time-based RSUs (the “Fiscal 2020 RSUs”) and performance-based RSUs (the “Fiscal 2020 PSUs”), as discussed in further detail below.
As we, and the compensation program, continue to evolve and as we evaluate, including through stockholder discussions, the effectiveness of PSOs in attaining our compensation objectives, our compensation committee intends to review and reconsider the mix of components in our long-term equity compensation, the appropriateness of PSOs in future years, the performance metrics applicable to PSOs and the length of performance period for PSOs.
The overall components of our fiscal 2019 executive compensation program for our NEOs (other than Mr. Singh) are summarized in the chart below.
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Compensation Arrangements with Mr. Singh
On November 1, 2018, our board of directors appointed Mr. Singh as our President. In hiring Mr. Singh, our board of directors approved an employment offer letter setting forth the principal terms and conditions of his employment, including an initial annualized base salary of $750,000 (which was set througharm’s-length negotiation, considering such factors as our focus on new developing markets and the requisite experience and skills that a qualified candidate would need to manage a growing business in a dynamic and ever-changing environment, his proven experience as a business and technology leader, who has previously demonstrated leadership and ability to scale businesses (establishing and helping scale the Google cloud business, leading several thousand people and growing it into a multi-billion dollar business), the prevailing market conditions, market data for base salaries of similarly situated executives, and his prospective role and responsibilities), which is subject to adjustment by the board of directors or compensation committee from time to time, and a target annual cash bonus opportunity of 100% of his base salary (based on the achievement of certain performance objectives established by the board of directors and/or compensation committee), which, for fiscal 2019, waspro-rated for the portion of fiscal 2019 that Mr. Singh was employed by us.
In addition, in connection with his hiring Mr. Singh received the following equity awards:
A time-based RSU award for 47,981 shares of our common stock that will vest over a four-year period with 40% vesting on the first anniversary of the grant date; 30% vesting during the second year in four quarterly increments; 20% vesting during the third year in four quarterly increments, and 10% vesting during the fourth year in four quarterly increments, subject to Mr. Singh’s continued service on each vesting date.
Nikesh Arora Chief Executive Officer, Chair of the Board | Dipak Golechha Executive Vice President, Chief Financial Officer | William “BJ” Jenkins President* | Lee Klarich Executive Vice President, Chief Product Officer | Nir Zuk Executive Vice President, Founder, Chief Technology Officer | ||||||
* | Mr. Jenkins was appointed President in August 2021. |
• Our employees, led by our NEOs, continued to • Our financial performance has led to strong financial returns, a one-year total shareholder return (“TSR”) of 25.07% (or at the 92nd percentile of our • We engaged in discussions with stockholders holding 60% of our outstanding shares (as of June 30, 2022), with a • We followed through on the • Our fiscal 2022 executive compensation programs align with recognized best practices. | ||
Similar to the other NEOs that were granted PSOs in fiscal 2019, a primary consideration of the structure of Mr. Singh’s compensation arrangements was that our compensation committee wanted to design an overall compensation package that included a component that provided significant value to him only if all other stockholders realized significant additional value, thereby directly aligning the interest of Mr. Singh with the interests of our stockholders.
For a summary of the material terms and conditions of Mr. Singh’s employment offer letter, including the severance and change in control payments and benefits related to the equity awards described above, see “ —Executive Employment Agreements”and “—Potential Payments Upon Termination or Change in Control” below.
DISCUSSION OF OUR FISCAL 2019 EXECUTIVE COMPENSATION PROGRAM
This section provides an overview of our executive compensation philosophy, the overall objectives of our executive compensation program and each component of our executive compensation program. In addition, we explain how and why our compensation committee arrived at the specific compensation policies and decisions involving our NEOs for fiscal 2019.
Executive Compensation Philosophy and Objectives
We operate inAs a highly competitive business environment, which is characterized by frequent technological advances, rapidly changing market requirements and the emergence of new market entrants. To successfully grow our business in this dynamic environment, we must continually develop and refine our products and services to stay ahead of ourend-customers’ needs and challenges. To achieve these objectives, we need a highly talented and seasoned team of technical, sales, marketing, operations, and other business professionals.
We compete with other companies in our industry and other technology companiesglobal cybersecurity provider based in the San Francisco Bay Area, we operate in a highly competitive and rapidly evolving market, and we expect competition among companies in our market to continue to increase. We compete with many other technology companies in seeking to attract and retain highly skilled top talent. Our continued success has made our employees and executives more attractive as candidates for employment with other companies, and we are intently focused on maintaining competitive compensation programs, in part, to address recruiting efforts by other companies in the technology industry.
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Executive Compensation
As a skilled management team. To attract and retain qualified executive candidates,result, our compensation committee recognizes that it needsphilosophy is designed to develop competitive compensation packages to meet this challenge. Accordingly, we have embracedestablish and maintain a compensation philosophy of offering our NEOs a competitive total compensation program each of the components of which recognizesthat attracts and rewards individual performancetalented individuals who possess the skills necessary to support our near-term objectives and contributionscreate long-term value for our stockholders, grow our business and assist in the achievement of our strategic goals. We believe that a performance-based culture is crucial to our success. This philosophy allows us to attract, retain,growth and motivate talented executive officers with the skills and abilities needed to drive our desired business results. success.
The specific objectives of our executive compensation program are to:
Drive the developmentof a successful and profitable business through our next phase of growth. | |||||
Create sustainable long-term value for our stockholdersby aligning the interests of our executive officers with those of our stockholders. | |||||
Reward our executive officers for the successful achievement of our financial and strategic growth objectives. | |||||
Attract, motivate and retainhighly qualified executives who possess the skills and leadership necessary to continue to grow our business, and provide compensation packages that are comparable to our peers and the overall competitive market and that are heavily weighted to be based on our performance. | |||||
rewardWhile remaining true to our executive officers forcompensation objectives, as well as sound compensation policies and practices, our compensation program also has the successful achievement of our strategicflexibility to incorporate feedback and financial growth objectives;
drive the development of a successful and profitable business through our next phase of growth;
attract, motivate, reward, and retain highly qualified executive officers whoevolving compensation practices that are important to us and our success and possessstockholders, such as the skills and leadership necessaryaddition of an ESG modifier to continue to grow our business through our next phase of development;
recognize strong performers by offeringNEOs’ cash performance-based incentive plan ensuring a linkage between NEO compensation and equity awardsour ESG commitments.
Stockholder Engagement in Fiscal 2022
In fiscal 2022, we once again undertook extensive engagement efforts to obtain our stockholders’ views on executive compensation, corporate governance and other matters, and to determine how best to respond to that have the potentialfeedback. Our Lead Independent Director once again played a central role in our stockholder engagement efforts in fiscal 2022. The Chair of our Compensation and People Committee also met with numerous stockholders to reward individual achievement as well as contributions todiscuss their views regarding our overall success;
provideexecutive compensation packages that are comparable toprogram.
Our Lead Independent Director and management team regularly update our peers and the overall competitive market and are basedBoard on our performance; and
create value forengagement efforts, providing summaries of our stockholders’ feedback. The continuous feedback that we receive from our stockholders and alignhas shaped the interests of our executive officers with those of our stockholders.
Our executive compensation program for fiscal 2019 reflectedand practices implemented by our stageCompensation and People Committee.
The discussions with our stockholders also provided valuable insights into the concerns that led to the low say-on-pay support that we received at our 2020 annual meeting of development as a growing publicly-traded company which is gaining market sharestockholders, and growing revenue, at scale, faster thanprovided the competition and the ratefoundation of the market. Accordingly, we design our executive compensation program in fiscal 2021 and 2022. At our 2021 annual meeting of stockholders, we were pleased that approximately 81% of votes were cast in favor of our say-on-pay proposal, which was significantly higher than the approximately 40% support we received the prior year.
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Executive Compensation
We reached out to stockholders representing 68% of our outstanding shares. | We engaged in discussions with investors representing 60% of our outstanding shares (which is all stockholders that indicated a willingness to engage with us). | Our Lead Independent Director participated in discussions (30 meetings) with investors representing 39% of our outstanding shares. | ||||
* Stockholder ownership, to our knowledge, as of June 30, 2022. | ||||||
WHAT WE HEARD | HOW WE RESPONDED |
Executive Compensation | • 100% of our NEOs’ equity compensation (aside from new hire awards) is performance-based, with different performance targets than the cash incentive plan awards. • We increased our stock ownership guidelines for our NEOs, including our Chief Executive Officer. • We added an ESG modifier to our cash incentive plan. • We established a one-year post-vesting holding period for all NEOs, including our Chief Executive Officer. |
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Executive Compensation
Our Compensation Best Practices
In line with the feedback that we received from our stockholders and our independent compensation consultants, we implemented extensive changes to provide market-competitiveour executive compensation program in the form of base salary, an annual cash incentivefiscal 2021, and maintained these compensation opportunity, a long-term incentive compensation opportunitypractices in the form of equity awards, including time-based RSUs, PSUs, and PSOs, and certain employee health and welfare benefits.fiscal 2022.
We offer cashbelieve our executive compensation inprogram represents recognized best practice and reflects principles that align the formcompensation of base salariesour NEOs with the long-term interests of our stockholders.
NEW FOR 2022 | ||||||
100% of equity compensation (aside from new hire awards) is performance-based, with different performance targets than the cash incentive plan Addition of ESG modifier to cash incentive plan, which modifies the annual incentive cash compensation (plus or minus 10%), based on our performance relative to an ESG scorecard with climate, inclusion and human capital metrics | Increase to stock ownership guidelines One-year post-vesting holding period for all NEOs, including our Chief Executive Officer | |||||
ROBUST AND INDEPENDENT COMPENSATION DECISION-MAKING, ALIGNED WITH OUR CORPORATE VALUES | ||||||
100% independent Compensation and People Committee Independent compensation consultants | Annual review of compensation strategy Consideration of annual say-on-pay vote | |||||
COMPENSATION BEST PRACTICES | ||||||
Majority of compensation is performance-based and at-risk 100% short-term incentive cash compensation is performance-based and at-risk No single trigger vesting of equity awards on occurrence of a change in control No dividends paid on unvested equity Robust stock ownership guidelines | No hedging or pledging, except limited pledging permitted with the prior approval of the ESG and Nominating Committee Meaningful clawback policy Limited perquisites and personal benefits No defined benefit plans or SERPs Implementing the advice of independent compensation consultants | |||||
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Executive Compensation
We Followed Through On Our Commitments
In the proxy statement for our 2021 annual cash incentive compensation opportunities (with semi-annual payouts). Typically,meeting of stockholders, we have structured our annual cash incentive compensation opportunitiesmade several commitments with respect to focus on the achievement of specific short-term financial and operational objectives that will further our longer-term growth objectives.
Equity awards serve as a key componentdesign of our executive compensation program. Inprogram and related policies. We made these commitments following receipt of extensive feedback from our stockholders and advice from two independent compensation consultants, Pay Governance and Meridian Compensation Partners.
Summarized below are our fiscal 2019,2022 commitments, and our compensation committee granted performance-based equity and/or time-based equity to provide them with effective long-term incentives and to promote stockholder value creation.follow through in meeting those commitments.
OUR FISCAL 2022 COMMITMENTS | OUR FOLLOW THROUGH | |
Maintain a robust stockholder outreach program | ||
Provide more transparency in our executive compensation disclosures, as well as more robust CD&A disclosures | ||
Disclose the target value of equity grants to our NEOs for the completed fiscal year in the CD&A | ||
Increase the CEO stock ownership guidelines to 10x base salary | ||
Make any one-time awards to NEOs a majority performance based and only make such grants in exceptional circumstances | ||
Annual equity grants to our NEOs to be at least 75% performance-based in line with market best practices | ||
Require a one year minimum vesting period for all grants to our Chief Executive Officer and other NEOs going forward, and implement a policy to require our Chief Executive Officer and other NEOs to hold all net shares for one year after vesting subject to certain exceptions | ||
Use a PSU award design that requires sustained performance over multiple years for any payout | ||
Include a relative TSR multiplier to our executive PSU awards | ||
Ensure that ongoing incentive goals are considered “challenging” with targets set at or above management guidance | ||
Disclose performance targets compared to actual results and corresponding payout scale | ||
Eliminate duplicate performance metrics in our cash incentive plan and PSU awards | ||
No upward discretion except for extraordinary circumstances (such as the COVID-19 pandemic) | ||
Incorporate an ESG metric into fiscal 2022 cash incentive plan to ensure linkage between compensation and our ESG goals |
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Finally, we offer our executive officers standard health and welfare benefits that are generally available to our other employees, including medical, dental, vision, life insurance and Section 401(k) retirement plans.Executive Compensation
We have not adopted any formal policies or guidelines for allocating compensation between current andlong-term compensation or between cash andnon-cash compensation, although we use competitive market data to develop a general framework for establishing the appropriate pay mix. Within this overall framework, our compensation committee reviews each component of executive compensation separately and also takes into consideration the value of each NEO’s compensation package as a whole and its relative value in comparison to our other NEOs.
Our compensation committee evaluates our compensation philosophy and executive compensation program as circumstances require and reviews executive compensation annually. As part of this review, we expect that our compensation committee will apply our philosophy and the objectives outlined above, together with consideration for the levels of compensation that we would be willing to pay to ensure that our executive compensation remains competitive and that we meet our retention objectives, as well as the cost to us if we were required to find a replacement for a key executive officer.
RoleCompensation Timeline and Process
The compensation setting timeline and process of our Compensation and People Committee is summarized below.
Our Compensation decisions for our NEOs are made by our compensation committee. Currently, our compensation committee is responsible for reviewing, evaluating and approving the compensation arrangements, plans, policies, and practices for our NEOs and overseeing and administering our cash-based and equity-based compensation plans.
Near the beginning of each fiscal year, our compensation committee, after consulting with our management team and its compensation consultant, considers analyses of compensation data from our compensation peer group as one of several factors that inform its judgment of appropriate parameters for target compensation levels. Our compensation committee generally seeks to provide target total direct compensation that is competitive and, dependent on our performance and other factors including those set forth below, may pay above, at, or below median levels of our compensation peer group. Our compensation committee does not apply a formula or assign relative weights to specific compensation elements. Our compensation committee believes that over-reliance on benchmarking can result in compensation that is unrelated to the value delivered by our executive officers because compensation benchmarking does not take into account the specific performance of our executive officers, our relative size, growth, and performance, or any of our unique circumstances or strategic considerations.
In addition to the foregoing, our compensation committeePeople Committee makes compensation decisions after consideration of severalconsidering factors including:
that include:
The performance and experience of each executive officer;
The scope and strategic impact of the executive officer’s responsibilities;
Our past business performance and future expectations;
Our long-term goals and strategies;
The performance of our executive team as a whole;
The value of each executive’s unvested equity holdings;
The challenge and cost of replacing high-performing leaders within-demand skills;
andThe past compensation levelsinternal parity of each individual;
The relative compensation among our executive officers to address internal parity; and
The competitiveness of our compensation relative to our compensation peer group.
At the beginning of each fiscal year, after taking into consideration the factors noted above, our compensation committee makes decisions with respect to any base salary adjustment and establishes the corporate performance objectives and target annual cash incentive compensation opportunities and equity awards for our executive officers, including our NEOs, for the upcoming fiscal year. With respect to our annual cash incentive compensation plan, our compensation committee determines the applicable target levels for each corporate performance objective used for each applicable quarterly performance measurement period.
Our compensation committee reviews our executive compensation program from time to time, including any incentive compensation plans, to determine whether they are appropriate, properly coordinated,Compensation and achieve their intended purposes, and to make any modifications to existing plans and arrangements or to adopt new plans or arrangements.
Role of Management
In carrying out its responsibilities, our compensation committee works with members of our management team, including our CEO and our Chief People Officer. Typically, our management team (together with our compensation committee’s compensation consultant) assists our compensation committee in the execution of its responsibilities by providing information on corporate and individual performance, market data with respect to compensation, and management’s perspective and recommendations on compensation matters.
In fiscal 2019, except with respect to his own compensation, our CEO made recommendations to our compensation committee regarding compensation matters, including the compensation of our executive officers. In addition, our CEO participated in meetings of our compensation committee, except with respect to discussions involving his own compensation, in which case he is not present for that portion of the meeting.
While our compensation committee solicits the recommendations and proposals of our CEO with respect to compensation-related matters, these recommendations and proposals are only one factor in our compensation committee’s decision-making process.
Role of Compensation Consultant
Our compensation committee has the authority to retain the services of external advisors, including compensation consultants, legal counsel and other advisors, from time to time, as it sees fit, in connection with carrying out its duties.
In fiscal 2019, our compensation committee continued to engage Compensia, Inc. (“Compensia”), a national compensation consulting firm, to assist us in executing our executive compensation strategy and guiding principles, assessing the current target total direct compensation opportunities of our executive officers, including comparing them against competitive market practices, developing a compensation peer group and advising on potential executive compensation decisions for fiscal 2019.
CompensiaCommittee does not provide any servicesapply a formula or assign relative weights to us other than the services provided to ourspecific compensation committee. Our compensation committee has assessed the independenceelements.
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Roles and Responsibilities
PARTICIPANT | ROLE IN COMPENSATION DETERMINATION PROCESS |
Compensation and People Committee | • Review, evaluate and approve the compensation arrangements, plans, policies, and practices for our NEOs • Oversee and administer cash-based and equity-based compensation plans • Review our executive compensation program, from time to time, to determine whether they are appropriate, properly coordinated, achieve their intended purposes and to make any modifications to existing plans and arrangements or to adopt new plans or arrangements • Retain the services of external advisors, including compensation consultants, legal counsel and other advisors, from time to time, as it sees fit, in connection with carrying out its duties |
Management | • Together with our independent compensation consultants, the Chief Executive Officer and the Chief People Officer assist the Compensation and People Committee in the execution of its responsibilities by providing information on corporate and individual performance, market data with respect to compensation and management’s perspective and recommendations on compensation matters • Chief Executive Officer makes recommendations to the Compensation and People Committee regarding compensation matters, including the compensation of executive officers (other than himself) • Chief Executive Officer participates in meetings of the Compensation and People Committee (other than portions of meetings that involve discussions of his own compensation) While our Compensation and People Committee solicits the recommendations and proposals of our Chief Executive Officer with respect to compensation-related matters, these recommendations and proposals are only one factor in our Compensation and People Committee’s decision-making process. |
Independent Compensation Consultants For fiscal 2022 advice, the Compensation and People Committee engaged Pay Governance and Meridian Compensation Partners, national compensation consulting firms | • Assist the Compensation and People Committee in executing the executive compensation strategy and guiding principles, assessing the current target total direct compensation opportunities of our executive officers, including comparing them against competitive market practices, developing a compensation peer group and advising on executive compensation decisions • Pay Governance and Meridian Compensation Partners did not provide any services to the Company other than the services provided to our Compensation and People Committee • Our Compensation and People Committee assessed the independence of Pay Governance and Meridian Partners taking into account, among other things, the factors set forth in Exchange Act Rule 10C-1 and the listing standards of Nasdaq and has concluded that no conflict of interest exists with respect to the work that Pay Governance and Meridian Compensation Partners perform for our Compensation and People Committee |
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among other things, the factors set forth in Exchange ActRule 10C-1 and the listing standards
Executive Compensation
Use of Competitive Data
To assess the competitiveness of our executive compensation program and to assist in setting compensation levels, we refer toat the Compensation and People Committee’s request, Compensia, Inc., our prior independent compensation consultant, compiled market data from a compensation peer group approved by our Compensation and People Committee and industry surveys, including the Radford High-TechnologyGlobal Technology Executive Compensation Survey. In addition, duringThe Compensation and People Committee, with the assistance of Pay Governance and Meridian Partners, then analyzed the market and survey data when making fiscal 2019, Compensia conducted an analysis of market data on the2022 compensation peer group as approved bydecisions.
Competitive Positioning
For fiscal 2022, our compensation committee.
Competitive Positioning
In fiscal 2019, our compensation committeeCompensation and People Committee continued to compare and analyze our executive compensation program and each component of executive compensation against data from a formal compensation peer group of companies.
In the context of our annual executive compensation review, with assistance from Compensia and input from management, in February 2021, our compensation committee approved an updated, improvedCompensation and People Committee reviewed the peer group of publicly-traded technology companies narrowing the annual revenue and market capitalization criteria, further discussed below.used to provide information regarding compensation practices for fiscal 2021 to determine if any changes were appropriate for use for fiscal 2022 pay decisions. In determining which companies should beto include in the peer group, our compensation committeeCompensation and People Committee considered companies that met some or all of the following updated criteria: (i) operated in a high-technology industry; (ii) had annual revenue between approximately $1.0$1.8 billion and $3.0$7.2 billion; (iii) had revenue growth greater than 20%; (iv) had a market capitalization between approximately $7.0$8.6 billion and $25.0$103.1 billion; and (v) had a market capitalization that was at least sixthree times annual revenue. As a resultBased on our Compensation and People Committee’s review of the application of thesethis updated criteria, we added Symantec Corporation and Twitter, Inc., which satisfied the above described criteria,no changes were made to the peer group. The remaindergroup, and the Company was at the 61st percentile of the peer group was unchanged from fiscal 2018.in terms of revenue and 51st percentile in terms of market capitalization.
The following publicly-traded companies made up our compensation peer group for fiscal 2019:2022:
Akamai Technologies, Inc. Arista Networks Inc. Autodesk, Inc. Cadence Design Systems F5 Networks Inc. | Fortinet Inc. Norton LifeLock Okta, Inc. PayChex, Inc. | ServiceNow, Inc. Snap, Inc. Splunk Inc. Square, Inc. (now Block) | SS&C Technologies Holdings, Inc. Synopsys, Inc. Twitter, Inc. Workday, Inc. |
CEO and NEO Pay for Performance Alignment For Fiscal 2022
Pay for performance is a cornerstone of our compensation philosophy. We balance our strong pay-for-performance compensation philosophy – where the vast majority of our Chief Executive Officer and other NEO compensation is at-risk and performance-based – with our need to recruit, incentivize, and retain talented executives in a highly competitive market. The result is an executive compensation program that is significantly weighted toward at-risk compensation tied to our financial and operational performance. |
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The graphs below illustrate the predominance of at-risk and performance-based components of our fiscal 2022 compensation program for our Chief Executive Officer and other named executive officers.
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Compensia supplements
* | Graph reflects Mr. Arora’s target base salary of $1 million, a significant portion of which he elected to forego. |
** | Excludes Mr. Jenkins’ new hire RSUs which were granted to compensate him for a portion of our estimated value of the unvested equity that he forfeited upon joining us. |
In line with our pay for performance compensation philosophy, our Compensation and People Committee also focuses on awarding compensation commensurate with the peer dataposition and responsibilities held by our NEOs. If an NEO’s position or responsibilities change, our Compensation and People Committee undertakes a review of that NEO’s compensation to ensure that it remains commensurate with compensation datathe new position and responsibilities.
How We Compensate Our Chief Executive Officer
As a result of feedback from surveys of similarly sized companies and uses this combination of market data to provide an analysis of compensation for executives holding positions comparable to the positions of our executive officers. Our compensation committee uses the market data as one reference point in determiningstockholders requesting detailed insights into the compensation of our executive officers. WhileChief Executive Officer, we include in this section a summary of the rationale for the decisions reached by our Board and Compensation and People Committee regarding Mr. Arora’s compensation committee focuses onsince he joined the Company in June 2018.
MR. ARORA’S LEADERSHIP TRANSFORMED OUR COMPANY
After Mr. Arora joined the Company, we set an ambition to become the cybersecurity partner of choice, to innovate and to stay ahead of the curve. To make this a reality, Mr. Arora established three strategic priorities critical to our long-term success: transforming network security, delivering comprehensive cloud native security and revolutionizing security operations. Under Mr. Arora’s leadership, our successful implementation of this strategy has led to:
Additionally, Mr. Arora successfully steered the Company through the unprecedented global impact of the COVID-19 pandemic, without laying off a single employee, and personally forgoing $1 million in salary to donate to our COVID-19 pandemic relief fund in fiscal 2021. Mr. Arora subsequently forwent an additional $1 million in salary.
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Executive Compensation
Transformed Our Business Through Innovation | ||||
A transformation that has born a differentiated position that spans our three platforms • Network Security – Comprehensive SASE capability, market-leading VM position, and innovation through advanced subscriptions • Cloud Security – 9 modules, broadest cloud security portfolio, and strong consumption • Security Operations – Pioneered XDR category, XSOAR and Xpanse point product | Became an innovation leader by delivering • 49 product releases across our three platforms in fiscal 2022 • Next generation cloud access security broker (CASB) • Cloud next generation firewall (NGFW) • Cloud code security • Industry first agent and agentless cloud security posture management (CSPM) | |||
Delivered Zero Trust Security | ||||
Delivered Strong Financial Performance and Stockholder Return | ||||
ACCELERATING REVENUE GROWTH | DELIVERING TOTAL SHAREHOLDER RETURN 1-Year TSR
| |||
ACCELERATING NEXT-GEN SECURITY ARR GROWTH | 3-Year TSR Palo Alto Networks vs. Percentiles of Peer Group | |||
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MARKET COMPETITIVE PAY LEVELS AND EVOLVING COMPENSATION IN DIRECT RESPONSE TO STOCKHOLDER FEEDBACK
Our Board believes that Mr. Arora is uniquely qualified to lead our Company. In designing Mr. Arora’s compensation abovepackages since he joined the 50th percentile,Company in 2018, our Board and Compensation and People Committee sought to deliver market-competitive compensation committee considers other factors in setting actual compensation. Such factors include our growth and scale; our recent performance against financial targets; the overall competitive market for our executives; the value of each executive’s position; the skills, tenure,commensurate with Mr. Arora’s capabilities and experience and reflective of the considerable challenge of leading the Company’s transformation from a provider of hardware delivered security to a provider of security delivered through the cloud, with multiple products to protect our executives; the alignment between the market based positionscustomers’ enterprise, cloud, endpoints, security operation centers and the actual responsibilitiesmore.
After a disappointing “say-on-pay” vote at our 2020 annual meeting of our executives; each executive’s performance; our executives’ expected future contributions; the incentives provided to our executives to stay with us and drive our continued growth; our CEO’s recommendations (except with respect to his own compensation), internal parity considerations; the valuestockholders, we conducted a comprehensive review of each executive’s unvested equity holdings; the dilutive effect of ourlong-term incentive compensation program; the overall impact that these equity awards would have on stockholder value; the results of each annual stockholder advisory vote on the compensation of our executives; and stockholder feedback on our executive compensation program.
Fiscal 2019 Executivepractices. Mr. Arora, in his capacity as Chair of the Board, gave his full support to this process and encouraged our Board and Compensation Program Components
The following describes each componentand People Committee to look at all aspects of our executive compensation program and make the rationalenecessary changes to respond to stockholder feedback and further align our program with best practices. As a result of this root and branch examination, our Compensation and People Committee significantly reduced the size of the target value of Mr. Arora’s annual equity grant to $15.0 million in fiscal 2022, from $21.0 million in fiscal 2021 and $22.0 million in fiscal 2020. Mr. Arora’s fiscal 2022 target direct compensation is at the 75th percentile of Company’s compensation peer group. We delivered TSR at the 92nd percentile of our compensation peer group for each,fiscal 2022.
Our Compensation and howPeople Committee also made other significant changes to Mr. Arora’s compensation structure for fiscal 2022:
CEO COMPENSATION
FY21 Target | FY22 Target | |
Annual Salary(1) | $1.0M | $1.0M |
Target Bonus | $1.0M | $1.0M |
Time-Based RSUs | n/a | n/a |
Performance Stock Units | $21.0M vesting over 4 years | $15.0M |
Total Target | $23M | $17M |
Year-Over-Year Change (total compensation) | -4.2% | -26.1% |
Performance-Based (total compensation) | 95.7% | 94.1% |
(1) | Mr. Arora forwent a portion of his annual salary (in the case of fiscal 2021, in connection with our funding efforts to support colleagues and communities impacted by the COVID-19 pandemic). He opted to receive only approximately $0.3 million of his salary in fiscal 2021, approximately $0.25 million of his salary in fiscal 2022, and approximately $0.75 million of his salary in fiscal 2023. |
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Executive Compensation
Fiscal 2022 Executive Compensation Program
Our executive compensation programs are tied to the Company’s financial and operational performance, support our commitment to good compensation amountsgovernance and awardsprovide market-based opportunities to attract, retain and motivate our executives in an intensely competitive market for qualified talent.
FISCAL 2022 PROGRAM HIGHLIGHTS |
• | No base salary or target annual incentive opportunity increases in fiscal 2022 for continuing NEOs. | |
• | Equity compensation granted in fiscal 2022 was 100% performance-based PSUs (aside from new hire RSUs). | |
• | Performance measures aligned with business strategy. | |
• | Chief Executive Officer donated 75% of his fiscal 2022 base salary and 25% of his fiscal 2023 base salary. | |
• | Mr. Jenkins appointed President. | |
• | Outstanding performance resulted in 150% achievement for our NEOs for cash incentive plan and 100% performance for the portion of the PSUs granted to our NEOs in July 2019 that were eligible to vest based on fiscal 2022 annual revenue growth. |
The following table lists the pay elements of our fiscal 2022 programs and the purpose they served:
Pay Element | Purpose | Performance Period | Performance Metric | |
Fixed Pay | Base Salary | Designed to be market-competitive and attract and retain talent | n/a | n/a |
At Risk Pay | Annual Cash Incentive Opportunity | Incentivize achievement of near-term financial and operational objectives, consistent with longer-term goals | Annual | Annual normalized billings for fiscal 2022 Annual organic operating margin for fiscal 2022 |
Revenue/TSR Performance Stock Units (PSU) | Reward long-term profitability and long-term performance relative to peers Create alignment with stockholders Facilitate executive retention | Two years and three years | Annual revenue growth for fiscal 2022, 2023, and 2024 and TSR of the Company relative to indexed companies for fiscal 2022 through 2024 (“rTSR”) |
Quantum of Compensation
Palo Alto Networks delivered another year of outstanding results for our NEOs were determinedstockholders in fiscal 2022, with a strong year of financial performance and execution. Our TSR for fiscal 2019.2022 was 25.07%, placing us at the 92nd percentile of our compensation peer group.
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Base SalaryThe table below shows the targeted value of total compensation to our Chief Executive Officer and each other NEO for fiscal 2022, as compared to fiscal 2021.
Name | Targeted | Targeted | Percentage |
Mr. Arora | $ 23,000,000 | $ 17,000,000 | -26.1% |
Mr. Golechha* | $ 5,200,000 | $ 5,200,000 | 0 |
Mr. Jenkins** | n/a | $ 15,500,000 | n/a |
Mr. Klarich | $ 11,100,000 | $ 11,100,000 | 0 |
Mr. Zuk | $ 3,900,000 | $ 4,400,000 | 12.8% |
* | Mr. Golechha joined the Company in December 2020 and was promoted to CFO in March 2021. Targeted value of total compensation for fiscal 2021 includes (a) annualized base salary and cash incentive compensation as CFO for fiscal 2021 and (b) PSUs with a target value of $4,000,000, but excludes RSUs with a target value of $4,000,000 that he received in connection with his hire, which are not reflected in the table. |
** | Mr. Jenkins joined the Company as President in August 2021. Targeted value of total compensation for fiscal 2022 includes (a) annualized base salary and cash incentive compensation as President for fiscal 2022 and (b) PSUs with a target value of $14,000,000, but excludes RSUs with a target value of $10,000,000 that he received in connection with his hire, which are not reflected in the table. See “BJ Jenkins Compensation Arrangements” below for further detail. |
Fiscal 2022 Executive Compensation Program Components
BASE SALARY
Base salary is the primary fixed component of our executive compensation program. We use base salary to compensate our executive officers for services rendered during the fiscal year and to ensure that we remain competitive in attracting and retaining executive talent.
Generally, we establish the initial base salaries of our executive officers througharm’s-length negotiation at the time weof hire the individual executive officer, taking into account his or her position, qualifications, experience, prior salary level, and the base salaries of our other executive officers.
Thereafter, our compensation committeeCompensation and People Committee reviews the base salaries of each NEO annually and makes adjustments as it determines to be reasonable and necessary to reflectin line with the scope of a NEO’s performance, contributions, responsibilities, experience, current salary level, position (in the case of a promotion),factors described under “Compensation Timeline and market positioning, as appropriate.Process” above.
In October 2018, in connection with its review of our executive compensation program, our compensation committee approved the base salaries for our NEOs, including an adjustment to the base salary of Ms. Bonanno to be effective November 1, 2018. The increase to Ms. Bonanno’s base salary reflected the significance of her responsibilities expected in fiscal 2019 and beyond, her strong performance that warranted a more competitive base salary relative to our compensation peer group, and an adjustment to reflect internal compensation parity considerations when comparing her fiscal 2018 base salary to the other NEOs.
NO INCREASE IN BASE SALARY FOR ANY NEO IN FISCAL 2022. |
The approvedtable below shows the base salary for each NEO for fiscal 2019, except 2022.
Name | Base Salary End of Fiscal 2021 | Base Salary End of Fiscal 2022 | Percentage Increase |
Mr. Arora(1) | $1,000,000 | $1,000,000 | 0% |
Mr. Golechha | 600,000 | $ 600,000 | 0% |
Mr. Jenkins(2) | n/a | $ 750,000 | n/a |
Mr. Klarich | $ 550,000 | $ 550,000 | 0% |
Mr. Zuk(3) | 1,482,000 | 1,482,000(3) | 0% |
(1) Mr. Singh, is set forth inArora has elected to forgo his base salary of $1 million for the table below.period beginning on November 1, 2021 through October 31, 2022.
Named Executive Officer | Base Salary at End of Fiscal 2018 ($) | Base Salary Effective November 1, 2018 ($) | Percentage Increase | |||||||||
Mr. Arora | 1,000,000 | 1,000,000 | 0 | % | ||||||||
Ms. Bonanno | 425,000 | 500,000 | 17.6 | % | ||||||||
Mr. Klarich | 550,000 | 550,000 | 0 | % | ||||||||
Mr. Zuk | 430,000 | 430,000 | 0 | % |
As previously described, (2) Mr. Singh’sJenkins’ annual base salary for fiscal 20192022 was set at $750,000 in connection with his hire.hire in August 2021.
The total(3) Mr. Zuk is employed by our Israel subsidiary and his base salaries paid to our NEOs for fiscal 2019 are set forthsalary is expressed in the “Fiscal 2019 SummaryIsraeli currency.
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Executive Compensation Table” below.
Short-Term Cash Incentive CompensationANNUAL CASH INCENTIVE COMPENSATION
We use short-termannual cash incentive compensation to motivate our NEOs to achieve our annual financial and operational objectives, while making progress towards our longer-term strategic and growth goals. Typically, near the beginning of each fiscal year,
FISCAL 2022 CASH INCENTIVE PLAN
In August 2021, our compensation committee adopts anCompensation and People Committee adopted a cash incentive compensation plan for that fiscal year, which identifies the plan participants and establishes the target annual cash incentive compensation opportunity for each participant, the performance measures to be used to determine whether to make payouts for the fiscal year and the associated target levels for each measure, and the potential payouts based on actual performance for the fiscal year. Typically, annual cash incentive compensation payouts have been determined after the end of the applicable performance period based onall employees not paid commissions (including our performance against one or more financial and/or operational performance objectives for the performance period as set forth in our annual operating plan.
Fiscal 2019 Incentive Compensation Plan. In October 2018, our compensation committee adopted and approved a Fiscal 2019 Incentive Compensation PlanNEOs) and approved the target levels for the Fiscal 2019 Incentive Compensation Planannual financial objectives for the first quarter of fiscal 2019. In November 2018, our compensation committee approved the target levels for the Fiscal 2019 Incentive Compensation Plan financial objectives for the second through fourth quarters of fiscal 2019. The Fiscal 2019 Incentive Compensation Plan provided for potential performance-based incentive payouts to all employees not paid commissions, including our NEOs. Further, the Fiscal 2019 Incentive Compensation Plan provided opportunities for annual cash incentive compensation payouts based on our actual achievement ofpre-established corporate financial objectives as set forth in our annual operating plan. The target levels for the financial objectives in our annual operating plan were set at levels determined to bethat were challenging and requiringrequired substantial skill and effort on the part of senior management. The Fiscal 2019 Incentive Compensation Plancash incentive plan included quarterlyan annual performance periodsperiod with (i) payouts of up to 100% of the target cash incentive compensation opportunities made on a semi-annual basis based on year to date results and (ii) payouts including a potentialfor over-performance (referred to as accelerator payments and discretionary “over-performance” pool payable atpayments, as described below) made after the end of the fiscal year. See the section titled “Fiscal 2022 Cash Incentive Plan Measure and Curves” below for additional information regarding the target payout and actual payout under our cash incentive plan.
Target Annual Incentive Compensation Opportunities. TARGET ANNUAL INCENTIVE COMPENSATION OPPORTUNITIES
As in prior years, the target annual cash incentive compensation opportunities for our NEOs were expressed as a percentage of their respective base salaries. In October 2018, in connection with its review of our fiscal 2019 executive compensation program, our compensation committee decided to increase
NO INCREASE IN TARGET ANNUAL CASH INCENTIVE COMPENSATION FOR ANY NEO IN FISCAL 2022. |
The table below shows the target annual cash incentive compensation opportunities as a percentage of base salary for each of Ms. Bonannofiscal 2022 and Messrs. Klarichthe corresponding target and Zuk. These target annual incentive compensation adjustments were generally intended so that the total target cash compensation opportunity for each NEO would be in line with the competitive market data (as reflected by our compensation peer group). The Compensation Committee decided to increase (i) Mr. Klarich’s target annual cash compensation opportunity based on his individual performance and his expanded responsibilities, (ii) Ms. Bonanno’s target annual cash compensation opportunity based on her individual performance and internal compensation parity considerations, and (iii) Mr. Zuk’s target annual cash compensation opportunity based on internal compensation parity considerations. For clarity, the adjustments approved in October 2018 were effective as of the second quarter of fiscal 2019. Mr. Arora’s target annual cash incentive compensation opportunity remained equal to 100% of his annual base salary. The target annual incentive compensation opportunities established under the Fiscal 2019 Incentive Compensation Plan for our NEOs, except Mr. Singh, were:maximum dollar values:
Named Executive Officer | Target Annual Incentive Compensation Opportunity (as a % of base salary) at end of Fiscal 2018 | Target Annual Incentive Compensation Opportunity (as a % of base salary) effective as of 2nd quarter Fiscal 2019 | Fiscal 2019 Target Annual Incentive Compensation Opportunity ($)* | ||||||||||||
Name | Target Annual Incentive Compensation Opportunity (as a % of base salary) at end of Fiscal 2022 | Fiscal 2022 Target Annual Incentive Compensation Opportunity | Fiscal 2022 Maximum Annual Incentive Compensation Opportunity | ||||||||||||
Mr. Arora | 100 | % | 100 | % | 1,000,000 | 100% | $ 1,000,000 | $ 1,650,000 | |||||||
Ms. Bonanno | 60 | % | 75 | % | 345,000 | ||||||||||
Mr. Golechha | 100% | $ 600,000 | $ 990,000 | ||||||||||||
Mr. Jenkins(1) | 100% | $ 750,000 | $ 1,237,500 | ||||||||||||
Mr. Klarich | 60 | % | 100 | % | 495,000 | 100% | $ 550,000 | $ 907,500 | |||||||
Mr. Zuk | 50 | % | 75 | % | 295,625 | 100% | 1,482,000(2) | 2,445,300(2) |
| Mr. Jenkins’ target annual cash incentive compensation opportunity |
(2) | Mr. Zuk is employed by our Israel subsidiary and |
Mr. Singh’s targetCORPORATE PERFORMANCE MEASURES
For fiscal 2022, our Compensation and People Committee selected annual cash incentive compensation opportunity was set at 100% of hisnormalized billings and annual base salary in connection with his hire.
Corporate Performance Measures.For purposes of funding the Fiscal 2019 Incentive Compensation Plan, our compensation committee selected revenue and earnings per shareorganic operating margin as the corporate performance measures.
Corporate Performance Metric | What It Is | Why It’s Important |
Annual normalized billings | Fiscal 2022 billings as reported in our Form 10-K, less billings from entities acquired in fiscal 2022 | A billings metrics better reflects in-period organic performance and aligns with the shift in our business model to one focused on annual recurring revenue |
Annual organic operating margin | Fiscal 2022 non-GAAP operating margin, excluding the effects of acquisitions and dispositions in fiscal 2022 and bonus payout in excess of 100% of the target cash incentive under our cash incentive plan | This profitability measure is tied to management performance and profit we generate for stockholders |
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Our compensation committee chose revenue asPotential payouts under the plan were based on a performance measure because we are currently focused on growing our businessset of curves representing different levels of organic operating margin and revenue is a key metric during this stage of ournormalized billings performance.
In order to receive a payout under the Fiscal 2019 Incentive Compensation Plan both corporate performance measures needed to meet minimumpre-established achievement levels for the relevant performance period. For purposesformulaic payment maximum of 150% regardless of the level of overperformance.
The graph below contains the curves used to determine payouts in the fiscal 2022 cash incentive plan.
FISCAL 2022 CASH INCENTIVE PLAN MEASURES AND CURVES
* Represents normalized billings of $6,734 million and annual financial statements, consistent with our annualnon-GAAP operating plan;margin of 17.6% for fiscal 2022.
FY22 Targets | FY22 Actual | FY22 Payout | |
Normalized Billings | $6,734M | $7,472M | 150% of Target |
Organic Operating Margin | 17.6% | 20.0% |
The calculation of normalized billings and (y) “earnings per share” was defined asnon-GAAP net income per share as reflectedorganic operating margin is provided in our quarterly earnings press releases furnishedAppendix A to the SEC, adjusted to exclude the effects of incentives paid out under our Fiscal 2019 Incentive Compensation Plan.this Proxy Statement.
Performance Requirements.PERFORMANCE REQUIREMENTS AND ESG MODIFIER
Under the Fiscal 2019 Incentive Compensation Plan,cash incentive plan, funding would be made with respect to any particular quarter only if both 97% ofas the applicable fiscal quarter’s revenueorganic operating margin target and 92.5% of the applicable fiscal quarter’s earnings per sharenormalized billings target are achieved each as set forth inper the Fiscal 2019 Incentive Compensation Plan.chart above. Achievement above the minimum achievement would increase funding on a non-linear basis, with achievement of 100% of both performance targets (on an annual aggregated basis) would have paid outresulting in funding at 100% of the target annual cash incentive compensation opportunity, and achievementopportunity. Payouts of 104% of the revenue target and 110% of the earnings per share target would have paid out at 130% of the target annual cash incentive compensation opportunity (with any such payment in excess ofup to 100% of the target annual cash incentive compensation opportunity referredopportunities are made on a semi-annual basis and any payouts for performance exceeding 100% of the annual targets (referred to as accelerator payments) are paid out as described in the following paragraph.
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Executive Compensation
To ensure a linkage between compensation and our ESG goals, we added an accelerator).
Achievement aboveESG modifier for our NEOs in the minimum achievement requiredcash incentive plan for each fiscal quarter would2022, which provided for the calculated result in apro-ratednon-linear payoutto be adjusted up or down by up to 10% based on the payout percentages specified in the Fiscal 2019 Incentive Compensation Plan. With respect toan ESG scorecard with climate, inclusion and diversity, and human capital metrics. For achievement in excess of 100%, such performance could be rewarded atfunding would increase on a non-linear basis, based on overperformance on normalized billings and/or organic operating margin versus the endannual targets.
For fiscal 2022, no adjustments to our NEOs’ calculated payouts under the cash incentive plan were made as a result of the fiscal year using aESG modifier, and our Compensation and People Committee made no discretionary “over-performance” pool that would be funded at 200% of each NEO’s applicable target annualchanges to cash incentive compensation opportunity, less any accelerator.
Our compensation committee could use its discretion to reduce the actual cash incentive compensation payout. To inform its decision whether to exercise discretion under the Fiscal 2019 Incentive Compensation Plan, our compensation committee could consider metrics in our annual operating plan other than revenue or earnings per share to balance the focus of our short-term incentive compensation program or any other factors or considerations that it deemed relevant, such asone-time accounting adjustments, any item deemed outside of normal operations, and any other extraordinary circumstances.payouts.
The total potential payouts under the Fiscal 2019 Incentive Compensation Plancash incentive plan to all participants (which includes any accelerator and/or discretionary payments) were capped at 300%150% of the target amounts.
ForThe following table sets forth the fiscal 2019,2022 scorecard measures and results related to the ESG modifier to our revenue increased by $626 millionfiscal 2022 cash incentive plan.
ESG Modifier (0.9x to 1.1x | FY22 Scorecard Measures | FY22 Results | ||
Climate | Fiscal 2022 progress towards our 2030 climate commitment | •Conducted full emissions footprint assessment to establish Science Based Targets aligned to 1.5° scenario. •Initiated multiple projects across Operations, Services, Places, Accounting, Information Technology and Travel with explicit goals to reduce energy consumption and emissions •CO2e/$M - maintain flat over fiscal 2021 baseline | ||
Inclusion & Diversity | Leadership Representation (Women globally; URM in US) | •Women: Increased at Director and above •Underrepresented Minority (URM): Increased at Director and above | ||
Human Capital Practices | Employee engagement | •Attrition: Increased but still below market benchmarks. No material differences for Women/URM •Awards: Numerous employer awards, including Newsweek Most Loved, 100% on HRC Equality Index, 100% on Disability Index and Gold Status by Military Friendly. | ||
• Committee assessment objectively based on the totality of fiscal 2022 results on the scorecard. • Measures determine the modifier of 0.9X to 1.1X that will be applied to final fiscal 2022 payout. • Overall external ESG ratings increased across every rating agency that the Company monitors. |
LONG-TERM EQUITY COMPENSATION
Our long-term equity compensation is designed to $2.9 billion comparedencourage executives to fiscal 2018 and ournon-GAAP earnings per share increased by $1.25 per share comparedachieve stretch goals in key performance metrics selected to fiscal 2018. In lightdrive long-term performance of our strong revenueCompany and earnings per share performancevalue creation for stockholders. As shown in the first halfgraph below, in fiscal 2022, 100% of the long-term equity compensation granted to our NEOS was performance-based (aside from new-hire grants, which include a restricted stock unit grant).
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RSU VS PSU/PSO MIX(1)
(1) | Values above represent the target value of annual awards to NEOs. Certain grants that were made in July 2019 represented advanced grants for fiscal year 2020 and are reflected as fiscal year 2020 above. Values exclude any new hire awards. |
FISCAL 2022 EQUITY COMPENSATION
100% OF ANNUAL EQUITY GRANTED TO NEOS IN FISCAL 2022 WAS PERFORMANCE-BASED, EXCLUDING NEW HIRE AWARDS. |
In fiscal 2019, we achieved,2022, 100% of the annual equity awards granted to our NEOs continued to be in the form of PSUs (excluding new hire awards), resulting in the entirety of such equity awards being at risk and performance-based. The Compensation and People Committee determined the size of the awards based on an aggregated basis, approximately 103%the strong performance, leadership skills and valuable contributions to the Company of our revenue targets and approximately 117%NEOs, especially in the context of the significant transition in our earnings per share targets. Our compensation committee accordingly decidedbusiness to pay ourexpand to a more cloud-centric platform. For all continuing NEOs 100%(except Mr. Zuk), the size of target on an aggregated basis for the first and second quartersfiscal 2022 PSU award was equal to or less than the size of their fiscal 2019 under our Fiscal 2019 Incentive Compensation Plan. During the second half of fiscal 2019, we did not achieve 100% of our revenue or earnings per share targets under the Fiscal 2019 Incentive Compensation Plan. Accordingly, our compensation committee exercised its negative discretion and determined that our NEOs would not receive any cash incentive award payouts under our Fiscal 2019 Incentive Compensation Plan for the third and fourth quarters of fiscal 2019.2021 PSU award.
The annual cash incentive award payoutstable below shows the targeted value of PSU grants made to our NEOs forin fiscal 2019 under the Fiscal 2019 Incentive Compensation Plan are set forth in the “Fiscal 2019 Summary Compensation Table” below.
Equity Compensation
For2021 and fiscal 2019, the long-term incentive compensation opportunities of our NEOs consisted of PSOs tied to stock price achievements granted to all of our NEOs (except for Mr. Arora) and time-based RSUs granted to Ms. Bonanno and Mr. Singh, as discussed in further detail below. In determining the aggregate value of these equity awards, our compensation committee considered the growth and scale of our business; recent performance against financial targets; the overall competitive market for our NEOs; the value of the NEO’s position; the individual achievement of the NEO; the NEO’s expected future contributions; the skills, tenure, and experience of the NEO; the alignment between the market based position and2022, with the actual responsibilitiestarget number of the NEO; the incentives provided by such equity awardsshares subject to the NEO to stay with us and drive our continued growth; our CEO’s recommendations (except with respect to his own equity award); the competitive market data prepared by its compensation consultant; the value of the NEO’s vested and unvested equity holdings; internal pay parity considerations; the dilutive effect of our long-term incentive compensation program; and the overall impact that these equity awards would havefiscal 2022 PSUs determined based on stockholder value. Our compensation committee determined that the sizes of these awards were appropriate due to (x) the significance of our NEOs’ expected responsibilities in fiscal 2019 and beyond, (y)(i) in the case of Ms. BonannoMr. Jenkins, the average closing price over the 30 calendar days prior to August 15, 2021, and (ii) in the case of each other NEOs, the 14-day average closing price prior to August 20, 2021.
Name | Targeted Value for PSUs | Targeted Value for PSUs |
Percentage change |
Mr. Arora | 21,000,000 | 15,000,000 | -29% |
Mr. Golechha | 4,000,000 | 4,000,000 | 0 |
Mr. Jenkins* | n/a | 14,000,000 | n/a |
Mr. Klarich | 10,000,000 | 10,000,000 | 0 |
Mr. Zuk | 3,000,000 | 3,500,000 | +17% |
* | Mr. Jenkins received the PSU award in connection with his hire. He also received RSUs with a target value of $10,000,000 in connection with his hire, which are not reflected in the table. See “BJ Jenkins Compensation Arrangements” below for further detail. |
The fiscal 2022 PSUs were allocated into separate tranches, each of which vests based on the achievement of the performance goals for the Company’s 2022, 2023, and 2024 fiscal years, as follows:
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The number of PSUs covered by a tranche that become eligible to vest (“Eligible PSUs”) will be equal to the product of (i) the target number of PSUs for the tranche and (ii) the average of the Payout Percentages for each fiscal year in the tranche (as defined below). The Payout Percentage for a fiscal year will be determined based on whether annual revenue growth for the fiscal year is below, at or exceeds the target annual revenue growth for the fiscal year, as follows: (i) if the annual revenue growth is 500bps below the target annual revenue growth, the Payout Percentage will be 50%, (ii) if the annual revenue growth is at the target annual revenue growth, the Payout Percentage will be 100%, and (iii) if the annual revenue growth is at least 500bps above the target annual revenue growth, the Payout Percentage will be 200%. If the annual revenue growth is between any of these thresholds, the Payout Percentage will be determined based on linear interpolation between the corresponding Payout Percentages for those thresholds. If the annual revenue growth is more than 500bps below the target annual revenue growth, the Payout Percentage will be 0%. The target annual revenue growth will be (i) for the Company’s 2022 fiscal year, 27.5%, and (ii) for each other fiscal year, a percentage to be determined by the Compensation and People Committee by the end of the first month of such fiscal year.
For each NEO (except Mr. Jenkins), the number of fiscal 2022 PSUs that vest in a tranche (up to a maximum of 300% of the target number) will be equal to the product of (x) the number of Eligible PSUs for the tranche and (y) the rTSR modifier for the tranche, subject to the applicable NEO’s continued service through the certification date. For Mr. Jenkins, the number of fiscal 2022 PSUs that vest in Jenkins Tranche 1 (up to a maximum of 200% of the target number) will be equal to the number of Eligible PSUs for the tranche; and the number of fiscal 2022 PSUs that vest in each of Jenkins Tranche 2 and Jenkins Tranche 3 (up to a maximum of 300% of the target number for the Tranche) will be equal to the product of (x) the number of Eligible PSUs for the Tranche and (y) the rTSR modifier for the Tranche, as applicable, subject to Mr. Jenkins’ continued service through the certification date.
The rTSR modifier for a tranche will be determined based on the TSR of the Company during the applicable performance period relative to the TSRs of the indexed companies (which are the companies that are a component of the S&P 500 Index or any successor index on the last day of the performance period and were also a component of such index on the first day of the performance period) during such performance period (the “relative TSR” or “rTSR”), as follows: (i) if the relative TSR is at the 90th percentile or above, the rTSR modifier will be 1.5, (ii) if the relative TSR is at the 75th percentile, the rTSR modifier will be 1.25, (iii) if the relative TSR is at the 50th percentile, the rTSR modifier will be 1.0, and (iv) if the relative TSR is at the 25th percentile or below, the rTSR modifier will be 0.75. If the relative TSR is between any of these thresholds, the rTSR modifier will be determined based on linear interpolation between the corresponding numbers for those thresholds. Any fiscal 2022 PSUs that do not become Eligible PSUs due to the minimum performance metrics threshold not being achieved are forfeited without consideration.
Based on our actual annual revenue growth of 29.3% (compared to a target of 27.5%), our Compensation and People Committee determined a payout percentage of 136% to determine the number of shares that will vest for the fiscal 2022 performance period.
OUR APPROACH TO ONE-TIME AWARDS TO NAMED EXECUTIVES
The Compensation and People Committee believes it may be necessary from time-to-time to make one-time awards outside of the normal grant cycle in certain circumstances, primarily to attract new executives, internally promote an executive or counter an external competing offer to one of our existing executives for retention purposes.
In considering these awards, the Compensation and People Committee follows the following principles:
In fiscal 2022, the new hire award for BJ Jenkins, our President, was made with a majority of the award in performance based equity and time vested equity was used only to compensate him for a portion of the unvested value that he would forfeit upon resigning his current position.
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FISCAL 2022 ACHIEVEMENT WITH RESPECT TO JULY 2019 REVENUE GROWTH PSUs
In fiscal 2019, Messrs. Arora, Klarich and Zuk were granted PSUs that had performance criteria based on revenue growth in each of fiscal 2020, fiscal 2021 and fiscal 2022. Based on our annual revenue growth of 29.3% from fiscal 2021 to fiscal 2022 (compared to a target of 20% annual growth), our Compensation and People Committee determined an achievement level of 100% for the portion of the July 2019 PSUs eligible to vest based on fiscal 2022 annual revenue growth.
FISCAL 2022 ACHIEVEMENT WITH RESPECT TO PERFORMANCE-BASED STOCK OPTIONS
We granted performance-based stock options (the “PSOs”) to Mr. Arora upon his hire in June 2018 and to Messrs. Klarich and Zuk their strong performance that warranted higher compensation relativein fiscal 2019 to our compensation peer group, and (z) the need to provide them with an appropriate opportunity for reward based on the creation offurther incentivize long-term stockholder value.
In addition, we granted July 2019 RSUs to our NEOs and advanced the timing of the grant of Fiscal 2020 RSUs and Fiscal 2020 PSUs to our NEOs (except Ms. Bonanno), as discussed in further detail below.
value creation. Each of the PSOs hashad a per share exercise price equal to fair market value on the closing market pricedate of a share of our common stock on its grant date (which was $184.24 for Mr. Singh and $193.51 for Ms. Bonanno, and Messrs. Klarich and Zuk). Shares subject to the PSOs becomethey were only eligible to vest (the “Eligible Option Shares”) upon meeting the Stock Price Achievements as set forth in the table below. The performance-based vesting requirement will make the PSOs eligible to vestachievement of stock price growth against a measurement price of $198.50. Achievement is determined in four performance tranches, onceand there is an additional service-based requirement based on service since the grant date.
The performance tranches are:
The first tranche was achieved in fiscal 2021 and the second, third and fourth tranches were achieved in fiscal 2022 (August 2021, November 2021 and April 2022, respectively) and these tranches vested in accordance with individual vesting schedules over four years from the initial grant date, subject to the NEO’s continued service on each vesting date. Upon a “Change in Control” (as described below in the section entitled “—Executive Employment Agreements” and “—Potential Payments Upon Termination or Change in Control”) the price payable
OUTSTANDING PERFORMANCE-BASED AWARDS
The following table shows outstanding performance based grants made to our stockholders at the closingNEOs as of the transaction will be the final Stock Price Achievement.
% of PSO becoming Eligible Option Shares | Stock Price Achievement | Time to Achieve | Expiration of Option | |||
25% | $297.75 | 4 years | 7 years | |||
25% | $397.00 | 5 years | 7 years | |||
25% | $496.25 | 6 years | 7 years | |||
25% | $595.50 | 7 years | 7.5 years |
The PSOs reflectJuly 31, 2022 which have remaining performance targets. This table illustrates that a significant portion of performance-based awards remain outstanding and continue to incentivize our compensation committee’s continued commitment to incorporatingNEOs’ performance measures into our long-term equity incentive program which only reward our NEOs when significant value has been delivered to our stockholders. Our compensation committee believes that the addition of a time-based vesting schedule for any Eligible Option Shares is important to provide additional long-term retention incentives for our highly valuable NEOs.
going forward.
Grant | % of Total PSU Grant | Measure Type | FY22 | FY23 | FY24 | FY25 | FY26 |
Executive PSU Program | |||||||
FY22 Grant (Made August 2021) | 50% (Transition Grant) | Financial Metrics |
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In fiscal 2019, none of the Stock Price Achievements were attained and accordingly, none of our NEOs’ PSOs were eligible for vesting based on the time-based vesting schedule.
In November 2018, our compensation committee approved the amendment of each of the PSOs to allow the applicable NEO to exercise the PSO before it vests, with the shares acquired through such an exercise subject to our right to repurchase any such shares that remain unvested upon failure to meet the applicable Stock Price Achievement within the relevant performance period or failure to satisfy the time- based vesting requirement at the lower of the exercise price paid for the shares or the then-current fair market value of the shares. During fiscal 2019, none of our NEOs early exercised their PSOs.
The chart below sets forth the number of PSOs granted in October and November 2018 by our compensation committee:
2 Year Relative TSR vs. S&P 500 | ||||||
| Financial Metrics | 27.5% FY22 Actual 29.3% | Revenue Growth | FY24 Target TBD | ||
| 3 Year Relative TSR vs. S&P 500 | |||||
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Time-based RSUs Granted to Ms. Bonanno in October 2018 and Mr. Singh in November 2018
In October 2018, the compensation committee approved a time-based RSU for Ms. Bonanno. Additionally, as part of Mr. Singh’s new hire negotiation, our compensation committee approved a time-based RSU for Mr. Singh. The RSU awards approved by our compensation committee are set forth in the table below. Our compensation committee determined that these RSUs should vest over four years. Specifically:
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Start and End of Performance Period |
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BJ Jenkins Compensation Arrangements
On August 10, 2021, we announced that William “BJ” Jenkins joined the Company as our President. To determine Mr. Jenkins’ compensation, the Compensation and People Committee considered the following factors:
• | His qualifications and proven experience, including his most recent role as the President and Chief Executive Officer of Barracuda Networks. |
• | A review of market data for base salaries, target annual cash incentive compensation opportunities and equity compensation of executives holding similar positions at comparable companies. |
• | The fiscal 2022 changes to |
• | Our estimate of Mr. Jenkins’ unvested equity in his prior role as Chief Executive Officer of a privately held company. |
• | The input and advice from outside advisers on the quantum of each component and the design of the |
The Compensation and People Committee approved an offer letter setting forth the following terms:
• | No special sign on benefits, such as a sign on bonus. |
• | Annual base salary of $750,000. |
• | Target annual incentive compensation of 100% of his base salary. |
• | $10,000,000 restricted stock unit award to |
20% during the third year in equal quarterly | |
• | $14,000,000 PSU award to provide upside compensation, but only if the multiple year performance targets are achieved and subject to his continued employment with the Company on each vesting date. The |
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• | 33% of the PSU shares | |
• | 34% of the PSU shares |
The chart below sets forthOur Board recognizes the number of RSUs granted in October and November 2018significant investment represented by ourMr. Jenkins’ new hire compensation. We intend for Mr. Jenkins’ compensation committee:
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In July 2019, in recognition of our strong billings performance (which was not a metric measured in the Fiscal 2019 Incentive Compensation Plan) and the decision to not make any payment to our NEOs under the Fiscal 2019 Incentive Compensation Plan for the second half of fiscal 2019, our compensation committee approved the grant of the July 2019 RSUs to each of our NEOs. Each NEO’s July 2019 RSU award is a time-based RSU award that represents approximately 75% of the NEO’s target incentive compensation opportunities under the Fiscal 2019 Incentive Compensation Plan for the second half of fiscal 2019. The July 2019 RSUs vest quarterly during the year following the grant date in four equal increments, subject to the NEO’s continued service on each such vesting date. Accordingly, the July 2019 RSUs provide a longer vesting horizon than payments under the Fiscal 2019 Incentive Compensation Plan for the second half of fiscal 2019 would have provided because the July 2019 RSUs are subject to additional vesting beyond the time when such Fiscal 2019 Incentive Compensation Plan payments would have been made.
The chart below sets forth the number of July 2019 RSUs granted in July 2019 by our compensation committee:
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Fiscal 2020 RSUs and Fiscal 2020 PSUs
In July 2019, our compensation committee recognized that the focus of our executives on executing ourlong-term business strategy and the transition of the business during this time period might take longer than anticipated, and could result in a longer time period for the PSOs to realize the intended value. Accordingly, the compensation committee determined that the PSOs held by our executives would likely not compensate our executives for the value of their leadership and contributions during the transition, which would result in the projected total equity compensation payable to our NEOs (other than Ms. Bonanno) during those years falling below competitive market levels. While the PSOs continue to have the potential to deliver meaningfullong-term value if we successfully execute our long-term strategy, the failure of the PSOs to deliver short-term value creates a risk of our NEOs leaving because our NEOs are aware that they will need to devote significant effort and make substantial contributions in order to successfully execute our long-term strategy but, with the exception of Ms. Bonanno, may not receive competitive equity compensation in the near future for those efforts. Accordingly, to help retain our NEOs and strengthen the link between their interests and those of our stockholders, our compensation committee advanced the timing of the grant of our fiscal 2020 equity awards to our NEOs (other than Ms. Bonanno) to the end of fiscal 2019 and approved the grant of the Fiscal 2020 RSUs and Fiscal 2020 PSUs to these NEOs. The target number of shares, covered by each NEO’s Fiscal 2020 RSUs and Fiscal 2020 PSUs, was determinedbe awarded based on the total intended value for a three-year period (as described below) and the closing price of our common stock on the NYSE on July 31, 2019, with the target number of shares allocated 50% to the Fiscal 2020 RSUs and 50% to the Fiscal 2020 PSUs.
The Fiscal 2020 RSUs are time-based RSUs that vest quarterly over a three-year period (beginningprinciples we discussed in June 2019 for Mr. Arora, November 2019 for Mr. Singh, and October 2019 for Messrs. Klarich and Zuk) in 12 equal increments, subject to the NEO’s continued service.
The Fiscal 2020 PSUs are divided into three equal tranches that cover fiscal 2020, fiscal 2021, and fiscal 2022, respectively.One-third of the target number of shares set forth in the table below represents the target number of shares eligiblethis CD&A, including future annual equity grants to be earned and subsequently vest upon achievement of target performance on the annual revenue growth metric for the applicable fiscal year. For purposes of the Fiscal 2020 PSUs, “annual revenue growth” is defined as the percentage increaseat least 75% performance-based in our total GAAP revenue in fiscal 2020, fiscal 2021, or fiscal 2022, respectively, over our total GAAP revenue in the immediately preceding fiscal year. The compensation committee chose an annual revenue target as the performance metric for the 2020 PSUs because annual revenue growth is a key indicator of the success of our long-term growth strategy.
For each tranche of Fiscal 2020 PSUs, the number of earned Fiscal 2020 PSU shares that would be eligible fortime-based vesting will be determined as follows:
if we achieve 80% of our annual revenue growth rate target, then 75% of the shares subject to the tranche of Fiscal 2020 PSUs would be eligible for vesting;
if we achieve 90% of our annual revenue growth rate target, then 90% of the shares subject to the tranche of Fiscal 2020 PSUs would be eligible for vesting; and
if we achieve 100% of our annual revenue growth rate target, then 100% of the shares subject to the tranche of Fiscal 2020 PSUs would be eligible for vesting.
If we achieved less than 80% of our annual revenue growth target, then all of the shares subject to the tranche of Fiscal 2020 PSUs would be forfeited. If performance was between the applicable tiers described above, then the tranche of Fiscal 2020 PSUs that become eligible for vesting will be scaled linearly.
If we experience a change in control during the performance period, the performance period will be shortened to the end of the most recent fiscal quarter before the date of the change in control, and performance achievement will be measured on apro-rata basis as of the change in control.
Once the number of Fiscal 2020 PSUs that become eligible to vest based on satisfaction of the annual revenue growth performance measure described above is determined for a particular fiscal year, the earned Fiscal 2020 PSU shares for that fiscal year will be eligible to vest according to the following schedule, subject to the applicable NEO’s continued service:
100% of the earned Fiscal 2020 PSU shares based on annual revenue growth for fiscal 2020 will vest in October 2020;
100% of the earned Fiscal 2020 PSU shares based on annual revenue growth for fiscal 2021 will vest in October 2021; and
100% of the earned Fiscal 2020 PSU shares based on annual revenue growth for fiscal 2022 will vest in October 2022.
For each of these NEOs, the intended average annual value of the Fiscal 2020 RSUs and Fiscal 2020 PSUs from 2020 through 2022 was intended to be approximately the amount necessary to increase the NEO’s projected equity compensation for each year during that period to the amount of annual equity compensation paid to similar officers of companies in our compensation peer group. The target number of shares covered by each NEO’s Fiscal 2020 RSUs and Fiscal 2020 PSUs was determined based on the total intended value for that three-year period and the closing price of our common stock on the NYSE on July 31, 2019,line with such target number of shares allocated 50% to the Fiscal 2020 RSUs and 50% to the Fiscal 2020 PSUs.
Ms. Bonanno did not receive any Fiscal 2020 PSUs in July 2019 because (a) she received time-based RSUs in October while Messrs. Klarich and Zuk only received PSOs and (b) her projected average annual equity compensation for that period was not below the annual equity compensation paid to similar officers of companies in our compensation peer group.
The table below sets forth the number of Fiscal 2020 RSUs and the target number of Fiscal 2020 PSUs granted in July 2019 by our compensation committee:
Named Executive Officer | Fiscal 2020 RSUs (Number of Shares) | Fiscal 2020 PSUs (Target Number of Shares) | ||||||
Mr. Arora | 48,556 | 48,556 | ||||||
Mr. Singh | 28,251 | 28,251 | ||||||
Mr. Klarich | 22,071 | 22,071 | ||||||
Mr. Zuk | 11,035 | 11,035 |
The equity awards granted to our NEOs during the fiscal year ended July 31, 2019, are set forth in the “Fiscal 2019 Summary Compensation Table” and the “Fiscal 2019 Grants of Plan-Based Awards Table” below.
Welfare and Other Employee Benefits. We have established atax-qualified Section 401(k) retirement plan for all employees who satisfy certain eligibility requirements, including requirements relating to age and length of service. We currently match contributions made to the plan by our employees up to $1,000, including our NEOs. In fiscal 2019, Ms. Bonanno and Messrs. Klarich and Singh participated in our Section 401(k) retirement plan and each received a matching contribution of $1,000. We intend for the plan to qualify under Section 401(a) of the Internal Revenue Code, or the Code, so that contributions by employees to the plan, and income earned on plan contributions, are not taxable to employees until withdrawn from the plan.
In addition, we provide other benefits to our NEOs on the same basis as all of our full-time employees in the country in which they are resident. These benefits include medical, dental, and vision benefits, medical and dependent care flexible spending accounts, short-term and long-term disability insurance, accidental death and dismemberment insurance, and basic life insurance coverage. We design our employee benefits programs to be
affordable and competitive in relation to the market as well as compliant with applicable laws and practices. We adjust our employee benefits programs as needed based upon regular monitoring of applicable laws andbest practices and the competitive market.PSU awards designed to include a TSR multiplier and require sustained performance over multiple years for any payout.
Perquisites and Other Personal Benefits.Aspects of Our Executive Compensation Programs
In fiscal 2019, we provided Messrs. Arora and Zuk with $10,206, and $13,038, respectively, for spousal travel and expenses to an annual vacation award for top sales performers. In the future, we may provide perquisites or other personal benefits in limited circumstances, such as where we believe it is appropriate to assist an individual NEO in the performance of his or her duties, to make our NEOs more efficient and effective, and for recruitment, motivation, or retention purposes. All future practices with respect to perquisites or other personal benefits will be approved and subject to periodic review by our compensation committee.
Each of our NEOs is a party to an employment arrangement setting forth the material terms of his or her employment. For a summary of the material terms and conditions of these arrangements, see the section titled “—Executive Employment Agreements.”
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Post-Employment Compensation
The employment arrangement for each of our NEOs provides for payments and/or benefits related to an involuntary termination of employment, including in connection with a change in control of our companyCompany, on a “double trigger” basis. We believe that these protections assist us in retaining the services of these individuals. We also believe that these protections serve our executive retentionbusiness objectives by helping our NEOs maintain continued focus and dedication to their responsibilities to maximize stockholder value, including in the event that there is a potential transaction that could involve a change in control of our company.Company. The terms of these post-employment compensation arrangements were determined after our board of directorsBoard and compensation committeeCompensation and People Committee reviewed our retention goals for each NEO and an analysis of relevant market data. In the cases of Messrs. Golechha and Mr. Jenkins, these post-employment compensation arrangements were added through addenda to their offer letters in February 2022.
For a summary of the material terms and conditions of these post-employment compensation arrangements, as well as an estimate of the amounts potentially payable pursuant to such arrangements, see the sections titled “—Executive Employment Agreements” and “—Potential Payments Upon Termination or Change in Control.”
OtherIn February 2022, our Compensation Policiesand People Committee adopted a continued service policy as an additional tool to serve several critical interests when circumstances warrant. These interests include maintaining distinctive executive ability; providing continuity of expertise in servicing our customers; minimizing the business disruption that can follow executive attrition; and solidifying succession planning.
Employees holding the title of Senior Vice President or higher are eligible for continued vesting of equity awards if such employee (i) voluntarily resigns from full-time employment; (ii) has attained the age of 55 years and has been continuously employed by the Company as a full-time employee for at least five years as of the date of such resignation or has been continuously employed by the Company as a full-time employee for at least 10 years as of the date of such resignation or transition; and (iii) maintains a continued service relationship with the Company, including by transitioning employment to an advisory role, whether as employee or independent contractor. Eligible employees are not guaranteed benefits under the policy. Each award of benefits under the policy will be individually assessed and determined by the administrator of the policy (which is our Board or Compensation and People Committee), including the determination of which equity awards that will be subject to continued vesting and the related terms and conditions. Eligible employees will enter into a continued service agreement with the Company in a form approved by the administrator.
Executive Officer Stock Ownership PolicyGuidelines
Purpose
Our board of directorsBoard believes that our executive officers and thenon-employee members of our board of directors should hold a meaningful financial stake in our companyCompany to closely align their interests with those of our stockholders and has therefore adopted stock ownership guidelines in fiscal 2017. Underas part of our corporate governance guidelines.
Ownership Definition
Unvested PSUs, RSUs, and unexercised stock options do not count toward satisfying these guidelines,ownership guidelines.
Ownership
The following is a summary of our CEOrobust stock ownership guidelines. Our Chief Executive Officer and executive officers who report directly to our CEO are required to achieve ownershipChief Executive Officer must accumulate and hold shares of our common stock based on a multiple of base salary within five years of the latertheir appointment as, or promotion to, an executive officer.
As of August 26, 2016 or such executive officer’s hire, appointment or election date as applicable, at the following levels:
Our CEO must own the lesser of (i) common stock with a value of five times his or her annual base salary or (ii) 22,000 shares; and
Each executive officer must own the lesser of (i) common stock with a value of his or her annual base salary or (ii) 3,825 shares.
The base salary multiples above are consistent with current market practices, and the alternative share number thresholds are intended to provide our executive officers with certainty as to whether the guidelines are met, regardless of our then-current stock price. AllSeptember 30, 2022, each of our NEOs except Ms. Bonannohave met their respective ownership guideline in advance of the deadline.
The following table lists the specific ownership requirements for our NEOs, their status in meeting the guidelines, and Mr. Singh whotheir deadlines to meet the current requirements.
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Officer | Multiple of Base Salary Requirement | Status | Deadline | ||||
Nikesh Arora | 10x | Met | June 2023 | ||||
Dipak Golechha | 1x | Met | March 2026 | ||||
William “BJ” Jenkins | 1x | Met | August 2026 | ||||
Lee Klarich | 1x | Met | May 2011 | ||||
Nir Zuk | 1x | Met | February 2010 |
Risk Assessment and Compensation Practices
Our management assesses and discusses with our Compensation and People Committee our compensation policies and practices as they relate to our risk management. Based upon this assessment, the Compensation and People Committee believes that any risks arising from such policies and practices are not requiredreasonably likely to comply ashave a result ofmaterial adverse effect on us.
In reaching this conclusion, we have considered, among other things, the five-year phase in, currently comply with these guidelines.following factors:
• | our cash incentive plan reflects a “pay for performance philosophy” that rewards our NEOs and other eligible employees for achievement of performance targets; |
• | discretionary bonuses are reserved for extraordinary performance and achievement; |
• | total compensation features a balance of short- and long-term incentives (LTI), with the majority of pay delivered in LTI for senior executives; |
• | our equity awards include multi-year vesting schedules requiring long-term employee commitment; |
• | our performance expectations reward long-term value creation, profitability and excellence; |
• | our use of multiple performance measures in incentive plans; |
• | our regular monitoring of short-term and long-term compensation practices to determine whether management’s objectives are satisfied; |
• | performance goals require sufficient “stretch,” yet are achievable; |
• | both the short-term and long-term incentive programs have caps for significant upside performance; and |
• | our independent compensation consultant evaluated and assessed our compensation policies and practices and confirmed that our practices do not encourage excessive risk taking. |
Compensation Recovery Policy
During fiscal 2018, weWe have adopted a Clawback Policy pursuant tothrough which we may seek the recovery of performance-based incentive compensation paid by us.us under certain circumstances. The Clawback Policy applies to our CEOChief Executive Officer and to all officers who report directly to the CEO,Chief Executive Officer, including our NEOs.NEOs (the “covered executives”). The Clawback Policy provides that if (i) we restate our financial statements as a result of a material error; (ii) the amount of cash incentive compensation or performance-based equity compensation that was paid, or is payable based on achievement of specific financial results, paid to a participantcovered executive would have been less if the financial statements had been correct; (iii) no more than two years have elapsed since the original filing date of the financial statements upon which the incentive compensation was determined; and (iv) our compensation committeeCompensation and People Committee unanimously concludes, in its sole discretion, that fraud or intentional misconduct by such participantcovered executive caused the material error and it would be in our best interests to seek from such participantcovered executive recovery of the excess compensation, then our compensation committeeCompensation and People Committee may, in its sole discretion, seek repayment from such participant.covered executive.
Hedging and Pledging Policies
Our insider trading policy prohibits our executive officers and members of our board of directors from engaging in derivative securities transactions, including hedging or other transactions that offset, or are designed to hedge or offset, any decrease in the market value of our equity securities and from pledging companyCompany securities as collateral or holding companyCompany securities in a margin account.account, except, in the case of pledging, with the prior approval of the ESG and Nominating Committee. This policy does not restrict ownership of, or transactions related to, Company-granted
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Risk Assessmentawards, such as PSUs, RSUs, employee stock options, and Compensation Practicesother securities issued by the Company or the deferral of equity awards pursuant to our non-qualified deferred compensation plan.
Our management assessesexecutive officers have significant holdings of our stock to align their interests to those of our stockholders. Establishing a conservative pledging policy enables our executive officers to continue to hold those shares, while providing them flexibility in financial planning and discusses withallowing them to achieve financial diversification. By enabling our compensation committeeexecutives to maintain their stock ownership in the Company, our compensation policies and practices for our employees asconservative pledging program helps ensure that they relate to our risk management, and based upon this assessment, we believe that any risks arising from such policies and practices are not reasonably likelycontinue to have a material adverse effectmeaningful financial interest in the success of the Company under their leadership. For these reasons, in fiscal 2022, the Board adopted a conservative policy that allows limited pledging of our stock by our executive officers.
Our pledging policy establishes the parameters of pledging arrangements, and provides that any pledging arrangement must be approved in advance by our ESG and Nominating Committee, as well as sets an overall limit of $100 million on us. In reachingthe total value of shares pledged by our executive officers (as a group). Under this conclusion, we have considered, among other things,policy, all pledges of shares of Company stock by employees must comply with the following factors:requirements:
• | any proposed pledge of shares must be approved in advance by the ESG and Nominating Committee; |
• | the loan amount against which shares are pledged must not exceed 30% of the aggregate fair market value of the individual’s total stock ownership at the time the arrangement is executed; |
• | only outstanding shares held by an individual may be pledged (i.e., no shares subject to options or unvested RSUs, PSUs or other unvested equity awards may be pledged); |
• | no shares may be pledged that would cause the total value of all pledged shares of our executive officers in the aggregate (as a group) to exceed $100 million; |
• | pledged shares cannot consist of any shares that remain subject to the Company’s One Year Hold Policy; and |
• | the stock ownership requirements applicable to our executives are in addition to, and cannot include, pledged shares. |
our incentive compensation plan reflectsWhen approving a “pay for performance philosophy” that rewards our NEOspledging arrangement, in addition to the requirements above, the ESG and Nominating Committee will consider any other eligible employees for achievementfactors deemed relevant by the Committee, including, without limitation, the total number of performance targets, and historically, we reserveshares of Company stock beneficially owned by the payment of discretionary bonuses for extraordinary performance and achievement;
our equity awards include multi-year vesting schedules requiring long-term employee commitment;
we regularly monitor short-term and long-term compensation practices to determine whether management’s objectives are satisfied; and
for our Fiscal 2019 Incentive Compensation Plan, we institutedapplicable executive, the pledged shares as a per person cap of 300%percentage of the target incentive compensation opportunity for each quarter to manage costsexecutive’s aggregate beneficially owned shares, the pledged shares as a percentage of the Company’s total outstanding shares, whether the pledged shares were purchased by the executive, and to limitwhether the executive has entered into any potential risks related to short-term incentives.other pledging arrangement.
Tax and Accounting Considerations
Deductibility of Executive Compensation. Section 162(m) of the Code generally disallows public companies a tax deduction for federal income tax purposes of remuneration in excess of $1 million paid to the chief executive officer and certain other highly compensated executive officers in any taxable year.
While our compensation committeeCompensation and People Committee is mindful of the benefit of being able to fully deduct the compensation paid to our NEOs, our compensation committeeCompensation and People Committee believes that we should retain the flexibility to provide compensation to our NEOs that is not fully tax deductible when it believes that such payments are appropriate to attract and retain executive talent or meet other business objectives. Our compensation committeeCompensation and People Committee intends to continue to compensate our NEOs in a manner consistent with the best interests of our companyCompany and our stockholders even if any portion of such compensation isnon-deductible.
Taxation of “Parachute” Payments. Sections 280G and 4999 of the Code provide that executive officers and directors who hold significant equity interests and certain other service providers may be subject to significant additional taxes if they receive payments or benefits in connection with a change in control that exceeds certain prescribed limits and that we (or a successor) may forfeit a deduction on the amounts subject to this additional tax. We did not provide any of our NEOs with a“gross-up” “gross-up” or other reimbursement payment for any tax liability that the NEO might owe as a result of the application of Sections 280G or 4999 during fiscal 2019,2022, and we have not agreed and are not otherwise obligated to provide any NEO with such a“gross-up” “gross-up” or other reimbursement.reimbursement in the future.
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Executive Compensation
Accounting for Share-Based Compensation. ACCOUNTING FOR SHARE-BASED COMPENSATION
We follow ASC Topic 718 for our share-based compensation awards. ASC Topic 718 requires companies to measure the compensation expense for all share-based compensation awards made to employees and directors, including stock options and other stock-based awards, based on the grant date “fair value” of these awards. This calculation is performed for accounting purposes and reported in the compensation tables below, even though our NEOs may never realize any value from their awards. ASC Topic 718 also requires companies to recognize the compensation cost of their share-based compensation awards in their income statements over the period that an executive officer is required to render service in exchange for the option or other award.
Perquisites and Other Personal Benefits
Retirement Plans. We have established a U.S. tax-qualified Section 401(k) retirement plan for all employees who satisfy certain eligibility requirements, including requirements relating to age and length of service. We currently match contributions made to the plan by our employees up to $1,000, including our NEOs. In fiscal 2022, Messrs. Golechha, Jenkins and Klarich participated in our Section 401(k) retirement plan and each received a matching contribution of $1,000. We intend for the plan to qualify under Section 401(a) of the Internal Revenue Code, or the Code, so that contributions by employees to the plan, and income earned on plan contributions, are not taxable to employees until withdrawn from the plan. We made payments for Mr. Zuk to certain Israeli pension and severance funds available to employees of our Israel subsidiaries.
Health and Welfare Plans. In addition, we provide other benefits to our NEOs on the same basis as all of our full-time employees in the country in which they are resident. These benefits include medical, dental, and vision benefits, medical and dependent care flexible spending accounts, short-term and long-term disability insurance, accidental death and dismemberment insurance, and basic life insurance coverage. We design our employee benefits programs to be affordable and competitive in relation to the market, as well as compliant with applicable laws and practices. We adjust our employee benefits programs as needed based upon regular monitoring of applicable laws and practices and the competitive market.
Deferred Compensation Plan. In May 2022, our Compensation and People Committee adopted a deferred compensation plan, which is a non-qualified deferred compensation plan established in compliance with Section 409A of the Code. Participation in the deferred compensation plan is voluntary and limited to U.S. employees of the Company and affiliates that are at the Vice President level or above, as determined by the administrator of the deferred compensation plan, and includes the Company’s executive officers. For a summary of the material terms and conditions of the deferred compensation plan, see the section titled “—Executive Compensation Tables.”
Other Personal Benefits. In November 2019, the Company retained a leading global risk management and security consulting firm to analyze and determine if there was a bona-fide business related security concern for Mr. Arora. Based on the results of its investigation (which included a personal security incident involving Mr. Arora), this firm determined that there was a bona-fide, business related security concern for Mr. Arora and credible threat actors existed with both the willingness and resources necessary for conducting an attack on Mr. Arora. Accordingly, the firm recommended that the Company take various steps to ensure the safety of Mr. Arora. In turn, our Compensation and People Committee determined that, if any harm occurred to our Chief Executive Officer, our business operations, investor confidence and employee productivity would be severely impacted.
As a result, we implemented an overall security program for Mr. Arora that continued in fiscal 2022. Our Compensation and People Committee believes that amounts paid by the Company for this security program have been reasonable, necessary and for our benefit. We require these security measures for the Company’s benefit because of the importance of Mr. Arora to the Company, and we believe that the scope and costs of these security programs are appropriate and necessary.
Our Compensation and People Committee periodically reviews the nature and cost of this program in relation to his security profile. Despite the fact that this security program was put in place for business reasons, the component of the program that includes security at Mr. Arora’s residence and during personal travel is a perquisite under the relevant SEC disclosure rules and is included in the “All Other Compensation” column in the Summary Compensation Table. The amount paid in fiscal 2022 was $965,653.
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Executive Compensation
The Board continued to take reasonable steps to ensure the safety and security of Mr. Arora, considering the nature of the position and its criticality to the operation of the Company. Consistent with and as an extension of those efforts, in fiscal 2022, our Compensation and People Committee approved an amendment to our chartered aircraft policy to require the use of chartered aircraft for business and personal-related air travel by our Chief Executive Officer. The value of Mr. Arora’s use of chartered aircraft for personal travel in fiscal 2022 was $657,424. Mr. Arora recognizes imputed income when aircraft is used for personal travel. On occasion, guests of the Chief Executive Officer also may accompany him, at a de minimis incremental cost to the Company, on the private aircraft.
In addition, the Company provided a relocation allowance of $250,000 to Mr. Golechha, the Chief Financial Officer, in connection with his move to the San Francisco bay area for business purposes.
In the future, we may provide perquisites or other personal benefits in limited circumstances, such as where we believe it is appropriate to assist an individual NEO in the performance of his or her duties, to make our NEOs more efficient and effective, and for recruitment, motivation, or retention purposes. All future practices with respect to perquisites or other personal benefits will be approved and subject to periodic review by our Compensation and People Committee.
Report of the Compensation Committee
Our compensation committeeCompensation and People Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on such review and discussion, our compensation committeeCompensation and People Committee has recommended to our board of directors that the Compensation Discussion and Analysis be included in this proxy statement.
Respectfully submitted by the members of the compensation committeeCompensation and People Committee of our boardBoard:
Rt Hon Sir John Key (Chair)
John Donovan
Lorraine Twohill
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Executive Compensation
Fiscal 20192022 Summary Compensation Table
The following table presents summary information regarding the compensation paid to, or earned by, our Named Executive Officers for our fiscal year ended July 31, 2019.2022.
Name | Principal Position | Year | Salary ($) | Stock Awards ($) (1) | Option Awards ($) (1) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||||||
Nikesh Arora | Chief Executive Officer | 2019 | 1,000,000 | 22,374,676 | — | 500,000 | 11,163 | (2) | 23,885,839 | |||||||||||||||||||||
2018 | 155,768 | 59,684,001 | 65,022,367 | 206,548 | 152 | 125,068,836 | ||||||||||||||||||||||||
Kathleen Bonanno | Chief Financial Officer | 2019 | 481,250 | 1,884,820 | 10,000,018 | (3) | 157,500 | 1,957 | (4) | 12,525,545 | ||||||||||||||||||||
2018 | 385,100 | 3,623,671 | — | 256,298 | 1,576 | 4,266,645 | ||||||||||||||||||||||||
Amit Singh (5) | President | 2019 | 562,500 | 21,920,892 | (6) | 24,503,144 | (6) | 187,500 | 1,718 | (7) | 47,175,754 | |||||||||||||||||||
Lee Klarich | Chief Product Officer | 2019 | 550,000 | 10,205,854 | 40,000,131 | (3) | 220,000 | 1,957 | (4) | 50,977,942 | ||||||||||||||||||||
2018 | 531,250 | 8,309,938 | — | 372,540 | 1,914 | 9,215,642 | ||||||||||||||||||||||||
Nir Zuk | Founder and Chief Technology Officer | 2019 | 430,000 | 5,120,710 | 30,000,053 | (3) | 134,375 | 13,996 | (8) | 35,699,134 | ||||||||||||||||||||
2018 | 426,250 | 4,154,969 | — | 105,625 | 82,543 | 4,769,387 | ||||||||||||||||||||||||
2017 | 411,250 | 3,850,157 | — | — | 23,806 | 4,285,213 | ||||||||||||||||||||||||
Name and Principal Position | Year | Salary ($) | Stock Awards ($)(1) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total ($) | |||||||||
Nikesh Arora Chief Executive Officer | 2022 | 250,000 | (2) | 7,007,348 | 1,500,000 | 1,653,129 | (3) | 10,410,477 | |||||||
2021 | 333,333 | 20,355,789 | 1,500,000 | 1,094,736 | 23,283,858 | ||||||||||
2020 | 666,667 | — | 925,000 | 615,118 | 2,206,785 | ||||||||||
Dipak Golechha Chief Financial Officer | 2022 | 600,000 | 1,868,557 | 900,000 | 251,946 | (4) | 3,620,503 | ||||||||
2021 | 325,821 | 8,292,144 | 368,407 | 3,929 | 8,990,301 | ||||||||||
William “BJ” Jenkins(5) President | 2022 | 734,375 | 17,835,150 | 1,125,000 | 1,996 | (6) | 19,696,521 | ||||||||
Lee Klarich Chief Product Officer | 2022 | 550,000 | 4,671,565 | 825,000 | 1,996 | (6) | 6,048,561 | ||||||||
2021 | 550,000 | 9,693,233 | 825,000 | 1,957 | 11,070,190 | ||||||||||
2020 | 550,000 | — | 508,750 | 1,957 | 1,060,707 | ||||||||||
Nir Zuk(7) Founder and Chief Technology Officer | 2022 | 459,420 | 1,635,031 | 689,130 | 83,576 | (8) | 2,867,157 | ||||||||
2021 | 444,073 | 2,907,970 | 666,900 | 63,227 | 4,082,170 | ||||||||||
2020 | 430,000 | — | 372,891 | 144,495 | 947,386 |
(1) | The amounts reported in the Stock Awards |
(2) |
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(3) | Consists of life insurance premiums of |
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(4) |
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(5) |
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August 9, 2021. The amounts reported in the Stock Awards column for fiscal | |
(6) | Consists of |
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(7) | For fiscal 2022, Mr. Zuk’s base salary, non-equity incentive compensation and all other compensation was paid in Israeli currency. |
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Executive Compensation
The amounts set forth in the table reflect the conversion from Israeli currency to U.S. dollars using an average exchange rate of 0.31 U.S. dollars for one Israeli new shekel for fiscal 2022. | |
(8) | Consists of $2,476 for expenses related to attendance at certain Company events, and nominal gift cards, $867 for health insurance |
Under SEC rules, we are required to provide information regarding the relationship between the annual total compensation of our CEOChief Executive Officer and the annual total compensation of our median employee. As permitted by SEC rules, we used the same median employee for fiscal 20192022 that we identified for fiscal 20182020 because there have been no significant changes to our workforce or pay design for fiscal 20192022 that we believe would significantly change our CEOChief Executive Officer pay ratio results. For our last completed fiscal year, which ended July 31, 2019:2022: